Finance Bill

Andrew Gwynne Excerpts

Tuesday 21st July 2015 Commons Chamber

[Mr Gauke]

I do not accept that point. First, the increase to £500,000 was temporary, as we always made clear. Very strong representations were made by business groups that what was important was putting a permanent level in place. We have the highest permanent level ever; at £200,000 it is twice the level we inherited in 2010, at a time when corporation tax rates are substantially lower. This is therefore a much more generous regime than we have had before. Our changes to corporation tax rates are an important measure in encouraging investment. I am sure I will be corrected if I am wrong, but I do not believe it was that long ago that the Scottish National party was advocating a corporation tax rate of 18%. I am sure the SNP is delighted that there will be a rate of 18% across all the United Kingdom.

[Andrew Gwynne (Denton and Reddish) (Lab)]

Before the Minister moves off the issue of support for businesses, may I say that although there are many measures in the Bill to support businesses that we welcome, many of my local small businesses are eagerly awaiting the Government’s review on business rates later this year? Will he give some indication that those small businesses in my constituency will not end up worse off as a result of changes that may be planned to the business rates?

[Mr Gauke]

Our record on business rates is that we have consistently looked after the interests of small businesses: we have extended small business rate relief on numerous occasions; we have introduced the rebate for retail premises; and we have made a number of reforms to business rates to assist small businesses in particular, as well as capping increases in business rates. A review is ongoing and I am not going to make any announcement today, however nicely the hon. Gentleman asks me what its contents will be. It is ongoing and the consultation period has only relatively recently finished. We are keen to progress this and we have brought forward the timetable by which we will complete that review; we will have something by the end of the year.

Improving productivity also means prioritising investment in infrastructure. Our road network has suffered from decades of underinvestment. This Bill implements reforms to vehicle excise duty to support the creation of a roads fund. The reforms will ensure that VED still incentivises purchases of the cleanest cars, while putting revenues on a sustainable long-term footing.

--- Later in debate ---

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I am grateful to the Minister for his comments on the measures set out in the Bill. It is a somewhat strange Finance Bill, because many of the most contentious measures announced in the Chancellor’s emergency Budget are not actually in it. Indeed, the Bill is almost as significant for what is not in it as for what is. It is important to reflect on that, and on the fact that the Budget exposed a real difference between the Chancellor’s rhetoric and the reality of what he is delivering, particularly for ordinary working people in our country.

It was certainly not the Budget, and this is certainly not the Finance Bill, that working people needed. The Institute for Fiscal Studies has told us that 3 million working families will be around £1,000 a year worse off. The Budget clearly leaves working people worse off. Despite what the Minister has said about productivity, as a package it fails the test of building a more productive economy to bring down the deficit in a more sustainable, stronger and fairer way.

The Bill does not provide for the contentious changes to tax credits, which the Minister and I have debated several times already over the past week or two, or the reduction in the work allowance and the increase in the taper rate, which will hit working people on middle and lower incomes. We discussed those changes during Treasury questions this morning, particularly the high marginal tax rates that people who earn just above the personal allowance threshold and are currently in receipt of tax credits will be facing. I understand that those changes will be made by delegated legislation, which we expect later this year. They will be hotly debated and opposed, because choosing to make 3 million working families £1,000 a year worse off is the wrong choice, regardless of how the Government try to dress it up.

The Bill also does not set out the changes to the minimum wage. Despite what the Minister and the Chancellor have been saying over the past week or so, what the Government have announced is not a real living wage.

[Andrew Gwynne]

My hon. Friend makes an important point. Just because the Chancellor calls an increase in the national minimum wage—welcome though that is—a national living wage does not make it “the” living wage. Is she as concerned as I am that the IFS has said that it is arithmetically impossible for the increase in the national minimum wage to match the losses that will result from the changes to tax credits?

[Shabana Mahmood]

My hon. Friend is absolutely right. The Government have been busily trying to claim that the changes to tax credits will result in no real change because the new national living wage, which is effectively only an increase in the national minimum wage, will make up for that. The IFS has made it clear that that is arithmetically impossible. That is a pretty damning indictment of the messages that the Government have been trying to put out since the Budget on 8 July.

--- Later in debate ---

[Andrew Gwynne]

My hon. Friend knows that several Greater Manchester MPs have already voiced their concern about the pause of the electrification of the line between Manchester and Leeds, not least because that is absolutely crucial for the economic growth that we need across the Greater Manchester and west Yorkshire “northern powerhouse”, as the Government like to call it. Does she also appreciate the frustration of Greater Manchester MPs that the only mention under the heading of “infrastructure” in the Budget was a plastic Oyster-style card to use on our Pacer trains?

