Tax Avoidance and Multinational Companies
Chris Philp Excerpts(10 years ago)
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John McDonnell
I am going to press on.
We all supported the changes to public procurement rules that enabled the Government to prevent public contracts from being awarded to companies found to be engaged in tax avoidance schemes. Staggeringly, it is understood that no company has been denied a public contract on those grounds and that, even though its tax affairs were under such lengthy investigation by HMRC, Google was awarded public contracts to supply services—who to?—to HMRC.
Chris Philp (Croydon South) (Con)
On the point about international agreements, the United Kingdom Government have been at the forefront of the base erosion and profit shifting initiative. Richard Murphy, who describes himself as the author of Corbynomics, told the Treasury Committee yesterday that he was “pleased and very surprised” by the progress the Government have made since 2010.
John McDonnell
I support the Government in that action, but this deal flies in the face of that action and undermines the agreements that we are trying to make.
Over the weekend we also heard from Mr Jones, the Google whistleblower. In his view, HMRC ignored his exposure of Google’s tax avoidance methods. That evidence was received by the Treasury Committee on a cross-party basis.
We all accept that the existence of tax havens and the complexity of national tax systems present an ongoing challenge to national Governments. As a result, we have all supported the negotiation of international agreements on tax collection. The UK is a signatory to some of these. As the hon. Member for Croydon South (Chris Philp) said, the Government have agreed in successive steps to abide by the base erosion and profit shifting programme under the auspices of the OECD. We supported that.
Chris Philp
Does the Minister agree that the reason why this announcement is welcome is that we collected £130 million of tax from Google, while Labour collected nothing?
Chris Philp (Croydon South) (Con)
In preparing for this debate, I was keen to see some facts about the Government’s record, so I turned to a study published by the Oxford University Centre for Business Taxation, probably the most academically reputable institution in the area of corporation tax. The report it published in February of last year identifies 42 separate measures that the Government have taken since 2010 to clamp down on corporation tax avoidance and evasion. They are forecast to raise £34 billion. I strongly welcome the measures that the Financial Secretary and his colleagues have taken in this area, which include the diverted profits tax and the general anti-abuse rule. The Government have also increased capital gains tax from 18% to 26%, dealing with a loophole that was being widely exploited by some hedge funds to end up paying rates of tax below that of their cleaners. The Government’s record in this area does bear scrutiny. Indeed, Richard Murphy, who describes himself as the “father of Corbynomics” declared himself pleased and surprised at the progress made in this area since 2010, which includes the BEPS initiative, which the UK Government have been strongly pushing.
I noted with interest that the shadow Chancellor did not repeat a claim he has made in the past about £93 billion of what he has called “corporate welfare”, implying that there is some sort of evasion or avoidance going on. Richard Murphy said yesterday, before the Treasury Committee, that he would question whether that figure was correct, as it includes things such as capital allowances, and research and development tax credits, which of course support companies that are investing in productivity, a topic that we all care about very much.
On Google, I said in an intervention that this Government have collected £130 million of tax more than the last Labour Government, who collected precisely zero. As such, we are talking about a welcome step in the right direction. The 3% tax rate has been mentioned but, as some Conservative Members have pointed out, such an analysis completely ignores the fact that Google’s staff headcount and intellectual property reside disproportionately in the United States. Were we to adopt the approach being suggested, UK companies, particularly those in the music, pharmaceutical and other industries, would suffer greatly.
That is not to say that there is not more that can be done—more can be done. I particularly suggest to the Financial Secretary that we should look carefully at how things such as transfer pricing rules are applied. Two or three years ago, Starbucks successfully levied a 6% brand fee from an offshore jurisdiction into the UK which almost completely extinguished its UK profits. Any brand levy that results in a zero profit is, almost by definition, too high, so I ask him to give guidance to HMRC on that topic, but I support the Government’s initiatives and hope they go further.
HMRC and Google (Settlement)
Chris Philp Excerpts(10 years ago)
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Mr Speaker
Order. This is very unseemly. Let us hear these important exchanges. People beyond this place might be taking an interest in them, and I think that they would like a decorous atmosphere. Let us hear what Mr Philp has to say.
Chris Philp (Croydon South) (Con)
Thank you, Mr Speaker. Is the Financial Secretary to the Treasury familiar with the report from the Oxford University Centre for Business Taxation that was published a short time ago? It itemised 42 anti-tax-avoidance measures that the coalition Government put in place, including the general anti-avoidance provisions, the banking code of conduct and the diverted profit tax, which will raise an additional £34 billion between 2011 and 2020.
Oral Answers to Questions
Chris Philp Excerpts(10 years ago)
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Mr Osborne
As I said, manufacturing makes up a larger sector of the economy than when I became Chancellor, but there is a huge amount more to do to make the UK more competitive, to make our businesses more competitive, and to improve skills for our manufacturers and the like. I have to say, and I suspect the hon. Lady agrees with me, that the idea of banning manufacturers from paying dividends would not be a particularly sensible way forward. Unfortunately, that is now the policy of the Labour party.
