Finance (No. 2) Bill

Bernard Jenkin Excerpts

Committee stage & Committee of the Whole House (Day 1)
Monday 19th April 2021 Commons Chamber

[Jesse Norman]

The right hon. Gentlemen raised a very similar question with me on Second Reading and, as he knows, the Government are engaging very closely with the Northern Ireland Executive. I am not in a position to second-guess what the EU may or may not do in that regard, but we have been very clear that we want to put a freeport in Northern Ireland and we want it to be a strong offer comparable to the freeports available elsewhere in the United Kingdom. That is what we will be seeking to achieve.

[Sir Bernard Jenkin (Harwich and North Essex) (Con)]

In passing, I thank the Government for designating Freeport East, which includes Harwich in my constituency, as one of the freeports. I am struggling to find how the tax concessions in this Bill avail us of the new freedoms outside the European Union. Will my right hon. Friend identify how the freedoms in this Bill are in contention with the EU state aid rules on tax subsidies? Of course, that would not apply in Northern Ireland, where the EU state aid rules still apply. The Government might as well be completely honest about this: if there are advantages for England of being outside the EU that we do not have because Northern Ireland is still effectively inside the EU, let us hear about them, because we want to know that we have those advantages in England.

[Jesse Norman]

I think my hon. Friend has erred in his logic. It is perfectly possible for us to benefit from the flexibility of setting taxes, as we are, while being able to have a strong agreed offer that satisfies whatever rules may apply in Northern Ireland with the Northern Ireland Executive. They will be of different characters, but there is no reason to think that neither is possible.

Clauses 109 to 111 give the Government the power to designate tax sites and, once sites have been designated, to provide relief within them for the acquisition of commercial purpose property and new plant and machinery assets, as well as relief on the construction or renovation of buildings. These powers will enable the Government to move quickly to enable businesses to begin accessing the benefits of freeports as soon as is feasible.

The Government are committed to tackling non-compliance in the tax system, and freeports are not an exception to that. Anti-avoidance and evasion provisions are included in the Bill, and will be taken across further legislation for the individual tax reliefs. In addition, the Government will take further powers to create a robust system of monitoring in freeports and enable HMRC to request relevant information from businesses. This will ensure that public money is being used effectively in pursuit of the regeneration and development of freeport locations.

Clause 109 will enable the Government to designate the location of tax sites connected to any freeport in Great Britain. The tax reliefs made available as part of the Government’s freeports programme will apply only in these sites, and the Government intend to bring forward legislation to apply these reliefs in Northern Ireland at a later date.

Bidders submitted initial proposals for their tax sites during the bidding process. The Government allowed up to 600 hectares of tax site space to be proposed, across a maximum of three separate sites per freeport. Tax site proposals were also judged against a set of criteria relating to existing deprivation and unemployment, to ensure tax measures will have maximum impact in regenerating those areas. The Government will now work with the successful locations to approve their tax site proposals. Once the successful bids have completed the full tax site assessment process, the Government will designate the agreed areas as tax sites. From that point forwards, businesses will be able to claim and benefit from the tax reliefs.

[Sir Bernard Jenkin]

I am most grateful to my right hon. Friend; he is being very generous, though whenever I am tackled on a point of logic by a professor of philosophy, I wonder what is going on. But my question is quite an innocent one in this case. In Harwich, there are some businesses very near the tax sites which have been affected by Brexit and would benefit greatly from being included in the tax site. To what extent are the boundaries still adjustable, and is there an issue of principle regarding included businesses that could expand much more effectively? I am thinking of the particular example of a petrochemicals processing business, which exports substantially and would benefit very greatly by being in the tax site. It would generate many more jobs and much more wealth for the United Kingdom.

[Jesse Norman]

Of course, the circumstances for each individual freeport site will be, and I am sure are, very different. I cannot comment on the site my hon. Friend describes, but in general the emphasis of the legislation is very much on new investment and new development, rather than on existing or dead-weight investment. It may well be the case that there are businesses that would propose to make substantial new investments and, depending on the freeport in question, it may be possible for them to qualify for some of the benefits associated with that, but, again, it is not possible for me to comment on individual cases.

Clause 110 and schedule 21 will allow businesses in freeport tax sites in Great Britain to benefit from two new capital allowances: enhanced capital allowances and an enhanced structures and buildings allowance.

On clause 111 and schedule 22, the clause makes changes to provide for a new relief from stamp duty land tax for acquisitions of land and buildings situated in freeport tax sites in England that are used for qualifying commercial purposes. Relief will be available for purchases made from the date a freeport tax site is formally designated until 30 September 2026.

