Finance (No. 4) Bill

Lord Mann Excerpts

Monday 16th April 2012 Commons Chamber

[David Rutley (Macclesfield) (Con)]

It is good to follow the hon. Member for Dumfries and Galloway (Mr Brown), who makes an important point about staycations. I recommend coming to Macclesfield for a staycation. Nestled beneath the Peak district, and enjoying tremendous views over the Cheshire plain, it is a great place to be. It even beats Retford; the hon. Member for Bassetlaw (John Mann) will know that.

[John Mann (Bassetlaw) (Lab)]

But Macclesfield is about to be relegated.

[David Rutley]

Let’s keep football out of this. Coming back to the Finance (No. 4) Bill, it is tremendous to have the opportunity to speak in this important debate. Now that we are nearly halfway through this Parliament, it is important to think about our direction of travel. It is clear that under this Government, Britain has returned to economic credibility, and is laying the foundation for private sector and business-led recovery. Despite views to the contrary among those on the Opposition Benches, my right hon. Friend the Chancellor of the Exchequer has been proved right to chart the course that he did at the beginning of the Parliament. He was right not just to tackle the deficit head on, but to put the private sector at the heart of the growth agenda, where it needs to be. It is a consistent theme that came through loud and clear in the emergency Budget and the 2011 Budget. Now, in the 2012 Finance (No. 4) Bill, it continues to be pivotal, and at the centre of what the Government are trying to achieve.

There are a number of important proposed tax changes, which we have heard discussed by hon. Members, but I want to focus on the measures that have been designed to support British businesses, which are critical to economic recovery. First and foremost, I welcome the Government’s move to accelerate the commitment to having the lowest corporation tax in the G7. It is strange that no Opposition Members took any time to mention that, because that is where we will create new jobs. Having corporation tax at 22% by 2014 will give us real competitive advantage in attracting the investment that we need for sustainable economic growth. This Government’s plans are bold and ambitious, bringing the effective rate of corporation tax to a level below that of developed countries such as France, where it is currently 36.1%, Germany, where the rate is 30% to 33% and Canada, where the rate is 25% to 31%. I understand that even the Republican party in the United States proposes an effective rate of 25%. The measures set out in clause 5 will help us to increase business investment and will help us on our trajectory. I understand that the forecast by the Treasury suggests £3.4 billion of extra investment by British businesses, which is vital for the country.

Through the Finance Bill the Government have recognised the vital roles that innovation will play in helping to strengthen the economy. That is clearly demonstrated by the Government’s corporate tax road map, which came out in November 2010, with the introduction of the patent box, which features in clause 19 and schedule 2, and by the above the line research and development tax credit, both of which will come into effect in April 2012. Such tax measures complement the work that the Government are doing to support vital innovative businesses and industries, such as pharmaceuticals. The recently launched life science strategy will also help industry in the UK to tackle global challenges that are being faced in the pharmaceutical sector and will help us to keep this important skilled work force in the UK, just as I am working with AstraZeneca to do in Macclesfield.

The Budget sets out important steps to help the small and medium-sized enterprise sector. The SMEs will be the vital engines for growth in the sector, as many of us on the Government Benches are aware. The Budget’s £20 billion national loan guarantee scheme will help to reduce the cost of credit for SMEs, which 60% of small firms believe is unaffordable, and will provide an opportunity for small firms to motor ahead. Both the Federation of Small Businesses and the British Chambers of Commerce have welcomed this important and ambitious scheme.

The reforms of corporation tax and of corporate tax more generally have been welcomed by business. The forecasts suggest that they will save business £6 billion a year by 2015. That is money that will be better invested by businesses in new initiatives, enabling them to get on with the job of creating the work that many of us on both sides of the House are keen to see come to fruition. That is why the Budget has been welcomed by so many business groups and by the business community.

The CBI says that

“by seizing the opportunity to make sure our corporate tax system is more internationally competitive, he”—

the Chancellor—

“has sent a powerful signal to companies to invest, do business and create jobs in the UK.”

The IOD goes further and says:

“The reduction of Corporation Tax faster than planned is a positive step in the right direction”.

These are important signals and key messages from the business community showing support for what the Government are doing in this important area.

Although the debate today is rightly focused primarily on the tax-related aspects of the Budget, I shall spend a few minutes considering the supply-side reforms which will also have important impacts on the economy. That is why it is right to acknowledge the work that is being done by the Government in reducing the regulatory burdens faced by our businesses. As Ronald Reagan once said:

“It’s hard when you’re up to your armpits in alligators to remember you came here to drain the swamp”,

but this Government have not forgotten, and are taking action to drain that swamp.

