Wednesday 21st February 2024
(8 months, 3 weeks ago)
Lords ChamberFinance Act 2024 View all Finance Act 2024 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 5 February 2024 - (5 Feb 2024)
Baroness Vere of Norbiton
That the Bill be now read a second time.
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, it is a pleasure to open this debate on the Finance Bill. As I explained during a memorable debate in your Lordships’ House last year, the Autumn Statement was designed with three purposes in mind: “to drive growth” across the economy, to create jobs, and to ensure that hard-working people can keep more of what they earn.
As many noble Lords will know, since the beginning of 2023 we have been working on five priorities. Three of those priorities are economic: to halve inflation, grow the economy and reduce the national debt. I will outline our current economic picture in more detail shortly. A year on from when we set out these priorities, I am pleased to report that there has been some significant progress.
Inflation has fallen from 11.1% to 4%, and this has led to two positive outcomes: wages are rising faster than inflation, and mortgage rates are starting to come down. On growth, like some other similar economies, the UK faced challenges at the end of 2023, but overall the economy was larger at the end of the year than at the start. The Bank of England and the IMF forecast growth to increase over the next few years. Finally, our national debt is on track to fall as a share of the economy.
The Government proposed at the Autumn Statement to put money back in people’s pockets, cut taxes and “back British business”. That is why the National Insurance Contributions Act has reduced national insurance from 12% to 10%, delivered a tax cut for 29 million working people, and saved the average worker £450 a year. But I recognise that times are still far too tough for far too many. That is why we need to stick to our plan, so we can deliver the long-term change our country needs to deliver a brighter future for Britain, and improve economic security and opportunity for everyone.
As part of delivering our broader long-term plan, we need to deliver our Autumn Statement commitments. This Finance Bill does exactly that. First, it will support British businesses by allowing them to invest for less. Secondly, it will support employment, by ensuring that hard work pays, through reforms to our pensions system. Finally, its measures will improve and simplify our tax system, ensuring that it is fit for purpose. Indeed, the Finance Bill covers 36 different measures in total, some more technical than others.
Before I delve into the specifics of these measures, I will first outline some of the economic context behind this Finance Bill. As noble Lords will be aware, inflation—and the subsequent impact on the cost of living—has been the Government’s key challenge since Vladimir Putin’s illegal invasion of Ukraine in 2022. Therefore, it is significant that, as I noted previously, inflation has more than halved, from 11.1% in late 2022 to 4% in February. Our key priority remains getting inflation back to the 2% target, to drive sustainable growth. The recent GDP figures are a reminder that, while inflation has more than halved from 11% to 4%, wages are rising, mortgage rates are falling and taxes are being cut. But we are not out of the woods yet; there is more to do. The OBR has projected that the 2023 Autumn Statement policies will have “lasting supply-side effects”. Combined with policies from the Spring Budget in 2023, this approach will permanently boost output by 0.5% by 2028-29.
I will now outline the measures in the Bill which will back British business, reward work, and support a modern and simpler tax system. I turn to the suite of measures to back British business. First, we will make full expensing permanent, thus allowing businesses to invest for less. As a result, firms will save £10 billion a year—the most generous plant and machinery capital allowances of any major economy. This will drive 0.1% GDP growth over the next five years, and that number will increase to 0.2% every year over the longer term. It is forecast to unlock an additional £3 billion of investment per year.
The Government’s second measure recognises the importance of research and development. R&D is important because of its dual role: driving economic growth and bringing benefits to wider society through innovation. Therefore, we will merge two government programmes: the R&D expenditure credit scheme and the small to medium-size enterprises scheme. This will have two key impacts: it will simplify the system and provide greater support for UK firms to drive innovation. These changes will apply from 2024 onwards. I note that the Government have consulted widely on proposed changes to the R&D tax credit system over a considerable period. We have decided to proceed with an April 2024 implementation date to move the system to a more stable footing at the earliest opportunity.
In the Bill we have gone even further, by introducing greater support for loss-making R&D-intensive SMEs. In addition, we will also lower the R&D intensity threshold required to access this support to 30%. As a result, around 5,000 extra SMEs will now be covered by the support and will receive £27 per £100 of qualifying R&D invested.
I note that noble Lords on the Economic Affairs Finance Bill Sub-Committee want us to simplify this scheme further by bringing it within the merged scheme at a higher rate of relief. It is worth being aware that the intensive scheme will share many of the merged scheme’s rules, including on subcontracting, albeit with a different rate mechanism given that the merged scheme is above the line. While there is potentially an option to simplify in the future, further work is needed to establish how that would operate while still targeting the scheme effectively.
These measures will significantly increase support to firms’ R&D efforts by about £280 million per year by 2028-29. We will also extend the sunset clause for two more programmes: the enterprise investment scheme and the venture capital trust scheme. Both will be extended to 6 April 2035, providing support to young companies in their endeavours to raise capital.
The UK’s creative industries grew 1.5 times faster than the wider economy between 2010 and 2019. It is therefore right that the Government offer them their fullest support. That is why we will reform tax reliefs to refundable expenditure credits for the film, TV and video games industries. In addition, we have designed targeted measures to boost investment in three areas: animated film, animated TV and children’s TV programmes. These areas will now be eligible for a 5% uplift in tax relief to a 39% credit rate.
This Government believe that hard work must be appropriately rewarded. That is why we are using this Bill to legislate for the abolition of the lifetime allowance. The OBR estimates that this will retain 15,000 workers annually in the UK labour market. The British Medical Association described it as
“potentially transformative for the NHS”,
because many of the individuals will be highly skilled, including senior doctors. We will effect this transformation with the right incentives. The removal of pension tax limits will motivate individuals to work harder for longer so that they can reap the rewards in future years.
Finally, I turn to measures in support of the third objective of our Finance Bill, a simpler and modernised tax system. This Bill, as I previously mentioned, makes full expensing permanent, which is a huge simplification for larger firms, but we are also supporting more than 4 million smaller, growing traders by expanding the “cash basis”. This will simplify the process for them to calculate their profits and pay income tax. We have closely consulted industry and, as result, the Government will legislate to remove three of the main restrictions on using the cash basis, completely removing limits on the size of businesses able to use the basis, interest deductions and the loss relief available.
We must also make sure that HMRC delivers on its strategic objective to collect the right tax at the right time. The Bill will deliver this by enabling HMRC to reduce the off-payroll working PAYE liability of a deemed employer which is responsible for ensuring that PAYE is calculated and sent to HMRC correctly. This will apply where that engagement was incorrectly treated as self-employed for tax purposes.
Of course, we need to ensure that UK plc is following, adopting and influencing developments on taxation on the global stage. That is why in the spring we legislated to implement OECD pillar 2 in the UK. This built on a historic international agreement to a two-pillar solution to the tax challenges of a globalised digital economy. This Bill goes on to make technical amendments to the main pillar 2 rules, as identified from stakeholder consultation, and ensures that the UK remains consistent with the latest internationally agreed guidance.
