Low and No-Tax Jurisdictions

Lord Leigh of Hurley Excerpts

Thursday 30th January 2025 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I congratulate the noble Lord, Lord Sikka, on securing this debate. He has allowed me to claim in the future that he has been talking bananas, but he knows I have too much respect for him to do that.

I congratulate my noble friend Lady Coffey on a truly excellent maiden speech. She has served as Secretary of State for Work and Pensions and for the Environment, Food and Rural Affairs, while representing her Suffolk coastal seat. She is known to love jazz, and as anyone who has been to the Conservative Party conference—which I thoroughly recommend to all noble Lords—knows, she excels at karaoke. In this House, I am sure she will have “the time of her life”—some will know why I say that—which, had I sung it, Hansard would not have recorded, so I think I got away with it.

I hope my noble friend has turned off the alarm on her phone, because I do not want my speech to be interrupted by “I Vow to Thee, My Country”, which I gather has happened in the past. There is a rumour that she and the noble Lord, Lord Clarke, are lobbying for a cigar smoking room to be created on the Terrace—I am not sure about that—as she brings gender equalisation even to this area. What she brings to this House, apart from anything else, is much-needed business experience. She is really welcome; it was an exceptional maiden speech, on which many congratulations.

This debate features one of my favourite subjects. The Minister knows of others, which he will be pleased to know I will not refer to, but I will focus on two areas, which I believe will generate more tax and revenue for the United Kingdom, because we are keen to work together so to do. The subject that the noble Lord, Lord Sikka, has put forward was the subject of my maiden speech in 2013, made in response to the report from the then Economic Affairs Committee. I have spoken a few times on BEPS, as explained so well by my noble friend Lady Coffey, and the noble Lord, Lord Sikka, is quite right to bring it up.

The UK has implemented several legislative measures to address profit shifting by multinational companies and has adopted BEPS measures recommended by the OECD, including the hybrid mismatching rules. These rules prevent tax advantages from differences in tax treatment of entities or instruments between countries. For example, a payment can be treated as a tax-deductible expense in one country and the receipt considered a tax-exempt dividend in another.

Then there is the UK corporate interest restriction, which limits the amount of tax relief that companies can claim on their net interest expenses to the higher of £2 million or 30% of EBITDA. It is a very powerful method of preventing private equity avoiding tax. Then there is the diverted profit tax, which was introduced in 2015. This targets profits artificially diverted from the UK, as it imposes a 25% tax on profits deemed to be diverted through schemes.

When I first qualified as a chartered tax accountant—which was much to everyone’s surprise, particularly my father’s, at the time—it was the controlled foreign companies rules which were the hot new area. They came in in 1984—I qualified in 1985—and were significantly reformed later, in 2012. These rules aim to prevent UK companies shifting profits to low-tax jurisdictions by taxing the income of foreign subsidiaries of UK resident companies. There has of course always been the transfer pricing rules, which ensure that transactions between related parties are genuinely conducted at arm’s length, and HMRC has issued guidance on that as recently as September 2024.

With all this going on, why are we having this debate? It is because of the OECD’s pillars 1 and 2. The UK has one of the most robust anti-BEPS regimes in the world, largely due to measures taken by the previous Conservative Government, but also subsequent actions by the Labour Government. The OECD has led moves to eliminate BEPS since 2012. From the BEPS report in 2015, the UK has implemented pretty much all the material recommendations and closed a number of loopholes. The UK has implemented the first phase of pillar 2 and is implementing the second phase. The UK was one of the group of nations implementing at the very earliest date, along with Australia, Canada, New Zealand and all of the EU countries.

But now, as the noble Lord, Lord Sikka, has indicated, somewhat shockingly perhaps, the US has pulled out of both pillars, and this leaves our Government in a quandary. Do we want to avoid retaliation or do we stick to our guns? We have discussed pillar 1 and pillar 2 at length in this House. A number of us were keen on the digital services tax, or DST, and we tried to persuade the Government that it was time to tighten it up. The argument given to us against this was the John Lewis argument: that if you are not careful, you attack shopkeepers trying to sell their products online, as opposed to marketplace providers which simply facilitate a sale.

At the time, I worked very hard with a very able tax adviser, Glyn Fullerlove, who drafted the legislation—which would have worked—but there was no political impetus to implement it, mainly because we all thought that DST would be a temporary tax while pillar 1 and pillar 2 were properly implemented. This does not look like it is going to happen. Will the Minister look at the DST rules afresh? In his opinion, are they still fit for purpose? Hard choices need to be made on DST—I believe it raised only £380 million last year and might raise about £800 million this year. Given that the Minister wants to help companies grow and raise more revenue, perhaps he might have another look at DST and see whether or not it should be enhanced.

On a practical matter, will a consequence of pillar 2 having no force or effect in the US be that US multinationals will no longer share information with non-US subsidiaries? If they do not share this information, it makes pillar 2 compliance and in particular the understated profits rule tax—UPRT—almost impossible. Has the Minister asked the US multinationals with a presence here whether they will have this information from their head office? I appreciate that the UPRT, which yields some £2.8 billion, will be harder to give up—indeed, it should not be given up—but it would be helpful to hear the Government’s plans for it, given that the information collation may be extremely difficult.

