Energy Profits Levy

Lord Leigh of Hurley Excerpts

Tuesday 7th February 2023 Lords Chamber

[Baroness Penn (Con)]

The noble Baroness will know that the tax regimes for the two sectors are quite different. Oil and gas already has a specific tax regime that is higher than for electricity generators, which pay normal levels of corporation tax. This levy is on top of that for their profits related to the price for gas, which were unforeseen when they were making their investments. I agree that we need more support for investment in renewables. The Government have committed £30 billion towards our domestic green industrial revolution over the coming years.

[Lord Leigh of Hurley (Con)]

My Lords, in the debate on the Finance Bill, I raised the concern about the unintended consequences of the energy profits levy. Now that a little time has elapsed, has the Treasury had the opportunity to assess the impact particularly on independent, smaller oil companies? They have said that they no longer have the certainty and cash flow to make the same investment in the UK as they thought they would do previously, which will lead to an uneconomic and environmentally unfriendly increase in imports of oil and gas.

[Baroness Penn (Con)]

I can reassure my noble friend that the Government have been engaging with the sector, including independent, smaller oil and gas companies. We have included the investment allowance precisely to try to strike the right balance between funding cost of living support while encouraging investment to improve our energy security. My noble friend is right that we should look at the carbon intensity of production here in the UK versus the carbon intensity of importing gas from elsewhere.

Autumn Statement 2022

Lord Leigh of Hurley Excerpts

Tuesday 29th November 2022 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I add my congratulations to the noble Baroness, Lady Lea—no relation. She is someone I have admired for many years, in all her writings and output, and she gave a most excellent maiden speech.

I welcome the Autumn Statement, which has helped the UK’s position as fiscally prudent, rescued the pound and helped interest rates—some might say that this is a coded message for 3-0—as we fight the damage caused to our economy by Mr Putin and Covid.

As the chairman of the Finance Bill Sub-Committee, I feel it would not be appropriate to talk here about research and development tax credits, much as I would like to, given that, as the Chancellor has mentioned, there is abuse of the current system. But I hope that the noble Lord, Lord Fox, will be pleased when he sees our report, which I hope will be published in January.

As the final Back-Bench speaker, it is a bit of a struggle to come up with something new, so perhaps I can start with something that was not in the Statement: an increase in capital gains tax rates, which had been rumoured and, I understand, is being discussed by the Labour Party—along with abolishing your Lordships’ House and private schools. The Chancellor listened to real concerns from British entrepreneurs and investors in both public and private companies, who said that an increase in capital gains tax would have been a disaster for SMEs, which, as has just been described to us, are the engine of growth for our economy.

Let me deal with two new issues. The first is the energy profits levy; the noble Lord, Lord Sikka, touched on this but from a different perspective. This will raise an enormous amount of revenue, putting most other measures in the shade, so I am surprised that it has not had more attention. We are talking about £41.6 billion in revenue, of which £7.2 billion is this year. I welcome the tax but have reservations, and I draw your Lordships’ attention to my interests on the register, which include my employment at the finnCap Group, a NomAd advising small oil and gas exploration companies, among many others. It is small independent UK companies that produce 60% of our oil and gas needs, and they may well be driven out of business by this tax as currently proposed.

In a highly competitive UK market, the ability of smaller players to invest in current licences—as well as new licences in the upcoming round—will be severely jeopardised by the formulas in the EPL. Smaller producers are vital to a robust and competitive market, yet lack the resilience and deep pockets of the oil super-majors. As only a teeny fraction of the super-majors’ business is based in the UK, they are largely immune to the effects of the EPL, or any further iteration of it. The effect of the EPL may therefore be to concentrate even more power in their hands—that is, if they choose to stay in the North Sea.

One simple amendment which I gather is being considered in the other place, and which would be relatively straightforward to implement and would avoid triggering the above scenarios, is to impose a proper windfall levy; in other words, one triggered at above windfall prices. For example, if we had a floor of $75 per BBL of oil and 100p per therm of gas, and a windfall tax were applied once prices were above that, that would be a taxation mechanism similar to that offered in other countries in the world, in particular in west Africa, and the industry would understand. Such a mechanism would allow investment to continue flowing into UK energy.

However, the EPL, and any successor iteration, would penalise investment in virtually all price environments. It therefore creates uncertainty about the circumstances in which it could be withdrawn. Indeed, a main driver of capital flight with the EPL is the lack of certainty. Would it be removed if commodity prices suddenly dropped? Can my noble friend the Minister give us some assurances on this? As currently outlined, most UK North Sea players instead believe that the EPL will be imposed as a permanent tax, unrelated to prices, with a deleterious effect on investment, which is of course badly needed in the North Sea.

We know that we need domestic energy security, and there is a risk that the current proposals will lead to a real flight from the UK and a corresponding loss of revenue as decommissioning is brought forward, and it will have a negative environmental impact as gas has to be imported into the country to compensate.