We will also take forward other technical measures, such as improving the data HMRC collects from its customers. These will result in a trusted, modern tax administration system. However, a simple, modernised tax system must also be fundamentally fair. Therefore, this Bill will create a criminal offence for promoters of tax avoidance specifically where persons continue to promote a scheme after the receipt of a stop notice. The Bill will also ensure that HMRC is empowered to respond more quickly to tackle promoters of tax avoidance. It will do so by introducing a new power for HMRC to bring disqualification action against the directors of companies involved in promoting tax avoidance. The scope of that power will include being applicable against those who control or exercise influence over a company.
Further to that objective of fairness, our next measure under this objective will amend the construction industry scheme to reduce the scope for tax fraud in that industry. To do so, the amendment will add VAT to the gross payment status test. This means two things: VAT compliance will now be checked as part of this process and HMRC powers to remove gross payment status will be enhanced. We will also legislate to confirm that, in line with the retained EU law Act, where UK law is incompatible with EU law, UK VAT and excise law will prevail. This measure also ensures the stability of the VAT and excise regimes while providing legal certainty for business following the changes in the retained EU law Act taking effect. This protects billions of pounds for the Exchequer.
This Finance Bill delivers some of the Chancellor’s key announcements at Autumn Statement 2023. As I have set out, it backs British business, rewards hard work and supports a modern and simpler tax system. I beg to move.
Lord Davies of Brixton (Lab)
My Lords, the Finance Bill gives us a chance to raise issues which others may regard as hobby horses but which I think are important topical, technical matters that are worth drawing to the Minister’s attention. I have two issues on my agenda. The first is the implications for recipients of the state pension of the Government’s policy of freezing income tax personal allowances and the second is the taxation of pension benefits following the abolition of the lifetime allowance.
Those with a very long memory will be aware that there is something called the Rooker-Wise amendment, “Rooker” being my noble friend Lord Rooker. Back in 1977, it was laid down for the first time in legislation that the personal allowance should be increased each year in line with inflation. I think that, technically, that is still in force, but successive Governments, including this Government, have opted out, through Finance Bills, of that requirement to index-link. My understanding —and I ask the Minister for confirmation—is that the freeze, which is now proposed to go up to 2027-28, was provided for in last year’s Finance Act and so there is no need for it to appear again in this Bill. Does that imply that the Government have given up on rolling forward the period for which the personal allowance will be frozen? It is shorter this year than last year. Is that a clear statement of policy or has it just been left out? We cannot forecast the Budget. Will we be told? Perhaps we will if it is not in the Budget and not in purdah. Does the freezing last only until the year that we were told it would be or is it going to be rolled forward another year?
That is very pertinent to the main point that I want to raise, which is the impact of freezing the personal allowance on pensioners, particularly those dependent mainly on the state pension. As we know, the state pension is being increased in line with the triple lock, to which all parties are currently committed, so it goes up by inflation, earnings or 2.5%, whereas the personal allowance is frozen. The new state pension is rapidly catching up with the personal allowance. My figures, based on estimates by the Office for Budget Responsibility, are that the new state pension will catch up with the personal allowance by 2027-28 and that in the following year, 2028-29, it will exceed the personal allowance.
The practical problem is that pensions are not part of the PAYE system. Where people receive a state pension—many pensioners receive a state pension that is greater than the new state pension because they have retained rights from the previous scheme—they will owe tax but are not part of the tax system. Instead, at the beginning of the following year they get a brown envelope in the post saying, “You owe us some money”. That is going to become more and more frequent as the state pension increases but the personal allowance is frozen.
I want the Government to say they are fully aware of this problem and are on the case. The obvious answer is that the state pension ought to be brought within the remit of the PAYE system so that people pay the taxes due over the year, as people do out of their earnings. However, I have not yet heard the Government say either that they understand the issue that is coming down the road or that they are going to do anything about it.
I emphasise that the hardest hit will be those earning income entirely from the state pension—maybe they do not have any other income or it is very small—that is slightly larger than the new state pension. We are talking £15,000 a year, which is not exactly riches. That is over £2,000 more than the personal allowance so they will be liable for 20% tax on that £2,000, which is £400. Someone on £15,000 a year is going to get a request for £400, to be paid as a lump sum. That is untenable. It will be a crisis when it arrives, and I just hope the Government can get ahead of the issue.
I turn to pensions taxation. Clause 14 and Schedule 9 deal with the abolition of the lifetime allowance charge. The Financial Secretary said in the Commons, when introducing the Bill, that this was intended as part of a policy to
“remove both barriers to work and incentives not to work”.—[Official Report, Commons, 13/12/23; col. 925.]
Those remarks were echoed by the Minister in this House. Indeed, the OBR estimated that the abolition of the lifetime allowance would mean there would be 15,000 more people in work, not least in the medical profession. That is an estimate based on behavioural change so we have to be a bit sceptical, but still it will have had an impact.
However, the Government have been too quick to congratulate themselves on solving the problem of pension taxation on highly skilled professionals, given the extent to which they will still be leaving their jobs because of the impact of the pension tax system. In my view, the annual allowance has always been the bigger problem. Particularly when someone is at work, the annual allowance means that early the following year they get another brown envelope relating to a significantly larger sum of money, saying, in some cases, “You owe a sum in excess of £100,000”. That is not unknown, so this is a serious issue. The Government may think they have addressed that because they have increased the annual allowance from £40,000 to £60,000, but still on £60,000 there will be highly paid, sorely needed professionals who will get a tax charge the following year.
That is not even the biggest problem. There are two further immediate problems. First, there is the taper. This is not the venue to start explaining the technical details of pension taxation, but the taper withdraws the relief available on the annual allowance as incomes increase. It is a classic case of something that those familiar with how taxation works will know: when you remove a taper, you get very high marginal rates. There is a taper on the tax payable after allowing for the annual allowance. The taper is still there, and some professionals argue that that is actually what is driving them out of employment.
There is a second issue that needs to be addressed. The rules have changed. You are taxed on the growth of your pension in a pension scheme. If you have two schemes, under the previous rules each pension scheme was taken separately. If you happened to be in an old pension scheme, which many doctors were, as well as in a new pension scheme because of all the changes that were made to pensions in 2015, you could have a declining value of a pension in one scheme but an increase in the value of the pension in the other. Overall, you would not really have gained much at all, but you were still taxed on the increase in the one scheme even though you were not getting any extra pension.
The Government addressed that, so you were allowed to combine your schemes from the same employer, but there is an issue they have not addressed: if your pension went down last year, you get no credit for that if your pension goes up the following year. So over a two-year period there might be no change in your pension, but you still have to pay tax on the value of the increase of that pension the following year.
Those are the two issues that I have taken the opportunity to draw to the attention of the Minister: the taper and the taxation of negative pensions growth.
