Finance (No. 2) Bill

Baroness Kramer Excerpts

Lords Hansard - Part 2 & 2nd reading & Committee negatived & 3rd reading
Tuesday 22nd February 2022 Lords Chamber

[Baroness Kramer (LD)]

My Lords, this almost feels rather an anti-climax—in a sense, I feel privileged to have been able to sit through that crucial, important debate. This is a very technical Bill. Normally at Second Reading I would take the opportunity to discuss the broader economic issues, but we have done that again and again in this House.

I will pick up on the comments made by the noble Lord, Lord Bilimoria, in particular; I agree with so much of his analysis of the condition, although I do not necessarily agree with his solutions. However, the point he made that crystallises the problems we face is the forecast growth rate of 1.3%, with a rate the following year of 1.2%. At that level of economic growth, we cannot sustain the public services and general living style of our population today. Will the Minister go back and try to get somebody in the Treasury to truly take seriously some of the economic issues we are facing? They are not just a series of small, isolated issues; they add up to a critical problem that the Government will have to grapple with. Nothing we have seen grapples with the extent and depth of that problem. I will focus on a few particular points in this Bill; as I say, it is highly technical, but sometimes those technical pieces have consequences.

I start with the reduction in the bank levy from 8% to 3% from 1 April 2023. Taxpayers’ contribution in the form of CBILS, BBLS and bounce-back loans amounted to some £80 billion of support for businesses during Covid; it was vital, but that same money also cushioned the banks. This week, Britain’s four major high street banks are anticipated to report some £34 billion between them in full-year profits and to follow that with payments of huge bonus pots to senior bankers. To quote the FT,

“banks are unveiling the sort of payouts that prompt a run on champagne”.

This is against the background of a rise in NICs of 1.25% for some of the lowest-paid workers and a cost of energy and living crisis for much of the population, who are now facing a choice of “heat or eat”. The Governor of the Bank of England encouraged workers not to ask for pay rises to limit inflation, but his words have clearly not discouraged bank bonuses on the back of some of the highest windfall years that our major banks have experienced. How on earth in that situation do the Government justify a cut in the levy for the banks?

I move on to the issue of freeports, primarily because it directly reflects on the issues we discussed on the Floor a few moments ago. I have raised this issue in the context of the National Insurance Contributions Bill, to which this House was good enough to pass an amendment. The amendment required that for businesses operating in a freeport, there has to be a public—I stress “public”—register of beneficial ownership. We know that freeports are a lure for criminal activity and money laundering because the normal disclosures which are made through customs and tax are not available. We know now that the Government have asked the freeports to have registers of beneficial ownership, but they have declined to make those public, even though they lecture virtually the entire world on the importance of public registers, because then civil society, activists, journalists and others can shine a light on wrongdoing, and only then does it become effective.

Will the Minister go back and say that, when the National Insurance Contributions Bill reaches the Commons again, the Government will change their approach and provide a public register? Otherwise, we are taking a step backwards and providing yet more mechanisms for people who want to launder money. Indeed, in the freeports, since we make them tax attractive, we are basically offering not only money laundering but tax-enhanced money laundering. That is absolutely the wrong message, and we should not believe for a second that Putin’s henchmen and autocrats have not noticed and are not planning to take advantage.

This leads me to ask why the provisions to make a public register of the beneficial ownership of property in the UK—which has been promised over and over—have not been included in this Bill. We know that that legislation has been written and has been sitting on the stocks for weeks now, if not months, and the Government have chosen not to bring it forward. I think we need to understand why the Government are holding back.

I think the noble Lord, Lord Butler, referred to the Economic Affairs Finance Bill Sub-Committee report— I have the privilege, as he does, of sitting on that committee—which looked at the issue of basis period reform. I will not pre-empt speeches which I hope the noble Lord, Lord Bridges, will have the opportunity to make at a later date. He was unable to be here today. But when we as a committee reviewed the case for basis period reform, which now sets the fiscal year for all businesses in the UK as between 31 March and 5 April, I have to say that we were not impressed, to put it mildly. The noble Lord, Lord Butler, addressed many of the reasons why: flawed consultation, rushed proposals, and the fact that a compelling case was not made that this was either simplification or a prerequisite for making tax digital.

