(11 years ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
16:44 - The Committee divided: - Ayes: 234 / Noes: 304 - Question accordingly negatived.
19:14 - The Committee divided: - Ayes: 234 / Noes: 294 - Question accordingly negatived.
21:44 - The House divided: - Ayes: 0 / Noes: 0 - Question accordingly negatived.
21:58 - divided: - Ayes: 223 / Noes: 276 - Question accordingly negatived.
Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss new clause 5 —Mansion tax
‘The Chancellor shall review the possibility of bringing forward a mansion tax on properties worth over £2 million and publish a report, within six months of the passing of this Act, on how the revenue could be used to fund a tax cut for millions of people on middle and low incomes as part of a fair tax system.’.
Chris Leslie
This first group of new clauses to this year’s Finance (No. 2) Bill relates broadly to issues of housing policy. Sadly, new clause 6, which urged the Chancellor to focus on the availability of affordable housing particularly in the wake of the bedroom tax, has not been selected for debate. My hon. Friends will be delighted to know, however, that new clause 5 seeks the support of Parliament for a review of a mansion tax on properties worth over £2 million and the earmarking of revenues for a tax cut for low and middle-income households.
Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)
My hon. Friend has just referred to the bedroom tax, and we all know that this has huge implications for the future finance of our country. Does he think that those implications are reflected in the Bill?
The Chairman of Ways and Means
Order. Much as that issue might be in Members’ minds, we are unfortunately not going to discuss it. I allowed a little bit of sailing earlier in the opening comments, but we must now deal with what is on the Order Paper.
Chris Leslie
You are of course entirely correct, Mr Hoyle, as we are debating new clauses 1 and 5. New clause 1, however, talks about the Government’s approach to the housing market more broadly and, in the context of taxpayer support for the housing market, it would be remiss of any hon. Member not to recognise the volatility created by consequential changes in other areas of departmental policy, particularly those of the Department for Work and Pensions, as they affect the availability of housing supply. After all, in most of our constituencies and particularly the least well-off ones across the country, there is a sense of foreboding about the potential displacement of many constituents who are being told that they should look for other housing market options when it is, in fact, quite clear that there are no suitable social housing options to fit the circumstances of nine out of 10 of them. You are completely correct, Mr Hoyle, about the nature of new clause 1.
Jack Dromey (Birmingham, Erdington) (Lab)
On that point and before my hon. Friend moves on, does he agree that the impact of the totality of the welfare changes, including universal credit and the factoring in of housing associations’ bad debts, will have a very serious impact on housing supply—including with respect to the recent profoundly disturbing calculation by the G15 group of housing associations in London that as a consequence of the Government’s welfare reforms, they will build 1,200 fewer badly needed affordable homes next year?
The Chairman of Ways and Means
Order. We need to stick to where we are. I know that Members are being tempted, but much as we might like to go down that route, I know that we are not going to do so.
Chris Leslie
New clause 1 talks about the way in which the Government’s approach may target help on those who want to buy a second home. In tabling new clause, we were concerned that we should prioritise those who need their first home—a primary residence. That is an important part of our argument in new clause 1.
Chris Leslie
No one knows more about housing issues than my hon. Friend the Member for Birmingham, Erdington (Jack Dromey)—with, perhaps, the exception of my hon. Friend, the Member for Clwyd South (Susan Elan Jones), to whom I am happy to give way.
Susan Elan Jones
I am sure that I do not know more than the first-named hon. Friend.
Does my hon. Friend think that what could effectively become a holiday-home subsidy will end up having a disproportionate effect in rural communities? We know what has happened in north and west Wales in the past, but could not the same apply to the Lake District, Cornwall and other rural areas? Will my hon. Friend be asking the Minister whether any impact assessment has been carried out in relation to the potential cost of rural housing? This move is an absolute disgrace.
Chris Leslie
My hon. Friend ought to know by now that this particular Treasury does not go in for assessments based on evidence. In fact, we are lucky that there was a fag packet on which the Chancellor could draw up his plan.
My hon. Friend needs to recognise that the Budget was not designed to deal with the needs of the economy, the housing market or the rural communities to which she has referred. It was designed entirely to save the Chancellor’s skin, and to support his ideological approach and the extreme austerity agenda that he has been pursuing. Because he had been failing on the deficit and borrowing, he decided to design a housing market intervention that fell below the line—that added up in terms of national debt, but did not affect his borrowing figures. The convoluted scheme that he created may have a series of perverse consequences, because it was not designed to meet the needs of housing or of the communities that we represent. It was designed merely for the Chancellor’s own convenience, in the light of his disappearing and diminishing personal prospects.
We all know, or at least Labour Members know, that housing is the bedrock of a stable community, strong families and economic progress, and that the adequacy of housing availability is crucial to our economic recovery. There should be a cross-party consensus on the need to help families to get a foot on the housing ladder and helping people to fulfil their aspirations and provide a decent foundation for the future. However, despite the warm words about housing that we have heard for the past three years, the Government’s record is poor, and the housing investment measures in this Budget—like those in previous Budgets—fall well short of what is needed and what Labour Members would advocate. What hope can there be for hard-working families who are struggling to get on to the housing ladder, given the current mismatch between supply and demand? House building has fallen, rents are rising, home ownership is becoming harder rather than easier so that the goal for young families is becoming less and less achievable, and homelessness has risen.
Andy Sawford (Corby) (Lab/Co-op)
I agree with my hon. Friend’s assessment of the likelihood that the Government’s latest measures in the Bill will significantly improve people’s opportunities to buy their own homes or gain access to housing on the rental market. Are we right to take account of the Government’s track record over those three years when making such an assessment, and am I right in thinking that the Government have announced 300 housing measures which have caused the situation to become worse rather than better?
Chris Leslie
It could almost be said that there have been more announcements than new homes constructed under the present Administration. Let us consider a few of the schemes that they have announced.
My hon. Friend will recall the new homes bonus, which was part of the Government’s so-called localism agenda, because he and I have spent some time examining that particular set of policy options. The scheme, which the Government announced in 2010, was supposed to unleash growth and build at least 400,000 additional homes, but it has totally failed to deliver. The number of housing starts fell by 11% last year, to below 100,000—less than half the number required to meet housing need.
Andrew Gwynne (Denton and Reddish) (Lab)
How confident can we be that this new initiative will be any more successful than the others that my hon. Friend is beginning to outline? He will remember, as we do, the NewBuy scheme, which the Prime Minister promised would make 100,000 new properties available to people. In fact, only 1,500 people have secured new properties as a result of that initiative.
Chris Leslie
My hon. Friend has hit the nail on the head. Imagine announcing such a scheme, and then delivering only 1.5% of the goal that the Government set out so confidently at the inception of that project, which has clearly failed. We want to see the careful and detailed thought, piloting, workings and evidence that the Government have put into this latest venture.
Chris Leslie
I am sure that the hon. Gentleman is now going to assure us that all that careful and thorough work has been done.
Mr Jackson
The hon. Gentleman is being most generous in giving way. We would take his critique a little more seriously, had not his Government’s regional spatial strategy delivered the lowest number of homes since 1923, doubled the number of homeless families and built 117,000 homes on flood plains between 1997 and 2005. Is that not the reality of the Government he supported between 1997 and 2010?
Chris Leslie
Setting aside the fact that there is probably the lowest number of Conservative MPs here in the Chamber today since 1923, they do not have room to criticise any previous Government on these issues, let alone the last Labour Government. We believe that there is a crying need for housing, which is one of the crucial foundations for future economic prosperity. It is about time Government Members recognised that they have had three years in power, and have their own record to defend. They have to take some responsibility for the decisions they have been supporting.
I do not know whether my hon. Friends recall the infrastructure guarantee scheme, a key feature of the summer before last. It was part of the Government’s emergency legislation, and they rushed it through Parliament. It was supposed to enable guarantees to underpin £40 billion of investment in infrastructure and £10 billion-worth of new homes, including 15,000 new affordable homes. However, so far as I can see—I am sure the Minister will intervene if I am wrong—not a single tangible penny of support from that scheme has been allocated for house building. I am happy to give way to the Minister if he wants to correct me.
Chris Leslie
I am just waiting to see whether the Minister wants to intervene. [Interruption.] It seems that he does not, so I give way to my hon. Friend.
Andy Sawford
My hon. Friend questions the confidence we can have in voting on the measures in the Finance Bill, given the Government’s performance in the last three years, and rightly mentions their infrastructure guarantee scheme. According to my assessment, they have begun 15% of the 576 projects in the national infrastructure plan, so we have no reason to have any confidence in the measures in the Bill.
Chris Leslie
I know that the Minister pursues his duty to this House with great diligence and that, in responding to the debate, he will want to update us in detail on the number of extra houses that have been forthcoming as a result of the vital emergency legislation that the Government put through. It would be extremely helpful if he did so. However, it is clear to us that the overwhelming barrier for the housing market to overcome has been the 60% cut in the affordable housing budget made in the 2010 spending review, and of course, matters have been made worse by the subsequent lack of growth in the economy. It is therefore no wonder that the Chancellor felt the need to reboot his various schemes back in March. That is why we come now to the Government’s Help to Buy scheme, the detail of which I want to spend a little time considering.
Mr Stewart Jackson
I pay tribute to the Minister, who does indeed know what he is talking about, having been, like me, a member of the board of management of the New Local Government Network. If there is a Labour Government within the next year or so, will the hon. Gentleman abolish the affordable rent model and put funding directly back into social rent—yes or no?
Chris Leslie
I will come to some of those details because I think it important that we look at the contrasting policy options for housing support. My hon. Friend the Member for Birmingham, Erdington has been developing our plans for house building and housing supply in a number of different ways, and I will touch on those, if I may, after having looked at the Government’s approach: the Help to Buy scheme, which consists of two parts, the first being an equity loan element. The Government have said that they want to extend what was known as the First Buy scheme—there are so many names that it is sometimes difficult to keep track—whereby people would purchase new build homes up to a value of £600,000 and could borrow 20% of the value of the property interest free for five years in return for the Government taking a stake in the equity. The fee for that would increase annually, but only in line with inflation, so the Government are essentially committing, they say, up to £3.5 billion over the next three years to this shared equity loan scheme.
Sheila Gilmore (Edinburgh East) (Lab)
In many parts of the country, although perhaps not in London, the property value being suggested is extremely high. Instead of concentrating on people in the lower income bracket looking for property of lower value, the scheme will be open to people who arguably do not need help to get on to the housing ladder.
Chris Leslie
It comes down to whether the Government have designed the scheme adequately. Is it best to have a broad-brush approach, or should we be targeting help at those who need it most? The Opposition favour the latter.
Alison McGovern (Wirral South) (Lab)
My hon. Friend has made an important point about the action the Government have already taken. Does he agree that their action has failed to work because of their mismanagement of the macro-economic system? In a world where people see food prices going up and do not have enough money in their pocket for a weekly shop, the idea that we can have a housing market that works well is not at all realistic.
Chris Leslie
The economic background is absolutely key. If we had seen a continuation of the recovery that was beginning to get under way back in 2010, we might have been in a different position. But no, the Government pulled the rug from under the confidence felt by consumers or businesses and in the housing market, too. We have seen a series of consequences as a result. Let us face it: the main problem, particularly for first-time home buyers, is the supply of housing and its cost.
Jack Dromey
On that point, was it not folly for the Government to cut £4 billion from affordable housing investment in 2010, leading to a 68% collapse in affordable house building? Would it not be more prudent now to endorse the shadow Chancellor’s proposal that the 4G moneys should be spent on building 100,000 affordable homes as much the quickest way of getting the housing market moving and, in turn, of getting our economy moving?
Chris Leslie
It is absolutely true. We have to face facts. We have to put direct support into housing supply. These rather opaque and indirect attempts to manipulate the public accounts with complicated and convoluted guarantees and underwriting arrangements do not communicate to the wider public who might be consumers of housing—looking to buy their first home or to rent differently. The Government must be far more direct about this approach.
It is clear that the Government’s ideological aversion to supporting the construction of affordable housing still inhibits recovery of the broader housing market. That is why housing starts fell 11% over the last year to 98,000 and why the number of private and local authority home starts was down, and the number of housing association home starts, at just over 19,000, was the lowest for eight years. There are 136,000 fewer home owners than when the Government came to power, and of course the youngest are hardest hit. Apparently, the average age of a first-time buyer is now 37.
We have doubts and questions about whether this Help to Buy scheme will work. Have the Government thought it through sufficiently? There are plenty of organisations focusing on housing policy. The first-time buyers pressure group PricedOut said that the Government should assist construction of more houses where there are chronic shortages. That is absolutely true. However, there is a point about whether help should no longer be targeted at lower and middle-income families, with the cap of £60,000, and used to support first-time buyers. We need from Ministers a thorough analysis of what is happening, particularly how many higher rate, or additional rate taxpayers will be taking advantage of the new scheme. What analysis have they made of that?
Mr David Hanson (Delyn) (Lab)
May I add a further inconsistency to those that my hon. Friend has mentioned? Under the current scheme, a single person could buy a three-bedroom house with a taxpayer subsidy for the mortgage, yet at the same time a social tenant who is single and wants a three-bedroom house is being penalised.
Chris Leslie
Never let it be said that this Government have any consistency whatsoever, but perhaps that is where we should turn to the Liberal Democrats—or the Liberal Democrat as I will henceforth call the hon. Member for Bristol West (Stephen Williams).
There is another part of the Help to Buy scheme. We have talked about the equity loan aspect. The second part is the mortgage guarantee, supposedly designed to help individuals without a large deposit; they may have only 5% and are looking for a 95% mortgage from participating lenders. The Government say they will guarantee up to 15% of the mortgage in an attempt to encourage banks and building societies to offer loans to borrowers with small deposits.
Interestingly, the scheme is not starting in April; it will not start until January 2014. I hope Ministers can explain why they picked that date, because there is a potential risk of forestalling. We may have constituents who are wondering whether they should get on the housing ladder to help their family, or who are in the construction sector wanting to supply new homes. Is there not an incentive for many potential home purchasers to wait—to hold off and not enter the housing market until January next year? Paradoxically, further problems might emerge as a result of the scheme.
Mr John Redwood (Wokingham) (Con)
Does the shadow Minister agree that since the crash of 2008 there has been a chronic shortage of mortgage finance and of new homes being built? Do we not need some way around the problem that RBS and HBOS are so damaged that they cannot supply the normal amount of mortgage credit?
Chris Leslie
The Opposition are not opposed to schemes that are well targeted and well designed to increase affordability for people who want to buy their own home, and we want people to get that first step on the housing ladder, but the way in which the Government are going about these things is shocking.
The funding for lending scheme has shown some signs of altering mortgage affordability at the margins, but it was predominantly designed to boost lending to small and medium-sized enterprises, and in that respect it has not worked at all. In fact, yesterday the Bank of England started talking about doing what the Chancellor should have done in his Budget and properly getting a grip on funding for lending—splitting the scheme in two, to ensure that it provides not only housing support, but particularly SME support.
Alison McGovern
The right hon. Member for Wokingham (Mr Redwood) alluded to a much larger debate that we have had in this place, about banking and banking regulation, but does not that entirely miss the point—that actually the Budget, and this Finance Bill, should be about resetting the recovery from that crash: not about the failure that is still there in the banks, but about the economic management of the country, which this Bill demonstrates above all the Chancellor has got wrong?
Chris Leslie
I do not think it is because the Chancellor does not realise, or is ignorant about the policy options available to him; it is a deliberate choice not to pull those particular levers, and we need to debate that in a wider context.
However, for the purpose of completing some analysis of the Help to Buy scheme, the specific question that we have anxieties about is whether the underwrite scheme will provide unintended support for those wishing to buy second homes—in other words the taxpayer, the hard-pressed taxpayer, subsidising an element of activity that really should not be a priority for the taxpayer at this moment. If people want to take equity out of their property or remortgage, they may do so using traditional solutions provided in the market at large; we have nothing against home owners remortgaging in the traditional way. But the scheme seeks to extend taxpayer guarantees unnecessarily. Effectively, Ministers are saying that if people have a spare room in a social home, they must pay the bedroom tax, but if they want a spare home and can afford it, the Government will help them to buy one. No wonder people are calling this the spare home subsidy.
Mr Andrew Love (Edmonton) (Lab/Co-op)
When the Chancellor was asked to clarify whether help would be available to second home owners, he chose not to do so. Is it not incumbent on Ministers here today to tell the House very clearly whether the scheme can be used for the purchase of second homes?
Chris Leslie
It is absolutely incumbent on Ministers, but this is a Government who just cannot think things through properly. They have set off down the road with a particular design. We have been asking questions for weeks and weeks. My hon. Friends will remember that the Chief Secretary to the Treasury astonished the House when he still could not rule out that the scheme would be used for supporting second home purchase, and there might be a number of reasons for that. For example, if the scheme is supporting remortgages, and a household decides to remortgage, how can the Government have a covenant on how any equity withdrawn from that remortgage process will be used by that home purchaser? That is presumably the obstacle that Ministers are banging their heads against now, and they probably have to look at various covenants and all sorts of legal arrangements for those participating in the schemes.
There are other anomalies in the process. Perhaps the Minister would elaborate on this point: can foreign buyers be subsidised by the UK taxpayer for the purchase of second homes—not just other EU residents, but non-EU residents as well? What is the exclusion in the scheme? Will he clarify that?
Alison Seabeck (Plymouth, Moor View) (Lab)
I declare an interest in the interests of my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford), as usual. Does my hon. Friend have concerns that although ostensibly the scheme may say that there can be no foreign investment, there will be means and mechanisms for foreign investors to set up companies in the UK in order to cover their tracks? Does he have any confidence that the Government are looking at whether there are potential loopholes?
Chris Leslie
I live in hope that if not Ministers, the Minister’s officials will try to apply sticking plasters to bodge the thing together, but it is a real mess. Ministers need to go back to the drawing board and think more directly about the support that can be provided for affordable housing.
Mr Hanson
As I understand it, the scheme in question is administered by the Department for Communities and Local Government, so it might even be possible for a resident of, say, Chester to buy a second home in Wales under the scheme; for a resident of Berwick to buy a second home in Edinburgh; or for a resident of Liverpool to buy one in Belfast. Has that been thought through by the Government?
Chris Leslie
I doubt that very much. I know that will shock my hon. Friends, but I suspect the Government have not thought about that.
Susan Elan Jones
We hear a great deal about Mr Lynton Crosby and his influence on the Conservative party. He is probably rubbing his hands with glee today, thinking, “Goodness, they haven’t worked out the fact that this is a tax break for me when I buy my second home,” if he does not already have one.
Chris Leslie
It had not occurred to me that the scheme could be the entrée for Lynton Crosby into a permanent residence. Who knows whether he will take up the scheme, but I am sure he will be very inventive about the matter.
Mr Love
Normally, when Ministers are silent, one can trust the Treasury to clarify matters. In this case the Treasury has not clarified matters. I read in the newspapers that buy-to-let investors will be excluded, but in other newspapers there seems to be ambiguity about that. Can we not have a clear statement from Ministers this afternoon about who is in and who is out of the scheme?
Chris Leslie
In, out, in, out, shake it all about—who knows what is going on in the minds of Treasury Ministers? It is impossible to tell, sometimes, just by looking at them.
Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)
Further to the intervention from my right hon. Friend the Member for Delyn (Mr Hanson), the scheme could have an important impact on the devolved Administrations. Perhaps in the course of the afternoon the Minister could get a message from the civil servants to help him on that. I understood that although the Help to Buy scheme applied only to England, the mortgage guarantee scheme applied certainly throughout Great Britain, and probably throughout the entire UK. That needs to be clarified. Constituents have already asked me about the scheme and whether they would be able to apply for it.
Chris Leslie
The Minister’s pen will run out of ink as a result of the number of specific questions about the scheme that he will have to reply to, but he is diligent and I know he will address them all. I would be grateful if he could confirm that he has thought through the consequences of the design of the scheme for the devolved Administrations. [Interruption.] His gaze has not lifted for the past 15 minutes or so.
I do not wish to take up too much more time, but there are other anomalies. For example, I think the Government have said that home owners will be able to remortgage, but they will not be able to remortgage with their own bank or building society; they have to go elsewhere. Ministers need to think that through a little more carefully. If there is a genuine case for remortgaging, are they, in effect, going to create a whole set of exit fees for those consumers to have to bear and a set of new application fees? What is wrong, in the circumstances of remortgaging, with someone continuing the relationship with their existing bank or building society?
We have a number of concerns about the Help to Buy scheme. Let us leave the last word on the matter to the Office for Budget Responsibility. What was its assessment when it looked at the scheme? What view did it take about the impact that it would have on the housing market? The OBR revised down its forecasts for property transactions, despite the two new schemes that have been announced. It says, I think on page 88 of its report, that
“we have reduced our forecast relative to December to a level which is more consistent with other outside forecasters.”
There we have it. For all the announcements, the spin and the press releases about the scheme, the Treasury could not convince the OBR, which is only just down the corridor from where Ministers reside.
Alison McGovern
Is not that particularly disappointing given that the Government have not exactly met the OBR’s forecasts to date?
Chris Leslie
The OBR is still bedding in. It has had a difficult time because on every autumn statement and Budget it has had to downgrade and revise its forecasts, upgrading the forecast for the deficit along the way, so one has to feel slightly sorry for it. There were some signs that its chairman was keen to chastise the Prime Minister and the Chancellor for overstating what was happening to public finances, so we wish it well for the future.
New clause 5 concerns the introduction of a 10p starting rate of income tax, funded by a mansion tax on properties worth more than £2 million, a policy that used to be advocated by the Liberal Democrat—
Chris Leslie
Apparently, it is still advocated by the Liberal Democrat, but Liberal Democrats tend to have a habit of voting against it whenever the opportunity presents itself. Those on low incomes have had their tax credits cut, their child benefit has been affected, and their wages and living standards have fallen, but millionaires on average benefit from a £100,000 tax cut. Surely it is time to help lower and middle-income households with an extra level of tax support, directed from revenues raised from a mansion tax on properties worth more than £2 million.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
As the hon. Gentleman will be aware, we had a Labour Opposition day debate on this issue before the Easter recess, following which the shadow Secretary of State for Wales said that productive agricultural land would not be included in estates for the purposes of the Labour party’s mansion tax proposal. Is that the case? Will farms be excluded or included in Labour’s proposed mansion tax?
Chris Leslie
We hoped that the Liberal Democrats’ plan relating to property values of £2 million was a well-worked-through basis on which we could build and develop a policy. We even tabled a suggestion that the OBR should have some options for how this mansion tax would work in detail. There are bound to be issues on the margins that need to be resolved, and I accept we should definitely be talking about those, but the principle could be established. The Bill has 50 or 60 clauses relating to what are known as enveloped dwellings. The Government do not dare call it a mansion tax because Conservatives do not like it, but they have introduced a scheme to enforce a certain number of stamp duty requirements where an annual charge can be placed on properties worth more than £2 million, but only if they are owned by a company in a corporate tax wrapper. It is therefore entirely feasible and plausible to consider whether that scheme could be extended into a mansion tax proper, and the Government have well-worked-through plans on the books, on which they have been consulting, which could be the basis for a mansion tax. This is not something that has not been thought through by the Government.
The Opposition believe that any revenues from this need to be given back to lower and middle-income households through a 10p starting rate of tax. When the economy is flatlining and tax rates are rising in so many other ways, particularly VAT, we must do more to help those 25 million basic rate taxpayers. It is incredibly important that we do that, and we will be giving this Liberal Democrat, and any others who happen to be in the building, the opportunity to express their views on it when we finish this debate. I commend new clauses 1 and 5 to the Committee.
Alison Seabeck
In speaking to new clause 1, I wish to pursue issues that have been touched on by my hon. Friend the Member for Nottingham East (Chris Leslie) and other Opposition Members and to highlight my concern that the Help to Buy scheme might well become a second home subsidy, rather than a scheme, as was intended, to help many first and second-time buyers on to the housing ladder.
In housing, as in so many other areas of policy, the Government have been found badly wanting. I remember the chutzpah the right hon. Member for Welwyn Hatfield (Grant Shapps) displayed on entering government, saying repeatedly that he would outperform the previous Labour Government when it came to house building and getting first-time buyers into the market. As Housing Minister, he failed rather magnificently. He seemed to ignore the fact that Labour built 210,000 new homes before the market crashed. We started to see an increase in the number of homes being built in the run-up to the 2010 general election as a direct result of measures taken by the Labour Government. Indeed, some of the homes that this Government have taken credit for building in 2011 are in fact the hangover from Labour’s new-build programme. We are now seeing a slump in house building.
Jack Dromey
The former Housing Minister claimed that the Government would build 170,000 affordable homes. The National Audit Office then produced a report stating that 70,000 of those homes had been commissioned and paid for by the previous Labour Government.
Alison Seabeck
My hon. Friend is right. I think we have to take the figures offered by the Government with a huge pinch of salt. Although I support any measure, as I am sure he would, to kick-start the housing market and enable young people, such as my daughter, to get on the housing ladder, I, like my Front-Bench colleagues, have serious concerns about the scheme.
Andy Sawford
My hon. Friend makes the point that we need to kick-start the housing market, and I think that all Labour Members agree. She talked about the chutzpah of the Government’s first Housing Minister, whom she challenged at the time, when she led for the Opposition. Is there not a contrast between the urgency of the measures that were rushed through Parliament when the coalition Government took office and the delay in the measures that they now say will make some kind of difference, which will take us through to January?
Alison Seabeck
My hon. Friend is right. There is a significant gap that will lead to a further trough in house building. It will certainly not lead to the boost that the Government expect as a result of introducing the scheme. Frankly, the scheme looks like another idea drawn up on the back of a cigarette packet, and we have seen too many of those. I think that this one, like others, whether in welfare, education or health, will have a number of unforeseen consequences.
Following the Budget, we now know that the Government’s mortgage scheme will not exclude people buying second homes. Although it might get some movement into the market, it will not solve the underlying problem and could well be abused. In areas such as the south-west, where we have a glut of second homes and where affordable homes are a rarity in some areas, introducing measures that could increase the opportunity for people to purchase second homes, as well as risking pushing up prices, is extremely dangerous. That could create severe price volatility in those areas and lead to the exact opposite of the intended outcome.
In Plymouth and the South Hams, we have the prospect of around 5,000 new homes in Sherford, all close to some of the most beautiful countryside and coast in the country. Many people will want to buy those homes, which opens the door to second home ownership. How many of those purchasers will want to buy to let? The Government say that they do not plan on the scheme being used by people who want to buy to let, but by using subterfuge it will be entirely possible for them to do exactly that. Will the Minister explain exactly what type of bureaucracy will need to be set up fully to ensure that the scheme is not abused by people who want to buy to let?
Jack Dromey
Is my hon. Friend aware of anything in the Bill that would prevent Russian billionaires, Greek tax exiles or dubious Australian spin doctors from buying homes on the back of the scheme?
Alison Seabeck
That was wonderfully well put, as usual. No, I am aware of no such thing, and that bothers me hugely. It ought to worry Ministers; it will be interesting to hear what they have to say on the matter.
My constituents are struggling under the pressure of the spare room subsidy. They rightly want to know why it is fair for the Government potentially to offer a spare house subsidy of up to £600,000 to people who already have a home. That sum would buy a mansion in Plymouth.
Graham Jones (Hyndburn) (Lab)
Startlingly, the previous scheme had a limit of £280,000. Why have the Government increased the ceiling to £600,000? Surely homes of £600,000 are not affordable.
Alison Seabeck
No, indeed. Someone looking at the issue from the outside, rather than from the Government Benches, could cynically suggest that the Government are seeking to build houses and support house building in the south-east rather than in the rest of the country. The figure has far more resonance in terms of trying to get people into the market in the south-east. The issue is not clear.
Sheila Gilmore
The figure might be more consistent with house prices in the south-east, but even there someone still has to have a very substantial income to afford a mortgage, even if it is discounted by a shared equity or mortgage guarantee scheme.
Alison Seabeck
My hon. Friend is right and has flagged up yet another unfairness about what is proposed.
We have an example of the Government bearing down on the less well-off—those who are suffering because of the bedroom tax. Those people could probably never afford a mortgage, however desirable an ideal that might be. The Government are effectively expecting those people on low incomes to fund and support other people to buy new homes.
Jim Shannon (Strangford) (DUP)
I thank the hon. Lady for being gracious enough to give way to everyone who has wanted to intervene. Does she feel that there should be an incentive for parents or grandparents who either have savings or could remortgage their homes to provide a deposit for their children or grandchildren? Could that not enable first-time buyers to get on to the ladder in their 20s rather than at 37, as was mentioned earlier?
Alison Seabeck
The hon. Gentleman makes an interesting point, and I will briefly touch on it later. I suspect that it could be possible for parents to buy for children.
People struggling to get a mortgage and those who want to own their first home must be a priority for help, not the small number of people who can afford to buy a second home. What checks will be introduced to prevent abuse of the scheme, so that people are prevented from applying in the names of their sons and daughters, cats and dogs?
The key fact is that not enough homes are being built. The Government must focus on that issue and on listening to the voices of those who understand the market. They should not simply dismiss out of hand the Opposition’s new clause, which would enable the public to have a better understanding of who benefits from the scheme. Is it foreign investors, parents buying second homes for their children or people seeking to rent the property in the long term?
What checks will be put in place if somebody applies to the scheme saying that they are not going to let the property, then sits on it for a time and subsequently opts to rent it out? Perhaps people could use the scheme for a straightforward holiday home purchase, as I mentioned in relation to Plymouth and the South Hams. Where are first-time buyers in the process? For me, they are singularly missing.
Alison Seabeck
My hon. Friend is right. He reinforces a point I made about not only the potential for price volatility but the inability of certain people to access the housing that is so desperately needed, and the clear need to build more homes, which this Government are singularly failing to do.