Lord Desai (CB)
My Lords, it is a pleasure to follow the noble Lord, although I cannot say anything technical like he has. The Bill is coming before us far too late to really matter. I know we cannot amend money Bills and so on, but it would have been better had it come after it originally appeared in the Commons.
I have two observations. First, there has been a lot of effort in the Finance Bill, and by the Government generally, to emphasise tax cuts, especially tax cuts on business corporations. As an economist, I know, and it is very easy to show, that tax cuts do not actually encourage investment in a country. Whatever the corporations do, they do not plough it back into investment. Investment depends not on that sort of consideration but on expectations about growth.
What has happened here for the last 15 years is that we have had a number of corporation tax cuts and so on, but the economy has not grown. We have had one of the lowest growth experiences in the last 15 years, roughly since 2008. The Government really ought to think seriously about that, because I know that more tax cuts are promised in the forthcoming Budget. Indeed, the Chancellor is always trying to reassure people that he will find money somewhere—I do not know where—to make tax cuts. Basically, the borrowing rates on government debt are high right now because again and again there have been promises of tax cuts that have alarmed the markets. When the Liz Truss tax cut in particular was announced, it spooked the markets very much and put a lot of pension funds in trouble.
My one piece of advice is: please be careful and do not get mixed up in the idea that tax cuts somehow bring growth. They have the opposite effect from what people think they do. The recession that we have recently experienced, while it was a mild one, shows that all the talk of tax cuts ought to stop. We ought to make quite sure that we reduce our borrowing and enhance other taxes that are not efficiently imposed.
Secondly, there is one major thing, which we have seen the proof of in the Prime Minister and the leader of the Opposition releasing news on their taxes. This showed one major defect in our tax system: that we tax capital gains at a much lower rate than we tax income. That is not healthy. All economists would tell us that we ought to treat income from earnings and from capital gains in a symmetrical way. If we did that, we would increase our tax revenue and reduce our deficit.
Lord Leigh of Hurley (Con)
My Lords, it is always a great pleasure to follow the noble Lord, Lord Desai, even though I do not agree with much of his analysis. In particular, I cannot understand why he thinks that if one takes a risk and invests capital, the rewards should be taxed at the same rate as banking a salary and working at a desk. They are two different sources of income and wealth, and therefore deserve different tax treatments, but I admire the way that he speaks so eloquently and without any notes on every occasion. I can only aspire to that.
I refer to my register of interests and remind your Lordships that I am chairman of the House of Lords Economic Affairs Finance Bill Sub-Committee, to which my noble friend alluded earlier. This sub-committee looked at the Bill with great interest and our report was published a couple of weeks ago, on 1 February. As I think this is the only time that the report will be mentioned in the House, I use this opportunity to thank the committee members, the clerk, his assistants and colleagues and, in particular, the two spads for their hard work in turning it around and delivering it in record-breaking time; as the noble Lord, Lord Desai, indicated, there was a crunch, because it followed the Autumn Statement.
The report focused on a few main areas. The main one was research and development, where we followed up on last year’s report and were pleased to see that the R&D review is now complete. We recommended that His Majesty’s Government do not make any further changes to R&D tax relief, other than some simplifications that we recommend. As my noble friend said, research and development is incredibly important to the UK economy. It is pleasing to note that gross domestic expenditure on R&D has risen from some 1.5% in 2010—to take a date at random—to nearly 3% now.
The new R&D intensive scheme needs careful monitoring and the threshold, which is a cliff edge, should be kept under review. We called for draft guidance on applying that test, as it is difficult for companies to predict whether they are going to be intensive companies. As my noble friend indicated, it is possible that the new intensive scheme will be merged with the main scheme. We hope that HMRC will enter into consultations on this issue and possibly delay its implementation until those have taken place. We also had quite a lot to say on the thorny issue of subcontracting of research and development where, in summary, we think a transitional period might be required, although we accept that this has its own challenges.
Another area we were concerned about was the changes proposed on how HMRC will collect data on issues such as hours worked. This is something different: HMRC has never collected data on anything other than tax before. We are not even sure that the Taxes Management Act allows it to do this, so we are concerned to know why it needs that data and what will be the true cost to business in supplying it. This is largely data on hours worked: HMRC has recognised that this would be difficult, so has turned it into data collection on hours paid, but we are still not convinced about the need for it.
We welcomed further attempts to punish promoters of tax avoidance schemes but have asked for some safeguards, particularly in respect of what are called stooge directors. These are people who get persuaded to become a director of a company and do not realise that the company is being used for tax avoidance, but we are not convinced that increasing prison sentences is necessarily always the answer.
Finally, in respect of our report, we were concerned about the level of resources that HMRC deploys for customer service. One obviously accepts that this is an issue across government. We recognise that steps are being taken to improve this issue—which, in my personal opinion, is not helped by civil servants working from home, but that is a wider governmental issue.
As your Lordships will appreciate, my comments are just a taster of our full report of 150-odd pages. However, this shows that our House not only gets to debate the Bill for a day but offers proper scrutiny of legislation—even if, as the noble Lord, Lord Desai, said, we cannot change it. But we are able to produce these reports, which we hope are used by Members in the other place to amend legislation. It is a little disappointing that there are so few of us speaking on this important debate, despite the fact that it is an exceptionally august selection of Peers with great depth of knowledge on the Bill.
Aside from the sub-committee report, I would like to make some additional observations and I hope that my noble friend the Minister can answer some questions that I have. The first is on the EIS, SEIS and VCT areas which she mentioned earlier. I warmly welcome the extension of the sunset clause; I have been advocating for it for some time, as she knows. I know that I have been pushing against an open door with HM Treasury and that she is convinced that I am a minority sport player with too much detail. None the less, I have to say that Clause 11 is to be commenced only by regulation, as in its subsection (2). That is a little unusual and I suspect there is a reason for it. I wonder if it is to do with some wrinkle in the Windsor agreement that is not yet quite ironed out or if we do not have permission from the EU to implement it. If so, we need some clarity that we will get that permission, and to reflect on the fact that we are trying to do things here which we are prohibited from doing by the EU, and that does not sit comfortably, particularly as we should no longer be bound by EU state aid restrictions.
I hope that my noble friend can agree to a review of all the other restrictions on EIS, SEIS and VCT, because we need to create a low-tax, low-regulation country and shed as many burdensome EU restrictions which are no longer necessary as we can. Are we restricted from doing that because of Northern Ireland issues? EIS and SEIS are incredibly important. In the year to 2022, HMRC data shows that £3.4 billion was raised to invest in SME businesses—for thousands of companies, so let us see what more we can do to enhance that scheme.
I also welcome the great progress on pillar 2, which my noble friend mentioned. I know that pillar 2 is not popular with everyone but we are committed to do it, so let us push ahead. It is good to see the transitional undertaxed profits rule safe harbour regimes, in addition to the multinational and domestic top-up tax, which is all part of the OECD global anti base erosion tax rules. This is a very complex and difficult area, with pages and pages of legislation, but it has been going for some time. In fact, it was the subject of my maiden speech almost exactly 10 years ago. We are still not there, but let us hope that the Government keep going in the direction they have taken to date.
