Finance Bill

Anthony Browne Excerpts

2nd reading
Monday 28th November 2022 Commons Chamber

[Anthony Browne (South Cambridgeshire) (Con)]

It is a pleasure to speak at the back end of the debate following so many fascinating contributions from the Government and Opposition Benches. I particularly enjoyed the comments from the shadow Minister, the hon. Member for Ealing North (James Murray), positioning Labour as the party of small business. I have long believed that that is true—the best way to create small businesses is to start with a big business and then elect a Labour Government.

I support the Government overall and this well-crafted autumn statement. It balances the books in a way that bears down on inflation without harming growth, and it has been done in a fair way, as many hon. Members have said, helping households who are struggling. The energy price guarantee and the retention of the pensions triple lock are particularly welcome. I also welcome the extra money for health and education. Like my fellow Conservatives, I do not like the fact that taxes are going up to the highest level for 70 years, but I accept that that is necessary and that we must accept sound money before tax cuts.

The main focus of my comments will be on an issue raised by several hon. Members: research and development. I very much welcome the fact that the Government are committing to £20 billion a year of public money for research and development, but my concern is about the changes to the R&D tax relief system. The Government have made major changes, with the system becoming more generous to big firms to make them more internationally competitive, but the rate of relief for small and medium-sized businesses effectively being cut in half, from 33% to 18.6%. It is a bit more complex than that, but that is the gist. Why are the Government doing that? As the Chancellor said in his autumn statement, it is to tackle fraud. Indeed, fraud is a problem—I have looked into that as chair of the Conservative Back-Bench Treasury committee —and we do need to tackle it. However, the trouble with this way of tackling research and development fraud is that it punishes legitimate research companies as much as fraudsters and chancers, lumping them all in together. There are better ways of doing that.

I am talking about this because it is a particularly big issue in my constituency. South Cambridgeshire is the life sciences capital of Europe. I have literally hundreds of life science companies, from the global headquarters of AstraZeneca down to the newest start-ups. Almost every village has a science park packed full of life science companies. Those small start-ups are at the cutting edge of research and development in life sciences. More research and development in life sciences is now done in small businesses than by the big pharma companies. Without them, innovation would be very slow and the UK would lose its position as a life science superpower. We talk about becoming a life science superpower, but we are one already, and most of the rest of the world recognises that.

It is in the nature of those small companies that they are research-heavy, but clinical trials mean that it could take 10 to 15 years to bring a product to market before they make any revenues. They are funded not by revenues from global sales of blockbuster drugs, like big pharma companies, but by investors who fund research for a decade or more before they have any chance of a return. Their financial models depend on the research and development tax credit regime, which is fundamental to them in leveraging funds from investors from around the world. It has been successful in making the UK an attractive place to do research.

[Jim Shannon (Strangford) (DUP)]

It is important to have research and development. It is also important that those companies can do their research on Parkinson’s, diabetes and heart disease, and all those things must have research and development investment. Does the hon. Member feel that the Government need to enhance that to their betterment and find cures for Parkinson’s, pancreatic cancer, diabetes and heart disease?

[Anthony Browne]

Absolutely. Many companies in my constituency and publicly funded institutes are doing research on those diseases. That is critical to people living healthy lives as well as to the economy, and the Government are absolutely right to support it.

The sudden cutting in half of research and development tax relief is a major challenge to the life science companies in my constituency, which are shocked at what is proposed —seemingly out of the blue. Many, if not most of them, are suddenly having to rethink their research plans. They are in shock particularly because it was proposed at such short notice—it will come into effect next year—and without consultation. They are having to go to their investors now and say that they will no longer have the money they thought they would and that they will have to cut back research and jobs.

Let me give the House a few examples of real companies in my constituency that I have been working with. PhoreMost combines artificial intelligence with drug research. I went to the opening of its laboratories in the village of Sawston. Neil Torbett, the chief executive officer, said:

“The current R&D tax system has been instrumental in our growth as a Cambridge-based Biotech, which has grown to over 50 highly skilled staff, raised £45 million in investment and entered into multiple pharmaceutical industry partnerships. Receipts from R&D tax credits form a critical part of our funding equation, and the proposed SME R&D tax relief cut will materially adversely affect our future growth plans within the UK.”

I opened the offices of bit.bio, another company in my constituency, which does the most amazing genetics research—I have mentioned it before. Mark Kotter, the chief executive officer, said:

“The assistance at the current level is a cornerstone of our financial projections, which also help us to attract equity funding, and any reduction in the claimable amount will have a significant impact on our ability to invest and grow at the desired rate.

As part of our forecast, we will be looking to increase our current headcount of 175 by approximately 30% in the next year, but quite simply this will not be possible if the tax relief changes announced in the Autumn Statement become reality.”

