Finance (No. 2) Bill

Andrew Love Excerpts

Wednesday 25th March 2015 Commons Chamber

[The Financial Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read a Second time.

Finance Bill 2015 takes another step forward in this Government’s long-term economic plan. As my right hon. Friend the Chancellor set out in last Wednesday’s Budget statement, we have grown faster than any other major advanced economy in the world; more people have jobs in Britain than ever before; and the standard of living is rising and set to rise further. We are cleaning up the economic mess we inherited in 2010 and delivering a fairer economy for all.

This Bill will build on that success. It will help British businesses to invest and create jobs, help British households to work and save, and help ensure everyone in Britain pays their fair share of tax.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

That will also have the effect of increasing complexity in the taxation system. Whatever happened to the tax simplification project?

[Mr Gauke]

We have established the Office of Tax Simplification and put in place a large number of its recommendations. I could spend some time talking Members through some of them. It is also worth pointing out that just last week the Chancellor of the Exchequer announced plans to take very large numbers of people out of having to pay income tax on their savings, reducing the need for them to be in the self-assessment system. Indeed, we have set out longer-term plans to simplify the operation of the tax system through a more digitised system with online tax accounts, which will make a substantial difference to many people. I should also point out that from April of this year we will have one rate of corporation tax, which means that we no longer need a marginal rate with some 50,000 businesses having to calculate what to pay in a more complicated way. The Government have taken a number of steps on tax simplification.

We are committed to all the tax measures that the Chancellor set out last Wednesday, but appreciating the constraints on the timetable we have deliberately held a number of measures back and published a shorter Bill than would otherwise have been the case. Unlike under previous Governments, legislation for Finance Bills since 2011 has been published in draft three months ahead of the final publication of the Bill. Under this new approach, we published more than 250 pages of draft legislation in December for technical consultation, again meeting our commitment to expose legislation in draft.

We are proceeding today on the basis of consent. The Opposition required us to remove five clauses from the Bill following discussions last week. The clauses concern a new tax exemption for the travel expenses of members of local authorities; a new statutory exemption from income tax for trivial benefits in kind, implementing a recommendation of the Office of Tax Simplification’s review of employee benefits and expenses; simplifying link company requirements for consortium claims under corporation tax; a separate rate of excise duty for aqua methanol; and changes to scheme rules for the enterprise investment scheme and venture capital trusts. The Government would look to legislate on all five of those clauses at the earliest opportunity at the start of the new Parliament.

I will happily take further interventions this afternoon, but let me first set out the order in which I intend to discuss the measures in the Bill. I will begin by talking about those that will boost growth and enterprise. Next, I will cover those that tackle avoidance and aggressive tax planning and then I will cover those that help families and savers do more with the money they earn. Finally, I will talk about how the Bill, like previous Finance Acts in this Parliament, will help to deliver a simpler tax system.

Let me begin with the measures designed to boost growth and encourage enterprise. Hon. Members will be aware that our long-term economic plan is working and confidence is returning to businesses and our markets, but that growth would not have been possible without the hard work of businesses up and down the country. During our five years in office, we have created the right environment to help businesses start, grow and succeed. When we came to office, Britain had one of the least competitive business tax regimes in Europe. Now it is the most competitive. Next week, corporation tax will be cut to 20%, one of the lowest rates of any major economy in the world. By 2016, that will mean £9.5 billion savings for businesses across the UK every year. That is why more and more businesses are moving operations here, starting up here or growing here.

The Bill will also bolster support for research and development and the creative sector. We are increasing the research and development tax credit for small and medium-sized enterprises from 225% to 230%, increasing the rate of film tax relief to 25% for all expenditure and introducing a new children’s television tax relief. I am sure those are industries that Members on both sides of the House will support.

The Government will not sit back and let hundreds of thousands of jobs be put at risk thanks to falling oil prices. The Bill recognises the importance of the future of the North sea oil and gas industry, our largest industrial sector. With effect from the start of next month, the Bill introduces a single, simple and generous tax allowance to stimulate investment at all stages of the industry, giving investors early certainty for their long-term investment decisions. We are also cutting petroleum revenue tax from 50% to 35% to encourage continued production in older fields. Backdated to the beginning of January this year, as announced by my right hon. Friend the Chancellor last week, the Bill also cuts the supplementary charge from 32% to 20%.

