Tuesday 18th April 2017
(7 years ago)
Commons ChamberFinance Act 2017 View all Finance Act 2017 Debates Read Hansard Text
21:33 - The House divided: - Ayes: 54 / Noes: 314 - Question accordingly negatived.
21:47 - The House divided: - Ayes: 313 / Noes: 236 - Question accordingly agreed to.
The Financial Secretary to the Treasury (Jane Ellison)
I beg to move, That the Bill be now read a Second time.
This Government have long demonstrated that they can deliver a stronger, more secure economy. The economy is demonstrating robust growth, the employment rate is at a record high and the deficit has been brought down by almost two thirds since its pre-financial crisis peak.
We are in a much stronger position now than we were in 2010, but there is no room for complacency. Indeed, as we begin the formal process of exiting the European Union, we have an even greater incentive to provide a strong and stable platform for the future. Both the debt and the deficit are still too high, so we remain focused on getting the public finances in order, not continuing to endlessly borrow and jeopardise future generations, as some would have us do.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Will the Financial Secretary give way?
Jane Ellison
I will make a little more progress and then I will happily give way.
Before setting out the Bill’s contents in more detail, I should of course refer to the fact that the Prime Minister has today announced her intention to lay before this House a motion calling for an early general election.
Jane Ellison
Members should be paying more attention. Earlier today the Leader of the House updated right hon. and hon. Members on how that motion, if it is passed, will impact on the business of the House. We hope to hold constructive discussions with the Opposition, through the usual channels, on how this Bill will proceed.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
We are always here to help.
Jane Ellison
It is good to hear that Opposition Front Benchers are here to help.
To return to the matter under discussion, I will lay out the themes of the Bill and then I will allow the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) to intervene. We are very clear that our taxes and the system underpinning them need to be fair and competitive and, critically, they must be paid. This Bill will take the next steps in helping to deliver a fairer and more sustainable tax system, one that can support our critical public services and get the country back to living within its means.
The Bill implements changes that respond to the challenges that our tax system and, indeed, our society face. It delivers on intergenerational fairness by tackling inequality of health outcomes across and within age groups, and it delivers changes that better reflect the different ways in which individuals choose to work, enabling people to earn money and create wealth, whatever their chosen business structure, but at the same time ensuring that those choices are not distorted. The Bill also delivers vital revenues to put our public finances on a sustainable footing, secure the future of public services that we all value and help to further bring down the deficit.
Jonathan Edwards
Will the Financial Secretary confirm that the Office for Budget Responsibility report that accompanied the most recent Budget downgrades growth forecasts for each year in the forecasting period, by comparison with that which accompanied last year’s Budget?
Jane Ellison
I do not know whether the hon. Gentleman was in the House earlier, but the International Monetary Fund has today upgraded its growth forecast. All the economic indicators are pointing to robust growth, despite the acknowledged challenges of the negotiating period ahead.
George Kerevan (East Lothian) (SNP)
In the interests of this potentially more consensual period in the run-up to Prorogation, as we try to work out what will remain in the Bill, could the Financial Secretary tell the House where the £2 billion per annum to replace the non-raising of the national insurance contribution is going to come from, if she is so wedded to balancing the books?
Jane Ellison
The Chancellor was clear at the time and in our statements about the Budget and subsequent decisions that we are looking to balance the budget across the period. Clearly, if we are going into a general election campaign, we will have more to say about that in the manifesto. We will lay that out there; this is not the place for that.
Jane Ellison
Well, there are measures in the Bill that are immediately and openly about revenue raising, and we will come to some of those. The Chancellor was very direct about that when he made his Budget statement and, indeed, at the time of the autumn statement.
Let me say a bit about what the Government have done to support fairness between the generations. An essential priority for this Government is that everyone should have access to our NHS when they need it, and that everyone should enjoy security and dignity in old age. That is why we announced in the spring Budget an additional £2 billion—that has just been referred to—in funding for adult social care. This means that councils in England will have access to, in total, £9.25 billion more dedicated funding for social care over the next three years as a result of changes introduced by this Government since 2015.
On top of that, in the last two fiscal events we have done much to help to build a better future for our younger generation by helping people to save more of the money they earn; by investing in education and skills, which was a key theme of the autumn statement and of the Budget; and by building more affordable homes. The Finance Bill will build on this work, particularly by helping to tackle childhood obesity and to deliver a healthier future for our children.
Kirsty Blackman (Aberdeen North) (SNP)
Recent studies have shown that the youngest people in our society who are working, those aged 22 to 29, are earning less than previous 22 to 29-year-olds have ever earned, or certainly less than they have earned in recent times. They are also less likely to own a home and are more likely to rent, and they are disadvantaged by comparison with previous generations. What is the Minister doing to ensure that that stops and is reversed now?
Jane Ellison
I have just talked about some of the things we are doing. Some of these long-term trends need to be addressed through things such as investing in people’s skill levels. Ultimately, if we want to have a low welfare, high wage, high skill economy, we need to invest in people right from the earliest days. The package on skills in particular, which was unveiled recently, is intended to make the generational step change to ensure that people can get high skill, well paid jobs. That is exactly what we are talking about in relation to things such as affordable housing: we acknowledge that there are challenges for younger people and, indeed, we are looking to address them.
Let me talk about the issue of childhood obesity—an issue close to my heart, as a former Minister for Public Health. The UK has one of the highest obesity rates among developed countries, with soft drinks still one of the biggest sources of sugar in children’s diets. That is a cost not only to the productivity of our economy but to the public purse; indeed, there is also a great cost to individuals. The direct cost to the NHS of treating ill health due to people being overweight and to obesity totals over £6 billion a year.
