Finance Bill

Lord Leigh of Hurley Excerpts

2nd reading & Committee negatived & 3rd reading
Tuesday 8th June 2021 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I join the congratulations to my noble friend Lord Bridges—under the excellent mentoring of my noble friend Lord Forsyth—and his committee on the report, which is most welcome. Of course, I first refer your Lordships to my register of interests.

This is an important debate, as the Finance Bill and the powers of HMRC affect us all. I am therefore somewhat surprised to see how few Peers have put their name down for this debate. While I am delighted to see so many here physically—I think all but one are speaking in the Chamber—I am perplexed by why so few are speaking on this matter today. Of course, we do not have the power to amend the Bill, but this sort of Second Reading is exactly the place where we can interrogate government and, I hope, come up with some ideas which would be of assistance based on our expertise and experience. It also does not help those who argue for a smaller House if we cannot attract a strong number for such an important debate, and it means that people with knowledge and awareness of finance, tax and business should be recruited into the House. The Government do listen to these debates and to Peers’ comments on taxation, as I will elaborate later.

I start my comments on the Bill by congratulating my noble friend the Minister and his colleagues on the 132 clauses originally tabled, as physically displayed by my noble friend Lord Forsyth. They address so much that affects our daily life, from the rates of tax payable to capital incentives—which I believe will encourage greater investment in industrial plants and machinery—some nudging behaviour away from plastic packaging, and even encouraging cycling to work, with cycle equipment being written off. There really is much in here to be commended. I thought I would focus most of my remarks on what is not in the Bill, sometimes with good reason, and some matters which might be considered for future Budgets.

The first, which is not in the Bill, is an increase in the capital gains tax rate. Before the Budget there was a somewhat rogue report from the aforementioned Office of Tax Simplification. It is normally a sensible office producing sensible ideas, but on this occasion it proposed that it would be simpler to equalise income tax and capital gains tax—a somewhat unsophisticated thought, as it does not allow for the essential difference between income or salary and capital gain, which is a return on risk taken. Fortunately, after somewhat of a campaign—in which I confess I played a part—the Chancellor agreed that CGT rates should stay as they are. This Finance Bill does not change them, which is an eminently sensible and pragmatic decision.

My first question to my noble friend is, given all this wasted noise, effort and focus against raising CGT and that the Chancellor has clearly researched the subject and reached a conclusion, can we avoid all this palaver at every future Budget of this Government by announcing that the rate will stay fixed, as has been done for other taxes in the Conservative Party manifesto? This will provide much greater certainty to entrepreneurs, investors and businesspeople for the next few years. The cynic might argue that the Chancellor likes the uncertainty as it encourages people to realise assets when they would not otherwise do so, and thus send money to the Exchequer ahead of the anticipated date. However, we all know on this side of the House that the Chancellor is not that type of politician and is instead focused on making life easier and more predictable for taxpayers. By the way, the retention of the current rates proves my earlier point that the Government listen to people in this House and elsewhere and consider their arguments carefully.

In the debate on the Motion to Take Note of the Budget Statement in this Chamber, I asked my noble friend the following:

“I would be grateful if the Minister could tell us to what extent this Budget complies with pillar 1, and in particular pillar 2. What steps will HM Treasury be taking to ensure that we fully comply with pillar 2?”—[Official Report, 12/3/21; col. 1919.]


There were many speakers on that occasion, so I assumed that I did not get an answer because of other priorities. It turns out that the reason I did not get an answer was because the Government were busy hatching a plan with world leaders to do just that. This is another matter not in the Finance Bill, but I hope the Minister will allow me to comment on the historic announcement as it will fundamentally affect corporate taxation and is thus very germane to this Bill.

The Red Book estimates that only £40 billion will come from corporation tax this year but that the new rates proposed in the Bill will increase that by £2.3 billion in 2022-23, £11.9 billion the following year and £16 billion the year after that—those are just the increases—so a lot is riding on corporation tax yield increasing as the rates move up. Accordingly, it is very important that corporations pay their fair share. I have tracked the OECD proposals on base erosion and profit shifting for some time. Indeed, it was the subject of my maiden speech in 2013. I hope the Minister will allow this as an acceptable forum to raise this related issue, not least as no other forum other than today’s PNQ has been offered to Peers to discuss the OECD announcements —although, of course, he may want to answer some of my questions in writing at a later date. The UK really needs a deal on pillar 1, as much as we are seeing progress on pillar 2. At the moment, the details are somewhat vague. It is all very well for profits which are diverted into tax havens to be transferred into the HQ country, but the minimum rate of tax—be it 15% or 21%—does not of itself affect the amount of tax the FAANG or others will pay in the UK.

DST—digital services tax, which I will come on to again in a minute—was put in place to ensure that profits generated from UK customers were taxed here. Clearly, future tax should be based on user bases rather than sales made—not just customers, but user bases. As we know, sales to UK customers are currently often based in places such as Ireland, but the goods are delivered here. DST seeks to achieve proper taxation on this, but we need to know how pillar 1 will do so likewise, as the expectation is that DST will be dropped at some point. Perhaps the Minister can assure us on that point.

Meanwhile, the pillar 2 proposals are encouraging, but I urge some caution. The IPPR issued a report estimating that with a global minimum rate of 21%, our take could be £14.7 billion. That would be nice, but at a global rate of 15% now being suggested, our share would be much lower. Let us not forget that we already have controlled foreign corporation legislation in place—I think it may have been introduced by my noble and learned friend Lord Clarke, but it may have been before his time—and that this legislation seeks to equalise UK-headquartered corporations’ tax take. I am indebted to Glyn Fullelove, formerly president of the Chartered Institute of Taxation, for sharing with me his calculations, which suggest that a figure nearer to £2 billion or £3 billion could be the amount raised by the pillar 1 and 2 proposals. Perhaps HM Treasury could share its estimates with us at some point.

We introduced the digital services tax so that companies such as Amazon would pay their fair share. Unfortunately, it is not working as well as it should. First, Amazon, which clearly has monopoly-type power, has simply told its suppliers to pay. Secondly, it applies only to marketplace fees, not to direct sales. This is a very important difference. It is another area I was disappointed not to see mentioned in the Finance Bill, as we now have the situation where DST has made it harder for SME retailers to compete with Amazon.

The current DST legislation is defective in not taxing the user-created value arising from sales made by marketplace providers on their own account. Additionally, the application of DST to marketplace fees and commissions charged to third parties, without a corresponding charge arising on the value created when the provider uses the platform to make sales on its own account, is a distortion to competition. I and a number of others have proposed that the scope of DST be extended, so that when a marketplace provider uses the marketplace for its own sales—or uses a similar platform alongside the marketplace—an amount of digital services revenue, which can be taxed, arises.

As the Minister might be aware, I have discussed these ideas with the Financial Secretary, who is resistant to changing DST at this point. As a result, there is nothing in the Bill on this issue. I hope, however, that the Government will reconsider this matter, as we are quite a way from a final deal on a pillar 1 and 2 agreement and, in the interim, we are losing a very large amount of revenue.

Finally, on the enterprise initiative scheme, or EIS, Brexit gives us a chance to look again at restrictions placed on HM Treasury to avoid accusations of state aid. EU laws restrict the ability of the SEIS and EIS to provide entrepreneurs’ start-up capital quite dramatically. Will my noble friend the Minister agree to revisit this area?