Jack Dromey
Does my hon. Friend agree with the hon. Member for Spelthorne (Kwasi Kwarteng), who said in a recent interview, commenting on the Government’s proposed scheme, that
“giving mortgages without increasing the supply will lead to asset price inflation”?
Alison Seabeck
That is a very interesting comment, is it not? In quoting it, my hon. Friend makes the point very clearly.
House building is falling, rents are rising, home ownership is becoming a harder goal for young families to achieve, and homelessness has risen. That, frankly, is not a record to write home about. This Budget measure, first, needs to be fully explained; secondly, needs to be fully scrutinised, which is why the new clause is important; and thirdly, shows that the Government have got their priorities wrong, because they need to be building more homes.
Stephen Williams
Thank you for calling me, Mr Hoyle. I am being called rather sooner than I imagined; indeed, I did not even necessarily imagine that I would be making a speech in full detail, but making use of my House of Commons Library notes I have hastily prepared something, particularly on new clause 5, which is a welcome innovation in many ways.
Andy Sawford
As the hon. Gentleman is not quite prepared to speak at the moment, perhaps I could help to give him some material for his response to the new clauses. Will he enlighten us on whether the Liberal Democrats might take this opportunity to support us in pushing forward a mansion tax, given that they did not do so last time?
Stephen Williams
I am happy to enlighten the hon. Gentleman, whose intervention falls into the category of a nice try. I think he is referring to the Opposition motion on this issue that we debated five or so weeks ago. The Government amendment to that motion made it crystal clear that, in the context of the coalition, my Conservative Front-Bench colleagues do not support the introduction of a mansion tax in this Parliament; indeed, it is not in the coalition agreement because we could not agree on it at that point. However, the Liberal Democrat part of the coalition does believe that a mansion tax should be introduced. We are happy to do the workings on it and happy to espouse it at every opportunity. It will be in our manifesto at the next general election, and subject to what happens in that election, when I am sure that negotiations may well take place again, perhaps we will have a different outcome. I welcome the fact that the Labour party, which emphatically rejected the principle of a mansion tax in the negotiations in 2010, now seems to be on the way towards conversion to the long-term Liberal Democrat train of thought on this issue.
I also hope that Conservative coalition colleagues might have a conversion between now and 2015. Some of them—in fact, a lot of them; we talk to each other rather more than we used to—whisper in my ear that they wished the Conservative party that embraced this policy. That applies particularly to Conservative MPs from the north of England—north of the line from the Severn to the Wash. Perhaps there are not very many £2 million properties in those constituencies. Nevertheless, a lot of Conservative MPs from outside the south-east of England have privately said to me that they wish the coalition would adopt this principle.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
Order. I know that the hon. Gentleman’s Library notes have been helpful, but I am not quite sure that the journey he is trying to take the Chamber on is relevant to this debate. I am sure that he wants to come back into order with his good Library notes.
Stephen Williams
Thank you, Mr Hoyle. Your advice is always given with good heart and accepted freely.
New clause 5 highlights the Labour party’s conversion to the principle of a mansion tax. I said that the new clause was an innovation. Unfortunately, I am a veteran of Finance Bills. I have obviously insulted my Whips Office on several occasions in the past and keep being put on to Finance Bills as a punishment. I remember from last year’s Bill that, time after time, Opposition new clauses and amendments called for studies of the impact of Government policy, while the Opposition proposed no new policies of their own. Now, finally, after three years, they have suggested a new policy, albeit one pinched from my party, but they are still asking the Treasury to do a study of it—even though it is they, not the Government, who proposed it—because the Labour party cannot be bothered to explain how this new policy that it has suddenly converted itself to will actually work.
The Opposition have not provided any clues as to how their approach might work, even though they have had plenty of opportunities to do so. The hon. Member for Corby (Andy Sawford) referred to the Opposition day debate five weeks ago, and the Labour party has since had plenty of opportunities to flesh out how its version of the mansion tax would work in practice. I had hoped that Labour Members would explain it to us today, but they have not.
New clause 5 does not provide many clues. Let me give those on the Opposition Front Bench a piece of advice: if they want to ask somebody else to assess the impact of their own policy, they really ought to give them a bit more detail to work on. I am sure that the Minister will confirm that those who work at the Treasury are very clever people. Among them are a lot of economists and accountants with good qualifications and excellent degrees from top universities, but the Labour party should not think that it can present them with an almost blank piece of paper, which new clause 5 is, and then expect them to be able to explain within a few months how its policy will work without their having been given the barest of details.
Chris Leslie
This is the thing with the Liberal Democrats—the hon. Gentleman is taking the biscuit. He is whipping himself up into a sense of righteous anger about his own policy, which we want to put on to the statute book. He is picking holes in a policy that he supposedly supported, but which he now cannot bring himself to vote for. Talk about a “push me, pull you” approach from the Liberal Democrats.
Stephen Williams
I assure the hon. Gentleman that I have righteous enthusiasm for the policy, because it is a Liberal Democrat policy that I have enthusiastically supported for the past three and a half years. How many weeks has he been an enthusiastic proponent of the mansion tax—10, 12, nine? How many weeks has the Labour party believed in this policy? When did he experience his conversion and accept the wisdom of the Secretary of State for Business, Innovation and Skills, who first proposed this policy several months before the 2010 general election? I know that the hon. Gentleman was not a Member of Parliament at that time, but I assure him that his colleagues who were in government rubbished the policy during the general election and the coalition negotiations. For the first three years of this coalition Parliament, Labour did not support it, but now—lo and behold—it does. When was he converted?
Chris Leslie
I am intrigued by the hon. Gentleman’s line of argument. He is attacking us for agreeing with him. We might not have agreed with him several years ago, but now we feel that a mansion tax is necessary to help with a tax break for lower and middle-income families. Is it his argument that we are wrong for supporting a mansion tax? Is that really what he is saying?
Stephen Williams
My argument is straightforward: I do not know what the Labour party’s variant of the mansion tax would be. Moreover, the Labour party does not seem to know, either; otherwise, why on earth would it frame new clause 5 in a way that asks the Treasury to explain how it might work? We are in an extraordinary position. I know what my party’s policy is and am about to tell the hon. Gentleman exactly how a mansion tax would work, but I had hoped to hear from him a little more detail on how his version would work, so that the clever people at the Treasury could produce the study that he wants.
Jack Dromey
I want to ask the hon. Gentleman about something that he did vote for. In a week when the International Monetary Fund has said that the politics of austerity, of which his party is a strong supporter, are clearly not working, does he now regret voting in 2010 for a £4 billion cut in affordable housing investment, which led to a 68% collapse in affordable house-building and threw tens of thousands of building workers out of a job?
Stephen Williams
To answer the hon. Gentleman directly, when the coalition Government came to office they had to make some quick decisions about what was essentially an economic emergency. We were left with a situation in which the last Government were borrowing £1 for every £4 that they were spending. We simply could not go on in that way, so we had to put forward an emergency Budget to gain the confidence of the markets so that people would continue to lend us enough money, on the triple A rating that we had at the time, to keep all Government programmes going. It has been acknowledged by the Chief Secretary to the Treasury and, I think, by the Deputy Prime Minister that some of the cuts in capital expenditure that the coalition implemented in its first two years in office perhaps should not have been made, in hindsight. But those cuts in the capital programme were in the last Budget of the last Government and were seen through by this Government. The Government have had the wisdom to say that investment in capital expenditure is a good way of getting growth going in the economy, and that is why we have had the wealth of initiatives that the shadow Minister mentioned earlier, and that is why we have had the new package of proposals to help the housing market.
Jonathan Edwards
I could not get an answer from the Labour Front Bench, but under the Lib Dem proposal would productive agricultural land be included in the estate for mansion tax purposes?
Stephen Williams
The mansion tax, as the name suggests, is a tax on mansions. If a farmhouse on agricultural land was of mansion proportions and, whether it was in Carmarthen or elsewhere, was valued at more than £2 million, it would fall within the scope of a mansion tax, but the agricultural land itself—whether it is in the curtilage of the house or in the wider area of the farm—would not fall within the remit of a mansion tax. However, my party is currently reviewing all its tax policies, including the taxation of land. I do not want to be diverted too far down this route, although it is an issue on which my party has campaigned since the days of Lloyd George, who, as I am sure hon. Members will agree, was probably the most significant Prime Minister of the 20th century. I will say no more on that on this particular day.
I will do my best to help the Labour party with some of the other details of how the Liberal Democrats think that the mansion tax should work. A criticism that is made of the mansion tax is what happens if a pensioner or someone on a low income is living in a house valued at more than £2 million—the so-called asset rich, but income poor. Our answer is straightforward. Someone in those circumstances would defer payment of the tax until the property was sold or their income rose to a level at which they were able to pay it. The most likely scenario is that when the property was sold, the deferred, rolled-up tax liabilities would crystallise and be met out of the proceeds of sale. That is the answer to the asset rich, income poor conundrum.
Another major principle, which might help the Labour party, is that we see the mansion tax as a national tax. There is a debate to be had about what we do with our only existing property tax—the council tax—such as introducing higher bands, but that is a debate for another day. In any event, the council tax is a local tax and we are clear that the mansion tax, as the Liberal Democrats propose it, should be a national tax and form part of the rebalancing of the tax system away from taxes on work and enterprise and on to income from wealth speculation and pollution.
Our principles on the mansion tax are well thought through. Unfortunately, they are not currently shared by enough of our Conservative coalition colleagues. Some share our enthusiasm for a mansion tax, but a majority—certainly ministerial colleagues—do not.
Daniel Kawczynski
The point made by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) is important, and I was worried that the hon. Member for Bristol West (Stephen Williams) could not answer it as clearly as I would like. Farming is an essential part of many estates in Shropshire, and the land and agricultural buildings could tip them over the limit. Shropshire farmers are struggling already with prices from supermarkets, and I am very concerned that, if this tax were introduced under those circumstances, they would be adversely affected.
Stephen Williams
The hon. Gentleman is essentially asking me a variant of the question asked by the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). He mentions agricultural buildings. Clearly, a mansion tax is a residential property tax: a tax on the building that the landowner—the farmer, the rich individual or whoever—lives in. It would not include barns, pigsties and the other agricultural buildings to which he referred, even if they have a high value. This would simply be a tax on residential property occupied by a person, not farm animals or anyone else: only the farmhouse itself, or the estate house, would fall into the ambit of a mansion tax.
Coming directly to the problem with new clause 5, the poor clever people in the Treasury simply do not have enough detail to go on to produce this study within six months of the passage of the Bill. This is the opportunity for Labour Front Benchers to answer these questions. They can intervene as many times as they like. [Interruption.] If they are listening, of course. This is an opportunity for them to tell us how the Treasury is going to conduct this study. It really does need some more detail. Is Labour’s variant on the mansion tax a tax on the whole of the £2 million, or is it a tax on the excess of the £2 million? That is completely unclear from any of the speeches made by shadow Ministers, or from the motion. What is the base of the tax?
Chris Leslie
We based our proposal on the Liberal Democrat analysis that a mansion tax could be on the excess of £2 million of value, raising, I think the hon. Gentleman said, £2 billion. That was the basis on which we assume he has some deeper calculations, and I hope he can produce them and share them with the Committee, because it seems a sensible proposal.
Stephen Williams
That is very helpful, because that is the first time we have heard it. It is nice, too, to have an acknowledgement that the Opposition have based whatever they have said so far on statements from my party. I am grateful for that acknowledgement. They have been giving the impression that it is their policy, rather than a magpie policy stolen from the Liberal Democrat policy nest.
Chris Leslie
Given that I have helped to clarify that for the hon. Gentleman, will he now do the right thing and support his own policy in the Division Lobby today? It is very simple.
Stephen Williams
I always strive to do the right things; I am sure all hon. Members do. In the Opposition day debate five or six weeks ago, the Government amendment was so beautifully crafted by the people in the Liberal Democrat Whips Office and the Conservative Whips Office that I was able to vote for it. It said that the Liberal Democrats in the coalition support the principle of a mansion tax, but acknowledged the fact that the Conservatives in the coalition do not. When I voted for that motion, therefore, I was indeed voting to endorse the Liberal Democrat policy of a mansion tax.
John Mann (Bassetlaw) (Lab)
I thank the hon. Gentleman for giving way, because I am little perplexed. Is this not the first opportunity for the Liberals to have one of their policies adopted by a major party? It has not happened in the past two and a half years. Should he not be thinking that his best bet is to throw more things the Labour way, because the way things are going, that will be his only chance in the future?
Stephen Williams
The hon. Gentleman, whom I quite like and respect—a feeling not shared universally among his colleagues—tempts me to comment on what might happen in the 2015 general election, on what discussions might take place in its aftermath and on what we might say during it. In 2015, the Liberal Democrats will say that we favour a mansion tax, with all the details we have already put on the table. I intend to publish a short paper that might help—it might do the Treasury’s job for it, making the new clause unnecessary—and which will flesh out what I am talking about. He said that Labour might benefit from taking more policies from the Liberal Democrats. We are all in politics to see our ideals, principles and policies put into practice, and if Labour wants to adopt more Liberal Democrat positions, instead of always saying we are wrong, the public might welcome that more grown-up attempt at consensus politics.
Andy Sawford
I do not understand something about the hon. Gentleman’s remarks. He has justified not voting for his own policy five weeks ago on the basis of an artfully crafted—I think he used those words—Government amendment that allowed the Liberal Democrats to wriggle out of it. But today there is no such amendment. He has challenged, very assertively, the depth of our new clause. If he is so confident in the depth of his own policies, why have the Liberal Democrats not tabled a new clause that he could vote for today?
Stephen Williams
I am happy to reveal now that I will not be supporting new clause 5 in the Division Lobby. That should not surprise the hon. Gentleman. I will not be supporting it, because it is not about the principle of introducing a mansion tax. It asks for a study. It asks the Treasury to do some work. These are busy people, with important work to do, and I do not want to waste their time. We do not want them to waste their time finessing badly thought-through Labour party proposals.
Chris Leslie
On a point of order, Mr Hoyle. Is it not the case that only Government Members can table amendments to a Finance Bill that would increase a charge or a tax, and therefore, under the rules of the House, these sorts of reviews are the only device the Opposition have to suggest such a tax change?
Stephen Williams
Of course, that is broadly correct, but I repeat that if the shadow Minister wishes new clause 5 to be implemented, he needs to provide more detail, so that the House can consider whether it is worthy of support. I do not think it worthy of support, because it is so full of holes. It would waste the time of the mandarins in the Treasury to ask them to come forward with a study for which they do not have the right brief. We have not been told at what rate the Labour party wants to set the mansion tax. Here is another opportunity for the Opposition to help the Treasury. Would the rate be 1%, 2%, 2.5%, 3%?
Stephen Williams
The shadow Minister says that it would raise £2 billion. [Hon. Members: “That’s your answer.”] Well, it is an answer, but it is not what is in the new clause. Why does the new clause not say, “Can we have a study from the Treasury on the best way to raise £2 billion?” It would be in order, would it not, Mr Hoyle, to put down a new clause asking the Treasury, “What is the best way to raise £2 billion?” The Labour party wants to raise £2 billion, but wants someone else to tell it how to do it.
Chris Leslie
I confess. Perhaps we could have mentioned the £2 billion. Will the hon. Gentleman forgive us to the point of at least abstaining on the new clause? Perhaps that is a compromise we can offer.
Stephen Williams
Abstention on certain issues is sometimes unfairly pooh-poohed by all parties. I have done it on certain issues. Indeed, abstention on a Bill that has a range of measures, some of which one likes and some of which one does not, is an entirely honourable thing to do, and Members from all parties will have done it. Although we would like to think that the Labour party has had plenty of time to craft a motion that might appeal to Liberal Democrats, I am afraid that in new clause 5 the Opposition have failed. They have again not managed to tell us how they think a mansion tax would work.
Mark Lazarowicz
The hon. Gentleman should stop digging and just say that the reason he will not support new clause 5 is that the Tories will not let him. If his position is that our proposal is not good enough, why does he not give an assurance that Lib Dem Ministers will work to bring forward more detailed proposals? They can do that now; after all, the Chief Secretary to the Treasury is a Liberal Democrat.
Stephen Williams
The Chief Secretary to the Treasury is indeed a Liberal Democrat. I am sure my right hon. Friend has given this policy issue a great deal of careful thought with his advisers and I am sure that if he were standing where I am standing today, he would be making similar points to those that I am making.
There are two parts to new clause 5. As well as calling for a study of—we now know—how to raise £2 billion through a mansion tax, however ill defined the composition of that tax would be, it is also meant to fund a tax cut for millions of people on middle and low incomes, as part of a fair tax system. Again, that is simply not specific enough. We do not know what it means. I am guessing—I can guess, but it would not be fair for those in the Treasury to have to guess how they would have to do such a study—that the purpose is to fund the reintroduction of a 10p rate of income tax. That is my guess, but it is a well informed guess, because the Opposition’s amendment 4 to clause 3, which we will come to tomorrow, suggests that they want to reintroduce a 10p rate of income tax. Again, however, neither that amendment nor new clause 5 gives us any detail for how that would work or, for instance, to what income band it would apply.
Perhaps that it is because the history of the 10p rate is such a miserable memory for Labour Members. I remember the 2007 Budget, which was the last one the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) introduced, when he scrapped the 10p rate of income tax specifically to fund a reduction of the rate of income tax from 22% to 20%. However, the coalition Government have made the principle of the 10p rate of income tax completely redundant, because we have introduced not a 10p rate on people with very low incomes, but a zero rate. I am sure that most of our constituents, whether in Chorley or Bristol West, would much prefer to pay a round tax rate of zero on their low earnings than 10%, which appears to be—although we are not sure—what the Labour party is proposing.
I will therefore not be supporting new clause 5 in the Division Lobby and I would invite all my Liberal Democrat colleagues not to support it either. We are completely clear as a party. We support the introduction of a mansion tax. We are clear about how it should be contrived, on whom it should be levied and how the proceeds from it should be spent. We do not need anybody else to do a study for us—whether the Labour party or the Treasury—to tell us how it might work. It is a great shame that after three years in opposition, at the first opportunity that Labour has taken to say, just tentatively, what it is in favour of—rather than talking about the long list of things that this Government have done that it is against—and just a few weeks after converting to a mansion tax, the Opposition need somebody else to tell them how it will work.
Stewart Hosie (Dundee East) (SNP)
That was an interesting half hour. It has changed entirely what I had planned to say, such is the power of the hon. Member for Bristol West (Stephen Williams), although I suspect not necessarily in a way he would like.
A review of the workings of the support given to the housing market, which new clause 1 would provide, is necessary to ensure that there are no abuses, but perhaps also to make it clear to all sides that the support being provided is not necessarily for affordable homes, but for the building sector—although it would be better if it were primarily for affordable homes. I think it would be quite useful to have a report on that.
On new clause 5, I was initially intending to ask the hon. Member for Nottingham East (Chris Leslie) to provide a little more detail, in the way that the hon. Member for Bristol West did. There are a number of reasons for that, but mainly it is because it might direct the Treasury towards where it might want to look. If, for example, the mansion tax were to be based on council tax banding, then, as we saw in Cardiff where a re-banding took place, it was not necessarily the wealthiest who ended up paying more; 64% of households ended up paying more, which was not a very good outcome. Secondly, if it is paid on the basis of stamp duty land tax, as currently configured, the Exchequer yield would be received only on the sale of the property. Quite clearly, it would not capture all the excess wealth from every property valued at over £2 million. If the mansion tax is to be a new tax, duty or levy, it would have been useful to have it explained.
There may well be a perfectly sensible case to make for a mansion tax, and I thought that that was what the hon. Member for Bristol West was trying to do at the beginning of his speech. As he went on, however, things became rather more confused. I paraphrase, but I think quite accurately, that the hon. Gentleman said that the mansion tax would apply only to a mansion or big house where a person or people lived. If this mansion or big house has one or two rooms that are put out to let, but perhaps not advertised particularly well, it could become a bed and breakfast or a hotel—no longer necessarily remaining a residential property where a person lives.
A number of interventions and discussions took place about farm houses or estates that might breach the threshold. Again, a house where people lived seemed to be the criterion, but one could easily imagine an associated outbuilding converted to house a few chickens, which could change the building from being a residential property. It was interesting to hear that. The hon. Member for Bristol West also referred to the building being the key, even within the curtilage of land on which crops were grown. If an ornamental garden with fruit trees that could be harvested lies inside the curtilage of land but the property is worth £3 million or £4 million, it could, according to the hon. Gentleman, be exempt.
Stewart Hosie
Before I go on, I will happily take the hon. Gentleman’s intervention.
Stephen Williams
I am glad that the hon. Member for Dundee East (Stewart Hosie) is phrasing his questions in this way, but I suggest that he direct them to Labour Front Benchers, as it is, after all, their new clause and they have failed to provide the detail. I provided more detail in my speech in order to be helpful. I can answer all the hon. Gentleman’s questions, but I think he should wait for my pamphlet, which I can assure him will knock on the head all those anti-avoidance issues that he raises.
Stewart Hosie
I am almost at a loss for words at the suggestion that anyone could imagine that the world will hold its breath waiting on a Liberal Democrat pamphlet! [Interruption.] I do not want to digress, Mr Hoyle, but that is a mind-boggling proposition.
The confusion in the hon. Gentleman’s contribution was far from saying that new clause 5 does not make sense; rather, it confirmed why the new clause was necessary. There are so many flaws, omissions and potential avoidance mechanisms in the Liberal Democrats’ proposals—and we had all assumed that they were worked up to some extent when they went into this miserable Government—that it makes perfect sense for the Treasury to investigate them with all their flaws to determine whether they, or another version of them, are even workable. If the hon. Member for Nottingham East chooses to press new clause 5 to a vote, we will be happy to support it.
Sammy Wilson (East Antrim) (DUP)
One of the common themes that has emerged on the Opposition Benches throughout the debates on the Budget is that the Government can and should do something to stimulate the economy by means of additional capital spending. One way of doing that—and one way of rapidly stimulating the construction industry—is to build houses; and, of course, many other social benefits arise from house building.
The Government have chosen a particular path towards the stimulation of house building, and I am not sure whether they have chosen it simply in order to avoid the registration of additional borrowing as part of Government debt. The means by which they have decided to stimulate the housing market—this is significant, because it is stated in the Red Book—will have no implications for central Government public sector net borrowing; it will have an impact only on the central Government net cash requirement. It seems that the Government may be engaging in the contortions described by the hon. Member for Nottingham East (Chris Leslie) in order to avoid certain Treasury accounting arrangements, rather than considering what policy will prove effective.
That is the first thing that we should consider. The second was alluded to by the hon. Member for Dundee East (Stewart Hosie). If the sole intention is to stimulate the housing market and the construction industry and it does not really matter who buys the houses or benefits from the policies, the Government ought to make that clear. Such a move would have various side effects, perhaps benefiting people who, in the opinion of many Members, do not need help with housing. If the policy is to provide a general stimulus across the board which is not relevant to the size of people’s incomes, to whether they are first-time or second-time buyers or to whether they are buying to let or buying to live in their houses, that should be made clear to us.
I do not think that the Government should be afraid of new clause 1. One of its two policy schemes, the guarantee scheme, does not involve any expenditure, because it will come into operation only if a house has to be sold at less than the price that was paid for it. There is evidence that such schemes work. In the Irish Republic, the National Asset Management Agency introduced its 80-20 scheme in an attempt to stimulate demand for some of the properties that it had taken over, and I hope that it will introduce the scheme in Northern Ireland as well. It owns property there, and is currently putting it on the market. There is evidence that the guarantee enabled people to secure loans that would not normally have been available to them, because the lenders had been relieved of some of the risk.
The right hon. Member for Delyn (Mr Hanson) asked whether such schemes would apply throughout the United Kingdom and in all the devolved Administrations. He mentioned the potential for distortion in the housing market, suggesting that people might move from one country in the UK to another in order to take advantage of them. I understand that the guarantee scheme will apply throughout the United Kingdom.
The second scheme involves equity loans. I do not think that the Government should be worried about scrutiny of its likely effectiveness. For some time, Northern Ireland has operated a co-ownership scheme which enables people to rent half a property and buy the other half. We were able to negotiate that with the banks because all the risk was being taken by Co-ownership Housing and the public purse, which would be responsible for the first 50% of any loss. The banks have actually dropped the requirement for a 20% deposit. The good thing is that there has been no cost to the public purse; it has simply been borne by the banks not requiring the deposit, because the risk has been taken out of the house purchase.
Mr Steve Reed (Croydon North) (Lab)
Does the hon. Gentleman also see scope for more stimulation of co-operative housing schemes in the mix in the United Kingdom? In Germany and Canada, some 10% of housing is co-operative. In parts of Scandinavia, the figure is 18%. The figure is higher in those countries because their Governments act to promote the development of co-operative housing. In the United Kingdom, it accounts for just 0.6% of all housing. It offers a way for people to get their foot on the housing ladder, without the need for unaffordable deposits.
Sammy Wilson
It does indeed. Let me illustrate the success of co-ownership in Northern Ireland, which is similar to the co-operative housing that the hon. Gentleman describes. More than 50% of new houses in Northern Ireland are being sold through the co-ownership arrangement. Importantly, because it is targeted at first-time buyers, it has enabled them to get their foot on the housing market ladder, stimulated demand in the economy and created the jobs in the construction industry that are so sorely needed.
Be it the mortgage equity scheme or the mortgage loan scheme, the Government should have no fear of new clause 1. If they have confidence in the schemes they propose, they should not fear scrutiny of them. Indeed, all the evidence from the Northern Ireland market and the Irish Republic market shows that the schemes will work.
Bill Esterson (Sefton Central) (Lab)
Does the hon. Gentleman agree that there is a particular need across the country for affordable housing to rent and to buy, and that, on striking the balance that he referred to earlier, there is a grave danger, as the Royal Institution of Chartered Surveyors has said, of creating another housing bubble if the wrong level is set? Is that the point he is driving at?
Stewart Hosie
Before the hon. Gentleman moves on, he is making a number of very serious points about the financial transaction part of housing support, but I hope he agrees that the one downside is that it does not allow that cash—such as it is—to be used for capital spending in any way apart from housing, and that it is being paid for by a real-terms cut in the Revenue departmental expenditure limit over the next two years.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
Order. I hope that the hon. Gentleman is coming to the end. I know he has a lot to say, but other Members want to contribute and I want to make sure that the Minister can reply.
Sammy Wilson
Thank you, Mr Hoyle; I will finish, then.
What, therefore, are the reservations about this scheme? The first concerns the way in which the spend will be dealt with. Of course, loans have to be repaid, and the scheme has been financed through a DEL cut across Departments of 1%. Secondly, it amounts to £4 billion over the next three years. The question is, could that money, if it is spent on housing, target the most needy, rather than being spent across the board with no restriction on income, meaning that people can buy second homes? Is there a better way of spending that £4 billion? Or, as the hon. Member for Dundee East suggested, if the approach were less prescriptive, are there other capital areas it could be spent on, leading to a far greater multiplier effect and impact on the infrastructure of the United Kingdom? Those are questions about the scheme that need to be asked.
My last point is that although the dynamics of the housing market would suggest that if someone moves from their home to a more expensive, bigger home—I am sure that the Minister will make this argument—it releases houses further down and starts the market moving. My main priority for constituents who come to see me is those who are not even in the housing market at all. Even though the dynamics of getting people to move up the housing chain are important, it seems to me that the priority ought to be those who cannot get social houses and who cannot afford privately rented housing as rents, certainly in Northern Ireland, are going up at a rate that prices many people out of the market. The opportunity should be provided for them to get in at the low end of the market through affordable housing. That is why we need a much more targeted scheme. One reason why I think it would be useful to examine the scheme within a short period of time is that it would show whether the real objectives and priorities in the housing market are being addressed by these schemes.
Stephen McPartland (Stevenage) (Con)
I appreciate the opportunity to speak in this debate, Mr Hoyle, and I shall make my speech very short as I appreciate that two Opposition Members wish to speak. I will speak for about three minutes tops and will rattle off my points as fast as I can.
The first issue I want to raise on new clause 5 is the fact that it refers to property and does not distinguish between residential property and business property. That concerned me greatly when I first looked at the new clause, as it would create huge concerns in the business community. In my constituency of Stevenage, we have some large business interests. GlaxoSmithKline has a huge operation employing 4,000 scientists in Stevenage—[Interruption.] Although the new clause mentions the “mansion tax”, it just states that it would be on “property”.
How would that property be valued? There seem to be two values in property at the moment: the value one thinks one’s property is worth and the value at which someone would buy it. There is always a big disparity between those values. Such a change would lead to a large revaluation exercise across the UK and my concern is that once we have that revaluation exercise, council tax revaluation will be a real problem across the country. A huge number of people will be very concerned about council tax increases if all their properties have been revalued. Council tax more than doubled under the previous Government and I am pleased to say that under this Government it has been frozen for the past three years—[Interruption.] I see the annunciator has just changed to show my name, although I will sit down in about one minute.
My other point is that the new clause also refers to a tax cut for low-income and middle-income earners, and I am proud that this Government have introduced a tax cut that will be worth more than £700 next year for those low earners on up to £10,000. I am sure that the Opposition would agree with the Government that the best way to introduce a tax cut is to have a tax rate of zero rather than the 10p tax rate on which my colleague the hon. Member for Bristol West (Stephen Williams) had a very robust exchange with Opposition Members.
I shall now sit down as you are gesturing for me to do so, Mr Hoyle.
Sheila Gilmore
The test of what is happening is whether the economy will be stimulated. That is the real test that we should keep under review. If we want collectively to stimulate the economy, the most direct way of doing that would be to fund socially rented houses. That would get people into jobs, who would then help to stimulate the rest of the local economy. I do not know whether an ideological aversion to that has brought about the proposals we have before us; perhaps it has, because all the affordable housing the Government seem to want to fund directly is not even affordable.
