The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read a Second time.
Finance Bill 2015 takes another step forward in this Government’s long-term economic plan. As my right hon. Friend the Chancellor set out in last Wednesday’s Budget statement, we have grown faster than any other major advanced economy in the world; more people have jobs in Britain than ever before; and the standard of living is rising and set to rise further. We are cleaning up the economic mess we inherited in 2010 and delivering a fairer economy for all.
This Bill will build on that success. It will help British businesses to invest and create jobs, help British households to work and save, and help ensure everyone in Britain pays their fair share of tax.
Mr Andrew Love (Edmonton) (Lab/Co-op)
That will also have the effect of increasing complexity in the taxation system. Whatever happened to the tax simplification project?
Mr Gauke
We have established the Office of Tax Simplification and put in place a large number of its recommendations. I could spend some time talking Members through some of them. It is also worth pointing out that just last week the Chancellor of the Exchequer announced plans to take very large numbers of people out of having to pay income tax on their savings, reducing the need for them to be in the self-assessment system. Indeed, we have set out longer-term plans to simplify the operation of the tax system through a more digitised system with online tax accounts, which will make a substantial difference to many people. I should also point out that from April of this year we will have one rate of corporation tax, which means that we no longer need a marginal rate with some 50,000 businesses having to calculate what to pay in a more complicated way. The Government have taken a number of steps on tax simplification.
We are committed to all the tax measures that the Chancellor set out last Wednesday, but appreciating the constraints on the timetable we have deliberately held a number of measures back and published a shorter Bill than would otherwise have been the case. Unlike under previous Governments, legislation for Finance Bills since 2011 has been published in draft three months ahead of the final publication of the Bill. Under this new approach, we published more than 250 pages of draft legislation in December for technical consultation, again meeting our commitment to expose legislation in draft.
We are proceeding today on the basis of consent. The Opposition required us to remove five clauses from the Bill following discussions last week. The clauses concern a new tax exemption for the travel expenses of members of local authorities; a new statutory exemption from income tax for trivial benefits in kind, implementing a recommendation of the Office of Tax Simplification’s review of employee benefits and expenses; simplifying link company requirements for consortium claims under corporation tax; a separate rate of excise duty for aqua methanol; and changes to scheme rules for the enterprise investment scheme and venture capital trusts. The Government would look to legislate on all five of those clauses at the earliest opportunity at the start of the new Parliament.
I will happily take further interventions this afternoon, but let me first set out the order in which I intend to discuss the measures in the Bill. I will begin by talking about those that will boost growth and enterprise. Next, I will cover those that tackle avoidance and aggressive tax planning and then I will cover those that help families and savers do more with the money they earn. Finally, I will talk about how the Bill, like previous Finance Acts in this Parliament, will help to deliver a simpler tax system.
Let me begin with the measures designed to boost growth and encourage enterprise. Hon. Members will be aware that our long-term economic plan is working and confidence is returning to businesses and our markets, but that growth would not have been possible without the hard work of businesses up and down the country. During our five years in office, we have created the right environment to help businesses start, grow and succeed. When we came to office, Britain had one of the least competitive business tax regimes in Europe. Now it is the most competitive. Next week, corporation tax will be cut to 20%, one of the lowest rates of any major economy in the world. By 2016, that will mean £9.5 billion savings for businesses across the UK every year. That is why more and more businesses are moving operations here, starting up here or growing here.
The Bill will also bolster support for research and development and the creative sector. We are increasing the research and development tax credit for small and medium-sized enterprises from 225% to 230%, increasing the rate of film tax relief to 25% for all expenditure and introducing a new children’s television tax relief. I am sure those are industries that Members on both sides of the House will support.
The Government will not sit back and let hundreds of thousands of jobs be put at risk thanks to falling oil prices. The Bill recognises the importance of the future of the North sea oil and gas industry, our largest industrial sector. With effect from the start of next month, the Bill introduces a single, simple and generous tax allowance to stimulate investment at all stages of the industry, giving investors early certainty for their long-term investment decisions. We are also cutting petroleum revenue tax from 50% to 35% to encourage continued production in older fields. Backdated to the beginning of January this year, as announced by my right hon. Friend the Chancellor last week, the Bill also cuts the supplementary charge from 32% to 20%.
