The Commercial Secretary to the Treasury (Lord Deighton)
As noble Lords are aware, this Government came to power in the midst of an economic crisis and inherited the largest deficit in our peacetime history. Since then, the Government have taken resolute action to deal with our debts and get the economy moving again. The Finance Bill before us represents the latest stage in those plans by legislating for measures to deal with the deficit, to encourage economic growth and support businesses of all sizes and to create a fairer and more efficient tax system.
I turn first to growth and competitiveness. The Government have set out our ambition to have the most competitive tax system in the G20. We have already made significant progress towards that goal. In 2013, the main rate of corporation tax will be 23%, far lower than the uncompetitive 28% rate that we inherited. However, we want to do more to relieve the tax burden on business. Clauses 4 and 6 will reduce the main rate of corporation tax to 21% from April 2014, and to 20% from April 2015—the joint lowest rate in the G20, and lower than any comparable EU member state.
It was also announced in Budget 2013 that once the main rate has fallen to 20%, it will be unified with the small profits rate to create a single headline rate of corporation tax—simplifying the system. These changes have been widely welcomed by business groups such as the Confederation of British Industry and the British Chambers of Commerce, but competitiveness is not only about the corporation tax rate. The Government are also supporting the innovative sectors that will drive future economic growth.
Clause 7 and Schedule 1 increase the annual investment allowance from £25,000 to £250,000 for two years from April 2013. That will provide additional, time-limited support for businesses investing in plant and machinery, and will particularly benefit small and medium-sized firms. Clause 34 introduces a new, more generous above-the-line tax credit for large companies’ R&D expenditure, providing more visible and more certain relief to those companies engaged in ground-breaking research in the UK. Clause 35 introduces new tax reliefs to support the UK’s creative economy, including animation and high-end TV. Those will be among the most effective reliefs available anywhere in the world. As John Cridland, Director-General of the CBI, said:
“Providing further support for our world-beating creative industries … and increasing the rate of the above the line R&D tax credit will … have a material impact on some of the most important sectors of the UK economy”.
Creating a competitive tax system goes hand in hand with making sure that companies and individuals pay the taxes they owe. That is why this Finance Bill includes significant new measures to tackle tax avoidance by the small minority of individuals and businesses who are not willing to pay their fair share. I know that this is an area in which noble Lords have shown great interest.
Clauses 203 to 212 and Schedule 41 establish the UK’s first general anti-abuse rule, or GAAR. That is a major new development in UK tax law, and will provide HMRC with an important new tool to tackle abusive tax avoidance. It sends a clear message to those who create and promote abusive tax avoidance schemes that their activities will not be tolerated.
We are also strengthening the disclosure of tax-avoidance schemes—or DOTAS—regime. DOTAS has already been highly successful, with more than 2,000 tax avoidance schemes being disclosed to HMRC since its introduction in 2004. This Finance Bill will further improve the information that promoters of tax-avoidance schemes have to provide about the use of their schemes, making DOTAS an even more effective tool.
The Government will also continue to introduce anti-avoidance rules to address specific types of avoidance in areas of the tax system. This Finance Bill includes legislation to close 15 loopholes which have been used to avoid tax.
Taken together, those measures will raise tax revenues by almost £2 billion up to 2017-18, as well as protecting future revenues. Noble Lords will also be aware that the Government have been at the forefront of international efforts to strengthen tax standards and tackle avoidance by multinational companies. The OECD will present its action plan for tackling base erosion and profit shifting to the G20 in July.
Tackling tax avoidance is an important part of delivering a tax system that is fair. There is, however, more to fairness than tackling avoidance. This Government recognise the financial pressures that many families are currently experiencing and are determined that hard-working families should be able to keep more of the money they earn. That is why this Government have set an ambition for the personal allowance to increase to £10,000 by the end of this Parliament—an ambition which will in fact be reached one year early, in April 2014. Clause 2 takes an important step towards that ambition, by setting the value of the personal allowance at £9,440 from April this year. This is the largest ever cash increase in the personal allowance, and represents a tax cut for 24 million people. It will save a typical basic-rate taxpayer £267 a year.
This Finance Bill also takes action to ensure that the wealthiest members of society make a fair contribution. It introduces a new annual charge on enveloped dwellings to ensure that owners of high-value properties cannot avoid paying their fair share of tax by placing their property in a corporate envelope.
The Bill legislates for a new cap on certain unlimited tax reliefs from this April to curtail excessive use of these reliefs by high-income individuals who want to reduce their tax bills. The cap will be set at £50,000 or 25% of a person's income, whichever is the greater, ensuring that these reliefs cannot be exploited unfairly.
The Bill reduces the pensions tax relief lifetime and annual allowances to £1,250,000 and £40,000 respectively. This will limit the amount of relief available to the top 2% of pension savers and curb the growing cost of pensions tax relief, which has doubled in the decade since 2001.
By rewarding work and ensuring that reliefs are properly targeted, this is a Finance Bill that delivers a fairer tax system. The Government are committed to greater consultation on tax policy changes. Most of the measures in the Bill were announced at Budget 2012 and have been subject to extensive consultation. We published more than 400 pages of draft legislation for comment in December, and received more than 400 responses. This consultation has ensured better legislation with fewer changes required. I take this opportunity to thank the noble Lord, Lord MacGregor, and noble Lords on the Economic Affairs Committee for their detailed examination of the draft Finance Bill and the thoughtful and constructive comments in the report before us today.