The Bill will legislate for a new soft drinks industry levy to encourage producers to reduce added sugar in their drinks. The levy is working already: there have been reformulation announcements by Tesco, by the makers of Lucozade and Ribena, and of course by A. G. Barr relatively recently. I have had discussions with several companies during recent months, and I understand the effort and investment they are putting into changing their product and portfolio mix.
Even though revenues from the levy will be lower as a result of the earlier than expected reformulations—unusually, we in that sense welcome the fact that predicted revenues will be lower, because the policy is working early—we will maintain the full £1 billion funding for the Department for Education during this Parliament that we pledged to make. That is further evidence that the Government are committed to tackling childhood obesity. It is part of a programme of work being carried on across Departments to deliver fairer outcomes for future generations.
Joanna Cherry (Edinburgh South West) (SNP)
Cancer Research UK ambassadors like my constituent Sue Spencer have helped to highlight the fact that obesity is the second highest risk factor for cancer after smoking, so I welcome what the Minister has said about the provisions in the Bill for a soft drinks levy. May I ask her to confirm that the provisions will be part of a package of measures to tackle childhood obesity, including help for parents to protect their children from junk food advertising and steps to tackle high-sugar milk-based drinks, which are at present excluded from the Bill?
Jane Ellison
The hon. and learned Lady tempts me to talk about a subject from a previous portfolio that is very close to my heart, but it is clearly a matter on which, for the most part, the Department of Health leads. We are committed to tackling this right across the Government. To take one aspect—she mentioned products that are not within the scope of the levy—Public Health England, working very closely with manufacturers, is leading a very ambitious programme of work, which is well under way, to set ambitious targets. When we look at the progress this country has made in our world-leading salt reduction programme, we can see that it was all done through such close working, as well as by being ambitious and by pushing the industry. Alongside the levy, which has turbo-charged that work, that is a very substantial element of the plans. The Department of Health is doing other things, in particular working with schools, and with the money from the levy more can be done.
Let me turn to another theme of the Finance Bill, which we have talked about as a strategic challenge not just for this country but for many developed countries: the different ways in which people are now working. The Bill takes important steps within the tax system to adjust to and reflect the changing ways in which people are choosing to work. For example, individuals who work through a company currently pay significantly less tax than individuals who are self-employed or work as employees. This is true even in many cases where individuals are doing very similar work. Indeed, the Office for Budget Responsibility estimates that the faster growth of new incorporations compared with the growth of employment would reduce tax receipts by an additional £3.5 billion in 2021-22. The Government are committed to helping all businesses, large and small, in all parts of the UK to succeed, but we are clear that the tax system must ensure fair treatment between individuals working in different ways, and of course it must be sustainable.
The Bill will take some initial steps to help to address this issue and deliver a tax system that is fair and works for everyone. First, the off-payroll working rules will be amended for public sector engagements, with responsibility for administering the relevant tax rules moving to the body for whom the individual is working. This change will help to tackle widespread non-compliance with the current rules, which costs more than £700 million each year across the economy. Secondly, from April 2018 the Bill will reduce the dividend allowance from £5,000 to £2,000. This change will help to reduce the tax differential between individuals working for their own company and those working as employees or self-employed. Crucially, it will raise much needed revenue to invest in our public services, including adult social care, as the Chancellor explained at the Budget.
I want to assure right hon. and hon. Members that there will still be a healthy environment for investors. The allowances that the Government have introduced or raised mean that a general investor will still be able to invest about £50,000 without paying any tax on the resulting dividend income. For example, we have increased the amount that individuals can save or invest tax-free through an ISA by the largest ever amount: up to £20,000 this tax year. This and other allowances mean that 80% of all general investors will still pay no dividend tax on their investments. As I have set out, this change will help to address the rising cost to the public finances of the growth in incorporation. It is in that context that the change to the dividend allowance should be considered.
The Bill will further modernise the tax system by legislating for making tax digital. Just as taxation must adjust to the world around it, so must the administration of the tax system. With millions of businesses already banking, paying bills and buying services online, making tax digital is a natural extension of this reality. The Government have brought large swathes of government services into the digital age, including within the tax system, and we need to go on to complete that journey. Businesses will feel the benefit too, being helped to get their tax right first time and cutting down on excessive administrative burdens over the long term. Simultaneously, making tax digital will help to tackle the tax gap, as error alone cost the Exchequer £8.7 billion in 2014-15.
Sammy Wilson (East Antrim) (DUP)
Does the Minister not accept that all the studies conducted so far indicate that this will present an additional cost burden to small businesses, which will have to give returns four times a year? In many parts of the country, small businesses do not even have good access to the digital economy to make those returns.
Jane Ellison
On the latter point, I looked at this matter in detail recently. On what would be required of people in terms of the digital uploading of data, the vast majority of people in the country—in percentage terms, in the high 90s—have access to the right broadband speed.
As for what the change will mean for the smallest businesses, we do not recognise some of the figures that have been put in the public domain by some representative bodies. The Treasury has conducted its own analysis and published it, including the methodology behind it. We acknowledge that this will be a big change for the smallest businesses, particularly for those below the VAT threshold, which is why the Chancellor announced plans to defer for an additional year those businesses coming into the system. Given that the pilot has now started, that means that the system will be piloted for two years before some of the smaller businesses enter it.
However, we cannot sustain the current level of error and the size of the SME tax gap in the long term; we must begin to tackle those problems. A number of developed countries are increasingly digitising their tax systems, and that will have long-term benefits for business. I accept that the transition may involve challenges, but we shall try to provide support during that period.