Chris Philp (Croydon South) (Con)
Is the Chancellor aware that since he took office in May 2010, the claimant count in my constituency has fallen by 62% and the youth unemployment count has fallen by 67%? Does he agree that reducing corporation tax, increasing the personal allowance and reforming welfare has caused these fantastic figures, and will he confirm that his long-term economic plan will continue?
Mr Osborne
We will absolutely deliver the plan in these more difficult economic conditions. As I say, the IMF has not revised down the UK’s growth forecast even though it has today revised down the global economic forecast. In Croydon and south London, we will continue with important transport infrastructure, and, indeed, do everything we can to back homeowners in my hon. Friend’s constituency—a group of people he particularly champions.
Spending Review and Autumn Statement
Chris Philp Excerpts(10 years, 2 months ago)
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Mr Osborne
My right hon. Friend the Secretary of State for Communities and Local Government will set out details of the local government settlement in due course, and we have taken the opportunity to put floors and ceilings on some of the effects of those changes, relatively to protect certain authorities. Given the area that the hon. Lady represents, I am sure she appreciates that there is a huge amount in this statement to support regional growth and growth in the north of England, and to ensure investment in the transport infrastructure, science and civic power of the north. That will help us to continue what we are seeing at the moment, which is the north growing faster than the south.
Chris Philp (Croydon South) (Con)
I welcome the Chancellor’s proposals to introduce a stamp duty premium for buy-to-let landlords and second-home purchasers—an issue that we discussed prior to this statement. Will he confirm that that will encourage homeownership in our country?
Mr Osborne
I put on record my thanks to my hon. Friend. He came to see me and we discussed what more we could do to level the playing field so that families trying to buy their own home are not disadvantaged when compared with those purchasing buy-to-let properties in places such as Croydon. We discussed what we could do with stamp duty, and he was one of a number of people who discussed clever ideas about how we could help families to buy their own home. I am glad that his thinking has come to fruition in this autumn statement.
Housing and Planning Bill (First sitting)
Chris Philp Excerpts(10 years, 3 months ago)
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Mr Stewart Jackson (Peterborough) (Con)
May I also draw the Committee’s attention to my entry in the Register of Members’ Financial Interests?
Chris Philp (Croydon South) (Con)
May I likewise draw the Committee’s attention to my declarations in the Register of Members’ Financial Interests?
Julian Smith (Skipton and Ripon) (Con)
Likewise, I draw Members’ attention to my entry in the Register of Members’ Financial Interests.
The Chair
Members now need simply to catch my eye and then to ask Mr Blakeway appropriate questions.
Chris Philp
Q 1 Mr Blakeway, could you start by briefly outlining the powers you currently exercise on the London Land Commission and explaining to the Committee whether there are any further powers you might find useful?
Richard Blakeway: As you know, the Bill has great scope. The Mayor is very supportive of the Bill and of measures to increase house building. Among the features of the Bill that we think are very important are some of the measures regarding land. We have sought to establish with the Government a London Land Commission, which seeks to identify and release surplus public sector-owned land. That builds on the work that the Greater London Authority has done as a landowner. We now have something like 99% of our assets under development and delivering about 45,000 homes. We would like to see an amendment to the Bill for a duty to co-operate with the Mayor and the land commission. In addition, we would like an obligation on the part of public bodies to compile a register of assets and maintain it, building on the London-wide register of assets.
Finally, we would like to see the opportunity for the Mayor to acquire sites once they become identified as surplus—a kind of first refusal—where they have some strategic importance. They may sit with one of our initiatives, such as a housing zone, or within an opportunity area. In that way, we would be able to manage a proper disposal and ensure that homes are built at pace.
Chris Philp
Q 2 Do you need any further powers to make sure that other public bodies beyond the GLA—such as Transport for London, the NHS, Network Rail or even the Ministry of Defence—will actually bring forward the sites for disposal? Rather than you simply recommending it, do you need any further powers to—perhaps compel is the wrong word—take over the disposal process?
Richard Blakeway: I think we certainly need the transparency that I talked about and therefore the obligation to compile a register of interests and to co-operate. Having first refusal—the idea that we have the right to acquire an asset before someone else—would obviously mean that we would be paying for that asset at the appropriate value, but we could then lead a coherent procurement. I think it is a really important change.
Chris Philp
Q 3 Finally, are the CPO powers in the Bill adequate for the purposes of the Mayor of London and the GLA for things to go further?
Richard Blakeway: We welcome the Government’s focus on CPO, but we would like them to go further. We would like to see two things. The first is a general CPO power for the GLA around regeneration. At the moment, our CPO powers are separated, depending on which part of the GLA group you look at. The GLA itself has CPO for housing; Transport for London has CPO for transport. We would like that to be interchangeable.