Alok Sharma (Reading West) (Con)
My hon. Friend talks about the policies that are being put in place by the Government to help businesses. Does he share my view that the freezing of fuel duty has helped not just businesses but individuals, and will he tell us how much of a saving businesses and individuals make every time they fill up their vehicle?
Mr Gauke
My hon. Friend is absolutely right. Very often, the debate in this House is about the impact on individuals of the freeze on fuel duty, which has considerably reduced how much fuel costs. As a consequence of our measures, £10 is saved per tank full of petrol. He is also right to mention the impact on businesses, because many of them, particularly smaller ones, pay this tax. We can sometimes forget that in that debate. Fuel duty is now 16p per litre lower than it would have been under the previous Government’s plans.
Let me return to the provisions on oil and gas. The new cluster area allowance will support the development of one of the biggest fields in the UK continental shelf, which is expected to generate about 3,500 jobs and more than £3 billion in capital investment. As hon. Members can see, the Bill tackles some of the challenges facing our business community and our economy.
Now that I have set out such competitive tax rates, designed specifically to support our businesses, let me say that we expect those taxes to be paid. The Bill continues the Government’s firm action against the small minority who seek out unacceptable ways to reduce or delay paying the taxes they owe. Under the Bill, we will legislate to create a fairer tax system by clamping down on tax avoidance and ensuring that banks contribute their fair share. Taking effect from the start of next month, the Bill will introduce a new diverted profits tax of 25%, aimed at large multinationals that artificially shift their profits offshore to avoid paying UK tax. As part of the project, I can confirm that we are working with five other tax authorities to investigate and challenge how digital multinationals shift their profits to tax havens. For the first time, we are gathering a full global picture of the tax risks those companies pose that is invaluable in helping us take decisive action.
The Bill will also increase the bank levy to 0.21% and introduce new rules for banks on carried forward losses, to ensure that banking companies can use them only to relieve up to 50% of company profits. Combined, those measures will raise nearly £8 billion over the next five years. We have always been clear that banks should make an additional contribution that reflects the risks they pose to the UK economy, and now that banks are strengthening their balance sheets and returning to profitability, they should make a greater contribution to the economic recovery.
Ian Swales (Redcar) (LD)
I welcome the increase in the bank levy. Does the Minister agree that it is extremely difficult for a bank to avoid the levy, whereas the tax on bonuses, for example, would be very easy to avoid?
Mr Gauke
My hon. Friend makes a very good point. Indeed, that is why the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), made it clear that the bank bonus levy could only really be effective for one year. It is important that we have something sustainable that can exist for much longer.
Alok Sharma
My hon. Friend is being generous in giving way. I welcome the diverted profits tax and I think that my constituents will very much welcome that measure. Will he confirm that it comes on top of all the work the Government are leading at the OECD and that, in September or later this year, we will therefore see further rules coming in to clamp down on base erosion?
Mr Gauke
My hon. Friend again makes a very good point. This Government have led the way in the establishment of the OECD’s base erosion and profit shifting project. We are already implementing some of its conclusions, including in this Bill, but there is more work to be done. The diverted profits tax is consistent with the direction that we want the BEPS project to go in, which is to align economic activity more closely with taxing rights. That is the direction in which the international tax system needs to move, and the diverted profits tax is consistent with that approach.
The Bill legislates for corporation tax loss refresh prevention, which will stop companies obtaining a tax advantage by entering highly contrived arrangements to turn old tax losses into new, more versatile losses. We will close loopholes to make sure that entrepreneurs relief is available only to those selling genuine stakes in businesses. We are strengthening civil sanctions targeting individuals with hidden income, gains or assets overseas to ensure that taxpayers who do not pay their fair share are penalised. We are tackling avoidance by large businesses and wealthy individuals, and we are tackling tax evaders.
Alok Sharma
My hon. Friend is talking about fairness in the tax system, which we all want. Will he confirm that under this Government the top 1% of taxpayers will pay more in tax than they ever did under the previous Government?