Finally, it is worth using this debate on our proposed fiscal changes to reflect on what has been the effect of this Government’s fiscal policies to date on the economy. It is worth noting, as I am sure my noble friend will agree, that it is not just that inflation is falling from 11% to 4% but about the rate of growth in our economy compared to our European competitors. We are the fastest-growing European G7 economy and, from 2025 to 2028, our debt will come down as a huge part of the share of GDP. It is initiatives such as reducing national insurance in the Bill, and of course specifically raising allowances, which have enabled average taxpayers to be some £1,000 a year better off than they would be if those allowances had not risen since 2010. To keep up our outstandingly successful record levels in FDI, while achieving the success we have had in becoming the third-largest tech sector in the world, we have to keep the drive up for lower taxation.
As I understand it, the only tax initiatives announced by Labour are to increase taxation, such as VAT on schools, income tax for non-doms and enhanced tax for carried interests. Perversely, all these plans to raise tax by seeking to penalise successful people will, in my opinion, only lower the tax take. The direction of travel we need to stick to is a lower tax take, and a smarter tax system which encourages investment and increases growth and productivity.
Lord Sikka (Lab)
My Lords, it is always a great pleasure to follow the noble Lord, Lord Leigh of Hurley, even though I do not agree with much of what he said.
This Bill is a mishmash of policies that have already given us recession, poverty, stagnation, NHS queues, food banks, inequalities and crumbling public infrastructure. Building a just society does not seem to be on the Government’s agenda at all. The Bill continues with failed policies and somehow, different outcomes are expected, which will not happen.
Since 2010, the Government have showered tax reliefs on businesses, but we continue to suffer from chronic underinvestment. The Bill hands out tax reliefs in the form of 100% first-year capital allowances, in the hope that this can somehow increase business investment by possibly £14 billion within the forecast cycle, but that is in any case too little and is unlikely to be durable.
The major reason for low investment is that people do not have enough purchasing power to buy goods and services, and that dissuades businesses from investing. Just look at any town centre and you will see that it has become an economic desert, simply crumbling away. But the Government remain wedded to real wage and public spending cuts. The real average wage is now around the 2007 level; people have not got enough money to spend.
Following the Second World War, the state invested in new industries and took the long-term risks the private sector simply was not willing to take. It invested in new industries such as biotechnology, information technology and aerospace. However, the entrepreneurial state has now been replaced by a state that guarantees corporate profits through subsidies, cash handouts and the exploitation of people and the natural environment. The result is record corporate profits and low investment in productive assets. According to the OECD table, the UK occupies the 35th spot out of 38 countries in the league for investment in productive assets. That position will not change until the state resumes its entrepreneurial role, directly invests in new industries and infrastructure, and ensures that the masses have sufficient purchasing power.
The Government offer nearly 1,140 tax reliefs but have no idea of the total cost. Little is known about the macroeconomic benefits of handing out vast amounts of tax reliefs. The Bill hands out generous research and development tax incentives to creative industries, which will be welcomed by many. Accountants would happily reclassify some business expenditure as R&D and claim higher tax relief. The National Audit Office laments that the tax reliefs for R&D routinely exceed the UK’s actual R&D expenditure. I hope the Minister will be able to tell us why.
In handing out generous tax reliefs, the Government should also ensure that the resulting profits are taxed in the UK. Oil and gas companies get generous tax reliefs, but their profits are not necessarily taxed in the UK. I worked as an accountant in our oil companies, and I am quite familiar with how transfer pricing works. The Government ought to look at that to see where the profits end up.
James Bond movies are made and marketed through a labyrinth of opaque offshore entities. UK government money is given to make those movies. E.ON, the company behind the James Bond enterprise, received £30 million for “Spectre”, £47 million for “No Time to Die”, £24 million for “Skyfall” and £21 million for “Quantum of Solace”. However, E.ON declares tax losses in the UK and very little of its profit is taxed in the UK. Despite receiving £120 million of subsidy, E.ON has been paying less than £500,000 a year in UK corporation tax. Can the Minister explain why there is no comprehensive programme of tracking benefits of tax reliefs, or for ensuring that the resulting profits are taxed in the UK?
The Government make lots of claims about curbing tax dodges, but they are soft on the enablers. If the Minister disagrees, she is welcome to tell the House how many partners of big accounting firms have been investigated, fined or prosecuted for selling unlawful tax avoidance schemes. Hopefully she can name one or two; that would suffice.
An estimated £570 billion of UK wealth is stashed in tax havens. There is little effective check on profit shifting through intragroup transactions to low or no tax jurisdictions. Despite promises, the Government have failed to publish an estimate of what is called the offshore tax gap. Civil investigations opened by the offshore, corporate and wealthy unit, part of HMRC’s fraud investigation service, have declined from 1,417 in 2018-19 to only 627 in 2022-23. This reduces any faith in the measures contained in Part 3 of the Bill.
Tax policy for the last 14 years has become a circus under this Government. There is no sensible debate of what or who ought to be taxed, and at what rate, to shape what kind of society. Special low tax rates are enacted for the rich because they fund political parties, or simply because they demand it. Prime Minister Rishi Sunak paid tax of £508,308 on an income of just over £2.2 million, which is an effective tax rate of 23%. That is the tax rate faced by somebody on a wage of around £30,000 per year.
As I said earlier, no attention is paid to building a fair and just society. The reason why the Prime Minister’s tax bill is so low is that the capital gains accruing to him are taxed at 10% to 28%, while workers’ wages are taxed at 20% to 45%. Workers pay national insurance, but beneficiaries of capital gains pay zero national insurance. Indeed, under the Government’s rules, it is possible to pay a tax rate of only 10% on capital gains of up to £10 million. That does not seem fair to me at all.
The benefits of low capital gains tax are unevenly spread, unfair and create numerous inequalities. In 2020, just 0.5% of adults in the UK paid capital gains tax and benefited from this special regime. Capital gains tax payers are concentrated in London and the south-east of England. Notting Hill, with a population of around 6,400, has more than the combined populations of Liverpool, Manchester and Newcastle. You can see where these benefits are going.
The distortions also fuel a tax avoidance industry and rob the public purse. SME directors pay themselves with dividends rather than wages because that reduces their tax bill, as dividends are taxed at a lower rate than wages. The rich hire accountants to convert income to capital gains. Just think about the number of graduates finding jobs in the tax avoidance industry, which adds absolutely zero to the economy.
HMRC data shows that a quarter of people with an income of £2 million paid tax at an effective rate of less than 20%. One in 10 of those earning £2 million paid tax at an effective rate of only 10%, which is less than what someone pays on the minimum wage. This is an utterly unfair system and an unfair society, so can the Minister explain why someone making £2 million a year pays tax at a lower rate than somebody earning £15,000 a year? How is that consistent with claims of levelling up?