The UK has more than 21,000 regulations on its books, and the Institute of Directors has calculated that the cost of those regulations is approaching £112 billion a year. These figures clearly demonstrate that we will benefit from an approach to deregulation that is every bit as ambitious as the Government’s deficit reduction initiatives and their tax reform strategies that will create the optimal conditions for growth. That is far better and more constructive than the demands from the Opposition for yet more Government spending.

The size of the prize is huge. Cutting the regulatory burden on businesses by just 10% would save British businesses about £11 billion a year. That is the equivalent of cutting corporation tax and the small profit rate by a staggering eight percentage points. Even by the standards of the benefits provided by the Bill, that is a hugely positive contribution to business. That is why the Government are pressing ahead with their deregulatory agenda. The one-in, one-out rule has helped to stem the flow of new regulations, and the red tape challenge is tackling the stock of old regulations. Reforms of health and safety regulations will help to free British businesses from a culture that is damaging the well-being of our economy.

Churchill once said:

“If you have ten thousand regulations you destroy all respect for the law” ,

and, just as relevant today, destroy a nation’s competitiveness. Working together, the Government and the private sector should continue to seize the opportunity and put the deregulatory agenda in a higher gear. This approach will be critical to complement the important work set out for businesses in the Bill.

Representing the Ribble Valley, Mr Deputy Speaker, you will be aware that many of the pro-business policies in the Bill will help to rebalance the economy in the country and across the regions, including the north-west. We have become too dependent on the public sector to create jobs, and we must change that, as we are doing. Despite much grumbling from the Opposition, there is evidence of success. We see important progress at Jaguar Land Rover, where 1,000 jobs are being created at Halewood by a 24-hour production line, one of the few 24-hour facilities in Europe. BAE Systems has been named a key contractor for the F-35 joint strike fighter, which will bring about £30 billion to the UK economy and safeguard 25,000 jobs, many of which are based in the north-west, near Mr Deputy Speaker’s constituency.

We have seen other positive news in recent weeks. In Crewe, near Macclesfield, thanks to a £3 million regional growth fund investment, Bentley has announced that it will create 500 extra new jobs. All these steps show that private sector jobs are being created. As a result, more employers in the north-west are feeling more optimistic about job creation opportunities. According to a March 2012 Manpower survey, 6% more employers in the north-west say that they intend to hire this quarter than in the last quarter, which is welcome news for the region.

We have heard much from the Opposition about job creation. My concern as I look at their policies is that, yet again, they are calling for more jobs to be created by the public sector, which are not sustainable. The jobs that the Government seek to create are sustainable. They are based on a private sector-led recovery. As I listen to the arguments from the Opposition, it is ever more clear to me that the previous Government were overspent, overdrawn and over-awed by the challenge that they had helped to create. It has been left to this Government to clear up that mess.

As we approach the halfway point in this Parliament, we can take stock of the progress that is being made to back business. Important strides have been taken to tackle the deficit, to address supply-side constraints and in this, as in previous Finance Bills, to create a truly competitive corporate tax environment. Such changes are much needed. That is why I add my support to the Bill today.

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[Julian Sturdy (York Outer) (Con)]

It is a real privilege to be called in such an important Second Reading debate and to follow the hon. Member for Middlesbrough (Sir Stuart Bell).

As the coalition made clear upon its formation back in 2010, the overriding priority of the Government and the House must be the economy. We have heard many comments this afternoon about the difficult financial legacy inherited from the previous Administration, but as we consider this wide-ranging Finance Bill, the focus of my contribution will be on not the past but the future.

In such turbulent and difficult times, we must govern not only for today but, perhaps more crucially, for future generations. Failure to ensure economic recovery, encourage new technological industries and reduce the deficit while simultaneously promoting growth will consign not just one generation but multiple generations to long-term economic hardship and its consequences. The international economic waters make steering such a delicate course difficult, and we should appreciate that everything that the Government do, including in the Bill, is hugely shaped and constrained by international factors. A quick glance at Greece and the eurozone provides a daunting reminder of the long-term economic troubles awaiting our continent.

The general thrust of the Government’s financial policy to date has been entirely sensible—to reduce the deficit while promoting and freeing the private sector. Sadly, that careful approach has pleased few. For some, the idea of any reduction in public spending is completely unacceptable, while for others the Government have failed to front-load the cuts enough or cut deeply enough. Indeed, following the Budget a few weeks ago, a number of media outlets have portrayed their concern, frustration and anger. The focus has largely been on the Government’s proposals to reform child benefit and personal allowances, including those of pensioners, and on the politically questionable crackdown on Cornish pasties.

