Lord Newby
Lord Newby (LD)
My Lords, I beg to move that the Bill now be read a second time.
As noble Lords are aware, when this Government took office in 2010, they faced the worst economic crisis in recent history. Since then, this Government have taken decisive action to deal with the debts we inherited and get the economy moving again. Today we are seeing the fruits of those actions, with the fastest rate of growth among the advanced economies, record levels of employment and debt falling.
The Finance Bill before us today takes further important steps to secure the recovery by helping business and enterprise, tackling tax avoidance and evasion, and helping to deliver a fairer and more efficient tax system. I will outline the contents of the Bill in a moment, but I will first say something about this year’s Finance Bill process.
Yesterday, the Bill was debated for six hours in another place. I recognise that this is a compressed timetable, which limits scrutiny of the bill. However, this Government have done what they can to enable as much scrutiny of the Bill as the parliamentary timetable allows. In December 2014, we published over 250 pages of draft Finance Bill legislation for technical consultation. This meets the Government’s commitment to publish the majority of Finance Bill clauses in draft at least three months ahead of the Bill being introduced. We have met this commitment in every year since 2011.
As a result, 80% of the legislation before us has already benefited from public scrutiny and comment. In many cases, there have been several rounds of consultation prior to the final legislation being published. In addition, this Government have taken steps to limit the size of the Bill by holding back around 50 pages of previously announced legislation which, in our judgment, could be delayed until after the election. The provisions that remain represent genuine priorities—where not proceeding with legislation would result in revenue being lost to the Exchequer, or individuals or companies being worse off or faced with considerable uncertainty.
I now turn to the specific provisions in the Bill: first, growth and investment. The Bill builds on previous Finance Bills by creating the conditions in which business and enterprise can flourish. When they took office, this Government set out their ambition to have the most competitive tax system in the G20, and we are achieving that ambition. Next week, the UK’s main rate of corporation tax will be 20%—far lower than the uncompetitive 28% rate we inherited from the previous Government, and the joint lowest in the G20. UK Trade & Investment reported that the UK had attracted more inward investment projects in 2014 than in any year since records began in 1980. Clause 6 confirms that the main rate of corporation tax will remain at 20% in 2016, giving clarity to business.
The Government are also building on their commitment to support the innovative businesses that will drive future economic growth, through generous tax credits for research and development and reliefs for the UK’s world-beating creative sector. Clause 27 increases the rate of the above-the-line R&D tax credit from 10% to 11%, and the rate of the super-deduction for small and medium enterprises from 225% to 230%. This will increase the generosity of the relief, increasing the incentive to carry on R&D and improving the competitiveness of the UK as a location for R&D investment. These reliefs support more than 15,000 firms and £13 billion of investment annually. Clause 30 introduces a new relief for makers of children’s television programmes. Clauses 29 and 31 increase the generosity of the existing film and television tax credits. Together, these clauses will provide a major boost to investment in the UK’s successful film and television sector.
The Bill also includes a comprehensive package to support the oil and gas sector and secure long-term investment in the UK continental shelf. The Government understand the challenges currently facing the UK oil and gas industry as a result of the steep fall in oil prices, and have been proactive in their response. Clause 49 introduces a new investment allowance to reward investment at all stages of the industry life cycle. This new allowance will build on the UK’s existing field allowances, and has been fast-tracked in response to feedback from industry. Clause 48 reduces the rate of the supplementary charge from 32% to 20% from 1 January 2015, and Clause 52 reduces the rate of petroleum revenue tax from 50% to 35% for chargeable periods ending after 31 December 2015, supporting incremental investment in older fields. Taken together, these measures are expected to deliver more than £4 billion in additional investment in the UK and the UK continental shelf, supporting jobs and supply chain opportunities and securing the long-term future of oil and gas exploration in the UK.
I now turn to the measures in the Bill relating to fairness. The Government believe in supporting low and middle-income earners by allowing them to keep more of the money they earn. We set an ambition for the personal allowance to increase to £10,000 by the end of this Parliament—an ambition which we achieved in April 2014, one year ahead of schedule.
In this Bill, we are going further. Clause 3 increases the personal allowance to £10,600 in 2015-16, and Clauses 4 and 5 increase the personal allowance to £10,800 in 2016-17 and then £11,000 in 2017-18. Clauses 4 and 5 also provide that the higher rate threshold, above which individuals start paying the 40% rate of income tax, will rise above inflation for the first time in seven years. As a result of increases to the personal allowance announced during this Parliament, a typical basic rate taxpayer will be £905 a year better off in 2017-18 compared with 2010-11.
The Bill contains further provisions to help hard-working families. Clause 57 extends the child exemption for air passenger duty so that children under 12 travelling on an economy ticket will be exempt from 1 May 2015 and children under 16 travelling in economy will be exempt from 1 March 2016. This measure will deliver significant savings for families going on holiday or visiting distant relatives.
Meanwhile, Clause 34 ensures that death benefits paid as annuities can be paid income tax free where the member dies before age 75, levelling the playing field with other types of death benefit. This complements the pension reforms announced by the Government at Budget 2014.