In this very week, when we are remembering the 1980s and the Prime Minister of that time, we are in grave danger of repeating what happened then. The Government chose to allow housing benefit to take the strain rather than investing directly in housing, which resulted in the problem that we now have a large housing benefit bill. The way this Government are going about even the affordable housing they say they will build, which will not of course truly be affordable, again runs the risk of increasing the housing benefit bill.
We are looking to stimulate the economy with something for which there will probably be no take-up, judging from experience, and it will not benefit the people we should really help. If we do not review this policy quickly, we could be going down a very dangerous road.
Mark Lazarowicz
As time is limited, I take this opportunity to pursue with the Minister some of the issues raised earlier by colleagues on the Opposition Benches about how the schemes will operate in Scotland and Wales—outside England. I hope the Minister can answer these questions.
Will the Minister confirm that the mortgage guarantee scheme will apply to Scotland, Wales and Northern Ireland as well as to England? If that is the case, will he indicate which Department will operate it for Scotland and the other devolved areas? If it is to be the Department for Communities and Local Government, I suggest that it would be more appropriate for the scheme to be operated by the Scottish Government or the relevant devolved Administrations.
Would it be possible for the Scottish Government and the other devolved Administrations to amend the scheme to take account of the objections raised, which will no doubt be shared by all of them, that it would benefit the buyers of second homes and people on relatively high incomes? In most parts of Scotland, Wales and Northern Ireland, prices of £600,000 are very much at the higher end of the housing market.
If someone in one of the devolved areas defaulted under the mortgage guarantee, would the cost be borne by the Treasury or the devolved Administration? I appreciate that these are technical questions but I am sure that, as the Minister has thought through the policy in great detail, he will be able to answer them.
The Economic Secretary to the Treasury (Sajid Javid)
I thank all Members for their contributions. This has been a thoughtful and engaging debate.
Both new clauses are about housing. New clause 1 would require the Government, within three months of Royal Assent, to provide a report to Parliament on how the tax system supports those seeking to purchase a second new home and how the Government plan to prevent it. New clause 5 suggests introducing a mansion tax on properties worth more than £2 million, with a view to using the revenue to fund a tax cut for those on low or middle incomes.
The Government oppose both new clauses. I will elaborate on the reasons, but first allow me to make a few points about the significant steps the Government have already taken and about our overall housing strategy, as many issues relating to it were raised this afternoon. I shall also respond to some of the other issues that were raised.
The new clauses centre on the housing measures in the Budget. The Government announced a major new package to support new development and affordable housing, alongside reforms to the planning system. The measures included the Help to Buy equity loan scheme and the Help to Buy mortgage guarantee scheme. They will give a much needed boost to housing supply, and equip those who aspire to own their home with the tools to do so.
John Mann
Would the Minister accept that, with the affordable housing levy the Government have brought in on single properties, those who build their own home now face a minimum £40,000 tax per property? In Hertfordshire, it is £187,000. That will kill off aspiration for those who wish to build their own home.
Sajid Javid
What the Minister will accept is that this Government have done more than any other in recent times to help those who aspire to purchase their own home. The Budget announced financial support of £5.4 billion for housing, which builds on the £11 billion of support already committed during the spending review period. The Government are also taking significant action through our build to rent and affordable homes guarantees programme.
Alongside those measures, the Government are reforming the planning system to ensure that reforms will increase housing supply. Planning constraints have depressed the supply of new homes. The Budget announced that the Government will take further steps to make the vital planning reforms that are needed to ensure that we have a regime that is simple to access, supports growth and is responsive to housing need. As hon. Members will see, this Government have a comprehensive strategy for housing, we have taken significant action, and those measures will give a much needed boost to both the demand and the supply side of housing.
I shall now discuss the new clauses. New clause 1 proposes that the Government provide a report to Parliament, three months after the passing of the Bill, to ensure that the tax measures do not benefit those who are purchasing a second home. The Government have already taken steps, through the tax system, on the issue of second homes. We have changed the discounts on council tax for second homes, through the Local Government Finance Act 2012. From 1 April 2013, billing authorities in England will be able to charge up to 100% council tax, instead of between 50% and 90%, on properties that they consider to be second homes. That corrects an imbalance permitted by the previous Government, which allowed second home owners to pay less than those with a single property.
The report suggested is wholly unnecessary, but in today’s debate issues have been raised about the Help to Buy scheme, particularly whether it will support those who wish to purchase a second home. We have already made it very clear that second homes will not be eligible for the Help to Buy equity loan scheme. The scheme builds on the existing successful First Buy scheme, and is able to use existing processes. In the new scheme the Government, through the Homes and Communities Agency, have a more direct relationship with the purchaser, and require a legal declaration by the purchaser’s solicitor that the property will be the purchaser’s only and main residence. The Chancellor has also been very clear that the intention of the Help to Buy mortgage guarantee scheme is to help people buy their first home, or to move up the property ladder as their family grows. But the mortgage guarantee scheme represents a major new intervention, and we must ensure that we get it right.
Chris Leslie
May I clarify the announcement that I think the Minister is making? Is he saying that there will be a requirement, as a covenant within the mortgage deed arrangements, to exclude the use of any equity from remortgages and so on for second home purposes? That, essentially, is what he has announced.
Sajid Javid
What I am saying is that, at the Budget, we set out a scheme outline. Now we need to work, with lenders and other stakeholders, on the detail. We want to ensure that we avoid any unexpected adverse consequences of the scheme, such as attempts to use it to purchase second homes. We want to look at this carefully, and we want to ensure that we discuss the details with industry. We have already started this process, and we will report back to Parliament in due course. Therefore the report suggested by new clause 1 is wholly unnecessary.
Bill Esterson
This is a really important point. What the Minister has not announced is that, if somebody is moving up to a second home, they must sell their first home. Can he confirm that they will not be able to keep that first home, because otherwise it will mean that people will be able to get a second home by using the scheme?
Sajid Javid
The hon. Gentleman raises a good point, which is that it is the Government’s duty to carefully consider what is meant by a second home. He has given as an example the situation in which someone has no intention of owning two homes, but is in the process of moving home. Let me share another example. There are couples who unfortunately get divorced, and there may be a need for another home as the family splits. The question then arises, is that a second home or not? It is sensible for the Government to examine such issues carefully as we flesh out the details.
Sajid Javid
In the interests of time, I must press on and answer some of the questions that were raised, including by the hon. Gentleman.
The hon. Member for Edinburgh North and Leith (Mark Lazarowicz) and others asked about the devolved authorities, in particular Scotland. The mortgage guarantee scheme is a UK-wide scheme and will be available to all UK residents, including of course those in Scotland and other devolved areas. The mortgage equity scheme is an England-only scheme as housing is a reserved issue among the devolved authorities.
Sajid Javid
The right hon. Gentleman asks a good question. Those are some of the details that we will flesh out. If he will allow me, I will look into the question further. I hope it is clear to him that the intention is that the mortgage guarantee scheme is a UK-wide scheme.
In the time that I have left, I shall turn to new clause 5. We have always been clear that the proposed mansion tax is an issue on which the two parties of the coalition have differing views. Our Liberal Democrat colleagues have supported the principle for some time, as we heard today so eloquently from my hon. Friend the Member for Bristol West (Stephen Williams). In contrast, Conservative Ministers have very real concerns about such a proposal.
We have concerns that a third of properties in London worth more than £2 million have been in the same ownership for 10 years, and that a mansion tax could hit asset-rich but potentially income-poor households. We have concerns that a family could live in a £2 million house, but have a very large mortgage. That would mean that their net wealth was a lot lower than the actual value of the home. We have concerns that any mansion tax would be administratively burdensome for HMRC to operate, not to mention intrusive for the person having their home inspected. But Opposition Members should be aware that we are taxing anyone purchasing a new home at this high value through the stamp duty land tax of 7% on residential properties costing £2 million or more. That is a policy that is easy to administer and it will not impact on existing home owners.
The Opposition have proposed that a mansion tax could pay for a tax cut for millions of people on low and middle incomes. The Government have already introduced tax cuts for those who need it most. We are increasing the personal allowance to £9,440 from April—the largest ever cash increase. That will be increased by a further £560 to reach £10,000 in 2014-15, meeting the Government’s commitment a whole year early. That is a tax cut for 24 million people and together takes 2.7 million people out of income taxation altogether.
Budget 2013 also announced that the fuel duty increase planned for September will be cancelled. The Finance Bill keeps fuel duty frozen at current levels, resulting in the longest freeze in fuel duty for 20 years, helping households and businesses with the cost of motoring.
Meanwhile, those with the highest incomes continue to contribute the most. This year the top 1% of taxpayers—those with an income of more than £150,000 a year—will pay approximately a quarter of all income tax. The top 5% of taxpayers—those on incomes of £68,000 or more—will pay nearly half of total income tax. As part of the Government’s commitment to create a fairer tax system, since 2010 the Government have raised taxes on the rich in every Budget. Budget 2010 introduced a higher rate of capital gains tax, Budget 2011 tackled avoidance through disguised remuneration, and Budget 2012 raised stamp duty land tax on high value homes and announced a cap on income tax reliefs. The autumn statement of 2012 took action to reduce the cost of pensions tax relief.
In Budget 2013 we announced further significant measures to tackle aggressive tax avoidance and offshore tax evasion by high earners. The richest now pay a higher percentage of income tax than they did under the previous Government. No doubt those on the Opposition Benches think a better approach would be to introduce a new starting rate of income tax, but let us not forget that the 10% rate is a policy that they introduced and then scrapped once before, to the cost of many further down the income scale—the people whom they claim they want to help. Fortunately, the Government have a more coherent income tax policy, as we heard from my hon. Friends the Members for Stevenage (Stephen McPartland) and for Bristol West. Our increases to the personal allowance have replaced the 10p rate, which Labour doubled; there have been successive increases to the tax free personal allowance. Effectively, we have introduced a 0% band.
Geraint Davies (Swansea West) (Lab/Co-op)
On a point of order, Mr Amess. The Minister is not addressing new clause 5. Surely this is not in order.
The Temporary Chair (Mr David Amess)
I am sure that the Minister has heard the point of order and now perhaps will address his remarks more precisely to the new clauses that we are debating.
Sajid Javid
I do think that it is relevant because the issue came up during the debate, but I take your guidance, Mr Amess.
The Government are committed to making the aspiration of home ownership a reality for as many households as possible. The housing measures introduced in this Budget will tackle long-term problems in the housing market, giving a much needed boost to housing supply and supporting those who want to get on or move up the housing ladder. Introducing a mansion tax would create real fairness issues by hitting asset rich but potentially income-poor households. It would serve to create only complexity and uncertainty. The Government have already made huge strides towards a fairer society and a stronger economy, and new clause 5 will not further that. I ask hon. Members not to press the new clauses.
Chris Leslie
Given the constrained time available under the Government’s programme motion and the need to move on to other issues, I do not wish to press new clause 1 to a vote, but it is important that we continue to press Ministers for some firmer answers on their Help to Buy scheme, which gives the impression of having been written on the back of an envelope without much thought and without looking in sufficient detail at some of the questions that have arisen in the course of the last few hours, whether with regard to devolved Administrations or second home purchases. Therefore, it is necessary to consider this further during the Bill’s passage.
However, it is important to test the view of the House on new clause 5, particularly given the speech of the hon. Member for Bristol West (Stephen Williams), who, in an acrobatic display of contortions that tests even the most adept of Liberal Democrats, managed to find a way to oppose a policy that he has supposedly advocated for a long time. Even when we agreed that the policy was the same, raising £2 billion on mansions worth over £2 million and using that money for a tax cut for low and middle-income households, he could not bring himself to abstain on the issue but will vote against the new clause. Therefore, we must test the view of the Committee.
Stephen Williams
New clause 5 calls for a study to be done by the Treasury; it is not about the principle of the policy. The Labour party gets £13 million of public money, Short money, to spend on policy development. Why does it not use some of that money to do its own studies?
Chris Leslie
When the Liberal Democrats are in a hole they really should stop digging. Is the reason for the hon. Gentleman voting against his own policy that he does not want us to look into the very details that he could not answer when challenged on his policy? Of course, if we are to implement a mansion tax we want to make sure that we get it right. We do not want the unthought-through approach taken by the Treasury. We want to make sure that we have taxes that are fair and will be sustainable for the population as a whole. Therefore, it is important that we test the principle of a mansion tax. Lower and middle-income households need that extra help and it is important that we put this question to the test. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 5
Mansion tax
‘The Chancellor shall review the possibility of bringing forward a mansion tax on properties worth over £2 million and publish a report, within six months of the passing of this Act, on how the revenue could be used to fund a tax cut for millions of people on middle and low incomes as part of a fair tax system.’.—(Chris Leslie.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Chris Leslie
I beg to move amendment 2, page 118, line 22, at end add—
‘(14) The Chancellor of the Exchequer shall review the possibility of incorporating a bank payroll tax within the bank levy and publish a report, within six months of the passing of this Act, on how additional revenue raised would be invested to create new jobs and tackle unemployment.’.
The Temporary Chairman (Mr David Amess): With this it will be convenient to discuss clauses 200 to 202 stand part.
Chris Leslie
We now turn to the issue of bank taxation. Amendment 2 seeks to commission from the Chancellor a review of the possibility of incorporating a bank payroll tax within the bank levy and the publishing of a report, within six months of the passing of the Finance Act, on how additional revenue raised would be invested—in particular, to create new jobs and tackle unemployment.
Our approach to bank taxation cannot be looked at in isolation from the economic consequences caused by the banking crisis or from the deficit left for the taxpayer as a result of the failures of the UK banking system. Despite signs in 2012 that the recovery was under way, the extreme-austerity path pursued by the Chancellor has led to stagnation and falling living standards, as well as to growth of only 0.8%, compared with the 5.3% that was promised at the 2010 spending review, and to downgraded forecasts for this year and next year. On top of that, wage levels are flatlining at a time of inflation, resulting in real-terms wage cuts for millions of people, and millions more are struggling to find work in the first place. The typical family is worse off by £891 a year as a result of the cumulative effect of the decisions taken since 2010.
Andrew Gwynne
Was my hon. Friend as amazed as I was at the corporation tax figures produced by Her Majesty’s Revenue and Customs? We were told—indeed, the Chancellor informed the House—that the corporation tax cut would be offset by the Government and that there would be no benefit to the banks.
Chris Leslie
This is the curious thing about the Government’s approach to the bank levy. They have consistently said, “Don’t worry, we’ll set the rate”—let us bear in mind that the levy is a charge on the balance sheets and a proportion of a certain set of liabilities—and said that it was designed to yield £2.5 billion, so it has taken some doing for the Treasury to have managed to net only £1.6 billion in the past year and to get the bank levy so wrong. If it had been my hon. Friend’s constituents who were due to pay a certain level of tax through PAYE or national insurance, does he imagine that the taxman or Treasury would have been so lax and said, “Oh, don’t worry, we’ll let you off that massive liability for the time being”? That is essentially what the Minister and his colleagues in the Treasury have been doing and saying to the banks.
Andrew Gwynne
My hon. Friend is absolutely right. Had it been my constituents who owed HMRC any sum of money, HMRC would have been down on them like a ton of bricks, whether they were businesses or individuals. Is not that the inherent unfairness? The Government say that the banks will not prosper from these changes, but clearly that is not the case.
Chris Leslie
I am afraid that the situation is even worse than my hon. Friend thinks. It is not only the past financial year in which the Minister and his colleagues took their eye off the ball on the bank levy: they did so in the financial year before that, too. In 2011-12, the combined shortfall from the bank levy, netting in £1.8 billion or so and added to the corporation tax cut, was £800 million less than Ministers promised. It is not good enough to say, “Oh well, this is an aberration, and it is something that we can tweak and correct.” Ministers are not going back as far as they should and correcting that shortfall in the steps they are taking in the Budget. It is just not good enough. They have not thought through the design of the bank levy carefully enough.
It is not as though Ministers were not warned. I am sorry that the Exchequer Secretary is not in his place, as I warned him in a debate in July 2010—it seems like only yesterday, but it was nearly three years ago—when I said, “The bank levy is too weak. It will not work and it will not have those yields.” It does not give me any satisfaction to say, “I told you so”, but I did tell them so, and Ministers cannot therefore claim that it was something that happened by chance.
Jonathan Edwards
I have much sympathy with what the hon. Gentleman is saying, but rather than introducing a new tax, what consideration has he given to just increasing the levy?
Chris Leslie
That is an option, and we certainly need to go back to the drawing board and make sure that we design the bank levy in a way that actually works. The proposition we have made in the amendment is to repeat the bank bonus tax that worked very successfully in 2009. That could be incorporated into the bank levy process—that is one option—to ensure that we get a fair share for the taxpayer, who has suffered as a consequence of the requirement to bail out the banks.
The Financial Secretary to the Treasury (Greg Clark)
Will the hon. Gentleman clarify whether his policy is for a one-off payroll tax or a permanent one?
Chris Leslie
This is where we need to look at the interplay with the bank levy. Clearly the levy should be a permanent way of ensuring that we net the right level of resource for the Treasury in recompense for the deficit that the banks created. It is possible to have a bank bonus tax that is more sustainable, but I am open to discussion with the Treasury about how that might work. Even if we netted less than the £3.5 billion that the first bank bonus tax brought in, it would still be considerably more on top of the bank levy, which clearly needs to be topped up. It is important that we look at that—
Greg Clark
Given that the hon. Gentleman clearly does not know whether it would be permanent or temporary, can he at least give an assurance to the Committee that he will not commit any spending to be funded by that levy that goes beyond any particular year?
Chris Leslie
I can tell the Minister that in this financial year it would be necessary for us to repeat that bank bonus tax. We will set out our tax and spending proposals when we write the manifesto for the general election. Heaven knows what kind of mess we will have to untangle after a further two years. It would be invidious to make decisions at this point in the cycle when the Minister will not tell us what is in the spending review in just two months’ time. We will make an assessment in two years’ time. I can certainly tell him that, from our point of view—this is a serious policy distinction—a bank bonus tax would be necessary now, particularly to help fund a compulsory jobs guarantee for young people. That is a necessity, given the unemployment figures we saw earlier today.
Charlie Elphicke (Dover) (Con)
Can the hon. Gentleman tell the Committee exactly how much extra he wants his proposal to raise?
Chris Leslie
We feel that £2 billion could be raised this year from a repetition of the bank bonus tax. That would be an important contribution from those who are doing particularly well. I do not know whether the hon. Gentleman moves in those circles and whether he has seen, as though nothing much has changed in the world, how high bonuses continue to be. Yes, changes from the European Union and elsewhere are being forced on to the bonus culture, but bonuses are still excessively generous to the very lucky few. There are a number of reasons why the bank bonus tax would be good not just for the taxpayer, but in changing the culture in the sector itself. The tax raised £3.5 billion when it was last tried in 2009.
Greg Clark
At what rate would the bonus tax be to raise that amount of money this year?
Chris Leslie
I was anticipating that question from the Minister. This is the Minister who has tweaked and changed the rate, I think, five or six times in various Finance Bills, all to fit the £2.5 billion figure that he has totally failed to address. We need to go back to the drawing board on the bank levy and find a way of calculating it so that it properly yields the sums that we envisage. Of course, the bank levy has to be thought through, so that we get that resource in. It is totally unacceptable to have lost nearly £2 billion for the taxpayer in the past two financial years. Just think what that £2 billion could have achieved in that period. This is not small money. There is the classic chancellorial phrase, “A billion here, a billion there and very soon it starts to add up to real money”, but this is significant resource. It is to the great shame of Ministers that they have allowed that money to slip away from them.
Charlie Elphicke
I thank the hon. Gentleman for giving way again; he is being generous with his time. I just want to understand one thing. If, say, he raised £2 billion in the way he proposes, what would he say to the person who finds it harder to get finance for the borrowing that they need, because of the regulatory requirements on banks and because he had taken a whole load of money out of the banking system, reducing the ability of the banks to lend money?
Chris Leslie
Why should a constraint on the bonus pool have a constraint on the lending capacity of banks? The hon. Gentleman seems to be suggesting—this is the classic Conservative attitude to banking—that the one inviolate part of a bank’s balance sheet is remuneration, or “compensation” as they sometimes like to call it: “Do what you like to the banks, but for goodness’ sake don’t affect that bonus pool and don’t change that compensation pool.” Well, I am sorry, but we take a totally different point of view. In fact, if there is one area of bank finance that needs a culture change, and which proves that stronger capital adequacy is not anathema to bank lending, it is management remuneration. It is too bloated and needs to change.
Geraint Davies
My hon. Friend has been thinking creatively about how banks can make a contribution to getting people back to work. In light of the previous debate, has any consideration been given to the idea of banks being guided into investing in social housing, which could then become part of their assets? Rather than just taking money from banks, which then complain they do not have any money left, their assets could be interwoven with job creation, asset generation and a lowering of the housing benefit bill. We all know that the 17% rise in housing benefit is due to the private sector and a lack of public housing.
Chris Leslie
There is a debate to be had—possibly a separate one—about how we can make a certain kind of socially useful asset class more attractive to private investment. If we as a society want to boost housing investment, we need to attract investors to make those decisions. That would certainly be a more sophisticated way of devising public policy, instead of the dreamed-up approaches in the Help to Buy scheme and the NewBuy scheme, which, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) said, delivered only 1.5% of the expected additional housing.
Mark Lazarowicz
It is useful of my hon. Friend to remind us of the coincidence of Budget day, which meant misery for many ordinary people, and millions of pounds of bonuses announced by that bank. That indicates another reason why the bank bonus tax is so important: we have to do right by the public, who cannot understand how, in spite of all that has happened, some bankers get multi-million-pound bonuses at a time when most other people are having to tighten their belts in a big way.
Chris Leslie
As I was saying, Barclays has talked about confronting some of the necessary culture changes. It commissioned the Salz report after its involvement in the LIBOR scandal and the fines it received as a result, yet still that oil tanker of bonuses continued to float on, even in that particularly difficult year.
Mike Thornton (Eastleigh) (LD)
I sympathise, obviously, with the point about the overpayment of bonuses. I have three quick questions. First, how does the hon. Gentleman propose to prevent the banks from passing on the cost to their customers? Secondly, at what level of bonus would the tax start? I hope it would not affect ordinary retail staff earning their £50 bonus. And thirdly —no two will do!
Chris Leslie
Well, that is still more than we normally get in one intervention. You are very generous in the Chair, Mr Amess. I do not think there was any evidence of the bonus tax being passed on to customers before, because regulation can ensure constraints on how the remuneration pool works. The Bank of England itself, through the Financial Policy Committee, is now sending the strong message that banks should stop prioritising that bonus pool and level of compensation. The world has changed, and the banks have to recognise that their behaviour also has to change.
We want specifically to target the highest-paid individuals in the banks, not the clerks or ordinary staff. The tax would be aimed at large, discretionary bonuses above £25,000, which continue to be paid out even in the state-owned banking sector. RBS and NatWest paid out bonuses worth £607 million in 2012, despite making a £5 billion loss. Of course, it was the Prime Minister who promised to ensure that any state-owned bank did not pay out a bonus of more than £2,000.
Chris Leslie
I am sure that the hon. Gentleman remembers that promise from his great leader.
Charlie Elphicke
The hon. Gentleman is right: we all want to see pay restraint on the part of banks and the banking system. However, that is a separate argument from the issue of imposing taxation. If he took £2 billion out of the banking system at this time, it would mean less finance or pricier finance, which would be bad for the economy and bad for the recovery.
Chris Leslie
We are repeating the intervention and the response I gave earlier. I just disagree with the hon. Gentleman. I do not think it is an inalienable right of bankers to continue to receive multi-million pound bonuses. The world has changed, as even many Government Members recognise. Defending the indefensible will not do him any good.
Huw Irranca-Davies (Ogmore) (Lab)
May I suggest an alternative hypothesis to my hon. Friend? The runaway bonus inflation that we are seeing once again suggests that the top earners are almost anticipating a bonus tax, in which case we may as well give it to them and fund jobs for the young unemployed.
Chris Leslie
That is the other crucial part. We are often criticised by the Government, who ask, “Where are your policies? What are you proposing to do about the economic situation?” but here is a pretty good suggestion for them. Let us learn from their mistake of scrapping the new deal and the future jobs fund, which my hon. Friends will remember, and do something to help to get young people in particular back to work. There is a separate issue with the long-term unemployed. We have talked separately about changes to the highest rate of pension relief, which could help to fund something for the long-term unemployed, but we could use the bank bonus tax to help to get young people back into work. It is essential that we get people back into the habit of working and paying taxes, and if they turn down those job opportunities, they should forfeit benefits as a result. The proposal has to be part of a tough policy, to ensure that we always focus on work as the best antidote to an inflated welfare budget, but to get our economy moving again too.
Alison Seabeck
Picking up on the point made from the Government Benches about some of our measures taking money out of the economy, is my hon. Friend concerned that the local economy in Plymouth, for example, is losing £16 million because of the Government’s benefit changes? Does he not see some contradiction in that?
Chris Leslie
The study commissioned by the Financial Times which showed the massive impact of the extreme austerity being pursued by the Government will bring home to many communities where some of the poorest people live the fact that that money and those resources are being taken out of their local economies.
Greg Clark
I am sorry to press the hon. Gentleman on this point, but can he answer a conundrum for me? He has helpfully said that he wants to raise £2 billion this year through his payroll tax. The Centre for Economics and Business Research estimates that this year’s bonus pool would be £1.6 billion in total. How will he raise £2 billion from that?
Chris Leslie
I do not recognise that figure. [Interruption.] The Minister is making various projections about the bonus pool, but even if the changes meant that we did not manage in years to come to yield what we now feel we can yield—he could equally make the argument that said, “Well, the European Union is making changes to limit bonuses,” which would obviously mean changes to salaries and elsewhere—what we are proposing would add considerably to the bank levy revenues that he has managed to generate. As we have set out in the amendment before the Committee, we need to incorporate a repeat of the bank payroll tax. It is important to recognise that, although I am happy for the Treasury to commission further research on the issue. If the Government are interested in this agenda and are starting to move in that direction, that might be useful.
Mark Garnier (Wyre Forest) (Con)
I am slightly confused about one thing. Is the hon. Gentleman trying to reduce profligacy and excesses in bankers’ bonuses or is he trying to raise revenue? The problem is that if he gets rid of bonuses or drives them down—a great many of us, and certainly the Parliamentary Commission on Banking Standards, have said that we do not like this at all—he will not get the payroll taxes, namely national insurance and income tax, on those bonuses, so the revenue will go down. I am not too sure what position he is trying to get to.
Chris Leslie
Of course that argument could be made about any demerit activity or level of taxation. People have been making that argument about cigarette taxes over the years, saying “Well, if people give up smoking, will the Treasury not lose a lot of money from it?” I do not want to divert too much into the wider principle, but I would say that a very considerable tax cut has been given to bankers by reducing the 50p rate of income tax to 45p—a cut that is providing a very significant bonus to those individuals in this year. The hon. Gentleman need not worry too much about these poor maligned executives in the banking system. I know that things must be very difficult for them—they may even have to defer the purchase of their yachts for that little bit longer—but we must start capturing and getting a grip on this issue in a way that the bank levy has not worked to achieve so far.
Mark Lazarowicz
On my hon. Friend’s last point, given that many of the banks are substantially owned by the public sector, what does not go in bonuses to the top bankers might come back to the taxpayer in other ways. On the question of the European dimension, we often hear that a bankers’ bonus tax could not be introduced only in the UK because all the top bankers would flee to Luxembourg, France, Germany or wherever. Is that not a good reason why a Europe-wide policy should be considered—precisely because there would be less opportunity for people to get away from UK taxation, which is sometimes used as an objection to a bankers’ bonus tax?
Chris Leslie
I know that Members of the European Parliament have debated some of these issues earlier this week; indeed, they have this week instituted a cap on the bonus level. We will need to reassess behaviour under that new arrangement, but I reiterate that we are confident that the revenue could be used for the purpose of helping the young unemployed.
Chris Leslie
I want the Government to do the same, and I challenge the hon. Gentleman to support us.
Mr Newmark
That will never happen.
I apologise for missing the Minister’s opening remarks, but I was so excited by the shadow Minister’s remarks that I wanted to intervene. I understand that mathematics is not a strong point when it comes to Labour party policy. We have heard from the Minister that bonuses have come down from approximately £11 billion to £1.6 billion. He is proposing a 130% tax on people who receive bonuses, in respect of the current statistics. We have heard from my hon. Friend the Member for Wyre Forest (Mark Garnier) that the shadow Minister has not thought about the implications for the reduction in take-home from achieving the changes he wants to bankers’ bonuses, which will reduce the money coming in for the Exchequer, which I suspect means that his numbers will not add up. The question I really want to put to him, however, is whether his proposed reduction in bonuses relates purely to cash. If not, is he saying that if employees are given shares, which might have a vesting period of more than five years, the vest for that period will be taxed? Is it about cash, or is it about cash plus shares?
Chris Leslie
I get the sense that the hon. Gentleman is starting an accountancy line, perhaps thinking how best to advise these bankers of ways around that nasty Labour Government’s bankers’ bonus tax. I am sure that whether it be in Bitcoins, gold or shares, bankers will be ingenious in how they pay and reward themselves. We have to get a grip of it, though, because however much they lavish rewards on themselves, the Exchequer needs to keep pace with the arrangement. I accept that this is a fluid situation, with policy and banker remuneration changing at the European level, but we must capture this particular issue and not adopt the lackadaisical attitude that the Treasury has adopted so far.
Bill Esterson
A number of figures have been bandied around in the debate, and it is difficult to know exactly which ones are right. Surely that is why we need the review that the amendment proposes. Such a review will, using the resources available to the Treasury, show how the scheme would work. That is surely the best way of answering the questions. We are hearing too many different arguments and different figures—even from the Members who have spoken over the last few minutes.
