Bank Resolution (Recapitalisation) Bill [HL]

Lord Sikka Excerpts

2nd reading
Tuesday 30th July 2024 Lords Chamber

[Lord Sikka (Lab)]

My Lords, when you are the last speaker in the queue, you find that all the good points have already been made and you have to rewrite your speech rapidly. I have a number of questions for the Minister. First, this Bill suspends the iron law of capitalism, which is that the inefficient and incompetent go to the wall. Somehow that is not to be applied to the banking sector. If the Minister considers the provisions of the Bill to be good enough for a flourishing finance industry, why not apply them to other sectors where we have many essential businesses?

Looking at the Bill, it seems to assume that the Financial Services Compensation Scheme—the FSCS— has significant reserves from which the Bank of England could immediately obtain benefits. Will the Minister explain what kind of reserves the FSCS is required to maintain and how their adequacy is judged? Its accounts for the year to 31 March 2023 show it had a surplus of just £5 million, which was then taken to cover the deficit of the pension scheme. In other words, there was a zero surplus for that year, but the cumulative cash balances were £510 million. Is that enough to rescue one or more banks or do these buffers need to be beefed up? I hope the Minister will be able to tell.

Bank failures could be localised or they could have a domino effect, in which case the FSCS would not have adequate resources. Will the Minister explain what would happen then? As I understand the Bill, insolvency would be the only option left. What have we learned about the insolvency of banks? The biggest insolvency was in July 1991 when the Bank of Credit and Commerce International was shut down, but to this day there has been no investigation, no report, nothing. What have we learned about insolvency of banks? Would the Minister like to reopen that probe and tell us why there has been no investigation, why there has been a complete cover-up and what we could have learned from it to devise better regulations?

Under the Bill, the cost of reckless practices at one bank would be borne by others, as the FSCS would raise levies on other banks. There are clear moral hazard issues here, especially as the boards of the failing banks do not face personal consequences and shareholders have only a short-term interest. Will the Minister explain how these moral hazards would be checked by the regime proposed?

We all know from history that rescue and recapitalisation is not the only way that the Bank of England and the Government rescue banks; they also engage in deceit, skulduggery and cover-up. The classic case relates to HSBC, which in 2012 was fined $1.9 billion by the US regulators for money laundering. At that time, it was the largest ever fine on a corporation. According to the US Department of Justice, HSBC

“accepted responsibility for its criminal conduct and that of its employees”.

The bank was regulated by the UK authorities, which took absolutely no action. In March 2013, the US House of Representatives Financial Services Committee began a review of the US Department of Justice’s decision not to prosecute HSBC or any of its employees or executives for admitted criminal activities. Its July 2016 report titled Too Big to Jail contained a two-page letter from the then Chancellor, George Osborne, and extracts of correspondence with the Financial Services Authority and the Bank of England. The Chancellor’s letter, dated 10 September 2012, urged the US authorities to go easy on HSBC as it was too big to fail. It also urged the US authorities to go easy on Standard Chartered Bank, which was fined £330 million for money laundering and for sanctions busting. Despite requests, which I have made in this House, no statement has ever been made to Parliament.

No documents have been placed on public record to show why banks are being rescued by deceit and cover-up, and this inevitably emboldens banks. In 2019, Standard Chartered was again fined for money laundering and sanctions busting—this time for $1.1 billion—and HSBC has been a habitual offender. Can the Minister explain why these matters are not being looked at? The institutionalised corruption increases the likelihood of banking failures. It would be helpful to know what steps the Government will take to cleanse the City of London. Simply saying “We will recapitalise banks” will not do.

The Bill rests on very shaky regulatory foundations. After the 2007-08 crash, the regulators’ duty to promote the industry was abolished and they were primarily required to be what I call watchdogs and guide dogs. The last Government changed that legislation and now regulators are required to promote competitiveness and growth of the industry. The regulators have effectively become puppies and lapdogs of the industry. Regulatory actions requiring stringent oversight or lower gearing ratios could be interpreted as a tax on competitiveness and the potential growth of the industry. Such conflicts were considered to be contributory factors in the 2007-08 crash, but they are now back on the statute books.

Lehman Brothers had a leverage of 30.7:1 when it crashed and Bear Stearns had a leverage of 36.1. On the one hand, the Bank of England and regulators tell the banks that they must be well capitalised; on the other hand, tax relief is offered on interest payments on the debt. Government incentivise taking on leverage. How can that create stability? Why do the Government not abolish the tax relief on interest payments by corporations? That would certainly reduce their financial risks and vulnerability. Again, I look forward to hearing from the Minister.

The current regulatory environment is much weaker than the pre-crash environment. Shadow banks are the new elephant in the room. Shadow banks include hedge funds and private equity, and all are unregulated. They are meshed with the retail and investment banks, insurance companies and pension funds but remain unregulated and totally opaque. Some parts of this industry are located in offshore tax havens, and it is impossible to see their financial statements and make any meaningful assessment of the risks and dangers that they pose to the banking system.