Lost in the wave of negative press cuttings were some of the positive steps that the Chancellor outlined, which should be highlighted and celebrated, particularly by pro-business Government Members. I truly believe that cutting the main rate of corporation tax to 24% from 1 April 2012, as outlined in clause 5, and then to 22% over the next three years, sends out a clear signal that Britain is open for business once again.

Throughout the new Labour years, Britain’s lead on corporation tax was sadly lost. In 1997, we had the 10th lowest main rate among the 27 EU nations. By the 2010 election, we had the 20th lowest. The Government’s corporation tax reforms and other measures will give us the most competitive tax system in the G20.

I will be completely honest: I have always been happy to nail my colours to the mast and declare, as I do again, that I passionately believe in a low tax economy. Low tax economies are attractive places in which to set up, relocate and expand a business. A competitive and vibrant private sector is essential for job creation, economic growth and, by extension, delivering a higher tax take. Ensuring that Britain can offer such incentives to businesses around the world will mean that we remain the No. 1 place in which to do business, and the Chancellor should receive a great deal of credit for putting us on such a pathway, despite the wider constraints of the budget deficit.

Thus far, I have focused on the wider economy and the creation of a private sector-led recovery through providing incentives and tax reliefs. However, I would also like to consider individual households, as the same principle can and should be applied to them. As several hon. Members have said, times are incredibly tough and households face real pressures. I confess that I would have liked some news in the Budget about fuel duty, particularly given the importance of fuel prices in rural areas such as my constituency of York Outer and across north Yorkshire. Yet I recognise that fuel duty will have been frozen for 16 months, thanks to the Government’s actions in the 2011 Budget and autumn statement, and that they also introduced the fuel stabiliser. We must be realistic. Under the current financial conditions, the Government can do only so much in each area. Altogether, we have done more in two years on fuel than the previous Government did in 13.

[John Mann]

Does the hon. Gentleman know that when the Government came in, unleaded petrol was 119p a litre? How much is it now and how much will it be after the next increase in October?

[Julian Sturdy]

I was going on to say that we must be realistic. However, if we had continued over the two years with the rises that the previous Government introduced, fuel would have cost between 9p and 11p a litre more than it does today. Having said that, I still hope that the 3p rise planned in August will be kept under review because we must not forget the impact of high fuel prices on rural areas and the wider rural economies.

[John Mann]

Some of my family originate from Copmanthorpe in the hon. Gentleman’s constituency, and petrol is sold there. Today, petrol in his constituency, mine and Mr Deputy Speaker’s is around 143p or 144p a litre, and it is going up. So, 119p and 143p or 144p—how much more is petrol since the Chancellor took office?

[Julian Sturdy]

I hope that some of the hon. Gentleman’s friends might support me in Copmanthorpe—you never know. He is right that many rural garages in my constituency and throughout north Yorkshire are struggling. Independent forecourts are struggling even more than the supermarket chains. Fuel prices have gone up, but that is due to the higher oil prices, which have escalated dramatically over the past two years. As I said, if we had not stopped the previous Government’s tax increases on fuel in the past 18 months, fuel prices would have been 9p to 11p higher than they are. The impact on rural areas and hard-working families across the country would have been huge.

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[Richard Harrington (Watford) (Con)]

I intend to address my remarks not to the Finance Bill generally, but to the part relating to charities. When I put in to speak, I did not realise that would become one of the great cause célèbres of the Budget debate. I feel I have some experience in this field, having in a previous life spent three years as chairman of fundraising for one of the country’s largest children’s charities. Indeed, it got to the stage where people whom I had known for years would cross to the other side of the street rather than say good morning to me, in the certain knowledge that I would get them for a philanthropic donation. In fact, it was very good experience for speaking in the Chamber, as I seem to have the same effect on people in this place.

There is a serious point to make, which is that I do not think this debate is about charities; rather, I think it is about whether, in a sophisticated society such as ours, where 40%-plus of gross national product is spent by the Government, certain individuals should have the freedom to decide, for whatever reason, quite legally, that they will not pay any tax at all. Although we are talking about charities—that is what the recent debate has been about—society has to make a decision on that question. Is it acceptable, under any circumstances, for people obeying the law and earning money—a lot of money—to say, for what might be a perfectly good reason, “I’m opting out of paying tax on my income,” in this case because they are giving to charity?

