Autumn Statement 2023

Lord Leigh of Hurley Excerpts

Wednesday 29th November 2023 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I will start where the Chancellor started, with his opening remarks. If I have to criticise those remarks, it is because he was far too modest. We have a growing economy. We are doing a lot better than he gave us credit for. The recent IMF figures show that average real GDP growth from 2010 to 2023—to take a period at random—was 1.53%. That is not great, you might say, but look at the lower figures for Germany, at 1.45%; France, at 1.18%; Spain, at 1%; and the Euro average, at 1.25%. Tick, I say.

Thankfully, my noble friend covered this in her opening remarks. She is a welcome addition to the Treasury team, and I give her a warm welcome. Congratulations as well to my noble friend Lord Harrington on producing his inward investment report, which was so well received.

Some would say “Well done the Tory team” on the growth to date, but I also congratulate the Chancellor on his first and opening pledge—not widely reported—to offer up to £7 million to the Holocaust Educational Trust and related organisations. For full disclosure, I am a donor to the HET. I believe it is so important to educate on and fight anti-Semitism, and I was proud to do so in Parliament Square this weekend.

This Budget struck me as perfect for the time: balanced and hopeful, with clear benefits for most as the economy recovers, and without any irresponsible giveaways. It promotes considered policies that make sense. For example, there were no changes to IHT, or even its abolition, as widely sought by some. Labour, on the other hand, seems to be flip-flopping on its previous announcements, which were to abolish business property relief for IHT. I do not know where they stand on it but, if they kept their word to abolish that, it would dramatically knock the AIM market which relies on it and almost every single private family company would be at risk of collapse when a shareholder passed away. I declare my interests, as in the register, but, even though it would probably help my business if business property relief were withdrawn, as everybody would have to sell, it would be a disaster for the country. Can my noble friend the Minister write and tell me how much inheritance tax is currently sheltered by business property relief, so that we can have a proper debate about it?

I welcome the announcements on research and development. However, as the chairman of the Finance Bill Sub-committee of the Economic Affairs Committee, I can confirm that we are producing a report on R& D tax credits in the near future, so I will not speak further on the detail of that today.

I am pleased to see a commitment to OECD Pillar 2. I know it is not popular with every member of my party, but the tax treatment of multinationals, in my opinion, needs urgent attention. If we do not get that right, I still want to see a digital sales tax, which I have consistently advocated.

I want to focus my remarks on just over three lines in the Green Book, in section 5.76. They were not even mentioned in the Chancellor’s speech and are on EIS and VCT. My noble friend will recall that, in the Conservative Party’s 2019 manifesto, a pledge on page 34 assures us that EIS and SEIS will continue—and there you go, it pops up in the Autumn Statement as a pledge to legislate to extend the sunset clause. I have to ask why we need to legislate. HM Treasury knows that this can easily be resolved by Treasury regulation. Perhaps I can help my noble friend by explaining the problem.

While we regard EIS as a tax relief or tax break, the EU regards it as state aid. As such, it is governed by the Windsor Framework, in as far as it includes companies which trade in goods—not services, just goods. Although at first sight this should apply only to those companies physically based in Northern Ireland, because Northern Ireland is still in the single market, I am afraid that the EU regards the regulations as applying to all of the UK, as it is possible for a company in, say England, to have a subsidiary company in Northern Ireland that might benefit from what it regards as state aid and we regard as tax breaks. To the extent that there is trade between Northern Ireland and the rest of the UK, the EU is concerned that this could give an unfair advantage to the Northern Irish company.

The Windsor Framework helps us by trying to offer a pragmatic route out of this. But it does not clarify whether we can say, with certainty, that we can abolish the sunset clause, or indeed make other changes that I would like to see in respect of EIS rules, which are currently too restrictive, without any EU permission. In the past, when we were a member of the EU, that permission would be granted by the EU if we could show—indeed, we had to prove—that there was an equity gap which meant that EIS was needed as state aid. It will be impossible to provide proof that there is an equity gap in Northern Ireland, mainly because the equity gap figures for Northern Ireland are simply not available. In theory, we could remove all companies engaged in goods from EIS—but what a disaster that would be.

