The Financial Secretary to the Treasury (Mel Stride)
I beg to move, That the Bill be now read a Second time.
Earlier this year, before the general election and in agreement with the Opposition, the Government removed a number of clauses from an earlier Finance Bill to ensure that the House had an opportunity to scrutinise the Bill in more detail. The Government announced their intention to return to the House at the earliest opportunity to legislate for the measures that had been removed, and that is the basis for the Finance Bill that they have now presented to the House. Last week we had a good debate on the resolutions on which this Bill is founded. Today I will be reflecting some of the themes of that debate, as well as setting out again the background of the Bill and its main provisions.
This Bill makes a significant contribution to the public finances through sound policies pursued by a Government who are putting a fair and competitive tax system at the heart of their plans. Those plans have ensured that the economy has grown continuously for more than four years to become 15% larger than it was in 2010. It is an economy that is experiencing record levels of employment, including more women in work than at any time in our history; an economy that has delivered the lowest level of unemployment since the mid-1970s, and the lowest level of youth unemployment since 2001; and an economy that is built on sound money, with the deficit reduced by three quarters to ensure that international investors maintain their faith in us. And indeed they have: foreign direct investment was 40% higher at the end of 2015 than it was in 2010. However, the Government are not complacent—far from it. We know that we must continue to press forward with vigour in supporting new growth and productivity.
Let me now turn to the specific provisions of the Bill, and, in particular, to those that will make our tax system fairer. This is a Bill that abolishes permanent non-dom status. Those who are non-domiciled for tax purposes pay about £9 billion each year in tax and national insurance, which is a huge contribution to our public finances. Lest we forget, it is £1 billion more per year than they paid 10 years ago under the Labour party; more, in fact, than they paid in any year during which the Opposition were last in power. The Government, however, are now putting an end to an unfairness whereby people living in the UK could claim that they were non-doms on a permanent basis. That is something that the Labour party failed to end in 13 years of government. Yes: under Labour, many people who had been living here for over 25 years, clearly settled in the United Kingdom, still technically claimed to be non-doms, and while they did make an important contribution, it was not necessarily a fair one. It is this Government who are changing that.
Michael Tomlinson (Mid Dorset and North Poole) (Con)
My right hon. Friend has mentioned Labour, and the 13 years of disastrous Labour rule. Is it not ironic that when he commenced his remarks, there was only one Back-Bench spokesperson for the Labour party in the Chamber who was even prepared to contribute to the debate?
Mel Stride
I thank my hon. Friend for those observations, which I am sure the House has duly noted.
Let me now deal with termination payments, an issue on which the Opposition divided the House last week. The current rules are unclear and complicated. Some payments are taxed as earnings, some are only taxed above £30,000, and others are completely exempt from tax and national insurance contributions. Although most employers use the current rules as intended, the present system allows some to ignore those rules and deliberately manipulate their payments to minimise their tax by exploiting the differential tax treatment. That is clearly not fair. The Bill makes the rules simpler and fairer by recommending that we exempt the first £30,000 of termination payments from tax, while tightening the rules in respect of what is rightly included within such payments.
In last week’s debate, some Members raised concerns that the Government would be taxing compensation that is paid to employees when it is proved that they have been discriminated against—for example, after an employment tribunal. I am happy to reassure them. All compensation awards caused by proven discrimination against someone in employment will remain completely exempt from tax. All that the Bill does in the way of change is close the obvious loophole that enables an employer to treat part of a termination payment, as opposed to a tribunal award, as an “injury to feelings” in order to benefit from the tax exemption. It is HMRC’s longstanding position that if an employee claims a tax exemption for injury, it must have actually impaired that employee’s ability to work, and the Bill simply reconfirms that position.
Members also raised concerns that the Government intended to reduce the tax-free amount from £30,000. The Bill makes no such provision. If there were ever any desire to reduce the tax-free amount, it would be subject to a statutory instrument and the affirmative procedure, so the House would have to expressly approve any such proposal.