Private equity and hedge funds function as banks, but they are not subject to any minimum capital requirements, control on leverage or stress tests, even though the collapse of one firm can destabilise the whole sector. The collapse of the US-based Archegos Capital Management showed how rapidly the domino effects occur and had immediate negative effects on the capital buffers of Goldman Sachs, Morgan Stanley, UBS and Credit Suisse. Banks that are regulated in the UK now have multiple connections with shadow banks, including lending to buyout companies and the funds that acquire them, the firms that manage them and the investors that back them. There is a complex web that is impossible to penetrate, and that will ultimately bring forward a crash. In April this year, a Bank of England official responsible for financial stability, strategy and risk said that there were serious

“questions about the risks of these financing arrangements, and the growth in kinds and quantity of leverage, or ‘leverage on leverage’, throughout the ecosystem”.

Successive Governments have failed to bring shadow banks within the scope of regulation. A deeper crisis is being incubated, just as it was before the last crash. When the next crash comes—and it will come—it will engulf every sector of the economy, as private equity is into supermarkets, hospitals, GP surgeries, water, care homes, cosmetics, housing, property, hotels, insurance and everything else. There will not be enough money to rescue, so we need to strengthen the regulatory system now. The recapitalisation regime of this Bill will not be able to cope.

Of course, Ministers can dismiss the kinds of concerns that I have expressed, but it would be most unfortunate if the next crash was to come during the term of the Labour Government in office. Does the Minister know how many entities regulated by the FCA are enmeshed with shadow banks and what their risk exposure is? I have been unable to work that out by looking at the accounts of these organisations, but the Minister may have superior information. If he does have it, can I ask him to publish that data?

Shadow banking is now a major danger to the stability of the financial system and its practices can undermine the regulated banks, but shadow banks are not required to contribute to the recapitalisation fund. Why is it that they can create risks for the entire system but do not bear the cost? Can the Minister explain how much they will contribute to this recapitalisation fund and whether he considers their contribution to be adequate?

Public Spending: Inheritance

Lord Sikka Excerpts

Tuesday 30th July 2024 Lords Chamber

[Lord Livermore (Lab)]

I am very grateful to my noble friend for his kind words. Of course, as always, he is absolutely correct: the previous Government had exhausted the reserve. They had spent it more than three times over only three months into the financial year, yet they continued to make unfunded commitment after unfunded commitment that they knew—cynically—they could not afford, knowing the money was not there. They told no one about this. It is deeply shocking. What is more shocking, as my noble friend said, is that they continued to do this throughout the recent general election campaign. They continued to make unfunded tax and spending commitments with money that they knew, looking back at what they had in the Treasury, was not there to meet any of them. It is deeply shocking not only that they did it but that they learnt nothing from it. From the words of the noble Baroness today, it is still not clear that they have learnt anything from what they did while they were in government.

I join my noble friend in saying that the decision to meet the recommendations of the pay review bodies is absolutely the right one. Again, we have heard nothing but criticism from the other side for that. What is not right is that the previous Government—extraordinarily —published no guidance on what could or not be afforded, nor is it right that they then failed to prepare in any way for those recommendations in departmental budgets, and nor is it right that they had not held a spending review since 2021, which is the root cause for many of these problems.

[Lord Sikka (Lab)]

My Lords, around 2 million pensioners are caught in the income tax net because of frozen tax thresholds. Now, we are taking away another £300 from the same people through a measure that was not in our manifesto. I have already received many messages from pensioners expressing great concern about this. The Government could have introduced a taper to lessen the pain to help many pensioners. Will the Minister give a commitment to have another look at that? Also, this document, produced by the Treasury, has lots of financial numbers but there is no mention of any human cost whatever. Last year, 5,000 pensioners died of cold because they were unable to afford heating. Has he made any estimates of how many more will die because £300 will be taken away from them?

[Lord Livermore (Lab)]

As my noble friend perhaps did not acknowledge, this is not an easy decision and I understand why there is disappointment about it, but it is the right decision in the circumstances. The level of overspend we inherited is simply not sustainable. Left unaddressed, it would have meant a 25% increase in the Government’s financing needs this year, so it falls on this Government to take the difficult decisions to make the necessary in-year savings.

Start-up Companies: Tax Incentives

Lord Sikka Excerpts

Monday 29th April 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I hear what the noble Lord is saying and I will very happily look at the evidence that he has provided to officials in the Treasury. Perhaps he would like to join the meeting with my noble friend Lord Leigh.

[Lord Sikka (Lab)]

My Lords, in January the National Audit Office reported that error and fraud in SME research and development tax credits had increased to 24.4% or £1.04 billion. It added:

“There are too many examples where these reliefs either do not achieve their economic objectives or are subject to significant error and fraud costing the Exchequer billions of pounds”.


Can the Minister explain why the Government have failed to monitor benefits of tax reliefs?