So I think we are not looking at getting rid of the sunset clause that easily at all; at best, we might put it back a further 10 years. However, the financial services industry and the savings industry really need an urgent answer from the Treasury, if not today from the Dispatch Box then very soon afterwards, as to whether this proposal, which is in the Autumn Statement, has been squared with the EU. Do the Government have the permission of the EU to abolish the sunset clause, as is claimed? How depressing it would be to discover that we are still dependent on EU approvals for an otherwise excellent Autumn Statement.

Finance (No. 2) Bill

Lord Leigh of Hurley Excerpts

Committee negatived & 3rd reading
Tuesday 4th July 2023 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I declare my interests as set out in the register. I am a chartered accountant and member of the Institute of Chartered Accountants in England and Wales, and a member by qualification of the Chartered Institute of Taxation. I am pleased to welcome this excellent finance Bill and congratulate the Minister and her team on it. I hope that she will not be seduced by the siren calls of my noble friend to confuse capital and income. Taxation on capital is taxation on a risk, where capital may appreciate or may be lost, and therefore merits a different rate from taxation on income, where one is paid a salary by another person without any risk whatever. That is why the rates are different.

It is a great credit to the Chancellor and my noble friend the Minister that His Majesty’s Treasury is tackling a number of difficult issues head-on. I congratulate them on producing 350 clauses and 460 pages with the perennial plea for less not more, which I quite appreciate is difficult to achieve. I also appreciate that they would probably ask the same of me. So I will focus on a few key areas, the first being R&D tax credits. I had the honour to serve as chairman of the Economic Affairs Finance Bill Sub-Committee, which looked into research and development tax relief and expenditure credit. We looked at this area because the sums are enormous. In this regard I think that the noble Lord, Lord Sikka, will agree with me. Since the scheme started, it is estimated to have cost £46.8 billion, and some £7 billion in the most recent year.

What concerned us greatly was the level of fraud, which was estimated to be some £500 million but is so unquantifiable that the National Audit Office has qualified its accounts of HMRC due to this single issue. Research and development are crucial to our economic success. I know from the response that the Minister in the other place gave to our report that HMRC has studied it carefully and will honour the commitment to keep listening and improving the system, particular in respect of the new requirements to give notice.

I ask my noble friend to have regard to the detailed comments from the Chartered Institute of Taxation, particularly in respect of the new powers that HMRC has to remove a claim. I am all in favour of giving HMRC new powers to stop suspected fraud but, as I read the wording, it seems flawed. For example, there is no right of appeal. We all want to stop the ambulance chasing that we have seen by rogue operators seeking credits for clients and then taking a percentage of the amount that is claimed. However, there remains concern about the nature of the additional information to be required and, of course, HMRC’s ability to capture and process all this.

Since our report was published, I have been contacted by practitioners highlighting real concerns. I have been sent a detailed letter by Mr Stuart Rogers of PKF accountants, which he sent to the Minister in the other place, in which he describes his frustration at HMRC’s compliance team not having the necessary training and skills in research and development. He points to clients now thinking of transferring their R&D to the United States, and to other high-tech clients who have been refused credit where it is clearly due. That is not good news. Will my noble friend agree to hear specific complaints that the R&D compliance check team is causing havoc, and satisfy herself that action needs to be taken here?

Just today, the Chartered Institute of Taxation wrote to HMRC with 11 pages of concerns. In particular, it says that the feedback from its members is that the way that R&D inquiries are being conducted by the individual and small business compliance team remains concerning. Further problems, for example around how penalties are being assessed and how inquiries are being concluded, are emerging as cases progress. The institute wrote:

“We are receiving a significant number of reports from our members about the difficulties that are being encountered in practice and they have provided numerous examples of unfairness and negative taxpayer/agent experience in their interactions with the ISBC team in respect of R&D”.