Nigel Mills (Amber Valley) (Con)
I fully accept the need to tackle the tax gap, but if the advantages for the very smallest businesses are as my hon. Friend has described them, would she be willing to consider allowing such businesses to opt into the system, rather than making it compulsory for those with very low levels of turnover? Might they be allowed to see how the system works over a period of, perhaps, five years?
Jane Ellison
My right hon. Friend the Chancellor has already announced that businesses with a turnover below the VAT registration threshold will have an additional year, until April 2019, before digital record-keeping quarterly updates are made mandatory. I am sure that we shall debate the issue in more detail later, so I will not be drawn into it too much now. Suffice it to say that some of the alternative proposals do not tackle the level of error and the tax gap. We need to address that, because it is part of the general challenge relating to the sustainability of the tax base.
We believe that this change will benefit more than 3 million small businesses in the United Kingdom, the vast majority of which are banking online. We are going with the flow and following the direction in which society is moving. As I have said, however, a package of support will be available to the smallest businesses. We may have a chance to explore that a little further, but it will depend on how much time we have to debate the Bill over the coming days. HMRC will ensure that the needs of businesses are best met by enabling them to learn from the ongoing pilot phase, which, as I said earlier, will now be longer for the smaller businesses. We want to make sure that these much needed reforms are implemented smoothly at the operational level.
I have talked about the way in which the Bill can support the health of the next generation and about how it can help us to adapt our tax system to the modern realities of working life, but I also want to talk about how we can create a fairer, more sustainable tax base and raise much-needed revenue in the process. As I have said, the Government remain committed to their fiscal mandate of reducing the deficit. That is why, for instance, they made the difficult decision to increase the standard rate of insurance premium tax from 10% to 12% in the autumn statement, thus raising vital revenues that were required to support public services. The Chancellor set out very directly the need to raise additional revenue.
As I have made clear, the Government recognise that taxes must be fair. They should also be competitive, which is particularly important as we enter the critical next phase of the negotiations on our exit from the European Union. We need to ensure that our economy retains its competitive edge, and remains an attractive place for both business start-ups and ongoing inward investment. Some excellent decisions in that regard have been made in recent months. However, taxes need to be paid. That should go without saying, but, although ours is one of the narrowest tax gaps in the developed world, and although we are, in my view, one of the most transparent countries when it comes to the way in which we measure and report on it, we need to tackle tax avoidance at all levels to ensure that everyone—big business, small business and individuals—pays the right amount at the right time.
The Bill provides for further action to ensure that we receive the tax revenues that are due by continuing our work to tackle tax avoidance and evasion. We already have a strong track record. Since 2010, HMRC has secured about £140 billion in additional tax revenue as a result of tackling avoidance, evasion and non-compliance. The UK has also shown international leadership: it is at the forefront of many of the international discussions about tackling those issues. Indeed, some of the thorniest avoidance and evasion issues that we face, particularly where they involve complex multinational structures and businesses, can be tackled only in international forums. We have worked closely through the OECD and other international bodies and we will continue to do so and to lead the discussions to tackle those issues. This Bill will build on that work by introducing more than 10 policies that are forecast to raise over £5.5 billion by 2021-22.
First, the Government will update the rules on how companies claim tax deductions for interest expenses and losses. From this month, large businesses will no longer be able to reduce their UK taxable profits by deducting a disproportionate amount of interest expense in the UK. Nor will they be able to offset all their tax liability with past losses in years when they make substantial profits. Taken together, those measures will raise nearly £7 billion from large companies over the next five years.
Secondly, the Bill will continue the Government’s crackdown on the use of artificial disguised remuneration schemes by putting beyond doubt the existing rules and by introducing a new charge on outstanding loans from 5 April 2019. Those changes will ensure that scheme users pay their fair share of tax and will bring in £2.5 billion by 2020-21.
Thirdly, to deter those who gain financially from enabling tax avoiders, the Government will introduce a new penalty for those who enable the use of tax avoidance schemes that are later defeated by HMRC. That is an area on which we have worked closely and where policy development has benefited from a focus on quality tax policy making. We have worked closely with representative bodies to ensure that all people working within the spirit of their professional guidelines have nothing to fear from the new rules. However, it is important that we tackle the enablers.
I think we have all as constituency Members of Parliament heard from people who feel that they were given advice that was later revealed to have been poor advice. However, we have not had a system whereby we were able to pursue in the way we wanted those people who enabled the tax avoidance. That cannot be right. Therefore, the Bill will mean that enablers of abusive arrangements can be held accountable for their activities, while ensuring, as I say, that the vast majority of professionals who provide advice on genuine commercial arrangements will not be impacted. The Bill will also bring an end to a long-standing imbalance in the tax system by abolishing permanent non-dom status. That will raise £400 million each year by the end of this Parliament.
As a package, those measures will ensure that our tax system remains fundamentally fair and that people and businesses pay the taxes they owe. We have introduced them not only because it is important to sustain the tax base—that is important for the revenue we need for vital public services—but because it is important that people feel that everyone is contributing as they should be and that we are asking everyone to work within the rules. The quid pro quo for having a competitive and fair tax system is that taxes should be paid.
The Bill will help to deliver a fairer and more sustainable tax system, one fit for the digital age and responsive to the different ways in which people choose to work. It will continue our work to tackle tax avoidance and evasion. It will help to deliver improvements to the nation’s finances, to pay for critical public services and, by taking a significant step to address the issue of child obesity, to deliver a better future for our younger generation. The Bill delivers on the Government’s plan for Britain, a stronger economy and a fairer society. I commend it to the House.