I could give countless other examples. This is dramatically changing the prospects of life science research in Cambridge.

I know that the Government want to champion life sciences as part of their ambition to ensure that we are a life sciences superpower. I have worked with the Government on that. Indeed, I welcomed the life sciences Minister—the Minister of State, Department of Health and Social Care, my hon. Friend the Member for Colchester (Will Quince)—to my constituency just last week. I know that they want to tackle fraud in the R&D tax credits regime. As a taxpayer, I very much want us to do that; it is a duty of Government to ensure that the taxpayers’ money is well spent. We share those dual objectives, but there are better ways to tackle fraud without harming research. We can throw out the dirty bathwater without throwing out the baby.

Here are some suggestions. We can ban contingent fee—no-win, no-fee—tax agents. A whole industry of people are trying to make money out of encouraging other people to put in fraudulent tax credit claims. We could ban that. We should resource HMRC so that it can scrutinise the claims. Most claims are automated and there is no scrutiny of what is put in. That encourages and gives an easy ride to fraudsters.

We can also limit claims for soft innovation—that is, technical maintenance and updates that would have been made anyway and which people would not normally think of as research and development. They should not be getting research and development tax relief in the first place. Lastly, to distinguish between the life science companies that we all want to encourage and the fraudsters and chancers, the Government could create an R&D tax regime for knowledge-intensive companies, which are already recognised in the tax codes; there would be no definitional issue, because those companies are already in the tax code. I am talking about companies with under 500 employees carrying out work to create intellectual property and expecting the majority of their business to come from that work within 10 years, or companies where more than 20% of employees are doing research roles requiring a master’s degree, a PhD or beyond.

If the Government take those steps, they can promote research while tackling fraud. I urge them, on behalf of all the businesses in my constituency—dozens of which have been in contact—to delay the implementation of the change, consult the industry on it and to look at more specific ways to tackle fraud, so that we can distinguish between genuine research that we want to encourage and the fraudsters and chancers. Will the Financial Secretary or the Exchequer Secretary—I am not sure whether this applies to him or her—meet me and industry representatives urgently to talk about the impact of the changes in the regime on life sciences research in the UK? With that caveat—I realise that it is a big one for my constituency members—and assuming a positive answer, I support the Bill overall, and I commend it to the House.

Finance Bill

Anthony Browne Excerpts

Committee stage
Wednesday 30th November 2022 Commons Chamber

I will draw my remarks to a close simply by observing that this is a poor Bill that fails to meet the trials of the present. It does not set us on the course we should be trying to set ourselves on to meet the challenges of the future.

[Anthony Browne (South Cambridgeshire) (Con)]

I feel that I should first explain why I have a teddy bear on the Bench beside me, because various people have been making eyes at me. The bear is the prize for my Christmas card competition. As I am en route between the gift shop and having a photograph taken with the Prime Minister, I thought that I would sit him there.

As I said on Second Reading, I very much welcome the whole thrust of this Bill, which is needed to balance the books. I will not repeat what I said then, but I have a few comments on some of the amendments. First, amendment 2 to clause 5, tabled by the hon. Member for Richmond Park (Sarah Olney), is about trying to publish the number of taxpayers who get caught in higher rate bands as a result of this Bill. I very much welcome tax transparency, and I very much welcome His Majesty’s Revenue and Customs telling people how much tax they will pay. There are many measures that we could take to promote tax transparency, but I can say with a high degree of confidence that, if this amendment were to pass, HMRC would not need to write to one single member of the public, because it is fundamentally based on a complete misunderstanding of how fiscal drag works.

The Bill keeps the personal allowance and the higher rate thresholds as they are, so somebody earning, say, £12,000 a year will not pay the base standard rate of income tax now and they will not pay it next year. The way that fiscal drag works is that people get pay rises, which push them into a higher rate band than if they had not got that pay rise, but that is not as a result of a change in the Bill. The wording of the amendment says that

“they have become liable to pay the basic rate of income tax (when they were not previously so liable)”.

It is mathematically impossible to have someone not liable at the moment who will then become liable as a result of the Bill.

[Sarah Olney (Richmond Park) (LD)]

I just want to clarify that what we are talking about in this amendment is where people are getting pay rises, and even though most people are not getting inflation-rate pay rises, they are nevertheless getting higher cash rises than they normally would have done because of the rate of inflation. For some people that will mean that they will paying income tax for the first time if their rise takes them above the personal allowance threshold, or, indeed, if it takes them above the higher rate threshold. That is what the amendment is designed to address—the fact that there will now be some people paying 40% tax on their increased salary, which, if the thresholds had risen in line with inflation, they would not have done. I am pleased to have had the opportunity to clarify that.