Mr Gauke
My hon. Friend makes another excellent point. This year, the proportion of income tax paid by the highest earning 1% will be above 27%, higher than for any year under the previous Government. I dare say that we will debate that in a little more detail later this afternoon. On this Government’s record in ensuring that those with the broadest shoulders make the biggest contribution, the facts are very clear: they are doing so under us. A whole host of measures that we have taken, not least in areas of tax avoidance, have ensured that we are getting in that money.
Charlie Elphicke (Dover) (Con)
My hon. Friend is making a powerful case on the work that the Government have done to tackle tax avoidance. What is being done to throw the book at the promoters of tax avoidance schemes and people who continually try their luck by entering such schemes?
Mr Gauke
My hon. Friend—given his background, he is an expert in tax matters—has been a consistently strong advocate of taking tough action in this area. I can certainly reassure him that one of our very important strands of work has been to take on the promoters of tax avoidance schemes. Indeed, we are bringing in measures to place greater burdens on them to disclose the position they are in, as well as greater surveillance and supervision of them. During this Parliament, we have seen a dramatic fall in the number of tax avoidance schemes being promoted, which is very good news. There has been a real change in the climate, driven not least by the action that the Government have taken. I believe that we have a very proud record in dealing with tax avoidance and the causes of tax avoidance.
Mr Love
I thank the hon. Gentleman for being so generous with his time. The Chancellor has indicated that, if he is returned to government, he will look for £5 billion of savings from evasion and avoidance; yet in its Budget report, the Office for Budget Responsibility could find only just over £3 billion of savings among the Chancellor’s provisions, which leaves a gap. Will the Financial Secretary explain to the House how he intends to fill that gap during the next Parliament?
Mr Gauke
Given this Government’s record on the measures introduced in Finance Act after Finance Act, the support provided to Her Majesty’s Revenue and Customs in additional powers and resources for this area and the fact that yield has increased very substantially during this Parliament—from £17 billion in 2010 to £26 billion now—we are confident that further savings can be found. Through a combination of measures dealing with tax evasion, tax avoidance and aggressive tax planning, we believe that £5 billion can be found.
I now turn to how the Bill will help hard-working families. This Government have a proud record of reducing tax for the lowest-paid. Not only will the Bill deliver our commitment to raise the income tax personal allowance to £10,600 from the start of the new tax year, but it will legislate to raise it to £10,800 in 2016-17 and to £11,000 in 2017-18. By 2017, a standard rate taxpayer will be £900 better off than under the previous Government’s plans and an individual on the national minimum wage working up to 30 hours a week will not pay any income tax whatsoever. That is a tax cut for 27 million people, and it means that this Government have taken almost 4 million of the lowest-paid out of income tax altogether.
We are passing on the full gains of that policy, so for the first time in seven years, the threshold at which people pay the higher tax rate will rise not just in line with inflation, but above inflation. It will rise from £42,385 this year to £43,300 by 2017-18. Under the Bill, the rate of the new transferable tax allowance for married couples will rise to £1,100, providing help for more than 4 million couples. We are legislating to exempt children from air passenger duty so that, together with measures introduced in the Finance Act 2014, a family of four flying to Australia will now save £194. The Government have made clear their commitment to support households in the UK and to put more of their hard-earned money back in their pockets, where it belongs.
Finally and briefly, I turn to tax simplification, which was touched on earlier. Under this Government’s new approach to tax policy making, we published more than 250 pages of draft legislation in December for technical consultation. As such, the majority of measures contained in the Bill have been drawn up following lengthy consultation with interest groups and businesses. The Bill continues to build on the excellent work of Michael Jack and John Whiting at the Office of Tax Simplification, and it includes a package of measures that will help to simplify tax administration for businesses in several ways.
Mr Love
According to the Financial Times this morning, the Bill will add significantly to the complexity to the tax code. The number of pages in Tolley’s is going up and up. We are told that we now have the longest tax code in the world, having overtaken India some years ago, but the Financial Secretary is presenting this as if it were a simplification. This is contrary to the entire thrust of public debate on these issues. When will we get some tax simplification?