We also need to ensure that the taxation of different ways of working is sustainable, so that we have the funds to invest in the public services on which we all rely. It is therefore important that this tax treatment is fair between different individuals. The Office for Budget Responsibility has highlighted the fiscal risks arising from the growing number of people working through companies. Such individuals can pay themselves in dividends, and, in so doing, can pay significantly less tax than employees and the self-employed, although in many cases their economic activities are broadly the same. Part of the reason for that difference is the entitlement to a £5,000 dividend allowance, which is available in addition to the income tax personal allowance that the Government introduced at £11,500 in April.
Reducing this allowance to £2,000 will help to reduce the differential in tax treatment and help remove some of the working distortions to which I have referred. It will also ensure that support for investors is more effectively targeted: a £2,000 dividend allowance will ensure that around 80% of general investors continue to receive dividend income tax-free. The less well-off will be protected, with those general investors who are affected having investment portfolios worth around £100,000 on average, putting them in the top 10% of wealthiest households in the country. So the Bill will make our tax system fairer in a number of ways.
Stewart Hosie (Dundee East) (SNP)
The Financial Secretary uses the example of someone who works through a company, and compares that with a wealthy investor with a large portfolio. The concern many of us have is for the small businessperson—the owner-proprietor—with a start-up business earning a very modest wage who relies on the £5,000 tax-free dividend in order to make ends meet. What consideration has he given in that regard?
Mel Stride
There are other considerations that the hon. Gentleman should focus on when he looks at individuals setting up in business, and there are many successful entrepreneurs throughout our country. We are the party and Government who have reduced taxation on business. It used to be 28% under the last Government and we have brought it down now to 19% and it will be further reduced to 17% over time. So the hon. Gentleman should look at this in the round, and I persist in my point that we need to look at the different tax consequences of the different models—an individual going into business on their own, whether as a sole trader or partner, or in an incorporated structure—to make sure we do not have people effectively just using one model for no other reason than the tax advantages thereof.
Lucy Frazer (South East Cambridgeshire) (Con)
My right hon. Friend refers to the importance of working out different tax models and how they affect the economy and the individual. Does he agree that Labour’s policy to increase tax negatively affects individuals’ income, investment to this country and therefore the country’s economy as a whole?
Mel Stride
My hon. and learned Friend is entirely right. As I have said, we are the party of bringing down corporation tax and small business tax, and we continue to bring those taxes down. The Labour party’s current policy is to raise corporation tax to 26%, which is going to do very little to encourage entrepreneurship in this country; it will in fact do the reverse. It must also be borne in mind that, on personal tax, it is Labour’s policy to start dragging more people into the higher tax rate, whereas it is this Government’s policy, through increasing the personal allowance, to take people out of tax and lower the tax burden entirely.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Last week the Institute for Public Policy Research published an influential report on some of the major economic challenges facing the British state, not least chronic geographical wealth inequalities. What measures are there in this Bill to meet those challenges?
Mel Stride
The Government’s record on income equality is extremely strong. The hon. Gentleman may be aware that we have the lowest level of income inequality in this country for 30 years, as measured by the Gini coefficient. We are assisting the lower paid through the national living wage and national minimum wage and HMRC’s vigorous actions in making sure that that is complied with by businesses, and, as I have already stated, through the personal allowance changes we have made, which have taken many out of tax—3 million individuals, heading towards 4 million as we go up towards £12,500 as the new allowance.
Mel Stride
We are a party and Government who recognise that all parts of our economy are equally important in sharing the proceeds of growth. That is why we are investing through our national productivity fund—through the work we are doing on skills, the investment we are making in infrastructure and the northern powerhouse, and through all these approaches—to make sure that prosperity, living standards and household income are improved throughout the length and breadth of our country.
Rebecca Pow (Taunton Deane) (Con)
In my constituency, the backbone of business is small and medium-sized businesses. Does my right hon. Friend agree that this Government have put in place a raft of measures particularly to help them, and many are not paying any business rates at all, which is extremely helpful to them?
Mel Stride
My hon. Friend raises an important point on business rates, which are very important as one of the key components of costs for businesses. In 2016 we announced a £9 billion package to ensure that business rates were not too onerous for small businesses, and we have of course this year announced a further £400 million-plus to make sure that further funds are available to those who require it.