Peter Dowd
If that suggestion came from the Government side, I would say that I would listen to the representations, and we would listen to any representations, so to speak, that would help small businesses.
Moving on to alcohol duty, the Finance Bill will only further undermine our local pubs, which are already under threat, with 29 pubs closing every week. While we welcome plans to make tax digital, the Government’s plan will shift huge administrative burdens on to small businesses and the self-employed, who are just trying to pay the taxes they owe—so much for the Conservatives being the party of small business. There is no reason businesses should have to submit quarterly digital tax returns, particularly when they lack the time, resources and capacity to convert records into digital standards on a frequent basis. All that comes when they are under stress from business rates. That is why we support the view of the Treasury Committee and of small business owners and the self-employed that it is better to exempt the smallest taxpayers from quarterly reporting and to phase in making tax digital to ensure that implementation is right for all, rather than the Conservative party wasting taxpayers’ money and time by correcting mistakes further down the line.
Making tax digital will also place new burdens on HMRC, which is already teetering on the edge after the constant slashing of its resources over the past few years. Thousands of hard-working staff have already been dismissed, and taxpayers are waiting on the phone for hours, which costs far more than the cuts have saved. The closure of dozens of tax offices across the country is still to come, putting thousands of jobs at risk in my constituency alone. How will HMRC cope with the ever-increasing complexity of its responsibilities with just a skeleton staff? How will any of the “reduction in errors” expected from making tax digital actually come about? How will we ever close the tax gap when there are no tax inspectors left to help taxpayers get their returns right and when HMRC has been filched of the resources it needs to run a service? It is a total false economy.
Jane Ellison
I am sorry, but I rise to defend HMRC. What the shadow Minister just said is the most outrageous attack on the hard-working men and women of HMRC. Far from people hanging on the phone for hours and the various other exaggerations that we just heard, I suggest that he look at the publicly available figures for HMRC performance in a range of areas, where he will see that what he said is far from the truth. HMRC’s performance has been excellent in recent years in many areas, as shown not least by the £140 billion extra raised since 2010 from avoidance and evasion.
Peter Dowd
That attempt at plausibility has gone amiss yet again. The reality is that we are constantly contacted by people about HMRC. Those on the frontline, such as the thousands in my constituency, are doing a damn fine job. The idea that I would attack thousands of people from my constituency is complete nonsense. They are struggling against the odds, which have been stacked against them by this Government. That is the reality. The Finance Bill was a failure before it was even started. It is a busted flush.
The Minister referred earlier to helping homeowners. If the Government are setting aside resources to help homeowners, such as through lifetime ISAs, they should also tackle the threat to the stability of the housing market from organisations such as Bellway, which is tying people to their homes through its leaseholds. That is a scandal and an outrage. The housing market is in danger if such scams are allowed to continue. The Government are quite rightly putting in resources to fund the housing market, so if we are to deal with the issues in it, they should be calling those organisations in, getting a grip on them and telling them to stop ripping off the people who bought homes from them.
The Bill is making income tax payers, small and medium-sized businesses, and the self-employed pay the bill for the endless stream of tax cuts for corporations and the super-rich. It takes no serious action to tackle tax avoidance, putting in place get-outs and workarounds that mean it is just another smokescreen.
Nigel Mills
I welcome more funding to help children to be healthy and more funding for sports. I especially welcome the fact that the largest employer in my constituency, Thorntons, as part of the Ferrero group, gives big funding to school sports. More funding for healthy activities for children has to be a good thing. I am a little nervous about hypothecating taxes for individual spending, because there is a real risk that it would lead to a complicated tax system. It is a little like giving with one hand and taking away with the other. I welcome the fact that we are raising such spending, although I would not want to link it directly to a tax.
Jane Ellison
Just to clarify, one reason why the levy is on producers is that we want to drive the reformulation of products. Drawing on my previous role as public health Minister, every study that has ever been done across the world has shown that reformulating products at source is probably the most effective way of helping people to tackle obesity. I have spoken to supermarkets and producers for many months and, in their own research, they are getting the message back from consumers that tackling the problem at source through reformulation is what people want to see.
Steve McCabe
The hon. Gentleman may be reading from one of those notes that the Whips have been passing around, but I have not got around to mentioning the NHS yet. I will come to it.
I want to comment on the points made by the hon. Member for Vale of Clwyd. I agree that high-sugar diets are associated with a large number of serious conditions, including tooth decay, cardiovascular disease and type 2 diabetes. I will not repeat the figures, but I am grateful to him for giving the stats for five to nine-year-olds and for saying that such diets are the leading cause of hospital admissions for that age group. Of course, that imposes a considerable cost on our already overstretched NHS. He also rightly said that sugar is a leading cause of tooth decay for 15-year-olds, whose permanent teeth are being damaged. That is all preventable, as he said.
I think we are agreed that excessive sugar consumption is the main cause of tooth decay, so in principle I am in favour of a soft drinks levy. However, I am worried that it is an isolated policy and that it will fail to bring about the lasting change we hope for in the consumption habits of the public.
The hon. Gentleman gave the example of Mexico. If he looks carefully at what actually happened, however, he will see that, after an initial dip in sales of soft drinks, they subsequently rose and are now slightly higher than their pre-tax levels. The risk of such an isolated policy is that it may not have the long-lasting effect we seek. Indeed, it is debatable whether there is any robust evidence that an isolated levy on soft drinks will actually reduce the prevalence of any of the health conditions associated with high-sugar diets.