I will ensure that my noble friend receives a copy of that letter.

I will briefly mention the energy profits levy, as amended in the finance Bill. It is a really important part of the Bill and has caused havoc in the sector. The price floor will never bite—unless, heaven forbid, there is another six-month lockdown. Consequently, there has been a real flight of capital, mainly to oil and gas exploration elsewhere, specifically Asia. We need a long-term—six to 10-year—energy security policy that includes a sensible real price floor. I have made this case before and will continue to do so.

The final area that I will talk about is the taxation of multinationals. I have spoken on this issue many times in this House. Sad person that I am, I made this the subject of my maiden speech. I very much welcome the Government’s move in this direction to deal with base erosion and profit shifting on a two-pillar basis. Pillar 1 seeks to ensure that multinationals with revenues over €20 billion pay taxes where their customers are based. Pillar 2 looks for a minimum 15% tax rate for companies with presence here and revenues of over €750 million. This Bill sets out more details on pillar 2.

There are some 50 amendments to Part 3 of the Bill to try to deal with this very difficult and complicated problem of definitions, safe harbours, exemptions and so on. Creating new definitions of profit is a real challenge, but it is the only way the income inclusion rule can possibly work.

Very recently, HMRC helpfully established draft partial guidance for consultation in relation to the UK’s implementation of the OECD’s pillar 2 rules. It provides a helpful map showing how existing UK draft legislation cross-references to the OECD’s GloBE model rules, commentary and agreed administrative guidance. I accept the argument made by CIOT and others that pillar 2 may not necessarily generate more tax for the UK coffers, because multinationals may just raise the lower tax rates they currently pay in other countries. However, that does not mean that this is not the right way forward; it is the right way forward.

I noted Priti Patel’s comments on this issue in the other place. She is concerned that we end up gold-plating rules, as we tend to do, and we are hamstrung by other rules at exactly the time when, finally, post the Windsor Framework, we can liberate ourselves to determine our own tax policy. As the Minister knows, I am very keen that we do that, particularly on EIS and SEIS issues. I noted her opening comments about how she has increased the rate of SEIS particularly, which is very welcome.

Priti Patel has had assurances from the Chancellor that the Government have committed to regularly updating the Commons on what the OECD is proposing in respect of pillar 2. Can the Minister repeat this assurance to our House that updates on policing pillar 2 will be presented to your Lordships, and will she commit to presenting an assessment of the progress countries are making on pillars 1 and 2 and on the policy itself? It will not work unless every other major country adopts it.

The whole world should recognise the UK Government’s track record of leadership on international tax reform. It has continued in this role and been an early mover in implementing pillar 2 rules. We need the USA in particular to do likewise with Biden’s proposals, and I am keen to know what steps HMRC is taking to pressure other countries to follow our lead. Personally, I was a fan of a reformed digital services tax, which Labour has now abandoned, but I could not persuade HMT to bring it in, so we need to make this alternative route of pillar 2 work.

To reiterate, this is the right way forward and the Government are to be commended for pursuing it.

--- Later in debate ---

[Baroness Penn (Con)]

The noble Baroness is exactly right. The increase in the headline rate of corporation tax makes a significant contribution to our public finances and to the consolidation of our public finances after Covid. All I meant to say is that, for some of the reasons set out by the noble Baroness, we have been able to exempt smaller businesses from that increase while also ensuring that bigger businesses—which often benefited a large amount from government support put in place during the pandemic—contributed their share to returning our public finances to a sustainable footing.

The noble Lord, Lord Sikka, also asked why HMRC’s budget had been cut. HMRC will receive a £0.9 billion cash increase over the Parliament, from £4.3 billion in 2019-20 to £5.2 billion in 2024-25, so I do not quite recognise the picture that the noble Lord has put forward. HMRC’s budget includes funding to tackle avoidance, evasion and other forms of non-compliance, to deliver a modern tax system and to support a resilient customs border.