Another related area that I also believe can be of assistance to HMG in raising revenue is the undertaxation of profits in the UK by VAT evasion of offshore online retailers, which is a form of profit shifting. I am very grateful to Richard Allen, the heroic figure of RAVAS, for all his hard work in this area. As we know, bad actors are selling goods online under £135 to evade VAT and to gain a competitive advantage over law-abiding businesses both abroad and in the UK. Distortions of competition caused by the evasion of VAT cause significant harm to domestic retail, both on the high street and online. This harm in turn damages the UK economy through reduced tax revenue, subsequent employment and so on.

Despite recent legislation, which a number of us worked on, there are still obvious flaws in the ID verification system operated by Companies House, and HMRC has essentially enabled bad actors to easily obtain UK company registrations and thus VAT numbers. We have all read about thousands of letters arriving at a flat in Swansea as a result of overseas actors trying to create artificial UK companies. They are pursuing negative and fraudulent behaviour that is essentially the evasion of VAT, and thus shifting profits overseas.

Currently, HMRC has no effective mechanism for enforcing VAT on imports below £135 in value. Import VAT is no longer due on business-to-consumer non-excise goods sent in consignments valued at £135 or less. It is assumed that overseas businesses have complied with the UK legislation that obliges them to register for UK VAT, but that assumption is entirely unenforceable and a coach and horses are driven through it.

Some constructive ideas—such as a passport scheme where you simply put a sticker on every good that can be scanned as it comes in—are around but have not been enforced. It is true that some measures have been introduced, but there remains a significant and immediate problem. Can the Minister look at this urgent issue afresh and perhaps accept a meeting with Richard Allen of RAVAS, so that we can generate the appropriate and correct revenue for HM Treasury and continue the fight against evasion of VAT?

--- Later in debate ---

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I congratulate the noble Lord, Lord Sikka, on securing this debate, and thank all noble Lords for their contributions. I also take this opportunity to join others in congratulating the noble Baroness, Lady Coffey, on her maiden speech and welcoming her to your Lordships’ House.

I will seek to set out the work that the Government are doing to uphold internationally agreed principles of fair tax competition and protect the UK against profit shifting by multinational companies. If there are any specific questions raised during the debate that I am unable to answer now, I will happily write to noble Lords.

I start by underlining our commitment to growth—the number one mission of this Government—and how the corporate tax system can help deliver this mission. As the noble Baroness, Lady Neville-Rolfe, mentioned, we had to take some difficult decisions in the Budget last year to restore stability to the public finances. These were not decisions that we wanted to take, but they were necessary to clear up the mess we inherited. We recognise that this has impacted some businesses and has had impacts beyond business, too.

However, in last year’s Budget we also published a corporate tax road map to provide the best possible conditions for incentivising business investment, which is the lifeblood of a growing economy. That road map caps corporation tax at 25% for the duration of this Parliament—the lowest rate in the G7. It maintains our world-leading capital allowances system, including permanent full expensing, and the £1 million annual investment allowance. As a result of permanent full expensing, the independent OBR has forecast that business investment will increase by an extra £3 billion each year. Permanent full expensing solidifies the UK’s position at the top of the rankings of OECD countries’ plant and machinery capital allowances and among the most competitive capital allowances in the world.

The corporate tax road map also maintains generous R&D tax reliefs that will support an estimated £56 billion of business R&D expenditure. It is a road map to provide predictability, stability and certainty to business and investors from around the globe, while generating the revenue needed to invest in Britain. It comes after several years of cliff edges in investment allowances and multiple changes in rate policy, all of which have undermined global confidence in our corporate tax system. Despite the difficult fiscal position, our capital gains tax rate also remains internationally competitive and the current top rate is lower than it was between 2010 and 2016.

The Government’s objective is to maintain an internationally competitive tax system, where businesses pay their fair share of tax in the UK. As noble Lords know, under the current international framework, taxing rights are generally allocated to countries based on where the physical activities of a given business are undertaken. However, businesses rely increasingly on remote business models that allow companies to operate in and make considerable revenue from a market without a physical presence there. This is particularly true of firms providing digital services.

Added to this, business models are increasingly complex and globalised in nature, with businesses often operating in a number of jurisdictions. Intangible assets, such as intellectual property, can also be transferred to low-tax or no-tax jurisdictions more easily than physical goods. These changes are improving competitiveness and dynamism in the global economy, but we now need to ensure that our tax system, much of which dates back over a century, adapts to this changed environment.

According to the OECD, lost global tax revenues now total $100 billion to $240 billion annually—equivalent to between 4% and 10% of global corporation income tax revenues. This is why the Government are committed to addressing unfairness in the international tax system and protecting the UK against base erosion and profit shifting, where it exists.

We have a range of different measures in the UK tax code to ensure that this is the case. For example, measures on transfer pricing ensure that companies do not manipulate prices between related parties for tax reasons. Controlled foreign company rules, which the noble Lord, Lord Leigh of Hurley, mentioned, prevent multinationals shifting profits to low-tax jurisdictions using controlled foreign subsidiaries. Our anti-hybrid rules tackle tax avoidance strategies that exploit differences in the tax treatment of financial instruments or entities across jurisdictions, and our corporate interest restriction rules limit the amount of interest expense that a UK company can deduct from its taxable profits. HMRC conducts rigorous in-depth inquiries to ‎ensure that multinational companies comply with these rules, and it also works closely with international partners to gather intelligence and tackle serious and deliberate non-compliance.