Secondly, we would like to see the ability for us to devolve our CPO powers to members of the GLA family. For example, where we have established mayoral development corporations—something which was enabled through the Localism Act—we would like to see the ability for us to devolve those CPO powers. For example, the Old Oak Common mayoral development corporation could exercise CPO.
Helen Hayes (Dulwich and West Norwood) (Lab)
Q 4 What do you think will be the impact of the starter homes clause on the provision of affordable housing in London?
Richard Blakeway: The GLA welcomes the introduction of starter homes and the Government’s focus on promoting home ownership. A number of things relating to starter homes will be in the regulations. For us to undertake a full assessment of the impact, we will have to see the regulations first. The first important point to make is that starter homes are not a substitute for all affordable housing. They are another affordable housing product. While there will be a quota that has to be delivered on site, we would still expect the London plan policy, which seeks to maximise affordable housing and therefore other affordable housing products, to apply once the quota has been sought.
The second important point is that we already have quite a well-established intermediate market in the capital. In particular, we have a significant number of shared ownership properties coming forward. Since this Mayor was elected, we have helped 52,000 Londoners purchase through intermediate products, predominately shared ownership, and we have a target to help a quarter of a million Londoners over the next decade. It is really important that starter homes complement existing products such as that, rather than substitute for them. The two have to work alongside each other, not least because they will probably target people with different incomes.
Tax Credits
Chris Philp Excerpts(10 years, 3 months ago)
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Seema Malhotra
My hon. Friend is absolutely right. It is not on the basis of one occasion that we are saying that the Government have changed their mind or have not told the truth; they have not told the truth on this measure step by step since it was first introduced in the Budget. They have tried to hide the impact on hard-working families across Britain. My hon. Friend is absolutely right that the £1,300 figure is an average, and many families are set to lose much more.
Chris Philp (Croydon South) (Con)
The hon. Lady will be aware that the Conservative manifesto made it very clear there would be £12 billion of welfare savings, so this was clearly flagged up. Will she explain where, if she opposes the measure, she will find the savings—which other benefit would she cut, or which tax would she raise?
Seema Malhotra
Perhaps the hon. Gentleman needs to talk to the Prime Minister about why he said on “Question Time” during the election that he would not cut tax credits. That is a conversation for him to have with the Prime Minister.
Chris Philp
Does the Minister share my astonishment that despite being asked four or five times, his opposite number failed to say how the Opposition would fund this £4 billion? Does that not demonstrate that Labour cannot be trusted with our public finances?
Damian Hinds
I am afraid I could not put it better than my hon. Friend, and I will not try.
Under these reforms, fully half of families will still be eligible for tax credits, and the total cost will come down only to what it was as recently as 2008. They will focus support on the lowest incomes, while taking those on higher incomes off tax credits altogether.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
I am pleased to have the opportunity to debate tax credits today, particularly in light of the wholly inadequate time we had to debate tax credit changes on 15 September in connection with the statutory instrument. Would it not have been better if the proposed changes were made part of the Finance Bill so that they could have been properly scrutinised and debated and so that many Conservative MPs would not have been made deeply unhappy about what their Government have done?
During the week of the tax credit debate, a damning report from the House of Commons Library was published on the effect on many people of the changes consequential on these proposals. Let me state that the Scottish National party wholly opposes the changes to tax credits, which are nothing less than an attack on low-income families in this country.
The Prime Minister told his party conference that he wants a “war on poverty”. I would tell the Government that actions speak louder than conference rhetoric when cutting tax credits is going to increase poverty, particularly child poverty. The reality is that this is not a war on poverty, it is a war against the poor. All of us came into politics to make a difference. I say to the Government and to all Conservative Members that they should examine their consciences. Do they want to push through these cuts that will damage millions of families, increasing inequality in this country?
Chris Philp
Will the hon. Gentleman confirm that it is now the policy of the SNP to use the new tax-raising powers shortly to be introduced to increase income tax in Scotland in a year or two’s time to increase tax credits in Scotland?
Ian Blackford
I find that extraordinary. We fought in the general election on delivering home rule to Scotland, which meant full fiscal autonomy. Given the damage that the hon. Gentleman and the Conservatives are going to do to hundreds of thousands of families in Scotland, they should give us the power over our economy and over welfare so that we can protect people in Scotland from the damage they are going to do.
We hear that individual Tory MPs have been summoned to speak to the Prime Minister and Chancellor to be straightened out. I appeal to them not to be bought off. They should do the right thing and support today’s motion. This is a Government who cut inheritance tax for those wealthy enough to have £1 million-plus properties and punish those on low incomes. “All in this together”?—well, we can reflect on that line.