Chris Leslie
My hon. Friend is correct. However, even if we assume that, as the Minister will no doubt say when I give way to him in a moment, cash bonuses have been changing and the revenue yield will not be the same as it was in 2009, the fact remains that in 2009 we brought in £3.5 billion, and we calculate that this year we could bring in £2 billion. I have not seen any figures to the contrary. As for the Minister’s predictions of what may happen to bonus arrangements in the future, we can come to that in time.
Greg Clark
I thank the hon. Gentleman for giving way; he said earlier that he would do so.
The hon. Gentleman said that he had based his assumption on calculations. The authoritative source on these matters is the CBI, which has published figures consistently over time. It says that the bonus pool was £6.5 billion in 2010 and is £1.6 billion in 2013. Will he share with the Committee the calculations on which he has based his assumption about the bonus pool, and the source that he used? If he cannot do that, I hope he will desist, both in this debate and in future, from making any spending commitments that rely on a source that is fanciful.
Chris Leslie
I would be happy to enter into correspondence with the Minister about the matter. However, we feel that, according to a conservative estimate —I use the term, on this occasion, in a relatively pleasant way—£2 billion could be netted for the Exchequer, as opposed to the £3.5 billion that was netted in 2009.
Our amendment would require the Chancellor to
“review the possibility of incorporating a bank payroll tax within the bank levy”.
I am delighted that the Treasury has conceded that it wishes to engage in such a review. I am delighted that there has been a bit of movement in that regard. I would quite like to ask where the Liberal Democrats are on the issue, but then I would quite like to ask where the Liberal Democrats are generally—although I shall not dwell on that.
Greg Clark
I would like the hon. Gentleman to be more precise about the figures. He said that last time the payroll tax raised £3.4 billion—
Greg Clark
The hon. Gentleman says that it was £3.5 billion. I am sure he will confirm that he has read the analysis published last year by Her Majesty’s Revenue and Customs, which clearly states that £3.4 billion is a gross receipts figure and that the net yield was £2.3 billion. He will agree with that, I am sure.
Chris Leslie
No. The figures given in the HMRC study were estimates—and, incidentally, it was not a study by the Office for Budget Responsibility. For “HMRC”, read “Ministers”. They may well pooh-pooh the payroll levy and the bank bonus tax, but we feel that there is ample evidence to demonstrate how it operated before and how it could and should operate again. If only Ministers would adopt a more “can do” attitude, rather than trying to deflect attention from the massive embarrassment of having promised to raise £2.5 billion from a bank levy and having brought in only £1.6 billion in the last financial year. Although we said year after year that the levy would not be strong enough, they turned a blind eye, and indeed they have turned a blind eye to their banker friends for far too long.
The Government have provided tax cuts amounting to £19 million in the last week by reducing the 50p rate to 45p. A massive number of bank executives are earning more than £1 million this year. A cursory study of the annual reports and accounts of some of the banks concerned—Opposition Members may wish to listen to this rather than talking among themselves—reveals that this year’s bonus results created a staggering number of millionaires. In the Royal Bank of Scotland, 93 bankers were given bonuses of more than £1 million. Given the tax cut, they will benefit to the tune of more than £6 million in the current financial year. Barclays originally reported that it had 428 millionaires, given bonuses. I have been told that only a third are UK-based, but that would still mean that 140 Barclays executives are benefiting from nearly £23 million in tax cuts granted by the Minister because of the reduction in the top band of income tax. Seventy-eight millionaires at HSBC have received a combined tax cut of £3.3 million. Nineteen individuals at Santander are receiving a giveaway of more than £800,000. Twenty-five millionaires at Lloyds are receiving from the Treasury a combined tax giveaway in this financial year of £1.3 million. So they are doing very well, thank you very much, from this Government.
Mike Thornton
The hon. Gentleman is discussing banks paying this tax. Why limit it to banks? Many other organisations, such as hedge funds and insurance companies, pay very large bonuses. I understand that at one point, we perhaps needed to punish them; by why not tax extra anyone that has a bonus of £25,000 or above?
Chris Leslie
Perhaps the hon. Gentleman will have a chapter in the pamphlet that the hon. Member for Bristol West (Stephen Williams) is writing; we would all be interested to read it. [Interruption.] From a sedentary position, I am offered a signed copy of that pamphlet. We are all interested in political memorabilia, and it would certainly be an historic document.
We wanted to retain the 50p top rate of income tax for this year. It should not have been cut, and we think that doing so is unfair. I know—well, I think I know—that in their heart of hearts, the Liberal Democrats do not really agree with the cut, which will of course apply to those earning £150,000 or more. We have to recognise the special responsibility that banks and banking executives have to wider society, given the massive cost to the taxpayer of the banking crisis and the resulting deficit, the consequences of which many of our constituents are still suffering. We still have not got justice for what happened in 2008, which is one reason why we think it important to take this step now.
Mr Newmark
Does the hon. Gentleman distinguish at all between those financial institutions over which the Government have some sense of control—a sense of public ownership—and which the taxpayer had to bail out, and those that did not need taxpayer support? Following that logic, if he really wants to have complete control of compensation and bonuses, does he therefore want to nationalise RBS?
Chris Leslie
No—that is a preposterous suggestion. The hon. Gentleman also needs to recognise that all banks have benefited from the implied guarantee of the taxpayer, even if they did not need to be bailed out. He knows very well that the whole banking sector has benefited for a long time, and continues to benefit, from the market expectation that, should a retail bank get into difficulty or become insolvent, the taxpayer will come to its rescue. That is an implied subsidy, for which the banks ought to compensate the taxpayer. That is part of the argument I am happy to make.
Andrew Gwynne
My hon. Friend is incisively highlighting that the Government have effectively given the banks a tax cut, because of the levy’s failure to bring in the resources they initially said it would. Moreover, bankers themselves are still receiving these eye-watering bonuses, while at the same time the Government are giving them a tax cut—the tax cut for millionaires. Is that not absolutely why we need this bank bonus tax to sit alongside the bank levy, so that we can reinvest that revenue in a jobs programme? Have we not shown that a bank bonus tax works?
Chris Leslie
Exactly, and never let Government Members claim again that we do not have a positive approach that would get young people off the dole and back into employment. This is the route that needs to be taken, and the choice presented to the public which they can see most starkly, particularly on a day when unemployment is rising.
Chris Leslie
I will not give way to the hon. Gentleman, as he has only recently come into the Chamber, but we will see—[Interruption.] Oh, go on then, as he is one of my favourites.
Neil Carmichael
I am grateful to the shadow Minister for giving way; I thought there was a compliment coming along there, too. Not all banks have a bonus system; Handelsbanken is a good example. If we are to have such a separation between banks, with all the difficulties that that would bring about, what would the shadow Minister say to the suggestion that his proposal is a huge complication that will cause more difficulties than it will solve?
Chris Leslie
I would like nothing more than for our banking sector to move to a more enlightened and responsible approach to remuneration. I would not want to see a bloated and unfair bonus arrangement continuing in perpetuity simply as a result of a function of the tax system. For the time being, we need to start to send a signal on behalf of public policy makers that the current arrangements, which have not changed sufficiently since before the financial crash or during it, continue to be difficult. The banks often say that they want catharsis and that they want to move on, and I do not want to spend the rest of my life in banking legislation, for goodness’ sake, but we are still not there and the bonus levy is part of that process.
I do not want to talk for much longer, but I want to challenge the Minister specifically on the bank levy arrangements as we are debating stand part for clauses 200 to 202. We have had six different bank levy rates and they have failed to raise the right amount. We have talked about this time and time again, and I do not want to keep coming back in our debates on the autumn statement next year or on the 2014 Budget to a similar discussion on retrospectively tweaking the bank levy. I want to hear from the Minister when he replies that he can guarantee that in this financial year £2.5 billion will be netted in by the bank levy. If he cannot guarantee that, he must admit that we must reconsider the policy, which is haemorrhaging money when it should be boosting the Exchequer far more significantly.
As I said before, parliamentary rules prevent the Opposition from tabling amendments that would tweak the bank levy upwards. There is a convention of the House that only Governments can table amendments to a Finance Bill that would increase a charge on individuals or companies. The process is incredibly frustrating, as we need to ensure that we get into the detail of how the bank levy should work and what the rates should be. For the time being, we feel that tabling amendment 2 so that we can consider a review of how a bank bonus tax could help the young unemployed, in particular, and of how to incorporate it into a bank levy that nets the amount it should is the right way forward. I commend the amendment to my hon. Friends.
Geraint Davies
I make my comments in light of the fact that today’s unemployment figures showed an increase of 42% in the number of people on jobseeker’s allowance in my constituency of Swansea West. That comes in the aftermath of the financial tsunami of sub-prime debt that hit our shores in 2008, which was largely a result of the banking world taking unhealthy risks in the knowledge that the state would ultimately stand behind it. On the upside, people can take enormous gambles and make tremendous bonuses in the knowledge that if it all goes wrong, the taxpayer will cough up. The net impact of all that is that we are now doddering along on the bottom of the sea of growth and people do not have opportunities.
The strategic challenges for the Government are how to ensure that money is focused on job creation and that the banking community pays its fair share. We know that from this April, the top rate of tax was reduced by 5 points—from 50p to 45p. I realise that the Prime Minister gets up on his hind legs and says, “Oh, but we will raise more from the 45p rate than was going to be raised from the 50p rate,” but we all know that the reason for that is that people with large amounts of money can move their income between tax years. Bankers and others will simply move money to a different tax year when the rate was 45p instead of 50p and avoid the tax. If the 50p rate had been sustained, we would have generated a lot more money, particularly from the banking community. My hon. Friend the Member for Nottingham East (Chris Leslie) did a great job of highlighting the multi-million pound giveaway to the richest in our communities from the reduction. Our modest proposal would deal with people who are being shielded by the taxpayer from proper competition.
Mark Garnier
The hon. Gentleman speaks from the heart about the 50p tax rate and I can understand why Labour Members do so, because during 13 years they spent 12 years and 11 months thinking deeply about introducing it.
Mark Garnier
It would have been wonderful if it had been brought it in earlier because it would have shown more resolve from the Labour party.
Will the hon. Gentleman enlighten the Committee about what is behind the proposal? Is the intention of the levy to reduce the risk of perverse incentives through what can be an obscene bonus system, or is it to generate revenue? One or the other, which is it?
Geraint Davies
I will come to that point. In his preliminary commentary, the hon. Gentleman asked why the Labour party failed to bring in the 50p tax rate, and indeed the Prime Minister boasts that he is taxing the rich more than Labour ever did, and that is great. The Labour party does not exist to introduce high taxes; it exists to give people opportunity and employment. Higher levels of employment bring prosperity and opportunity, so there is enough tax yield from a lower tax rate to fund public services. Between 1997 and 2008, the economy grew by 40%.
If one is concerned, as I am—as we all are—about the debt to GDP ratio, which is the total debt divided by the value of the economy, there are two ways to get it down. The first is to cut the debt directly, cutting most from the poorest as the Tories do. The other is to increase the size of the economy. In 2010, after we had gone through the financial tsunami, but luckily on the back of 10 years of unparalleled increase in growth under Labour, the debt to GDP ratio was 55%; now the forecast is 85%. The reason is not just that the Tories are keen on cutting money for the poorest and getting money from people who do not have it, but that they cannot get their act together strategically to generate a growth strategy that reduces the ratio so that we do not need higher tax rates. We do not want people who are making obscene bonuses to pay higher taxes for the sake of it; we want people in work.
Mark Garnier
Is not the biggest inequity that it is not Government debt that is the real problem, but household debt? In the period from 1997 to 2008, household debt as a percentage of household income went from 80% to 140%, and the boom in the economy was paid for by a colossal bubble of household debt. That is the real problem.
Geraint Davies
That simply is not the case. I was at the Bank of England relatively recently looking at the profile of debt in the run-up to 2008 and from 2010. From 2010, the ratio of the debt between the Government and the banking community was 1:2. Two thirds of the debt was that of the banking community. Do not misunderstand me: there has been a problem with the general public ratcheting up more private debt through the availability of low interest rates, which in themselves are a good thing, thanks to the fact that my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) introduced Bank of England independence and all the rest of it, and thanks to a feeling that there would be a continuation of growth. People were investing in houses and they were growing in price and so on.
Since 2010, when the Chancellor said, “We will have half a million people unemployed in the public services” and did not say who they were or when they would lose their jobs, there has been a sharp rise in savings rates and a fall-off in consumer demand. We have seen consumer demand basically flatlining, which underlines the reason why we do not have growth, which is why we do not have a reduction in the debt to GDP ratio.
We need confidence to get back on a growth path so that people can spend in the knowledge that they will have jobs in the future. Part of that is to re-engineer the financial world in such a way that money is channelled into productive capacity. Although, allegedly, we have an extra million people in work, overall output is the same. Average production has fallen and average productivity is down, which is very worrying. So we need to think how to ensure that the banking community pays its fair share and how to direct money, in a meaningful way, into job creation and public and private assets.
I was not in the Chamber for the previous debate, but part of that thought process would be, how to encourage the banking community, not in a high-risk way, to start helping people to build desperately needed housing—to get people who have been out of work, many of them in the construction industry, back into work to provide social houses.
Geraint Davies
I will give way in a moment.
After all, one of the big issues that is waved around by the Government is, “We must get the welfare bill down and Labour will not do anything about it.” The flagship of that proposition is, “Housing benefit has doubled to £20 billion in the past 10 years. What is the Labour party going to do about that? We are going to introduce the empty bedroom tax.” In fact, 70% of that increase has come about through escalating private sector rents, and local councils being forced to use the private sector for people in need of housing, because not enough social housing is being built.
If we could somehow get the banks to build social houses, perhaps by allowing them to own partly some of those assets, and by doing so create jobs for people who would pay tax, people would have houses and the housing benefit bill per household would go down because rents would go down—housing benefit is linked to rent levels. We need to think about how to put this together, and part of that debate clearly relates to the banks. When there are obscene bonuses and the recipients are receiving tax cuts, it is not fair, certainly from where I stand, when I am seeing local unemployment up 42%.
Geraint Davies
I will give way to my hon. Friend the Member for Sefton Central (Bill Esterson) first.
Bill Esterson
My hon. Friend is conducting a very thorough examination of the causes of the financial problems that we face. He mentioned housing. Does he agree that the housing bubble is part of the cause of the problem, because people borrowed against the value of their property, which is not a long-term, sustainable way of producing growth in the economy? One reason why the proposal that we are debating is so important is that we need a sustainable model of taxation to underpin the growth in the economy with the type of investment that my hon. Friend is talking about, rather than using assets as a way of investing, which is not sustainable. Actually, there is some evidence that that problem is recurring now.
Geraint Davies
I agree that part of the previous problem was the false assumption that the value of property would continue to escalate. Lenders would grant 110% mortgages on the presumption that, within a couple of years, the equity would catch up and there would not be negative equity. Therefore, borrowers would start with negative equity. The issue of sub-prime debt is a big problem.
One of the flagship proposals of the current Budget is for the state to come in and subsidise deposits by lending up to four fifths of the 25% deposit. There are people in the financial community who are thinking, quite reasonably, “Hold on; this could be the start of another sub-prime debt problem.” The problem we have is that people cannot afford to save the deposit that would enable them to become an owner-occupier. They are paying a rent that is too high because there are not enough houses, so they cannot save the deposit. There is a logic that asks, “Can we help them with that deposit?” I agree with that logic that far, but we must be very careful. People have said, “Oh well, no one is taking up the offer,” but if this suddenly becomes a very significant amount of money and it is not properly balanced as a risk, we could be going down the path that started the problem in the first place.
That said, ultimately communities are desperately in need of houses. Historically, council houses were invented because the marketplace was failing to deliver affordable, quality housing for very large parts of the community, and we had Rachmanism. I fear, actually, that we are witnessing the start of its re-emergence. So investing in assets in which people can have stable family lives, as a platform to get jobs, is good. We will not solve the problem today, but part of this debate is clearly about reviewing whether we can do some extraction from the banking community. That community have just been given back a lot of money, they have been causing many of the problems and there is a risk premium. They should be paying back to the taxpayers who are covering their back. Then we can think creatively about how to engage the banking community in small business development, housing development and so on.
Huw Irranca-Davies
Conservative Members have asked whether this is a tax-raising scheme or a scheme to create jobs and homes. I put it to my hon. Friend that I am bemused as to why it cannot be both. Surely a scheme that takes from where there is disproportionate wealth and redistributes, not simply in terms of cash in pocket, but into jobs, and taxes paid by people in those jobs, has such a glorious splendour about it that I struggle to see the dilemma.
Geraint Davies
That is precisely right, because the creative challenge is how to get the banking community to invest in jobs and small business, and one way is to take some money from them and create some jobs and small businesses. If they cannot work out how to do it, that seems a reasonable thing to do.
Greg Clark
Through the hon. Gentleman, perhaps I may express the dilemma that was raised by his hon. Friend the Member for Ogmore (Huw Irranca-Davies). I fear that a cruel deception is being perpetrated on the unemployed. They feel that a sum of money will be available to them, but it simply is not possible to raise £2 billion when the total bonus pool is less than that. I think they should know that.
Geraint Davies
Yes. Well, obviously, we clearly need to look at aggregate sums, but what is being debated here is—[Interruption.] What is being debated here is, is whether it is right that a community of people—I am talking particularly about people in the upper echelons of the banking community—who are making obscene bonuses should be given more and more money for doing no more work and having the taxpayers covering their backs in terms of risk, at a time when we are seeing an escalation of unemployment in various communities, including some that I represent, and when the very poorest are being asked to deal with obscene levels of pain in order to reduce the deficit problem.
Huw Irranca-Davies
May I suggest, through my hon. Friend, by way of riposte, that the cruel deception that is being perpetrated is that there is a lack of ingenuity within the Treasury that could extricate some of the undeserved wealth and redistribute it to put people in jobs? I fail to agree that there is a lack of expertise or resourcefulness there; that is an admission of supineness, of surrender. We should be looking for imaginative ways, like the amendment before us, to get people back to work, by taxing those who are disproportionately wealthy and undeserving.
Geraint Davies
That is right, and there would be widespread support for that across our communities and probably in the banking community. People are taking home an extra £1 million and asking themselves whether they should be paying income tax at 45p or 50p, at a time when we hear cases of people earning, say, £20 a week. As I mentioned at Prime Minister’s Question Time, a constituent who recently came to me was a chronically ill man who had £20 a week after paying his utility bills and his bus fare. This month he is down to about £14 a week due to benefit cuts. If such cases were brought to the attention of some of those wondering whether to buy their second yacht, I do not think they would mind paying a little more.
It has been insinuated that a 50p rate would discourage such people and be so painful for them that they would all get in their yachts and go off and live somewhere else, but in Britain today many people already pay more than 50p. Anyone who is earning more than £32,000 and less than £42,000 is paying 40% tax plus 12% national insurance. That is 52%. The only reason that they have to pay more than 50p and the millionaires do not is that they do not have their own personal accountants. That is not fair, is it?
These are sustainable levels of marginal taxation and it is right that they should be paid. It is right that members of the banking community, who have their backs covered, should pay more than their fair share. It is also right that the Government should get their act together to stop abuse by many members of that community who are taking the mickey.
Yesterday I had a meeting with a lawyer who specialises in giving advice to people facing charges of insider dealing and the like from the Financial Services Authority, which is now the Financial Conduct Authority. We were talking enormous amounts of money that people are trying to avoid paying. The point that she made to me is that the people in the FSA, now the FCA, do not have the resources and the clout, and have to deal with dozens of cases, while the defence lawyers deal with only a few cases because the amounts of money are so great. What is more—the Minister might want to do something about this—there is no system of precedent.
If the FSA says to a bank, “You have committed this offence and we are going to charge you £1 million”, which is small change for a bank, the FSA cannot set a precedent. The banking community knows that, if they do it, they will be charged; the FSA has to rehearse the same action again and again. I hope the Minister will look into this as it comes from the horse’s mouth—from people who are giving advice to people who are being defended. They also poach staff from the FSA or the FCA to work for them. They say, “We’ll give you three times as much. You’ve been charging us and you’re very good at it. You’re not paid enough for your success. Come over to our side. Have some of our bonus and we can do some insider dealing. The people at the Exchequer are making cuts at the tax office to save money, so we can have more.”
Andrew Gwynne
My hon. Friend should be a little more charitable towards the Government. There has been a thread of consistency in their approach. Had he been present for the first debate, he would have heard my hon. Friend the Member for Nottingham East (Chris Leslie) say from the Front Bench that the Prime Minister promised that under the Government’s New Buy scheme, 100,000 families would be helped and only 1,500 families were eventually helped through that scheme. In this debate we heard that the Prime Minister said that £2.5 billion would be raised by the bank levy, whereas we heard from my hon. Friend on the Front Bench that £1.1 billion was raised. Is there not a degree of consistency here? The Government are consistently incompetent.
Geraint Davies
That certainly would be a charitable way of putting it. If financial targets are set and are under-achieved, the Government clearly need to redouble their efforts to deliver those targets. We need to continue to focus on generating joined-up systems to ensure that the money that is available delivers economic outcomes such as opportunity and jobs. The amendment is designed to create imaginative ways of generating opportunity and jobs for the future by using the money that is recovered. We should join together to do that. It is a modest amendment that we should all agree on. We should work together to build a stronger Britain.
I fear that the Government will say, “Oh no, we can’t possibly consider that.” That, alongside their failure to raise the money, would show that they do not have the focus to ensure that those with the broadest shoulders pay their way towards a more prosperous Britain. I fear that the Government will go back to the old Tory ways and say, “Let’s use this as an opportunity to crush the so-called undeserving poor” and pretend that there are workers and shirkers, whereas people just want to get out and get a job. Let us move forward and create a united Britain—a one nation Britain, dare I say—to create a future that works and a future that cares.
Mr Newmark
I apologise, Mr Amess, for popping out. I wanted to make sure that we had the right statistics at hand. I agree with the hon. Member for Swansea West (Geraint Davies) that those with the broadest shoulders should pay the largest amount of taxation. After the last Budget, notwithstanding the 5% cut, the top percentage of earners are paying more because of the other tax rises that we have brought in for them.
Unemployment is a tragedy for anyone who loses their job, and I am sorry for the individuals in the hon. Gentleman’s constituency who have in the past month lost their jobs. He spoke about the productivity puzzle, and I agree that that is a challenge. What is important to each of our constituents is surely that they have a job. The facts are that, year over year, unemployment is down by 71,000. Employment nationally is up 488,000 year over year. On jobseeker’s allowance, the figure that he looked to, year over year it is down by 60 people. That is not many, but the figure is down year over year in Swansea West.
Geraint Davies
In Swansea West jobseeker’s allowance numbers have grown by 40%. We have heard of employment levels going up and we have seen that overall output has not gone up, so there is the productivity puzzle, which is a kind way of saying that productivity—production per head—has gone down. All I am saying is that we should look at ways of giving people the tools to do the job, be it skills, building houses, or super-connectivity.
In the run-up to the Budget I got the business community in Swansea together to lobby the Chancellor to invest in a wi-fi cloud and super-connectivity for Swansea. Why should an inward investor come to the congestion and cost of London when they could hook up to the worldwide web in superfast time overlooking the wonderful Gower and the sun and sands of Swansea? That was worth while doing. We were not successful, and subsequently the biggest company in Wales, Admiral, wrote to the Chancellor pointing out that it is a global company and wants super-connectivity on a global basis to its clients and suppliers. That is the sort of investment that we want to make from the extraction from the excess profiteering of certain individuals in the banking community. The modest amendment would enable us to continue that dialogue with a view to taking action to deliver positive change for people who currently do not have enough opportunity.
Barbara Keeley (Worsley and Eccles South) (Lab)
Is my hon. Friend as concerned as I am—I hope that Government Members are concerned—about the increase in the number of people who have been unemployed for 12 months? In my constituency, the figures today show that the number of those unemployed for more than 12 months has gone up by 17%. Tragically, the number of young people unemployed for more than 12 months has gone up by 40%. Having talked to other hon. Members here this afternoon, I know that they have similar if not higher figures. That is the real tragedy. Here is a generation of young people who will be scarred by unemployment. We need, and we need soon, proper measures, which the amendment addresses— innovative and different measures, not the Work programme, which is not working for people. That generation will be scarred if we do not find them work soon.
Geraint Davies
That is completely right. Clearly, the economic model that must work is to have people making a contribution by being in work. There has been some debate about tax thresholds—with everyone saying how great they were—versus working families tax credit. Let us put ourselves in the position of someone starting a business who can only afford to employ someone for £10,000—£15,000 would not be viable; that is just the way that business works. Along comes working families tax credit, and a single mother, for example, can afford to work for £15,000, but not for £10,000. If the state makes up that difference, we end up with someone who can afford to work and make a contribution, and a business that is now viable. That is good. If that is simply stripped away and the tax threshold is increased to make it more worth while, it does not add up. That is one explanation for why we had such considerable job growth under the Labour party from 1997 to 2008.
Most people do not really understand working families tax credit. It is a way of integrating tax and benefits so that we cannot divide people into those in receipt of benefit and the workers, which is what Conservatives want to do for political reasons. They want to say that there are the workers and the shirkers and they are for the workers and the Labour party simply wants to support people sitting at home. That is the opposite of the truth. The Labour party is about enabling people to have pathways to prosperity through jobs. We should be using the fruits of engaging with the banking community, who make obscene amounts of money, and investing in skills and in communications, whether it be electrification of the railways or high speed rail, in wi-fi clouds, or in creating a global infrastructure in terms of R and D and our universities.
We have heard a lot of talk about the reduction in corporation tax from 21% to 20%, but that makes no difference to multinationals if the comparators are France at 33%, Germany at 29% and the USA at 40%. We are already competitive. But that 1% reduction is a 5% reduction in our tax yield from corporation tax. Would it not be better to spend that on helping universities to grow with industry? There is a good example of that in Swansea, which could be the fruits of what we are talking about today, where the second campus is being underpinned by £250 million from the European Investment Bank, and where Tata Steel, BP, other multinationals and the Welsh Government are engaged. Research shows that that sort of cluster of R and D attracts more and more big business and jobs, rather than just a marginal bit of corporation tax. We need to think cleverly about how to generate R and D engines. Brazil, for example, is spending £5.3 billion from development banks on getting into the global field of biotech. China and other countries are making similar investments. That is the way to organise ourselves in a joined-up way, rather than the laissez faire social and economic Darwinism of the Tories, where we see the weakest die and the greediest become more bloated as they exploit the world.
Geraint Davies
On that point, I will take an intervention from the hon. Gentleman.
Mr Newmark
I am enjoying the hon. Gentleman’s fascinating speech, and a philosophical divide is clearly developing. Does he really believe that it is best for a company to pay an extra 1% to Government, because they know how best to spend that money to create jobs? Or is it best to leave it with the company? Let us leave bankers aside, because I know that one is obsessed with those. Let us talk about the Tatas of the world, the manufacturers who historically have done a great job in Wales in creating jobs. Does the hon. Gentleman believe that it is best that that 1% extra goes to Government, because they are in a better position to create those jobs, than a company such as Tata, which would take that extra 1% and use it efficiently for R and D or job creation?
Geraint Davies
You, Mr Amess, probably have one of these sophisticated iPhones. I bring it out of my pocket because all the heavy lifting of the technology in this phone, which is a multi-billion pound product in a global marketplace, has been done by the public sector. We invented the internet, but GPS, touch sensitivity, voice sensitivity and most of those things were done by the institute of technology in California, which is why the Californian government are suing Apple for £26 billion to try to recover some of the money earned. Apple did a bit of packaging and marketing, produced the goods in a lower cost place, and paid tax somewhere else. We have global companies, which we all know about, which do not pay tax where the economic activity takes place. The answer to the hon. Gentleman’s question whether it would be better to give money back to companies for R and D is that companies want to do a bit of R and D, but they want to do it on the back of the heavy lifting of the public sector. That is the reality. Part of our challenge is to attract those companies to where we have public sector activity, to engage in partnership, and to ensure that we tax where the economic activity and marketplaces are, so that we get our fair share of the added value and a return from our taxpayer investment. So the answer is yes, yes, yes.
Bill Esterson
With regard to why Government have to intervene, my hon. Friend mentioned Swansea, but around the country there are regions with big problems, particularly youth unemployment—Merseyside is a key area where that is a problem—where we need such intervention. We are talking about a levy on banks, not on Tata, and we need that money to be directed where the job shortages are for young people. A small number of my constituents who have not been able to find work locally travel to London to obtain work, with all the inherent problems of high housing costs. It is not an attractive option. It is not what they want to do, but they have no choice. However, the vast majority are not in a position to do that, and that is why youth unemployment in the regions is going up, and that is why we need the kind of intervention that my hon. Friend is talking about.
Geraint Davies
Yes, and my hon. Friend makes an important point about the growing regional imbalance in the British economy. I realise that the Government have paid lip service to that issue, but if the only place to get a good job is London, that inflates costs, and young people come to London to live in squalid conditions in the hope that they can get the experience to go home at some point. There is a brain-drain as well, so this policy does not make any sense. One of the first things the Government did was to get rid of the regional development agencies. They said that they were no use and cost too much.
Geraint Davies
I will give way in a moment.
I went to visit UK Trade & Investment, which has 83 offices around the world. Its mission is to market Britain for trade and inward investment. I was in its office in Dusseldorf and it told me that typically it would market Britain as a great place to come to—a low-tax, stable society with a platform into various markets, a skills base and great universities.
For example, a German distiller might come along and say that it wanted to set up a factory in Britain. That would go on to UKTI’s computer platform and the RDAs would then bid for it, saying, “We want that in Yorkshire” or “We want that in Lancashire” and setting out their case. Immediately after the RDAs were destroyed, there was a queue of companies looking to invest in Britain through UKTI, but there was no one to bid for that investment. It was crazy to destroy them, especially at a time when we want growth and regional balance.
The Government said the RDAs were too expensive, but now they ask why we have growing unemployment, zero growth and increased housing benefit costs in London. It is because rents are going up, we are not building houses and we do not have regional balance. Therefore, the amendment is partly about thinking of creative ways to move forward and engage the banking community in a sustainable growth plan that has a regional dimension.