The other area I want to touch on is the taxation of multinational companies, which has also not been mentioned in this debate—and I have listened to every speaker. The Chancellor announced that we will implement the globally agreed G20 OECD inclusive framework pillar 2 in the UK in 2024. The pillar 1 negotiations are still stalled, and it is these which are critical to raising tax from multinationals, particularly those based in the USA. As I have argued in this Chamber before, the digital sales tax is not fit for purpose, but the Government have rejected ideas to tighten it up, and the Autumn Statement specifically said that there will not be an online sales tax. I was pleased to see that pillar 2, which is targeted at UK companies, will include a qualified domestic minimum top-up tax. However, this means that Amazon, Google and so on may pay a tiny bit more tax on their business in the UK, but nothing that will move the dial and, of course, it will mean that the UK groups bear the extra tax and compliance costs of their worldwide income.

We are bringing in the undertaxed profits rule, which is helpful. It is a backstop so will help, and the Government are to be congratulated on confirming that it will be used, but that does not come in until 2025. So we have not really addressed the taxation of, in particular, US groups trading here, and this needs urgent attention and action. I would welcome the opportunity to work with the Government on this. I believe we have turned a corner and that this Autumn Statement is the moment we address our challenges and start to tackle them.

Queen’s Speech

Lord Leigh of Hurley Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I add my welcome to the right reverend Prelate the Bishop of Newcastle. As someone who at best can do a half-marathon, I can only admire her. I share with her my recollections of the late Baroness Birk, whose views on faith I shared.

I shall focus my remarks today on economic affairs. Surrounded as we are by a maelstrom of political polls, referenda and intrigue, it is perhaps worth reappraising where we are in the primary mission for which the Government were elected, which is of course economic security. Whatever relationship with the EU we may end up with, Britain must continue to show global leadership in growth, job creation, fiscal responsibility and free trade. After all, it is exactly because of that leadership that the OECD has predicted that the UK economy will be the fastest-growing developed economy this year, with a record 2 million jobs created since 2010 and unemployment down 142,000 this year. It is because of this leadership that the deficit is down to two-thirds from its peak, although, as my noble friend Lord Flight has said, there is some way to go.

Whether we are outside the EU plotting our own path or inside urging our fellow members to follow our lead, we must stand up for free trade. I urge the Minister to continue promoting the TTIP treaty, which will of course help in that. We need to continue to explain more clearly that the NHS will remain excluded from it. If we are to rebuild any kind of popular consensus for this type of free and fair capitalism, businesses and Governments must come together to show that they are serious about tackling the pervasive unfairness in one aspect of our economic life. I am referring here to tax avoidance. Globalisation has brought many benefits, and I am in no doubt that it will continue to spread prosperity to even the hardest-to-reach communities. However, as the economy is globalised, our tax systems are still local. Multinational businesses are taking advantage, playing off one nation state against another. We must rebuild trust in our system, and fast.

If we do not continue to strive to make capitalism fit for purpose, the siren voices against capitalism will become even more alluring. We can easily guess what the shadow Chancellor meant when he said that he wanted to break the narrative when it comes to saving money to balance the books. More populist easy answers were peddled at a recent economic policy conference, where Labour promised to break with economic orthodoxy. This should concentrate the minds of those of us who still take a responsible approach to economic management. We need to show that the system that we have can deliver for the whole of the UK.

I am therefore delighted to see included in Her Majesty’s gracious Address the criminal finances Bill to tackle tax evasion, and indeed many measures in the recent Finance Bill help to take us in that direction. The UK has made great progress on tax evasion and tax avoidance. Through his leadership of the G20, the Prime Minister put tax avoidance at the top of the international political agenda. Progress has been made on many of the action points included in so-called BEPS—base erosion and profit shifting—which was in fact the subject of my maiden speech. On transfer pricing in particular, where corporates move money around different locations to minimise the tax bill, it was somewhat galling to read today that the French seem to be slightly more fleet of foot than we are. On the matter of reducing the tax deductibility of debt interest, where it is used to artificially avoid tax, measures in the Finance Bill that cap this at 30% are to be welcomed.

Similarly, the March Budget also brought a long-overdue clampdown on carried interest, a private equity tax advantage that had little economic benefit except to practitioners themselves. That robust approach has brought the tax gap down to a record low. This is in contrast to the party opposite. Indeed, I agree with the comments of the former right honourable Member for Blackburn, who said on Labour’s record, “There was action that we could and should have taken straight away, but we didn’t”. To be fair, I agree with the comments from the noble Baroness, Lady Jones of Whitchurch, on covenant-lite. She is quite right to draw attention to the growth of covenant-lite; it is a real threat.

I hope the Minister will agree with me in welcoming the Government’s pledge to look at VAT evasion, particularly for international e-commerce businesses. I draw your Lordships’ attention to my entry in the register of business interests, which includes a directorship of a company with 150 shops in the UK. I say that with some temerity, as sitting next to me is one of the country’s greatest retailers. None the less, we have 150 shops. I urge HMRC to move very quickly on this evasion, as UK taxpaying businesses are being disadvantaged. The current e-commerce directive makes clear that any business selling goods online in the UK has to make public its VAT status. However, international businesses from certain jurisdictions are selling goods from UK warehouses on well-known e-commerce platforms without accounting for any VAT at all. Platforms such as Google and eBay have stated many times that it is not their responsibility to act. Measures in the Budget suggest that this will not remain the case and that they could be made liable.