Jane Ellison
I am happy to comment on a couple of things. First, the provision is designed slightly differently from the Mexican initiative and others around the world. It is deliberately a producer levy, to drive reformulation of product. Secondly, to recap what I said in my opening speech, it is not happening in isolation. I entirely agree that it would not be enough in isolation, but it sits alongside a very ambitious body of work, not least in relation to reformulation across a range of different food groups, particularly those focused on children’s diets, on which Public Health England will lead over the next few years, working closely with manufacturers.
Steve McCabe
I am grateful to the Minister. Obviously, we cannot cite Mexico as evidence in favour of the policy and then dismiss it when there is contrary evidence. That was the point I was making. I do not disagree with some of the stuff for which she is arguing, but I and a lot of other people want a broader public health approach. We need to do a bit more to promote healthy eating and improve awareness of the risks associated with unhealthy diets.
I ask the Minister to think again about an industry comprehensive code, because that might be much better and enforceable. If that was to work in conjunction with a soft drinks levy, it might make a much more significant difference. The obesity strategy has been mentioned, but the truth is that most people were pretty disappointed with it when it came out. I remember her in her previous incarnation being much more optimistic about it than appears to be the case now.
With the NHS—this is for the benefit of the hon. Member for Peterborough—significantly extending waiting times for those needing operations for hip and knee replacements, and in the absence of any announcement of additional funding for the NHS, and with the Government continuing, as we have just heard, not to recognise that a funding crisis is engulfing the NHS, the need for a comprehensive set of preventive health measures to complement any soft drinks levy has become all the more pressing. I simply make the point that a tax to plug a hole in yet another failed Tory Budget simply will not be enough. We all know how we arrived at this tax, but it will not be enough by itself.
I do not know how much of this Bill will ever see the light of day, but I do know that it does not address the funding crisis in our schools and our NHS; the impact of cuts in policing, which are now resulting in predicted rises in crime; or the sense in my constituency of Selly Oak that, when it comes to fairness and those who are just about managing, this Government’s economic plans and other policies do not help them. With unemployment in Selly Oak at 4.5%, against 2.4% nationally, this Government simply are not working for Selly Oak.
Mr Rees-Mogg
There is indeed an advertising industry, but we live in a free country and people ought to be able to advertise products. We have a lot of misinformation, have we not? We now learn that fat is not as bad for people as it was said to be, and that people have put sugar into products from which they have removed the fat in order to make them taste nicer because fat-free products without sugar taste disgusting. Advice that turned out to be wrong has led to manufacturers doing things that then turn out to be unhealthy. I am suspicious of the advice that comes from Government and their ability to get it right. If they end up getting it wrong, force us to change our behaviour and tax us, we get the worst of all possible worlds.
A little bit of sugar does nobody any harm at all—only taking it to excess does so—and the only justification, which has indeed been made, is for children. However, I think that ignores the responsibility of parents, most of whom are responsible, and puts up the cost for responsible parents of giving their children what may, in many households, be an occasional treat rather than a regular habit. It is a tax that falls hardest on the poorest in society, who may occasionally be giving their children something that they like, because of the excesses of others. I do not really think that that is the job of the Government.
That leads me to the issue of hypothecated taxation. Ministers should write out 100 times a day, “Hypothecation is a bad idea.” That has been the Treasury orthodoxy for as long as there has been a Treasury. Hypothecated tax does not work because it produces the wrong amount of money for what it is seeking. We see that with the prospect of putting money from the sugar tax into schools. We now discover that not enough money is likely to come from the sugar tax to meet the obligations given to schools, and that money will therefore have to come out of general taxation.
If it were a good idea to put the money into schools in the first place, it ought to have come out of general taxation in the normal way. If it was not a good idea, but just a clever way of spending the money, taxpayers’ money should not have been used. If we get into the position that something is now being done that did not need to be done because it was promised as money from a tax that has not arisen, that is not a good way of carrying out Government policy. All hypothecation of taxation should be struck off: it simply leads to the wrong amounts.
That leads me to the broader point I want to make about this Finance Bill and the Budget that preceded it. It is very good news that an election has been called, because the Budget has become so hemmed in by the number of promises on taxation and revenue expenditure that have quite rightly been kept. Governments ought to keep their promises, and this Government have been absolutely rigorous in doing so, even ones that I do not like. For instance, I am not in favour of the 0.7% going on overseas aid, which I think has been a wasteful and extravagant promise when money is needed elsewhere. However, the justification was that it was in our manifesto, and in manifestos parties make a pact with the electorate that they ought to continue with except under the most extraordinary circumstances that have not arisen.
Such an approach has led to very many areas of expenditure being fixed, while taxation has been limited at the same time. The deficit has been brought down to a third of what it was when this Government came in—a very substantial achievement, of which this Government and their predecessor ought to be proud—but it has become very hard to take that any further because of the encapsulating commitments that are limiting the Chancellor’s freedom of action. That is why the Finance Bill, for all that it has 700 pages, will not lead to a great deal of fundamental reform. It is tweaking things at the edges—looking at little bits of money here and little bits there—rather than taking a fundamental or basic approach to our tax system.
Our tax system has become overly complex and, from the pressure of having to find little bits of money, it is becoming even more complex, which makes it difficult for taxpayers to pay the right amount of tax. We can see that more anti-avoidance legislation has come in to stop avoidance, because we have overcomplicated the tax system in the first place and a corrective measure has therefore had to be taken to try to prevent revenue from seeping away. A good example is the discussions we are having about perceived employment as opposed to self-employment. The Government were extremely proud of their achievement in making self-employment easier, but a constituent who came to see me explained that the £3,000 national insurance contributions exemption for small businesses had led to all the people working for him having to become individual companies, whereby it cost £3,000 a year less to pay them than if they were directly employed or were employed through one subsidiary company.
