Finance (No. 2) Bill

Baroness Penn Excerpts

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

[Baroness Penn (Con)]

My Lords, I thank all noble Lords for their contributions to this debate. In closing, I will focus on responding as far as possible to the many and varied points raised.

The noble Lord, Lord Sikka, asked about the different tax treatment of earned and unearned income. The measure in the Bill increasing dividend tax rates by 1.25 percentage points for all bands is precisely to ensure that those with dividend income contribute to the health and social care spending settlement, as well as those with earned income. This measure supports the Government’s objective of raising revenue to fund our national priorities while also helping to limit the incentive for individuals to work through an incorporated company and remunerate themselves via dividends rather than wages to reduce their tax bill. I also point out that dividend income is paid out of corporate profits, which are usually also subject to corporation tax.

The noble Lord also raised various tax reliefs, specifically for video games, films and TV. They are available only to productions that pass the British cultural test. The production is considered against a range of criteria—not just where it is set but where it is made, and the nationality of the personnel involved in making it. The Government recognise the valuable economic and cultural contribution of the video games industry and other cultural industries. The video games tax relief has supported £4.4 billion of UK expenditure on 1,640 games since its introduction in 2014. I reassure the noble Lord that HMRC keeps these reliefs under review. An external evaluation of the video games tax relief was published in 2017, and a review of the film and TV reliefs is currently under way.

I also noted the request by the noble Lord, Lord Sikka, for information about tax reliefs to be set out at each Budget. I will take his suggestions back to the Treasury. He also asked how the global minimum tax rate will be assessed. The UK is proud that, in October 2021, more than 130 countries signed up to a new global minimum tax framework that built on a deal brokered in principle by the G7 during the UK’s presidency of that grouping. The OECD has published the model rules for pillar 2, which will help to ensure that multinational groups pay a minimum level of tax in each jurisdiction in which they operate, and the UK Government have now published a consultation on how those rules will be implemented in UK domestic legislation.

The noble Lord, Lord Razzall, asked about the timing of the health and social care levy, given pressures on household budgets, and the noble Lord, Lord Bilimoria, spoke more generally about the impact of high tax burden in the UK. I would say to noble Lords that the Government are committed to responsible management of public finances, and the plan for health and social care will lead to a permanent increase in spending. It is important, therefore, that that spending is fully funded, particularly in the context of record borrowing and debt to fund the economic response to Covid.

The health and social care levy will allow the Government to implement necessary adult social care reform, tackle the elective backlog in the NHS as it recovers from coronavirus, develop our pandemic response and preparedness, and ensure that the NHS has the resources it needs through this Parliament. These are things I hear noble Lords call for time and again in debates in this House, and the decision to implement the health and social care levy is the mechanism that means we can afford to do them. I would also point out that the highest earning 15% will pay over half the revenues, and 6.1 million people earning less than the primary threshold and lower profits limit will not pay the levy. The levy also applies to businesses; as those businesses benefit from having a healthy workforce, it is only fair that they contribute.

On the more general point made by the noble Lord, Lord Bilimoria, the fact is that the Government remain committed to fiscal responsibility and funding excellent public services. It is vital not just to borrow to fund those services but to fund them fairly, with both businesses and individuals contributing. That is why the Government have had to make difficult choices, but those choices mean we are now bringing debt under control and investing in public services.

The noble Lord, Lord Bilimoria, and the noble Baroness, Lady Kramer, raised the question of economic growth. I would say to noble Lords that this Government are absolutely seized of the need to drive up productivity, which is why there is such a focus on investment in recent budgets and in the measures in this Finance Bill.

The noble Lord, Lord Razzall, also asked about universal credit. The Government have reduced the universal credit taper rate from 63% to 55% and increased universal credit work allowances by £500 per annum to make work pay. This is essentially a tax cut for the lowest paid in society, worth around £2.2 billion in 2022-23. The change also means that 1.9 million households will, on average, keep an extra £1,000 on an annual basis. That will be combined with the national living wage increase of 6.6% to £9.50 per hour in April 2022 for those aged 23 and over, which will benefit over 2 million workers. Since its introduction in 2016, the national living wage has increased the pre-tax earnings of a full-time worker by over £5,000 a year. That increase is consistent with the Government’s target to go even further and raise the national living wage to two-thirds of median earnings for over-21s by 2024, provided economic conditions allow. That is an ambition to abolish low pay in this country altogether, which I hope will be welcomed across this House.

The noble Baroness, Lady Bennett, the noble Lord, Lord Tunnicliffe, and others raised the issue of the windfall tax. The noble Lord, Lord Razzall, and others also asked whether our approach to support households with the cost of their energy bills is the right one. I do not want to go over all the ground we covered in Oral Questions earlier today, but I would say to noble Lords that the UK Government do place additional taxes on the extraction of oil and gas. Indeed, the headline tax rate charged on the profits from UK oil and gas production at 40% is currently more than double that charged on company profits in most other areas of the economy. To date, the sector has paid more than £375 billion in production taxes.

Noble Lords expressed scepticism about ensuring that there is adequate investment in this sector to secure ongoing energy security and the feed-through that that will have on people’s household bills. In 2020-21, investment in the sector was at an all-time low; that is part of the context in which we need to think about the arguments for a windfall tax on those producers. An abrupt tax change would create uncertainty and potentially deter significant investment opportunities.