Currently, the e-commerce directive sits with DCMS, but I suggest that the Government investigate this matter to allow HMRC to issue what I believe are called “stop now orders”, which are directed at individual businesses and would give HMRC the powers it needs to tackle VAT evasion. These important measures will help the Government collect the revenue they are owed from big businesses.

What about the smaller entrepreneurs? I welcome new investment in HMRC to help those filing digitally, and cutting capital gains tax for nearly all businesses will encourage greater business investment, as will continued reforms to entrepreneurs’ relief.

In conclusion, we are making progress in showing that our system can be reformed. We need to put beyond doubt that free markets are the best way to spread prosperity and opportunities for all. Clamping down on tax evasion by the abusers on the one hand and making our tax system simple to use for small businesses, entrepreneurs and ordinary taxpayers on the other hand means that this Government, in tax as in all things, are and should be for the many, not the few.

Economy: Overseas Trade Deficit

Lord Leigh of Hurley Excerpts

Wednesday 25th May 2016 Lords Chamber

[Lord O'Neill of Gatley]

My Lords, I emphasise, as I tried to do in my opening comments, that the current account deterioration is not being driven by a deterioration in the trade deficit. In fact, our trade deficit has been relatively stable at around 2% of GDP for the last seven years.

[Lord Leigh of Hurley (Con)]

My Lords, the Minister is right to say that the deficit is caused by the imbalance in FDI. Does he agree that the way to address this is to encourage industry to divert investments away from low-yield FDI into high-yield areas, such as China, which currently represents less than 1% of our overseas investments abroad?

[Lord O'Neill of Gatley]

I am very grateful for the accurate suggestion by my noble friend Lord Leigh as to what is really going on below the data. I emphasise—as, rather generously, Ernst & Young did yesterday in a very important report—that the recent deterioration is due to the growing attractiveness of the United Kingdom, especially areas outside London, in the minds of investors all over the world. Narrowing this deficit requires us to invest more in other places in the world that give a higher return.

United Kingdom: Productivity

Lord Leigh of Hurley Excerpts

Tuesday 8th September 2015 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, it is always a privilege to speak in your Lordships’ House, and in particular on a subject so vital to the future of the UK economy as our nation’s productivity. A Financial Times columnist—not Smithers, as it happens—wrote recently that:

“Leadership is to politics what productivity is to economics: not quite the only thing that matters but almost”.

It is therefore perhaps apt throughout this debate tonight and the continued tribulations of the leadership elections elsewhere that we can explore the validity of both facets of that claim in a single week.

In the previous Parliament, thanks to the Government’s long-term economic plan, 2 million new private sector jobs were created, and at a time when all across Europe—and indeed the world—unemployment had reached levels without recent precedent. The party opposite said that this was the wrong approach. Indeed, many economists said that it was wrong. They wrote letters in the national press saying that reductions in public sector jobs would not be counterbalanced by private sector job creation. They were wrong. They said that reductions in public spending would lead to recession. They were wrong. Beware of economists making predictions, and I speak as someone with an economics degree who learned of JK Galbraith’s famous comment that:

“Economics is extremely useful as a form of employment for economists”.

Many of those same critics and commentators are now, in the face of these consistent growth and employment figures, being tempted to move the goalposts and say that it has all been the wrong kind of growth or that high employment has come at the expense of productivity growth. That is a claim worth examining, and we should always look for ways to increase productivity. But first we should state clearly, as we have done, that we make no apology for keeping people in work, and helping those without to find work. At a time of financial crisis and recession, there is a moral imperative to look beyond the economics to the human cost of unemployment. The Government can be proud that they have done so.

We should also be careful as to how much weight we give to recent productivity data. The only consensus emerging on Britain’s so-called productivity puzzle, as the Minister said, is that the way we collect the data needs updating. Furthermore, we should question whether today’s modern knowledge economy is measurable using the techniques of yesterday. The creative and service industries are being continually overlooked in favour of heavy industry. That is why I welcome, as does my noble friend Lord Flight, the review of how we collect economic statistics that is being undertaken by Sir Charlie Bean, who as part of his mandate will,

“assess the UK’s future statistics needs in particular relating to the challenges of measuring the modern economy”.

Before examining ways to improve productivity, on the broader economic debate, it is worth reflecting on what we do know. The latest GDP figures suggest that the UK economy grew by 0.8% in Q2, and on what is perhaps the most unambiguous measure—the tax take—the numbers are in rude health, with July showing record income tax receipts leading to £1.3 billion surplus for the month. I am confident that in January 2016, with the second payment of this last tax year, they will be equally positive and surprisingly healthy, all of which will reduce public borrowing requirements and help speed the path towards an overall surplus as set out in the summer Budget.