Profit shifting and base erosion is a global issue by its very nature, which is why the UK has supported efforts to strengthen the international tax framework. The most significant of these is the OECD’s inclusive framework on base erosion and profit shifting project, as explained by the noble Baronesses, Lady Coffey and Lady Kramer, and my noble friend Lord Sikka. As other noble Lords have set out, this framework is the result of over 135 countries and jurisdictions working together, and comprises two pillars.

Pillar 1 looks to provide for a more stable and certain international tax system by addressing the issue I raised previously; namely, updating the system of international taxing rights to reflect the digitised nature of the economy. Under plans currently being discussed, a new system would be introduced whereby certain taxing rights are reallocated to market jurisdictions, as opposed to where the company is based.

The noble Lord, Lord Leigh of Hurley, asked about the Government’s position on pillar 1 and the digital services tax. The Government continue to support an agreement on pillar 1 and, as a temporary measure, the UK’s digital services tax currently applies a 2% levy on providers of search engines, social media platforms and online marketplaces, reflecting their UK activities. We look forward to working with the new US Administration to understand their concerns around the digital services tax and consider how these can be addressed in a way that preserves the policy objectives.

The noble Lord also asked about the VAT paid by online retailers. To summarise, as the noble Baroness, Lady Neville-Rolfe, set out, since 2021, overseas retailers are requested to register for VAT on supplies of low-value imports below £135. Where an overseas seller sells goods via an online marketplace, the marketplace is liable for VAT on goods of any value. The OBR continues to estimate that this will raise £1.8 billion by 2026-27.

Pillar 2 of the OECD inclusive framework reforms, also known as the global minimum tax, is already an internationally agreed common approach. It creates fair conditions for attracting inward investment, while protecting countries’ tax bases from large multinationals shifting their profits to low-tax jurisdictions. It does this by requiring multinationals that generate annual revenues of more than €750 million to pay an effective tax rate of 15% on their profits in every jurisdiction where they operate. Where their effective tax rate falls below this, these companies will pay a top-up tax. This effectively imposes a floor on tax competition between jurisdictions.

As the noble Baroness, Lady Kramer, said, the Government are currently legislating for the final part of the pillar 2 agreement through the Finance Bill. The undertaxed profits rule will ensure that firms cannot evade their responsibilities under the global minimum tax.

The pillar 2 agreement is historic in its scope and reach and has been implemented, or is in the process of being implemented, by the UK, all EU member states, Canada, Australia, Japan, New Zealand, South Korea and others. The UK is forecast to raise more than £15 billion over the next six years from pillar 2 to support our public services and help grow the economy.

My noble friend Lord Sikka and the noble Baronesses, Lady Kramer and Lady Neville-Rolfe, asked about executive orders relating to pillar 2. While I know that they would not expect me to give a running commentary on every executive order or decision made by President Trump and his Administration, the UK will of course be open to discussing concerns and ways to alleviate these in a way that upholds the policy aims of pillar 2. To reiterate—here I agree with the noble Baroness, Lady Kramer—this is an international agreement signed by over 135 countries after many years of detailed negotiation. We believe it represents a fair approach to how countries compete for cross-border investment.

The UK operates a comprehensive network of tax treaties to ensure the correct allocation of taxing rights between jurisdictions. Alongside pillars 1 and 2 of the OECD scheme, we participate in a range of other tax transparency arrangements to protect the UK tax base. These include the country-by-country reporting arrangements, which require large companies to provide a detailed report of their income, taxes paid and other financial activities on a country-by-country basis.

We have committed to implementing the crypto asset reporting framework to facilitate the automatic exchange of information on ownership and transactions in crypto assets. The UK is leading international efforts to co-ordinate transparency and the exchange of beneficial ownership, including through registers.

The noble Baroness, Lady Kramer, touched briefly on the Crown dependencies and overseas territories. I recognise that that is a much longer debate but I will briefly say this. The elected Governments of the Crown dependencies and inhabited overseas territories are responsible for many fiscal matters, including tax. They are committed to upholding international tax standards. All Crown dependencies and those overseas territories with a financial centre have become members of the OECD/G20 inclusive framework on base erosion and profit shifting. They have implemented the common reporting standard, and they all meet the standard necessary for the exchange of information on request.

My noble friend Lord Sikka and the noble Baroness, Lady Kramer, asked about country-by-country reporting. As I have said, the Government are a strong supporter of greater tax transparency and efforts to ensure that multinational groups are appropriately taxed in the jurisdictions in which they operate. While public country-by-country reporting could have a role to play in supporting those objectives, the Government believe it is important that any action be co-ordinated at the international level to ensure that it is comprehensive and consistent and avoids competitive distortion.

The arrangements I have already set out sit alongside the steps this Government took at the Budget last year to protect the UK tax base and close the tax gap, which is the difference between the amount of tax owed and the amount that is collected. The measures in last year’s Budget represent the most ambitious package ever to close the tax gap, making sure that everyone who should be paying their tax is doing so. Overall, the package is expected to raise £6.5 billion in additional tax revenue per year by 2029-30. We will achieve that by investing £1.9 billion in HMRC staff and modernised IT systems, including recruiting an additional 5,000 compliance staff. This includes additional resources for HMRC transfer pricing specialists, focused on preventing multinational profits shifting.