Huw Irranca-Davies
Does my hon. Friend agree that the life sciences cluster at Swansea university, which brings together the best of the private sector, with micro-businesses, small and medium-sized enterprises and technological innovation, is working also because the project is supported by local and national Government in Wales? It is not about one or the other; it is about both. I have visited a company in Maesteg, at the top of the Llynfi valley, a former coal mining area, which is investing in life sciences. Does he also agree that the sort of intervention that that company would love to see is in a jobs guarantee to help it increase its manufacturing base? That is the sort of clever intervention the state can make to grow SMEs and micro-businesses, not just the Tatas of this world.
Geraint Davies
I completely agree. There are clearly certain growth markets within the global market environment, and life sciences is one that is of great interest in Swansea, as are biotech and green technologies and all the rest of it. What the public sector can allow is a critical mass of research that benefits from economies of scale and a shared risk that would not be taken by individual operators, and that can attract inward investors. What we want is a benign partnership, as we have in Wales, with a Labour Government and local authorities working with universities, perhaps on a city-region basis, which is the future, to deliver benefits for all. That is what we want, rather than the laissez-faire approach.
I will have to bring my comments to a close in a moment, because obviously other Members wish to speak, but I promised first to give way to the hon. Member for Stroud (Neil Carmichael).
Neil Carmichael
I have listened carefully to the hon. Gentleman. Does he welcome the fact that in the long term Hitachi has invested £6 billion in some of the regions he has referred to, such as the north-east, where trains will be made, and in my area, where nuclear power stations will be built? He refers to “heavy lifting”. Does he not agree that through his industrial strategy the Secretary of State for Business, Innovation and Skills has introduced the aerospace centre, which will be a massive investment, essentially in the public sector, to promote the development of aviation? That will also be repeated for the automotive sector. That is precisely what he is talking about, so the Government are doing that already.
Geraint Davies
I certainly welcome those things. The trouble is that it is very much a U-turn—although that is fine. One moment the Government were withdrawing and saying, “We don’t have to do anything, because the market will spontaneously grow.” Then nothing was growing in the garden, so they go and put in some pot plants and that sort of thing, which is great. Hitachi is very welcome, and Tata has been mentioned. Some of those big companies, such as Tata, will make strategic investments, particularly because of the quality of the coal and the history of skills and the innovation, such as the partnership with Swansea university, where they are developing a new type of steel that has six layers, generates its own electricity and, when used to clad buildings, lowers the carbon footprint. It is the future.
With regard to aerospace, we of course have Airbus in Wales and, again, a supportive Welsh Government. Any support from the UK Government for strategic investment to boost our export and manufacturing base in modern and growing markets is very welcome. That is something we can certainly support. The more active the intervention from the Government with regard to an industrial strategy, the better. We want to see jobs, rather than people sitting on their hands—that is how the Government see it—and rather than watching bankers take loads of money for doing very little while people in Swansea and elsewhere who want to work are blamed for being unemployed but are not given a hand-up.
Geraint Davies
I will take one final intervention before bringing my remarks to a close, because I know that other Members wish to speak.
Richard Graham
I am grateful to the hon. Gentleman for giving way at this stage in his long and fascinating peroration. He made several references to the fact that bankers are obscenely overpaid and that they should pay more tax. Does he think that people who earn up to £250,000 a week are underpaid, reasonably paid or significantly overpaid, and should they be making a greater contribution to the sort of problem he has been discussing? I am talking, of course, about premier league footballers. I look forward to his comments.
Geraint Davies
I do not want to be drawn into talking about football, because there is a rivalry between Swansea and Cardiff, and Cardiff, to be fair to them, have just been promoted. I feel that people who earn more should pay more towards the public good. Whether or not the cut-off point is £250,000, we all have a contribution to make and those with the widest shoulders should pay more and at a greater rate. There is a debate about what that rate should be, but certainly those people who advocate a poll tax that would mean the poor paying the same as the richest for local services are at the far extreme of reasonableness. Most of us, I would like to think, want the rich to pay more.
Sadly, what we saw in the Budget was the poorest paying most to pay for the bankers’ recklessness, so that a certain amount of money could be thrown to the squeezed middle in order to buy votes. That is not the way forward. We need a unity of purpose to grow in prosperity for a future that cares and a future that works. On that point, I must sit down, because I know that colleagues and others want to speak. Thank you, Mr Amess, for indulging me.
Alison Seabeck
It is a pleasure to follow my hon. Friend the Member for Swansea West (Geraint Davies), who gave an absolute tour de force. I rise to support amendment 2. We have heard it said repeatedly, both in interventions and in my hon. Friend’s speech, that bankers who earn large sums of money in this country continue to receive huge bonuses, irrespective of whether the institutions they work for have improved their performance, and meanwhile unemployment persists and the Government attempt to create full-time jobs. It has failed.
Indeed, in a week when we saw low-paid working families affected by the bedroom tax—or spare room subsidy—we also saw large numbers of top bankers awarded obscenely large bonus payments and, in some cases, benefiting from the tax cut for millionaires. Some have deferred paying income tax until this financial year to avoid paying at the 50% rate, thereby making additional gains on the back of the poor, a point that was terribly well made by my hon. Friend the Member for Swansea West.
That is yet another Government economic plan that has been poorly evidenced. It is part of an endless package of ill-thought-through policies. The Government had 13 years to work up those policies. We expected them to have worked up deliverable policies, but clearly they have failed miserably. They do not even have a plan B for the economy—the one that the International Monetary Fund now suggests they switch to—which is shocking.
In the financial year 2010-11, the bankers’ bonus tax introduced by the Labour Government raised around £3.5 billion. It was a sensible tax on the country’s top earners. It was scrapped within weeks of the coalition Government taking office and replaced by a bank levy, which the Prime Minister has consistently claimed would raise £2.5 billion a year. The simple truth is that it has not done that, so one could say that the Prime Minister’s accuracy at the Dispatch Box has been found wanting. Members should not take my word for it—the Office for Budget Responsibility evidence, published alongside the Budget, confirmed the figures. The OBR has said that the coalition’s bank levy will bring in just £1.6 billion from the last financial year—almost £1 billion less than the Prime Minister said it would, and less than half that raised under Labour’s bank bonus.
Andrew Gwynne
My hon. Friend is right to highlight the differences between the Prime Minister’s statements and reality. May I give her a third example: the cut to corporation tax. We were told by the Prime Minister and Chancellor of the Exchequer that the banks would not benefit from that cut and that there would be some offsetting arrangements. Yet we now learn from Her Majesty’s Revenue and Customs that the banks have benefited to the tune of £200 million.
Alison Seabeck
I thank my hon. Friend for flagging up what is factually correct and can be substantiated, rather than something resulting from living in some fantasy land of figures, as Government Members seem to do.
The amendment seeks simply to have a review in six months’ time on whether a bank bonus tax within the bank levy would raise significant additional income that could then be reinvested in creating jobs—especially among young people, who have been so hard hit by the Government’s economic failure.
Richard Graham
The hon. Lady will have heard the hon. Member for Swansea West (Geraint Davies), her colleague, refer at the end of his very long speech to his belief that people in his constituency are paying more tax as a result of the recent Budget. First, does the hon. Lady believe that her constituents are paying more tax? Secondly, does she know how many people in her constituency are now paying less tax as a result of the changes made in Budgets since 2010? The figure for my constituency is 43,969; I am sure that she knows the figure for hers. Thirdly, how many people in her constituency have been taken out of income tax altogether as a result of the Budget? The figure for Gloucester is 5,000 people; the one for Plymouth will be similar.
Alison Seabeck
That is an interesting question and I am delighted that the hon. Gentleman is so well informed about his constituents. However, he seems conveniently to forget that my constituents, like his, are also being hit by increases to VAT, which takes a significant chunk out of their incomes. Furthermore, particularly if they are low-paid workers, they are being hit by a flat-rate pay freeze and in turn by housing benefit changes. I am talking about working members of my constituency. If someone was to knock on the doors of Plymouth, Moor View, that person would find that people said they were significantly worse off and finding life very hard indeed.
Geraint Davies
I had better intervene, because the rendition given by the hon. Member for Gloucester (Richard Graham) of what I was meant to have said was completely inaccurate. I did not say that tax had increased for people but that the working families tax credit had been massively cut, as well as other opportunities.
The average person would lose £14 a week under the bedroom tax because their children had grown up and they had an empty bedroom. That is the same as the £13.50 that somebody might get from the raising of the tax threshold to £10,000. There are swings and roundabouts. Only £400 million will be saved from crushing the poor but it will cost £12 billion to put up the tax threshold. The judgments are difficult, but the Tory instinct is to crush the poor and help the squeezed middle, while ours is to help everybody. However, I made no insinuation that tax was being increased.
Alison Seabeck
My hon. Friend has put his position on the record, so I will not take further interventions on that point.
I come back to the amendment and its call for a review.
Huw Irranca-Davies
My hon. Friend has raised the issue of the disparity between the £2.5 billion that the Prime Minister said on repeated occasions would be raised by the bank levy and the nearly £1 billion that is now missing. Does she share my hope that when he responds the Minister will identify where that £1 billion a year is? If we could find it, it could go towards the job creation schemes that we are talking about. Some £1 billion is being nicked from the Treasury every year.
Alison Seabeck
My hon. Friend is absolutely right in suggesting that if there is a £1 billion gap, it should be explained. I am sure that the Prime Minister would like to know, given that he has repeatedly stood at the Dispatch Box using that figure, which seems to have been plucked from the sky.
Huw Irranca-Davies
It would be completely remiss of anybody in the House even to suggest that the Prime Minister was in any way misleading the House when on repeated occasions he cited the figure of £2.5 billion a year. But could it be possible that he has been misled inadvertently by Treasury officials or other Ministers?
Alison Seabeck
That is exactly my point. Has the Prime Minister been given duff information? If he has, that is pretty shocking. Ministers should take responsibility if that is the case.
I come back again to my point. The amendment is calling for a review, which is absolutely right. The hon. Member for Bristol West (Stephen Williams), who spoke in the previous debate, is not in his place, but I hope that this time the Liberal Democrats will not pursue the line taken by the hon. Gentleman, which was that it is unreasonable for the Treasury to carry out a review—of a mansion tax, in the context of the previous debate. He seemed to have forgotten that the Government are carrying out a review, at taxpayers’ expense, into the future of Trident. Obviously, that is basically a review for future Lib Dem policy. As I said, it is a shame that the hon. Gentleman is not here, because there was a bit of a contradiction between the two positions from the Liberal Democrats.
In Plymouth and the rest of the south-west, we are still lagging behind the rest of the country when it comes to finding the full-time jobs that young people desperately need. The number of unemployed is still higher than in 2010 and the number of long-term unemployed is growing. Although the Government keep telling us that more people are employed—the mantra has come from them again today—their figures hide the simple fact of the contrast with the position in 2008.
Then, when people were asked whether they felt they were working excessive hours, the answer came back as a resounding yes; people felt that they were working more hours than was reasonable. Now that figure is different—in large numbers, people are seeking more hours to work. It is estimated that there is a shortfall of 20 million working hours, which equates to a real unemployment figure that runs closer to 3 million. Questions have also been asked of people who work part-time and want to work full-time. The number who want to switch from part-time to full-time is 1.5 million—that is just in the three months running up to February.
There is clearly a problem. People are working part-time; indeed, some are trying to hold down two or three part-time jobs, as was evidenced during a street surgery that I held in Whitleigh a couple of weeks ago. Some people have used their redundancy money to set up as self-employed, and those figures are slightly skewing the evidence on what is happening on the ground. Some people have been transferred from the public sector to the private sector, often on reduced hours. That shift partly explains the rise in the number of jobs in the private sector; they are not new jobs but simply transferred jobs.
The tax proposal in the new clause would fund a job for every young person who had been out of work for a year or more. That number is up, year on year, by 37%. They would have to take up that job or risk losing their benefits. This is no soft touch but a serious attempt to give hope to young people and to help them get a foot on the ladder and contribute to society. Unemployment among young people is higher in this country under this coalition Government than it was at any time under Labour. The number of people claiming jobseeker’s allowance in my constituency remains above the national and regional average. Reinstating Labour’s bank bonus is therefore the right thing to do.
Mike Thornton
The hon. Lady seems to be saying that one of the problems is that there are no jobs in the economy while at the same time proposing a policy to find jobs for people—jobs that are presumably not there. How does she reconcile talking about finding a job for somebody with saying there are no jobs?
Alison Seabeck
The hon. Gentleman has completely misconstrued my remarks.
We need to invest to grow jobs. We need to grow our economy, and as we do that, there will be more jobs. People want to work, but the evidence is that the jobs are not there. People are having to work part-time, even to have multiple part-time jobs, in order to keep body and soul together. We need an economy that is growing, and we are not getting that from this Government. We need Labour’s bank bonus to invest in jobs, to tackle unemployment across the country, and to help young people.
Sammy Wilson
Although we have not heard many speeches by Government Members, I am a bit surprised by the attitude they have adopted to this proposal in view of one of the Government’s declared objectives in the Budget book. Under the heading, “Fairness”, it states:
“The Government’s economic and fiscal strategy is underpinned by its commitment to fairness”.
I would have thought that anyone looking at the proposal would find it very difficult to say that it does not have a core of fairness within it. It is directed towards an industry, the banking industry, which was partly responsible for the economic crisis we face, the impetus for which was people in that industry being given incentives to behave in a reckless way that led to the kind of borrowing and lending that created our current difficulties. They were bailed out by the taxpayer, with bonuses then being paid out of that bail-out. I would have thought that on the grounds of fairness alone, Government Members would see at least some merit in the arguments for the proposal which have been advanced.
I have often heard it said, not only by Labour Members, but particularly by Government Members who are close to small businesses—perhaps many of their supporters are small business owners—that the banking industry has strangled those businesses in the middle of the recession, refusing to lend to them even when there are good, viable propositions and putting the squeeze on them when they most needed liquidity. I would have thought that Government Members would have some sympathy for a proposal that said to them, “We cannot reward people at the top of an industry who are destroying, squeezing and making it difficult for the businesses that many of you would regard as your supporters”, yet they seem to be opposed to it.
Huw Irranca-Davies
The hon. Gentleman is making a very powerful speech. Has he had the same conversations as I have with lower-paid bank clerks and bank staff who are equally appalled by the excesses of their extremely well-remunerated paymasters right at the top of the organisation? They would look at this amendment and think that it is completely fair and should be delivered for them, as well as for us.
Sammy Wilson
The hon. Gentleman brings me to my next point. Even some within the banking industry would say that there is no economic rationale for the obscene bonuses that are given at the top of the industry, and that there is no necessity for those bonuses to make it work efficiently. On a weekly basis, businesses and individuals come to me and say that if anything is strangling growth and the potential for it, in the economy today, it is the performance of the banking industry. When I hear about of some of these bonuses, I wonder what they are being paid for. They are certainly not being paid because the banking industry is performing well in helping to grow the economy and lift us out of recession.
Mark Garnier
The hon. Gentleman is making a very powerful point. However, that is exactly why some of us have spent the past nine months on the Parliamentary Commission on Banking Standards examining the problems he is talking about. It is why the Government introduced the Financial Services Act 2012 in order to repair the regulatory environment and to establish the Financial Policy Committee to look at the instability in the system that can come about as a result of perverse incentives from bonuses. It is why the Government are currently taking the Financial Services (Banking Reform) Bill through Parliament. A huge amount is being done for exactly the reasons he mentions.
Sammy Wilson
Yet the situation continues. Despite all that, we do not see any change.
Some of the arguments advanced by Government Members, mainly through interventions, as to why the proposal is a bad idea, have become increasingly desperate as the debate has progressed. I believe that this should be done, first, on the basis of fairness, and secondly, because it has some potential for changing behaviour, and that ought to be given serious consideration.
The first argument was to say, “If we do this, we will be taking money out of the economy.” What do these people who get the bonuses do with them? Are they generating additional expenditure in the economy? If someone gets a bonus of £1 million, are they likely to spend it? We all know, and it is well evidenced in economic theory, that the more money we get, the higher the proportion of that additional income we tend to save—it does not contribute to the economy. During the Budget, the Chancellor said that the poor performance in the economy was because consumer spending had been suppressed and was not what had been anticipated. When I hear the argument that discouraging these bonuses, or taking them back in the form of tax, removes spending power from the economy, I find it rather bizarre.
Alison Seabeck
The hon. Gentleman is reinforcing a point that I touched on earlier. In Plymouth, we are losing £16 million a year in benefits, and the people who usually get those benefits are poor and would spend the money in their local areas, not on foreign holidays or by putting it into bank accounts.
Sammy Wilson
Although saving is, of course, good in any economy, the important question at the moment is: how do we generate spending? The hon. Lady has reinforced the point that if money goes to unemployed people they are likely to spend 100% of that income, but someone who gets a £1 million bonus is likely to save 90% of it—perhaps more—so it will not be injected into the economy. I do not think that the argument that the amendment would remove money from the economy and, somehow or other, deflate it stands up to scrutiny.
The second argument, which was made by the hon. Member for Dover (Charlie Elphicke)—he tried to promote it in a couple of interventions on the hon. Member for Nottingham East (Chris Leslie)—is that all this levy would do is make finance either pricier or less available. As has been said, that implies that the only part of bank spending that is sacrosanct is the amount of money spent on bonuses. Making an activity more expensive tends to direct people away from it, and I cannot see how the banks would be any different. If we make it more expensive and more costly for them to give bonuses, they will be driven away from using those funds in that way and it would create a behavioural change. If that change did not happen, however, and bonuses continued to be paid and the tax on them recouped from customers, the alternative would be regulation. The customer should not have to pay for them—if banks do not change their behaviour, we should ensure that the taxes cannot be passed on to customers.
The third argument—I found this one bizarre, especially with regard to the bank levy—is that since we cannot be sure how much money will be raised, we should not pursue it. If that were true, we probably would not tax anything. How often do we hear the Government predict the amount that will be raised in tax revenue, only then to revise the figure within six months, either because behaviours have changed and the expected amount has not been raised, or because the economy performed in a different way than expected?
The hon. Member for Wyre Forest (Mark Garnier) made that argument, but on that basis we would not have the bank levy, which was supposed to raise £2.5 billion this year, and raised only £1.1 billion. I do not know why that revenue was not raised—perhaps there was some change in the economy—but whatever the reason the bank levy did not raise the money intended. Moreover, the Government made spending plans on the assumption that that revenue would be available. I do not think that the amendment can be argued down on the basis that it may not raise the money and therefore no commitment should be made.
Mark Garnier
On that point, the hon. Gentleman does not seem to have read the amendment, the whole point of which is to raise money specifically to be invested in creating new jobs and tackling unemployment. If the Opposition want to invest a specific amount, they need to know how much money they will raise.
Sammy Wilson
The hon. Gentleman has missed my point; perhaps I did not make it very well. When the Chancellor declares what taxes he intends to levy in the Budget, that announcement is accompanied by what he intends to spend that tax revenue on. Sometimes that revenue materialises and sometimes it does not.
The only requirement that I would make of an amendment of this nature is that it does not throw out a reckless figure and say, “We will make £x billion from this provision and spend it.” The Minister was right to ask on what basis the amendment’s calculation was made, but it cannot be argued that, because there is a degree of uncertainty, this is not a good proposition. I would have been very unhappy had the amendment said, “Let’s raise the money and then we’ll see what we will do with it.” It is much easier to make an argument on the grounds of fairness: “Let’s raise the money and this is what we will do with it.” Knowing where the money comes from, the purposes for which it was being used and the purposes for which it will be used once collected would enable us to judge whether the proposition is fair. It is not possible to divorce how the money is raised from what will be done with it.
Neil Carmichael
Does not this line of argument represent the thin end of the wedge with regard to hypothecation? Raising taxes is a general activity and the decision on how they should be allocated for expenditure purposes has to be made on other grounds. The obvious example is the health service.
Sammy Wilson
I agree that a general proposition that every specific tax raised should be hypothecated for a certain purpose would be very dangerous, but this is not a general proposition; it relates to one specific case and that case has to be made.
Geraint Davies
In following the logic of the hon. Gentleman’s eloquent argument, am I right in saying that he agrees that what banks should really be doing is supporting small businesses that have large order books and successful products and that want to upsize and build their business, but that do not have a lot of collateral and houses? That is what the banks should be focusing on in our local communities and economies, not on massive bets against share price changes and derivative bundles, which will develop multi-billion pound bonuses in an almost virtual world. What we want is a real economy supported by banks, not a bonus culture backed up by the state.
Sammy Wilson
That is one of the arguments for separating retail banking from the riskier banking activities described by the hon. Gentleman.
The fourth argument is totally different from the others, but I think that Government Members were getting increasingly desperate as they clawed for arguments against what is a reasonable proposition. One Member asked several times whether the amendment was designed to change behaviour, to act against perverse incentives or to raise revenue. All taxes tend to have behavioural consequences anyway; it is in their nature to change behaviour. Some are specifically designed to do so, while some are more genuinely revenue-raising because they do not affect behaviour as much. If the revenue from the tax goes down because fewer bonuses are paid, that does not necessarily mean that it is bad for the economy. For example, if banks decide not to pay bonuses and to keep the money as profits, corporation tax revenue will go up; or if they decide to put the money back into the bank and thereby increase liquidity, that will have a beneficial effect on the economy, because banks will be able to make more loans to businesses. Just because it may change behaviour does not necessarily make it a bad proposition. In fact, the proposition stands, as it could have other tax revenue-raising consequences or induce changes in bank behaviour that mean they have more money to do what the public expect them to do, rather than simply giving huge bonuses to their top-ranking employees.
Richard Graham
The hon. Gentleman is contributing to the anti-bank ranting that we have had for the past couple of hours. What about the second part of the amendment, which provides that the levy shall be used to create jobs and employment? As a former economics examiner, does he believe that it is the business of the Government to create jobs? If so, what sort of jobs—Government jobs or state aid that would fall foul of EU rules? What does he think of the Government’s performance on employment? Is he surprised that unemployment is not higher?
Sammy Wilson
I hope that my speech has not been interpreted as an anti-bank rant. Indeed, I made the point at the beginning that banks are essential to the working of the economy. They provide the oil for the economy, and we want to find ways to make them do the job they are meant to do. If a bank bonus tax is one of the ways in which we could get them back on track and away from providing perverse incentives for particular employees to behave in certain ways that have not been helpful to the economy, that would be beneficial.
A properly functioning banking system is important for the economy. Rather than this proposal being anti-bank—[Interruption.] From a sedentary position, the hon. Gentleman says, “Answer the question.” He asked me two questions and I am answering the first. Banks are an essential part of the economy and we want to ensure that our proposals address that.
The hon. Gentleman also asked whether it is the role of the Government to create jobs. It is the role of the Government and the private sector to create an environment for jobs and in which economic growth can take place. In some cases, that will mean direct involvement by the Government in job creation. Even some of the most right-wing members of the hon. Gentleman’s party, who are adherents of supply-side economics, would accept that it is the role of Government, for example, to provide opportunities for people to train. That creates jobs. It increases the skills base of the economy, which makes it easier for the private sector to create jobs. It is a question of co-operation. It is not a case of either/or. It is a simplistic view of the economy to suggest that only the private sector creates jobs and the Government sit on their hands—
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
Order. May I remind the hon. Gentleman that this is a timed debate that will end at 7.15 pm. I hope that he will forgive me for interrupting, but it would be good to hear what the Minister has to say.
Sammy Wilson
I will conclude on that basis. I hope that I have addressed some of the points made by coalition Members. The amendment should be supported on grounds of fairness, of improving the banking system and of ensuring that the money that the Government raise from this provision could be used to help to stimulate the economy.
Greg Clark
I am grateful to you, Ms Primarolo, for allowing me to get a word in edgeways in this debate. It has been a most illuminating debate. We have discovered that it is the policy of the Opposition to raise £2 billion from a bank bonus tax when the pool of bank bonuses this year is forecast to be £1.6 billion. The Opposition Front-Bench team was commended for proposing an imaginative measure. It certainly is imaginative. Indeed, it is the stuff of fantasy that more could be raised in revenue through a tax than is contained in the tax base to which it applies.
The Opposition have done this before, as I shall say later, and this is a familiar debate. We had this debate in 2011 and in 2012, and now the Opposition have tabled a more or less identical amendment on a policy that was introduced in the dying days of the last Labour Government for one year only—a payroll tax on banks. When the then Chancellor introduced it in December 2009, he insisted that it would be a one-off tax. Indeed, it was not even for a full year, but from December 2009 to April 2010. But in the Finance Bill Committee of the whole House almost exactly a year ago, the hon. Member for Pontypridd (Owen Smith) revealed:
“If Labour had won the election, it may have changed its view and continued the bank bonus tax.”
On reflection, he said,
“I think a Labour Government would have continued it”.—[Official Report, 18 April 2012; Vol. 543, c. 391.]
The annual reappearance of this temporary Labour tax should remind us all that whenever Labour proposes a temporary tax, it is best to assume that it is for life—
Greg Clark
The hon. Gentleman spoke for 45 minutes and I have about seven or eight minutes. I shall make some progress and try to give him an opportunity later.
The bonus tax raised a net amount of £2.3 billion for the Exchequer, and that was supposed to be that. Amazingly, the Labour party had no other plans to make the banks make any further contribution to the costs they imposed on taxpayers. I agree with the hon. Member for East Antrim (Sammy Wilson) on that point. After that £2.3 billion, it appeared that the banks had discharged their responsibility to the taxpayers. To be fair and to acknowledge the consistency of the Labour Government, they showed no indication during their 13 years in office that they wanted to extract a contribution from the banks, even when the Centre for Economics and Business Research estimated that bonuses amounted to £11.5 billion in 2007.
As we know, the Labour party was “intensely relaxed” about people getting filthy rich. We have taken a different view. We believed from the outset that it was right for banks to contribute more to the taxpayer than other companies which did not pose a risk to the Exchequer and to the taxpayer. We agree with the point about fairness, and that is why the Government introduced a permanent levy—not a one-off—on the balance sheets of banks in the first Finance Bill of the new Government.
As we intended that it should be permanent, rather than—as Labour preferred—for a single year, it was important to design it in a way that would raise money every year. The trouble with a bonus tax, as the former Chancellor eloquently put it, was that
“frankly, the very people you are after here are very good at getting out of these things and...will find all sorts of imaginative ways of avoiding it.”
That was why it could work only for a single year.
Huw Irranca-Davies
Has the Minister looked down the back of the Treasury sofas to find the £900 million a year that is missing? What has gone wrong?
Greg Clark
I will come on to that point, and the hon. Gentleman will be satisfied with my answer, as I hope he will acknowledge.
Balance sheets, unlike bonuses, cannot be hidden. They are more stable than bonus pools and so offer a far better way to collect a levy to benefit the public. Moreover, balance sheets are a better reflection of the risks, to the banking sector and to taxpayers, than remuneration, as set out by the International Monetary Fund in its 2010 report to the G20. That is why France and Germany quickly joined us in applying bank levies. They have subsequently been joined by Austria, Belgium, the Netherlands, Portugal and others. It is fair to say that those countries have not chosen to charge as much as we have. Relative to the size of our financial sector, our levy raises five times that raised by the French levy and two and a half times that raised by the German levy, but not one of these countries has thought fit to introduce a permanent bonus tax.
A permanent bonus tax would, of course, have been a catastrophically unreliable source of revenue, which is why I am very concerned that the spending commitments proposed by the hon. Member for Nottingham East (Chris Leslie) seem to be based on it. When the Labour tax was imposed, the Centre for Economics and Business Research estimated that the total pool of City bonuses was £6.7 billion. As I said earlier, it estimated that last year bonuses were £1.6 billion—less than a quarter of the 2010 level. With regard to the proposals from Europe, there might be some expectation that the levels will fall further.
A balance sheet tax is obviously a more stable, sustainable and sensible revenue base. However, to address the points made by the hon. Member for Nottingham East, balance sheets are not entirely invariable, which is why we have introduced a second element to the policy. We have specified that the bank levy should raise at least £2.5 billion a year, which is why we have clauses 200 and 201. The clauses increase the bank levy from 0.088% to 0.142% from 5 January 2014. The reason for these increases is simple: the forecast published by the independent Office for Budget Responsibility in December implied that without amendment receipts for future years would fall short of the £2.5 billion required and to which we are committed.
We announced in the autumn statement, as soon as these forecasts were published, an increase in the rate, which the Bill implements, to correct the shortfall. The March 2013 forecasts made by the OBR show that the levy is now forecast to raise more than £2.5 billion this year, and in all subsequent years. When the bank levy was first set, in Budget 2010, it took account of the planned reductions to corporation tax that were announced at the same time. Since then, as hon. Members know, the Government have been able to make further cuts to corporation tax. We have taken the view that this should not be passed on to the banks. Accordingly, clause 201 increases the bank levy to recover the benefit that would have been received from the cut in corporation tax.
To answer the point made by the hon. Member for Ogmore (Huw Irranca-Davies), the effect of these changes would be to cause the bank levy to yield not £2.5 billion in future, but £2.7 billion this year, and £2.9 billion for every year into the future. This extra revenue more than makes up for the shortfall in revenues experienced during the first two years.
Let me say something about clause 202, the other measure in the Bill relating to the bank levy. The clause removes an anomaly that would have been exploited, whereby banks could have claimed both a tax credit and a deduction for the same foreign bank levy. The view of Her Majesty’s Revenue and Customs is that the existing corporate tax rules prevent such a deduction, but the case law is old and we saw fit to put the matter beyond doubt.