To conclude, the Bill sets out measures to improve our competitiveness, tackle tax avoidance, and help hard-working families and businesses. It builds on the progress that the Government have already made to deal with the enormous debts we inherited and get the economy moving again. The underlying damage to our economy has turned out to be greater, and the road to recovery longer, than anyone had thought. We are, however, on the right path. I commend the Bill to the House.
Lord Deighton
My Lords, I thank all noble Lords for their excellent and insightful contributions. I will do my best to respond to them. Let me take first the attack of the noble Lord, Lord Davies, on current government policy. When I entered the Treasury I found myself confronted with the financial state which this Government inherited from the previous Government. I find it quite difficult to know where to begin in comparing and contrasting a government strategy which left this nation financially on its knees with the steady and consistent plan which this Government have put in place to recover the situation.
This Government have succeeded in reducing the deficit by a third, and have the confidence of international markets. This Government have put in place a growth strategy in terms of reducing taxes, and making sure that this is an economy in which investors want to invest and companies want to grow. This is the basis for sustained improvement in the decade to come. I agree that issues on infrastructure need addressing. This is because over generations—I think that this really applies to many previous Governments—we have not put in place the long-term approach to sorting out the economic infrastructure that was needed. This Government deserve credit for actually taking the right long-term steps to sort that out, which I hope will put in place a regime that will work very effectively for many years ahead.
Let me get to the specifics of this particular debate and the Finance Bill. The Bill reflects the Government’s continuing commitment to making tax policy in a transparent manner through improved consultation. Many measures in the Bill have been subject to extensive consultation and scrutiny. I take great comfort from the comments at large that the consultation process has been extraordinarily effective. My noble friends Lord MacGregor and Lord Wakeham made the point that we gave the Committee the ability to look at the draft and at the changes we put in place. I think that that is progress all round, which we should enjoy. That robust approach to making tax policy ensures that we can effectively legislate to restore the economy to growth and address the enormous deficit that was inherited. This Finance Bill is part of our plan to put the country on the right path through supporting enterprise, helping families and ensuring that everybody pays their fair share of tax. Part of this plan includes the biggest ever cash increase in the income tax personal allowance, as my noble friend Lady Kramer noted. In her view, that was the most important part of the Bill.
However, we also take firm action against those who do not pay their fair share of tax. There has been quite a detailed discussion of GAAR in this evening’s debate. Given the amount of consultation that has gone on around it and the debate that we have had, I am not sure that there is much more I can add. Insightful comments on it were made by my noble friends Lady Wheatcroft and Lady Kramer and the noble Lord, Lord Bilimoria. GAAR is part of an overall approach and works together with specific tax rules. It does not attempt to address the broader question of the tax behaviour of big multinational companies, which I think we all agree and understand needs to be dealt with through international collaboration. I am proud to be part of a Government who are leading on that issue. We will hear later this week the OECD’s proposals to the G20 to move forward on these issues following up on the ball that we rolled into play at the recent G8 meeting, so that is well under way.
On when we should review GAAR, we rejected the two-year suggestion. On whether five is the right number, the Government reserve the right to keep all taxes under review. I agree with the general sentiment that the way this works needs to be bedded into the system and therefore needs particularly careful management. Overall, I think that the Government’s approach of driving down taxes generally to make this economy more productive, and avoiding the Winston Churchill problem of the man in the bucket, is the right one. Combining that with our rigorous approach to the collection of taxes that are due is exactly the right balance for this age. I wish that our predecessors had got to grips with those two important issues much earlier so that we did not have to deal with them right from basics now.
I also agree with the general sentiment expressed by the noble Baroness, Lady Wheatcroft, and the noble Lord, Lord Bilimoria, that, in an ideal world, we would drive more simplification into the tax system. It is an easy concept to embrace but a difficult one to put into practice given everything that we are trying to accomplish. There is an Office of Tax Simplification whose mandate it is to cause some of these things to happen.
On whether we have done quite the right thing on tax reliefs, the Government are committed to supporting growth and we take action to support business tax relief in an effective way, but it cannot be without limit. We promote business investment through targeted tax relief schemes—some examples of those are the Enterprise Investment Scheme, the Seed Enterprise Investment Scheme and the venture capital trusts—and, as I have said previously, we are driving down the overall level of taxation. The balanced package leaves companies of all sizes in a very attractive tax environment which should be good for the growth of the economy.
In response to the question asked by my noble friend Lord Bates about tax relief for married couples, I can confirm that my right honourable friend the Prime Minister made a commitment to recognising marriage in the tax system. We intend to announce our plans shortly and it will be at the earliest opportunity. My noble friend was absolutely right to quote my right honourable friend the Chancellor, who said in an interview a few days ago that,
“the Government is committed to introducing it and I think you can expect to see it in the Autumn Statement”.
I hope that that is a strong enough commitment. It sounds pretty good to me.
As noble Lords are well aware, this Government inherited enormous debts. It was essential that we addressed that and got the economy moving. We have taken difficult decisions and resolute action to tackle the challenging legacy that we inherited. The Finance Bill 2013 is part of the Government’s plan to put this country back on the right path, through supporting enterprise, helping families and ensuring that everyone pays their fair share of tax. I commend the Bill to the House. I beg to move.