Anna Soubry (Broxtowe) (Con)
My right hon. Friend is making an excellent speech. Does he share my concern that the shadow Chancellor does not seem to be present—although he is active on his Twitter account? Does my right hon. Friend know why the shadow Chancellor is not here to hear this excellent speech? Is he stirring up insurrection and urging people to engage in unlawful strike action?
Mel Stride
As usual, my right hon. Friend makes some very insightful observations. I have no news, I am afraid, as to where the shadow Chancellor is. Perhaps he has his nose deep in the little red book, but my advice to him is to read my speech and to learn, because there is much to learn from what I have already said and what I am about to share with the House.
Philip Davies (Shipley) (Con)
It might well be that the shadow Chancellor is trying to cause insurrection outside the Chamber, to try to cause misery to the general public, but does my right hon. Friend agree that he does not seem to be doing much of a job of causing insurrection with his own party in this House, because none of them can be bothered to turn up to this debate?
Mel Stride
That is a fair observation—[Interruption.] That is a fair comment from my hon. Friend—[Interruption.]
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. Even if hon. Members are making a noise in support of the Minister, which I rather think they are, I cannot hear the Minister, and just as others are learning, I am learning from what the Minister is saying, and I would like to hear him.
Mel Stride
Thank you for that ruling, Madam Deputy Speaker; I am pleased that you will be able to hear me from now on. I entirely accept the point made by my hon. Friend the Member for Shipley (Philip Davies); if there is to be an insurrection, there must at least be some people present with whom to insurrect.
Ruth George (High Peak) (Lab)
Rather than proving that Conservative Members are able to count people on Benches—which at times is beneficial to them, but at many other times is not—perhaps the right hon. Gentleman could listen to all the small businesses who are squealing about the massive increases they have seen in business rates and the impact on business start-ups of the changes to universal credit that are going to prevent a lot of people from starting up as self-employed, hitting those in constituencies like mine where there is no support for them.
Mel Stride
I think the hon. Lady will have heard my—[Interruption.] The shadow Chancellor has arrived: the troops are in place, so let the insurrection commence.
The Bill will make our tax system fairer in a number of ways, but I want to focus now on how it strengthens our position in tackling tax avoidance and evasion. This is a Government who have already announced more than 75 measures to tackle evasion and avoidance since 2010, and we have secured almost £160 billion in additional tax revenue over this period. We have driven forward international action and will continue to do so. We have published one of the first public registers of beneficial ownership. We have reduced the tax gap to one of the lowest in the world. This Finance Bill introduces new policies to tackle aggressive tax planning, avoidance and evasion. It continues to crack down on disguised remuneration schemes, it introduces a new penalty for those who enable tax avoidance, and it clamps down further on online VAT fraud.
Theresa Villiers (Chipping Barnet) (Con)
Is it not deeply regrettable that clauses in the previous Finance Bill that would have cracked down on billions of pounds worth of aggressive and abusive avoidance had to be dropped from the Bill because the Labour party would not support them?
Mel Stride
My right hon. Friend makes an extremely pertinent observation, as usual. We wanted this 650-page Bill to be considerably smaller so that more of it could be on the statute book already.
Charlie Elphicke (Dover) (Con)
Notwithstanding the fact that the shadow Chancellor has now been shamed into taking time out of his insurrection to attend the Chamber, is it not remarkable that so few of the Labour Members who were talking so much about scrutiny last night have turned up to scrutinise the most important Bill that this Parliament passes?
Mel Stride
My hon. Friend makes an important observation and the House will draw its own conclusions.
Philip Davies
Does my right hon. Friend agree that we have actually received more income since cutting corporation tax and the highest rates of tax, meaning more money to spend on public services? If we had followed the advice of the Labour party and increased taxes, we would have received less tax revenue and therefore would have had less money to invest in our public services.
Mel Stride
My hon. Friend is entirely right. The amount of onshore corporation tax that we took in the last financial year is close to £50 billion—50% more than in 2010. As we have brought taxes down, the tax revenue take has increased. We can draw only one corollary from all this: if the Labour party gets its way and starts to put those rates up again, some of that tax take might be damaged.