[Anthony Browne]

I am well aware of how fiscal drag works. I have been studying it, reporting on it and commenting on it for about 20 years. My point was that, as the amendment is worded, the person would have become liable to pay the base rate of income tax when they were not previously so liable. If they are not liable now, they will not become liable as a result of this Bill. The hon. Lady could have changed the wording of the amendment—she would need to go to lawyers to work out the wording—but, as it stands, literally no one falls into that category. The one category in which people could end up in higher tax bands as a result of the Bill is not actually mentioned, which is the lowering of the threshold for the additional rate of tax from £150,000 a year to £125,000 a year. So for example, if a person was earning £130,000 a year, they would not be liable for the additional rate of income tax—the 45p rate—now, but they will be as a result of the Bill. However, the hon. Lady’s amendment does not mention that; it mentions the standard rate and the lower rate, for which the thresholds are kept stable.

New clause 8 has not been selected, but the hon. Members for Ealing North (James Murray) and for Gordon (Richard Thomson) both talked about non-doms. I just point out that there is a lot about non-doms that I would tidy up. It is clearly not a perfect system, and I do not think that anybody would defend it. None the less, it was there throughout the time of the last Labour Government. They did many reviews on it—I remember those reviews—and they sort of tinkered with it a little bit, but fundamentally left it the same. They agreed with the arguments currently put out by the Government that it is an overall net gain for the UK economy and for the UK taxpayer.

[Peter Grant (Glenrothes) (SNP)]

I am wondering whether the teddy should be moved on to the Front Bench. It could become one of the most effective Members of the present Cabinet.

The hon. Gentleman mentioned his belief in tax transparency, which is clearly something that we would all welcome. In his autumn statement, the Chancellor made a great deal of the fact that it would mean that somebody working full time on a minimum wage would get a pay rise of about £1,900. He did not mention that the Treasury would then take back almost £500 of that because of the increased tax they would have to pay. Does he believe that it would have been more transparent for the Chancellor to admit how much additional tax somebody on a minimum wage would be paying as a result of there being no increase in the tax bands in this Finance Bill?

[Anthony Browne]

When the current Prime Minister, then Chancellor, initially froze the tax thresholds in the Budget earlier this year, he was very transparent; he said upfront that the Government were freezing the thresholds. He wanted to make sure that no one could accuse him of introducing a stealth tax rise. Previously when thresholds were frozen, Chancellors tended not to mention it during the Budget speech. They just let it pass through and it really was a stealth tax rise.

I want to make one general comment about the different amendments. They all call on the Government to publish documents and reviews of one form or another. I know that amendments are not allowed to commit the Government to new expenditure, or to change their tax take, but there are, literally, no new policies here whatever. As far as I am aware, the Opposition agree with basically all the measures in the Bill, which makes it quite difficult to suggest amendments that change any of them or to make a speech about changing them. However, fundamentally, I have a problem with legislation that urges Government to publish documents and tries to tell Ministers what to do in their jobs, because that is not the role of legislation normally. There is one easy way to get the Government to do what the Opposition want, which is to win an election; that is a little suggestion for them. If they want to get the Government to publish documents, become the Government. I do not particularly want them to, but that is the easier way to do it than trying to pass amendments.

New clause 3, which the hon. Member for Ealing North mentioned, calls for a review of the effectiveness of the research and development tax credits. I have a lot of sympathy with the broad thrust of that. I talked about that on Second Reading. Clearly, it is a big issue for my constituency. I have many life science companies that depend heavily on that tax credit. Their whole cash flow depends on it. They do research for 10 or 15 years before they earn any revenue—before they have any chance of getting money in through the door. They are funded by investors and part of their funding model is getting that tax credit. It has been alarming for them to see it being cut off in April.

Clearly, the Government are, rightly, worried about fraud in tax credits. There is a lot of fraud in that area, and a whole industry effectively encourages it, so the Government are right to tackle it. I know that the Government are committed to promoting research and development and championing the life sciences. The Minister has been generous with her time and we talked about it this morning. What the chief executives and leaders of all these life science companies want is reassurance from the Government that they are really committed to making sure that research and development in small and medium-sized enterprises is not adversely affected by this measure. I also urge her to meet the industry urgently to get to the bottom of this and to work out a regime to help them.

[Victoria Atkins]

I thank my hon. Friend for the constructive and eloquent way in which he has represented the interests of his constituents and those critical businesses in his constituency. I genuinely take this matter very seriously. In addition to a wider roundtable meeting that I am having next week with a broader range of sectors that may be affected by this, I wonder whether it would meet with his approval if we could have a meeting before Christmas specifically with the life sciences industry to try to ensure that we continue to see the thriving industry he has described, while also bringing about these much-needed changes to the R&D tax reliefs.