[Shabana Mahmood]

My hon. Friend raises an important point. The northern powerhouse has very clearly got a power cut, and it remains the case that with changes to local government funding, we cannot empower local government and local people if we impoverish them. At the same time, there remain important critiques of the Government’s policy making in this area. He is absolutely right that the Budget, the Finance Bill and all the attendant documents that were published on 8 July certainly did not go far enough on infrastructure, and the example that he gives powerfully highlights that.

--- Later in debate ---

[Shabana Mahmood]

I will shortly turn to insurance premium tax, which is a very significant tax-raising measure that the Government have not been quite as keen to trumpet as other measures in the Bill. As I said at the beginning of my speech—I am not sure whether the hon. Gentleman was in the Chamber—it is significant that most of the very contentious changes in the Budget, particularly in respect of working tax credits, are not in the Bill but will be made in delegated legislation Committees. I dispute the Government’s characterisation of these measures, because I believe that they will leave working people worse off. That is not necessarily directly relevant to all aspects of the Bill, but it is relevant to the overall package of measures introduced in the Budget.

There is serious concern about the impact that the 8% surcharge will have on building societies. Of the six main building societies—Nationwide, Yorkshire, Coventry, Skipton, Leeds and Principality—only Nationwide currently pays the bank levy. Based on the most up-to-date profit figures from 2014-15, it is estimated that the building societies will pay about £126 million a year through the corporation tax surcharge, equating to about £630 million up to 2020. The building societies point out that the primary way in which they build their capital is through retained profit, so a tax on profit has a disproportionate effect on them. Moreover, they do not have shareholders, unlike public limited companies, so this is, in effect, a tax on the customers who own them—retail savers and mortgage borrowers. It will be important for the Government to explain their thinking on building societies and what analysis there is of how these changes will play out for them in practice.

The next key issue that we will return to in Committee relates to the climate change levy. Clause 45 removes the climate change levy exemption for renewable source electricity generated on or after 1 August 2015. I am afraid that this is another example of the Government undermining investor confidence in renewable energy. They have already tried to halt the development of the cheapest form of clean energy by pulling the plug on onshore wind, and this continues that trend. It would be fair to say that since taking office they have put placating their Back Benchers’ more strident views about renewable energy generation above the jobs and investment that would be created across our economy if we were genuinely able to move towards a low-carbon economy.

We will particularly seek to push the Government on a suggestion by the Chartered Institute of Taxation that they produce a road map, as they have done previously on aspects of taxation policy—in particular, corporation tax policy—setting out their plans for the future of environmental taxes to help the renewable energy industry, and business more generally, to take long-term investment decisions. That could be an important way for the Government to set out their intentions for the life of this Parliament and for us to test whether they mean it with regard to charting a course towards a low-carbon economy for our country.

Insurance premium tax, as I said in response to the hon. Member for Gloucester (Richard Graham), is a significant revenue-raising measure. Clause 43 increases the standard rate of the tax from 6% to 9.5% with effect from 1 November 2015, raising £1.6 billion. There are very important questions about the distributional impact that that will have and whether those on middle and low incomes will bear the brunt of the increases. It is interesting that the Chancellor did not focus on the very significant revenue-raising measures in his Budget. Indeed, the rhetoric and narrative that he has been pursuing suggests that it is a Budget of giveaways. He will not be surprised that we will not let him get away with that characterisation.

Insurance premium tax has been described as a stealth tax. Ministers will be aware that several industry figures have warned that increasing it could prompt policyholders to buy less cover, possibly exacerbating problems caused by under-insurance, particularly with regard to car insurance. Again, we will wish to test those areas further in Committee when we will look carefully at any analysis by Government of the possible impact on under-insurance. The AA has said that insurance premium tax on the average car insurance policy is equivalent to a fuel duty increase of almost 2p per litre, so either way drivers are being hit in their pockets. I would be grateful if the Minister commented on the measure’s overall distributional income, what conversations the Government have already had with the insurance industry and what this means for future changes to fuel duty.

As I have said, we support other measures in the Bill, particularly the so-called tax lock both for income tax at the basic, higher and additional rates, and for VAT. I remind Treasury Ministers that, back in 2009, the current Chancellor was very critical about Chancellors passing laws to ensure that they fulfil the promises they make in general election campaigns, and I think that that criticism applies just as much to him now. However, we support the principle of the lock. We have pledged not to raise VAT, national insurance or the basic and higher rates of income tax, so we welcome those measures.