[Baroness Vere of Norbiton (Con)]

The Government have actually monitored the benefits of the tax reliefs and indeed published independent reports at the 2023 Autumn Statement into EIS and SEIS. We have also published annual reports into R&D on whether the schemes are appropriately designed. However, the noble Lord raises a really important point. He is right that there has been an enormous amount of error and fraud, so HMRC has taken action and has boosted the number of people working in fraud from 100 to 500 people who are very much focused on those things. It was also the case that much of the fraud or error was happening using nominated bank accounts. HMRC has now closed the ability for companies to use nominated bank accounts, which will have an impact.

Spring Budget 2024

Lord Sikka Excerpts

Monday 18th March 2024 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I too welcome the noble Lord, Lord Kempsell, to this House and look forward to hearing from him again very soon.

For the last 14 years, seven Chancellors, carrying red boxes rather than red noses, have promised to rejuvenate the economy, eradicate poverty, cut taxes and improve public services. What they have actually delivered are lower living standards, higher taxes and worse public services, and they have transferred wealth to the rich. This year’s Budget is no different.

No one can grow an economy by depressing household incomes. The real average wage is stuck at the 2007 level. In February 2024, according to the ONS, the median annual pay was £27,972. The Joseph Rowntree Foundation estimates that a single person needs an income of £29,500 to have a minimal standard of living, and a couple with two children needs at least £50,000. A large part of our population is therefore below the level of a decent standard of living.

Rather than helping, the Government have piled on the agony. Since March 2021, 4.2 million more individuals have been dragged into paying income tax because tax thresholds have been frozen. By 2028-29, another 3.7 million workers will be forced to pay income tax at the basic rate of 20%, another 2.7 million at 40% and another 200,000 at 45%. The Government will collect £41.1 billion extra, which no doubt will be handed to more billionaires.

A rise in personal allowance at least in line with inflation would have helped lift millions out of poverty, but the Government chose not to do that. The 2 pence national insurance cut gives zero benefit to the 17.8 million adults with an income below £12,570. When I raised that point with the Minister on 21 February, she said:

“Does the noble Lord want me to give them a tax cut for taxes that they do not pay?”—[Official Report, 21/2/24; col. 665.]


I have news for the Minister: the poorest fifth pay 28.3% of their disposable income in indirect taxes such as VAT, whereas the richest fifth pay 9%. Can the Minister explain what the Budget offers to the 17.8 million poorest, and why indirect taxes such as VAT have not been slashed to help them?

The Budget extends the high-income child benefit threshold from £50,000 to £60,000, and the taper is extended to £80,000. Some 500,000 families will benefit by around £1,300 next year. In sharp contrast, the two-child benefit cap, which hits the poorest, depriving 402,000 families of around £3,200 a year, has been retained. Can the Minister explain why the two-child benefit cap has not been abolished?

Wages and salaries are taxed at the marginal rates of 20% to 45%, but capital gains are taxed at much lower rates. Instead of ending this discrimination against workers, the higher rate of capital gains tax on residential property disposals has now been capped, from 28% to 24%—a tax break for multiple property owners such as the Chancellor himself.

Recipients of capital gains do not pay any national insurance, even though they use the NHS and social care. Tens of billions of pounds can be raised by simply aligning the taxation of capital gains with the taxation of wages, but the Government do not want to upset their rich friends.

Since 2010, local council funding has been cut by 23.3% in real terms. Between 2010 and 2023, councils have sold 75,000 public assets for £15 billion to maintain some semblance of public services. Assets such as town halls, libraries, playgrounds and community and youth centres have been sold and are now lost for ever to future generations. That has enabled the Government to privatise numerous services by stealth, but young people now roam the streets and have nowhere to go. Can the Minister provide an estimate of the damage done to community building by the cuts to council funding?

The Government have raised the VAT registration threshold, but nothing has been done to simplify the anarchic VAT rules that are forcing many retailers to shut their shops. Here are some examples; I hope the Minister will take note. Toilet rolls are subject to 20% VAT, but caviar—a luxury—is zero-rated. Potato crisps have 20% VAT, but prawn crackers and tortilla chips are zero-rated. Cakes and biscuits are zero-rated, but if they are “wholly or partly covered” in chocolate they become subject to 20% VAT—I do not know what “partly” means here. There is 0% VAT on unshelled nuts but 20% VAT is levied on shelled nuts, with the exception of peanuts, even when they are out of their shells. Roasted nuts in shells are zero-rated for VAT, but if the shell is removed from the roasted nuts or they are salted, they become standard-rated for VAT. If the nuts are toasted, they are free from VAT altogether. Can the Minister explain to the House what the principles are here and why, after 14 years in office, the Government have failed to simplify the VAT rules, which would reduce administration costs for retailers by millions of pounds?

Overall, the Budget will do absolutely nothing to chart a course for a future that we would be proud to pass on to our future generations. It is simply carrying on with the same misery of the last 14 years.