Mhairi Black (Paisley and Renfrewshire South) (SNP)
I congratulate the hon. Member for South Cambridgeshire (Heidi Allen) on her honest and, if I may say so, rather courageous maiden speech. It was a pleasure to listen to.
I will begin with a rather strange declaration, which is that I agree with the Conservatives. I, too, believe that “work should pay”. The sad reality is, however, that in Scotland, more than 60% of children in poverty come from families who are in work. We have already heard that the proposed cuts will hit those in work the hardest, with in-work families losing, on average, £1,300 in 2016-17. We have heard, multiple times, how that financial gap will be filled with the introduction of the new so-called national living wage; but it is not a living wage. It falls 65p short of the real living wage, which, outside London, sits at £7.85 per hour. It should therefore be referred to as what it is: a new minimum wage.
If we look across the board at the families, both in and out of work, who will be affected by the cuts, we see that, on average, households will lose roughly £750 as a result of social security cuts, while households that will benefit from the new minimum wage will gain only £200 from it. That means that the new minimum wage will compensate for only 26% of the total losses created by cuts in tax credits.
I know how much the Government like to talk about financial “black holes”, especially when it comes to the SNP, but the reality is that if they proceed with their proposals they will create a financial black hole of £550 for roughly 8.4 million people in this United Kingdom. It is clear from the figures that their policy serves no purpose other than to push more and more people into poverty, and, in particular, to push more children into poverty. In Scotland, more than half a million children are currently in families who rely on tax credits, and 350,000 of those children are from more than 200,000 low-income families who will be hit by these changes.
Chris Philp
I have listened carefully to what the hon. Lady has said so far. Will she answer a question that her colleague the hon. Member for Ross, Skye and Lochaber (Ian Blackford) did not answer earlier? Does she support the decision by the SNP Government in Holyrood to use their new income tax-raising powers, in the next year or so, to increase Scottish income tax and increase tax credits?
Mhairi Black
There are two points to be made in response to that intervention. First, it is worth remembering that 85% of power over welfare remains at Westminster. Tax credit is a reserved issue. Secondly, I think that the use of the income powers highlights a deficiency in the initial argument. If there is a need for the Scottish Government to top up benefits, surely there must have been a fault in the benefits to begin with.
Chris Philp (Croydon South) (Con)
At the heart of this debate lie two different views of how we should combat poverty. The first is that the state should do so exclusively through the welfare system, and the second is that the real way out of poverty is through hard work for proper, honest, decent wages.
I agree with Alistair Darling, the former Chancellor of the Exchequer, who has said that the unintended consequence of tax credits has been to subsidise employers who do not pay their staff enough to live on. I hope that Members on both sides of the House can agree that employers and companies that do not pay their staff a decent wage and enough to live on are behaving in a deplorable and completely unfair way. I welcome the introduction of the living wage, which moves us towards a point where people can live on their wages.
As a corollary and consequence of the introduction of the national living wage, I think that productivity will increase as well, because employers who pay low wages have no incentive to invest in IT and machinery.
The proposal begins to move the balance away from a reliance on tax credits towards a reliance on fair wages. I understand the points that Members on both sides of the House have made about the effect of tax credit reductions on particular individuals, but while many of the analyses we have heard, including those by Unison and the IFS, take into account the national living wage and the tax threshold increase, they do not take into account extra childcare or the removal of the fuel duty escalator, which means it now costs £10 less every time we fill up the tank. Nor do they take into account the 1% reduction in social and council rents or the fact that wages are going up by 3% while inflation is zero.
The living wage will directly affect 3 million people and a further 3 million people on slightly higher wages will benefit from a ripple effect. In fact, 200 companies, including Morrisons and Lidl, have already adopted the national living wage.
Labour Members, particularly the shadow Chief Secretary, have completely failed to answer repeated questions about where the £4 billion would come from if not from this measure. The hon. Member for Feltham and Heston (Seema Malhotra) did not suggest a single idea. The SNP has not taken up the challenge, but it could increase income tax.
Dr Whiteford
I tabled amendments in this House to devolve universal credit, which is exactly where tax credits sit, and they were rejected by the hon. Gentleman and his colleagues.
Chris Philp
In a year or two the Scottish Government will assume powers to vary income tax and it will be entirely at their discretion to raise it to fund tax credits, so we will find out very shortly whether they really plan to use those powers.
I am conscious that time is short, so I shall conclude. The measures shift the engine of prosperity creation away from the state and towards work and pay. I welcome the proposals and will support them this evening.
Finance Bill (Fifth sitting)
Chris Philp Excerpts(10 years, 3 months ago)
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Rob Marris
Sir Roger, I did understand your explanation. As you know, I am new and old—a retread—and I found it very helpful; thank you.