As I said earlier, the Government have set out a significant programme of support for households with their energy bills, worth more than £9 billion. I must disagree with the characterisation of the noble Lord, Lord Tunnicliffe, of that support as “buy now, pay later”. A large part of that support is a £150 rebate on council tax bills for all homes in bands A to D. This is a more targeted approach than the VAT cut proposed by the Benches opposite; it also gets support to households faster because the rebate will be available from April, whereas a VAT cut would be spread across the course of the next year.

The noble Lords, Lord Butler and Lord Tunnicliffe, and the noble Baroness, Lady Kramer, touched on the work of the sub-committee that is looking at the Bill. I thank it for its incredibly detailed work. It is an incredibly important part of the system that we have and the contribution that this House makes to these processes, even though we do not amend or vote on Finance Bills. Speaking from the Treasury’s point of view, I know that that work is taken incredibly seriously, is looked at in detail and provides a contribution to the process.

The Treasury’s assessment is that basis period reform creates an ongoing administrative burden saving of £1.1 million a year for business, but the Government are planning further engagement to explore whether and how to introduce easements to reduce possible associated administrative burdens. In agreement with the committee’s recommendation, the Government will reassess the administrative burdens and savings of basis period reform in the course of exploring these options for easements. The Government have delayed basis period reform in response to consultation feedback, giving businesses and accountants more time to prepare. The transition to the new tax year basis needs to take place before Making Tax Digital is introduced, to avoid hard-coding complexity into the new Making Tax Digital systems.

Noble Lords also asked about HMRC’s resources for the Making Tax Digital income tax self-assessment. The spending review process between HM Treasury and HMRC considers demands on the department, including on both customer service and policy development, to arrive at an agreed spending settlement that ensures that HMRC has sufficient resources and capacity to deliver its commitments and service levels. HMRC is confident that it has the resources it needs.

Many noble Lords raised the Government’s efforts to tackle economic crime. Indeed, we heard some discussion of that in the Statement repeat we just had. The Government are absolutely clear that we will not tolerate criminals profiting from dirty money, and that we will do whatever is necessary to bring such criminals to justice. The economic crime plan of three years ago was a landmark piece of work that brought together government, law enforcement and the private sector in close co-operation. I will not repeat all the measures that we have taken under that plan, but we have undertaken around 7,900 investigations, 2,000 prosecutions and 1,400 convictions annually for stand-alone money laundering or cases where money laundering is the principal offence. We have restrained £1.3 billion and recovered £1 billion since 2014 using the Proceeds of Crime Act, civil recovery and agency-specific disgorgement mechanisms.

The Government are bringing forward significant investment to tackle these crimes, including through, in this Bill, legislating for the economic crime anti-money laundering levy. I reiterate to noble Lords the Government’s commitment to reforming Companies House and the register of overseas entities’ beneficial ownership. As we heard from the Prime Minister earlier this month, the Government are committed to bringing forward an economic crime Bill to deliver those reforms.

The noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, raised the issue of the bank surcharge and, in particular, pointed out the support that the Government provided to business during the pandemic through bounce-back loans, CBILS and so on. That is exactly why we are asking business to contribute to the costs of the recovery. The combination of the corporation tax increase and the new bank surcharge rate means that banks will have a higher rate of tax under the new regime than currently.

The noble Lord, Lord Tunnicliffe, asked a specific question about the Commons Public Accounts Committee’s claim that HMRC has effectively written off £4 billion of fraud and what the Treasury’s assessment of that is. We do not recognise any claims that we have written off any money. We definitively have not and do not intend to do so. Over the course of this financial year and the next, HMRC expects to recover another £800 million to £1 billion of overclaimed grants on top of the £500 million already recovered to date. Beyond that, we are not giving up on this. We continue to seek to recover everything we can. These overclaimed grants result from error as well as fraud and, where individuals have made genuine mistakes, HMRC will help them to put things right.

The Finance Bill comes before us in a significantly improved economic situation. The Government are rightly focused on economic recovery. In 2020, this country experienced the deepest recession on record, but thanks to the actions this Government have taken, including the vaccination programme, we have recovered fast.

[Lord Bilimoria (CB)]

I thank the noble Baroness for giving way and appreciate her efforts to answer many of the questions I raised in my speech. I would be grateful if I could have a written response to the ones she was not able to answer. In particular, I specifically asked about the £2 billion that the Government say they spent on testing in January. They are withdrawing lateral flow testing from 1 April, which will be an additional burden on consumers and businesses. I asked for the breakdown of that £2 billion between PCR tests and lateral flow tests. I was attacked in the Chamber earlier for saying that £2 billion is a lot of money, but it could be a small proportion of that. If the noble Baroness could give the figures, it would clarify the situation for the House, the public and business.

[Baroness Penn (Con)]

I always admire the noble Lord’s ability to cram in the most questions or points in his contributions to these debates. I make an effort to address as many as I can—this one strayed slightly beyond the brief I had on the Bill, but I undertake to take that question back and provide a written answer if I can.

I was nearly the conclusion of my response. We are focused on recovery from the recession that we experienced. I spoke about the vaccination programme and the tribute we should pay to its role in our recovery. However, we still have historically high levels of debt. New fiscal rules will help to ensure that the public finances remain on a sustainable path despite this, a sustainable path that this Bill also helps to chart. It is a Bill that supports our businesses and our economy as we recover from the pandemic. It supports stronger public finances through these exceptional times. It helps to tackle tax avoidance and evasion and contributes to a simpler and more sustainable tax system. For these reasons, I commend it to the House.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time and passed.