This Government believe in a fair tax system where those who can best afford it contribute the most. That is why Clause 24 increases the remittance basis charge for non-domiciled individuals to ensure that those who have resided in the UK the longest make a fairer contribution to UK tax receipts.
Clauses 37 and 39 implement important reforms to capital gains tax. Clause 37 extends capital gains tax to non-residents disposing of UK residential property, ensuring that residents and non-residents are treated in the same way when making disposals. Clause 39 ensures that access to private residence relief is limited appropriately.
Finally, this Bill makes changes to the taxation of the banking sector. The Government have been clear that the banking sector should make an additional contribution to reflect its risks to the UK economy. As the banking sector strengthens, it is only fair that this contribution increases. Clause 76 therefore increases the bank levy from 0.156% to 0.21% from 1 January 2015. In addition, Clause 32 and Schedule 2 provide that banks will only be entitled to offset existing carried-forward losses against 50% of their annual profits from 1 April 2015. This will ensure that banks’ future tax payments cannot be eliminated by losses incurred during the crisis and subsequent mis-selling scandals. Together, these banking measures will raise over £8 billion in additional revenue over the next five years.
Let me turn finally to measures designed to tackle avoidance. It is clearly not acceptable that some individuals and companies are not willing to pay their fair share of tax, and this Government have been resolute in clamping down on avoidance and evasion. Part 3 of the Bill will legislate for a new diverted profits tax. This will counter aggressive tax planning by multinational companies who go to extraordinary lengths to avoid paying UK tax. It targets contrived arrangements that are used to divert profits away from the UK. The new tax will be applied at a rate of 25% from 1 April this year. This measure has been subject to a period of technical consultation and a number of aspects have been clarified in the final legislation in response to stakeholder comments.
The diverted profits tax complements work undertaken through the G20 and OECD base erosion and profit shifting project to reform international rules to counter tax avoidance by multinationals. The UK has been playing a leading role in this work. Clause 122 further supports the BEPS project by legislating for the implementation of a new country-by-country reporting template, which will ensure that multinational companies provide tax authorities with high-level information on profits, taxes paid and certain indicators of economic activity for purposes of risk assessment.
The diverted profits tax is a significant new tool in the Government’s battle against avoidance, but this Bill also legislates for a number of other anti-avoidance measures. For example, Clause 33 and Schedule 3 target wholly artificial arrangements that seek to circumvent the UK’s rules on corporate loss relief by converting old losses into new ones that can be used immediately against unrelated profits. Meanwhile, Clause 117 and Schedule 17 strengthen the disclosure of tax avoidance scheme regime, and Clause 119 and Schedule 8 grant additional powers to HMRC to tackle promoters of high-risk tax avoidance schemes. In all, the anti-avoidance measures in this Bill will raise nearly £2.5 billion by 2019-20 to support the economic recovery.
To conclude, this is a significant Bill, which legislates for important changes to the tax system. It supports investment and innovation and secures investment in the UK’s vital oil and gas industry. It delivers further support for families and low and middle-income earners and tackles aggressive avoidance by companies and individuals. These are sensible measures, which should not wait until the next Parliament. I commend the Bill to the House.
Lord Newby
My Lords, I thank all noble Lords who have spoken in this debate. I shall come back to the matters raised by the noble Lord, Lord Davies, but perhaps I may correct one point. He claimed, completely falsely, that there was no enthusiastic endorsement from my Benches for the Bill. My noble friends have been restraining themselves, because their enthusiasm is very considerable indeed. I am sorry that he has not picked that up. I certainly have and it has given me great strength.
Lord Soley
As to my noble friend Lord Davies’s speech, the reason why so many people were on the government Benches, none of whom were speaking, is that they were trying to give subtle support to my noble friend Lord Haskel’s point that you can increase numbers without productivity. That is clearly the problem.
Lord Newby
As my noble friend said, a nice try. The big theme of several speakers related to productivity, and I will deal with that as best I can. I should like again to correct the noble Lord, Lord Haskel, about GDP per capita. This year, 2015, it will in fact be 5% higher than it was in 2010, so it is simply not the case that while GDP overall has risen, GDP per capita has fallen.
There is, I think, widespread acceptance that we need to increase productivity. As the noble Lord, Lord Haskel, is aware, there has been a productivity gap between this country and some of our competitors in Europe and the States for a long time. It fell and has risen slightly again. There is an interesting argument to be had about whether, particularly in times of austerity, it is better to have rapid employment growth, even if productivity does not increase as quickly, than to have higher unemployment and higher productivity. Personally, I think that over the last five years the fact that there has been rapid employment growth has been of crucial importance. We are now beginning to see some increase in productivity, and I obviously share his view that we wish this to accelerate.
I should like, though, to tackle head-on the assertion of the noble Lord, Lord Haskel, that the Government have no view or strategy on improving productivity. How do we do it? One of the key points is that we have to improve the qualification and skill levels of the workforce. Everybody agrees on that. We accept that there are far too many people who have far too few skills. That is why, for example, we have accelerated the academies programme to improve teaching in schools.