Stewart Hosie
The Minister just prayed in aid the new penalties for the enablers of tax avoidance, which I welcome. This Bill is riddled with retrospective legislation, which I hope he will say more about later, but will the Minister explain to the House why those new penalties do not kick in until after the Bill receives Royal Assent when there is retrospectivity all over the place in the rest of the legislation?
Mel Stride
I believe that that is due to an element of convention, but I am happy to speak to the hon. Gentleman after the debate. We have already clamped down on those who generate such schemes, and we are clearly clamping down on those who use and seek to benefit from them. The third thing is that we will now be actively clamping down on those who enable those schemes through their advice along the way, and they will face penalties of up to the entire amount that they have charged for their services. That is just another example of this Government’s determination to leave absolutely no stone unturned when it comes to clamping down on tax avoidance, evasion and non-compliance.
Wendy Morton (Aldridge-Brownhills) (Con)
While the Opposition squeal about tax evasion, does my right hon. Friend agree that it is the Conservatives who have done more in government to tackle tax evasion than Labour did in 13 years?
Mel Stride
My hon. Friend is right. Some Opposition Members claimed in last week’s debate that HMRC does not have the resources to clamp down on tax evaders, but that is demonstrably untrue. First, we have provided £1.8 billion since 2010 for exactly that purpose. Secondly, as I have already said, we have brought in £160 billion since 2010 by clamping down on such activities. The truth is that we are succeeding.
Rachel Maclean (Redditch) (Con)
At a time when our public finances are still challenged due to the Labour party’s economic mismanagement, is it not important to get as much money as we can from tax avoiders and evaders? Our party is doing that.
Mel Stride
My hon. Friend is right, which reminds us of the overall purpose of raising tax and ensuring that we bring it in, namely to live within our means, pay down our deficit and, critically, have the fine public services that are a hallmark of a civilised society. All of us can unite in wanting that.
The Bill legislates for new rules to prevent large multinational businesses playing the system by claiming tax deductions for excessive interest expenses and ensures that companies cannot use losses to pay no tax even in years when substantial profits are made. In last week’s debate, I was somewhat surprised by the concerns raised by some Opposition Members about the provisions relating to the taxation of businesses trading in Northern Ireland. They are nothing new. They were announced in the 2016 autumn statement and do not create a tax loophole. The legislation simply ensures that all small and medium-sized enterprises with trading activity in Northern Ireland will be able to benefit from the Northern Ireland corporation tax regime in the same way as larger companies already can, and it also introduces additional anti-avoidance rules to ensure that the regime operates as intended. The Bill’s provisions do not weaken that at all; they simply mean that more businesses will be able to apply the regime to the taxation of profits genuinely arising, and only arising, from activities carried out in Northern Ireland once the regime is put into effect.
Sir Edward Leigh (Gainsborough) (Con)
My right hon. Friend refers to the taxation and regulation of business, but once we are in the hard, bracing winds of international free trade after Brexit, does he agree that it is essential that our Government ensure that we have a low-tax, deregulated, pro-business environment so that our businesses can compete on the world market?
Mel Stride
My hon. Friend is entirely right. That is why the Government have been clear through our tax planning and the information that we have been signalling to the marketplace. Certainty for business is extremely important, which is why we have lowered corporation tax and have stuck to that position. We are making considerable progress, and I will take my hon. Friend’s point on board.
In short, the Bill continues our hard work to drive down the tax gap and ensures that we will provide a fair and competitive tax system. The other part of the deal is that those taxes must be paid.
Robert Jenrick (Newark) (Con)
On that point, will my right hon. Friend re-emphasise the fact that the tax gaps for large and small companies have fallen by 40% and 50% respectively since we took over from the Labour Government?
Mel Stride
My hon. Friend is correct. The tax gap currently stands at 6.5% for all taxes, which is lower than in any year under the previous Labour Government. In fact, the tax gap was 8.3% in 2005-06, so we are the party that has been bearing down on the tax gap.