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[Mr Gauke]

My hon. Friend makes a very good point. Indeed, that is why the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), made it clear that the bank bonus levy could only really be effective for one year. It is important that we have something sustainable that can exist for much longer.

[Mr Love]

The Chancellor indicated to the Treasury Committee yesterday that he was minded to make the bank levy permanent. Will the Financial Secretary reassure the House that that is his intention?

[Mr Gauke]

We believe that the bank levy and the additional contribution from the banking sector are not just for the short term, but need to be sustainable, so I entirely endorse the Chancellor’s remarks yesterday.

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[Mr Gauke]

My hon. Friend—given his background, he is an expert in tax matters—has been a consistently strong advocate of taking tough action in this area. I can certainly reassure him that one of our very important strands of work has been to take on the promoters of tax avoidance schemes. Indeed, we are bringing in measures to place greater burdens on them to disclose the position they are in, as well as greater surveillance and supervision of them. During this Parliament, we have seen a dramatic fall in the number of tax avoidance schemes being promoted, which is very good news. There has been a real change in the climate, driven not least by the action that the Government have taken. I believe that we have a very proud record in dealing with tax avoidance and the causes of tax avoidance.

[Mr Love]

rose—

[Mr Gauke]

I will give way again, because I know that the hon. Gentleman does not have long left in this House. I am more than happy to give him another opportunity to intervene, but I must then make a little progress.

[Mr Love]

I thank the hon. Gentleman for being so generous with his time. The Chancellor has indicated that, if he is returned to government, he will look for £5 billion of savings from evasion and avoidance; yet in its Budget report, the Office for Budget Responsibility could find only just over £3 billion of savings among the Chancellor’s provisions, which leaves a gap. Will the Financial Secretary explain to the House how he intends to fill that gap during the next Parliament?

[Mr Gauke]

Given this Government’s record on the measures introduced in Finance Act after Finance Act, the support provided to Her Majesty’s Revenue and Customs in additional powers and resources for this area and the fact that yield has increased very substantially during this Parliament—from £17 billion in 2010 to £26 billion now—we are confident that further savings can be found. Through a combination of measures dealing with tax evasion, tax avoidance and aggressive tax planning, we believe that £5 billion can be found.

I now turn to how the Bill will help hard-working families. This Government have a proud record of reducing tax for the lowest-paid. Not only will the Bill deliver our commitment to raise the income tax personal allowance to £10,600 from the start of the new tax year, but it will legislate to raise it to £10,800 in 2016-17 and to £11,000 in 2017-18. By 2017, a standard rate taxpayer will be £900 better off than under the previous Government’s plans and an individual on the national minimum wage working up to 30 hours a week will not pay any income tax whatsoever. That is a tax cut for 27 million people, and it means that this Government have taken almost 4 million of the lowest-paid out of income tax altogether.

We are passing on the full gains of that policy, so for the first time in seven years, the threshold at which people pay the higher tax rate will rise not just in line with inflation, but above inflation. It will rise from £42,385 this year to £43,300 by 2017-18. Under the Bill, the rate of the new transferable tax allowance for married couples will rise to £1,100, providing help for more than 4 million couples. We are legislating to exempt children from air passenger duty so that, together with measures introduced in the Finance Act 2014, a family of four flying to Australia will now save £194. The Government have made clear their commitment to support households in the UK and to put more of their hard-earned money back in their pockets, where it belongs.

Finally and briefly, I turn to tax simplification, which was touched on earlier. Under this Government’s new approach to tax policy making, we published more than 250 pages of draft legislation in December for technical consultation. As such, the majority of measures contained in the Bill have been drawn up following lengthy consultation with interest groups and businesses. The Bill continues to build on the excellent work of Michael Jack and John Whiting at the Office of Tax Simplification, and it includes a package of measures that will help to simplify tax administration for businesses in several ways.