There are two things that absolutely stuck in the gullet with this. During the transition period, some companies will be paying tax on profits made over 23 months rather than over a single year. I know the Government are going to allow them five years to make those payments, but a whole lot more flexibility would have been extremely welcome, and I do not understand why it has not been given. The Minister herself mentioned overlap relief—the problem that start-up businesses often have more than one year’s-worth of profits falling into a particular tax year—and that as we go through the transition period, companies will be able to offset any excess profits by subtracting or by qualifying for overlap relief. But, as she said, so many of those companies do not have the records. HMRC has the wretched records, but it is not committed to delve into its resources and provide them, or else reconstruct them from the data that it holds. Will she please go back to HMRC and tell it that it has to act in the interests of taxpayers and make that effort?

However, I have a particular issue that concerns me far more than the transition issues. It is the permanent impact of requiring a significant number of companies in the UK to use a tax year end that makes no sense for their business cycle. Some of this applies to large international partnerships that will now have a different tax year end for their operations in the UK and in other parts of the world—but they can afford all the expensive lawyers and accountants. However, I am concerned about the farmers for whom a March/April year end is entirely inappropriate. They depend on a summer growing season and have no control over weather and prices. I look at the hospitality sector, and again it is highly volatile and highly seasonal and a 31 March to 5 April year end is completely wrong. This applies also to a lot of small seasonal retailers. Those entities will now have to estimate—and given the volatility it is basically “guesstimate”—what profits they will make during that season in order to report their taxes. At the very least, these little companies will need to hire some very expensive accountants and lawyers, and at worst they will constantly be filing tax forms that contain significant and wide-ranging errors.

I just do not understand why, at a time when technology would allow us to deal easily with variable tax year ends, the Government have made the decision to push everybody into this very narrow 31 March to 5 April band. For years, when we dealt with taxes by pen and paper, we accepted the importance of variability, but now that we have programs that can deal with it, the Government have decided not to. The only thing I can think is that they hope through these various measures to up-front a whole series of tax payments because of that transitional year to give them a buffer ahead of the next election. It makes absolutely no sense otherwise and, as we say, it has nothing to do with making tax digital: in fact, making tax digital should enable you to deal with the variability.

On the issue of uncertain tax treatments, mentioned by the noble Lord, Lord Butler, let me just say this. This is a notification of uncertain tax treatments issue and is absolutely classic. Companies that are determined to do the right thing and not take any risks on tax and make sure that they think through everything will spend a fortune trying to comply with the new notification requirements, and the companies that intend to take risks will make very little effort and will probably get away with it. Again, I cannot see why on earth the Government have brought this in.

Because of the time I just want to say something very quickly about a letter that the FBSC has written to the Financial Secretary on off-payroll working. It raised a lot of questions about the CEST—check employment status for tax—tool to determine whether contractors fall inside or outside IR35. The Government really are not taking seriously, I think, the 20% of requests to the CEST system that come back with the result that says “unable to determine”. It is a tool that needs to be refined to deal with that big 20% number and also to reflect the other issue missing from the test that undermines confidence in it, which is that it needs to reflect the mutuality of obligation test for whether one falls inside or outside IR35.

However, underlying all of this is the concern that the Government are still not implementing the Taylor review, which could provide a holistic framework for self-employment. We are moving into a nonsense where we will have people paying tax as if they are employed but having few of the rights of being employed. I think everyone can recognise that that is both unfair and inequitable. Perhaps the Minister will give us an update on what is happening with the Taylor review.

The Finance Bill was also remarkable for what it did not do, and here I am picking up some of the points made by other noble Lords, including the noble Baroness, Lady Bennett. It did not set up a windfall tax on fossil fuel producers with record profits. That could have raised £5 billion to £10 billion. It did not rectify the injustice done to the 5 million excluded self-employed people who got no Covid help. It did not reform the unfair business rates system, rather than just provide short-term relief.

There is one particular issue which small businesses had really hoped would be caught at the time of this Bill—and it was not. As the Minister will know, big businesses are very successful in the recruiting market, stripping people away from small businesses because they can afford to pay joining bonuses and higher wages. As a consequence, small businesses are suffering disproportionately from the labour shortages we are now experiencing. This could be combated by significantly increasing the small business employment allowance. I notice that the Federation of Small Businesses is calling for this. It seems like a small measure—not even an expensive one—but it would make a huge difference by at least providing small businesses with something of a level playing field through the recovery.

There is so much more to say about the economy and about this Bill, but I think I have exercised the patience of the House enough.