Finally, no child should go hungry, so I will suggest how the Government can fund free school meals for everybody: simply deal with one tax abuse, which arises from gift aid. If somebody gives £100 to a charity, that is obviously considered to be net, and the charity can claim £25, so it becomes £125 in the charity’s books. If the donor enters it on their tax return—many do not—they can also claim tax relief. A basic rate taxpayer will claim a tax relief of £20, but higher and additional rate taxpayers claim tax relief on that £100 at 40% and 45%. They are quids in—they are getting more because they are giving to charity. That does not seem fair. If tax relief on charitable donations was curbed at 20% for everybody, that would generate £740 million extra in tax revenues, which is quite enough to fund free school meals for everybody. Hopefully the Minister will say, “Yes, that will be in next month’s Budget”.
Baroness Kramer (LD)
My Lords, as the first of the winding speakers, I will say I have some sympathy for the Minister, who has been hit with a wall of technical expertise that is probably not matched in almost any other sector of debate. I wish her great luck in answering the details.
I draw the Minister’s attention in particular to the comments of the noble Lord, Lord Davies of Brixton, on the pension allowance, because that issue is so mired in complexity, and the scheme needs complete reform. This does not really affect the private sector, which managed workarounds for this long ago; it is people in the public sector who are caught. The judges have been exempted, as the Minister will know—they have their own special scheme—but senior consultants, senior members of the military and some senior civil servants are caught up in this mess. A straightforward reform would be far more effective than this constant chipping away at the edges and getting it wrong, which is the pattern of the last few years.
This Government are, frankly, living in a parallel universe. The economy is in recession. Many people remain under crushing pressure from the cost of living. Real GDP per capita has fallen for seven successive quarters, and, as I mentioned during Questions earlier, according to the Resolution Foundation, that equates to a loss of nearly £1,500 per household. But, just as significantly, the fundamentals that power the economy and economic growth would, if they were put into a risk assessment analysis, be in the red zone for high risk. But the Government have not responded to this kind of risk and this element of real danger for the economy with a coherent strategy. They have failed to take the action that we need to achieve economic recovery and, frankly, to go out and talk more commonly with people on the doorstep, as I do. People have had enough.
The Autumn Statement of 2023, which sits behind this Finance Bill, is often described by the word “fiction”. The cut in the national insurance rate, which the Minister referred to, is in reality a small reduction in tax increases because of the effect of frozen thresholds. I am stunned that the Minister does not understand the impact of this threshold freeze and in fact suggested that thresholds had risen significantly. You would have to go back to 2010, but we are talking about our more recent period, which is what is impacting people. Frankly, if trading standards looked at the Government’s statements and flagged misleading claims from the Government the way it does with retailers, the Government would not be able to make those claims that the national insurance rate is actually a tax cut; it would be recognised as a reduction in a tax increase.
In evidence to the Economic Affairs Committee, the OBR’s chief executive, Richard Hughes, pointed to the fictional nature of the forecast headroom that the Government claimed in the Autumn Statement and I fear will claim again in the Budget. He explained that the OBR is required to use the Government’s assertions on future tax and public spending, even in the absence of either credibility or detail. I say to the noble Lord, Lord Leigh, who was talking about growth and debt reduction: go back and look at those comments from the OBR in detail.
No one believes that this is just one example, or that the fuel duty escalator—this is one of the tax examples—will be reactivated, but, without it, the tax revenue numbers in the forecast are nonsense. Look at the public spending forecast. Richard Hughes suggested that calling it “fiction” was “generous”. With fiction writers, he said,
“someone has bothered to write a work of fiction, whereas the Government have not even bothered to write down their departmental spending plans”.
Slashing future public spending continuously as a percentage of GDP, which is embedded into that forecast— it is required to be so by government—is either vicious or a con.
Every public service is in dire straits. I am not talking just about the NHS: schools face record deficits, local governments are slashing essentials, the police are short of capacity, prisons are bursting and, frankly, I could go on with every area of public sector activity. Investment in infrastructure, which is absolutely key to our economic future, has not been adjusted by a single penny for inflation, which surely is a recipe for economic self-harm.
We need to focus, with open eyes and real vigour, on economic growth. As we discussed in February, given our older population and its growing dependency, our shortage of working age population is becoming relentlessly more serious. Improving our skills base can help in some sectors, but it requires a revolution in the role of apprenticeships and a complete overhaul of the apprenticeship levy. The drag on our economy of our sick working age population—by percentage, the highest in Europe—requires us to revive the NHS, which is faltering on so many fronts, from GP appointments to long waiting lists. The Government are fiddling at the margins of these issues and not driving forward fundamental change.
A sustained and high growth in productivity is vital—a return to over 2% a year productivity growth instead of the current stagnation. This requires business investment, which continues to be painfully low and has been despite a decade of low corporate taxes—here I agree with the noble Lords, Lord Desai and Lord Sikka. Low taxes have not generated investment, and we have years of experience and evidence for that. I support the full expensing of measures in the Finance Bill, but the OBR figures show that its benefits are actually quite small, and the other measures on R&D and those for the creative industries are useful but, frankly, small fry.
The Government should learn from their own experiences. As I say, low taxes do not persuade businesses to invest, but a proper industrial strategy would attract investment. Policy certainty, instead of shifts in the wind, would attract investment. Reducing friction in our access to the EU market would attract investment. A focus on small businesses, including reforming business rates, would attract investment. In productivity terms, the Government have simply failed to take advantage of the digital revolution. Work practices have changed, but UK productivity has not benefited; it remains utterly stagnant. This Government will waste the potential of the AI revolution unless they change their mind and put in place a coherent strategy.
Trade growth is lacklustre. All the Government’s vaunted trade deals utterly fail to offset the 4% scarring of the economy from Brexit, and we now face the trade consequence of world tensions, anti-globalisation and security concerns, not least with China. I am always stunned when the Government talk about the great trade potential outside Europe—they are essentially referring to either China or countries that fall within the Chinese sphere of influence, where we have so many security and trade issues that looking for that as our rescue is, frankly, a very inadequate response.
Our national debt is running close to 100% of GDP. The OBR, if we take away the requirement that it must give this kind of fake forecast, does not see that number coming down—look at the evidence it gave to the Economic Affairs Committee. There are huge fiscal consequences to running debt at 100% of GDP. We have a very high exposure to variable interest rates, thanks to both quantitative easing and our exceptional volume of index-linked gilts—I think we have twice the amount of any other developed economy; it is extraordinary. Unlike in other major economies, our gilt markets depend on investment by foreigners. It is called the kindness of strangers, and, in volatile times, it is very risky. At times of risk, people exercise a home bias; no one needs to be investing in sterling. We have got ourselves a very risky exposure, as we try to sustain the coherence of the gilt market.