Overseas Territories: Tax Haven Status

Lord Sikka Excerpts

Monday 26th February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I am afraid I have to say to the noble Lord that we have not carried out that assessment.

[Lord Sikka (Lab)]

My Lords, on 8 June, the Treasury Secretary in the other place said:

“HMRC plans to calculate and publish a new stand-alone”


estimate of the

“offshore tax not being correctly reported”

by individuals

“next year, for the ‘Measuring tax gaps’ 2023 edition”.

Well, that hat has already been published, but there is still no estimate of the offshore tax gap. Can the Minister explain why the Government are so relaxed about offshore tax avoidance?

UK Economy

Lord Sikka Excerpts

Wednesday 21st February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

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

[Lord Sikka (Lab)]

My Lords, the Minister talked about curbing inflation. The Government have a very strange policy. I characterise it as somebody who has an ailment and goes to see their doctor, who dusts off a 100 year-old book in which, regardless of the reasons for the ailment, the answer is the same remedy. Whether inflation is caused by wage rises, inequalities or profiteering, it is the same policy: we must increase interest rates and force ordinary people to hand over their wealth to the banks. That is no policy, because it causes other ailments. Will the Minister tell us what other ailments have been caused by this remedy adopted by the Government?

[Baroness Vere of Norbiton (Con)]

As the noble Lord will know, interest rates are just one of the levers that the Bank of England has to influence inflation. The Government can also play a key role in tackling inflation —for example, by ensuring that public sector pay awards are kept within reasonable bounds.

[Lord Sikka (Lab)]

Can I have another bite here? The Minister said that public sector wages are within reasonable bounds, which suggests that the Government think wage rises are inflationary. But that does not apply to executive pay, profiteering, dividends or share buybacks—are they not inflationary as well? If they are, why are the Government not curbing them?

[Baroness Vere of Norbiton (Con)]

The noble Lord well knows that inflation is caused by a vast amount of different factors. When we announced our interventions at the Autumn Statement, the OBR said that they were not inflationary. That is another way in which the Government put downward pressure on inflation. As we have seen, the proof is in the pudding; we have gone from 11% in October 2022 to 4% in January 2024.

Finance Bill

Lord Sikka Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 21st February 2024 Lords Chamber

[Lord Sikka (Lab)]

My Lords, it is always a great pleasure to follow the noble Lord, Lord Leigh of Hurley, even though I do not agree with much of what he said.

This Bill is a mishmash of policies that have already given us recession, poverty, stagnation, NHS queues, food banks, inequalities and crumbling public infrastructure. Building a just society does not seem to be on the Government’s agenda at all. The Bill continues with failed policies and somehow, different outcomes are expected, which will not happen.

Since 2010, the Government have showered tax reliefs on businesses, but we continue to suffer from chronic underinvestment. The Bill hands out tax reliefs in the form of 100% first-year capital allowances, in the hope that this can somehow increase business investment by possibly £14 billion within the forecast cycle, but that is in any case too little and is unlikely to be durable.

The major reason for low investment is that people do not have enough purchasing power to buy goods and services, and that dissuades businesses from investing. Just look at any town centre and you will see that it has become an economic desert, simply crumbling away. But the Government remain wedded to real wage and public spending cuts. The real average wage is now around the 2007 level; people have not got enough money to spend.

Following the Second World War, the state invested in new industries and took the long-term risks the private sector simply was not willing to take. It invested in new industries such as biotechnology, information technology and aerospace. However, the entrepreneurial state has now been replaced by a state that guarantees corporate profits through subsidies, cash handouts and the exploitation of people and the natural environment. The result is record corporate profits and low investment in productive assets. According to the OECD table, the UK occupies the 35th spot out of 38 countries in the league for investment in productive assets. That position will not change until the state resumes its entrepreneurial role, directly invests in new industries and infrastructure, and ensures that the masses have sufficient purchasing power.

The Government offer nearly 1,140 tax reliefs but have no idea of the total cost. Little is known about the macroeconomic benefits of handing out vast amounts of tax reliefs. The Bill hands out generous research and development tax incentives to creative industries, which will be welcomed by many. Accountants would happily reclassify some business expenditure as R&D and claim higher tax relief. The National Audit Office laments that the tax reliefs for R&D routinely exceed the UK’s actual R&D expenditure. I hope the Minister will be able to tell us why.

In handing out generous tax reliefs, the Government should also ensure that the resulting profits are taxed in the UK. Oil and gas companies get generous tax reliefs, but their profits are not necessarily taxed in the UK. I worked as an accountant in our oil companies, and I am quite familiar with how transfer pricing works. The Government ought to look at that to see where the profits end up.

James Bond movies are made and marketed through a labyrinth of opaque offshore entities. UK government money is given to make those movies. E.ON, the company behind the James Bond enterprise, received £30 million for “Spectre”, £47 million for “No Time to Die”, £24 million for “Skyfall” and £21 million for “Quantum of Solace”. However, E.ON declares tax losses in the UK and very little of its profit is taxed in the UK. Despite receiving £120 million of subsidy, E.ON has been paying less than £500,000 a year in UK corporation tax. Can the Minister explain why there is no comprehensive programme of tracking benefits of tax reliefs, or for ensuring that the resulting profits are taxed in the UK?