Very good ideas come into individual Budgets—particular tax breaks to encourage particular forms of behaviour to lead to certain outcomes that the Government wish to see—but they then have to be corrected by anti-avoidance measures because they get taken and used in a way that was not intended under the initial legislation. That is why the election will be a great opportunity to stand on a platform of tax simplification, and I hope we will achieve the sort of majority that will help to push that through. To achieve tax simplification, it will be necessary to ensure that avoidance is removed at source, rather than by anti-avoidance measures. That means taking away some of the existing exemptions and incentives that encourage people to set up more complex systems than they need to minimise the amount of tax they pay.
I am a defender of people taking such an approach. If Parliament legislates for tax to be collected in a certain way, with certain exemptions and thresholds, the individual taxpayer is completely and legitimately entitled to use them to their fullest extent. The approach is the fault not of the taxpayer, but of Parliament for putting exemptions into or leaving them in legislation. We should always be very careful to distinguish avoidance from evasion. Evasion is straightforwardly criminal—not paying the amount of tax that is, by law, due. Avoidance is looking at the tax system and saying, “I do not owe that tax, and I do not have to pay it because Parliament has not legislated for me to pay it.” As individual taxpayers, we are all entitled, as are all our constituents, to pay the tax Parliament requires, not a penny less or a penny more. If we had a system that was simpler overall, that would be hugely beneficial.
There is a lot about anti-avoidance in the Finance Bill, including the new rules for non-doms, about which I would be very careful. We live in a world where some very rich people want to come to the United Kingdom, and when they are here they employ people, spend money and pay taxes. We have a system that has barely changed since the days of Pitt the Younger—I cannot say I remember them, but I wish I did—and that broadly unchanged system was actually very beneficial for our economy because it brought into this country wealthy individuals who then provided economic activity. It is absolutely right to ensure that people who are obviously domiciled here in all normal senses of the word should be seen as being domiciled here, but we do not want such a difficult regime that people who might come here and contribute to our economy feel that they cannot do so.
Jane Ellison
I want to give my hon. Friend a degree of reassurance. A new measure in the regime advanced as part of the non-doms reforms will make it easier for anyone to invest in the real economy—business investment —which I hope he will welcome. I entirely take his point that we want to make sure that people can come to this country from anywhere and invest in the real economy.
Mr Rees-Mogg
Absolutely. That is an important part of the reforms, but there has perhaps been a tone—more from the previous Chancellor than from the current Chancellor—that the non-doms were using the system. A lot of them could actually go anywhere in the world, but they come here because of the great virtues of investing in the UK: we have clear rights of property; we have an effective rule of law; and we have had simple regulations that have allowed them to be here. However, we have now increased the charges on them and increased their eligibility for certain taxes, and I think we should be very cautious about that because one never knows, with these sorts of things, where the tipping point will come. It may be that the annual charges applied to non-doms seem quite small compared with their wealth, but when we consider that they have families—the charges have to be multiplied for the wife, the number of children and grandparents, or whoever—we may find that the charges become quite high. The people bringing such wealth into the country have enormous mobility: they can go elsewhere. I know that standing up for non-doms six weeks before an election is not necessarily going to be a great rallying call for North East Somerset, but ultimately I think good economics leads to good politics rather than the other way around. A lot of what was done with regard to non-doms was much more about politics and perception than the contribution non-doms make to this country. In the context of Brexit, we want to show that we are genuinely open to the rest of the world. We want people to come here to invest and to spend their money, because that is so important to our long-term economic prosperity.
There is a broad challenge with this Finance Bill, as there will be with its successor which will no doubt come. I have a feeling that this will be one of those happy years where we get more than one Finance Bill. Finance Bill debates are particularly enjoyable parliamentary occasions because they have no time limit. The hon. Member for Aberdeen North (Kirsty Blackman) said that we might go right through the night and not be able to have our debate tomorrow. I look forward to that happening at some point in the future, but I have a feeling it is not going to happen today. Finance Bill debates are the best debates because of their fluidity and flexibility.
When we get to the second Finance Bill, a fundamental choice will still have to be made. This relates to the answer we had from the hon. Member for Bootle (Peter Dowd) on the Opposition Front Bench. There is an absolutely key point at the heart of this Finance Bill, as there will be at the heart of any new Finance Bill. When I intervened on him and said that the tax rate as a percentage of GDP was at its highest since the days of Harold Wilson, his answer to me was that under Labour it would be even higher.
George Kerevan
I was very careful to say that I was not anticipating who would actually be in government. I was giving the present incumbents in the Treasury a chance to say what they might do should they be re-elected.
Let me move on now, because I think it important to analyse the contents of the Bill. I think that it contains two sets of structural weaknesses. The first reflects what I consider to be a change in the pulse of the economy, which has occurred since the end of 2016 and is embedded in all the latest data that we have—data that have emerged in the last month, since the start of the Easter break. I fully accept that the Government have presided over a period of economic growth since 2010. I do not want to dismiss the figures—in a number of years, our growth rate has been higher than those in other large industrialised countries—but what has underpinned that growth? All the figures suggest that it has been underpinned by consumer spending, largely funded by the rise in consumer debt.