I have not yet referred to the greatest risk of all: climate change. The EU’s climate service announced that global heating exceeded 1.5 degrees across an entire year for the first time last year. That is years earlier than was anticipated. Dealing with climate change is not a “nice to do”; it is a survival issue. I say both to the Government and to Labour: if we do not progress rapidly now, the consequences will be crushing, not least for our economy.
We will soon have a Budget. It is very strange to be discussing a Finance Bill with a Budget less than two weeks away, but I hope that the Government will begin to redeem themselves. Ordinary people are still feeling pain, and that pain will get worse before it gets better. We are in recession, but the downturn in the standard of living has been far greater. The fundamentals of the economy and of economic growth are sounding the alarm. Climate change is coming relentlessly. I say to the Government that looking for the populist vote by floating tax cuts is not the answer. Leaving a scorched earth for the next Government—which I fear is what they have in mind—is not responsible. Let me repeat what I have heard on the doorstep: enough is enough.
Lord Livermore (Lab)
My Lords, the Finance Bill that we are debating today was published following the Chancellor’s Statement in November last year, in which he claimed to be delivering an “Autumn Statement for growth”. It was the 11th such growth plan that we have seen from this Government over the past 14 years, and, over that time, the UK’s growth record has been poor.
The noble Lord, Lord Leigh of Hurley, mentioned comparative growth rates. We have languished in the bottom third of OECD countries, with 27 OECD economies growing faster than us since 2010. Looking ahead, over the next two years, no fewer than 177 countries are forecast by the IMF to grow faster than the UK. Against this backdrop, in the so-called Autumn Statement for growth, the Office for Budget Responsibility actually downgraded its forecast for growth in each of the next three years—it was revised down this year, next year and the year after that. Growth this year is forecast to be just 0.7%, which is more than halved from the 1.8% predicted in the Budget, with the economy forecast to be £40 billion smaller by 2027 than the Chancellor expected back then. Now, the Office for National Statistics has confirmed that Britain has fallen into recession. We know too, as the noble Baroness, Lady Kramer, observed, that GDP per capita fell in every single quarter of the past year.
Britain is trapped in a spiral of economic decline. Having spent 14 years in the economic slow lane, the Government have now put our economy into reverse—the latest chapter in a 14-year story of failure and economic stagnation. First, we had austerity, which choked off investment, and then years of political instability, which in turn fuelled economic instability; then Brexit without a plan; then the disastrous mini-Budget, which, as the noble Lord, Lord Desai, observed, crashed the economy, sending mortgages and interest rates soaring. We have had five Prime Ministers, seven Chancellors, and 11 plans for growth, each yielding less than the last.
If the UK economy had grown at the average rate of the OECD over the past decade, it would now be £140 billion larger, equivalent to £5,000 per household every year. This would mean an additional £50 billion in tax revenues to invest in our public services. Instead, with growth so weak, taxes have risen remorselessly, with less and less to show for it. While our public services crumble, we have seen 25 tax rises in this Parliament alone. The tax burden now rises every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever, with an average tax rise of £1,200 per household.
However, there is one small group of people who will continue to be protected from this Government’s tax rises on much of their income. Missing from this Finance Bill, once again, is any action to tackle non-dom tax status: those people who live in Britain but do not pay UK taxes on their income from overseas. Closing this loophole and replacing this archaic status with a residence scheme like other countries have could raise crucial funding to bring NHS waiting lists down. Labour believes that those who make Britain their home should pay their taxes here. That patriotic point should be uncontroversial; yet, while families across the UK face higher taxes year on year, the Government continue to enable those who keep their money overseas to avoid paying their fair share of tax. So, while we have yet another Finance Bill that leaves this loophole open, families across the UK face a tax burden that is climbing to a post-war high.
The chair of the UK Statistics Authority rebuked Government Ministers this week for making misleading claims about their record on tax. Let us be clear: while the cut in national insurance announced in the Autumn Statement was welcome, it was more than eclipsed by increases in taxes that the Government had previously announced. For example, as my noble friend Lord Davies of Brixton mentioned, the freezing of national insurance and income tax thresholds for six years is now expected to cost taxpayers £45 billion. This fiscal drag means that nearly 4 million more people will pay income tax and 3 million more people will pay the higher rate. To quote Paul Johnson from the Institute of Fiscal Studies, the cut in national insurance rates
“pales into … insignificance alongside the … increase in personal taxes created by the six year freeze in allowances and thresholds”.
The IFS has calculated that, extraordinarily, almost every single person in the UK who is liable for income tax or national insurance will now be paying higher taxes overall. As a result, the tax burden will now reach 37.7% of GDP by the end of the forecast period, an increase equivalent to an astonishing £4,300 additional tax for every household in the country.
We have an economy in recession, the tax burden rising to its highest ever level and the biggest fall in living standards since records began. We must break this spiral of economic decline. Increasing growth is clearly the biggest economic challenge that our country faces. In government, Labour’s defining economic mission will be to restore growth to Britain, with good jobs and productivity growth in every part of our country. Our plan to deliver that mission, supported by British business and developed in partnership with British business, is built on three pillars: stability, investment and reform.
Stability will be brought about by strong, robust and respected economic institutions. Rather than criticising the Bank of England, as a number of prominent Conservative politicians have, we will protect its independence, and we will strengthen the Office for Budget Responsibility. We will introduce a new fiscal lock and tough new fiscal rules. Iron discipline will ensure that every policy we announce, and every line in our manifesto, is fully costed and fully funded. With a Labour Government, never again will a Prime Minister or Chancellor be allowed to repeat the mistakes of the Liz Truss Budget. Never again can we allow a repeat of the devastation that that Budget brought to family finances or allow a plan to be pushed through that is uncosted, unscrutinised and wholly detached from economic reality.
We prize stability and predictability for business, as we know how highly businesses that are considering investing in the UK prize stability, predictability and a long-term plan. This Finance Bill contains a number of measures that we have been calling for for some time. We welcome the Government finally making full expensing permanent after so many years of chopping and changing capital allowances; we have made it clear we will maintain this policy if we are in government. We have also made it clear that we will maintain the system of R&D tax credits introduced by this Finance Bill—again, after so many years of this Government chopping and changing the design of the scheme.
Of course, there is still a general election to face, so I use this opportunity to invite the Minister to put on the record whether the Government will follow our lead. Will she confirm that, should they win the general election, they will maintain permanent full expensing? I am sure that many businesses would welcome the certainty that comes from knowing that both main parties are going into the election fully committed to keeping this policy in place.