The Government make lots of claims about curbing tax dodges, but they are soft on the enablers. If the Minister disagrees, she is welcome to tell the House how many partners of big accounting firms have been investigated, fined or prosecuted for selling unlawful tax avoidance schemes. Hopefully she can name one or two; that would suffice.

An estimated £570 billion of UK wealth is stashed in tax havens. There is little effective check on profit shifting through intragroup transactions to low or no tax jurisdictions. Despite promises, the Government have failed to publish an estimate of what is called the offshore tax gap. Civil investigations opened by the offshore, corporate and wealthy unit, part of HMRC’s fraud investigation service, have declined from 1,417 in 2018-19 to only 627 in 2022-23. This reduces any faith in the measures contained in Part 3 of the Bill.

Tax policy for the last 14 years has become a circus under this Government. There is no sensible debate of what or who ought to be taxed, and at what rate, to shape what kind of society. Special low tax rates are enacted for the rich because they fund political parties, or simply because they demand it. Prime Minister Rishi Sunak paid tax of £508,308 on an income of just over £2.2 million, which is an effective tax rate of 23%. That is the tax rate faced by somebody on a wage of around £30,000 per year.

As I said earlier, no attention is paid to building a fair and just society. The reason why the Prime Minister’s tax bill is so low is that the capital gains accruing to him are taxed at 10% to 28%, while workers’ wages are taxed at 20% to 45%. Workers pay national insurance, but beneficiaries of capital gains pay zero national insurance. Indeed, under the Government’s rules, it is possible to pay a tax rate of only 10% on capital gains of up to £10 million. That does not seem fair to me at all.

The benefits of low capital gains tax are unevenly spread, unfair and create numerous inequalities. In 2020, just 0.5% of adults in the UK paid capital gains tax and benefited from this special regime. Capital gains tax payers are concentrated in London and the south-east of England. Notting Hill, with a population of around 6,400, has more than the combined populations of Liverpool, Manchester and Newcastle. You can see where these benefits are going.

The distortions also fuel a tax avoidance industry and rob the public purse. SME directors pay themselves with dividends rather than wages because that reduces their tax bill, as dividends are taxed at a lower rate than wages. The rich hire accountants to convert income to capital gains. Just think about the number of graduates finding jobs in the tax avoidance industry, which adds absolutely zero to the economy.

HMRC data shows that a quarter of people with an income of £2 million paid tax at an effective rate of less than 20%. One in 10 of those earning £2 million paid tax at an effective rate of only 10%, which is less than what someone pays on the minimum wage. This is an utterly unfair system and an unfair society, so can the Minister explain why someone making £2 million a year pays tax at a lower rate than somebody earning £15,000 a year? How is that consistent with claims of levelling up?

Finally, no child should go hungry, so I will suggest how the Government can fund free school meals for everybody: simply deal with one tax abuse, which arises from gift aid. If somebody gives £100 to a charity, that is obviously considered to be net, and the charity can claim £25, so it becomes £125 in the charity’s books. If the donor enters it on their tax return—many do not—they can also claim tax relief. A basic rate taxpayer will claim a tax relief of £20, but higher and additional rate taxpayers claim tax relief on that £100 at 40% and 45%. They are quids in—they are getting more because they are giving to charity. That does not seem fair. If tax relief on charitable donations was curbed at 20% for everybody, that would generate £740 million extra in tax revenues, which is quite enough to fund free school meals for everybody. Hopefully the Minister will say, “Yes, that will be in next month’s Budget”.

--- Later in debate ---

[Baroness Vere of Norbiton (Con)]

My Lords, I had better intervene quickly, before that continues. I am grateful to my noble friend, but I am sure he is well aware that that was not the usual procedure.

I am very grateful to all noble Lords who have taken part in the debate this evening. It has been a spirited debate, as ever, and I can definitely say at the outset that I am unable to agree with everything that has been said—by some noble Lords more than others, and by one or two almost entirely. But let us leave it at that.

There have been many excellent contributions and points raised. I am very grateful to the noble Lord, Lord Davies, who kicked off the debate with some wonderful tax questions about pensions. Clearly, the issue around pensions catching up with the personal allowance is not something that I can comment on now, but it is something that people are aware of and it will be addressed over a period of time. It is the case, too, that many political parties are committed to the triple lock. Pensioners whose sole income is the new state pension and who do not have deferred or received protected payments currently do not pay any income tax, as noble Lords will know. This year we provided the biggest ever cash increase to payments—a 10.1% rise.