I fear the Opposition have made a mistake in preferring a payroll tax to a bank levy. As countries across the world demonstrate, a bank levy is a better reflection of systemic risk: it is permanent, it raises more money and it is sustainable, not being undermined by avoidance. If the Opposition persist in basing their spending plans on such a flimsy source of revenue as the bonus tax, which actually exceeds what is paid in bonuses this year, then I fear that they have not learned the lesson that they surely must: jeopardising our public finances would take this country back to the edge of ruin from which this Government have hauled it back. If the hon. Member for Nottingham East had any embarrassment or rigour, he would withdraw this ridiculous amendment. I commend clauses 200, 201 and 202.
Chris Leslie
The Minister’s smile could not be stifled by the ridiculousness of his last comments. This is déjà vu all over again. We have heard it before from this Minister time after time, year after year. “Our bank levy,” he said, and the Prime Minister has said from the Dispatch Box, “will always raise £2.5 billion.” Last year, however, it was £1.6 billion; this year it is £1.8 billion. The amount of money lost is staggering. We will, therefore, want to test the view of the Committee. The Minister has to get a grip on this issue. He has been haemorrhaging money, and the £2 billion that has been lost should have been put to the better purpose of helping young people get off the dole and back into work. That is what we on the Labour Benches believe.
Question put, That the amendment be made.
Mr Michael Meacher (Oldham West and Royton) (Lab)
I beg to move, That the clause be read a Second time.
The Second Deputy Chairman of Ways and Means (Dawn Primarolo)
With this it will be convenient to discuss the following:
New clause 8—Meaning of ‘tax arrangements’—
‘(1) Arrangements are “tax arrangements” if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage as a result of tax avoidance was the main purpose, or one of the main purposes, of the arrangements.
(2) Arrangements are not tax arrangements if:
(a) the arrangement was specifically permitted by legislation or regulation relating to any of the taxes referred to in section [General anti tax-avoidance principle] (3) or is clearly consistent with principles on which the taxes referred to in section [General anti-tax-avoidance principle] (3) are based whether express or implied,
(b) the advantaged party shows that the arrangement was neither designed nor carried out with the intention of achieving a tax advantage and that no step or feature was included in or omitted from it with that intention.’.
New clause 9—Meaning of ‘tax avoidance’—
‘(1) Arrangements represent “tax avoidance” if, having regard to all the circumstances, it would be reasonable to conclude that tax is not paid—
(a) by the right person, or
(b) at the right time, or
(c) in the right place, or
(d) under the charging provisions of the right tax, or
(e) at all when it would appear right that it was due, or
(f) in any combination of the circumstances noted in (a) to (e).
(2) In subsection (1) an arrangement is considered “right” when the economic substance of that arrangement giving rise to a potential charge to tax under any one or more of the taxes referred to in section [General anti-tax-avoidance principle] (3) of this Part accords with the form in which that arrangement is declared for assessment for taxation purposes whether in the United Kingdom or elsewhere with non-declaration of a potential charge to tax on the economic substance of a transaction in the United Kingdom as a result of the form adopted for its completion being considered a tax declaration for the purposes of this section.
(3) For the purposes of subsection (2) the economic substance of an arrangement does not accord with the economic form in which that arrangement is declared for taxation purposes if having regard to all the circumstances:
(a) one or more of the parties to the arrangement cannot reasonably have been included as a party to it without the securing of a tax advantage having been an objective,
(b) the contractual form of the arrangement cannot reasonably have been adopted without the securing of a tax advantage having been an objective,
(c) the location in which the arrangement is recorded as having occurred cannot reasonably have been decided upon without the securing of a tax advantage having been an objective;
(d) the timing of the arrangement cannot reasonably have been decided upon without the securing of a tax advantage having been an objective;
(e) the arrangement has as one or more of its objectives the declaration of a transaction for assessment under the provisions of one of the taxes referred to in section [General anti-tax-avoidance principle] (3), or none of them, when declaration under the provisions of another of those taxes would seem more appropriate,
(f) the arrangement represents a transaction as relating to capital when it would appear to related to income,
(g) the arrangement represents a transaction as being income derived from capital when it would appear to be derived from the profits of a trade or employment,
(h) the arrangement appears to be without economic substance,
(i) the arrangement cannot be regarded as a reasonable course of action having taken into consideration—
(i) any relevant tax provisions,
(ii) the substantive results of the arrangements, and
(iii) any other arrangements of which the arrangements form a part.
(j) Any party to the arrangement has stated that an objective of structuring the arrangement in the form adopted was the securing of a tax advantage.
(4) In subsection (3) “taxation purposes” includes—
(a) any action required to comply with the obligations of any legislation or regulation relating to any of the taxes referred to in section [General anti-tax-avoidance principle] (3) or their administration or assessment notwithstanding any deficiency or shortcoming in them that the arrangement is meant to exploit,
(b) any principles on which the taxes referred to in section [General anti-tax-avoidance principle] (3) are based whether express or implied,
(c) the policy objectives of the taxes referred to in section [General anti tax-avoidance principle] (3).’.
New clause 10—Meaning of ‘tax advantage’—
‘(1) A “tax advantage” may be considered to have arisen for the purposes of this Part if:
(a) the arrangement results in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes,
(b) the arrangement results in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes,
(c) the arrangement results in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid,
(d) the arrangements involve a transaction or agreement the consideration for which is an amount or value significantly different from market value or which otherwise contains non-commercial terms,
(e) the arrangement results in an amount of income, profits or gains tax purposes being assessed for tax purposes upon a person who appears to have less economic claim upon that income, profit or gain than another person who would have greater taxation liability due upon it if they were assessed to that income, profit or gain for tax purposes,
(f) the arrangement results in an amount of income, profit or gain being subject to a tax other than that which the economic substance of the arrangement would suggest appropriate with less tax being due as a result,
(g) the arrangements results in an amount of income, profit or gain being subject to tax assessment in a jurisdiction other than the United Kingdom when the economic substance of the arrangement would suggest that inappropriate whether or not more or less tax is due in that other place or not,
(h) the arrangement results in a lower rate of tax being applied to the income, profit or gain than might otherwise have been the case,
(i) the arrangement results in tax being paid later than might otherwise have been the case,
(j) any combination of the circumstances referred to in subsection (a) to (i).’.
(2) Subsection (1) is not to be read as limiting in any way the cases in which tax arrangements might give rise to a tax advantage.
(3) A tax advantage may, without limitation, be indicated to have arisen by the existence of:
(a) relief or increased relief from tax,
(b) repayment or increased repayment of tax,
(c) avoidance or a reduction of a charge to tax or an assessment to tax,
(d) avoidance of a possible assessment to tax,
(e) a deferral of a payment of tax or an advancement of a repayment of tax, and
(f) avoidance of an obligation to deduct or account for tax,
(g) the passing of an obligation to make declaration of a liability to be assessed to tax to another party.’.
New clause 11—Counteracting tax advantages—
‘(1) If tax arrangements meeting the definition of section [Meaning of “tax arrangements”](1) of the Part are identified then the tax advantages arising from the arrangements are to be counteracted on a just and reasonable basis.
(2) The counteraction may be made in respect of each or any tax to which the general anti-tax-avoidance principle applies.
(3) An officer of Revenue and Customs must make, on a just and reasonable basis, such consequential adjustments in respect of any tax to which the general anti-abuse rule applies as are appropriate.
(4) These consequential adjustments:
(a) may be made in respect of any period, and
(b) may affect any person (whether or not a party to the arrangements) so long as they are connected to the party that has enjoyed the benefit of a tax advantage, such connection being as defined in section 993 of the Income Tax Act 2007.’.
New clause 12—Proceedings before a court or tribunal—
‘(1) In proceedings before a court or tribunal in connection with the general anti-tax-avoidance principle, HMRC must show—
(a) that there are tax arrangements that give rise to a tax advantage as a result of tax avoidance, and
(b) that the counteraction of the tax advantages arising from the arrangements is just and reasonable.
(2) In determining any issue in connection with the general anti-tax avoidance principle, a court or tribunal must take into account—
(a) explanatory notes that cast light on the objective setting or contextual scene of the specific Taxing Act or this Part of this Act.
(b) the clear statements by a Minister or other promoter of the specific Taxing Act or this Part of this Act together if necessary with such other parliamentary material as was necessary to understand such statements and their effect.
(c) HMRC’s guidance about the general anti-tax-avoidance principle,
(d) guidance, statements or other material (whether of HMRC, a Minister of the Crown or anyone else) that is in the public domain at the time the arrangements were entered into as to the principles on which the taxes referred to in section [General anti tax-avoidance principle] (3) are based whether express or implied, the nature of tax avoidance, and those matters considered to fall within section [Meaning of “tax arrangements”] (2)(a) of this Part (on which matter HMRC shall issue periodic guidance),
(e) evidence of established practice at that time,
(f) evidence as to the intent of the parties, irrespective of the outcome of the arrangements.’.
New clause 13—Application for clearance of transactions—
‘(1) A person may provide the Commissioners for Her Majesty’s Revenue and Customs with particulars of a transaction or transactions effected or to be effected by the person in order to obtain a notification about them under this section.
(2) If the Commissioners consider that the particulars, or any further information provided under this subsection, are insufficient for the purposes of this section, they must notify the person what further information they require for those purposes within 30 days of receiving the particulars or further information.
(3) If any such further information is not provided within 30 days from the notification, or such further time as the Commissioners allow, they need not proceed further under this section.
(4) The Commissioners must notify the person whether they are satisfied that the transaction or transactions, as described in the particulars, were or will be such that no counteraction notice ought to be served about the transaction or transactions under the provisions of section [Counteracting the tax advantages] of this Act.
(5) The notification must be given within 30 days of receipt of the particulars, or, if subsection (2) applies, of all further information required but subject to the conditions of subsection (6) having been met.
(6) The person making application for a notification under this section shall specify—
(a) the amount of tax that they estimate might be due as a result of making the arrangement, or
(b) if that arrangement shall be continuing within the two-year period following its commencement, and
(c) shall pay a fee in respect of the notification to be supplied under section (4) prior to that notification being supplied of not less than—
(i) £1,000, or
(ii) five per cent of the estimated tax due as a result of making this arrangement, whichever shall be the greater,
such charge to be subject to value added tax and to be due whether or not the requested notification can be supplied or not,
(d) HMRC shall have power to substitute such other sum that it thinks appropriate for those sums notified under subsections (a) and (b) if it thinks those estimates unrealistic,
(e) if HMRC makes use of the powers in subsection (d) it shall notify the person within 30 days of its intent to do so and provide its estimate of the tax that might be due under the arrangement with reasons stated, with the person having 30 days thereafter to appeal against the same or let their applications lapse.
(f) HMRC may publish its notifications issued under this section so long as the taxpayer’s identity is anonymised.’.
New clause 14—Effect of clearance notification under section [Application for clearance of transactions]—
‘(1) This section applies if the Commissioners for Her Majesty’s Revenue and Customs notify a person under section [Application for clearance of transactions] that they are satisfied that a transaction or transactions, as described in the particulars provided under that section, were or will be such that no counteraction notice under the provisions of section [Counteracting tax advantages] of this Act ought to be served about the transaction or transactions.
(2) No such notice may then be served on the person in respect of the transaction or transactions.
(3) But the notification does not prevent such a notice being served on the person in respect of transactions including not only the ones to which the notification relates but also others.
(4) The notification is void if the particulars and any further information given under section [Application for clearance of transactions] about the transaction or transactions do not fully and accurately disclose all facts and considerations which are material for the purposes of that section.’.
New clause 15—Power to obtain information—
‘(1) This section applies if it appears to an officer of Her Majesty’s Revenue and Customs that a person may be a person to whom section [Counteracting tax advantages] applies in respect of one or more transactions.
(2) The officer may serve a notice on the person requiring the person to give the officer information in the person’s possession about the transaction or, if there are two or more, about any of them.
(3) That information must be information about matters that are relevant to the question whether a counteraction notice should be served on the person.
(4) Those matters must be specified in the notice under subsection (2).
(5) That notice must require the information to be given within such period as is specified in it.
(6) That period must be at least 30 days.’.
New clause 16—Interpretation—
‘In this Part of this Act—
“arrangements” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable),
“connected” is defined by section 993 of the Income Tax Act 2007,
“the general anti-tax avoidance principle” has the meaning given by section [General anti tax-avoidance principle],
“HMRC” means Her Majesty’s Revenue and Customs,
“notification” has the meaning given by section [Application for clearance of transactions] (1),
“tax advantage” has the meaning given by section [Meaning of “tax advantage”],
“tax arrangements” has the meaning given by section [Meaning of “tax arrangements”] (1),
“tax avoidance” has the meaning given by section [Meaning of “tax avoidance”], and
“taxes” has the meaning given to it by section [General anti-tax-avoidance principle] (3).’.
Amendment 11, in clause 203, page 120, line 1, after ‘taxes, insert
‘provided the de minimis test in subsection (4) is satisfied.’.
Amendment 3, page 120, line 9, at end add—
‘(4) Her Majesty’s Revenue and Customs shall review the possibility of bringing forward measures to work in conjunction with other G8 countries to require multi-national companies to publish a single easily comparable figure for the amount of corporation tax they pay in the UK, and within six months of the passage of this Act, place a copy of the review in the House of Commons Library.
(5) The Chancellor of the Exchequer shall review the effects of incorporating measures into the general anti-abuse rule to require multi-national companies to publish a single easily comparable figure for the amount of corporation tax they pay in the UK on Treasury tax receipts within six months of the passage of this Act and consult with G8 countries on their effectiveness, and place a copy of the review in the House of Commons Library.’.
Amendment 6, page 120, line 9, at end add—
‘(4) The Chancellor shall review the possibility of bringing forward a requirement for UK companies to report their use of tax schemes which have an impact on developing countries, including a review of the possibility of bringing forward proposals to require that when such schemes are identified under those rules, Her Majesty’s Government shall take steps to notify developing countries’ tax authorities and assist in the recovery of that tax. A copy of the report shall be placed in the House of Commons Library within six months of Royal Assent.’.
Amendment 7, page 120, line 9, at end add—
‘(4) The Chancellor shall make an assessment of the impact of changes to Controlled Foreign Company Rules in the Finance Act 2012 and as a result of this Part of this Act on the overall tax take of developing countries. A copy of the report shall be placed in the House of Commons Library within six months of Royal Assent.’.
Amendment 8, page 120, line 9, at end add—
‘(4) The Chancellor shall provide a report to Parliament within two years of the passing of this Act, as part of a wider post-implementation review, into the scope of GAAR, the application of the double reasonableness test and its deterrent effect.’.
Amendment 12, page 120, line 9, at end add—
‘(4) The amount of the tax advantage arising from the tax arrangement must be equal to or exceed the following amount for the relevant tax:
(a) for income tax the amount is £100,000,
(b) for corporation tax, including any amount chargeable as if it were corporation tax or treated as if it were corporation tax, the amount is £250,000,
(c) for capital gains tax the amount is £100,000,
(d) for petroleum revenue tax the amount is £250,000,
(e) for inheritance tax the amount is £100,000
(f) for stamp duty land tax the amount is £40,000,
(g) for the annual tax on enveloped dwelling the amount is £40,000.
(5) For the purposes of subsection (4) the amount of the tax advantage shall be the greatest of:
(a) the total tax advantage for all tax years in which it is reasonable to assume that the tax arrangement was anticipated to be effective at the time the arrangements were entered into;
(b) the total tax advantage for all tax years that would have arisen from the tax arrangement other than for the provisions of this Part;
(c) the total tax advantage arising from all tax arrangements of the taxpayer that were anticipated to be effective in the relevant tax year.
(6) For the purposes of subsection (5) the amount of the tax advantage shall include any tax advantage obtained by the taxpayer or a related party of the taxpayer.’.
Clauses 203 to 212 stand part.
That Schedule 41 be the Forty-first schedule to the Bill.
Mr Meacher
The purpose of new clause 7 and new clauses 8 to 16, which are connected and which stand in my name and those of my hon. Friends, is to replace the Government’s anti-tax avoidance measure, the GAAR or the general anti-avoidance rule, as set out in clauses 203 to 212, with an alternative, much fairer, more effective and more comprehensive measure, the GAntiP or general anti-avoidance principle—I apologise for all the acronyms. In practice, the latter would mean that where a court could establish, having taken account of all the relevant circumstances, that the primary purpose of an arrangement was the avoidance of tax rather than any economically substantive transaction, it could strike it down.
Let me say immediately to the Exchequer Secretary that I appreciate that although UK tax avoidance for the last 70 or so years has been considered on the basis of four UK court decisions—and notably the Duke of Westminster case of 1936—the GAAR guidelines, which were published a couple of days ago, now override that position. I understand that they are, in effect, legal precedent in their own right, which any court has to take into account. That is certainly a significant advance. However, the Government’s GAAR, as set out in this Bill, is still fatally flawed.
First and most importantly, the GAAR advisory panel is riddled through and through with a blatant conflict of interest. It will be drawn almost exclusively from highly paid City lawyers who have spent their careers, and made their fortunes from, giving expensive advice to companies on how to avoid tax. It is like putting the poachers in charge of the gamekeepers. Surely it would be right for independent experts—some drawn from Her Majesty’s Revenue and Customs—to form the main body of what should obviously be an impartial membership.
Secondly, it is proposed that the application of the GAAR will be determined on the basis of a highly subjective and partisan criterion, namely whether the arrangement at issue
“cannot reasonably be regarded as a reasonable course of action”.
From the point of view of HMRC and the poor innocent taxpayers who are penalised if the corporate tax abusers are allowed to get away with it, there is a double jeopardy at work. First, what most people might regard as unreasonable might well be regarded by highly paid City lawyers who make their money out of promoting tax avoidance as perfectly reasonable.
Secondly, what is a “reasonable course of action” is heavily dependent on a subjective view of the role of taxation in society. Whatever else it is, it is not an objective test at all. The point is surely that the GAAR advisory panel has been inserted only as a filter, in order to give the tax avoidance industry a veto on which of its practices shall be called to account. That is clearly prejudicial and indefensible. If City lawyers employed in defending corporate tax abuse are asked whether it is reasonable to hold the view that an arrangement is a “reasonable course of action”, it is a virtual certainty that, except in the most egregious cases, they will agree that it is—at which point many highly controversial and artificial devices will not even get near an independent judge in a court. For that reason alone, I believe that the GAAR should be thrown out, although it has other serious flaws.
Nigel Mills (Amber Valley) (Con)
Does the right hon. Gentleman not accept that one reason why we have got this far is that Graham Aaronson, who probably meets the right hon. Gentleman’s definition of someone who has made his living from selling tax-avoidance schemes or at least advising on them, recommended that the Government go ahead with the GAAR?
Mr Meacher
I did not catch what the hon. Gentleman said. Can he say it a little more loudly and clearly, or can we have a conversation afterwards?
Nigel Mills
I will say it more loudly. Does the right hon. Gentleman accept that one reason why we have got this far is that Graham Aaronson, who arguably meets his criterion as someone who has made a living out of at least advising on such schemes, recommended that the Government go ahead with the GAAR?
Mr Meacher
Yes, I appreciate that. It seems that Graham Aaronson, whom I have criticised pretty strongly in the House in the past, has for reasons best known to himself—although I am very appreciative that he has done this—changed his mind in the important respect that the hon. Gentleman described and which I tried to set out at the beginning. There is more joy in heaven over one sinner who repents than over 100 just men.
Mark Field (Cities of London and Westminster) (Con)
The right hon. Gentleman will appreciate that I have grave concerns about going down the route of even a general anti-avoidance rule, but surely he must recognise that if his new clauses were agreed and we took a principled, rather than a rules-based approach, that would lead to ever more uncertainty and, dare I say it, even larger fees for the lawyers and accountants whom he wishes to clamp down on in this regard.
Mr Meacher
I will come to that point. I know that the hon. Gentleman, who has spent enough time in this Chamber, as I have, might think that I am kicking it into the long grass, but I will come to it at the end. I think I have an effective answer to it, but I prefer to give it at that point.
There are other problems with the GAAR. For the reasons given, it is far too narrowly drawn, tackling only the most aggressive forms of tax avoidance. It would not, for example, tackle Google or Amazon—which have had enormous publicity over the last weeks and months—because the channelling of profits from genuine sales through tax havens would still be permitted. That is just one example. The implication—dare I say it one that was probably intended by the Government; I hope that is not unreasonable—is no doubt that a veneer of respectability is thereby cast over everything else, which might well include artificial contrivances designed to avoid tax. They will somehow be seen to be okay.
There is also no clear penalty regime in the GAAR, which is certainly needed if others are to be deterred from exploiting every opportunity to go down the tax avoidance route. Contrary to all other tax logic, where the burden of proof has always fallen on the taxpayer, uniquely in the case of the GAAR, the burden of proof that an arrangement is abusive has unaccountably been placed on HMRC. Despite the one improvement, which I am glad to mention—
Mr Meacher
I would rather get on, if I may, as many others wish to speak and it is a very short debate.
Despite the improvement I mentioned at the beginning, the net accumulated effect of all these flaws makes it reasonable to argue that the GAAR is a step backward for two particular reasons. One is that while the most heinous cases will certainly be caught—we are all agreed about that—the impression given is that virtually everything else is somehow okay and everything else goes. The other is the outrageous fact that HMRC cannot commence GAAR action on its own initiative. That is rather like forbidding the courts to take action against a thief until the honorary city guild for thieves has given permission.
The alternative is the general anti-tax avoidance principle—the GAntiP—as set out in new clauses 7 to 16. It was drafted by Richard Murphy, one of our foremost tax accountants, as the Minister knows only too well as a sparring partner, and a founding member of the Tax Justice Network. What are the advantages of GAntiP? I will set them out briefly.
First, tax avoidance is currently estimated to cost this country and its other taxpayers £25 billion or up to £25 billion—I know the figure is much disputed, but it is certainly a very substantial sum. It would be significantly reduced, so that many services now under threat because of Government cuts could be saved and more money would be available to help promote jobs, which the Government want, and economic recovery.
Secondly, to deal with the point raised by the hon. Member for Cities of London and Westminster (Mark Field), the UK tax system would be made considerably more certain if HMRC were for a small sum to provide prior indication, which I would strongly support, about whether or not an arrangement would fall within the scope of tax avoidance. No one is trying to trick companies; we want certainty, and this would be a very good way to achieve it.
Mark Field
On this matter, I entirely agree with the right hon. Gentleman. I have said on a number of occasions that if we are to go down this route, whether it be a general anti-avoidance rule or on the basis of the principles that the right hon. Gentleman prefers, it must be done hand in glove with a proper pre-clearance process. It needs to be a swift process and it may be that a fee is to be paid as well, but it must be done on the basis that before any new scheme is marketed it must get the thumbs up from HMRC that it is a legitimate one. That would provide a sensible way forward taking into account the certainty reasons that I pointed out earlier.
Mr Meacher
I am glad to have the hon. Gentleman’s agreement on that. I hope that he will also agree with me that what the Government are proposing—that the criterion should be whether a certain arrangement amounts to a “reasonable view” or a reasonable course of action—is an extremely vague, subjective and uncertain way of deciding this matter.
Mark Field
The right hon. Gentleman referred earlier to egregious schemes, and I think we all recognise that there are some, as highlighted by The Times and other newspapers in recent months. Which particular schemes does the right hon. Gentleman, who is obviously in close contact with Richard Murphy among others, think would not fall foul of the reasonableness test? Which schemes would be regarded as highly egregious yet would fail to be caught?
Mr Meacher
I have already mentioned two that have had a great deal of publicity—Google and Amazon—but there are many, many others. Only a very narrow and small proportion of the most “aggressive”—the Chancellor’s phrase—or abusive tax-avoidance schemes would be caught. What worries me is the impression given that everything else is somehow okay with the Government. I think that is a very unwise position to adopt.
Briefly, the third advantage of GAntiP is that the incentive for accountants, lawyers and bankers to sell tax-avoidance schemes would be curtailed. That would be a thoroughly good thing, because they and their clients would know that most of those schemes would fail in future.
Lastly, my fourth advantage might be the single most important one. GAntiP really could help to change the rancid culture in British society today whereby the top 1%—whether it be super-rich individuals or the big corporations—are widely perceived to be ripping off the honest remainder of the population.
Caroline Lucas
That is very kind of the right hon. Gentleman, who is making a compelling case. Does he agree that it would be helpful to have a clear commitment from the Opposition Front-Bench team that, if it were to form the next Government, it would introduce the sort of principle that he describes so compellingly? For all the reasons the right hon. Gentleman has outlined, the principle is simpler, it provides greater certainty and it will catch far more of the kind of things we are trying to rule out than the rule approach that we have at the moment.
Mr Meacher
As always, the hon. Lady has a similar mindset to mine. That is what I hope, too. Discussions are, of course, going on within the party, and we are yet to hear from my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) who speaks from the Front Bench. I am certainly very keen to try to ensure that before the general election, for all the reasons I have given, the Labour party signs up to GAntiP. I am thus pleased to commend to the Committee new clauses 7 to 16.
Nigel Mills
It is a pleasure to speak in this debate, and I rise to speak to amendments 11 and 12, which stand in my name.
I have said this before, but I have concerns about Parliament agreeing overwhelmingly with a principle that effectively says, “We as a Parliament, even with all the specialist advice we get, cannot draft the law sufficiently well to leave our taxpayers to try to apply and follow it, and leave HMRC and the courts to determine whether that is the case.” The proposals of the Government and of the right hon. Member for Oldham West and Royton (Mr Meacher) would in effect create a power for HMRC to say, “While the law actually says that, what we really meant was something a little bit different, so while the taxpayer has complied with the letter of the law, they have not complied with the letter of the law as we wish it had been written.”
That is a real power for Parliament to give away. We are saying to an executive agency of the state, “Your job is no longer to apply the law; your job is to rewrite it as you wish it had been written by Parliament in the first place.” I think we should be very careful before going taking such a line. We need to know exactly what we are doing and we need to be happy with setting that principle. If the Government tried to apply such a principle to criminal justice law, we could end up arresting people for something that was not a legal offence but we wished had been a criminal offence. If we applied it to immigration law, for example, there would be howls of outrage saying that the state had gone mad with excessive power, and that it was the end of the rule of law and not the way for a sensible Government to behave.
Mark Field
I entirely agree. That sense of arbitrariness will potentially do great damage to the UK as a place that has always been welcoming to business internationally, benefiting our economy as a whole. He is absolutely right to draw a direct comparison between issues relating to the Finance Bill—after all, we have one every year, so we can try to tighten up any problems—and issues relating to the criminal justice system. As he says, if the same principle were applied to criminal justice, it would rightly lead to outrage.
Nigel Mills
I am grateful to my hon. Friend and I would like to expand a little on this theme. It has been said before that there are various ways of interpreting what the rule of law means. One version from the 17th century is that the rule of law is the
“supremacy of regular power as opposed to arbitrary power”.
In the case before us, rather than saying “Here is the law that applies to everyone,” we are giving the Revenue the right to rewrite the law only for certain people subject to certain permissions. That sounds like arbitrary power to me.
As a classics graduate, I thought I would dip back into history and finally find some use in having done a classics degree. Plato said:
“Where the law is subject to some other authority and has none of its own, the collapse of the state in my view is not far off; but if the law is the master of the government and the government is its slave, then the situation is full of promise.”
What we are doing here is saying that the law now has no authority, as we are giving somebody else the power to change the law, and that rather than the Government having to follow the law, the Government and its agencies can change the law retrospectively. We need to be clear that we are weighing up whether the real sin of the existing excessive, outrageous and truly abominable level of complex tax avoidance by people who should know better and should not be doing it is enough for us to risk weakening the rule of law.
Jacob Rees-Mogg (North East Somerset) (Con)
I entirely agree with my hon. Friend on the issue of the rule of law. However, I wonder whether the outrageous examples that have caused such scandal over tax avoidance were actually examples of tax evasion, and whether HMRC has in fact been very weak about enforcing the tax law as it exists now.
Nigel Mills
I agree with my hon. Friend that tax evasion is a crime that should be prosecuted to the fullest possible extent, but in this instance we are talking about tax avoidance.
We should be clear about the principle of what we are doing. We are saying to HMRC, “You can enforce something that is not in law.” If we are to pursue that line, we must be certain that safeguards are in place so that we do not see—metaphorically, of course—tax inspectors turning up with baseball bats, banging down the door of the taxpayer and saying “Give us money or else.” The “or else” would mean, of course, HMRC making the assessment and taking the money in any event, and the other party having to go through expensive court proceedings to try to get it back. I have worked with many tax inspectors, and clearly I do not think that any of them would literally pick up a baseball bat, but there is a risk that in any difficult situation in which there is some doubt about the application of the law, tax inspectors will start writing letters saying, “Unless you agree with my analysis, I reserve the right to apply the general anti-abuse rule, in which case”—effectively—“you will be in deep trouble.”
I think it would be very generous of Members to assume that, in all circumstances and for ever, HMRC would apply this power only to the largest, most abusive and most complicated taxpayers. I suspect that, in the experience of most Members, the Revenue has at times been a little weaker when tackling the very large taxpayers with very big pockets, and a little stronger when tackling those who are a bit smaller and a bit less sophisticated, and who may not be able to fight back as effectively. There is a real risk here. If we give the Revenue a power amounting to complete discretion in regard to whether it applies this rule to individual taxpayers, what is to prevent a large organisation from buying its tax inspector a nice lunch, and an application to apply the rule perhaps never actually being made?
I am not suggesting that that would ever happen. I have certainly never known such things to happen; tax inspectors are usually very law-abiding, and very committed to their role. However, there have been instances in which we as a Parliament have been concerned that the Revenue has not treated the largest and the smallest taxpayers equally. In this instance, we are giving the Revenue a discretionary power, and allowing it to choose when to try to use it. Are we sure that the Revenue will use that power against the people against whom we think it should be used, and not against our constituents who have not done anything particularly wrong?