[Andrew Gwynne]

I commend my hon. Friend and the shadow Treasury team, because that particular lock would not have been introduced were it not for the valiant efforts of Labour Front Benchers in the run-up to the last general election in highlighting that the Government would probably have to raise VAT or other taxes. She has already described some of the stealth taxes that have come to fruition since the election.

[Shabana Mahmood]

My hon. Friend makes an important point. I wonder whether we would have the tax lock had it not been for the VAT bombshell poster we unveiled or for the exchanges at Prime Minister’s questions ahead of the general election. Ministers were certainly very quick to write such a law, and despite the Chancellor having suggested in 2009 that passing laws to ensure promises on taxation are kept was a very bad idea, he was very quick to convert to that cause. Nevertheless, they are passing a law on the tax lock. It was Labour party policy, and we are very pleased that we pushed the Conservative party into our territory in agreeing that the rates for ordinary people on lower and middle incomes should not go up.

Another change we support is on the annual investment allowance. I am pleased that the direction of travel has been set out for the whole Parliament. That contrasts very strongly with what happened during the last Parliament, when lots of chopping and changing on capital allowances definitely undermined business investment. Even if the deal is less generous, with a decrease from £500,000 to £200,000, it is important that businesses at least know that the deal they are going to get will last a lot longer than it previously did.

As my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) has mentioned with respect to the expected changes on corporation tax, there is a lack of concrete proposals for business rates. The Financial Secretary has raised expectations and hopes of real change on business rates when the consultation is finally unveiled later this year. We will certainly look at whether the business rates burden will come down for small and medium-sized companies.

--- Later in debate ---

[Barbara Keeley]

I have made the point about the characterisation of the Budget. The right hon. Gentleman will have to take my word for it that some earlier Finance Bills contained all the measures that were in the Budget. Much of this Budget is split. It is not all in this Bill or the Welfare Reform and Work Bill. Some of it will be in delegated legislation. There will be plenty of opportunities to make the arguments he puts. Opposing at this point is not the only thing that we can do as an Opposition, and Members will just have to take my word for that.

Despite the gimmick of the tax lock on VAT and income tax, the Government’s other tax increases will have an impact on families over and above the impact from cuts in tax credits, as I said. The rate of insurance premium tax is increasing by more than 50%, which will be a hit to the cost of insurance for the family home, the family car and family holidays. A number of hon. Members referred to that. Insurance industry experts have raised concerns about the impact that this tax increase could have on the take-up of insurance. They have warned that it may mean policyholders buy less cover, in effect “taxing protection”. Half the poorest households do not have home contents insurance, and those households are more than three times as likely to be burgled as those with insurance. That leaves low-income households less financially able to replace goods lost through burglary, fire or flood. That point obviously was not understood by the hon. Member who mentioned it earlier.

We have welcomed the increase in the minimum wage set out in clauses 3 and 4. The Government are adopting a Labour policy to increase the value of the national minimum wage, a measure we introduced in 1998 in the face of fierce opposition—one could almost say ferocious opposition—from Conservatives. My hon. Friend the Member for Hornsey and Wood Green spoke effectively about implementing the real living wage and about the safety net that tax credits can provide as people move in and out of low-paid work. We had a number of useful interventions in which hon. Members clarified the status of the real national living wage versus the increased national minimum wage. Leaving aside that issue, it would help if the Chancellor got his facts right. In an article in The Guardian yesterday, he claimed that 2.7 million people would gain £5,000 each from the increase to the national minimum wage, but the Low Pay Commission tells us that there are, in fact, 1.4 million people in minimum wage jobs, including only 1.2 million people who are over 21. Perhaps the Minister can tell us why the Chancellor persists in using such incorrect figures.

There is real concern about the impact of minimum wage increases on social care provision, funded through local authority budgets, if the Government do not fund the increase in the minimum wage as it is a new burden on local authorities. The care sector is one of the lowest-paid sectors. The planned increases in the national minimum wage for care workers have been estimated by the Local Government Association to cost £330 million this year, rising to £1 billion a year by 2020. The Opposition believe that low-paid care workers should have a wage increase, but we obviously need to find ways to fund it that do not involve further cuts to care or other local authority services. I am sure that my hon. Friend, who was leader of her council, has battled through that, as have other local authority leaders.

Ministers are clearly in a mess over the funding of social care. Since the Budget, the Government have abandoned their manifesto pledge to cap care costs from next year, as we heard in Treasury questions this morning. Indeed, the vice-president of the Association of Directors of Adult Social Services has said that the pressures of rising demand, punitively reduced budgets and the impending obligation to pay increased wages all

“put an intolerable strain on social care finance.”