Amendments 43 to 52 amend the provisions introduced by clause 111 and schedule 22 to provide certainty that property investors using sharia-compliant alternative finance are able to benefit from stamp duty land tax relief in the same way as investors using conventional finance. That will be done by taxing the alternative finance intermediary’s acquisition as though it were an acquisition by the investor. The amendments ensure that the tax payable by someone using alternative finance is the same as that which would be payable were the property purchased using a conventional financial product.

Opposition Members have tabled two new clauses relating to clauses 109 to 111. Among other things, they would place additional eligibility criteria in respect of employment rights, equalities and the environment on the claiming of capital allowances and stamp duty land tax relief in freeports. It is important to say that freeports will deliver tangible benefits that will help to level up areas. By imposing those additional criteria, the new clauses would potentially delay the implementation of these measures by making freeports more complicated for businesses to navigate, and therefore reducing their impact and effectiveness. In any case, the Government have a very strong commitment to reducing carbon emissions, which is why this country was the first major economy to implement a legally binding net zero greenhouse gas emissions target by 2050. The Government will continue to ensure that the role of tax is considered alongside other policy measures needed to meet environmental goals.

As I have already indicated, freeports will also have an important role in reducing regional disparities. The rigorous assessment of bids that has been undertaken has ensured that tax benefits are available only in areas that require regeneration and would benefit from being a tax site, helping the Government to level up those that have been left behind.

New clauses 5 and 25 as tabled would have the following effect. New clause 5 would make the commencements of clauses 109 to 111 dependent on the Secretary of State publishing a report that would allow Members to assess the economic case for freeports, and on both Houses agreeing that report. New clause 25 contains a similar request for a review of the impact of clauses 109 to 111 and schedules 21 and 22, and for a report of that review to be laid before the House within six months of the passing of this Bill and once a year thereafter. A robust and transparent bid assessment process, using the criteria set out in the bidding prospectus, ensured that the eight English freeports so far granted all demonstrated a good or better economic case, including a strong economic rationale for their proposed tax site locations.

In the interest of transparency and accountability, the Government have also published a decision-making note that clearly sets out how sustainable economic growth and regeneration were prioritised in this process of assessment. The Government will publish costings of the freeports programme at the next fiscal event, in line with conventional practice. Imposing an additional economic incentive on top of what has been outlined would only risk delaying the delivery of the programme and therefore the associated benefits of the increased investment and employment.

Amendment 54 would make the commencement of a freeport tax site in any UK nation subject to approval by the three devolved Administrations. The hon. Member for Ceredigion (Ben Lake) has already introduced that. Let me say to him that tax is first and foremost a reserved matter unless it is specifically devolved. The UK Government have the power to set tax sites that offer reserved tax reliefs across the UK, and Ministers for the devolved Administrations have the power to set devolved tax reliefs. Devolved Ministers will be accountable to their Parliaments for the use of tax instruments under their control in a freeport tax site within their nation under the proposed plans.

The Government are determined to establish freeports across the UK, not just in England. That is why we are committed to continuing discussions with the Administrations in Scotland and Wales, when their new Governments have been established, and with the Northern Ireland Executive. The Government intend to have a freeport in each nation, and are determined to deliver that as soon as practicable. They will be national hubs for trade, innovation and commerce, regenerating communities across the country. They can attract new businesses and spread jobs, investment and opportunity to towns and cities up and down the UK, which will boost international trade and economic growth.

[Sir Bernard Jenkin]

Wil my right hon. Friend give way?

[Jesse Norman]

I am happy to take a third intervention from my hon. Friend.

[Sir Bernard Jenkin]

I am most grateful. Well, it is the Committee stage of a Bill. The hon. Member for Ceredigion (Ben Lake) raised an issue that I had not considered before, which is that the provision of a freeport in a devolved nation might actually reduce the revenue being collected by that devolved Government. Has my right hon. Friend given consideration to that? I cannot see how that would actually happen, but will he give an assurance that there is a means of addressing that if it were to occur?

[Jesse Norman]

As far as I am aware, this is a very remote contingency and I see no evidence to suggest that it might be the case in the context that has been described, but I can certainly tell my hon. Friend that, when the Government engage with the Welsh Government, we will be sensitive and open to discussion of the potential economic effects of a freeport in Wales, as one might expect.

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[Richard Thomson]

I would like to add my support for the Opposition amendments and to seek a commitment from the Government, while the Minister is here, to allow the Scottish Government after the Scottish elections to move ahead with their greenports adaptation of the freeports concept. Freeports do not require Brexit in order to be brought about, and legitimate questions remain about how much additional economic activity they will actually generate, rather than simply displace from other areas of the economy.

[Sir Bernard Jenkin]

Will the hon. Gentleman give way?

[Richard Thomson]

It is very early but yes, of course.