I turn to another area of tax, the energy profits levy, which, I remind noble Lords, has helped to pay a significant proportion of households’ and businesses’ energy costs through the support that we have been able to provide. I want to be clear to noble Lords that the allowances in place are not a loophole. The OBR’s latest forecast is that the EPL will raise just under £26 billion between 2022-23 and 2027-28, inclusive of the EPL’s investment allowances. That is on top of £25 billion over the same period from the permanent regime for oil and gas taxations, totalling around £50 billion.

Abolishing the investment allowance would be counterproductive. The UK is still reliant on oil and gas for its energy supply and will be for several years; reducing incentives to invest would lead to investors pulling out of the UK, damaging the economy, causing job losses and leading to lower tax revenue in future.

My noble friend Lord Leigh asked about the impact of the price floor and the Government’s long-term plans for energy security. By introducing the energy security investment mechanism, the Government are providing certainty about the future of the energy profits levy. This allows companies to invest confidently in the UK and supports our economy, jobs and energy security.

On the long-term fiscal regime for oil and gas, the Government are also conducting a review to ensure that the regime delivers predictability and certainty, supporting investment, jobs and the country’s energy security. I wonder whether that predictability and certainty would be covered in Labour’s review of business taxes. I do not think the oil and gas sector sees predictability and certainty in its policy approach in recent weeks.

I turn to the electricity generator levy. Unlike the EPL, this not a tax on total profits that is calculated after the recognition of total revenues and costs. Instead, the EGL is payable only on the portion of revenues that exceeds the long-run average for electricity prices. The Government took into account the potential impact on investment when setting the benchmark price.

The Government are supporting renewables deployment through a range of policy levers, including the contracts for difference scheme, through which generators have received almost £6 billion net in price support to date. The electricity generator levy will not be payable on renewable generation produced under contracts for difference, which is the Government’s main form of support for green energy and will account for most new large renewable generation.

I turn to the point raised by the noble Lord, Lord Livermore, on non-doms. The Government recognise that issues of taxation come down to fairness. We need to have a fair but internationally competitive tax system which brings in talented individuals and investment that contribute to growth. Reforming the non-dom regime could potentially damage the UK’s international competitiveness, leading to a loss of international investment and talent. There is a great deal of uncertainty over the wider economic impacts of complete abolition.

Non-doms play an important role in funding our public services through their tax contributions. They pay tax on their UK income and gains in the same way as everyone else, and they pay tax on foreign income and gains when those amounts are brought into the UK. The latest information shows that that non-UK domiciled taxpayers are estimated to have been liable to pay almost £7.9 billion in UK income tax, capital gains tax and national insurance contributions in 2020-21 and have invested over £6 billion in the UK using the business investment relief scheme introduced in 2012.

[Lord Leigh of Hurley (Con)]

On another point of clarification, is my noble friend saying that HM Treasury’s calculations are that, if the reliefs that apparently exist for non-doms were withdrawn, as has been suggested elsewhere, there would be a net loss to Treasury revenue, given the mobile nature of such non-domiciled persons?

[Baroness Penn (Con)]

I am saying that that is most certainly a risk. There is a high amount of uncertainty about the impact of any changes in that area, and it would not necessarily lead to an increase in revenue, as is being relied upon by the Labour Party.

Income Tax Threshold

Lord Leigh of Hurley Excerpts

Tuesday 4th July 2023 Lords Chamber

[Baroness Penn (Con)]

I reassure the noble Baroness that the income tax system is still highly progressive: the top 5% are projected to pay nearly half of all income tax in 2023-24 and the top 1% are projected to pay more than 28% of all income tax. The noble Baroness is right that those on middle incomes are feeling the squeeze; that is why we are absolutely focused on supporting the Bank of England in its mandate to get inflation down.