[Anthony Browne]

I thank the Minister for that positive and constructive response. I would be absolutely delighted, and I know that the industry would be delighted, to sit down with her urgently in the next few weeks to go through the different options.

My last comment on the R&D tax credits is on evaluation. Various people have mentioned in this debate and on Second Reading the effectiveness of those and whether they lead to more research and development. Clearly, we do not want to give good taxpayers’ money to businesses if they do not end up doing what we want them to do, which is doing more research and development. New clause 3 asks for evaluations. There are various published evaluations by His Majesty’s Revenue and Customs and other bodies already about this, but I would just caution against reading too much into the headlines, because the evaluations I have read combined the whole spectrum of businesses that claim research and development tax credits, including the fraudsters, the chancers and the people who are just doing stuff they would do anyway and trying to get a tax credit for it, and all the knowledge-intensive companies in life sciences and other sectors that are doing the valuable research we want to encourage.

I would caution the Government to base any policy on an evaluation of how the tax credit is spent on the businesses that they want to encourage, as opposed to the fraudsters and the chancers that they do not. Any change to the regime needs to try to separate and distinguish between those two branches. As a result of the constructive approach taken by the Government, who I know want to sort this out, I do not think new clause 3 is necessary and therefore I will not be supporting it. I do support the Finance Bill, however, and commend it to the Committee.

[Helen Morgan (North Shropshire) (LD)]

Thank you for your flexibility in allowing me to speak this afternoon, Dame Rosie.

I rise to speak to amendment 2, tabled in my name and that of my hon. Friend the Member for Richmond Park (Sarah Olney), and to amendments 3, 4 and 5, tabled in her name. This Bill is an unfair stealth raid on millions of hard-working low and middle-income earners during a terrible cost of living crisis. Thanks to the Conservatives’ threshold freezes, 6 million people will be dragged into a higher tax band by the end of 2028. Those stealth tax rates are not particularly obvious in someone’s monthly payslip, but that does not mean they are not going to hurt people struggling with the cost of living.

Basic rate taxpayers will pay an additional £340 this year due to the freeze of the personal allowance, and higher rate taxpayers are estimated to pay an extra £1,700. Amendment 2 would require HMRC to write to all those affected by those income tax threshold freezes, to tell them whether they are paying more tax than they normally would and, crucially, whether they have been dragged into a higher tax band. It is vital that the British public have clarity on the Conservative increases to their tax liabilities from April and for that reason I wish to push amendment 2 to a vote.

The Conservatives promised not to raise taxes, as written in their own 2019 manifesto:

“This is a tax guarantee that will protect the incomes of hard-working families across the next Parliament.”

Three Prime Ministers and five Chancellors later, the Conservative Government have delivered an autumn statement with £24 billion in tax rises, all to fill a black hole—or indeed a blue hole—that they have created through their own incompetence. The Prime Minister and his Government are now breaking the Conservative manifesto pledge and the Prime Minister has no mandate for that. The Conservatives could at least make the British public aware that their promise to the country has changed by accepting amendment 2.

In 2019, the Conservatives promised voters a high-wage, high-skilled, low-tax economy. At a time when real-terms wages continue to fall, the tax burden has reached its highest level since the second world war and we have a chronic skills shortage, I would appreciate some clarity from the Prime Minister on the delivery of his party’s manifesto commitments.

I will also speak briefly to amendments 3 and 4. The Liberal Democrats were the first party to call for a windfall tax back in October 2021, when gas prices first began to soar. Through their delay in taking action, the Government allowed fossil fuel giants to get away with half a year’s-worth of untaxed super-profits. Amendment 3 would require the Government to produce an assessment of how much revenue has been lost through their delay. I am pleased that the Government are finally raising the rate of the windfall tax, but I am afraid it does not go far enough. If Shell paid nothing when the rate was 25%, it will still pay nothing when the rate is 35%.

Amendment 4 would require the Government to produce a quarterly assessment of how much revenue has been forgone through the investment allowance and publish the names of the companies that have benefited from the tax break. The lost revenue could have gone to supporting struggling households or protecting our public services, and the British people deserve to know how the money has been spent. I am also concerned about the environmental impact of the investment allowance. The Government state that they are committed to net zero, but at the same time the allowance promotes oil and gas exploration, while refusing renewable generators an equivalent tax relief.

Lastly, I draw attention to amendment 5. At a time when petrol and diesel prices are sky high, the Government should not be making it more expensive to own an electric vehicle. They have already scrapped the plug-in car grant and now they are extending vehicle excise duty to electric cars, which will only slow the road to electrification. I urge hon. Members to support these amendments to improve this Bill and to be honest about the impact it will have on British people.