It has been suggested that we are introducing too many safeguards, and questions have just been asked as to why we are imposing the burden of proof on the Revenue rather than on the taxpayer, as in every other situation. This is plainly not a normal piece of tax law. We are saying, “You may have complied with the law but we still think that you are in the wrong, so we will retrospectively pretend that the law said something different from what it actually said.” In such circumstances it must be right for the Revenue to have a duty to demonstrate that that is appropriate, rather than saying to the taxpayer, “You must prove somehow that you acted within a law that had not actually been published.” That would be nonsensical. It would be equally nonsensical to make the penalties for contravening the GAAR higher than the penalties for contravening the published law. If I flout the law and am defeated in my claim on the basis of the published law, I will rightly be subject to penalties, but for me to be subject to higher penalties when I have not actually broken the published law, which I can read, would certainly be nonsense.
I accept that the Government have undertaken long and detailed consultation and have tried to find a way of introducing a power to tackle the most aggressive, egregious and outrageous tax avoidance without creating some of the pitfalls that would worry me and, I think, my hon. Friend the Member for Cities of London and Westminster (Mark Field). We do not want to create a tax system that is based not on law, but on random interpretations of various transactions by HMRC at some point in the future. I also accept that the Government have made the safeguards as reasonable as is commensurate with ensuring that the law retains some teeth.
I shall ask some questions about the drafting of the Bill later, but let me first explain why I tabled my amendments. I wanted to try to ensure that the power focused on the large, complex, aggressive, expensive schemes peddled by naughty solicitors and accountants, rather than being used as a general threat against ordinary taxpayers who had tried to structure their affairs sensibly and had chosen to conduct a transaction in a way that we could accept.
There are many innocent ways of trying to reduce a tax bill. It is possible to make a pension contribution rather than taking income as taxed earnings. I do not think any of us would object to that. The law clearly identifies it as a choice that we can all make. The owner of a company can choose whether to take a dividend, a salary or a bonus, or whether to leave the cash in the company and to be taxed on a capital gain when he leaves. I do not think many of us would say that someone who chose not to take a bonus in the year in which he sold his company but instead to allow the cash to be deemed a capital gain in order to secure a lower tax rate would be perpetrating an outrageously aggressive tax abuse arrangement of the kind that we should prevent by rewriting the law. We must be careful not to allow the Revenue to apply this power to every piece of innocent, sensible tax planning, when the only fallback will be the definition of a reasonable use of the rules.
Some people might consider it reasonable for Parliament to intend what it says it intends. When we pass a law, it is reasonable to assume that we mean what we put in that law. If we meant something different, we probably ought to have said that something different, and if it turns out that we have got it slightly wrong, we should amend the law. I accept that we have been doing that in various situations for the last God knows how many years, and have ended up with a hugely complex tax code. Every time we build in more complexity, we create more loopholes, and then we have to create even more complex rules to try to close those loopholes—and then we create more and more. Perhaps the answer is to have much shorter, simpler tax codes. I hope that, once the Government have put the GAAR on to the statute book—as I fully expect them to do—we can attempt a wholesale simplification of our tax regimes.
Mark Field
My hon. Friend has identified the nub of the problem. The complications and the sheer size of the tax code have become the godfather of much of the tax avoidance with which many Members in all parts of the House want us to deal.
Nigel Mills
Am I right in thinking that the second sign of madness is to keep doing the same thing and expecting a different result? I think that that applies to introducing more and more complexity and assuming that the outcome will eventually be different.
Sheila Gilmore
Surely the problem with this line of argument is that it does not establish what is cause and what is effect. The assumption seems to be that the fault lies with the fact that tax is too complicated and that there is too much of it, which somehow encourages people to avoid it. Perhaps a complicated tax system, and many of the regulations that exist, have been made necessary by the very fact that people try to avoid tax.
Nigel Mills
The hon. Lady is right. I have not sought to defend those who peddle tax avoidance schemes. It is probably human nature for us all to try to minimise our liabilities. I personally think that we should try to adjust our tax regimes so that they get much closer to taxing the real profit that is declared, rather than allowing a collection of reliefs, allowances, incentives and so forth to provide scope for manipulation of the various circumstances in which people find themselves. However, I accept that people would still try to get round the simplest tax code in the world, and that we would need provisions to stop them.
My amendments are designed to ensure that, if the Revenue uses this power, it uses it to deal with the largest, most outrageous schemes. We do not want it to go around threatening all the small taxpayers who are simply trying to go about their way of life. I was not convinced that the wording of the Bill, and certainly not the wording proposed by the right hon. Member for Oldham West and Royton, would meet those concerns. I tried to provide a de minimis: the tax at stake would have to be above a certain amount before the rules could be applied. That would provide certainty, ensuring that the vast majority of taxpayers would not be subject to some retrospective, random rewriting of the law.
Stephen Phillips (Sleaford and North Hykeham) (Con)
My hon. Friend is making a powerful speech, and is advancing a compelling argument for his de minimis principle. The problem is, in my view, that it is a compelling argument for the exclusion of part 5 of the Bill, and that the de minimis principle that he seeks to introduce ignores the other principles that he has advocated. Does he agree with that?
Nigel Mills
Yes, I do. Various Members have expressed concern about the principle before. I think we must accept that the House has concluded that the only way of tackling the problem of excessive outrageous tax avoidance is to risk the principle of the reading of the rule of law, and to be satisfied that a relatively minor version is what is needed to tackle tax avoidance. I am not sure I would have come to the same conclusion. The previous Government looked at a general anti-avoidance rule about a decade ago, and having consulted for quite a while and made various drafts, they decided not to proceed, probably because of the same concerns that my hon. and learned Friend has set out. You perhaps remember those days and that consultation, Ms Primarolo.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
It is a pleasure to serve under your chairmanship, Ms Primarolo. I rise to speak in support of the Opposition amendments to clauses 203 to 212, which relate to the Government’s proposed general anti-abuse rule and the wider issue of corporate tax avoidance and its impact. I stress “abuse” because people use the terms “avoidance” and “abuse” interchangeably. However, we need to be clear that this is about an anti-abuse rule, rather than a general anti-avoidance rule.
Before turning to the clauses and our amendments, I want to put on the record our deep concern at the delay in the publication of the final guidance notes on how the general anti-abuse rule, or GAAR, will operate. The guidance was initially expected to be published alongside the Finance Bill on 28 March but was published only on Monday—two hours before Second Reading and just two days before we consider the GAAR-related clauses in the Bill this evening. It is clearly important that the recently formed GAAR advisory panel sought to get the guidance right and to amend and improve it appropriately. That is a view backed up by the Economic Affairs Committee in the other place, whose report last month on the draft Finance Bill stated:
“Our witnesses stressed the importance of the guidance from HMRC and the Advisory Panel on how the GAAR would apply so as to minimise uncertainty. We wholly agree. We recognise that progress is being made in drafting this guidance but are concerned that our witnesses felt it was far from acceptable as it stands.”
We therefore welcome the fact that amendments were made, but surely it is vital that Members have sufficient time properly to consider the final guidance, in advance of the GAAR provisions being considered in this House. The Treasury Committee has already raised directly with the Chancellor the question of Members’ ability properly to scrutinise the Bill within the timetable provided by the Government. It described it as
“an important issue of principle going to the heart of Treasury Ministers’ accountability to Parliament.”
I am therefore keen to put my deep concerns about this issue on the record. Sufficient time has not been provided for Members to consider the guidance and any amendments required to the primary legislation as a result.
At a time when living standards are being squeezed, Government borrowing is up, growth forecasts have been downgraded again, the public services upon which people rely are being cut or threatened across the country, and ordinary people are being asked to pay the price of the Chancellor’s economic failure, there is understandable anger about the unfairness and injustice of people working hard and paying their fair share of taxes, while they hear almost daily about the complex lengths to which a small but significant number of multinational corporations will go in order not to do so.
Kelvin Hopkins (Luton North) (Lab)
My hon. Friend will have noticed that The Times reported today that the International Monetary Fund is so worried about the direction of Government economic policy that it fears for the long-term future of our economy. The Government are wrong and they have to change.
Catherine McKinnell
I am pleased that my hon. Friend has raised that issue and reiterated the difficulty the Chancellor faces in pursuing, with such a one-direction approach, his clearly failing economic policies. He refuses to change course, even though the economy clearly shows that his approach is not working, as does the impact on ordinary people up and down the country. Instead, he is ploughing on for political reasons—because he simply cannot lose face by changing direction.
Let me return to the principal issue. It is right to raise the impact of tax avoidance on public services, which are suffering as a result of the tax gap.
Stephen Phillips
If it is so important to impose an anti-abuse rule such as that which the Government propose to introduce, can the hon. Lady explain to the House why the Labour Government, who were in power for 13 years, did absolutely nothing in that regard?
Catherine McKinnell
That is clearly untrue. The Labour Government had a proud record of tackling tax avoidance at every level. We introduced endless targeted measures that brought in an additional £16 billion of revenue. We introduced the disclosure scheme, which, as the Minister will say, has been highly successful, which this Government are building on and which brought in an additional £12 billion of revenue. I shall take no lessons from those on the Government Benches about tackling tax avoidance, because although the Government talk tough the action is yet to be seen on the ground.
Clearly it is unfair and wrong that companies can avoid tax on profits that have been generated from economic activity in the UK. I am sure that we can all agree on that. The profits have been generated by hard-working UK tax-paying consumers and businesses with what appears to be one rule for those at the top and another for everybody else.
There will sometimes be good reasons for companies to pay little or less tax. Some firms invest large sums in research and development, assets and infrastructure. That must be celebrated and acknowledged, but people are rightly entitled to ask what is going wrong when a company can make sales of £1.2 billion and describe itself to investors as profitable yet report no profit in the UK. It totally undermines the concept of a level playing field when good British companies pay their fair share on profits generated in this country whereas others seem to get away with not doing so.
As we all know from our constituency postbags, people are angry about the devastating consequences of tax avoidance not just on the UK and our public services but on developing countries, with multinational giants using tax havens and artificial corporate structures to shift profits offshore and away from the places where they were generated.
We have heard much tough talk from the Government about their apparent determination to tackle tax avoidance. Before us today we have the coalition’s flagship policy on this issue, the general anti-abuse rule. Announced in the 2012 Budget and building on the 2011 report by Graham Aaronson, QC, the GAAR will apply to income tax, national insurance contributions, corporation tax, capital gains tax, inheritance tax, petroleum revenue tax, stamp duty land tax and the new annual tax on enveloped dwellings. I welcome the statement on page 4 of the guidance that was finally published, which suggests that the GAAR
“rejects the approach taken by the Courts in a number of old cases to the effect that taxpayers are free to use their ingenuity to reduce their tax bills by any lawful means, however contrived those means might be and however far the tax consequences might diverge from the real economic position.”
That is a significant advance on the current situation, but, in the Treasury’s words, the GAAR is intended to address
“artificial and abusive avoidance schemes but without creating uncertainty for business investment”
and will attack
“only those schemes that are the intended target and not a broader spread of business arrangements.”
The Budget 2013 policy costings documents suggested that the GAAR
“would be highly targeted on abusive avoidance that has abnormal features”
and goes on to suggest that the people affected are likely to be those involved in “highly contrived tax avoidance”. Mr Aaronson believes that the GAAR is
“clearly intended to apply only to egregious, or very aggressive, tax avoidance schemes”.
Indeed, clause 204(2)(b) refers to the use of “contrived or abnormal steps” to obtain a tax advantage. Those are definitions that I would say—many would agree with me—are highly subjective and require greater clarity in the final guidance. As the Chartered Institute of Taxation pointed out before the guidance was published, how does one interpret “abnormal” and to what extend does the term “contrived” cover what many tax experts would think—rightly or even wrongly, in many people’s view—is simply tax planning? Page 23 of the final guidance, published on Monday, simply states:
“The words “contrived” and “abnormal” are not defined, and therefore will be applied in their normal sense.”
Kelvin Hopkins
Richard Murphy, in particular, has estimated that the tax gap is at least £120 billion and according to some estimates it is much larger than that. The official figures really show only a fraction of the truth.
Catherine McKinnell
There are varying views on the tax gap and how it is calculated. Clearly, it is difficult to calculate accurately, because we are effectively calculating something that does not exist. It is tax that HMRC has been unable to collect, so it will always be an estimate. I use the HMRC figure because it is the minimum—it is what it believes and it is a conservative estimate. The Tax Justice Network calculates the gap at £120 billion. Whatever the actual sum, the GAAR and the £60 million and £85 million that it is intended to bring in are simply a drop in the ocean, and many people have described it as that. It is tinkering around the edges of what is legal.
There has been extensive discussion about the proposed GAAR’s strengths and weaknesses, both in this House and elsewhere. I acknowledge that the Government have taken steps in response to consultation submissions to reduce some of the ambiguity of the earlier GAAR proposals. For example, they have attempted to define the so-called “double reasonableness test” so that we can have a better understanding of how to assess, in HMRC’s words, whether arrangements can
“reasonably be regarded as a reasonable course of action”.
Again, the word “reasonable” is highly subjective and open to interpretation. Many, including the Opposition, still believe that the GAAR is too narrow and that, as it tackles only the most egregious schemes, cannot be regarded as general at all.
Other concerns have been raised about the chair, the panel and the manner in which they will be appointed. The chair has been appointed and will appoint his panel, and it is they who will interpret what they believe to be reasonable. What a tax expert considers to be reasonable might be regarded differently in the eyes of a member of the public. Indeed, many tax experts will differ on what they believe to be reasonable tax planning, as opposed to something egregious that would fall under the GAAR. The concern is that the GAAR is so narrow in tackling only the most egregious schemes that it could hardly be considered general at all and should perhaps be called the AAR instead. As has been mentioned, it also risks tacitly legitimising any tax planning or avoidance that does not fall within its remit, making it even harder to tackle the avoidance problem. Those arguments should be seriously considered. The problem was neatly summed up by the former president of the Association of Revenue and Customs, Graham Black, who stated that the GAAR is a
“Trojan horse, which suggests tough action whilst actually facilitating avoidance.”
A further issue, raised by the Institute of Chartered Accountants in England and Wales, is the international legality of the GAAR in relation to the UK’s double tax treaties, particularly with about 100 non-OECD countries where the GAAR could effectively and unilaterally override the UK’s international obligations. There remain serious concerns that there is no specific penalty regime for the GAAR, so it would be helpful if the Minister, in addition to addressing the concerns I have already set out, could tell us how he intends to ensure that this GAAR is not just a toothless tiger.
I am keen to emphasise that we are willing to support the Government in introducing the GAAR, but for the reasons I outlined we are not convinced that this version is up to the job. One of our key concerns should surely be the fact that there appear to be no arrangements to monitor, determine or measure whether the GAAR is actually working as intended or whether, as we fear, it fails in its aims. HMRC’s recently updated impact note on the GAAR simply states:
“Consideration will be given to evaluating how effective the GAAR has been at discouraging as well as stopping abusive avoidance schemes.”
However, the Select Committee on Economic Affairs in the other place made a clear recommendation for an independent post-implementation review after five years. The Committee stated:
“It would be for consideration whether such a requirement should be built into the legislation, or failing that, a firm Ministerial commitment should be made in the House of Commons at the time the legislation is being considered.”
That time is now, I suggest to the Minister.
Like the Association of Accounting Technicians, the Opposition agree that there should be such a requirement, but like the Chartered Institute of Taxation we believe the review should take place before the five years suggested by the Economic Affairs Committee. Given the seriousness of the problem, the ever-increasing pressure on the Government’s finances and the result of the Chancellor’s failing economic plan, we believe we need an earlier review of the success or otherwise of the Government’s key policy for tackling tax avoidance. Our amendment 8 proposes a maximum two-year gap between Royal Assent to the Bill and the review. I look forward to hearing from the Minister whether he is prepared to commit to such a review, particularly in light of the concerns expressed at the beginning of my submission about the lack of time afforded by the Government’s publishing the guidance so late for proper scrutiny of the legislation.
Perhaps the key concern about the GAAR relates not to its implementation but to the Government’s tendency to promote its provisions as some sort of panacea for dealing with the problem of tax avoidance. My right hon. Friend the Member for Oldham West and Royton (Mr Meacher) raised that concern. I spoke earlier of the justifiable anger about the impact of the problem, particularly of corporate tax avoidance, both on the UK and on developing countries. In continuing to talk up the potential impact of the GAAR, the Government are failing to communicate that it will not deal with many of the issues that members of the public are concerned about. Indeed, the Economic Affairs Committee, which provided valuable scrutiny of the Bill and the GAAR, stated in its report that
“Ministers should make every effort to explain the aims of the GAAR and the reasons why it cannot apply in many of the ways public opinion would prefer, so that unrealistic expectations are banished.”
The Chartered Institute of Taxation commented:
“The Government should be careful not to overstate the effects of the GAAR, raising expectations which will later be disappointed. Many of the examples of ‘tax dodging’ highlighted by the media and campaigners would not be caught by the GAAR. It is important to be clear from the outset what the GAAR will, and will not, achieve.”
The ICAEW stated that
“the GAAR is aimed at countering abusive arrangements and will not fix everything. There remains also uncertainty as to what it will and will not catch.”
The Association of Accounting Technicians remarked:
“We do not see the GAAR as a bulwark against the perceived and real abuse of the UK tax system by multinational corporations. The only way to tackle the growing concern that the UK and many Governments have is by bringing international law up to date, making it fit-for-purpose for the 21st century…The AAT supports Lord MacGregor (Chair of the Economic Affairs Committee) in his demand that the Government make it clear to the public that the GAAR is ‘narrowly focused’ and will not meet ‘public expectations’ of bigger levies on international firms.”
The impact note supports that view in terms of the revenue that the Government expect from the measure.
The Opposition agree with all those comments. Indeed, we think the Government should go further on this critical and pressing issue, which is why we have tabled further amendments. The time for tough talk on tax avoidance is over. We and particularly the developing world need real concrete action now.
Earlier, I outlined the impact of tax avoidance on ordinary UK taxpayers and good British businesses who are paying their fair share but see others going to great lengths to avoid doing so—thus contributing to the tax gap and undermining a level playing field for firms. I briefly touched on the devastating impact of tax avoidance overseas, and I welcome the Chancellor’s confirmation in this year’s Budget that he intends to build on Labour’s legacy by meeting the target of spending 0.7% of gross national income on overseas aid. However, we know that aid alone will not be enough.
Developing countries desperately need to be able to raise more tax revenues to invest in reducing hunger and becoming more self-reliant. Aggressive tax avoidance activity is so significantly reducing the ability of developing country Governments to tackle issues such as hunger, and to invest in the vital infrastructure that we all take for granted, that the OECD estimates those countries lose three times more to tax havens than they receive in aid each year.
Fiona O'Donnell (East Lothian) (Lab)
Does my hon. Friend agree that the measure is a gift for the Chancellor to satisfy the lack of enthusiasm among many of his Back Benchers for 0.7%?
Catherine McKinnell
Indeed. That very thought was going through my head. We must be serious about the impact we can make as a country to support developing countries. We should do everything we can, not just giving aid and making sure that it is utilised in the best way, but enabling developing countries to support themselves as best they can. The Enough Food for Everyone IF campaign states that
“dealing with developing countries’ corporation tax alone could raise enough public revenues to save the lives of 230 children under the age of five every day.”
That is a powerful statement and a powerful tool is within our reach.
The Opposition believe that the first step to tackling the issue, and to creating a fair taxation system, is to put an end to tax secrecy. We need concrete proposals from the Government to demonstrate how they intend to put the issue at the top of the G8 agenda, starting with the requirement suggested by our amendment that HMRC should work in conjunction with other G8 countries to bring forward measures to require multinational groups to publish a simple, single figure for the amount of corporation tax they pay. That is the purpose of our amendment 4. Yet, while the issue of tax avoidance and tax transparency can clearly only be properly dealt with at an international level, we believe the UK should be leading the way, demonstrating its determination to take meaningful action on tax transparency here at home. Therefore our amendment 5 would ensure that commitment was there, regardless of progress at an international level.
Tax transparency should not be restricted to the UK and other G8 or OECD countries; it is needed now, more than ever, in the developing world. The Prime Minister and the Chancellor have frequently stated their commitment to championing tax transparency during the UK’s presidency of the G8. They are on record as being committed to ensuring that developing countries also benefit from any reforms, yet with the exception of a relatively small pot of money for capacity-building work, the measures to combat tax avoidance in the Bill before us do nothing to assist poorer countries. So although the Government are determined that Labour’s disclosure of tax avoidance scheme requirements cannot be extended to include subsidiaries of UK companies operating in developing countries, the Opposition believe that the Government should at least commit to reviewing how a requirement for UK companies to report their use of tax schemes that have an impact on developing countries could be enacted. Surely it is the least that the Government can do.
Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)
My hon. Friend has made very strong arguments. Will she join me in commending the work of organisations such as ActionAid, Global Witness and the Tax Justice Network, who have done excellent work in exposing a number of examples of corporate tax avoidance in countries such as Zambia, particularly resource-rich countries, and the devastating impacts those are having? If we did not have those stories out there, we would not be aware of the scale of the avoidance that is going on and the impact that it is having in those very poor countries.
Catherine McKinnell
I thank my hon. Friend for that intervention, which is powerful in itself, but very much reinforces the argument that we on the Front Bench are making today: we have the means within our grasp to make a difference to that situation. I hope that the Minister will provide some reassurance today, and that we shall get some Liberal Democrat support for our amendments, which seek to make a real difference on the ground. [Interruption.]
Returning once again to an amendment tabled by the Opposition last year—and I might say amendments tabled by Liberal Democrat representatives last year but which were withdrawn at the last minute—we believe that changes to the controlled foreign company rules introduced by the Finance Act 2012 should be properly monitored for their impact on developing countries. Many charities have been concerned that the CFC rule changes will make it easier for UK companies to avoid paying tax in developing countries in which they own subsidiaries. While the Government have estimated the potential loss to developing countries at £1 billion, which one would think would be enough, ActionAid believed it could be as high as £4 billion a year. So what we really need is for the Government to undertake a proper assessment of the impact of the changes on the overall tax take of developing countries since last year, and our amendment asks for that to take place.
In conclusion, we will support the Government’s legislation, brought forward today, to introduce a GAAR. However, we believe, along with my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), who has tabled his amendments as a suggested alternative to the GAAR, that the Government’s GAAR has many potential flaws.
The Exchequer Secretary to the Treasury (Mr David Gauke)
Does the hon. Lady support the new clauses tabled by her right hon. Friend the Member for Oldham West and Royton (Mr Meacher)?
Catherine McKinnell
We support our amendments that we have tabled, and I have presented very clearly the reasons why we support them. I will go on to say why. We support the GAAR and we welcome its being put in place, but we want to see how effective it will be and we will continue to monitor it. We hope that the Government will accept our proposal to come back and report on progress within two years, so that we can continue to monitor its effectiveness and rectify, hopefully, some of the flaws that we see will hinder its effectiveness in tackling this problem. So we call on all—
Stephen Doughty
In terms of who will be supporting which amendments, was my hon. Friend not surprised a moment ago to hear comments from a sedentary position from one of the Liberal Democrat Ministers—in fact an International Development Minister—saying that she doubted their support? Having read previous Liberal Democrat policies on this area, I have to say that over the years they have been fairly progressive and very extensive. Was my hon. Friend not surprised to hear those comments?
Catherine McKinnell
I am very shocked to hear of those comments. I missed them at the time. If the Minister wants to explain her position or the Liberal Democrat Front-Bench position on these amendments, I will be glad to hear it.
Catherine McKinnell
Does the right hon. Member for Hazel Grove (Andrew Stunell) wish to intervene?
Andrew Stunell
With the permission of the Chair, in a minute or two I hope to be able to tell the Committee fully.
Catherine McKinnell
Excellent. I am grateful for the right hon. Gentleman’s intervention. We look forward to clarification of the Liberal Democrats’ position on the issue, and we hope it does not go the same way as their mansion tax vote went earlier, when they voted against their own policy for the second time.
I call on all right hon. and hon. Members to support our amendment 8, which would monitor the impact of the GAAR and ensure that the Government take genuine action towards securing the tax transparency and fairness that the world needs in this 21st century. We also seek to test the will of the House by pressing our amendment 6 to a vote, to determine whether the House will commit to ensuring that we do all we can in our power to tackle tax avoidance that is damaging not just to the UK, but to developing countries.
I finish by reiterating briefly concerns that I have expressed on several occasions in the Chamber and elsewhere about the huge number of challenges facing HMRC, highlighted recently by yet another scathing report from the Public Accounts Committee. The very body on which the Government rely to tackle tax avoidance is being seriously undermined by devastating budget cuts of £2 billion over this Parliament and the loss of 10,000 staff. These cuts will be a false economy if they hamper HMRC’s ability to collect the billions of pounds in avoided tax, and all the tough talk, strategies and moral indignation in the world will not deal with the problem of tax avoidance if HMRC simply does not have the capacity and resources it requires to do the job.
Andrew Stunell
I strongly support the general anti-avoidance rule and its introduction. Some would say that it is long overdue. Bearing in mind what the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) has just said, how important and urgent it is and how long-standing the problem has been, one has to say that it was overdue in 2010, so it is good that it is in place now. I commend Ministers on the Front Bench for including it in the proposals coming to the Committee now.
I shall spend a minute or two commenting on what my hon. Friend the Member for Amber Valley (Nigel Mills) said in his speech a little while ago, making it clear that there are some risks and some dangers, particularly of retrospection. The Minister will know that we have been in correspondence about one particular series of events which has left constituents of mine at a severe disadvantage, as they see it, because of the retrospective application of an HMRC ruling to them.
What I want to say to my hon. Friend is that one thing that the general anti-avoidance rule will do is put everybody in this country on notice about their tax affairs so that they cannot be caught by surprise, or perhaps even subterfuge or a recycling of policy, in the way that my constituents have been. I will continue to write to the Minister about the case facing my constituents, but a general anti-avoidance rule puts everybody on notice and makes any possibility of an excuse disappear. We should welcome that.
Nigel Mills
Does my right hon. Friend agree that it is preferable that only people who engage in aggressive tax abuse should be put on notice, and that people innocently going about trying to structure their affairs normally within the law should not be scared of the provision at all?
Andrew Stunell
I was very attracted to one point that my hon. Friend made in his speech, which was that he thought there was a tendency not to go for the biggest fish with the sharpest teeth and the most expensive lawyers, but to go for the little people or at least the middle-sized people. That is a powerful point and I hope those on the Front Bench are listening carefully. A general anti-avoidance rule needs to be general—that is to say, applicable to even the biggest fish with the sharpest teeth and the most expensive lawyers.
In amendment 6 and several others, some of which were debated earlier today and some more of which will be debated tomorrow, the Labour Front-Bench team has given us a very pretty set of trinkets. They all start with the phraseology
“The Chancellor shall review the possibility of”
doing this, that and the other. They have all obviously been produced by Labour’s amnesia factory, which has forgotten entirely that, on general election day in 2010, the country, the public purse, borrowed £428 million. The day before it borrowed £428 million, and the day after it borrowed £428 million. I commend Government Front Benchers again for reducing that figure by a quarter—a substantial amount. It is surprising that the range of amendments and the speeches made by Labour Members in the Budget debate, including today, have all said that the right solution to the problem is to borrow more. That is not the right solution, and, as I say, the amnesia factory is churning them out.
Steve McCabe (Birmingham, Selly Oak) (Lab)
For the sake of accuracy, would the right hon. Gentleman care to mention one single Labour Member who has advocated borrowing in the course of their speech?
Andrew Stunell
I heard the shadow Chancellor of the Exchequer, in his reply to the Budget debate, make exactly that point.
I want to ask not just about the result of this Chancellor’s potential review of the possibility of doing various things, but the result of the previous Chancellor’s review of all these attractive propositions. None of the things in these propositions is novel. The mansion tax in particular was not even invented by the Opposition. Yet it would seem that the right course of action now is to “review the possibility of”. What was the result of the last Chancellor’s review of the possibility of increasing tax transparency internationally? What action did he take? What report did he leave in the pigeonhole for the incoming Chancellor? I suppose that Opposition Front Benchers’ proper line of defence is to say that they cannot recall.
Whatever the parentage of amendment 6, I want to spend a few moments talking about it. I just say in passing that, whatever else it does, it certainly does not do what the hon. Member for Newcastle upon Tyne North claimed, which is to take a grasp of this key issue. It says that it wants a review of the possibility of. That is not taking a grasp of anything.
I am proud that in the Budget the Chancellor confirmed the UK Government’s promise to meet the 0.7% GNI target for overseas aid. These are not easy times, and as my constituency mailbag shows, it is not a universally popular decision. But it is the right decision, and it is one that I am proud to see the Government have been ready to take. It channels vital resources from the richest nations, of which we are definitely still one, to those that need it most. But it is also the case that those countries need not only our aid, but the tax revenue to support public services in their countries on their own, so that health there, education there, water supply there—all the aspects of development—can be paid for out of the tax that they should be receiving, supported of course by our continuing aid programme.
The Enough Food for Everyone IF campaign—I think that I am the only Member in the Chamber who is wearing the lapel badge, which is also available in other colours—is an important initiative, which I hope will be powerful and effective, as the Drop the Debt and the Jubilee Debt campaigns were, in convincing politicians of all political stripes that further action on this is needed urgently. The UN, the IMF, the OECD and the World Bank, not to mention our own International Development Committee, have all strongly made the point that when we plan our tax affairs we should be aware of the impact that can have, and should have, on improving the tax income of developing nations.
Fiona O'Donnell
On that point, may I press the right hon. Gentleman to address amendment 7, which expresses the view of not only Opposition Front Benchers, but the International Development Committee, which recommended an impact assessment of the controlled foreign company rules, and that Committee is chaired by a member of his own party?
Andrew Stunell
Indeed, it is. There are many propositions made here that are highly desirable, and I would not be at all disappointed if the Front-Bench team agreed to accept amendment 7 and a number of others. The point I am making is that what we need across all political parties in the House, and beyond, is strong consensus in favour of not only continuing our achievement of the aid target, but ensuring that we assist developing nations by getting our tax affairs straight and helping them to do likewise.