Clauses 40 and 41 are essentially anti-avoidance measures, so hon. Members on the Opposition Benches welcome them. I welcome the fact that there will be no base cost shifting—something that is discussed in the pubs and clubs of Wolverhampton every night of the week; we are very keen on that. However—there is on occasion a “however”—we do not think that clauses 40 and 41 go far enough, because the carried interest is still treated as capital gains. It seems to us that treating carried interest as capital gains is a bad idea and the Government should not permit it. It certainly appears to be a tax loophole—again, not illegal, but immoral—and we think that it should be closed. I have considerable sympathy with the spirit and wording of new clause 2, which was spoken to very eloquently by the hon. Member for Kirkcaldy and Cowdenbeath.
Chris Philp (Croydon South) (Con)
Will the hon. Gentleman join me in welcoming the fact that the current Government have increased the tax rate on these kinds of capital gains from the 18% that it was at under the last Labour Government to 28% today? Would he also like to explain why, during its 13 years in office, the Labour party took no action in this area?
Rob Marris
Looking round the room, I think that one hon. Member, the Minister, will remember that I was not a member of the last Labour Government when I was previously in the House—[Interruption.] I was “supportive” says an hon. Member from a sedentary position; we will get on to that—[Hon. Members: “Ah!”]. The Minister is well aware of this. I am aware that Alistair Darling, when Chancellor of the Exchequer, cut the capital gains tax rate to 18%. I said at the time that I thought that that was wrong and I have to say now that I think that it was wrong. Furthermore, I have to say, bearing in mind the time at which it took place, that it is shocking that I do not recall in the debate on that change any debate about how it would affect positively many right hon. and hon. Members who at that time, within the rules, owned second properties in London, on which they would accrue a capital gain, and on that capital gain, they would pay a lower rate of 18%. The hon. Member for Croydon South is absolutely right to say that it was the wrong thing to do. Putting it up to 28% is a step in the right direction, but on these measures and these activities of investment fund managers, they should pay income tax on what most people, including me, would regard as income.
As I have said, I have considerable sympathy with new clause 2. I shall listen with great interest when the Minister speaks at greater length about the new clause—he said he would and it would be helpful. Having heard his side, I and my hon. Friends will make up our own minds. We are not only swayed by the arguments for equity, equality and justice; we also bear in mind, as the hon. Member for Kirkcaldy and Cowdenbeath mentioned in speaking to new clause 2, the OECD’s recommendation that such incomes should be treated as incomes and be subject to income tax, not treated as capital gain and subject to capital gain tax. To those of us who are not taxation experts, it appears that calling it a chargeable gain is a manoeuvre to lessen the tax paid by those who benefit from that form of remuneration.
Mr Gauke
I will respond to the remarks, not necessarily at length. The comments from the hon. Members for Kirkcaldy and Cowdenbeath and for Wolverhampton South West were pithy.
I shall deal straight away with the question of carried interest. Carried interest is a reward for a manager that is linked to the long-term performance and growth of the funds they manage. It is therefore capital in nature and should continue to be charged against capital gains tax. That has been the approach followed by Governments of both major parties for many years, and it is consistent with what happens in many other jurisdictions.
My hon. Friend the Member for Croydon South was right to say that capital gains tax was 18% when the Labour Government left office. If I remember correctly, it was possible for private equity managers to benefit from taper relief, so there was often an effective rate of 10% for many years under the Labour Government. There at least seems to be a consensus in the Committee that that was not the right approach. We believe we were right to take steps to change the capital gains tax rate, as we did at the beginning of the previous Parliament, but I would still argue that, as is the case in many jurisdictions, it is perfectly reasonable to treat carried interest as essentially a capital gain issue rather than an income issue. Of course, if any part of a manager’s rewards payments are properly regarded as income rather than capital, they should be charged to income tax. That is what drives the Government’s approach. We have launched a consultation to ensure that rewards that should be charged to income tax are always taxed in that way.
I will just pick up a couple of points made by the hon. Member for Kirkcaldy and Cowdenbeath. He is correct that national insurance is not chargeable on capital gains; it is payable only on earned income. However, it is not the case that entrepreneur’s relief can be accessed by investment managers, as the activity of the underlying fund is investing, not trading. Entrepreneur’s relief therefore does not apply in those circumstances.
If I were so inclined, I could quote extensive comments from the likes of Ed Balls, when he was a Treasury Minister, in support of the capital gains treatment of carried interest, and that was a period when the gap between income tax and capital gains tax was much greater, but I will spare the Committee that this morning. I am not sure that Ed Balls is a particular hero of the hon. Member for Wolverhampton South West, but our approach on carried interest is consistent with that of other countries and previous Governments.
We are determined to ensure that the rate at which private equity managers pay tax is never lower than their cleaners pay. That was the case under previous Governments, but it is not the case any more. Nor is it acceptable that what should be charged as income is in fact charged as capital gains. The Government have taken action on those points. I hope that provides reassurance to the Committee and I urge the hon. Member for Kirkcaldy and Cowdenbeath not to press new clause 2.
