Finance Bill

Debate between Chris Evans and Richard Fuller

Tuesday 1st July 2014 Commons Chamber

[Chris Evans]

My hon. Friend advances the argument eloquently. We debate these issues and talk about employment rights, but if someone is in a poor workplace, is struggling to pay the rent or the mortgage and the bills, and faces a severe threat that they might lose their job, they might be forced into doing this. In many non-unionised businesses there will be nobody to police this, so those people might be forced into it. She powerfully made the point about how women, in particular, are in that type of situation.

I should have made my next point before the hon. Member for Eastbourne (Stephen Lloyd) intervened on me, but I will do so now. Paul Callaghan, partner in the employment team at Taylor Wessing, has said:

“Osborne is potentially forcing all new employees to waive the main employment rights including unfair dismissal and redundancy rights in exchange for £2,000 of shares. This makes Adrian Beecroft’s fire at will proposals look moderate.

From April it may become the norm for job offers to require this waiver which will also involve the loss of flexible working rights and stricter maternity rights. This is likely to have a disproportionate effect on women.”

Henry Stewart, founder and chief executive of the training company Happy Ltd, has said:

“I welcome anything which makes it cheaper and simpler to give employees shares, but coupling it with taking away employment rights is ridiculous. If as an employer you have a problem with unfair dismissals, you need to improve management—that’s what the government should be giving incentives for. I don't think it's been thought through.”

In a nutshell that sums up what I think of this proposal. Bad employers who are afraid of unfair dismissal cases, reprisals, recrimination and grievances from employees should think about how they are managing their staff and look hard at their human resources department.

Corey Rosen, founder of the National Centre for Employee Ownership, one of the world’s leading groups promoting share ownership, has said:

“There is a lot of employee ownership in our country, but not one of these employees and not one of these plans asks employees to give up any employment rights to get any of the various tax benefits associated with employee ownership.”

That is a voice from the United States, not somewhere known for being particularly friendly to those in trade unions or on employment rights.

Simon Caulkin, writer on management and business, has said:

“In effect, Osborne's cobbled-together scheme is a back-door re-run of the agenda of…Beecroft”.

Rebecca Briam, partner at Gannons Solicitors, said:

“It is unlikely to get off the ground.”

With only five businesses out of 200 wanting to take up the scheme, I think she is right. She goes on to say:

“The proposals will be unpopular with employees because the chances of benefitting are so slim.”

She said that it was

“unpopular with employers, especially privately controlled companies, because of the risks imposed to the share structure. Far from saving on payroll expenses, the total costs for an employer may well increase.”

Manufacturers’ organisation EEF said:

“Our members have indicated they would not implement the new status.”

The Federation of Small Businesses said:

“The scheme is unlikely to be appropriate for many small businesses.”

The Chartered Institute of Personnel and Development said:

“There is very little evidence as to why this policy is needed or what impact it will have.”

Such views support the new clause that is before us.

Earlier, I talked about the vehicles that are created for the purpose of tax avoidance. Matthew Findley, partner at law firm Pinsent Masons, addressed that matter quite eloquently. He noted that the income tax positions of those receiving the shares is still unclear:

“There is nothing in what the Government has said so far that would stop senior executives or substantial shareholders from participating in the arrangement. This may mean that an opportunity still exists for such individuals, even if they may be viewed by some as the ‘wrong’ people politically to benefit.”

Paul Johnson from the Institute for Fiscal Studies talked about the potential for tax avoidance as the scheme

“prepares to put another billion pound lollipop on the table.”

He says:

“Just as Government Ministers are falling over themselves to condemn such behaviour, that same Government is trumpeting a new tax policy which looks like it will foster a whole new avoidance industry.”

An avoidance industry is something of which a Government who want to create jobs cannot be proud.

I support new clause 11. As there has been such a low take-up of the scheme—only five in 200 companies have said that they would consider it—a report needs to be produced. Numerous commentators from the business community have expressed the fear that a new tax avoidance scheme is being set up, which suggests that this is a pertinent and sensible new clause, and I urge the Government to accept it.