This Bill introduces significant changes to the clauses in one area that the Government intended to legislate for before the general election. Many businesses of all types and sizes have already gone digital. They do their banking online, pay their bills online, market their products and services online, and buy what they need online. Making tax digital is the natural next step. It will not only make tax administration more convenient for our businesses, but it will reap rewards for the Exchequer. Avoidable tax errors under the current system cost us almost £9 billion in 2014-15. That is more than double the cost of running HMRC and the Treasury combined.
Many Members, including members of the Treasury Committee, as well as business owners, agents and stakeholder groups have had concerns about whether all businesses would be ready for this development. Well, we listened to that feedback, and one of my early decisions as Financial Secretary was to amend the timetable for delivering Making Tax Digital. Digital record keeping will now only be a requirement for businesses with a turnover above the VAT threshold, and they will only have to provide updates on their VAT liabilities.
Vicky Ford (Chelmsford) (Con)
I thank my right hon. Friend for his announcements about Making Tax Digital and for pointing out that the change will not affect the smallest of businesses. Small businesses are the backbone of our economy, and does he agree that we on the Government Benches put small businesses first?
Mel Stride
My hon. Friend is entirely right. We do put small businesses first, which is precisely why we listened so carefully to the feedback we received on our proposals and have made changes that will allow breathing space for businesses to prepare and for us to pilot further the plans we will introduce in due course.
As the vast majority of businesses already submit VAT returns on a quarterly basis, the transition to quarterly updates through Making Tax Digital should not be unduly onerous.
Ruth George
Although the delay in Making Tax Digital gives breathing space for very small firms, those firms will now face additional administrative requirements, possibly alongside Brexit and a dip in the economy. Is that not an added concern for businesses now that they have seen how onerous the proposals actually are?
Mel Stride
The hon. Lady may be aware that in the consultation we received the message from businesses that they broadly welcome these changes as we move into the digital age and do things more efficiently and effectively. However, businesses did have concerns, to which we have listened, about the timing and pace of the changes we originally proposed. The policy is robust, but the Government and I are determined to get the changes right and to make them at the right pace that suits those companies.
Lucy Frazer
Does my hon. Friend remember that in 2010, when the digitisation of VAT was introduced, more than half of businesses with a turnover of more than £100,000 signed up voluntarily? Does that show that moving to the new economy and technology is welcomed by many?
Mel Stride
My hon. and learned Friend is absolutely right. In my meetings with the Federation of Small Businesses we have all concluded and agreed that this is the right direction. Indeed, we will make provision to ensure that such businesses, although they will not be mandated to become part of this new regime, will have the opportunity to do so voluntarily, and I believe that a very large number of companies will wish to take that opportunity.
Sammy Wilson (East Antrim) (DUP)
I, too, welcome the fact that the Government have listened to many small businesses not just on their concerns about the extra work load but on how many businesses in rural areas have already been able to submit their accounts digitally. Now that there has been a delay, and regardless of whether there will be an extension, will the Minister assure us that the Treasury and HMRC will consider the lessons that can be learned? First, what additional work is required? Secondly, if broadband is not rolled out as quickly as intended, will that also be considered when making any final decisions about the roll-out of this scheme?
Mel Stride
My hon. Friend is a doughty champion of small businesses in Northern Ireland, and I value the comments and observations he has made to me during the decision-making process on this issue. On broadband roll-out in rural communities, the Bill has specific provisions to ensure that there is a digital exclusion test such that individuals or companies that genuinely cannot use the systems to the requisite degree can be exempted from the relevant provisions of the Bill.
We will not mandate other taxes until we are clear that the programme has been shown to work well. My hon. Friend the Member for North West Hampshire (Kit Malthouse) and my right hon. Friend the Member for Loughborough (Nicky Morgan) made some important points on that matter in last week’s debate, and I can confirm that, once we are through the pilot, businesses will indeed be able to use the system voluntarily ahead of its mandating.
In summary, the Bill is about addressing imbalances in the tax system and making it not only fairer but more sustainable. It is a Bill to ensure that the taxes that are due are paid, preventing opportunities for avoidance and evasion, and it is a Bill to take the tax system forward into the digital age while ensuring that the pace of change works for businesses large and small.