Chris Philp
May I add a further consideration? Given that, as the Minister said, most other countries treat carried interest as capital gain, if we adopted new clause 2 and started taxing it as income, there would be a significant risk that the population of fund managers in London would simply relocate elsewhere and the UK Exchequer would end up receiving less cash instead of more, thus increasing the tax burden on the rest of us.
Mr Gauke
My hon. Friend makes a good and important point. In thinking through the impact of the policy advocated by some Opposition Members, we need to understand the international implications and the implications for the UK’s competitiveness. Clearly, any assessment of the revenue effects would have to take account of what are likely to be significant behavioural responses. Claims of large revenue sums may be based on a static analysis, without an understanding that there is also a competitiveness point.
Charter for Budget Responsibility
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John McDonnell
No. This is a limited debate, so I need to press on.
Over the last five years, the focus of the economic debate on the deficit has reflected the capture of the economic narrative by the right since the crisis in 2008. Over six years, the Conservatives have managed to convince many people that the economic crisis and the deficit were caused by Labour Government spending. It has been one of the most successful exercises in mass public persuasion and the rewriting of history in recent times. Today I am going to correct the record.
The facts speak for themselves. The Conservatives backed every single penny of Labour’s spending until Northern Rock crashed. The average level of spending under Labour was less than it was under Mrs Thatcher. It was not the teachers, the nurses, the doctors and the police officers whom Labour recruited who caused the economic crisis; it was the recklessness of the bankers speculating in the City, and the failure of successive Governments to ensure effective regulation. In opposition, this Chancellor and his colleagues wanted even less regulation of the banking sector that crashed our economy. The deficit was not the cause of the economic crisis, but the result of the economic crisis.
Finance Bill (Second sitting)
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Chris Philp (Croydon South) (Con)
I suggest to the hon. Lady that businesses have been generous in passing on the fruits of their expansion and profitability, as evidenced by this week’s figures showing that wage growth is at a record recent level.
Barbara Keeley
I do not see how that follows the flow of what I am talking about, but if I find a place to give a reply, I will do so.
In 2014-15, corporation tax made up 7% of the total tax take in the UK. We need to be clear that cutting corporation tax amounts to a transfer to the largest businesses that disproportionately benefits them. We are concerned that a more effective policy measure, such as the one suggested at the election, could have been used to help all businesses, rather than just the largest companies. We question the reasoning behind the Government’s policy decision. It appears that corporation tax has been used because it is relatively easy to alter. I am sure the Government recognise that a substantial amount of money is going to businesses. Will the Minister outline how the Government intend to pay for the rate cut, which in 2020-21 will cost £2.5 billion? We have not seen a breakdown of exactly how that will be paid.
We have heard the point about firms being attracted to this country due to our tax regime. KPMG’s December 2014 survey of tax competitiveness revealed that only 8% of respondents saw favourable tax policies as the factor with the most impact on our recovery. Only 18% saw tax as having a high influence on where companies base themselves. That contradicts the point that the Minister just made. We believe that the focus of support for small and medium-sized businesses should be a priority and that policies to encourage businesses would have been better targeted elsewhere than this tax rate change.
Many small and medium businesses will have been disappointed that the Chancellor failed to mention business rates in his Budget speech. During the general election campaign, we outlined proposals to cut and then freeze business rates, so that smaller firms could have the support needed to invest, innovate and raise productivity. That would have helped more than 1.5 million small business properties. Small and medium-sized businesses are concerned about the pressures on business rates. Every time I visit such businesses in my constituency, that is almost the first thing they raise. Labour, along with small and medium-sized businesses up and down the country, will be waiting to see whether the Government will take action to reduce the business rates burden. There are reports that the valuation office now has to deal with 500 appeals a day. Will the Government give small and medium-sized businesses a gesture of support by providing them with an interim report on their business rates review?
Rates reform continually tops many small retailers’ and business groups’ lists of areas that need real reform, but the tax, over which there is a backlog of more than 250,000 complaints, failed to get a mention in the Chancellor’s speech. That caused a lot of disappointment. The British Retail Consortium has warned that the level of business rates could cause 80,000 shops to close by 2017, and business groups including the Confederation of British Industry say that the antiquated system of business rates is a major barrier to investment.
Let me return briefly to the point about the 80,000 shops. Very many MPs, including me, have in our constituencies the situation of empty shops on high streets and we all want to do something about that, but here is the big problem. John Allan, chairman of the Federation of Small Businesses, urged the Government to take action. He said:
“Bringing forward reforms to business rates is an immediate priority.”
We urge the Minister and the Chancellor to ensure that the ongoing review of business rates does not result in small businesses paying disproportionately more. We call for greater attention to be given to business rates as a means to support small businesses.