Mr Gauke
The hon. Gentleman may be interested to hear, or he may already be aware, that the Office of Tax Simplification has looked at what constitutes complexity within the tax system. One conclusion that it reached was that the number of pages in the tax code is not a particularly good barometer of complexity. For example, the rewriting of the tax code that occurred over many years lengthened it, but the intention was to make it simpler to understand.
I would make this challenge to the hon. Gentleman: which elements of the Bill would he not want? For example, there are 40 or so pages on oil and gas tax reform, which I believe all parties recognise is a necessary response to the current circumstances, but that will lengthen the tax code. A number of pages are being added to the tax code because of the diverted profits tax, but all parties recognise the need for such a tax to deal with artificially contrived arrangements. I appreciate his point and the spirit in which he makes it and I share the desire for greater tax simplification, but there are some challenges in that for a Government who also want to deal with avoidance and ensure that we have a competitive tax system for the oil and gas sector.
Nigel Mills (Amber Valley) (Con)
I do not wish to revisit old debates about simplification, but does my hon. Friend have a view about the future strategy on anti-abuse rules? I believe that when Graham Aaronson examined the general anti-abuse rule, he thought that after about five years we would be able to start to do away with individual anti-avoidance rules and rely on the GAAR. We could therefore remove some of the more complicated provisions and the loopholes that go with them. Does my hon. Friend think that could work, or does he think it should be ruled out and that we must have both the general and specific rules?
Mr Gauke
My hon. Friend does not want to revisit old debates, but I tempted to give a response that I suspect I have given him before. The general anti-abuse rule is a big step forward, and it was absolutely right that this Government introduced it. Other Governments had considered it but felt that it was not the right thing to do. However, it is there to complement the existing measures, and we will want to see how the GAAR works over time rather than rush to judgment. I do not believe that a future Conservative Government would want to risk opening up new loopholes because of uncertainty about exactly how the GAAR applies. It is of course an anti-abuse rule and sets a reasonably high bar for behaviour covered by it, and I suspect my hon. Friend agrees that that is right because of its broad nature. We will have to wait and see before I make any commitment to repealing various targeted anti-avoidance rules.
Charlie Elphicke
My hon. Friend is being extremely generous in giving way. May I turn to the provisions on oil taxation and the revenues from oil, given what has happened to the oil price? Does he have any idea of how big a black hole would be driven into the finances of an independent Scotland were there to be another referendum campaign fought by the losers from last time?
Mr Gauke
My hon. Friend is absolutely right. I believe that oil revenues are something like a 10th of what the Scottish National party predicted, but I will happily stand corrected if I am wrong. The fact is that a united kingdom is better able to absorb volatility in the oil price than an independent Scotland would ever be. Given what has happened to the oil price, it is clearly to the benefit of Scotland that those calling for independence were roundly defeated last year.
Ian Swales
I thank the Financial Secretary. I am sure that he would accept, having looked at the business case for the changes in oil taxation, that the economic effects of the oil industry are much wider than simply the winning of oil. In particular, the engineering and manufacturing industries in the north-east of England are pleased by the moves that have been made.
Mr Gauke
My hon. Friend makes a good point. Particularly in the north-east of England, a number of businesses are ancillary to the oil industry, so I am grateful for his remarks.
The Bill takes further steps to deliver long-term, sustainable economic growth. It puts in place a more competitive environment for business, takes more people out of income tax, continues our reforms of the tax system and supports the continued success of our industries. I commend it to the House.
Chris Leslie (Nottingham East) (Lab/Co-op)
It is a strange moment in the life of this five-year Parliament to be here debating the coalition’s last Finance Bill. Obviously I have great disagreements with the Financial Secretary and his colleagues in the Treasury team, but I want to extend a little hand of friendship across the Chamber. I know that this can be a difficult, even frenzied time, trying to draft legislation straight after a Budget and get things together at the last minute. However, we all aspire to be good parliamentarians, and it is incumbent on us to do our duty to scrutinise the Bill’s provisions properly and ensure that they are considered fully.