The policies contained in the Bill are set to raise billions more for our vital public services—doctors, nurses, paramedics, teachers, police, prison officers, fire services, our armed forces and all those others in the public sector who help make our country great. This Bill is central to our plan to keep Britain moving forward, and I commend it to the House.
Kirsty Blackman
I thank my colleague for that intervention, and I note that the Minister is paying attention.
Mel Stride
I think it is the case that that statutory instrument has been laid today, but in the event that it has not, I will chase it up.
Stella Creasy (Walthamstow) (Lab/Co-op)
I congratulate the hon. Member for Moray (Douglas Ross) on a wonderful maiden speech. He paints a fantastic picture of a part of the country that I have yet to visit and that clearly has many delights to try, although, on his advice, I will pass on the home-made scones, if I may.
May I offer the hon. Gentleman some advice, as somebody who has been here all of seven years? He will find watching “Monty Python” a very useful guide to what goes on in Parliament. Sometimes this Chamber can feel like the argument clinic, where some people have been paid to argue. The Brexit Secretary also appears to be taking his lead from the Spanish inquisition in his approach to the negotiations, and he is equally effective. Ultimately, Brexit is really like the big Monty Python foot, slamming down on everything we do in the Chamber in this Parliament.
That is why this Finance Bill is so important and why I look forward to the many hours we will spend debating it in Committee. It is vital that we do not let Brexit deter us from dealing with some of the many problems we have in our country. The test we must therefore set for all proposed legislation in this House is, does it progress the needs of our communities and our country? I have to say that I find this Bill wanting in many different ways. The Government seem to have an economic plan based on personal debt, not UK productivity.
This week, I heard the Chancellor desperate for ideas. I want to be a helpful contributor to this House and to our debates, so in my speech today I shall set out for Ministers—I hope they will listen to some of our ideas—some suggestions on how we could get this country on to a sound economic footing. One of the Ministers is a former sparring partner of mine on the Public Accounts Committee, so he will know my personal commitment to value for money for the British public.
However, we first need to understand the context in which the Finance Bill is proposed—how we got to this position, why the legislation represents so many missed opportunities and why my colleague from the Scottish National party, the hon. Member for Aberdeen North (Kirsty Blackman), was right to talk about people feeling the squeeze. We know that for many of our constituents there is too much month at the end of the money. Therefore, when we are looking at tax measures, we are looking at how we might help our constituents, and we have to ask first about those who will bear the brunt of a Government who do not do things to tackle the impact on their lives of rising inflation, stagnant wages, low productivity and, indeed, that Brexit Monty Python foot.
Our country has an eye-watering £200 billion of personal debt. In every single legislative measure we make we must ask what we are doing to reduce that debt, because the consequences for so many are so great. My concern is that that debt is so high because the Government are balancing the books out of the pockets of our constituents.
In 2010, I sat on the Opposition Benches—a new MP, like the hon. Member for Moray—and listened to a Chancellor promise that the deficit would be eliminated. In 2016, I read the note from the Office for Budget Responsibility that recognised that the Government had broken their own deficit rule. The hon. Member for Moray talked about being a referee. We are not even on yellow cards with this Government as regards economic competency—it is a straight red card, as far as I am concerned.
Previous Chancellors have claimed time and again that they would get a grip on the public finances. Time and again, they have moved the goalposts. They changed the targets in 2014 to 2017 for eliminating the debt. In 2015, they changed the target to running a surplus in normal times by 2020-21. Then, in 2016, they changed the target again to reduce net borrowing to below 2%. Now, in the Tory manifesto, it has changed to 2026, and we are hearing that in the autumn Budget it could be changed to 2027. Last year we borrowed £52 billion, and it is expected that this year we will borrow another £60 billion. So forgive me, but I will not take any lectures from Government Members about fiscal responsibility. If, in these seven years, you had been on a business board and the finance director had come to you every single year, as Conservative Chancellors have, asking for more money because yet again they have not got to grips with how they were spending it, you would sack them. That is certainly what I hope the British public will do.