The Government have doubled the personal allowance since 2010, ensuring that those with the lowest incomes do not pay income tax at all. Many noble Lords are concerned about the level of the personal allowance. I believe that over the longer period of time, looking back to 2010, there have been significant increases, such that 30% of people do not pay tax at all. I accept that, given external headwinds, certain decisions had to be made—and were made quite rightly—to freeze the personal allowance over a period of time. However, it is one of the goals of this Government that, as we return to the sort of growth that I think all noble Lords would like to see, it would be a possibility in future that we would be able to address how those personal allowances are going to change over time.

If a person has to pay tax that cannot be collected through PAYE, whether because they have no employment or they have an occupational private pension, and they are not already a self-assessment taxpayer, HMRC may issue them with a simple assessment to explain what tax they owe and how to pay it. That would be well in advance of any payment being needed. But, of course, that assumes that personal allowances and the state pension collide in future. I would not want to say that that is the case, but it is an issue that people are aware of.

The issue around the tax threshold freezes comes up quite a lot in your Lordships’ House. I absolutely accept that we have had to make some incredibly difficult choices but, having done so, a UK employee can earn more before paying income tax and social security contributions than an employee in any other G7 country. We do not tax our employees as highly as other people do, and that is to our credit. We have taken a fair approach to repairing the public finances, so we have asked everybody to contribute a little through keeping tax thresholds fixed. However, that ensures that those with the broadest shoulders pay the most. As I say, now that inflation is falling and the economy has turned a corner, we must continue with our plan, and we can responsibly return some money to taxpayers to slightly change the shift and the amount of tax that people will now pay, versus what they were going to pay in the past. But it is important that we do that in a way that supports the work and grows a sustainable economy for the future. Prioritising those in work is the best way in which to get the economy growing and reducing national insurance contributions is the best way in which to target those individuals.

I will check through the comments made by the noble Lord—

[Lord Sikka (Lab)]

I am grateful to the Minister. Is she saying that we cut taxes for people? Earlier she mentioned 29 million people. Can she also confirm that 17.8 million UK adults with an income of less than £12,570 a year received a zero cut in national insurance or taxes in last year’s Budget?

[Baroness Vere of Norbiton (Con)]

Yes, but let us also remember that the national living wage has gone up by 25% in real terms since 2010. There are all sorts of different things that the Government have done to protect the most vulnerable; the noble Lord is picking on just one thing. We are always looking at the most vulnerable to ensure that, for them too, work pays. That includes lifting the national living wage.

[Lord Sikka (Lab)]

I am happy to respond to the Minister—this could get interesting. The £12,570 threshold —and, as I said, 17.8 million adults have less than that —is after taking account of the increases in minimum wage. Many people have zero-hours contracts, work part-time or are maybe on a pension. That is after taking account of all the increases that the Minister said have been handed out.

[Baroness Vere of Norbiton (Con)]

Does the noble Lord want me to give them a tax cut for taxes that they do not pay? I am not following here at all, but I am not willing to get into a long debate about this right now. The noble Lord may write, and I will respond, if he would like to get into that in detail, but I am not willing to get into the debate right now.

Moving on to other issues raised by the noble Lord, Lord Davies, I will write in more detail around the specific things; I was doing very well for 80% of his speech but I lost him towards the end, around the taxation of negative pension growth, or gains. I will write on that point.

The noble Lord, Lord Desai, noted that the Bill is too late. Obviously, this is beyond a humble Minister like me. The House authorities will have guided it through. I know that it took a while to get through the Commons, and we addressed it in your Lordships’ House as quickly as we could once it had finished in the Commons. I would like to push the blame down to the other place and leave it there. However, it is always our ambition to get our Finance Bills into and through Parliament as quickly as possible, because it is a really important thing that we do.

I suspect that, particularly as we go into the Spring Budget, there will be many more debates around growth. I say again that, since 2010, we have had the fastest growth of any European G7 nation. I also suspect that there will be counterarguments to that, and that those will continue. In many of these circumstances, particularly some of the points raised by the noble Lord, Lord Desai, it is just a case of economists not agreeing. Not all economists agree—it is an art, not a science. For those of us who studied economics at university, it is clear that there are sometimes fundamental differences, as noble Lords have said today. My noble friend Lord Leigh is also a very experienced person in these matters. As he pointed out, he does not agree with much of the analysis. Sometimes, that is the case.

I am incredibly grateful to my noble friend Lord Leigh, his committee and the officials for the report of their sub-committee. I reassure him that we take those reports very seriously. Officials read them to ensure that we take into account the considerations and the recommendations made. On research and development, I think he agrees with us that we want to keep things as stable as possible. We do not intend to make any further changes. However, there are a few small areas where we will continue to engage, and any changes will be done cautiously. We hear what he and his committee say, and we will consider it carefully.