I do not gainsay the growth, but, in her opening remarks, the Minister placed a great deal of emphasis on the Government’s success in that regard. If economic growth is founded merely on consumer spending, and that consumer spending is based on borrowing, it is not sustainable, and I think it entirely legitimate to question how long the Government can go on relying on consumer debt to fund growth. In fact, we are now approaching the end of that period. What worries me is that the fiscal plan embedded in the autumn statement and the March Budget assumes the continuation of growth that is beginning to falter.
Let me make a point that I raised after the autumn statement, and also during the Budget debate. It seems to me that the Chancellor gave himself plenty of fiscal fire power in the autumn statement through increased borrowing—or, at least, the removal of some of the more over-optimistic projections of the previous Chancellor, and some of his more egregious games with time limits in relation to when income would arrive. The current Chancellor, in the autumn statement, clearly borrowed sufficient money in order to give himself some fire power should the economy slow. The trouble is that in the autumn statement all that spending power was delayed until post-2019, which is when we will see what the Brexit deal actually is. If the economy slows between now and 2019, it will be too late to use the fiscal fire power. That was the criticism of the autumn statement that was made by me, and by other Opposition Members.
The March Budget was fiscally neutral, by and large, but it has run into some headwinds. If the incoming Government, whoever they are, post-8 June, do not make up the projected shortfall from the proposed rise in national insurance contributions by the self-employed, there is a hole of a couple of billion pounds to fill. That aside, as I have said, the March Budget was fiscally neutral. If we put together the autumn statement and the March Budget, the Chancellor has a nest egg that he can bring to bear on a slowing economy, but it is pencilled in for 2019. For the next two years, he is relying on economic growth funded by consumer debt. However, all the latest numbers show that that is no longer happening.
Jane Ellison
The hon. Gentleman is making an interesting speech and I welcome the consensual tone that he has struck on a number of measures. I have to push back on the charge that fiscal firepower will be delayed beyond 2019. The Chancellor was explicit in the autumn statement that we borrowed to invest in greater productivity and some of that is happening now. Some of the national productivity investment fund is for short-term investment. In addition, as the hon. Gentleman knows, Barnett consequentials of £800 million for the Scottish capital budget are there for the Scottish Government to spend as they see fit.
Jane Ellison
With the leave of the House, I will close today’s debate, and it is a pleasure to do so. It has been an interesting and wide-ranging debate, and I thank all hon. Members for their contributions. I will try to touch briefly on their contributions, but I suspect, with the time being rather against me, that I will not be able to answer all their questions. As I said in my opening speech, we no doubt have several discussions ahead of us about the next steps on the Finance Bill.
The Finance Bill takes the next steps in helping Britain to succeed both now and in the future. What was lacking from the rather opportunistic speech we have just heard was any willingness to face up to the economy’s strategic challenges. Many are touched on in the Bill and I will refer to some of them now. One theme that emerged—in the speech by the hon. Member for Bootle (Peter Dowd) at the beginning of the debate and in other speeches—was a focus on productivity. Nobody could have been clearer about facing up to the country’s productivity challenge than the Chancellor. I think everyone should be able to support the measures we have laid out to respond to the long-term challenge as a priority, and to take targeted action to invest in innovation and infrastructure.
We are also introducing measures on setting corporation tax to make our economy more competitive. I wholeheartedly reject the comments we hear from the Opposition that try to set small business against large business against medium-sized business. All businesses, over 1 million of them, large and small, will benefit from our cuts to corporation tax. We want to ensure that we offer SMEs enhanced research and development tax relief, and other measures that will help them to grow. I welcome the emphasis placed by my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak) towards the end of the debate on that very issue of how we help businesses to grow. I find it extremely disappointing that the Labour party seeks to pass judgment. We want small businesses to become big businesses and we want to ensure that we help that to happen.
There have been a number of comments, not least from both Opposition Front-Bench spokesmen, about HMRC resourcing. I sprang to the defence of HMRC’s record. It has made sustainable cost savings of more than £1 billion over this Parliament while improving performance. Over the same period, it has collected a record level of tax revenue, reducing the tax gap to a historic low of 6.5% in 2014-15. Measures in the Bill will build on the measures already passed by both this Government and the coalition Government to close the tax gap. I would be very disappointed to think that Opposition Members are not supportive of those measures.
Turning to Back-Bench contributions, my hon. Friend the Member for Amber Valley (Nigel Mills) made an excellent and typically thoughtful speech. It was wide-ranging and I will not be able to respond to all the points he made, but he was supportive of the soft drinks industry levy. He rightly focused on measures to tackle the tax gap in VAT and important new steps we are bringing forward. He spoke about a number of other issues. He asked me about when we might look to turn on the power we took last year with regard to country-by-country reporting. We have always said that we want to make the case at various international forums to work through that in an international context. We will continue to raise the issue and pursue international agreement on public country-by-country reporting.
My hon. Friend also sought reassurance on the compressed interest restriction, a measure that, along with the loss relief measures in the Bill, stands to raise £7 billion across the period in question—very significant sums of money from large corporations. He wanted reassurance that that would not be a block on growth and investment. I think I can give him that reassurance. We have a very open and competitive economy, and we have a very competitive tax system, but we expect businesses to pay the right amount of tax. We are not the only country with an interest restriction: for example, Germany, Italy and Spain have similar rules, and other European countries will be introducing similar rules over the coming years. I hope that gives him a degree of reassurance.
My hon. Friend the Member for Vale of Clwyd (Dr Davies) gave a very thoughtful speech on the soft drinks industry levy. I very much welcome his support, drawn from his experience not just on the Health Committee but professionally. He gave a tour de force speech outlining the reasons for providing a prescription to tackle obesity. Obesity offers a considerable threat to the long-term finances of the NHS. I welcome his support for the levy.