[Lord Leigh of Hurley (Con)]

Does my noble friend agree that the one tax that goes up because of inflation is receipts from inheritance tax? The latest figures show that inheritance tax receipts grew by 14% last year. As the noble Baroness, Lady Kramer, has pointed out, people are dragged into the fiscal net who were never intended to pay inheritance tax on their estates—which are essentially quite modest family homes. Is there not an urgent need to address the threshold rates for inheritance tax?

[Baroness Penn (Con)]

Since 2010, we have introduced additional allowances for people in certain circumstances to pass on up to £1 million to their direct descendants. Inheritance tax makes an important contribution to our public finances, so any changes in that area would need to be properly funded.

Financial Services and Markets Bill

Lord Leigh of Hurley Excerpts

Consideration of Commons amendments
Tuesday 27th June 2023 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, I want to comment on Motion B, which no one has addressed. I congratulate the Minister, her colleagues, the Bill team and all the Peers who have contributed to this 337-page whopper of a Bill, which has been broadly welcomed by all. I remind your Lordships of my declaration of interests, which includes the fact that I am an employee of an FCA-regulated business that is currently seeking to merge with another FCA-regulated business.

That takes me to Amendment 10. Within the Bill are the important amendments to Sections 1B and 1E of FSMA 2000. Amendment 10 seeks to add subsection (2)(ca) to the already strong provisions for consumer protection in Section 1C(2)(a) to (h). I agree with my noble friend the Minister that we should not push through Amendment 10.

I can tell my noble friend the Minister and fellow Peers that in the market the Bill is desperately sought. There is still huge frustration at the FCA about the time taken to progress and execute transactions. That has been a significant block on economic growth, which is one of the objectives that the FCA will now have. I ask the Minister to ensure that the FCA is aware of its new objectives and requirements and that this actually takes place in practice.

[Baroness Chapman of Darlington (Lab)]

My Lords, we on these Benches supported all three of the amendments that we are discussing today when we looked at them last time, including Amendment 7, which would expand the regulatory principle on net-zero emissions to include conservation and nature. We also voted for Amendment 36, imposing a duty on those conducting regulated activity to conduct due diligence with the aim of preventing illegal deforestation.

We have listened carefully to what the Minister has said and will be listening to what she says in response to this debate, particularly to the questions asked by the noble Baroness, Lady Boycott. However, I thank the Minister for her openness in engaging with these issues and for the amendments in lieu, which demonstrate an agreement with your Lordships that these are issues that the Government need to address urgently. They may not be doing so in a way that we would have preferred today, but it is right that we acknowledge the moves that the Government have made.

Amendment 10 in my name would require the FCA to take financial inclusion into account when advancing its consumer protection objective of securing an appropriate degree of protection for consumers. The Government disagree with that amendment, saying they consider that the FCA is already able to tackle issues of financial inclusion within its remit. We argue that the problem is that the Government have failed to address our key concern in tabling the amendment, which is about the poverty premium—that is, the extra costs that poorer people pay for essential services such as insurance, loans or credit cards.

We see this Bill as something of a missed opportunity to build a strong future for our financial services and rethink financial resilience, including how some of the wider well-being issues are tackled by the regulator in the future. Everybody should be able to access the financial services they need, regardless of their income or circumstances. Although we do not intend to push this to another vote today, I can assure noble Lords that we will be returning to this subject at every opportunity—especially if that opportunity arrives in the form of a Labour Government.

For now, I place on the record our sincere thanks, particularly to the noble Baronesses, Lady Hayman and Lady Boycott, who have been highly effective in raising nature and deforestation issues. I also thank my noble friends Lord Livermore and Lord Tunnicliffe for their work on this Bill. We are probably at the end of it now. I note what the noble Lord, Lord Leigh, said about the need to get this Bill through and on to the statute books for the benefit of this important sector.

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.