However, neither the strength of the economy today nor ambiguities in the statistics should mean that we do not continue to look for ways to improve our productivity. As the Minister mentioned, it is good to see that the Government are not showing any complacency and I was pleased to see that Sir Charlie Mayfield’s taskforce had been set up by the extremely industrious Secretary of State for BIS, Sajid Javid. It comprises a business-led action group for productivity—not full of politicians.

As part of the summer Budget, the Government published Fixing the Foundations, a comprehensive strategy to boost productivity. It sets out not just the challenges of boosting our productivity to reach a leading position, but also the rewards for doing so. Increasing annual trend growth by just 0.1%, a much more modest figure than the noble Lord, Lord Bilimoria, would seek, means that the UK economy would be £35 billion larger by 2030, which equates to £1,100 for every household. The strategy sets out numerous ways to achieve this important goal based on increasing long-term investment and economic dynamism. It is clear from the early stages that we have to focus on the benefits of flexibility. Traditional attitudes towards the workplace are changing. As of January 2015, the number of freelancers in the UK was growing and they were earning a median income of £42,857, which compares with the national average of around £24,000, and they work an average of 38.2 hours a week. Labour’s approach is simply to criticise zero-hours contracts, which are in themselves an important step forwards to helping productivity, but admittedly on its own not enough to change the way we work and how we measure work.

Others have spoken eloquently about the digital aspects of the economy and ways of improving productivity, on the importance of savings and indeed on education, so I would like to focus on the two areas that are of particular interest to me, productive finance and trade. We can analyse skills, innovation and infrastructure but, if capital is not allocated efficiently across the economy, it will be an uphill struggle for every sector. Recent travails should not distract from the fact that the financial services sector remains a huge contributor to the UK economy, and of course I declare an interest as being part of that sector. Financial services contribute £58 billion in net exports, thus contributing 8.4% of gross value added in 2014. But if the crisis has taught us anything, it should be that finance is good for the economy only if it does what it is supposed to do: channel capital to the most productive areas of the economy, creating wealth not destroying it, and fostering growth not hampering it.

Currently, 80% of all finance in Europe comes from banks, and this has to change. With the big banks engaging in much-needed restructuring of their balance sheets, we need a new model of business finance. This means lowering barriers to entry to increase competition from challenger banks, which the Government have correctly identified as an issue. We also need greater diversity of funding sources for businesses looking to grow. In the last Parliament there were many start-ups. This one, I hope, will be where they grow. The Government’s paper is candid about this. Somewhat amazingly, only 3% of start-ups with one to nine employees grow to have more than 10 employees within three years. That is astonishing, and we are well down the OECD’s league table. Having created a whole new generation of small companies, we need to work hard to help them flourish.

Another key plank to rebuilding our productivity is to burnish our reputation as a trading nation, pulling in foreign direct investment and exporting goods the world over. I will not go into the same history lesson as my noble friend Lady Harding, but it is true to say that I am a member of a party that was torn asunder by trade in the 19th century with the repeal of the Corn Laws, which was taken through this House by the Duke of Wellington. Then it was benefits to ordinary consumers that won the day, and that is the lesson.

I have spoken before in this House about our trading legacy and the need to rediscover it: the need to stand up for free trade in the form of trade agreements such as TTIP and others with emerging markets, and the need to lead the EU towards completing the single market in services and capital markets; as the leading exponent of both, it would be hugely to our benefit. I know that my noble friend the Minister is leading a trade mission to China next week, and I am sure that he takes with him our best wishes for every success in that important export drive. Trade drives competition and innovation, brings in investment and creates new markets for our businesses to sell to. This in turn creates better-paying jobs and increases living standards. This is not an argument for either staying in or leaving the EU; we can be equally successful either way.

There are many facets to this debate, but I will finish where I started. We are all agreed that productivity is an important issue. It is therefore ironic that the areas I have focused on, trade and finance, attract such ire from critics who purport to be sticking up for working families. But difficult though the arguments may be to make that competitive trade policy and efficient financial services are the best way to help these families, as Conservatives I am sure that the Government will continue to make them.

Queen’s Speech

Lord Leigh of Hurley Excerpts

Thursday 4th June 2015 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I am delighted to be speaking today on the Queen’s Speech debate on business and the economy, and declare all my business interests as in the register. The noble Lord, Lord Teverson, will be pleased to note that most of my remarks focus on middle-sized businesses.

I am delighted to be speaking, not least because it could have all been so very different. Instead of a Government who recognise the role that business plays in our economy and our communities, we could have had one who saw business as inherently bad; one seeking to split businesses up into producers and predators and pit large businesses against small; a Government whose principal role was perceived as regulating rather than enabling businesses to excel. I am thankful that those of us in business do not have to contend with the radical proposals made by the party opposite, such as the extraordinary suggestion to force business owners to give employees first dibs on buying a business put up for sale by its owners, or the proposal mooted by the leader at the time for compulsory work councils for businesses employing over 49 people. I am thankful that we do not have to contend with a Government intervening on pricing or with other anti-business measures, particularly the idea of greater taxation on medium and larger businesses, which would be to the detriment of small businesses. Those of us on this side of the House who understand aspiration know that that aspiration applies equally in business. However, I will leave it to the party opposite to explain those proposals and confirm that it no longer supports them.