Abandoning the care cap seems to be a short-term palliative to those funding issues, but it will come at a high cost to people living with dementia and other long-term conditions.

The Opposition therefore question the Government’s priorities. Bringing in the nil-rate band of inheritance tax for properties worth up to £1 million when the property passes to direct descendants will cost almost £1 billion by 2020 onwards, yet families of people who need social care for long periods can lose nearly all the value of their homes through paying for care. It seems, unless the Minister can enlighten us otherwise, that there is no ray of hope for them in this Parliament.

The IFS has described the removal of the climate change levy exemption on renewables as a measure that makes “no economic sense”. Friends of the Earth has said that the change shifts the climate change levy from a carbon tax to just a tax on all electricity consumed. A number of interventions and speeches touched on that.

[Andrew Gwynne]

Of course, we should not be surprised about the changes to the climate change levy, given that the Government have already signalled their direction of travel through their proposed changes to onshore wind. Does my hon. Friend agree that that is a retrograde step, given that the United Kingdom is such a leader in renewable energy?

[Barbara Keeley]

Indeed I do. My hon. Friend the shadow Chief Secretary noted that the Chartered Institute of Taxation has suggested having some kind of audit and report on the way forward for the sector, which would be very helpful.

The removal of that exemption will come at a cost to companies and to the environment. It makes little sense to remove the exemption for renewable energy generators in the UK. It will not only increase tax on business consumption of energy, but reduce the relationship between the tax paid and the carbon content of the energy, as a number of Members have noted. The Opposition believe that the Government should be encouraging the renewables sector to develop and grow. Cutting green subsidies risks being a false economy and may cost the UK economy more in the long term.

It is right that banks should pay their fair share of tax. The bank levy, as many Members have noted, was designed to discourage risky borrowing. Now the Government plan to reduce the bank levy gradually. Instead, banks will be subject to an 8% corporation tax surcharge on bank profits from January 2016. The IFS estimates that the change to the bank levy will cost the Exchequer £1.8 billion from 2021 onwards, whereas the 8% corporation tax surcharge on bank profits will raise only £1.3 billion.

There is a question of priorities here. Is it fair at this time, when working families are going to be made worse off by the Government’s plans, to reduce the levy paid by the banks in that way? The Minister will probably say that it will make money in the longer term, but many concerns have been raised. The IFS and other organisations have raised concerns about the possibility of perverse incentives and disproportionate impacts on parts of the banking sector.

We want to ensure that the Bill helps to create a system in which banks are taxed proportionately and fairly. A number of concerns were raised about the impact of the corporation tax surcharge on bank profits on building societies and challenger banks. We clearly need to examine the issue closely in Committee of the whole House.

On tax avoidance, the Financial Secretary to the Treasury, who is not in his place, was asked whether £5 billion was small beer. Certainly, our Labour target for tax avoidance was £7.5 billion by the middle of this Parliament, and Labour Members have raised many points of concern about tax avoidance, including on the importance of going further to close the “Mayfair” loophole. We will return to those tax avoidance issues later in our scrutiny of the Bill.

Although we agree with some measures in the Bill, others obviously need to be amended. It is clear that the Budget, and hence the Finance Bill, together with the Welfare Reform and Work Bill, will have a regressive impact, and the Finance Bill highlights the wrong priorities chosen by this Government. The Chancellor claimed that his Budget was moving us to a low-tax society, when tax increases are actually at twice the level of tax cuts. Budget giveaways, like the cut to inheritance tax, look like the wrong priority when they are viewed against measures to penalise 3 million of the lowest-income households by £1,000 a year. Families will also be penalised when they take out insurance on their family car or home contents, if they can still afford to take out insurance on their car and home contents. A point which I come back to because it is so important is that the Government’s priorities mean that one group of families, with homes to a value of £1 million, are to be protected from inheritance tax, while the families of people needing social care over long periods will have no cap on the costs of their care.

We will return to the issues of bank taxation, the insurance premium tax and the climate change levy in our debates in Committee in September, and I hope Ministers will have time in between for more reflection on their priorities.

This is not the pre-recess Adjournment debate, but a number of good wishes have been expressed and I should like to add to them. I will take a chance here and wish the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) happy birthday; I am sure I made a mess of the pronunciation. Madam Deputy Speaker, I would like to wish all Members of the House a good recess and wish all the Officers and you a good summer, with some time off for a break before we return.