Sheila Gilmore
The right hon. Gentleman correctly says that we need to keep up our efforts on aid, but if the controlled foreign company rules have potentially lost £1 billion to developing countries, as Government Front Benchers appear to accept, that affects our ability to give aid. Would it not make sense to review whether that is correct, because it might ever be more?
Andrew Stunell
Indeed, and I will move on to that shortly. Based on all that has gone before, I think that the Minister will say that the Government have every intention of ensuring that those things happen and that the work being promoted by the IF campaign becomes mainstream in this House and the outcome we all wish to see. I support that campaign and its objectives and am keen for the Government to adopt them and be supportive as well. Indeed, my hon. Friend the Under-Secretary of State for International Development is sitting just in front of me on the Front Bench, and I know that she works very hard on those matters as well.
I do not think that the trinket presented to us in amendment 6 is the core of what we need. I challenge the Government to give an undertaking that the proposals in the Finance Bill will be moved on so that multinationals are required to reveal the tax avoidance schemes they are using in the developing world and developing countries are helped to collect more of the tax they are owed. I pay tribute to the work, which I think was initially promoted by the International Development Committee in the previous Parliament, and which I know this Government have taken up with some enthusiasm, of supporting developing countries to create effective tax systems of their own. I know that the work that has been done in Zambia is seen as a template for other countries around the world. I encourage the Government to move forward in that direction.
Jim Shannon
The right hon. Gentleman is bringing to the Committee’s attention the issue of large multinational companies avoiding tax in other countries around the world. Does he agree that it is an issue not only for this House, but for other investment countries, such as the United States, and that together we can address the problem of big companies trying to avoid tax in third-world countries?
Andrew Stunell
Yes, I very much agree. Indeed, I have heard Ministers say that they agree. It is why it is important to work through the G8, the OECD and even the UN to get some level of international engagement on that. As is so often the case, those necessary and important international outcomes cannot be achieved by one country taking an initiative on its own. That does not deter me from arguing that the United Kingdom should be giving the necessary leadership, but I think that we have to be realistic about how we can achieve those outcomes.
Stephen Doughty
The right hon. Gentleman made a significant point about the importance of supporting developing countries in developing their tax systems and revenue collection capacity. Was he not surprised, as I was, to see the 8% underspend in the Department for International Development budget this year, given that the Department has given significant support to such projects in the past? Perhaps less support will be going to such activity in future because of that underspend.
Andrew Stunell
In all honesty, I was not surprised because that rule has always been in place. I do not have to hand figures on any similar underspend before 2010, but if I did I am absolutely certain that the Chancellor of the time would have repossessed it. That is part of the system of central Government control of our expenditure. I can understand that the hon. Gentleman is perhaps not in favour of strict control of public expenditure, but it is important that we do not lose sight of the overall objectives.
I shall conclude. I very much support the Government’s direction of travel on the issue. I am delighted that the general anti-avoidance rule is coming into place. The Government will know that I support the IF campaign and therefore I do not think they have gone far enough or yet fast enough. I look forward to the Minister’s giving me some words of comfort when he replies.
Mr Iain McKenzie (Inverclyde) (Lab)
It is abhorrent that large companies up and down the country should be avoiding paying their taxes while our constituents are squeezed by the Government at every opportunity. We call on the Government to take vigorous action on tax avoidance. To date, however, despite the Government’s rhetoric, they have consistently failed to deliver.
Quite simply, the cuts to HMRC go too far. With more than 10,000 additional job losses, they will prove to have been a false economy if the Government hamper HMRC’s ability to collect billions of pounds in avoided tax. It is not right and cannot be fair that, while families and small businesses are paying their fair share and feeling the squeeze, large enterprises are allowed to practise “if we can afford it, we can avoid it” tactics.
We believe that the best means of tackling tax avoidance is through not only principle but proper targeted measures and greater capacity in HMRC. If the Government are relying only on the general anti-avoidance rule to do the job, we fear it will not be sufficient. As my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) has said, we are willing to support the Government’s introduction of GAAR, but we remain unconvinced that the current version is up to the job.
Let me give but one example of how my constituents are feeling the axe while big companies avoid the tax. A group of women attended my surgery last Friday asking, “Why have we been hit while some big businesses seem to escape?” My constituent Mrs Christine Houston of Port Glasgow was made redundant as demand fell and her company experienced economic hardship. She managed to find a part-time job but she works unsociable hours. Her benefits, which acted as a safety net to allow her to live, have now also been cut. Now she has been unfairly affected by the Government’s pension reforms; she was born in October ’53, so she will receive less pension than her two best friends, who were born in March that year. Despite having started work when she was 16 and having paid her share of taxes ever since, she cannot plan for her future as a direct result of the Government’s actions. “Why,” she and her friends ask, “are multinationals plying their trade in this country and getting off lightly on tax while we are being hit hard? Where is the fairness in that?”
HMRC’s most recent estimate, for the period 2010-11, of tax difference—that is, between the tax actually collected and what would have been collected if everybody had complied with the letter and spirit of the law—stands at a staggering £32 billion-plus, and some regard that estimate as low. Serious concerns exist that the Government’s proposed GAAR is too narrow and that they have failed to clarify that it will not cover most of the tax-avoidance activity undertaken by multinational corporations about which the general public are so concerned. HMRC must have the capacity and resources it requires to tackle tax avoidance properly. The Government are undermining its ability to do so with the budget cuts of over £2 billion in this Parliament, leading to 10,000 job losses. While we all agree that making genuine efficiencies is important, there has to be a limit to its capacity to do more with less. The current scale of cuts risks being a false economy if the Government reduce HMRC’s tax yield.
In these tough times, when the Government are cutting spending and raising taxes, it is even more important that everyone plays their part and pays their fair share of tax. Good British firms and millions of families are paying their fair share, but it is not right that some firms do not, and I think we all agree that that needs to change. We must put an end to the era of tax secrecy, because the reason some companies behave like this is that they believe there is little chance of their being found out. We need to reform the rules that allow companies that make profits in Britain but avoid paying tax in Britain to ensure that they do pay their tax.
Recent cases of companies that have manipulated the tax rules to reduce the tax they pay in the UK to virtually nothing have rightly outraged all those people and businesses who do pay their fair share of tax. My constituents in Inverclyde, and hard-working families and businesses, rightly ask why some seem to think that the rules do not apply to them. It is clearly unfair and further undermines companies that do pay their tax, expecting a level playing field. Over the Easter recess, I visited many small and medium-sized companies, and time and again they talked about no growth in the economy, low demand, and larger businesses avoiding paying their taxes while they were expected to pay theirs, and on time. Sometimes, yes, there will be good reasons why companies pay little tax. Some companies invest large sums in research and development, assets and infrastructure, and we should, and do, celebrate and welcome that. However, we also need to know when companies are stripping their profits out of the UK through artificial schemes.
The Government are undermining HMRC’s ability to administer and collect tax by cutting resources too far and too fast—a familiar, failing theme of this Government. HMRC now has more staff working on administering the Government’s child benefit cut than it employs, combined, to tackle tax evasion and avoidance. The people of this country are demanding reform of the current rules that allow companies to make profits in Britain but pay no tax. That also requires reform of our corporation tax system. In the 21st century, value is now often in brands and intellectual property, customer loyalty and ideas that can be traded globally between different parts of the company group. The rules need to be clearer, tighter and properly enforced.
The Government are failing to show the leadership we need to tackle tax avoidance, yet are vigorously pursuing others to help to fill the Treasury’s coffers. The Conservatives and their coalition partners are failing to convince constituents such as Mrs Houston of Port Glasgow that we are all in it together, or that, with their many references to fairness in both their manifestos, they are living up to that fairness. I ask the Minister to explain to Mrs Houston why the Government seem reluctant to tackle tax avoidance and to give her back her pension.
Fiona O'Donnell
It is a pleasure to speak under your chairmanship, Mr Crausby. I am particularly pleased today to support amendments 3, 6, 7 and 8 in the name of the shadow Chancellor of the Exchequer and others. I see him in the role of Robin Hood, and I will leave my hon. Friends the Members for Newcastle upon Tyne North (Catherine McKinnell) and for Kilmarnock and Loudoun (Cathy Jamieson) to fight it out as to who is Maid Marian. While the Government may be able to find a Robin Hood on the Treasury Bench, they will of course have to resort to the old public schoolboy tradition of one of them dressing up as a woman if they are to have a Maid Marian.
I do not want the Government to be too precious about what they are doing today. I have a feeling that we have been here before—with the Groceries Code Adjudicator Bill perhaps—in that we are all agreed on the general direction of travel but the Government seem resistant to transparent proposals that can be monitored, so that we can see whether they work and achieve what we want them to achieve, or whether they have any adverse impacts. Those on the Treasury Bench have heard concerns raised by Members on both sides of the Committee. They need to give the Bill the teeth to ensure that it is enforceable.
Fiona O'Donnell
I found the right hon. Gentleman’s reticence in that regard particularly difficult, but I hope he will now redeem himself.
Andrew Stunell
I am happy to agree with the hon. Lady: it is true that the previous Government took the issue seriously and I was happy to serve on the International Development Committee during that time. I say to her, however, that we have taken the issue further.
Fiona O'Donnell
Exactly. We have passed on the torch of 0.7% and I pay credit to the Government. It must be a lot harder for them to take that direction of travel than it was for us, because our Back Benchers were supportive of it. It is not enough, however, for Lib Dems to be warmly supportive of the Government and hope that they will not be disappointed. They have to start voting for what they believe in, what they put in their manifesto and what their conference told them it wants them to do. That is why I intervened earlier on the right hon. Gentleman on the subject of the CFC and its effect. I hope that the Minister will say that he is listening not only to the Opposition but to the Select Committee and its report. The Committee has asked for an impact assessment, and we need to be clear about that. Much as I often disagree with coalition Members, I cannot believe that they intended the CFC to have that effect. An impact assessment would show whether it will damage developing countries.
The right hon. Gentleman also spoke about the IF campaign. It is clear that an essential part of tackling poverty and hunger is having a fair and transparent tax system. It is not surprising that people in this democracy should be outraged by large corporations not paying their fair dues, but we sometimes seem to think that it is all right for developing countries. Do they have to expect their natural resources to be plundered?
The Parliamentary Under-Secretary of State for International Development (Lynne Featherstone)
indicated dissent.
Fiona O’Donnell
I am glad that the Minister shakes her head and I give her credit for much of the good work that she has done in office. However, it is time for action. I repeatedly asked the Secretary of State, when she appeared before the Select Committee, whether she would act and whether she was pressing the Treasury for more transparency. She said that it really was not a matter for her; it was a matter for the Treasury—but it absolutely is for the Department for International Development and for the Secretary of State and her Ministers to address this issue. The people in those developing countries have as much right as people in this country to be outraged, but unless they have access to the information about whether tax has been paid, they will not be able to feel that sense of outrage. I hope that we will see some movement on that issue.
If we are ever to see a situation in which aid does not have to be stuck at 0.7%, as I am sure developing countries and many of us want, it will be by ensuring that tax is paid. We have had estimates from the OECD, as my hon. Friend the Member for Newcastle upon Tyne North said in her opening remarks, that developing countries lose three times as much money as they receive in aid. We have a chance now to do something not just for developing countries, but for our own country, by easing that burden.
I give credit to the right hon. Member for Gordon (Sir Malcolm Bruce), the Chair of the International Development Committee for the work he has done and I thank recently joined members of the Committee for their support. The Chairman does not put his party or the coalition first: he genuinely works in the interests of developing countries and the UK in ensuring that tax is spent well. I just wish that we could see Committees in the Scottish Parliament following that good example.
I believe that I may have the honour of serving on the Bill Committee, and I hope that we will not have the same experience as I have had all too often in Committee, with the Government continually refusing to accept amendments, followed by a climbdown. The amendments make genuinely helpful suggestions without asking the Government to alter direction. They would strengthen the measures on which we agree about the direction of travel to ensure that we carefully assess the impact of the policies and that they achieve what we want them to achieve. People have marched in support of the Robin Hood tax and want to see a fairer, more progressive form of capitalism in this country, so the Minister needs to step up to the mark—as well as to the Dispatch Box—and accept the amendments.
Steve McCabe
The Government repeatedly promise to crack down on tax avoidance. Of course, I welcome any efforts in that direction, but as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) pointed out, the prospect of between £60 million and £85 million projected extra revenue against a tax gap of £32.2 billion is hardly the stuff of ground-breaking flagship policies. I am curious to know just who will be pursued under the Government’s plans. As we heard, GAAR will be targeted at abusive avoidance that has abnormal features, and on those involved in highly contrived tax avoidance. Does that mean that normal, low-key, run-of-the-mill, common or garden tax avoidance is going to carry on as normal, with very little activity directed at it at all? Like others, it is not clear to me that GAAR is focused on the tax avoidance of the multinational corporations we have heard so much about lately.
I am pleased that the Government are planning to put tax avoidance on the agenda at the G8 summit, but it would be better if we had a clear indication tonight on what they intend to achieve. For example, I want to know whether the Prime Minister plans to follow up Chancellor Merkel’s concerns about the lack of monitoring of British sovereign territories, which are increasingly used as tax havens. I would love to know how a place such as Jersey became the world’s largest exporter of bananas. Will the G8 be considering guideline prices to help countries in the developing world? Will there be any discussion on an international tax inspector operation to help the countries that are being sucked dry by international lawyers, accountants and financiers?
At the very least, the Government could announce that they are ending tax secrecy by accepting amendment 3 and insisting that multinational groups publish a simple, single figure for the amount of corporation tax they pay in this country, instead of the current arrangements where they parcel the tax paid in a variety of ways that permits avoidance. The Government might also say that they intend to take some action against law firms in this country who all too readily set up shell companies, no questions asked, in the full knowledge that they are aiding and abetting tax avoidance and other corrupt practices.
The Prime Minster might also follow up on his promise that members of his Government publish details of their own tax affairs. Why not lead by example? This is not France. We have nothing to fear here—I think—unlike in France, where the man charged with fighting tax evasion turns out to be a tax fraud himself. At least the French President is now going to force his Ministers to publish details of their tax affairs. Why does our Prime Minister not do the same? He said that he would.
I welcome measures to tighten the rules on companies that arrange loans for their directors or shareholders, in place of taxable salaries or dividends. That particular activity sounds remarkably close to the tax arrangements that brought down Glasgow Rangers football club, and may be widespread in football. I therefore welcome what the Minister is doing on that.
Finally, why has the Chancellor backtracked on retrospective legislation restricting the right of companies to bid for Government work where they have lost disputes with Her Majesty’s Revenue and Customs over tax avoidance? The Government are not frightened of retrospective legislation, as we saw in the case of the jobseeker’s allowance claimants who won their appeal over dodgy back-to-work schemes. Why is it okay to protect tax avoiders, but punish the unemployed?
The Temporary Chair (Mr David Crausby)
For the information of the Committee, I intend to call the Minister at 9.30 pm.
Julie Hilling (Bolton West) (Lab)
Today has graphically demonstrated to me one of the real differences between the haves and have-nots in our society. I will not go into the rights and wrongs, but today we spent millions on Baroness Thatcher’s funeral, yet Jade Lomas-Anderson, the 14-year-old child killed by dogs in my constituency, still has not had her funeral, because her parents and the community are still frantically trying to raise enough money to pay for it.
Kelvin Hopkins
It is a pleasure to follow my hon. Friend the Member for Bolton West (Julie Hilling), who made a superb speech and hit lots of buttons.
I am speaking briefly at the end of this debate basically to support my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) and his comprehensive, substantial proposals for an alternative scheme. I have also signed his new clauses. I am not a tax lawyer—I am not a lawyer—or a tax expert, but I am angry about the fact that for decades we have failed to collect taxes that should go into the Exchequer and help those in our community and our society who need proper support, allowing the corporate world and the millionaires to get away with vast amounts of money that should rightfully be given to the Treasury.
The hon. Member for Amber Valley (Nigel Mills) said that HMRC would in effect be making its own laws. What about getting rid of a lot of the tax allowances, which are nonsense in any case, and making some of the things that are currently regarded as tax avoidance illegal by calling them tax evasion? Some of the things that are done should be regarded not just as neat ways of avoiding tax, but as crimes that should rightfully be prosecuted through HMRC and the courts. I take a much fiercer view. It is pathetic that successive Governments —and I mean successive Governments—have failed to grasp what needs to be done.
I will tell you some anecdotes, Mr Crausby. When I first entered the House, I went along to my local VAT office. The VAT officials there told me that they needed more staff and every extra member of staff collected five times more than their own salary, and that was just for VAT. I therefore wrote to the Chancellor of the Exchequer and said, “We just need more staff in our VAT offices. There would be a net benefit to the Treasury because all the new members of staff would collect more than their salaries.” I got a letter back from an official—not from the Chancellor—that said, “We are trying to cut costs by reducing staffing,” which is utterly illogical. Reducing staffing means a net loss to the Treasury, not a net gain, and we have been going down that route ever since.
The savage staffing cuts in HMRC are quite appalling. Those in the tax offices that deal with the corporates—the big money—collect hundreds and possibly thousands of times more than their own salaries, if they are allowed to do the job and if they are properly supported and paid. I know from my connections with their union that they are constantly under stress and pressure, and in many cases they are not adequately remunerated. We want to give our tax offices enough staff to do the job, pay them properly and ensure that they have morale, so that they do the job on behalf of us all.
Fiona O'Donnell
Does my hon. Friend agree that that also goes for working tax credits? When a family notify HMRC of a change in circumstances, their benefits—their working tax credits—are stopped and can be suspended for several weeks while they are reassessed, causing incredible hardship for families that are doing the right thing.
Kelvin Hopkins
My hon. Friend is absolutely right. Of course, people are now losing their jobs in all areas of the public services. The public services are suffering great stress and the people working in them are being demoralised, and I think that goes even for the senior civil service—I know that certain people at the end of the Chamber would possibly agree with me in that respect.
I must say that the Treasury’s attitude over some decades has been so lax that one has to suspect that it really believes that allowing all the corporates and millionaires to have their money will somehow trickle down and help the economy. That is the sort of economic nonsense that has got us into the mess we are in at the moment. What we should be doing is collecting the taxes and spending in the areas where it is needed.
Sheila Gilmore
It has also been argued that despite the harm done to developing countries by the controlled foreign company rules, their application would bring more companies into this country and the wealth would trickle down to the rest of us.
Kelvin Hopkins
Those are feeble arguments put by people who might have vested interests.
It was interesting to hear the hon. Member for Redcar (Ian Swales), who seems to know a lot about these matters, saying the other day, “What about a few prison sentences for people who fiddle their taxes?” That would concentrate a few minds, and I think that is what we should do, as I think it is criminal for people to rip off the public purse as they do to the detriment of us all. The great majority of my constituents, of course, are working-class people who have to pay their taxes through PAYE—they cannot escape, avoid or evade—so I feel angry on their behalf as well.
It is a matter of political will. If we had the will, we could do these things. We would not need to invent schemes that seem designed to fail. If they were not designed to fail, I am sure the Minister would not be frightened of the amendment proposed by my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) to have a review in two years’ time. If the scheme were to be successful, the review would show its success; if we collected half of what had been evaded through the Government’s proposed scheme—£16.5 billion or whatever, amounting to 4p on the standard rate of income tax—the review would approve of what the Government had done. If the Government refuse to accept the amendment, they are obviously nervous that their scheme will not be a success. I suspect that they have brought something up that is designed to fail and will help the wealthy and the corporates to continue to avoid and evade taxes.
I do not believe that the Government are genuinely concerned about these matters. If they were, they would take effective action, ensure that it happened through stronger laws and possibly prison sentences for those who break these laws, and collect billions more in taxes. The sort of figures described by Richard Murphy and others are enormous—equivalent to each year’s deficit, about which the Government say they are so concerned. They are cutting spending to solve their deficit problems, but the real problem is not spending—it is that their revenue is too low because they are failing to collect all the due taxes. If the Government were successful in enforcing tax laws so that all due taxes were paid, there would not even be a deficit. They would have enough money to cover it. Let us see the Government take effective action: only then will I take them seriously. Until that time, I shall continue to say what I have said this evening.
Sheila Gilmore
Let me touch on a couple of points, partly arising from last year’s debate on the Finance Bill—particularly about the controlled foreign companies regulations and what happened to them. We are often accused of tabling similar amendments to those tabled before, and we did indeed table amendments asking for a review of the impact of those regulations, particularly on developing countries. We were told that the amendments were not needed because the Government would, of course, constantly review these matters. We were told that asking for a specific review would somehow put extra onus on civil servants and that we should simply have trust in what would happen.
On that basis, I ask the Minister—perhaps in his reply now or at some later time—to tell us whether that review has indeed been carried out and what information is already available to assure us that the reassurances given previously have been brought into play. Otherwise, we are simply being told that we are asking for unnecessary reviews and that all will be done. Let us see if it is done, as many organisations were very concerned about what the impact of those changes would be.
It would also be helpful—we asked about this last year—to know whether many companies have returned to this country and made their headquarters here, as we were promised. We were told that that would produce more income for our Government. We need to know not just what the impact has been on developing countries, but how many companies have relocated, how much tax they have paid, and how many jobs they have created.
I see that you are looking at the clock and at me, Mr Crausby, so, on that note, I shall sit down.
Mr Gauke
We have had an interesting and thorough debate during which a number of points have been raised. I shall address as many of those points as I can, as quickly as possible.
Clauses 203 to 212 and schedule 41 introduce the general anti-abuse rule, which is a major new development in UK tax law and a key part of the Government’s drive to tackle tax avoidance. Its role is to tackle abusive tax-avoidance schemes. I shall explain what I mean by that shortly, but let me first say a little about how we ended up in our present position.
We declared in 2010 that we would explore the area of tax abuse, and we commissioned Graham Aaronson QC to lead a study group. I pay tribute to the work undertaken by him and by other members of the group. Their report, published at the end of 2011, recommended that we should consider not a general anti-avoidance rule, but a general anti-abuse rule to tackle abusive avoidance schemes that were not being defeated by the current law.
Previous Governments have considered general anti-avoidance rules, but their proposals encountered the problem of how taxpayers, and businesses in particular, could easily distinguish between an activity that clearly constitutes tax avoidance and one that constitutes legitimate tax planning. If I may use the phrase employed by my hon. Friend the Member for Amber Valley (Nigel Mills), we need to find a way of ensuring that we do not take a baseball bat to legitimate commercial behaviour. We need to identify the boundary between tax avoidance and tax planning.
Contrary to some of the claims that we have heard tonight, HMRC has a good record in dealing with tax avoidance when it occurs. It has been very successful in taking taxpayers to court, and has won a great many cases, especially in recent months. However, we must ensure that we do not encounter the difficulty posed by a broadly based general anti-avoidance rule, namely that taxpayers and their advisers would have to consider how the rule might operate in a large number of circumstances in which it might be applied. That would not just stop avoidance where it existed, but cast a long shadow on legitimate arrangements.
We believe—and some Government Members have said this evening—that that would be bad for the country, damaging growth by causing some transactions to be delayed or cancelled because of the lack of clarity. I therefore urge the right hon. Member for Oldham West and Royton (Mr Meacher) not to press new clause 7 to a Division. I assume that Labour Front Benchers do not support the new clause for the same reason, although they did not make their position entirely clear.
I believe that the general anti-abuse rule proposed by the Aaronson group strikes the right balance between dealing with aggressive, egregious, abusive tax avoidance and not creating uncertainty. It targets only avoidance schemes that are clearly abusive. By “abusive schemes”, we mean schemes that can be seen from the outset to be simply highly contrived and artificial arrangements designed to enable people to get around the tax law and avoid paying tax. Those who do become involved with such schemes know very well what they are doing. If the general anti-abuse rule that we are considering today makes them think again and deters them from engaging in such avoidance, I for one will consider that to be a good outcome.
We have consulted widely, and have received a large number of representations, including some 150 substantive responses to our consultation. Interim guidance has been produced by the interim guidance advisory panel. I accept, to respond to the point made by the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), that that was only published on Monday, but it was important that the panel had the opportunity to get this right. It has put in a considerable amount of time on this issue and, as I think all Members will accept, it is very broad-based and includes representatives from various organisations. Although it has taken a little longer than we might have hoped, I congratulate and thank the panel for its work. It has received an excellent response and will provide much help to taxpayers wanting to know where they stand. For example, on the question of what is contrived and what is abusive—a point raised in the debate—the guidance produced by the panel, as well as setting out the overall principles and descriptions, contains a number of examples demonstrating how these terms can be applied in specific cases.
On the penalty regime, we have not ruled out future action to strengthen the deterrent impact of the general anti-abuse rule by attaching penalties if necessary, and we will keep the matter under review. However, the Aaronson report recommended against providing penalties or special rates of interest, and we believe the GAAR should be allowed to bed in before we take any further action.
Mr Meacher
Before the Minister leaves the issue of the GAAR advisory panel, does he really think it right that most of its members are City lawyers who have hitherto spent their careers advising companies how to avoid tax? Will he also deal with the question of the “double reasonableness” test—whether it is reasonable to take the view that the course of action in question is a reasonable one? Is that seriously the criterion for deciding on the application of the GAAR?
Mr Gauke
The “double reasonableness” test was the one we came to after the lengthy process following the Aaronson review. We believe that it focuses attention on aggressive, abusive tax avoidance. Let me be clear: this is an additional tool that HMRC can use; it does not necessarily mean that for those outside the GAAR, everything is fine. I want to make it explicitly clear that that is not what we are saying. There is avoidance that will not fall within the GAAR, but which HMRC would none the less take action against.
The panel will be broad-based, but I see nothing wrong whatsoever in its having commercial expertise to provide reassurance and ensure that the GAAR will not be abused in the way that some Members have expressed concern about this evening, with too much power being placed in the hands of a part of the Executive. It will be broad-based, in just the way the interim panel has been.
The GAAR does not override UK tax treaties. Given the lack of time, I will not go into further detail, but it acts in much the same way as GAARs do for other countries that respect OECD and UN model tax treaties.
John McDonnell
The Minister said that there will be a review of the penalties. When, and will it look at criminal activity as well?
Mr Gauke
Let me deal with that in the context of amendment 8, which looks at the general issue of post-implementation evaluation and seeks to establish a review within two years of Royal Assent. We and HMRC have made it clear that we will manage and monitor the GAAR’s operation centrally, so that all cases and potential cases will be scrutinised and recorded. The deterrent effect, which we will see immediately, will be important, but we must also remember the issues of getting the tax returns in and being able to make a full assessment of the implications. We believe that a two-year period would not be practical for a general evaluation. It will take longer properly to evaluate how the GAAR is working, just because of how our tax system operates, so I will not accept amendment 8.
Amendments 3, 6 and 7, which deal with tax avoidance by multinationals and the impact on developing countries, raise a number of important points. The hon. Member for Birmingham, Selly Oak (Steve McCabe) wanted me to set out the Government’s objectives for the G8. I am sorry that I am not in a position to do that this evening; it will be left to the Prime Minister, who will make the UK Government’s position very clear.
The point about transparency is important and the Government have a good record of encouraging transparency in a number of areas, particularly among extractive industries through the extractive industries transparency initiative. We play a leading role internationally through the global forum. We ensure that jurisdictions comply with the international standard on tax transparency and work with the G20 to maintain pressure on non-co-operative jurisdictions. We have been making a lot of progress in the Crown dependencies, particularly as regards the exchange of information, and in ensuring that the US Foreign Account Tax Compliance Act, or FATCA, arrangements on the exchange of information become the international norm. I can assure the Committee that that will continue to be a key part of what we do and part of our G8 agenda.
Amendment 6 asks the Government to require UK companies to report their use of tax-avoidance schemes that affect developing countries and for HMRC to notify those countries and assist them in recovering the tax owed. Amendment 7 asks the Government to carry out an impact assessment on the effect of the changes to the controlled foreign companies, or CFC, rules on developing countries’ tax revenues. The answer to both points is that as a matter of practicality it is difficult for HMRC to perform the roles required by the amendments as they require assessments not of our tax rules but of the tax rules of developing countries. That takes us outside what HMRC can realistically do. The point was raised that amendment 7 largely repeats the debate we had during last year’s Finance Bill, when a similar, if not identical, amendment was tabled. I refer hon. Members to the speech I gave a year or so ago, in which I stated that simply as a matter of practicality that is not something that HMRC can do.
On amendments 11 and 12, tabled by my hon. Friend the Member for Amber Valley, I do not believe that a de minimis rule would be appropriate as regards the general anti-abuse rule as it would miss the point. We do not want anyone involved in abusive schemes to make use of them, and even if only £100,000 was at stake as a de minimis, that could have a significant effect on a number of people. We believe that that would be unfair.
As I said at the outset, I believe that the general anti-abuse rule is a major new development. It sends a message to those who persist with abusive avoidance schemes that even if they try to dance around the tax law, they will face the tough but plain question, “Is it reasonable?” That is a question that we all understand. Those who think about using the schemes will all understand it and, I hope, those who create the schemes will come to understand it. The GAAR will ensure that the time for their clever games, paid at the expense of the tax-paying public, is at an end. I therefore recommend that clauses 203 to 212 and schedule 41 stand part of the Bill.
Mr Meacher
In view of the commitment by my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) to carry out a review of the GAAR, and given the double reasonableness test and its deterrent effect, even though it is less than I should recommend, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Amendment proposed: 6, in clause 203, page 120, line 9, at end add—
‘(4) The Chancellor shall review the possibility of bringing forward a requirement for UK companies to report their use of tax schemes which have an impact on developing countries, including a review of the possibility of bringing forward proposals to require that when such schemes are identified under those rules, Her Majesty’s Government shall take steps to notify developing countries’ tax authorities and assist in the recovery of that tax. A copy of the report shall be placed in the House of Commons Library within six months of Royal Assent.’.—(Catherine McKinnell.)
Question put, That the amendment be made.
The Committee divided: Ayes 223, Noes 275.