I will briefly address the question asked by my noble friend Lord Davies of Brixton and the noble Baroness, Lady Kramer. Our plans include new proposals to close the offshore corporate tax gap. We will consult on lowering the thresholds for exemption from transfer pricing for medium-sized businesses to align with international peers, and we will seek views on introducing a requirement for businesses in scope of transfer pricing rules to report cross-border-related party transactions to HMRC.

My noble friend Lord Sikka questioned the size of the tax gap. The Government have set out data for the domestic tax gap, which has been published online, as well as initial statistics on individuals with undisclosed foreign income. We will continue to be led by this data, and we remain committed to closing the tax gap, both domestic and offshore.

This Government support fair global rules on tax competition which protect the UK against profit shifting and base erosion. Through the action we are taking domestically and through international bodies, including the OECD, we are ensuring that these rules keep pace with the changing nature of global trade and the development of digital technology. In doing so, we are being guided by our number one mission: higher and more inclusive economic growth. That growth must be underpinned by fairness in the global tax arrangements, which is at the heart of our approach, and it must be delivered through a competitive domestic tax regime, which is precisely what our world-leading corporate tax road map will help to achieve.

[Lord Leigh of Hurley (Con)]

Before the Minister sits down—admirably well within his time—I think his answer in respect of my VAT point relates to NETPs, non-established taxpayers, rather than taxpayers who falsely claim to be in the UK. I invite him to consider that particular point further, because I believe it will raise billions of pounds for HMRC if that loophole is addressed. Secondly, he very elegantly sidestepped the issue of the digital services tax. Again, while the Government are in negotiations with the US, which could stretch on for years, there is an opportunity in the meantime for us to have a look to see what extra revenue we can raise through digital services tax.

[Lord Livermore (Lab)]

I have set out as much as I am able to at the moment on the noble Lord’s latter point on the digital services tax, but I will happily raise his point on VAT with my colleague the Exchequer Secretary. We will write to the noble Lord on anything that we can usefully add.

Non-domicile Status

Lord Leigh of Hurley Excerpts

Tuesday 28th January 2025 Lords Chamber

Asked by

[Lord Leigh of Hurley]

To ask His Majesty’s Government what assessment they have made of the economic impact of their plans regarding abolishing non-domicile status, which will now be modified following the announcement by the Chancellor of the Exchequer at the World Economic Forum in Davos.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the Government are making elements of the non-dom reforms simpler and more attractive to use while retaining the structure announced in the Budget. We do not expect these changes to impact the £33.8 billion of tax revenue which the OBR forecasts will be raised over five years from this Government’s and the previous Government’s changes to the non-dom tax regime. These changes reflect continued engagement with stakeholders to ensure that these reforms operate as intended.

[Lord Leigh of Hurley (Con)]

It is clear to me and many others that the Government do not have any idea of the amount of loss to the Revenue that the tens of thousands of people leaving this country—ultra high net worth people—will have. Adjusting the temporary repatriation facility just simply will not cut the ice or move the dial at all. I know of one City firm where 20% of the executives have left. Does the Minister not realise that insisting on subjecting wealth created and parked offshore to UK inheritance tax will drive former non-doms out of the UK? That will leave the Labour Government with a real £22 billion black hole.

[Lord Livermore (Lab)]

I am very grateful to the noble Lord, as always, for mentioning the £22 billion black hole. He mentions lost revenue. I remember the noble Lord telling me when my party was in opposition that our policy on non-doms would not raise any revenue, but in fact cost money. Just a few weeks after that, his Government performed a screeching U-turn and scored over £20 billion by implementing our policy, when they adopted it as their own. He was mistaken then, and I am very confident that he is mistaken now. The costings certified by the OBR for the previous Government’s and this Government’s reforms account for a potential behavioural response. But I do not recognise at all the figures that the noble Lord gives, which are purely speculative.

National Insurance: GDP

Lord Leigh of Hurley Excerpts

Thursday 19th December 2024 Lords Chamber

[Lord Livermore (Lab)]

The question of which debates the House has is not a matter for me—I think that is somewhat above my pay grade—but my noble friend is absolutely correct to say that we hear consistent demands from the party opposite for more and more spending, but they never seem to be willing to tell us exactly where the funds for that will come from. Of course, that is exactly why we ended up with a £22 billion black hole in the public finances: because they never took the difficult decisions to pay for any of their promises.

[Lord Leigh of Hurley (Con)]

My Lords, I may only have an economics degree but, none the less, that makes me an economist in the way things are currently. As such, the OBR has made it clear there is no £22 billion black hole, which is why there is the same response from this side of the House. But what is clear is that £40 billion has been taken from the private sector to the public sector. Companies have to respond to that. Their only choices are either to increase prices, which they are, to reduce wage increases, which they are, or to reduce investment in jobs and other capital items. As a result, of course, the PMI is at its lowest level since 2009 and, within 24 hours of the Budget, the gilts went up 40 basis points. Can the Minister explain that and can he also please address the issue of care homes? I am involved in a charitable care home which has received a £1.5 million extra bill. We do not know how we are going to pay that bill. I will not name the care home, but I will take this opportunity to wish the Minister a happy Hanukkah.