[Richard Fuller]

I am pleased to follow the hon. Member for Islwyn (Chris Evans), who spoke with great authority, drawing as he did on his experiences as a trade union official before he was a Member of Parliament. I will, if I may, draw on some of my own experiences of working with small businesses. In that regard, I draw Members’ attention to my entry in the Register of Members’ Interests.

I apologise to the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) for missing the beginning of her comments. I thought that she spoke persuasively and eloquently about some of the issues and about the policy that the Government have introduced. She had me persuaded all the way, until she referred to the spare room subsidy as a tax. It is just not a tax, and it is such a shame when bad slogans happen to good people because all the persuasion power of their speeches is lost. The rest of her speech raised some important points.

We should put the new clause into context. The Government have an extraordinary long-term economic plan that is delivering improvements to the economic lives of my constituents in Bedford and Kempston. It impacts on their ability to find work and get into work. It also raises their average weekly earnings, which is a major concern for many people. It is good to see the plan starting to bear fruit.

Perhaps now is not a good time for an ordinary Tory Back-Bench Member to criticise the Government, but if my hon. Friend the Minister will forgive me, I will do so. We are looking here at a policy in search of a problem; we are not really looking at something that will have a dramatic impact on the well-being of our businesses or our employees. I am open to being persuaded by the Minister. He usually persuades me and I am sure that he will do so today, but perhaps I could go through some of my experiences from when I was in business relating to two parts of our debate.

On the one hand, we have employee and workers’ rights and, on the other, we have employee shareholdings. The approach seems to be to conflate those two issues into one policy and I am not sure whether that will ultimately prove to be wise. In my experience as an employer, although employees’ issues in employment sometimes concerned the extent of employee rights, red tape and regulation often led to far more concerns about the impact of government on the business. In addition, the problem was not necessarily the rights per se but the complexity of the regulations. For a small business, just understanding the regulations to comply with them causes problems. I am not sure that the problem was specifically the rights that were given to employees. Is the objective in this case to reduce the complexity of regulation for businesses through the use of the combination of employee shareholdings, or is there some other objective?

The hon. Member for Islwyn mentioned some of the issues when companies give shares to employees. For a large part of my life, I have worked with technology businesses and the provision of shares was a norm for business. It was a way in which many companies could afford to start, to grow and to prosper. In those circumstances, people were given shares not because of their employee rights but as an incentive either to reward effort or to encourage effort to promote the success of the company. It was also a matter of the trade-off of rewards. Many small companies did not want to use the cash they got from investors to pay high or market rates to their employees and wished to defer that by providing people with the opportunity to have shares to share in the ultimate long-term success of the business. That is a tremendously powerful model for many sectors, not just the technology sector but other sectors of our economy, in that people are willing to trade off immediate returns for long-term rewards.

When we consider other ways to think about compensation, which will, I think, be a growing issue over the next five years, we must consider how to encourage people to defer some of their compensation until later in their lives. I can understand how the promotion of employee shareholding helps with short and long-term rewards, but my concern is that combining that with employee rights means that clarity might be lost. Rather than being given a positive impression about why we are encouraging employees to become shareholders, people will instead ask whether there is a catch. It should be absolutely clear that there is no catch when people are being offered shares. This is clearly an issue of deferring compensation from period x to period y.

I am concerned that, as I have said, this is perhaps a policy in search of a problem. As with so much that Government do, we will see unintended consequences. If the new clause is targeted at small businesses, we must remember that the Government have other options at their disposal. Just a week or two ago, the Centre for Policy Studies produced some very positive policies about abolishing corporation tax for very small businesses and abolishing capital gains tax for investors. To my mind, that would have more of an impact on encouraging more entrepreneurial businesses. We have recently seen news about the merger of national insurance and income tax, which would alleviate some of the burdens and complexity for business in managing employees.

Finance Bill

Debate between Chris Evans and Richard Fuller

Monday 1st July 2013 Commons Chamber

[Chris Evans]

The tool that the previous Tory Government used, which this Tory Government are using as well, was value added tax. Indirect taxation has always gone up under a Tory Government. Value added tax went up from 12% to 15%, and then to 17.5%. It is now 20%. This Government have also given a tax cut to the highest earners in society. The problem with indirect taxation is that everybody has to pay it. That is why the tax take always goes up. Such taxation is regressive. It does not matter what people are earning; everybody has to pay it. People who are very rich and have means do not have to worry about it, but those who are struggling at the bottom, such as those who are struggling to get by on the state pension, have to pay it, whatever the rate is.