I think back to my 20s, when I started work. People had many different options to avoid paying tax. Pensions were uncapped, so self-employed people could go through their whole lives and pay as much as they wanted into pension funds, cutting their taxes on their salaries in exactly the same way. At one time, there were many investment schemes where the amount of money and the conditions attached were almost open-ended, so that people could legitimately avoid paying tax. There are quite a lot of schemes where Governments—not just this coalition Government, but previous Governments—have decided, for whatever reason, to cap the amount of tax deductibility that is allowed. I know that this is not a popular argument, but I would argue that charities, charitable donations and philanthropy should be no exception to the general rule that everybody earning money in a society such as ours should pay some tax.

[John Mann]

indicated assent.

[Richard Harrington]

I am delighted that the hon. Gentleman agrees with me. It had to happen sooner or later in my political career, and I am delighted that it should be today.

Most of us in this House and in the country generally regard the charitable sector as part of all the wonderful organisations that we deal with in our constituencies. In Watford we have the Peace Hospice, which is probably one of the most important hospices in the south of England, along with homeless charities and Mencap. Indeed, we have many good charities, so it is difficult to be the person standing here today and even putting the thought in donors’ minds that there may be circumstances where what they want to give cannot be a tax deductible donation. However, people should be aware that the tax aspect is not the predominant reason for philanthropy—that is my experience. If it is, there is something wrong.

[John Mann]

I totally support the hon. Gentleman and the Chancellor on this specific matter. Does he not find it rather disturbing that one or two individuals are saying that they will refuse to give to charity if the money has come out of their own pocket, rather than being tax deductible?

[Richard Harrington]

I agree very much with what the hon. Gentleman says, but when it comes to it, that aspect is not such a defining factor as those statements would suggest. We must remember that this country is very good at philanthropy. Among the developed nations, we are the third highest in the world, after the United States and Israel, in terms of the amount per head of GNP that we give to philanthropic organisations. I do not accept that that is just because of the tax breaks; I think it is because of a tradition in this country. Trade unions and working people are involved in it, wealthy people are involved in it, and business people are involved in it, just as Victorian philanthropists were once involved. All in all, we have a huge tradition of philanthropy.

We are very proud of that tradition, but we have to remember that it is very easy to set up a charity. Even today, the forms are simple to fill in. Within 24 hours it is possible to set up a charity, which is then basically a conduit for almost any form of tax-deductible donation. Many charities are very good organisations—I would be the last person to suggest that there was a predominance of fraud, negligence or dishonest behaviour. However, a lot of charities are charitable to some people, who might think the causes are excellent—for example, I could set up a charity to research the history of Watford, which I might think was an excellent cause, and it may well pass the Charity Commissioner’s barriers to becoming a registered charity, albeit not in any dishonest way, because it would be educational or whatever—whereas a lot of other people might not regard such organisations as very charitable at all. It strikes me as very strange that any such organisation can be set up and, provided it has proper directors and an office—it can also be somebody’s house—all of a sudden it can become a charity to which basically any amount of money can be donated. Such a charity could be based abroad, or it could be for a very narrow sector in this country.

It seems strange that there is a perception that giving money to a charity is a great thing almost by definition, but paying tax is not, yet after all, what does tax pay for? It pays for the NHS and education—indeed, it pays the majority of the money going to many organisations that are perceived as being charitable organisations. For example, many years ago, when my late father was chairman of Mencap—it was then called the National Society for Mentally Handicapped Children, although obviously the organisation has developed a lot since then—5% of its money came from Government sources and 95% came from sponsored walks, charitable donations, rich people, poor people, tins outside shops, or whatever it was. Now it is almost the other way round; in fact, many registered charities depend more on money from the taxpayer than on individuals giving. It seems strange that the media can say that if the Chancellor of the Exchequer wants money for the big public pot, some of which may come from philanthropic giving, one thing is automatically good, almost by definition, and one thing is automatically bad.

As we all know, there is a shortage of public funds, and we cannot—or we choose not to—borrow any more money. I shall not get into those arguments, but I think there is a consensus that public expenditure is fairly high by any traditional standards. The Chancellor is taking a lot of different measures to try to fill a gap. The gap was filled by borrowing, and perhaps it will now be filled rather less than it was by that means—that is what we think will happen. Nevertheless, there is always a gap between what a Government such as this —or, in fact, any Government in recent memory—want to spend and what they can raise. Before the public decide who to criticise, it is important that they should remember where the tax saved would have gone, because were those organisations private, it would be perfectly reasonable to regard many of them—be they schools or things like that—as charities. That point should not be forgotten.