[Lord Livermore (Lab)]

I am very grateful to the noble Lord for his last comment and I obviously say the same to him. I am also grateful to him for raising the £22 billion black hole again. He is possibly the only Member of this House who mentions it more often than I do and he will be absolutely aware of the outcome of the OBR’s review. It conducted a review into a meeting it had with the Treasury on 8 February, when the Government were obliged under the law to disclose all unfunded pressure against the reserve. The OBR’s review has established that, at that point, the Government concealed £9.5 billion. The OBR made 10 recommendations to stop this ever happening again, which this Government have accepted in full. But, of course, the previous Government still had five more months left in office and they continued to amass unfunded commitment after unfunded commitment that they did not disclose. By July, records show that that had reached £22 billion. The noble Lord asked a number of subsequent questions and I simply ask him: is he seriously saying that we should not have repaired the public finances? Is that his serious contention? That is absolutely what the Liz Truss mini-Budget did and we saw exactly how that ended up.

Employment: Tax Policy

Lord Leigh of Hurley Excerpts

Thursday 31st October 2024 Grand Committee

Asked by

[Lord Leigh of Hurley]

To ask His Majesty’s Government what assessment they have made of the impact of tax policy on employment.

[Lord Leigh of Hurley (Con)]

My Lords, I draw noble Lords’ attention to my entry in the register of interests, which notes the businesses I have started, invested in and grown over the years, including my main business, Cavendish Financial plc, which I started with one colleague and a PA and, I am pleased to say, now employs over 200 people.

The timing of this QSD seems remarkably fortuitous—I cannot claim it was wholly planned this way—and will perhaps allow us to consider the rationale and effect of some of yesterday’s Budget as well as reflecting on how future changes to tax policy might affect employment and related areas.

The Minister will be pleased to know that I will not be spending all my allotted time digging in the illusory black hole, as the OBR has rightly confirmed that, other than a possible contentious £9.2 billion, the £22 billion was not something that it could support—at least in respect of the reserves, where the underspend is yet to be determined. We will have to leave that matter there. I suspect that the Minister will also be pleased to know that we will not spend the whole of the next four years going over this, to our mutually enormous pleasure. That is not really the point here, other than to note that Labour created a reason to increase tax and so, like every other Labour Government, increase tax they so did.

As I am sure the noble Lord, Lord Bilimoria, will recall, we were warned by the CBI earlier this week when Mrs Newton-Smith said:

“If we see a rise in national insurance contributions paid by employers … that will make it more difficult for businesses”.


That warning was echoed by the respected economist Paul Johnson of the IFS, who pointed out that NI is a tax felt solely by working people and employers. His response to the actual rise has been to remind us that the OBR suggests that three-quarters of the impact of employer NICs will be felt by employees, even if the changes do not immediately show up on their payslips. Indeed, these tax rises partly explain why the OBR has downgraded its projections for real household income growth over the next few years. Someone will pay for the higher taxes, and it will largely be working people.

The employers’ NIC rise will further increase the incentive for employers to switch to contracting with the self-employed or, as many will have heard on today’s radio broadcasts—and this is really worrying for us here—to subcontract to overseas production. Indeed, I have talked to employers today who have said to me that they are cutting down on their future recruitment. Radio 4’s “Today” programme said it had not found one business person who thinks that yesterday’s Budget will help their business to grow and employ more people.

Incidentally, Paul Johnson also opined that a rise in employers’ NI would be a straightforward breach of Labour’s manifesto. His views on the damage to employment that the rise will cause has been echoed by normally non-political characters, such as the CEO of Lloyds Bank, and of course for certain industries, such as the hospitality sector, it will be a disaster. Mark my words: care homes will close after this Budget.

A Mrs Christina French from Birmingham, founder of Diverse Sparks Ltd, an electrical contractor, has been quoted in the press as saying that the rate rise and the threshold drop has meant that she has now to consider selling her business. Her exact words were:

“It’s rubbish because I’ve created jobs and apprenticeships for the last 12 years, and now that’s not going to be an option for us”.


That is the reality of life for business owners. Sadly, Labour’s Front Bench has not much experience of starting a business and hardly any of running a small business, so they may not be aware of the pressures facing business owners. If they are not going to listen to business creators and owners such as Mrs French and me, perhaps their friends at the OBR might persuade them that, when it points out that,

“The employer NICs rise is estimated to reduce labour supply by 50,000 average-hours equivalents”


and promptly downgrade the UK’s growth prospects, it should be listened to.

The wonderfully named Growth Commission, which one would have thought would take pride of place at Labour’s top table, has modelled a rise in NI and predicts that it leads to a negative hit to GDP, peaking all the way to 2030 but still impacting GDP negatively in 2045-6. One has to wonder whether the gamble, which has been taken to fill a hotly disputed black hole with a tax rise on jobs, really makes sense? Perhaps the Minister can explain the thinking here, particularly given the hugely respected Growth Commission’s views.

I am grateful to some other great folk, such as those at the Jobs Foundation, chaired by my noble friend Lord Elliott of Mickle Fell, who remind us that businesses and entrepreneurs provide 80% of the jobs in the UK. Their mantra comes from Winston Churchill, who famously said—though I refrain from doing the accent—that:

“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon”.


Famously, the Chancellor herself referred to an increase in NI as a jobs tax. This was in 2021, when criticising the proposals then to raise national insurance. Her point was that NI is purely a tax on people who go to work and those who employ them. She then said, revealingly, that, if you earn an income through dealing in stocks and shares, you do not pay a penny more in NI. That is revealing because it shows that Labour does not really understand and appreciate the difference between capital gains and income. Perhaps the Minister can explain to the Chancellor that dealing in stocks and shares is not a source of income: it is an activity that requires you to risk capital, which you might lose because of the great uncertainty. This brings me to my concern about the effects of other tax rises on employment.