[Mr Love]

rose—

[Mr Gauke]

I will give way one last time.

[Mr Love]

According to the Financial Times this morning, the Bill will add significantly to the complexity to the tax code. The number of pages in Tolley’s is going up and up. We are told that we now have the longest tax code in the world, having overtaken India some years ago, but the Financial Secretary is presenting this as if it were a simplification. This is contrary to the entire thrust of public debate on these issues. When will we get some tax simplification?

[Mr Gauke]

The hon. Gentleman may be interested to hear, or he may already be aware, that the Office of Tax Simplification has looked at what constitutes complexity within the tax system. One conclusion that it reached was that the number of pages in the tax code is not a particularly good barometer of complexity. For example, the rewriting of the tax code that occurred over many years lengthened it, but the intention was to make it simpler to understand.

I would make this challenge to the hon. Gentleman: which elements of the Bill would he not want? For example, there are 40 or so pages on oil and gas tax reform, which I believe all parties recognise is a necessary response to the current circumstances, but that will lengthen the tax code. A number of pages are being added to the tax code because of the diverted profits tax, but all parties recognise the need for such a tax to deal with artificially contrived arrangements. I appreciate his point and the spirit in which he makes it and I share the desire for greater tax simplification, but there are some challenges in that for a Government who also want to deal with avoidance and ensure that we have a competitive tax system for the oil and gas sector.

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[Chris Leslie]

This is always the dilemma. Do Government Members not understand—is it just a question of ignorance?—or have they just turned a blind eye? My hon. Friend has been a diligent campaigner against the bedroom tax and has managed to articulate very successfully the harm and difficulties that people have encountered, particularly those with disabilities who need the extra space in the house. Again, that should have been covered in the Bill.

[Mr Love]

Does my hon. Friend agree that, given that such an iniquitous tax raises so little money for the Exchequer, it would be simple for the Government to abolish it tomorrow?

[Chris Leslie]

Many studies suggest that it costs more than has been raised. Of course, the Government knew how unpopular the bedroom tax would be and came up with their “discretionary fund” to allow local authorities to ameliorate the impact, but it has not been enough and has certainly not been extended to many people who need it. My hon. Friend the Member for Wythenshawe and Sale East (Mike Kane) will also note that there has been no guarantee that the fund will continue into future years. The Government are hoping that this will go away and that nobody will notice, but our constituents will notice.

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[Ian Swales (Redcar) (LD)]

For someone who did not feel that we had been given enough time today, the hon. Member for Nottingham East (Chris Leslie) made an incredibly long speech.

I welcome the measures in the Budget, especially those benefiting business, and I am not the only one. At a lunch event on Friday, I spoke to members of the North East Chamber of commerce, and they also welcomed the Budget—particularly the measures involving oil and gas, which are very important for manufacturing industry and contractors in the north-east. The moves on corporation tax and support for business are clearly welcome. I do, however, agree with the hon. Gentleman that there is concern about the speed with which the diverted profits tax is being introduced. I congratulate the hon. Member for Amber Valley (Nigel Mills)—who has just left the Chamber—on triggering a Westminster Hall debate on the subject, during which we scrutinised it a little further.

[Mr Love]

There is significant concern, indeed alarm, out there among some of the tax professionals and accountancy bodies about the lack of adequate scrutiny. Does the hon. Gentleman share that concern?

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[Mr Andrew Love (Edmonton) (Lab/Co-op)]

I want to make some brief comments on a number of issues that have come up in the debate so far: tax simplification, where the impression is being given that these measures will simplify taxation; avoidance and evasion, where there are major problems in delivering on the commitments the Government have given; welfare reform, where the Government’s track record is appalling; and the impact on income distribution, where it is being suggested that those on the top incomes are most affected by the Budgets over recent years, when actually it is quite different.