My noble friend noted the issue around HMRC data and tax administration. The Government’s economic response to the coronavirus pandemic was made possible through the powerful use of all sorts of data. However, it highlighted that there are gaps in the data that HMRC holds. New or improved data collected by HMRC, such as detailed information on employee hours and start and end dates on self-employment, will help government to address some of the gaps, building a tax system which is more resilient. I reassure him that the Government are taking a proportionate response and collecting improved data in areas where taxpayers already hold it, to minimise administrative burdens. The existing safeguards are robust, well-established and well-understood. I reassure him that we expect all taxpayers to have this information already and be able to provide it to HMRC. HMRC will take a reasonable and proportionate approach to the application of any fees or penalties in this regard. These changes will not take effect before April 2025, to give the system some time to adjust.

My noble friend Lord Leigh also mentioned HMRC customer service. Noble Lords will have heard me say this before, and indeed I have had the discussion directly with HMRC: it acknowledges that its customer service levels are simply not as good as they should be. Levels on the phone and in the post are below service standards from last year. HMRC has been working very hard to improve services for those people who need to call, but encourages people to use the digital services as much as possible, as they can be very efficient and get very good ratings from customers.

My noble friend Lord Leigh once again brought up his minority sport—a very important sport—of EIS and VCT, and why these are being extended by regulation. He hinted about it being something to do with the Windsor Framework, the EU, Northern Ireland, and the trade and co-operation agreement, and he is right. These are important schemes, and the vast majority of UK subsidies will need to comply only with the UK’s domestic subsidy regime, as noble Lords would expect. The Windsor Framework also means that the EU-UK Trade and Cooperation Agreement will now serve as the primary framework governing subsidy control between the UK and the EU. For the EIS and the VCT scheme, we are engaging with the EU on approval for extension, due to Northern Ireland’s unique access to the EU single market. We are working to meet all relevant obligations. We believe that the systems are consistent with subsidy control principles and address evidence of market failure, and therefore we think those conversations will go well.

My noble friend mentioned the complexity of Pillar 2. I agree that it is complex and difficult to administer—it is necessarily complex, because of the wide variety of different corporate structures which exist. However, we are reassured that we have simplified processes as much as we possibly can, such that compliance from business will be at the sorts of levels that we want to see.

On stooge directors, as noble Lords would expect, these measures are targeted at the promoters of tax avoidance schemes. Stooges enable these promoters to hide their activities, and, frankly, that is not what we are after at all. The Government understand the need for strengthened HMRC powers to be proportionate and balanced. Those are the two words that are absolutely key. Nobody wants to put anybody in jail because they did something under the duress of somebody else.

The noble Lord, Lord Sikka, raised a number of points and many rhetorical questions, and, I suspect, lots of really good ideas for the Labour Party manifesto. I, unfortunately, cannot agree with much of what he said, particularly his insistence that the state needs to substantially increase investment which is traditionally private sector activity. The state does invest, but it invests in those areas where we feel it is right for the public sector to be investing. We believe that the private sector is much better at picking up that sort of investment.

The noble Lord seemed to imply that the Government have done nothing against tax avoidance and that it is all terrible out there, etcetera. I am afraid that is just not right. The amount of money lost to the Exchequer from tax avoidance has fallen from £3.6 billion in 2010—to pick a year—to £1.4 billion in 2021-22. That is a significant reduction in the amount of tax avoidance. Again, I do not expect the noble Lord to agree with me. He went on to ask me for specific examples. HMRC already prosecutes promoters. Since 2016, more than 20 individuals have been convicted of offences relating to arrangements which have been promoted and marketed as tax avoidance. Our interventions are working, and there are interventions in the Bill to make our levers stronger. This Government do not tolerate tax avoidance and we will do whatever we can to stop it.

The noble Baroness, Lady Kramer, raised a number of issues. I have already mentioned thresholds; from the Government’s perspective, we understand what had to happen over that time. She raised the issue of public spending, which I note is going up in real terms by 0.75% over the forecast period. What slightly concerns me now is the question of where it would stop. If it is going up in real terms every single year, after how many years would we say that that is enough? However, I also put it to her that, as important as productivity is in the public sector, in the private sector you would not get away with the lack of focus on productivity. That is why the Chief Secretary to the Treasury is looking at a productivity review across all areas of government, to ensure that public spending is the right amount. At the end of the day, the best way to increase the amount of money that we have available for public spending is to grow the economy, and that is exactly what this Government are doing.

The noble Baroness mentioned productivity. It has been estimated that supply-side measures from the Autumn Statement 2023 could close up to half of our productivity gap with France, Germany and the US. We feel that we are making good progress, investing in the right areas to improve productivity.

The noble Baroness mentioned climate change, which is incredibly important. It is also interesting that she mentioned Labour in her appeal to keep climate change front of mind, because Labour still has its very unachievable climate plans, with now literally no funding. It used to have £28 billion of funding, which shadow Front-Bench Members managed to commit to over 300 times. Unfortunately, that £28 billion has now disappeared, but all the policy seems to remain in the same place. That goes back to the point that the noble Lord, Lord Livermore, made. Apparently, in the stability, investment and something else he said—their plan to deliver, which I am still looking for the detail on—all Labour policies will be fully costed, apart from those on climate change. Is that right? I am looking forward to it. I do not know; the £28 billion has disappeared but the policies have not.