At the same time as we are borrowing more and failing to tackle the debt, our productivity is worse. I agree with the right hon. Member for Forest of Dean (Mr Harper), who is sadly no longer in his seat, that this is a challenge we cannot ignore, whatever is going on in Europe. A typical French person need only work Monday to Thursday compared with a typical Brit, and it is the same for Germany, which has a 29% higher GDP per hour than the UK. We have seen a lost decade of productivity in this country, and our communities and businesses are paying, so that we are now in an extraordinary position where it is more expensive than ever before to employ somebody, despite the squeeze on wages. Stagflation is upon us. Inflation is up by 12% since 2010, but wages are down by 6%. It is little wonder that so many in our communities are borrowing.
When we come to legislate on income tax or on the increasing numbers of people who are self-employed—the small business owners whom we all cherish in our communities—let us ask what we can do to help them. Let us not be blind to these challenges, or to the inequality that is stubborn in our country. During this time, the people who benefit from many of the measures in such legislation have done rather well. In 2000, FTSE 100 chief executives were paid, on average, £1.4 million a year. Now, it is £4.5 million—a 220% increase. That is not market forces, but it shows a failure by us as a country to invest in people. Our productivity reveals that challenge, and the personal debt of our communities is paying for it.
Ministers may ask what I would do to raise money—we have heard that question before—so let me give them some examples of things that we could put into this Bill. We could, for example, look at clause 16 on capital gains tax. Earlier I asked Government Members whether they might join me on this. After all, there has been much talk about tackling the issues of non-doms. Indeed, the previous Chancellor changed the legislation to put capital gains tax on to residential property sales, but now there is a loophole around commercial property sales. Let me reassure Government Members that if they choose to follow our advice on this matter, it has been tackled in the United States, in Canada and in Australia. It is not crazy economics but sensible planning.
We could apply the same rate of tax on carried interest to hedge fund managers. Why are they not paying the same rates of income tax as the cleaners who clean their offices—still, on this Government’s watch, seven years on? We could change business property relief, too often used to avoid inheritance tax, restricting it to small businesses and perhaps bringing in a cap of, say, £5 million, so that people do not use that to avoid taxation. We could deal with commercial real estate in cases where people are avoiding the 5% stamp duty by putting it into companies. Those are all things that could be put into clause 16 to raise money and to be fair about who is paying all the taxes that are avoided.
Clause 69 talks about gathering information. We should be dealing with the information about the debts that our communities are based around. Forty-one per cent. of consumer debt is on credit cards. Hon. Members should talk to the people in their communities who are now called zombie debtors, paying the interest but not the capital on the money that they owe. They are borrowing to stay afloat because their wages have not risen, and they are borrowing for basics—to put food on their table, to keep a roof above their head, and to put petrol in their car to get to their jobs where they are not getting the pay rise that they deserve. Nothing in this Bill will tackle the squeeze on them from that debt or help the third of people who are now in debt because they are behind on credit card repayments. Clause 69 could introduce an FCA consultation, as despite the fact it is looking at credit card debt it is not considering the lessons that Ministers could learn from the cap on high-cost credit companies. When some people are paying £2.50 for every £1 they are borrowing in this way to stay afloat, it is time to extend the cap on high-cost credit and payday loans to credit card companies. We could do that in this Bill; we could certainly gather the information on the impact it would have.
We could also look at the creditors we as a country owe. Members on both sides of the House will know of my interest in private finance initiatives and my recognition that Governments of all colours have used them and continue to use them. I note that Ministers have talked about the £23 billion they wish to invest in infrastructure and I am sad that the right hon. Member for Wokingham (John Redwood) is not in the Chamber given the concern we share about whether private finance is the best way to do that. Of the additional money put into the NHS in the spending review, 22% will leach out to PFI companies as profit, and every constituency in this country has one of these deals.
Let me give an example of the kind of money we are talking about. The company that owns University College Hospital in London has made pre-tax profits of £190 million out of the £735 million that we as taxpayers have paid it. That is enough money to build another hospital outright. This country now owes £300 billion in PFI debts on projects that should have cost £55 billion. Nobody in this House can be smug about PFI. When PF2 is as expensive and the preferred model for how the Government intend to invest in infrastructure, Members on both sides should be asking whether their communities can avoid such contracts.