For businesses to grow and employ more, they need capital. Many, like mine, have been to the capital markets through the Alternative Investment Market—AIM. That market has become harder and less liquid, despite the best efforts of Jeremy Hunt and the Mansion House compact. The decision taken yesterday to reduce business property relief—BPR—on inheritance tax by 50% will be a hammer blow to many entrepreneurial family businesses. When a family member passes on, they will now have to find 20% of the current value of the shares and pay for that in cash. That will simply lead to more firms closing down, selling up and having to sell assets to release cash, simply for the Exchequer.

This huge rise in IHT for private business owners has yet to be fully assessed. In its booklet, the OBR does not split out APR and BPR, so we have no idea of the true cost. We do know that this move and, of course, the potentially disastrous decision to tax the non-doms, in particular by including the EPTs in inheritance tax, means that wealth creators who create jobs are despairing at the effects that this Budget will bring to employment.

In my opinion, these measures are not just about raising tax but about ramming through ideological dislike for inherited wealth and, indeed, private enterprise. Sadly, the measures taken will, in reality, really damage everyone employed in the UK. I ask the Minister what assessment HMG have made of the impact of their tax policy on employment. I beg to move.

Fiscal Rules

Lord Leigh of Hurley Excerpts

Tuesday 29th October 2024 Lords Chamber

[Lord Livermore (Lab)]

My noble friend makes an extremely interesting point. I am grateful for his support for what I have set out and will take away his point to give it further consideration.

[Lord Leigh of Hurley (Con)]

My Lords, the Chancellor can fiddle figures all she likes to allow more borrowing, but that will simply lead to more interest payments, in excess of the £100 billion or so that we already have, which will lead to great damage in the market. The change of fiscal rules on borrowing is apparently to fix an alleged black hole, so would the Minister care to comment on the highly respected IFS director Paul Johnson’s statement that:

“The numbers may be a little bit worse than they thought at the time … but the overall picture over the next four or five years is very, very similar to what we knew before the election”?

[Lord Livermore (Lab)]

I am grateful to the noble Lord for giving me an opportunity to talk about the £22 billion black hole left to us by the previous Government. He has done that in the past and I continue to be grateful to him. The independent Office for Budget Responsibility said at the time of the July statement that it did not know about this black hole at the heart of our finances; it established an independent review into it which will report in due course. I think there will be plenty more information on the £22 billion black hole in tomorrow’s Budget for the noble Lord to peruse.

Tax Reliefs: Theatre, Orchestra and Museums and Galleries Exhibition

Lord Leigh of Hurley Excerpts

Tuesday 15th October 2024 Lords Chamber

[Lord Livermore (Lab)]

I am grateful to my noble friend for her question. The creative industries are absolutely a major driver of economic growth in this country. She will be aware that I am unable to comment on speculation about specific taxes. In the coming Budget, we must rebuild our public finances to ensure economic stability, including by addressing the £22 billion black hole inherited from the previous Government, which will involve difficult decisions on spending, welfare and tax.

[Lord Leigh of Hurley (Con)]

The Minister again raises the alleged £22 billion tax hole. He was asked, this time last week, to explain what was in the £22 billion tax hole. He could identify only two items, which amounted to £9 billion—that is all he could find. It now transpires that HM Treasury’s policy paper of 2 August 2024 reveals that £9.4 billion of the so-called black hole has been created by Labour’s political decision to give public sector workers above-inflation pay grades. Does the Minister not agree with most of the House that this is a fictious black hole, created by Labour?

[Lord Livermore (Lab)]

I am extremely grateful to the noble Lord for giving me an opportunity to talk about the £22 billion black hole in the public finances, which was concealed from this Parliament and the public, and, most importantly, from the Office for Budget Responsibility, which has confirmed that it exists and set up an inquiry to establish how it happened and to ensure that it does not happen again. The noble Lord asked me to list what went into the black hole. He knows, for example, of the £6 billion overspend on the asylum system, including the failed Rwanda scheme; of the £3 billion of uncosted commitments on road and rail projects; that the reserve was overspent, three times over, just three months into the financial year; and that there was a black hole in the spending plans for the public sector pay rises because the previous Government did not hold a spending review and did not give any affordability criteria to the pay review bodies. That is why it has happened and that is what we will ensure does not happen again.

UK Economy: Capital Gains Tax

Lord Leigh of Hurley Excerpts

Wednesday 9th October 2024 Lords Chamber

Asked by

[Lord Leigh of Hurley]

To ask His Majesty’s Government what assessment they have made of the impact on the UK economy caused by speculation about rises in Capital Gains Tax and other taxes.

[Lord Leigh of Hurley (Con)]

I beg leave to ask the Question standing in my name on the Order Paper and in doing so draw your Lordships’ attention to my registered interests in this area.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, there is speculation ahead of every Budget, but the Government’s priorities for the economy are clear. We are committed to restoring growth to our economy after years of stagnation by fixing the foundations and securing investment in our country’s future; we are committed to keeping the promises we set out in our manifesto; and we are committed to rebuilding the public finances, including by addressing the £22 billion black hole we inherited from the previous Government.