Lord Davies of Oldham
Does the noble Lord recall the figures of the projected cuts in the further education budget for the trainers of a great number of these people without skills?
Lord Newby
Given the policy of the noble Lord’s party on further education, and given that if you talk to anybody in a university about their absolute fears about what will happen if a Labour Government comes in, with their policies to cut grants, and their views on what that does to university funding, I would have thought that the best thing for the Labour Party to do for the future of universities is to pursue a policy of as much silence as it can manage. In this Parliament we have seen record numbers of young people going to university, including record numbers of girls and of young people from poorer backgrounds. That is exactly the sort of change and development that I thought the Labour Party supported. We have recognised that there is a need to improve skills below university level. As I was saying, we have supported the creation of university technology colleges and overseen the increase in the number of apprentices to 2 million, which is vastly more than obtained during the previous Government.
The noble Lord, Lord Soley, quite rightly talked about the absolute importance of science and technology and the transfer of basic research into business success. We have maintained resource funding and increased capital for science in real terms during the lifetime of this Parliament. Over the period ahead, we are planning some £5.9 billion of investment in the science infrastructure. On how we get that science applied, we have consistently put money into the catapults, the purpose of which is to act as a bridge between universities and firms. These have been extremely successful: the high-end engineering ones have been very successful. I saw the National Composites Centre in Bristol, which is doing tremendous work. It is possible to do that work only because it is a partnership between government, the universities and business. This concept began under the last Government, but we have strongly supported it. We need to do more, first, because it is successful and, secondly, because all our competitors are doing something like it.
Furthermore, in science we have initiated a grand challenge fund, which will deliver some £400 million of funding on a competitive basis for new, world-leading scientific infrastructure. Within the overall area of science and technology, we have put a £100 million investment, for example, into the research and development of intelligent mobility, which is one of the leading potential growth areas on which this country wishes to be, and remain, in the lead.
The noble Lord, Lord Desai, reminded us that the Labour Party legislated to halve the deficit over a four-year period, which is almost precisely what has happened under this Government. On his radical plans for changing the basis of corporate taxes and taxation more generally, this Government increased indirect taxation on consumption by increasing VAT and they have reduced taxation on income by putting up the personal allowance. Clearly that process, at least as far as indirect taxation is concerned, will not be pursued by any party in the next Government, as we heard yesterday.
On the noble Lord’s more radical ideas on taxing consumption, I am not a tax radical, I am afraid, partly because I started my working life as a tax man. I think that grand taxation schemes often have a whole raft of unanticipated consequences. Of course, those who suffer from any tax change make about 100 times as much noise as those who benefit, so politically I wish the noble Lord luck with the sort of grand scheme that he has in mind, but I hope that I am never called upon to try to do something equally ambitious.
The noble Lord, Lord Soley, made a number of interesting and useful points. I am pleased that he welcomed the changes to gift aid, and I wish him well in finishing the funding for the Mary Seacole statue. Having been in charge of fundraising for the Lloyd George statue in Parliament Square, I know just how stressful the process is, and I hope very much that it is quickly brought to a successful conclusion.
I will pass back to my colleagues in the Treasury and the Department for Transport the point that the noble Lord made about subsidising the establishment of charging points for electric vehicles. I have considerable sympathy with what he said about the power of attorney. I have power of attorney for my mother, and trying to work out how to exercise it is really quite difficult. Having gone through the whole process, I found that it was remarkably anachronistic. As we are moving into a period where power of attorney will be required by more and more families, there is an argument for looking a bit more fundamentally at the whole thing and not just at the way in which it can be used once it has been granted.
Lord Soley
I agree with the noble Lord’s general point, but I ask him to do one thing before the House prorogues. Will he ask his officials to put a reference to power of attorney on the tax website so that people can follow the link and find out what to do? That is not difficult to do, actually.
Lord Newby
I will do that very readily. Finally, the noble Lord, Lord Davies of Oldham, described this as a mean-spirited Bill, and he did not have a huge number of positive things to say about the Government’s track record during this Parliament. This is now the end of the Parliament and we have been in government for five years. We came into the coalition to turn the public finances around and to put the economy on a positive track, and that is what has happened. I think of the position that we were in, even when I first stood at this Dispatch Box three years ago, on growth, employment and our prospects in virtually every respect, and I look at the situation now. We have the quickest growth in the G7, the claimant count has come down a third in this Parliament, there are 400,000 fewer households with children with no one in work, and record numbers of women, both absolute and proportionately, at work.
Nobody can claim that the economy has yet reached a state of perfection—that will never happen—but looking at the progress that this Government have made in turning the economy around and making it fit for the challenges that we face, I am very happy to fight a general election on that basis. This Finance Bill completes the process by the Government in that respect and I commend it to the House.
Lord Haskel
Is the noble Lord aware that the figure I used for productivity per person comes from the Institute for Fiscal Studies? I think it can be considered to be pretty good and independent. On skills and qualifications, the Minister spoke of numbers, but it is important to speak of standards, because that is what will help our economy. We do not need what the OBR calls the rollercoaster attitude towards science; we need the continuous support over many, many years.