Finance (No. 2) Bill

Alan Mak Excerpts

2nd reading: House of Commons
Tuesday 18th April 2017 Commons Chamber

[Nigel Mills]

Yes, and Ireland has found that that corporation tax rate has been successful in helping to attract investment. I noticed that throughout all Ireland’s financial crises and its desperate need for tax revenue, that rate was one thing on which it was not prepared to move, which is a sign of how successful it thinks it has been.

[Mr Alan Mak (Havant) (Con)]

I hope my hon. Friend will join me in sharing the sentiments of our hon. Friend the Member for Fareham (Suella Fernandes) and celebrate the fact that Britain will have the lowest rate of corporation tax in the G20. To come back to the point made by the hon. Member for East Lothian (George Kerevan) comparing Britain to the German economy, does my hon. Friend agree that although the British and German Governments spend a similar amount on research and development—around 28%—the big deficit is actually in private sector investment? If we are going to lead the fourth industrial revolution, which will be important to ensuring that our economy is strong, we need to get the private sector to invest. That is what the Bill will do.

[Nigel Mills]

I agree with those sentiments. If we are going to get into a debate about the German economic model, though, I should probably step out of the middle of it because it is not an area I have ever looked at.

There is a clause in the Bill on the Northern Ireland corporation tax and how we will make the lower rate there work. This is probably my chance to sneak in a remark, Mr Deputy Speaker: I hope we can get an Executive formed in Northern Ireland so that they can take the decision to have a lower rate of corporation tax. I suspect we probably do not need to rush that clause through the wrap-up, given the current situation, although I guess it is not controversial in Northern Ireland.

--- Later in debate ---

[Nigel Mills]

I was nearly finished, but the hon. Gentleman invites me into a debate on the tax gap. I do not have the numbers to hand, but it is important to understand what makes up the tax gap. Tax avoidance by large corporates is actually a relatively small part of it. From memory, the largest part is due to people who operate in the black market and do not pay VAT or declare their tax. Another large part is down to errors or mistakes by small businesses or individuals. It is right that the Government should bear down on all those aspects, but I do not think it is possible to get the tax gap down to zero—it would involve some kind of ridiculously heavy compliance burden. We could probably get there only by having zero tax rates or zero economic activity, so there will always be some level of tax that we cannot collect, but the measures that the Government have taken progressively over the past seven years to tackle aggressive tax avoidance have been the right ones. We have the general anti-abuse rule, which we are trying to tighten up in the Bill. When that gets to its five-year anniversary, I look forward to seeing whether we can change our strategy on targeted abuse rules, whether we might not need to have quite so many individual anti-avoidance rules, and whether we can rely on the general one.

Although we have discussed Making Tax Digital, a key part of reducing the tax gap is making businesses report and be more compliant on a more regular basis. We must press on with that and make it work, but we do not want to risk going too far. There are more measures that we could try to take to encourage people not to pay cash in hand to avoid paying VAT. It is very hard for an individual to know whether the person cutting their hedge or driving their taxi is tax registered. Perhaps we should have some kind of registration process so that a person can say, “I want to engage people who are fully tax compliant. If you can show me that you are, I will happily hire you. If you can’t, perhaps I will hire someone else.”

[Mr Mak]

My hon. Friend is making a very good speech about the changing nature of the economy, particularly in relation to the rise of the gig economy. Will he join me in welcoming the review by Matthew Taylor about how we can tax both the individuals and the companies operating in the gig economy to make sure that we strike that fair balance between taxation and innovation in our economy and our employment market?

[Nigel Mills]

Yes, I happily welcome that review. That has become an emerging issue that we need to tackle. It will probably blow up in the national insurance debate. I welcome the measures in this Bill, which propose that where the public sector engages with individuals who try to incorporate themselves, those individuals will not get the tax advantages. That has to be right. We need to find a way of doing that for very high paid individuals outside the public sector who try to do that. We need to ensure that they are taxed on that income in a way that the tax system intends, and not allow them to get an advantage through the corporation tax system. I accept that the reduction in the dividend relief that was announced in the Budget was the right thing to do. As we see our employment market changing, we need to ensure that the tax system is not encouraging unscrupulous employers to try to pretend that their employees are self-employed in order to get a tax advantage for themselves, leaving those individuals in a far worse situation without the security of being employed and without the rights to welfare, holiday, sick and maternity pay to which they are entitled. That review will be very important in enabling us to strike the right balance and to encourage people who are genuinely self-employed and taking risks. I accept that we should have a lower tax rate for people who do that. How we get our tax rules to match the changing way that people work will be extremely important, and that review will have an essential role to play.