[Noble Lords]

Oh!

[Lord Leigh of Hurley (Con)]

Well, the Government have managed to unite Alastair Campbell, the British Chambers of Commerce and me in identifying the damage that this delay is doing to the UK economy. If evidence is needed, entrepreneurs are leaving not in their droves but in their thousands because they are so worried about the potential impact of a rise in capital gains tax. The Chancellor has specifically ruled out certain increases. Could the Government not rule out specifically, for example, the rumoured demise of business property relief on inheritance tax, because that is hanging over the market at the moment, causing great anxiety to family companies and is an enormous cloud on the ability of companies to raise money on the AIM market?

[Lord Livermore (Lab)]

As set out in our manifesto, we are committed to not increase taxes on working people. This is why we will not increase their national insurance, the basic higher or additional rates of income tax or VAT. I know the noble Lord would not expect me to comment on speculation about any other specific taxes, but we must rebuild our public finances to ensure economic stability, including by addressing the £22 billion black hole—

Start-up Companies: Tax Incentives

Lord Leigh of Hurley Excerpts

Monday 29th April 2024 Lords Chamber

Asked by

[Lord Leigh of Hurley]

To ask His Majesty’s Government what assessment they have made of the pressure experienced by start-up companies arising from delays in accessing tax incentive schemes designed to support them, including the Enterprise Investment Scheme and Research and Development tax credits.

[Lord Leigh of Hurley (Con)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and draw your Lordships’ attention to my entry in the register of interests.

[The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)]

My Lords, HMRC is currently exceeding its published customer services aim to process R&D claims and EIS applications within 40 working days. In some cases, this will involve contact with a company to undertake further checks, rather than immediate approval or payment. This is necessary to ensure that relief is claimed only by those who are eligible.

[Lord Leigh of Hurley (Con)]

My Lords, I understand the need to check claims in certain areas. I am chair of the Finance Bill Sub-Committee of the Economic Affairs Committee, and we have reported on extensive R&D fraud, but there is no history or evidence of fraud in respect of EIS. However, there is evidence of heavy-handedness by HMRC in restricting claims, so will my noble friend agree to set up a working party that includes EIS fund managers to consider best practice and to reduce costs and unnecessary delay in granting EIS relief?

Spring Budget 2024

Lord Leigh of Hurley Excerpts

Monday 18th March 2024 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I join in the congratulations offered to the noble Lord, Lord Kempsell, on an excellent and inspirational maiden speech. I welcome this Budget as yet another example of prudent management of our economy while trying to stimulate growth which—I am afraid I disagree with the noble Lord, Lord Skidelsky—comes mainly through lower taxation wherever possible.

The Chancellor is under huge constraints from all sorts of directions, not least the OBR. The OBR this year had at least the grace to say:

“Inflation has receded more quickly than we expected in November and markets now expect a sharper decline in interest rates. This strengthens near-term growth prospects and should enable a faster recovery in living standards from last financial year’s record decline”.


Despite that, however, it seemed to impose a rigour on the Treasury which has frustrated it from being more generous in reducing the tax take and thus reducing the take from the state which we all want to see—certainly, on this side of the House, as was most eloquently put by the noble Baroness, Lady Noakes.

We all understand why the OBR was created. It followed a spending spree when Gordon Brown took the government debt in July 2007 from 35.5% of GDP to 56.8% in just two years. It was the beginning of all our difficulties. The noble Lord, Lord Desai, who is not currently in his place, frequently reminds us that comparing debt to income, as we always do when quoting the level of government debt, is not the best way of evaluating debt. However, many have commented that the OBR is now so obsessed with fiscal headroom that it distorts all decision-making.

Who predicted Covid, Ukraine or the Middle East war? How can anyone reasonably claim to predict what will happen in some five years’ time, least of all economic forecasters, who, as JK Galbraith reminded us, are there to make astrologers look respectable?

The forecasting errors over the years have been enormous—some £400 billion out over the last two decades, according to some—and this dependency on the OBR is no longer healthy. We must look at better ways to allow sensible policymakers to take a view on the forecasts and determine what they think is right, rather than just hoping that a few folk in the OBR, which has a very weak track record, might have cracked it this time. The OBR itself says:

“We continue to emphasise the uncertainties around our forecast in the light of rapidly changing economic conditions and the possibility that any of our key judgements could prove significantly too optimistic or”


too

“pessimistic”.

Turning to specifics, as the chairman of the Finance Bill Sub-Committee, which is a sub-committee of the Economic Affairs Committee of your Lordships’ House, I welcome HMRC’s decision to create an expert advisory panel to advise it on what is true and proper research and development. To remind your Lordships, the latest estimate of the R&D tax credit costs is some £6.5 billion, and there is so much fraud and inaccuracy in the claims in respect of R&D that HMRC’s own accounts had to be qualified over this specific uncertainty.

The change in the non-dom regime may not be quite as harsh as one might have first thought from the Chancellor’s speech. With the transitionary rules and overseas work relief being retained, and the rebasing of capital gains tax to 2019 values, it might not be too bad. Certainly, the ability to bring into the UK stockpiled gains outside of trusts at 12% is helpful, and the taxation of protective trusts has to be the right step forward if the scheme is going to work. Likewise, the inheritance tax scheme for non-doms seems fair, and a 10-year window is quite generous. I am pleased to see that the Government are open to extensive consultations on this issue, which I believe have already started. The OBR reckons this will yield some £5 billion a year, but with migration, as will inevitably happen, and other tax-planning measures, this will drop by some £2 billion to a net £3 billion, in its opinion. It is very hard to know how it could possibly have arrived at this. As it acknowledges itself, it really does not know.