[Richard Fuller]

I am very interested in what the hon. Gentleman is saying. Would he therefore approve of a permanent reduction in VAT, compensated for by an increase in income tax?

[Chris Evans]

As I was saying, there is a problem with trying to impose a scientific discipline on something that has nothing to do with science. I do not believe in that kind of economics. We have to take stock of the situation that we find ourselves in. That might have been a way forward in the ’90s, given the economic situation that was faced then. However, we do not know what we should do until we are faced with the economic situation.

[Richard Fuller]

It is almost impossible to have a debate when Opposition Members talk about the past but when questioned about what they would do just say, “We don’t know. We have no idea.” Presumably the hon. Gentleman will at least accept that if he is proposing a reduction in value added tax, given the state of the public finances, a future Labour Government would have to increase income tax. He must also accept that the yield on income tax comes from middle-earning people up and down the country. That is what a future Labour Government would do.

[Chris Evans]

The hon. Gentleman is not listening to what I am saying, if I may be so bold. I did not make any commitment to reducing VAT. I was harking back to the economic theory of the Laffer curve and supply-side economics, under which indirect taxation is used to cut taxes for those at the very top. When the top rate of tax is cut for people at the top, they have mobility and can spend the money in different countries. We have heard that already. That applies to footballers as well. However, when the tax rate is cut for middle earners, they tend to spend the money on the high street and stimulate the economy in that way.

I do not want anybody in this House to think that I have a problem with millionaires. Like the hon. Member for Gainsborough, I have a lot of friends who want to be millionaires. There is nothing wrong with aspiring to be something better. That is what the Labour party is about. I am sorry to hark back to his speech so much, but the hon. Member for Gainsborough said that that is what we understood in the mid-’90s. Human beings aspire to something better. There is nothing wrong with wanting to be a millionaire. My point is that if we could find the money to give a 5p tax cut to higher earners, why could we not do that for middle income earners? A 1p tax cut for people under the top rate of tax would have done more to stimulate the economy than a 5p tax cut for higher earners, because they will spend the money elsewhere.

I also sense that this is a moral argument. Whatever I believe about cutting tax for the very richest in society, a lot of the people I talked to when the top rate of tax was cut were very angry, especially constituents of mine. They said to me that it is the people who are riding in limousines who are getting the tax cut, not the ones who are driving white vans and keeping this country working. Those are the people who are feeling the pain. We should look at the level of anger.

If we look at a breakdown of the figures, taking into account all the changes to tax, tax credits and benefits that have been introduced since 2010, we see that households in the UK will be an average of £891 worse off this year, or £17 a week. A one-earner couple with children will be a staggering £3,995.65 worse off this year. For a multi-family household with children, it will be £1,723.88. It is all very well quoting statistics—I do it all the time, and everybody is guilty of it—but I am sure that every family affected aspire to something better for their children. Yet the message they are getting from the Government is that they should be worse off.

--- Later in debate ---

[Chris Evans]

I thank my hon. Friend for that wise intervention. Welfare reform is a warm and nice thing to say, especially for those of a right-wing bent who want to take out the scroungers and make them pay. But when benefits start to be cut and people are kicked out of their houses, it is a serious concern—I do not want to be melodramatic—that we could see the return of the workhouse.

In constituencies such as mine and those of my hon. Friends, I am fearful that we will see homelessness on a wide scale. The Government may have thought it was a good idea at the time to cap benefits and introduce the bedroom tax, but when we have a huge homeless population and emergency schemes need to be introduced to sort that out, I am afraid that it will be the taxpayer who picks up the bill.

Does the squeeze on benefits motivate anybody to go to work? If someone has arrears or debt and is seeing more of their pay go down the drain, why would they go to work? The Government should be motivating people to go to work; they should be tackling worklessness. Instead of cutting welfare, they should be stepping in to stimulate people to go to work, and talking to those people individually.