First, let me join in the chorus of concern about the lack of scrutiny under this wash-up process. There have been many comments in the media today from various experts—taxation bodies, chartered accountants and others—all expressing concern that, given the level of complexity involved in this Finance Bill, we simply will not get adequate scrutiny by rushing through all its stages in one day. I share that concern, and I am pleased to see that it is a concern that is recognised across the House. I would have preferred a much simpler Bill that included only a limited number of provisions. When we return and there is a Labour Government, we can have a Finance (No. 3) Bill, enacting proper measures to deal with the problems in this country.

I wish to discuss four issues and the impact this Budget and previous Budgets since 2010 have had. The first issue is tax simplification. It would be wrong to suggest that our taxation code is not getting more complex, and this Bill will add significantly to the complexity. I put it down simply to the way in which Whitehall operates; our bureaucracy is geared to the creation of legislation and of taxation measures. To take a perfect example, the Treasury is full of people who are there to guide and advise the Government on the latest taxation measures. Up against them we have a tax simplification project that consists of three nominated officials and a few civil servants. It is an unfair game; it is impossible for the tax simplification project to counter the further moves being undertaken towards complexity in our taxation system. It requires government—I include government on both sides—to address the real need, look carefully at whether all the taxation measures in our code are necessary, and take appropriate steps to reduce the number of codings and to make our taxation system simpler.

The second issue is avoidance and evasion. The Chancellor has said that his way of saving money over the next Parliament, should the Conservatives be re-elected, is to pencil in £5 billion-worth of reductions in avoidance and evasion. The first thing that has to be said is that that is an incredibly ambitious target. HMRC’s projection for the tax gap is currently about £35 billion, out of which about £4 billion is avoidance and £3 billion is evasion. So the total for avoidance and evasion, according to HMRC, is about £7 billion, yet we are being asked to believe that the Chancellor can deliver £5 billion through tackling evasion and avoidance in the next Parliament. That is a very tall order and we need to look very carefully at his proposals. The Office for Budget Responsibility has looked carefully at the suggestions being made, both in the Budget and in the consultation document released the day afterwards, and it can find only just over £3 billion-worth of savings. It has attached to those £3.1 billion savings either a “very high risk” or a “high risk” as to whether there will be delivery. So a gap is already opening up between what the Chancellor has promised and what he can deliver, and the OBR is suggesting that the task may be very difficult for the Government because of the high-risk nature of this. We can all recall the Swiss bank fiasco; it was suggested that £3 billion to £4 billion would be raised, but we now have a much more realistic figure, much below that. In order that that does not happen again, we ask that the Chancellor be much more ruthless and realistic in his appraisals about what can be saved by tackling avoidance and evasion—it certainly is not the £5 billion that he has suggested in this Budget.

Similarly, on welfare reform the Chancellor is suggesting that he wishes to save £12 billion. I will discuss how he is suggesting it will be saved later, but first let me indulge a little in recent history. Over the past five years the Chancellor has instituted policy changes that he said would deliver £21 billion-worth of savings, yet according to the Institute for Fiscal Studies the actual reduction in the welfare bill—the actual cash saved—was £2.5 billion. So there is an enormous hole in his accounting. He is suggesting he will save £12 billion between now and 2020, but he has indicated only where £3 billion of that will be saved—there is another £9 billion to go. We hope that over the period of the general election he will give the electorate some idea of how he is going to save such an enormous sum, recognising his total failure to save the money in this Parliament. His track record is not good. Given all the other imponderables—the things that are not under Government control that can affect the welfare budget—it is difficult to see how he can save that amount of money.

That leads us to the elephant in the room: if the Chancellor does not save money from avoidance and evasion or from welfare reform, where is he going to make up the difference in order to deliver the £30 billion-worth of savings? That is where we come back to VAT. That is where the Conservatives’ track record shows from the past, and that is where we will be scrutinising carefully the comments that are made. Tax rises are on the horizon. I am being asked to cut my remarks short so I do not have time to deal with the distributional impact, but let me just say that the Budget will not affect the highest paid but will affect those in the two lowest deciles of payment more than anyone else. It is a regressive, retrograde Budget, as previous Budgets have been.

This is my last speech in the Chamber. The experience has been great and I have met a wonderful group of people, on both sides of the House. I have enjoyed it immensely, and I retire having said my piece on this Budget.