As the Minister knows, this does not mean that there are not challenges ahead and important issues that need to be addressed by this Government. I would like to run through just a few of these that I hope might be picked up in the legislation introduced by the gracious Speech.

First, we need to keep our foot to the floor in encouraging entrepreneurship and making sure that the UK is seen as the place to start a business and grow it; otherwise, the momentum gained in the last Parliament could stall. One way to do this is to liberalise the entrepreneurs’ relief, which, to their credit, was brought in by the last Labour Government. Currently, a 5% minimum shareholding is required to be eligible for that relief. This discriminates against smaller shareholders and distorts economic activity. Indeed, I have seen one company recently refuse to take in fresh equity because it would dilute certain shareholders below 5%. The employment test for that relief should be scrapped. Business mentors, angel investors and academics who invest not just capital but time and advice should not be prejudiced against being eligible for that relief.

Specifically, the absurd lifetime cap of £10 million should be abolished. We are talking about creating a market for the world’s most ambitious entrepreneurs, who want to start not just one business but many, some of which will be global titans. Scrapping the limit will encourage them to do this in the UK.

To further support entrepreneurship and the growth of companies, I am delighted to see the inclusion in the Queen’s Speech of the enterprise Bill, promising as it does to cut down on red tape and, as we have heard, saving businesses £10 billion in this Parliament. I was a member of the DTI—as it was it then—deregulation task force in 1996 and the area that I focused on, as it happens, was business rates. I am therefore delighted to hear that this matter is finally going to be addressed and use this opportunity to welcome to the House the noble Lord, Lord O’Neill of Gatley, whose appointment is welcomed not just here but by the business community and the financial community worldwide as recognition of the importance attributed to this area by this Government. I am also delighted that my noble friend Lord Maude of Horsham, who created the DTI deregulation task force, will be at the forefront of BIS and will, with the Minister, continue our efforts to spread the wings of UK business still further.

In addition to cutting red tape, the Bill should enforce greater transparency with respect to regulators to make sure that they comply with their statutory obligations. I want to emphasise that the reach of the Bill must extend to the financial services, as I am sure that the noble Lord, Lord O’Neill, will recognise, and in particular to the FCA. After a financial crisis such as we have had, it is vital that the regulator acts to restore trust in what is still a very important industry in the UK, yet I am increasingly concerned that the FCA is pursuing an agenda that, at least in respect of smaller firms, is lacking in transparency and accountability. Decisions made by an ombudsman or individual within the FCA can have extremely wide implications and affect the availability of financial products to the detriment of both consumer and provider. I ask the Minister to ensure that the enterprise Bill looks at this area, which is threatening growth in the UK’s financial services industry.

I have expressed concern in this House in the past that insolvency practitioners become administrators. I hope that this will be addressed. I would also like to lend my support to the trade unions Bill. To improve business confidence further, our labour laws must work in the interests of employers and employees alike, not the trade union bosses. Introducing a 50% minimum voter turnout threshold for strike action is therefore fair and proportionate. I accept the assertion made by the noble Lord, Lord Mendelsohn, that he is not personally financed by unions, but others are.

Having just come through a credit crunch, we need to look again at the supply of business finance in our economy, so hats off to the Government for creating the British Business Bank and the business growth fund, mainly on the equity side, but we should be concerned about the return of “covenant-light” lending from the banks and, specifically, from debt funds. Some of these covenant-light loans are originated on the assumption that if they turn bad they can later be offloaded to vulture funds without any cost to the debt providers. This is bad news for the borrower. It is far better to make sure that the terms of the loans do not allow their sale and are more responsible in the first place. This is crucial for financial stability. We need to learn from 2007-08 that covenant-light loans will inevitably lead to reckless borrowing. I am sorry to advise your Lordships’ House that such loans are back in the market. I therefore urge the Treasury and the Bank of England to revisit controls over covenant-light lending with some urgency. I at this point express my great delight that the noble Lord, Lord King of Lothbury, a world expert on this matter and to whom this country owes so much, has made his maiden speech today.

Likewise, it is time to take a serious look at tightening the rules on tax deductibility of debt interest, because what we have now is simply an incentive to load debt on to the balance sheet of companies. This is not in the interests of the long-term viability of the businesses concerned or of the country as a whole. With the OECD looking at this issue, in a piece of work championed by the Prime Minister no less, it is time for the UK to come in from the cold and bring its approach more into line with the emerging global consensus on debt relief, where at least deductions are limited.

Therefore, there is much still to be done. One thing we can be sure of is that the election result and the Queen’s Speech that has followed are undeniably good news for business and the UK economy. I believe that the growth that we have enjoyed recently will continue unabated and we should be proud that Britain has shown the way in how to run a competitive economy that benefits all its people, businesses and workers alike. Long may this continue.