We are in the dying hours of this Parliament, but the Bill’s provisions—as my hon. Friend the Member for Edmonton (Mr Love) said, they will add to the tax code—are significant and will have a real impact on the economy and on many people’s tax and financial affairs. Ensuring that the Bill has proper scrutiny is therefore incredibly important. If we are honest, we have limped along in what has felt like a zombie Parliament in the past year in particular, with little going on. I am therefore a little surprised that there is a burst of energy all of a sudden, given that many of the Bill’s provisions could have been discussed, published and thought through at a more civilised pace. It is almost as though the Financial Secretary were doing one of those cycle races in a velodrome where it is all very slow until the last minute. There seems to be a bit of a panic in the Treasury.
The Bill contains 131 clauses of complex tax changes, affecting the energy generating sector, tax avoidance, pensioners and businesses, but we have been given only six hours to cover all of it. I accept that we have little choice about that because of how the Fixed-term Parliaments Act 2011 works—in the fifth and final year of the Parliament we can see that Parliament will prorogue at a given point. Nevertheless, I want to put on record our disappointment that we have not found a better way of improving the scrutiny of this year’s Finance Bill. Normally we would have a Public Bill Committee, in which we could spend fun-packed hours going through every provision. Sometimes I feel that such Committees go all too quickly.
Chris Leslie
I will; perhaps the Minister can say how we will compress that process into six hours.
Mr Gauke
I share the hon. Gentleman’s sense of loss that there is not the usual Committee stage upstairs this year. To be clear, it is necessary to pass a Finance Bill after Budget resolutions have been passed, and there is clearly a short period between those resolutions being passed and Prorogation. I am sure he recognises that there were discussions last week in the usual manner, and that clauses that the Opposition believed should be debated and dealt with in the next Parliament have been withdrawn. The clauses that remain are those that the Labour party accepted should be dealt with in the Bill.
Chris Leslie
I do accept that, and it is good that we have had discussions through the usual channels, treating the Finance Bill this year more in what is known as the “wash-up” procedure rather than our normal less-constrained procedures. Nevertheless, I think we should pause and dwell on the fact that in a fixed-term Parliament the date of the final Budget may have consequences downstream for the legislation that is spat out at the other end. Perhaps we should consider allowing a little more time between the final Budget and the end of the Parliament—obviously a Labour Government will be in power for the next five years, so this may be quoted back at me in five years’ time—so that we have a more considered approach.
Chris Leslie
My hon. Friend should bear that in mind when we hear Ministers trumpeting their apprenticeship numbers in aggregate, because there is always a story behind them. We need genuine apprenticeships to help the next generation obtain skills and career assistance, rather than what has been happening: the re-badging of many apprenticeship programmes, existing training courses and other arrangements that have been rebranded to allow tax support for applications for apprenticeships.
The Bill is not just divisive and unfair but a missed opportunity. There are several omissions. It is not just that the Chancellor could barely drag from his lips those three little letters, NHS, which I think got one mention in the Budget—Agincourt got twice as many. We should have had action to help the next generation, for example by reducing tuition fees to tackle the burden of debt facing students. Students graduate typically with £44,000 of debt, which is a burden not just on those individuals but on the national finances. Government Members should be very scared by some of the projections. Owing to their inability to collect tuition fees from some students, barely half of all tuition fees will be collected, which is adding to the national debt in the hundreds of billions of pounds. That needs to be tackled.
Chris Leslie
We are delighted that the Government took a shine to our proposals for pension tax relief changes—I suppose that imitation is the best form of flattery. We will stick with our policy to reduce tuition fees to £6,000, and we will set out in our manifesto, in a matter of days and weeks, how it will be funded. Still at this late hour, the full costings in our manifesto are available for the Office for Budget Responsibility to audit and verify—if only the Minister had shaken my hand on that. I offered him the hand of friendship—was it on the “Daily Politics” the other day?—but sadly he could not do it. It is important that we have fully costed and funded manifestos and that all parties engage in the process. We will look closely at the Conservative party manifesto. The Conservatives have made some grand promises about tax which will cost at least £10 billion to implement, even in the final year of the next Parliament, yet we have not seen a dicky-bird—even in the Budget figures—on how they will be paid for. I am looking forward to reading that chapter in its manifesto.