Let me be clear about another area where we will provide certainty, should we win the next general election. As the shadow Chancellor has set out, we believe that the current corporation tax rate strikes the right balance between what our public finances need and maintaining our competitiveness in the global economy. That is why we are pledging to cap the headline rate of corporation tax at its current rate for the whole of the next Parliament. We would take action if tax changes in other advanced economies threatened to undermine UK competitiveness. That choice provides predictability and has a clear rationale; that is the pro-business and pro-growth choice. So, again, to offer businesses as much certainty as possible, I ask the Minister whether the Government will follow our lead and also pledge, today, to cap corporation tax at its current rate for the next Parliament?
Our commitment to stability will be matched by a commitment to investment, through partnership with the private sector, to power the industries of the future with a modern industrial strategy; a new national wealth fund to invest alongside business, in our automotive sector, in our ports, and in the future of our steel industry; and a new national champion in homegrown power, leading the way on floating offshore wind, tidal and nuclear power, to ignite growth, boost our economic security, drive down energy bills, and create good, well-paid jobs across Britain. This will be combined with our commitment to reform, starting with our planning system, taking on vested interests to get Britain building again. Stability, investment, reform—the foundations of a plan to break free from the vicious cycle over 14 years of stagnant growth, rising taxes, and falling living standards.
Lord Leigh of Hurley (Con)
Can the noble Lord clarify a point that he made in response to a point that I made about non-dom taxation? I understand that the Labour Party originally thought that taxing non-doms in the way that he described would raise £3 billion—it then reduced it to £2 billion and I think that it now thinks that it is £1 billion. It would be very helpful to have precision and clarity on the estimate that this will raise. Will he also confirm, now that Labour Party officials are talking to the Treasury, that they have asked the Treasury for its figures on the Labour Party’s proposals on non-doms, which, as I understand it, show a net loss to HMRC in respect of those proposals?
Lord Livermore (Lab)
I do not think that I am at liberty to divulge the exact nature of those discussions, but I can certainly say that that is not correct.
Lord Leigh of Hurley (Con)
Does the noble Lord have an answer to my question on the specific amount that the non-dom tax proposals will raise?
Baroness Vere of Norbiton (Con)
My Lords, I had better intervene quickly, before that continues. I am grateful to my noble friend, but I am sure he is well aware that that was not the usual procedure.
I am very grateful to all noble Lords who have taken part in the debate this evening. It has been a spirited debate, as ever, and I can definitely say at the outset that I am unable to agree with everything that has been said—by some noble Lords more than others, and by one or two almost entirely. But let us leave it at that.
There have been many excellent contributions and points raised. I am very grateful to the noble Lord, Lord Davies, who kicked off the debate with some wonderful tax questions about pensions. Clearly, the issue around pensions catching up with the personal allowance is not something that I can comment on now, but it is something that people are aware of and it will be addressed over a period of time. It is the case, too, that many political parties are committed to the triple lock. Pensioners whose sole income is the new state pension and who do not have deferred or received protected payments currently do not pay any income tax, as noble Lords will know. This year we provided the biggest ever cash increase to payments—a 10.1% rise.
The Government have doubled the personal allowance since 2010, ensuring that those with the lowest incomes do not pay income tax at all. Many noble Lords are concerned about the level of the personal allowance. I believe that over the longer period of time, looking back to 2010, there have been significant increases, such that 30% of people do not pay tax at all. I accept that, given external headwinds, certain decisions had to be made—and were made quite rightly—to freeze the personal allowance over a period of time. However, it is one of the goals of this Government that, as we return to the sort of growth that I think all noble Lords would like to see, it would be a possibility in future that we would be able to address how those personal allowances are going to change over time.
If a person has to pay tax that cannot be collected through PAYE, whether because they have no employment or they have an occupational private pension, and they are not already a self-assessment taxpayer, HMRC may issue them with a simple assessment to explain what tax they owe and how to pay it. That would be well in advance of any payment being needed. But, of course, that assumes that personal allowances and the state pension collide in future. I would not want to say that that is the case, but it is an issue that people are aware of.
The issue around the tax threshold freezes comes up quite a lot in your Lordships’ House. I absolutely accept that we have had to make some incredibly difficult choices but, having done so, a UK employee can earn more before paying income tax and social security contributions than an employee in any other G7 country. We do not tax our employees as highly as other people do, and that is to our credit. We have taken a fair approach to repairing the public finances, so we have asked everybody to contribute a little through keeping tax thresholds fixed. However, that ensures that those with the broadest shoulders pay the most. As I say, now that inflation is falling and the economy has turned a corner, we must continue with our plan, and we can responsibly return some money to taxpayers to slightly change the shift and the amount of tax that people will now pay, versus what they were going to pay in the past. But it is important that we do that in a way that supports the work and grows a sustainable economy for the future. Prioritising those in work is the best way in which to get the economy growing and reducing national insurance contributions is the best way in which to target those individuals.
I will check through the comments made by the noble Lord—
Lord Sikka (Lab)
I am grateful to the Minister. Is she saying that we cut taxes for people? Earlier she mentioned 29 million people. Can she also confirm that 17.8 million UK adults with an income of less than £12,570 a year received a zero cut in national insurance or taxes in last year’s Budget?
Baroness Vere of Norbiton (Con)
Yes, but let us also remember that the national living wage has gone up by 25% in real terms since 2010. There are all sorts of different things that the Government have done to protect the most vulnerable; the noble Lord is picking on just one thing. We are always looking at the most vulnerable to ensure that, for them too, work pays. That includes lifting the national living wage.
Lord Sikka (Lab)
I am happy to respond to the Minister—this could get interesting. The £12,570 threshold —and, as I said, 17.8 million adults have less than that —is after taking account of the increases in minimum wage. Many people have zero-hours contracts, work part-time or are maybe on a pension. That is after taking account of all the increases that the Minister said have been handed out.
Baroness Vere of Norbiton (Con)
Does the noble Lord want me to give them a tax cut for taxes that they do not pay? I am not following here at all, but I am not willing to get into a long debate about this right now. The noble Lord may write, and I will respond, if he would like to get into that in detail, but I am not willing to get into the debate right now.
Moving on to other issues raised by the noble Lord, Lord Davies, I will write in more detail around the specific things; I was doing very well for 80% of his speech but I lost him towards the end, around the taxation of negative pension growth, or gains. I will write on that point.
The noble Lord, Lord Desai, noted that the Bill is too late. Obviously, this is beyond a humble Minister like me. The House authorities will have guided it through. I know that it took a while to get through the Commons, and we addressed it in your Lordships’ House as quickly as we could once it had finished in the Commons. I would like to push the blame down to the other place and leave it there. However, it is always our ambition to get our Finance Bills into and through Parliament as quickly as possible, because it is a really important thing that we do.
I suspect that, particularly as we go into the Spring Budget, there will be many more debates around growth. I say again that, since 2010, we have had the fastest growth of any European G7 nation. I also suspect that there will be counterarguments to that, and that those will continue. In many of these circumstances, particularly some of the points raised by the noble Lord, Lord Desai, it is just a case of economists not agreeing. Not all economists agree—it is an art, not a science. For those of us who studied economics at university, it is clear that there are sometimes fundamental differences, as noble Lords have said today. My noble friend Lord Leigh is also a very experienced person in these matters. As he pointed out, he does not agree with much of the analysis. Sometimes, that is the case.
