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.