We know that this deprives Labour of one of its main sources of extra income—albeit that it may have spent it several times over. It leaves Labour with only VAT on schools, which will probably lead to a net increase in cost to the Treasury, as we heard in Oral Questions this afternoon, as pupils transfer to the state system; and with taxation on carry at higher rates, which I hear Labour is already rowing back on, as it realises it will not yield extra revenue. It would be good to learn from the Labour Front Bench today, or soon, how it plans to raise extra taxes for all its extra expenses, as it is clear that its employment proposals will almost certainly lead to a huge increase in unemployment, as they always do with each and every Labour Government, meaning more strain on government resources.

I will touch on what was not in the Budget, and what might have been. I will spare my noble friend a plea for a digital services tax to try properly to tax online retailers such as Amazon, as her predecessors have clearly decided against this. I will also spare her any further reference to, as she puts it, my favourite minority sport, EIS. Again, there was nothing in the Budget, which there should have been, to raise thresholds and reduce restrictions now we are free from the yoke of the EU.

Turning to VAT, I worked with a number of Peers from across the House on the Economic Crime and Corporate Transparency Act, which was a great success in tightening up Companies House after the registration of some 11,000 companies to one flat in Wales. However, we really did not focus on why people were doing this. The answer is, of course, to evade—not avoid—VAT.

Great progress has been made in forcing online offshore retailers to pay VAT, but we really are not done yet. The National Audit Office has started an investigation into this area, and I wish it well, as we have seen many examples of companies using other people’s VAT details—even companies that are shown as not trading on Companies House. There are hundreds of companies all connected to one source of stock, with each company staying below the radar and folding if caught. The issue has not been dealt with and remains a problem.

One thing I ask my noble friend to consider is removing VAT checks on items valued £135 or less entering the UK. This is not helpful, and there is huge evasion going on. HMRC assumes that any non-UK seller who sells into the UK will sell on an online marketplace, where VAT is now collected, or register for VAT in the UK and pay the VAT direct to HMRC. This is just not happening. It is a ridiculous assumption, and there is nothing that will make a non-UK seller register for VAT in the UK, particularly if it sells on websites or marketplaces outside the UK. It is an enormous gaping hole in the UK’s virtual customs border, and it is astonishing it was ever allowed. Other European countries have removed this £135 exemption, and we should as well. I appreciate it is a bit much to ask my noble friend for a response today on this matter, which is not covered in the Budget, so I look forward to a later reply.

Finally, I end with a sentence from the Chancellor’s speech, remarked upon by my noble friend Lady Noakes, which should be cut and pasted on every wall in the Treasury:

“The Treasury and the OBR have … concluded that if we reduce the higher 28% rate that exists for residential property, we would in fact increase revenues”.—[Official Report, Commons, 6/3/24; col. 849.]

UK Economy

Lord Leigh of Hurley Excerpts

Wednesday 21st February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

Obviously, I cannot comment on any potential tax cuts. I am sure the noble Baroness will agree that the US has a very different economic structure from the UK and tends to offer slightly less support to those at the bottom end of the ladder. She mentioned those who are the most vulnerable. Personal allowances have gone up by 30% in real terms than in 2010. That means that 30% of people now pay no tax. We are focusing our interventions on people at the lower end of the income scale, but we are also focusing them on growing business.

[Lord Leigh of Hurley (Con)]

Would my noble friend agree that comparisons with the United States are not really appropriate, particularly given cheap energy costs in the States due to fracking, which we do not have? It might be better to compare us with European countries. Since 2010, the UK has had the fastest growth of any European G7 country—faster than Italy, Spain, Germany and France. Will she welcome today’s news that the budget surplus for net borrowing, excluding banks, shows a surplus for January of £16.76 billion, and today’s announcement that the UK purchasing managers index rose in January to 52.9? Rather than knocking the economy, let us celebrate the good news.

[Baroness Vere of Norbiton (Con)]

I agree with my noble friend—let us celebrate good news, and I believe there will be more good news to come. He mentioned debt. It is fair to reassure noble Lords that we are on track for debt to fall as a share of the economy. Public sector net debt as a percentage of GDP is expected to fall next year to the end of the forecast. If one were to exclude Bank of England debt, it will fall in the final year, and public sector net borrowing as a percentage of GDP is forecast to fall every single year. We also have the second-lowest debt as a share of GDP in the G7.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

I will take that idea back to the Bank of England.

[Lord Leigh of Hurley (Con)]

Does my noble friend agree that it is highly complimentary to Liz Truss and Kwasi Kwarteng to suggest that their actions are responsible for interest rates in every country around the world, which are broadly comparable to ours?

[Baroness Vere of Norbiton (Con)]

As I think I said earlier on in answering this question, all sorts of countries have faced the challenges that the UK has. There have been a number of countries, over the second half of 2023—either in Q3 or Q4—that saw a small technical contraction in their economy. Andrew Bailey, the Governor of the Bank of England, believes that the technical recession may already be over. I expect us to return to growth very soon.