I am incredibly grateful to my noble friend Lord Leigh, his committee and the officials for the report of their sub-committee. I reassure him that we take those reports very seriously. Officials read them to ensure that we take into account the considerations and the recommendations made. On research and development, I think he agrees with us that we want to keep things as stable as possible. We do not intend to make any further changes. However, there are a few small areas where we will continue to engage, and any changes will be done cautiously. We hear what he and his committee say, and we will consider it carefully.
My noble friend noted the issue around HMRC data and tax administration. The Government’s economic response to the coronavirus pandemic was made possible through the powerful use of all sorts of data. However, it highlighted that there are gaps in the data that HMRC holds. New or improved data collected by HMRC, such as detailed information on employee hours and start and end dates on self-employment, will help government to address some of the gaps, building a tax system which is more resilient. I reassure him that the Government are taking a proportionate response and collecting improved data in areas where taxpayers already hold it, to minimise administrative burdens. The existing safeguards are robust, well-established and well-understood. I reassure him that we expect all taxpayers to have this information already and be able to provide it to HMRC. HMRC will take a reasonable and proportionate approach to the application of any fees or penalties in this regard. These changes will not take effect before April 2025, to give the system some time to adjust.
My noble friend Lord Leigh also mentioned HMRC customer service. Noble Lords will have heard me say this before, and indeed I have had the discussion directly with HMRC: it acknowledges that its customer service levels are simply not as good as they should be. Levels on the phone and in the post are below service standards from last year. HMRC has been working very hard to improve services for those people who need to call, but encourages people to use the digital services as much as possible, as they can be very efficient and get very good ratings from customers.
My noble friend Lord Leigh once again brought up his minority sport—a very important sport—of EIS and VCT, and why these are being extended by regulation. He hinted about it being something to do with the Windsor Framework, the EU, Northern Ireland, and the trade and co-operation agreement, and he is right. These are important schemes, and the vast majority of UK subsidies will need to comply only with the UK’s domestic subsidy regime, as noble Lords would expect. The Windsor Framework also means that the EU-UK Trade and Cooperation Agreement will now serve as the primary framework governing subsidy control between the UK and the EU. For the EIS and the VCT scheme, we are engaging with the EU on approval for extension, due to Northern Ireland’s unique access to the EU single market. We are working to meet all relevant obligations. We believe that the systems are consistent with subsidy control principles and address evidence of market failure, and therefore we think those conversations will go well.
My noble friend mentioned the complexity of Pillar 2. I agree that it is complex and difficult to administer—it is necessarily complex, because of the wide variety of different corporate structures which exist. However, we are reassured that we have simplified processes as much as we possibly can, such that compliance from business will be at the sorts of levels that we want to see.
On stooge directors, as noble Lords would expect, these measures are targeted at the promoters of tax avoidance schemes. Stooges enable these promoters to hide their activities, and, frankly, that is not what we are after at all. The Government understand the need for strengthened HMRC powers to be proportionate and balanced. Those are the two words that are absolutely key. Nobody wants to put anybody in jail because they did something under the duress of somebody else.
The noble Lord, Lord Sikka, raised a number of points and many rhetorical questions, and, I suspect, lots of really good ideas for the Labour Party manifesto. I, unfortunately, cannot agree with much of what he said, particularly his insistence that the state needs to substantially increase investment which is traditionally private sector activity. The state does invest, but it invests in those areas where we feel it is right for the public sector to be investing. We believe that the private sector is much better at picking up that sort of investment.
The noble Lord seemed to imply that the Government have done nothing against tax avoidance and that it is all terrible out there, etcetera. I am afraid that is just not right. The amount of money lost to the Exchequer from tax avoidance has fallen from £3.6 billion in 2010—to pick a year—to £1.4 billion in 2021-22. That is a significant reduction in the amount of tax avoidance. Again, I do not expect the noble Lord to agree with me. He went on to ask me for specific examples. HMRC already prosecutes promoters. Since 2016, more than 20 individuals have been convicted of offences relating to arrangements which have been promoted and marketed as tax avoidance. Our interventions are working, and there are interventions in the Bill to make our levers stronger. This Government do not tolerate tax avoidance and we will do whatever we can to stop it.
The noble Baroness, Lady Kramer, raised a number of issues. I have already mentioned thresholds; from the Government’s perspective, we understand what had to happen over that time. She raised the issue of public spending, which I note is going up in real terms by 0.75% over the forecast period. What slightly concerns me now is the question of where it would stop. If it is going up in real terms every single year, after how many years would we say that that is enough? However, I also put it to her that, as important as productivity is in the public sector, in the private sector you would not get away with the lack of focus on productivity. That is why the Chief Secretary to the Treasury is looking at a productivity review across all areas of government, to ensure that public spending is the right amount. At the end of the day, the best way to increase the amount of money that we have available for public spending is to grow the economy, and that is exactly what this Government are doing.
The noble Baroness mentioned productivity. It has been estimated that supply-side measures from the Autumn Statement 2023 could close up to half of our productivity gap with France, Germany and the US. We feel that we are making good progress, investing in the right areas to improve productivity.
The noble Baroness mentioned climate change, which is incredibly important. It is also interesting that she mentioned Labour in her appeal to keep climate change front of mind, because Labour still has its very unachievable climate plans, with now literally no funding. It used to have £28 billion of funding, which shadow Front-Bench Members managed to commit to over 300 times. Unfortunately, that £28 billion has now disappeared, but all the policy seems to remain in the same place. That goes back to the point that the noble Lord, Lord Livermore, made. Apparently, in the stability, investment and something else he said—their plan to deliver, which I am still looking for the detail on—all Labour policies will be fully costed, apart from those on climate change. Is that right? I am looking forward to it. I do not know; the £28 billion has disappeared but the policies have not.
The noble Lord asked me to commit to certain things for the Conservative Party manifesto, which I will not do, but the Government have just introduced permanent full expensing. It would be a great surprise to me if, all of a sudden, it were to disappear again, because we believe that it is a very valuable thing to do.
The noble Lord mentioned non-domiciled individuals. I, too, am very interested in that and will keep an eye out for how much money will be raised from the changes to non-domiciled individuals’ tax arrangements. I suspect that it will not be anywhere close to the amount of money that Labour platitudes and unfunded promises will need as we head into the election. But we believe that non-UK domiciled individuals play an important role in funding our public services through their tax contributions. The Government want the UK to be a destination that will attract talented people to work and do business, and that includes people from overseas. It is only right that those who choose to live here for a long time pay their fair share of taxes—namely, that they cease to become non-domiciled.
I believe that I owe various noble Lords a letter, which I will ensure gets to them as soon as possible. In the meantime, I commend the Bill to the House.