Income Tax: Top Rate

Lord Leigh of Hurley Excerpts

Monday 16th March 2015 Lords Chamber

[Lord Newby]

My Lords, I do not know which bits of that question to deal with first. However, given the time, I just point out to the noble Lord that the group of the population whose income, by percentage and absolute amount, has suffered most and which has lost the most is the top 20%. They have seen a 3% cut in their income, which is a greater cut than has been experienced by any other tranche. The noble Lord does not like it because it is an inconvenient truth, but it does not stop it being a truth.

[Lord Leigh of Hurley (Con)]

My Lords, does my noble friend the Minister agree that during the life of this Government corporation tax has fallen from 28% to 21% but corporate taxation revenues from companies has increased from £35.8 billion to £39.3 billion? That underlines the point made by my noble friend Lord Borwick that a decrease in rates of tax helps to increase revenue, reducing the biggest problem that we face at the moment—the deficit.

[Lord Newby]

My Lords, it is important to have competitive corporate tax rates, which is why we have reduced them, although it is obviously the case that you reach the point as you are reducing taxes when you lose revenue. The trick is to get the balance right, which is what we have done by reducing corporation tax, for example, and by putting capital gains tax up very significantly from the level it was under the Labour Government.

Small Business, Enterprise and Employment Bill

Lord Leigh of Hurley Excerpts

Tuesday 3rd March 2015 Lords Chamber

[Lord Myners (Non-Afl)]

My Lords, I support the amendment of the noble Lord, Lord Mitchell, and will be very surprised if the Government do not see merit in it. The coalition Government have made very serious efforts to address the impact on the economy of a shortfall in credit availability. They have launched multiple schemes, as the noble Lord, Lord Mitchell, indicated. The previous Government, of which I was a member, did likewise, and we found it extremely difficult to stimulate sensible extensions of credit to support business. The coalition Government found that they finally got lending going largely through the mortgage market. Only time will tell whether that has long-term economic benefit.

The Government have encouraged us to leave relatively undisturbed the dominance of the major banks. The market share of our major banks would be sufficient in normal circumstances to have triggered a competition inquiry many years ago. The dominance of the major banks is reflected largely in the absence of any differentiation in their products and pricing, and their basic business model is the same. They do not compete aggressively for market share; they do so at the margin but, on the whole, they sit on large legacy books of existing relationships. We know that, statistically, one is more likely to divorce than to change one’s bank.

Therefore, the Government should be encouraged to promote new forms of lending and should see this as an important adjunct to their own policies to support the economy. In those circumstances, I should like to believe that the Government would see real merit in the amendment of the noble Lord, Lord Mitchell, thereby ensuring that we get clarity about how the banking and credit availability system is working. I do not think that Santander is a challenger bank; it is the old Abbey National. Aldermore, Virgin, Metro and Bank One are challenger banks, but not Santander. However, if progress is not made by these banks, that is precisely the circumstance in which the Government would want to reach to independent evidence to show this.

I do not quite share the anxiety of the Benches opposite about the sweeping powers implied by the final part of the amendment. I imagine that they could be exercised only within the powers of existing law. I hope that a Government who are committed to furthering and promoting competition and transparency will not put themselves into contortions to reject the amendment. If they do so, they will stir continued anxiety that sitting opposite are a Government of bankers, for the bankers, rather than for society and our broader economy.

[Lord Leigh of Hurley (Con)]

My Lords, as has been said, we have discussed finance for SMEs at length and it will continue to be a perennial topic. I welcome Clause 5. All the challenger banks—the noble Lord, Lord Myners, named some of them but I was thinking more of the crowdfunding-type organisations—are very excited about what is going to happen in the market. I have talked to some of the big four clearing banks and they are excited. Despite the fact that one might have thought that they would be nervous about the clause, which will almost force them to send their customers to challenger banks, they are keen and excited about, and welcome, this event.

On the surface, the amendment looks sensible, other than—I reinforce the point made by my noble friend Lord Cope—proposed subsection (4), which is open-ended. Business is nervous about this sort of provision. It is worried by some of the pronouncements that have been made by the Opposition. A Labour Party proposal that has not been raised in this House suggests that if a business chooses not to raise finance, or is not successful in raising it, but actually seeks to find a purchaser of more than half its equity, before such a transaction can be completed to a purchaser of the choice of the vendor, the vendor will be required to offer the business to all its employees on comparable terms. That was proposed in a recent speech by the leader of the Labour Party because he wants a John Lewis-type economy. While I understand that direction of travel, it is, of course, totally impractical and destructive to business life. That sort of policy might be brought in under subsection (4) of the amendment. That makes me nervous and is one of the reasons why I would not be happy about the proposed new clause.

Entrepreneurs’ Relief

Lord Leigh of Hurley Excerpts

Thursday 26th February 2015 Lords Chamber

Asked by

[Lord Leigh of Hurley]

To ask Her Majesty’s Government what assessment they have made of the economic impact of the increase in Entrepreneurs’ Relief since May 2010.

[Lord Newby (LD)]

My Lords, no formal economic assessment has been made, but HMRC monitors and regularly publishes information on entrepreneurs’ relief and its take-up. The value of entrepreneurs’ relief is forecast to rise from £1.5 billion in 2010-11 to £3 billion in 2014-15. This Government have increased the lifetime limit from £2 million to £10 million and this is expected to benefit those who want to grow their business and reinvest their gains into new enterprises.