The hon. Member for Dundee East (Stewart Hosie) expressed a degree of scepticism about the work that we have done to support the oil and gas industry. I do not think that that scepticism can be justified. We have worked very closely with the industry, and we now have one of the world’s most competitive fiscal regimes for oil and gas, although we intend to go further. At the time of the 2017 Budget, we published a discussion paper on how taxation could better support the transfer of older late-life assets—an important issue for the basin—and ensure that we could put them into the hands of companies that wished to invest. I have met industry stakeholders to discuss the issue, and I know that the announcement has been welcomed. I think it should also be welcomed by Members in all parts of the House, not least members of the Scottish National party—including the hon. Member for Aberdeen North (Kirsty Blackman), who raised similar issues.
The hon. Member for Dundee East also mentioned insurance premium tax. When we made announcements about the proposed new rate, the Chancellor made clear that it was intended to raise vital revenue to fund our public services. Those who oppose such a rise must themselves make clear where they would find the sizeable revenues that we need to invest in our front-line public services and generate income for our economy. I did not hear many answers to that question during today’s debate.
The hon. Member for Birmingham, Selly Oak (Steve McCabe) spoke mostly about the NHS. Let me respond by saying that a strong NHS needs a strong economy, and that is what we are trying to build.
The hon. Member for East Lothian (George Kerevan) made a thoughtful speech, and I agree with him about the need for long-term investment to address the productivity challenge. He gave a degree of support to the soft drinks industry levy, and sought a number of reassurances—not all of which I can give him tonight—about some of the steps that would be taken in the weeks ahead. I was glad to hear that he thought there was much to be commended in the measure. I expect that we shall return to the issue of the productive growth agenda, but let me repeat what I said to him in an intervention: £800 million of additional capital will flow, in Barnett consequentials, to the Scottish Government as a result of the announcements in the autumn statement about the national productivity infrastructure fund. The hon. Gentleman also talked about household debt. I merely note that the debt interest to income ratio is at a record low: it was 4.5% in 2016, compared to 10.1% in 2008.
Although I was not in the Chamber at the time, I believe that my hon. Friend the Member for North West Hampshire (Kit Malthouse) made a typically robust speech in which he supported all measures to promote investment. He talked about science, the need to encourage entrepreneurs, and the challenge of taxing the gig economy, which the Chancellor has acknowledged to be one of the strategic challenges facing not just our economy but developed economies throughout the OECD area. We are contributing to the international debate on that subject. There is more to be said about it, but measures in the Bill begin to address, for example, how some online trading platforms deliver in terms of VAT. That missing VAT represents one of the big parts of the tax gap, and we hope that there will be widespread support for our measures.
The hon. Member for Aberdeen North referred to the scrutiny of tax policy. I think that she and I can agree about many aspects of the announcement of the move to a single fiscal event. As for her other points, we have worked extremely closely with a number of industry stakeholders on some of the more complex measures in the Bill. I think that those measures have been greatly improved as a result, and the stakeholders have given the Government credit for that. We heard another rerun of the argument about VAT refunds for the Scottish police and fire and rescue services, and once again—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. It is a little impolite to make so much noise that the House cannot hear the Minister. While there may be other matters that Members need to discuss, there is nothing more important than the Minister’s summing up of a debate on the Finance Bill.
Jane Ellison
What could be more exciting and important to talk about? I wonder.
I reiterate that the Government warned Scottish Government officials at the time that the new funding model that they proposed would lead to the loss of eligibility for VAT refunds. I expect the SNP will raise the matter again, but it will continue to get that straightforward response to the issues that it has raised.
There was a cluster of pithy and important speeches towards the end of the debate. My hon. Friend the Member for Louth and Horncastle (Victoria Atkins) spoke about the need for sound finances and about reducing borrowing. She made a welcome contribution. My hon. Friend the Member for Fareham (Suella Fernandes) put a welcome emphasis on the increase in personal allowances. How little we heard about that from some Opposition Members. Since 2010, there has been a huge increase in what people can earn before they are taxed.
My hon. Friend the Member for Richmond (Yorks) (Rishi Sunak) drew on his experience and gave voice to the entrepreneurial spirit of Yorkshire. He focused on early-stage finance for growing businesses. He is right that there are things that are helpful in that regard in the Bill, but we are always happy to hear more ideas about how we can support entrepreneurs and businesses to grow.
Fittingly, my hon. Friend the Member for Taunton Deane (Rebecca Pow) ended with the message that we need to keep the economy on track to greater growth and stability. That brings me to my conclusion.
The changes that the Bill is introducing are significant in a number of regards. They will raise significant revenue to support the public services on which our nation depends by tackling tax avoidance and evasion. The Labour party has been a little opportunistic in some of the things it has said in the debate. In the coming weeks, it will have to answer questions about how it would close the tax gap and balance the books to gain any credibility in the eyes of the electorate. It will also have to address in the coming weeks questions on the strategic challenges that this Government have been prepared to face up to—the challenge to look at a tax system that works however people choose to work, and the challenge to address the erosion of the tax base in a serious, long-term, strategic way. The Government are prepared to face up to those challenges, and measures in the Bill begin to address some of those head on.
We are also addressing head on the critical issue of childhood obesity. We are tackling it with our game-changing soft drinks industry levy; that is just one of the measures being taken across Government to tackle childhood obesity. It was welcome to hear support on all sides for that measure. I hope that we are able to make good progress with that because it is a game changer.
The Bill demonstrates the Government’s commitment to a stronger, more secure, more productive economy. I am therefore delighted to commend it to the House.
Question put, That the amendment be made.