The Exchequer Secretary to the Treasury (Priti Patel)
It is a great pleasure to close this debate on Second Reading. I would like to thank everyone who has spoken for their contributions, particularly the hon. Member for Edmonton (Mr Love), who has served this House with such distinction. I wish him well. We have had an interesting debate. I should like to set it in the context of the Chancellor’s Budget last week.
A number of points about living standards have been raised. I reiterate that living standard will be higher in 2015 than they were in 2010, real household disposable income per capita will grow at its fastest rate since 2001 and, according to the Institute for Fiscal Studies, families are now set to be £900 better off this year than they were previously. That is all in line with our plan to fix the British economy, take us out of the dreadful mess we inherited back in 2010 and, quite rightly, give the British public the recovery they deserve.
The Bill marks the next step in that plan. It puts more money in people’s pockets, delivers further growth and puts fairness, which has been mentioned, at the heart of our recovery. We continue to put fairness at the heart of the recovery through our increase in the personal allowance. We will take people on the national minimum wage and working up to 30 hours a week out of income tax altogether by 2017. That is about rewarding work and raising living standards, which is what this Government stand for.
I will address a number of points that have been raised. The hon. Member for Edmonton spoke about £5 billion in tax avoidance. To answer his question, yes, it is a realistic achievement to bring in the revenue that has been spelt out. There is no reason to doubt that the Government can raise the figures we have already announced, so we will proceed with that. On the point about the tax code, we established the Office of Tax Simplification in 2010, and the Bill includes a number of measures that build on its recommendations.
Points were also raised about oil and gas. The Bill introduces radical measures to support the oil and gas industry, giving investors long-term certainty. We have been working very constructively with the industry to ensure that the package will provide it with the right fiscal environment.
On clause 12, which the hon. Member for Nottingham East (Chris Leslie) mentioned, the exemption will not apply where expenses are paid under a salary sacrifice arrangement. That will stop employers artificially lowering their national insurance contribution bills by replacing some of their employees’ salaries with expenses.
Clauses 13 and 14 implement recommendations set out by the Office of Tax Simplification. On clause 20, which relates to gift aid, more details will be set out in regulations, which of course will improve donor understanding of tax to cover. On clause 28, I should like to reassure the hon. Gentleman that it applies to expenditure on consumable items only if the item is transferable in the ordinary course of the relevant person’s business.
Flooding was mentioned. In the spending review the Government committed an unprecedented £2.3 billion to tackle flooding and coastal erosion. In addition, clause 35 supports business contributions to alleviate the impact of flooding.
The hon. Gentleman also mentioned clause 29, which sets out film tax relief opportunities. The structure of the current relief is completely different from that introduced under the previous Government’s scheme, which was prone to abuse, so there are no issues of avoidance in this case. He also mentioned zero-emission bands. Stakeholders have asked for rates to be announced four or five years ahead, and the Government have been committed to announcing rates three years in advance, which is why we have done so.
Let me move on to the whole issue of tax avoidance. The UK is demonstrating further leadership by implementing the diverted profits tax, which is also consistent with the principle of aligning taxing rights to economic activity. The Bill quite rightly ensures that everybody contributes fairly to the Government’s long-term economic plan. During this Parliament, Her Majesty’s Revenue and Customs has secured £100 billion in additional revenue, thanks to this Government’s avoidance and evasion policies. Over a third of the Bill’s provisions will enact measures that go even further in tackling avoidance and evasion, including new measures on corporation tax and offshore evasion and avoidance and, of course, increases in the bank levy. That will raise nearly £8 billion more over the next five years, helping to reduce the deficit and strengthen the country’s economic recovery.
The Bill will help households up and down the country with the cost of living, make the country even more competitive internationally and, through the tax avoidance and evasion measures that we are putting in place, ensure that everyone pays their fair share of tax. The Bill marks the next step forward in our long-term economic plan, and I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time; to stand committed to a Committee of the whole House (Order, 24 March).