We talk about economics all the time, but it is not a scientific discipline—it is about people and how they react to certain circumstances. If I found myself out of work, my needs would be different from those of someone with a lower educational attainment or problems with reading and writing. However, we should be able to say to that person, “What is stopping you going to work? What are the barriers?” What can we provide to get people into work? Yes, that will cost money up front, but in the long term the country will win because of it.

Let me return to my point about putting a finger in the air and wondering which way the wind will blow. It has been estimated that 267,000 people who earn more than £150,000—including 13,000 people who earn more than £1 million—will receive an average tax cut of £100,000, according to figures from HMRC. In contrast, child benefit will be frozen for a third year, and tax credits and other working-age benefits will increase by just 1%, and these real-terms cuts will affect a shocking 9.7 million households. Can we understand that? My constituency has 56,000 electors, but 9.7 million households will be affected by this measure and each person will have an individual story and will have struggled.

The figure of 9.7 million in relation to benefits might conjure up an image of worklessness, but 7.3 million of those households—75% of all households claiming benefits—are in work. That is the crux of the problem we face. We talk about welfare reform and so-called scroungers, but the people suffering most are those we are trying to encourage—those who work hard and play by the rules but who are locked in an economic theory that has clearly failed. Some 2.4 million families will pay on average £138 more in council tax in 2013 as a result of cuts to council tax benefit. That is the ultimate failure of Government—six in 10 working people are claiming benefits. For all the talk of work paying, for many people work is not paying.

Let me return to what I said about the new clause. We need a report. I sat on the Finance Bill Committee with the Minister—I feel sorry for him, as I would for anybody who sat through that. Every day he felt as if he was batting off different reviews. However, this is such an important issue, and the coalition Government have made it such a cornerstone policy, that it needs to be reviewed. We have heard so much about it being wonderful, but we must test the theory: is it stimulating the economy, bringing money through and making work pay? We will not know unless we have a review. That is why it is so important.

I hope the Minister listens. I have a lot of time for him. As I have said, I was in Committee with him: he is sensible and takes a rational view of these matters—[Interruption.] That is the problem—we judge a man by his friends. This is such a cornerstone policy that I hope the Minister will give us some prospect of monitoring it.

I do not want to go into the history of the 1980s and tax cuts again, because I have touched on it already. But I am deeply concerned that we again face a Government who believe in an economic theory that ultimately failed the country. It was not just that we lost heavy industry in the valleys: I think of all the people in the 1980s who were motivated by the dream of starting a business or buying their own homes. By the end, their businesses went bust or they were forced into rented accommodation because they could no longer afford the mortgage. For all that Government’s lauding of their control of inflation, it was through the roof and interest rates hit 15%. We have heard recently from the Governor of the Bank of England that interest rates will go up next year, and I am deeply concerned that this Government will blindly follow the theory of supply-side economics, of Karl Popper and of leaving everything to the market.

Governments have responsibilities. They have a responsibility to create the environment for businesses to flourish and for people to achieve their dreams. I came into politics because I wanted people to aspire to something better, but the Government are giving the very rich a tax cut and everybody else is losing out—660,000 people will lose an average £728 a year under the bedroom tax. Why are the people at the bottom—the people we should be helping—feeling the pain?

I have said before many times that I do not want to knock the bankers. I worked in banking myself and I know how difficult the industry is. I have met my fair share of bankers and they are not all bad, and banking is the cornerstone of this economy, so I always tread carefully when we talk about bankers, but any industry has people who are guilty of criminal activity. In this case, the guilty have not been punished for their criminal activity. It is the Government’s failure that has allowed people to walk away.

[Richard Fuller]

The hon. Gentleman may be right about that, but the acts that he is complaining about happened under the last Labour Government, and it is the laxity of their regulation that means that people are not facing criminal prosecutions now.

[Chris Evans]

When Conservative Members were talking about the Laffer curve, Ronald Reagan came to mind. For some reason, when the hon. Gentleman stood up, Ronald Reagan came to mind again, as I recalled him saying to Jimmy Carter in the 1980 election campaign, “There you go again.” The person sitting tonight at their kitchen table, worrying about paying the rent, the mortgage, the gas bill or the electric bill, and watching this debate—although given the time they will probably be watching “Pointless”—[Interruption.] I walked into that one. They might be watching ITV instead—