[Lord Leigh of Hurley (Con)]

My Lords, I thank my noble friend and draw your Lordships’ attention to my declaration in the register of interests. The great success of the UK economy has not happened by chance, but by the implementation of policies designed to encourage business. As mentioned, the increase in the cap from £2 million to £10 million has had a dramatic effect in allowing and encouraging entrepreneurs to start new businesses. However, many of them have gone through this cap, which is a lifetime amount. Will the Minister consider taking away that cap and possibly the 5% limitation as well?

[Lord Newby]

My Lords, as the noble Lord has pointed out, we have increased the cap fivefold. However, we believe at this point that the limit is necessary as part of the overall design of the relief and to ensure that the relief is well targeted and not open to misuse. As I said in my initial Answer, it is worth £3 billion already.

Small Business, Enterprise and Employment Bill

Lord Leigh of Hurley Excerpts

Wednesday 7th January 2015 Grand Committee

Moved by

[Lord Leigh of Hurley]

18A: Clause 5, page 6, line 43, at end insert—
“impose a duty on the finance platform to offer specified information to a designated financial adviser.”

[Lord Leigh of Hurley (Con)]

My Lords, as disclosed on the register of interests, I declare that I am a senior partner at Cavendish Corporate Finance (UK) Limited, and my involvement with BIS, which I shall amplify in a moment. Like the noble Lord, Lord Mitchell, I very much welcome the Bill as further evidence of this Government’s commitment to SMEs, and in particular to providing assistance for SME finance. Unlike the noble Lord, I would say that the Government have done a huge amount to assist SMEs on finance not just in the UK, but overseas as well. I should particularly mention the pleasure of working with BIS, and I actually travelled to China with the Prime Minister on his trade mission. That jumbo jet was full of SME businessmen. The Prime Minister made a point of taking SME businessmen to help their export trade, and as I travel around the country, I have businessmen telling me how dramatically different the Foreign Office is when working in conjunction with BIS to assist SMEs.

This clause in particular should, it is hoped, have a radical effect on assisting SMEs in the procurement of finance in difficult circumstances for them. I welcome the clause. My amendment relates to a particular and specific circumstance where an SME has gone to its local high street bank and, for whatever reason, that bank has rejected the loan. That is, of course, a minority of situations. The proposal suggests that at that point, the high street bank should put the customer on to a finance platform in order to allow other alternative sources of finance to provide the loan. I welcome the regulations that were published just in time for a Christmas read, and in particular that the Treasury has now agreed to consult the British Business Bank specifically on who will be the designated platform. I firmly believe that the BBB understands who would be the appropriate platform.

I do not intend this in a pejorative sense, but my concern is that the use of “may” in Clause 5(4) means that within the terms of paragraphs (a) and (b), only lenders will have access to those finance platforms. I believe that it would be much more helpful to SME businesses to allow them the opportunity to take advice and have access to advisers who can guide them towards the right source of such loans. Indeed, many lenders to SMEs, because of the nature of the small amount of money involved, will look at loans only if they are packaged in a particular prescribed format. The SME will not have the skills and expertise, or indeed the time, to package up the proposal in a format that suits each possible financial provider. Furthermore, some financial platforms have in mind a large number of lenders, as many as 130, while others have only four or five in mind. If the potential borrower finds himself on the wrong financial platform, he will either be too restricted in the number of lenders he can talk to or possibly overwhelmed by the number of financial providers who contact him to offer their loans.

We are talking here about businesses that range from wanting a loan to finance a small residential development to one that wants to borrow the money needed to buy a forklift truck. Of course, the nature and type of lender will vary enormously according to the circumstances and, indeed, to the geography. My amendment would allow the potential borrower to have access to an appropriate adviser, which is, of course, an adviser that would be approved by the Treasury—which means, in fact, the British Business Bank—to facilitate greater choice for businesses. Let us not forget that these businesses have just suffered a rejection of their loan application and, sadly, they are probably not blessed with a munificent and successful father along the lines of the example we discussed earlier. They therefore need an appropriate level of advice. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, we have a few amendments in this group and I will speak to just a couple of them. Two of them deal with matters to do with the Regulatory Reform Committee, which I think will be dealt with by the Minister when he comes to respond. The amendments would simply implement the proposals that have not already been dealt with by the previous discussions.

Amendment 19 is a probing amendment. In this set of amendments we deal with the third leg of a three-legged stool that tries to address a set of arrangements around the failure to commit to a financing model for small businesses at the individual level. This is a different attack on the same problem we have talked about throughout the whole of this afternoon: why finance does not flow as well as we would all like to this sector of our economy. The amendment is designed to suggest to the Government that there would be merit if one could extract some lessons from the process, whether or not it also includes the proposals just spoken to. That would add another dimension. We will see how the Government respond to that.