It is perfectly reasonable to say that Governments have to think beyond comfortable, cuddly philanthropy, compared with nasty, horrible public expenditure. Governments have to decide on the balance. We have to remember the fundamental point: is it right that people should earn a lot of money and pay no tax at all? There are ways round this problem, and I am sure that the Government will be looking at that in the consultation on the details. Indeed, I would suggest that they might look at “lifelong gifts”—how much money people give in their lives. If someone has a windfall of £1 million, it might be wonderful for them to say for that year, “I’m going to give that £1 million to a charity—I won’t pay any tax, but it’s going to useful causes,” but should they be allowed to do that every year? Should that be their normal way of doing things? Some people may say, “It’s wonderful, because they’re very philanthropic.” Others, if they look it objectively, may say, “Well, each year the state is losing out on £450,000,” or whatever the marginal rate happens to be.

I believe that society has to make a decision on whether people should be able to opt out of the tax system, for whatever reason. I believe strongly in philanthropic giving, in charities and in tradition, but, as with everything else, there has to be a compromise. It is unacceptable that people, irrespective of their income, should be able to choose not to pay tax using a variety of avoidance methods, one of which might be charitable giving.

I found it strange to hear the hon. Member for Leeds West (Rachel Reeves) criticising the proposals on charitable donations. She should consider whether it is right that some multimillionaires pay no tax at all, and that some people should be able to choose what good causes to support. Should people be able to choose to support, say, the National Theatre, the opera and Christian Aid, while choosing not to support the national health service, education and social services? I ask the Opposition to consider that point before being so critical of the Government’s desire to make tax fair for all and to ensure that very wealthy people no longer pay no tax at all.

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[John Mann (Bassetlaw) (Lab)]

What a shambles! What a catastrophe! I refer not to this debate, but to the career prospects of the Chancellor. He went into the Budget as the man destined, in his eyes and others’, to be the next leader of the Conservative party, and he departs from it with a shambles around him.

I thought a bit of sympathy would be in order and I wanted to demonstrate to the Chancellor the impact of his Budget, so the week before Easter, I offered him the opportunity to visit a caravan in Chapel St Leonards. I was prepared to bring in some cheap lagers—the type that I know he likes—from the supermarket, and to cook him one of his favourites: the sausage sandwich. There has been a lot of concentration on the pasty, but the humble sausage sandwich, never before taxed in this country, is now to attract VAT when provided at outlets across the country. The Minister is shaking his head—he does not know the proposals in the Budget. The sausage sandwich cooked hot by the bakers across the country and cooling down below the ambient temperature is VAT-able under the Government’s proposals.

[Mr Ward]

rose—

[John Mann]

I awaited the Chancellor’s response to my offer. Was it the brown sauce, was it the red sauce or was it no sauce at all? That was taxed with VAT at the last Budget. [Hon. Members: “Give way!”] The Chancellor had the opportunity. The caravans in Lincolnshire that people rely on for their English holidays are to be taxed as well, for the first time. The Chancellor chose not to respond.

[Mr Ward]

Will the hon. Gentleman give way?

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[John Mann]

I suspect that the reason was that he had not worked out the cost of fuel since he has been Chancellor—the cost of filling up his own vehicle, like the rest of the country, rather than having a chauffeur-driven car taking him around. This is the point of the Budget. The point of any Budget is that it is about—[Hon. Members: “Give way!”] There seem to be a few appendixes grumbling on the Government Benches. I recommend that hon. Members get those fixed before the next spending review, because the cuts that are coming to the health service and to local government have hardly begun. They are coming this year, and the Budget was the Chancellor’s opportunity to alleviate the situation with growth. According to him, growth was 2.5% last year, came down to 0.7% and this week came down further to 0.4%. We cannot grow our way out of a recession with growth figures like that.

That is the bit of economics that I could have explained to the Chancellor if he had chosen to come and use my bucket and spade and carry on digging. All that lot know that he is no longer fit to be leader of their party. Although they understand why, they are reluctant to say so. A Budget is about values. I do not care about the Chancellor’s background, where he comes from, what he eats or what car he has, but it is crucial that he understands, and he and his mate the Prime Minister do not get it. They are not in touch with the British people. That is what is fundamentally wrong with the Budget.

The leadership of the Government and of the Conservative party is out of touch with the British people, and that is undermining their confidence in the Chancellor. That is why this Budget has been such a catastrophe for him—picking on those with children, picking on pensioners, and failing to grow the economy. When the Chancellor took office, petrol was 119p a litre. He has already increased tax on petrol more than any other Chancellor in British history, and has seen the largest increase in petrol prices of any Chancellor in British history, and he has been in office only two years. There is more to come on tax. On top of that, there is doubtless more to come on prices. How is the normal, average British family struggling in this recession, trying to make ends meet, wanting to use their car—how are they to get on when they have a Prime Minister and a Chancellor who do not understand the lives of the British people? That is their problem, and that is the damage that this Budget does to our people.