With eight companies owning 92% of the equity stakes in the hospital sector, there is certainly more work to be done to look into them. Indeed, the Bill gives an exemption to the very companies for the interest that they pay on shares. These companies signed deals with the public sector to pay a certain rate of corporation tax and to commit to paying UK taxes. Indeed, the value for money assessments of the deals was predicated on that, and I note that the Government have not updated the value for money deal to take account of this information from 2013, despite promising more than four years ago that they would.
Schedule 10 to the Bill allows those companies to claim back the interest without the cap. How can we, as a society, give these companies more money through that investment relief as we see our public sector struggling and that money being leached out of it? Surely we should change that, and I hope that Members from all parties will listen and support changes to proposed new section 439.
While Brexit is a Monty Python foot, for many of our small businesses VAT is their biggest compliance issue. Many of them trade in Europe and therefore have to reclaim VAT from other countries. The clock is ticking for us to leave the European Union and the lack of information in this legislation about how companies will manage VAT post-Brexit is alarming. In particular, articles 170 and 171 of the Council of Ministers’ 2006 directive—I hope that the Minister is writing this down—are matched by section 39 of the Value Added Tax Act 1994. That allows companies in Britain to seamlessly reclaim VAT through intra-EU legislation. Those options will be gone for our companies when we leave the European Union unless we have alternative arrangements, so when the Government are making legislation through part 4 of the Bill on VAT, the lack of any correlation between the 14th directive and the importance of aligning those measures so that businesses have a seamless transition and can be confident that they can manage their VAT if they trade with other countries is very frightening.
Mel Stride
The hon. Lady’s point about VAT and the arrangements that may or may not pertain when we leave the European Union will be dealt with in the upcoming customs and excise Bill.
Stella Creasy
I thank the Minister for that point, but obviously the Bill is about Making Tax Digital and the intra-EU process is digitised. That is what makes it so seamless for so many companies. When we are making legislation about making VAT a digital entity and working online, surely we should be joining these things up to make it as easy as possible for our constituents who have to deal with these issues, rather than separating it out. My point is simply that this Bill is now coming towards the House at the same time as those negotiations are happening. Our constituents deserve clarity on how these things are going to work together.
That applies particularly to our self-employed constituents. Clause 64 could help many of them who have to deal with the errors relating to their welfare entitlement and their tax entitlement. We know that 18% of self-employed people get tax credits, compared with 10% of people who are employed, yet there is nothing in the Bill to help them. I am sure that my colleague—another gentleman from the SNP, whose constituency is I am sure as beautiful as Moray but unfortunately I have forgotten what it is—would agree that we could help those people through this legislation by joining up the way in which the state works with self-employed people. Issues such as how they deal with VAT, with universal credit and with insurance will all be covered in the Bill, but there is an absence of ideas from the Government on how to help those people.
The Government also seem to be overlooking some of the poorest people in our society. I know this because, 18 months ago, I took part in the consultation on tips, gratuities and service charges—the disguised remuneration that the Government are so concerned about—yet, 18 months on, we are no further forward on finding out what the Government are going to do to prevent some of the poorest workers in our retail industries from being ripped off by employers who dip into their tips and use them to prop up their businesses. I have given examples of this to the Treasury and to HMRC, and these issues could have been dealt with in this Bill, but there is nothing there. There is nothing in the Bill to protect workers who get their tips through an electronic system or to ensure that their employers are not taking a surcharge from them. There is nothing in the legislation that even gives a legal right to a payslip—a very basic piece of information that would help to stop those people being exploited.
Those 10 ideas reflect the things we could have done, through this Bill, to help the poorest hard-working people in our communities who will be stamped on by that Brexit “Monty Python” foot. I look at the gaps in the Bill and at the ease with which non-doms will slip through the loopholes, and I see a Government who are not only running out of ideas but running out of road on Brexit. God willing, with the work that we will do, they will also run out of time soon.