In the context of there being a small business in need of financing, a set of traditional lenders to whom it may or may not have applied, alternative suppliers and others who have expertise and knowledge about that, it would make sense for there to be some lessons learnt from these processes. The suggestion is made in the amendment that the Government might wish to think about providing an annual report to Parliament so that we have a sense of how these things operate. This is to some extent uncharted territory. It may feel like another administrative burden. In some senses, being a probing amendment, the wording is not to be taken at face value. However, this is interesting and new ground. We need to learn the lessons from it and to get the information that we gather out to as wide a group as possible. I hope the sensibility of that would commend it to the Government in some way. I look forward to a response on that.

The converse side of this argument is to be found in Amendment 21. This was slightly touched upon by the noble Baroness, Lady Wheatcroft, who I am afraid is not now in her place. I recognised what she said in her intervention on the last group. We would all be worse off if the credit referencing agencies and those others involved in this stool of three legs that I have talked about were fed information that was wrong. There has to be some means or mechanism for those who feel that the information held on them in these agencies is correctable. The noble Baroness was right to say that this has a sense of the googlisation issue, where you might have the right to correct your own information if you do not like it, but that is not where we are here. We are saying that if it is factually incorrect or in some senses paints a distorted picture, there ought to be some redress mechanism.

There are probably already reasonable direct relationships that could be invoked for that. Of course, there is the Financial Ombudsman Service, which plays a great part in dealing with many issues. I suspect that the people we are talking about in the SMEs, particularly the smaller ones, would find it helpful to have a body like the FOS to which they could pray in aid for help to correct information, question whether information held is correct and iron out any problems. The amendment is there as a suggestion, to the extent that there may even be other systems that would be better able to take this on. If there are not, why should the FOS not be invited to do so? The reason for tabling the amendment was that, in researching this, it turned out that there is a rather low limit for the size of institution that can approach the FOS. It would perhaps be helpful if, as a result of this discussion, the Treasury took this back and looked at it again. It seems wrong to cut off an area that is clearly effective in trying to get things resolved and to get the economy moving and things going. I hope that that is a helpful contribution.

--- Later in debate ---

[Lord Newby]

Going to the CRA is the logical first port of call, is it not? We are talking about cases here where a company believes or knows that the CRA has incorrect information about it on its books, and it will be in the interests of the CRA to correct any mistakes. As I say, the complaints procedure is part of the designation. We are making sure that the CRAs are open to complaints and have a proper way of dealing with them. The other limb to the argument relates to the role of the Financial Ombudsman Service. The noble Lord is suggesting an extension to the remit of the FOS in terms of businesses, which is a considerable change that you would contemplate only as part of a larger possible review of the role of the FOS in terms of businesses more generally. This is a very narrow area, and to extend the remit of the FOS in respect of firms just for this, and to nothing else, would look slightly odd.

Amendment 25 relates to the definition of small and medium-sized businesses. I apologise to the noble Lord, Lord Flight, that I was unable to be here for the earlier discussion broadly around this issue. The definition that he is suggesting is the one used by Her Majesty’s Revenue and Customs for the purposes of the research and development tax credit. Although I hear his arguments, I would point out that the £100 million figure is very much the outlier in terms of accepted definitions of SMEs. The definition used by HMRC for R&D tax credits is tailored to that one specific policy and flows from the fact that most research and development is done by larger companies. I do not believe that it would be appropriate here.

The turnover figure used in the current definition in Clause 7 is widely accepted as the threshold for an SME. It is used in the Companies Act, by the Bank of England for reporting purposes, and for the Funding for Lending scheme. It is used by various government schemes such as the lending appeals process and is used by the British Business Bank. There is no rationale for dramatically expanding it to businesses with a turnover of up to £100 million. As noble Lords will be aware, these measures are designed to address market failures that disproportionately affect the smallest businesses: namely, a lack of credit information and a lack of awareness of alternatives. These problems do not affect larger companies in the same way. The Government have proposed and consulted on a measure aimed at small and medium-sized businesses. This amendment would go considerably beyond that.

The existing simpler definition in the Bill, based on turnover, mirrors that used by the Bank of England. We believe that it is the most appropriate definition for legislation that applies to banks as they have visibility of the turnover through the company’s primary account and are already used to applying the similar definition used for the Funding for Lending scheme. I would note, however, that even larger companies outside the definition of SME businesses will benefit from the measures in the Bill. For example, a larger company will still be able to apply directly to a designated platform to seek a finance provider. The Government therefore consider that the existing turnover threshold of £25 million is the appropriate place to draw the line for the legislation. I hope, therefore, that the noble Lord will be willing to withdraw his amendment.

[Lord Leigh of Hurley]

I thank my noble friend the Minister. I hear what he says but I would make the point that, as the noble Lord, Lord Stevenson, said, we are entering uncharted waters here. We really do not know how this will work. My amendment would therefore allow for the possibility that the system was not working well, with unhappy companies that want to borrow money the second time around finding the system to be too complex and too much of a muddle and being hassled, shall we say, by too many finance providers. It would simply allow the Treasury the option to suggest that advisers are included in their options. I would encourage the Minister to reflect upon that, but for now I beg leave to withdraw the amendment.

Amendment 18A withdrawn.