The noble Lord asked me to commit to certain things for the Conservative Party manifesto, which I will not do, but the Government have just introduced permanent full expensing. It would be a great surprise to me if, all of a sudden, it were to disappear again, because we believe that it is a very valuable thing to do.

The noble Lord mentioned non-domiciled individuals. I, too, am very interested in that and will keep an eye out for how much money will be raised from the changes to non-domiciled individuals’ tax arrangements. I suspect that it will not be anywhere close to the amount of money that Labour platitudes and unfunded promises will need as we head into the election. But we believe that non-UK domiciled individuals play an important role in funding our public services through their tax contributions. The Government want the UK to be a destination that will attract talented people to work and do business, and that includes people from overseas. It is only right that those who choose to live here for a long time pay their fair share of taxes—namely, that they cease to become non-domiciled.

I believe that I owe various noble Lords a letter, which I will ensure gets to them as soon as possible. In the meantime, I commend the Bill to the House.

Buy Now, Pay Later: Regulation

Lord Sikka Excerpts

Wednesday 7th February 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I have to be honest with the noble Lord in saying that I have not read Labour’s plan, but he talked about clarity of information. It is worth pointing out that it is not just the FCA that looks at advertising and financial promotion. We have the Consumer Protection from Unfair Trading Regulations 2008; we have the Consumer Rights Act, and then we have the UK advertising code. In terms of information, it is clear that consumers have a number of recourses, but I return to what I said at the outset: the consultation closed in April 2023; the Government have reiterated our position that regulation must be proportionate. I am quite surprised that the Labour Party thinks that it has a solution that has been backed by all buy now, pay later firms, because it is a very complex area and we need to achieve a balance.

[Lord Sikka (Lab)]

My Lords, buy now, pay later services may offer interest-free periods, but, as has already been said, they charge high interest rates and fees for late payments, which really push up the price of the product. Without regulation, this industry is likely to go the same way as pawnbrokers, who charge interest of up to 160%. Will the Government impose a ceiling for the fees and interest rates that this industry can charge?

[Baroness Vere of Norbiton (Con)]

I am not sure whether the noble Lord has looked at what the late payment fees are for buy now, pay later firms. They are incredibly small, because the business model is very different in that it does not necessarily rely only on such charges; they are paid by the retailers as well. As I said, all sorts of existing and broad consumer protections underpin fair contracts—that would be the Consumer Rights Act. The FCA has already taken action against six buy now, pay later firms, where it felt that the contract terms were either unfair or unclear. The system is working; it is a very complicated area; the Government are looking at the responses to the consultation, and we will publish a response in due course.

HMRC: Tax Returns

Lord Sikka Excerpts

Wednesday 10th January 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

My noble friend will be very pleased to know that I phoned HMRC on Monday and eventually managed to speak to a person. I did not tell them who I was, and I do not have very complex tax affairs. It was something very simple, but it could be done only by a real person.

[Lord Sikka (Lab)]

My Lords, it is very interesting that the Minister here is defending an IT system installed by Fujitsu, after what we heard about the scandal at the Post Office. Coming back to the broader issue, as a result of fiscal drag there are more people filing self-assessment tax returns. Can the Minister tell us how many more people have been employed to handle the telephone queries? I have tried and I was unable to get through at all.

[Baroness Vere of Norbiton (Con)]

First, let me clarify that I am not defending Fujitsu or any other software— I am not sure where the noble Lord got that from. It is the case that more people will be filling in self-assessment tax returns, but it is also the case that, given the current figures, it seems that people are perfectly capable of doing so. By 1 January, 6.49 million people had completed their self-assessment tax return; that is 200,000 more people than last year and well over half of those whom we would expect by this stage, so at this current time we are not seeing a significant drop-off of people being unable to fill in a tax return.

Financial Stability: Private Equity Firms

Lord Sikka Excerpts

Wednesday 13th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I reassure the noble Baroness that the Treasury works with the Bank of England and other regulators to monitor the system.

[Lord Sikka (Lab)]

My Lords, private equity is part of the £131 trillion shadow banking system, which is largely unregulated even though it is much bigger than the regulated retail banking sector. Recently, IOSCO has said that the high leverage of private equity poses a threat to the world economy, so it is hard to see why the Minister is dismissing that. I ask the Minister to do two things: first, apply the banking prudential regulations to private equity; and secondly, end tax relief on corporate interest payments and thereby reduce private equity’s capacity to increase leverage and cause the next financial crash, which will inevitably be caused by private equity.

[Baroness Vere of Norbiton (Con)]

My Lords, there are £250 billion of private equity assets under management in the UK, versus £10.3 trillion of total assets under management. It is a smaller part of the financial system. The noble Lord is not right to say that it is unregulated: UK private equity managers are regulated under the alternative investment fund managers regime. They must also comply with the senior managers and certification regime.