It is quite common in these debates to hear questions backwards and forwards about the different priorities. During the general election campaign, Labour set out further ways to support small businesses, including elements that are often talked about here in debates. One was the tackling of late payments with a new requirement on larger businesses to set out the extent of late payment that they have been responsible for and the action that they have taken to compensate suppliers. We would have given business organisations, such as the Federation of Small Businesses, the right to take cases on behalf of their members, because they believe that that is very important.
We wanted to strive to reduce unnecessary regulation in the small business arena by establishing a small business administration, which the FSB has called for, to co-ordinate work across the Government to benefit smaller businesses and cut unnecessary regulation as it affects them. Our small business administration would have been given a remit to ensure that regulations or requirements on small business were proportionate and appropriate and avoided unnecessary burdens or compliance costs. They want to see regulation designed from the perspective of the smaller firm and they feel that it is not.
There is a need to deliver a longer-term road map for capital allowances and incentives for research and innovation such as the research and development tax credit, and not just for the headline rate of corporation tax. There is also a need to improve support for entrepreneurs and small and medium-sized enterprises that want to grow rapidly.
We understand that the Government have started to take steps to address the issue of late payments and that a consultation on the proposed role of small business commissioner was undertaken. As we are talking about the different scale of businesses, may I ask whether Ministers can provide us with an update on the new role, because that consultation ended on 21 August?
What other action are the Government taking to offer the support needed for small and medium-sized businesses? Feedback from a cross-section of businesses, ranging from start-ups to FTSE 100 companies, that was gathered by PricewaterhouseCoopers stated a number of key messages about their view on how the UK tax system should be shaped in the future. They included the following. The UK needs to be clearer on tax; that is the issue of the road map to instil confidence. A longer-term approach to tax needs to be taken. We will talk about that later in terms of how some taxes and allowances have changed. Businesses feel that the tax system should be more focused. It is too complex, with many different reliefs and exemptions; reliefs should be better targeted at specific purposes. Also—I have already made this point—national insurance contributions should be aligned with income tax. That was the view of those businesses.
Labour wants certainty for businesses looking to invest.
George Kerevan (East Lothian) (SNP)
We will not challenge the main substance of clause 7, but it has unintended consequences that reflect on later clauses that we will try to amend; I want to bring those up, and will ask the Minister to reflect on them and perhaps discuss them with the Chancellor.
The clause pre-announces the cut to the main rate five years in advance. Ordinarily, I would think that was quite a good thing to do, because it maximises revenue streams and still gets us the maximum impact of the incentive. That worked very well in Sweden, so we should congratulate the Minister on that principle. The first problem that emerges is that significant evidence shows that large amounts of corporate surpluses are staying in the bank or are being used for share buy-backs. There has been no great evidence over the past few years to show that cuts to corporation tax are leading directly to reinvestment in manufacturing plant and productive infrastructure. In fact, corporate balances have been going up significantly in the UK and, for the same reason, the United States.
My practical worry is that if we continue, over these five years, to cut corporation tax, that may incentivise profit-making in business, but the profits will not be reinvested into raising productivity in the British economy. That link has to be looked at. The issue could be dealt with by adding extra incentives for investment, so that the corporate surpluses are recycled. One of my criticisms of the Bill overall is that those incentives do not exist. I ask the Minister to look at that.
Chris Philp
Does the hon. Gentleman agree that if we put in place the incentives that he describes, we would add complication to an already very complicated tax code? On his point about reinvestment, if corporate profits are dividended back to shareholders, it is likely that those shareholders will reinvest them elsewhere. If the profits are deposited in banks, my basic Maynard Keynes reading suggests that the banks will lend the money to other people. The money will find its way back into the economy, but via different routes.
George Kerevan
Both are fair points, but the recycling is largely going into property. Every crane that we count around this building is the result of that. We have offset productive investment into an overheated property market, which is hardly what we want to do to raise productivity.
On the hon. Gentleman’s first point about how we craft incentives so that they do not become over-complicated and lead to further tax loopholes, that is an historical problem. This is a question of the here and now. I am sure that the Chancellor and the Government can come up with some good ideas on that.
I raised the issue with the Treasury Committee and the Monetary Policy Committee yesterday, because I am concerned that the Government are adding to the burden by attempting to run a permanent budget surplus—to generate surpluses that do not go into the productive economy. The representatives of the Monetary Policy Committee committed themselves to an answer that they may rue and that the Government should go away and think about. The committee was pressed on the point that if the Government run a permanent budget surplus, it must have an impact on the rest of the national income accounts. If we run a budget surplus, we are saving; we are taxing people to save. Where do the savings go? The best that the committee could do was say that there would be a further rundown of corporate balance sheets—in other words, money would flow out of the corporate sector—and that money might start flowing abroad, so we would end up investing abroad.