I will wrap up my contribution by saying that I welcome this Bill and that, whatever passage it has, I wish it well.

--- Later in debate ---

[Dr Davies]

That is a very good point. A point has also been made about the flexibility to include information on labels such as the number of teaspoons of sugar in a product, which we are currently unable to do. A wide range of benefits could arise, which is interesting.

The soft drinks industry levy has a key role. Soft drinks are the biggest source of dietary sugar for children, but they contain little, if any, dietary benefit. Five-year-olds are believed to consume their own weight in sugar per year, and four to 10-year-olds each consume half a bathtub of sugary drinks per year. That is food for thought. The Scientific Advisory Committee on Nutrition and the World Health Organisation advise that free sugars should comprise less than 5% of daily energy intake; yet the estimated intake among our children is two to three times that figure.

The proposed mechanisms of the levy relate to producers and importers of packaged soft drinks with added sugar. The levy is designed primarily to encourage reformulation, as has been mentioned. The implementation date of April next year gives manufacturers time to pursue reformulation, and many have been doing an excellent job in achieving that. The levy drives manufacturers to reduce portion sizes and to market their low-sugar alternatives. It will be tiered, whereby 18p per litre is levied when the total sugar content of the drink exceeds 5 grams per 100 ml, and 24p per litre is levied when the total sugar content exceeds 8 grams per 100 ml. According to my mathematics, that is about 6p to 8p per can of drink. The levy will apply to drinks as ready-prepared or diluted as directed on the packaging.

The hope is that the levy will be passed on to consumers in the same proportion as applied. In other words, there will be no cross-subsidy. One concern raised by the Health Committee was that low or zero-sugar drinks might end up picking up some of the extra costs levied on manufacturers by their sugary alternatives. If that were to take place, it would be a missed opportunity to maximise the positive impact of the levy.

[Mr Mak]

My hon. Friend is making an excellent speech based on his personal knowledge and work as a medical doctor. Will he join me in encouraging children’s charities, such as Magic Breakfast, that play an important role in educating children about health eating and the avoidance of too many sugary drinks to redouble their efforts, and to use the sugar levy as a catalyst to do more work in the area?

[Dr Davies]

I will indeed. I will come on to the positive impact that the potential introduction of the levy has had on the general debate on sugar and obesity.

Coming back to the idea of cross-subsidy in terms of the cost of drinks, we, as a Government, should keep an open mind as to whether that needs to be regulated. The levy excludes fruit, vegetables and milk as a form of added sugar. It also excludes baby formulas, drinks for medicinal and dietary purposes, drinks comprising 75% or more milk, and small producers of under 1 million litres of beverage per year. The revenue raised is due to double the funding for PE, sport and breakfast clubs. It is expected that £1 billion will pass to the Department for Education for this purpose, with, of course, equivalent sums being passed to the devolved nations as per the Barnett formula.

The important thing to note is that, with successful reformulation, companies will pay no additional tax. It has been a mark of the success of the progress made with this policy that reformulation is already taking place, and it is therefore expected that in fact £1 billion will not be raised. I praise the Chancellor of the Exchequer for confirming that he will nevertheless pass on the full £1 billion in this Parliament for the purposes identified. Reformulation is possible—companies are already showing that. There has been success in the past with reformulation of products as to the amount of salt they contain. I mentioned before that this whole debate is causing a discussion throughout our nation about obesity and sugar, and that has to be a good thing. I hope that even this debate will help to further that.

Will such a policy work? There is no direct comparison, but in Mexico when a tax of roughly 10% was levied, it led to a 12% reduction in sugar intake, and in Hungary a 40% tax led to manufacturers reducing sugar content. A 2016 modelling study suggested that thanks to the levy 144,000 adults and children would be saved from obesity each year; that 19,000 would be saved from diabetes mellitus; and that the number of decayed teeth—270,000—would be reduced. We have certainly seen some tentative support among the public. I truly believe that in view of the scale and consequences of the obesity crisis, we do not have the luxury of time to make excuses. We can lead the world in this area and create evidence that other countries can then use and follow.