Chris Philp
We have a £1.5 trillion national debt, and I would respectfully suggest that surpluses would begin, in a very small way, to pay it down.
Finance Bill (First sitting)
Chris Philp Excerpts(10 years, 4 months ago)
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Barbara Keeley
I think comments that somebody made when they were a Back-Bench MP are different. Once somebody has taken on a role, either in opposition or in government, what they say carries a certain weight. There is a freedom to the Back Benches that I and others here have experienced. Many Members of the Conservative party say things that their Front-Bench team would not agree with. That is my distinction, and I am sticking to it.
It appears that the Chancellor had a change of heart, and now feels the need to pass a law to convince people that he has the political will to implement his own Budget. During the debate on the National Insurance Contributions (Rate Ceilings) Bill earlier this week we discussed the view that measures such as this are in fact gimmicks. We questioned why Ministers feel the need for this additional legislation when the promises that the Prime Minister and the Conservative party made during the election should be good enough. To people outside Westminster, it could appear that Treasury Ministers have lost confidence in their ability to stick to their resolutions, or perhaps they fear that everyone else has lost confidence in their ability to keep their word. The Minister may want to tell us which he thinks it is.
Although Labour supports the pledge to make no increase to VAT, income tax and national insurance contributions during this Parliament, I still question whether introducing legislation to ensure those locks is the best course of action. Rather than gimmicks, we need long-term tax reform and sensible policies to ensure that the taxpayer gets a good deal.
We have some concerns about the durability of the income tax lock in clause 1. As it stands, it appears that rates could be raised by repealing the Bill in a future Budget. Can the Minister assure the Committee that it is not simply a gimmick? Will he outline how he intends to show that the lock will remain in place? In our deliberations, we should consider the impact of that tax change and the other changes to the tax system announced in the Budget. As many tax experts have pointed out, only then will we be able to see the real impact of Government measures on particular groups of people.
In Committee of the whole House, I raised the issue of the insurance premium tax. Although the clause protects workers against an income tax rate rise, I note that they will not be protected from the other tax increases in the Bill.
Chris Philp (Croydon South) (Con)
I look forward to serving under your chairmanship, Sir Roger; I hope to profit from your experience. I want to challenge the hon. Lady’s assertion that the tax lock is a gimmick. Is it not in the same spirit as the legislation that ensures that 0.7% of GDP is spent on international aid each year? That measure is ensuring, as we speak, that refugees from Syria are being rescued from terrible circumstances. Is this not in a similar spirit?
Barbara Keeley
I do not think it is. In fact, if it is seen in the same way, someone needs to have a word with the Prime Minister. He constantly refers to the 0.7% commitment as a matter of huge pride and has quoted it a great deal in our debates about the refugee crisis over the past week or two. The difference with financial matters—this is probably why the current Chancellor was so critical of things in 2009—is that there are many opportunities to legislate. This is the third Finance Bill this year, so things could change. The 0.7% international aid commitment was a very long-term commitment. It came up a great deal in international discussions and still does, so there is a difference.
I was talking about the insurance premium tax and the fact that people are not protected from those sorts of tax increase. Paul Johnson, director of the Institute for Fiscal Studies, has said:
“The tax and welfare changes between them mean that poorer households have lost quite significantly and as a result of yesterday’s Budget, much more significantly than anything that has happened to richer households.”
He also said:
“Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.”
Let us bear in mind that many of the households that benefit from this tax lock have been adversely impacted by other tax changes. In fact, the summer Budget did not cut the overall tax bill; it raised it.
Barbara Keeley
Absolutely so. A great deal is said at the moment about working people, working families and who supports them. Paul Johnson, director of the IFS, has said:
“Significant allowances were an integral part of the design of universal credit, intended to give claimants an incentive to move into work.”
That is an important point. On tax credit cuts, he adds:
“This reform will cost about 3 million families an average of £1,000 a year each. It will reduce the incentive for the first earner in the family to enter work.”
Chris Philp
Could the hon. Lady confirm whether it is the Labour party’s intention to reverse the tax credit proposals put forward earlier this week?
Barbara Keeley
We had the same question the other day. It is not helpful for us to keep repeating things.
As we saw during the election campaign, we have a different mix of changes that we want to introduce and different ways of moving the economy forward, and that will always be the case. I am sure we would not have made the cuts to tax credits. We introduced tax credits to help working people. We believe in them, because they help to bring children out of poverty. We would never have made such savage cuts. We believe that it is necessary to tackle the root causes of welfare spending—low pay and high housing costs—to bring down Government spending sustainably. Those things are not being tackled; rather, the infrastructure that supports families in work is being taken away. The Institute for Fiscal Studies confirmed that the introduction of tax credits played an extremely powerful part in the improvement in child poverty figures, and that is what is at risk.