[Sir Bernard Jenkin]

I am most grateful to the hon. Gentleman for allowing me to intervene. There was a freeport in Shannon in the Republic of Ireland before the Republic of Ireland joined the European Economic Community. The tax freedoms that it was granting at the Shannon freeport were significantly curtailed as a result of joining the EEC, because the EEC prevented it from providing those freedoms. That is why we are discussing the question as to whether or not we are using the new freedoms we have, but the fact is we have much more tax freedom outside the EU for freeports than we had when we were in the EU, and hopefully Scotland will benefit from that.

[Richard Thomson]

I thank the hon. Gentleman for that intervention, but I think my point still stands. No matter what the spirit of truth might be in his remarks about how constraints were placed on the Shannon free zone, there are freeports in the European Union. Freeports are not something that intrinsically require Brexit of itself in order to be able to be pursued. But certainly I hope there are benefits for Scotland from this. I think those benefits can be manifested best perhaps through the greenports approach, which I would like to expand upon.

As I say, the Scottish Government have developed their own version, the greenports, which seeks to embrace all the potential benefits that could come through freeports, while aligning that with ensuring the principles of fair work are enshrined, ensuring that workers within the greenports are paid a real living wage and that the reduction of carbon emissions is embedded at the heart of those developments. A re-elected Scottish National party Government will seek to implement those greenports, making public sector support contingent on businesses complying with that fair work first agenda, paying that real living wage and implementing the Scottish business pledge: our values-led partnership between Government and business based on boosting productivity competitiveness through fairness, equality and sustainable employment, and on delivering on concrete plans to reduce carbon emissions in line with supporting the Scottish Government’s ambition to reach net zero by 2045.

The Scottish Government proposals for these economic development zones already have widespread buy-in from stakeholders, who are desperate to start bidding to run the greenports. It was heartening to hear from the Minister his commitment to seeing freeports in all parts of the UK. Nevertheless, if the people of Scotland choose to re-elect a Scottish National party Government, the Government need to accept the mandate that comes from that and, if there has been an element of heel dragging, to hasten the process of coming to an agreement on the rules around these proposed greenports so that the bidding can begin immediately.

Having taken positive steps to end the race to the bottom on corporate taxation, as we heard in an earlier debate, I think it is important that the UK Government do not allow those who take advantage of freeport status to neglect or otherwise elude their obligations to the workforce, to the environment and to the building of long-term, sustainable value in the regions where they are located and the wider economy.

In the year that the world is coming to Scotland to plan our future at the COP summit, I think it is absolutely fitting that we should be able to develop greenports to demonstrate our ambitions on sustainable, inclusive economic growth as we transition to a net zero economy. A fair, sustainable greenport model can be an exemplar of those values, while adding value to Scottish goods, services and the country’s brand. The UK Government, once the Scottish elections are over, need to get on board with this and back the innovative approach of the Scottish Government model so that we can get the bidding process under way.

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[Sarah Olney [V]]

I wish to speak to clauses 109 to 111 relating to the powers to designate sites as freeports and associated provisions.

This has been a turbulent year for the UK economy, with the expected disruption of Brexit and the unexpected and unprecedented impact of the coronavirus pandemic. Now that we can, hopefully, look forward to the end of the pandemic and its associated lockdowns, it is time for the Government to put forward their bold and radical plans for kickstarting the UK economy to enable growth and skilled employment in all corners of the country.

The Government have had plenty of time to think about how they plan to deliver the benefits of Brexit that we have all been promised. I expected the Chancellor to jump at the chance to realise those benefits through the Budget and this Bill—and he has delivered freeports. This is it: the big idea, the bold move, the economic leap forward that our freedom from EU shackles has finally granted us. Except, of course, we have always had the freedom to initiate freeports in this country. We last had them in 2012. The reason we have not had them since is that their economic impact has previously proved to be negligible.

Research into freeports in other countries has shown that they do little to boost exports as opposed to imports, and there is very little evidence that they create new economic activity as opposed to redirecting existing economic activity from elsewhere. This risks trappings thousands of workers in insecure work with reduced rights, in areas with reducing opportunities for alternative employment. Any increased economic performance arising from freeports is therefore unlikely to trickle down to higher living standards in local households and communities.

What is the plan for economic growth in areas of the UK that are not lucky enough to have been awarded a freeport? The Budget and this Bill are silent on that matter. Elsewhere, the Government have scrapped their industrial strategy, replacing it with a glossy brochure full of photographs but very little content. More seriously, there has been no real attempt to quantify the impact of leaving the EU on UK business and trade, and what that might mean for our economy as a whole.

We have already seen a big short-term impact on the level of trade across the channel. It will take a while for the full picture to emerge, clouded as it is at the moment by the pandemic and the unwinding of pre-Brexit stockpiles, but there is no doubt that the increased paperwork is an expensive burden on our small businesses—and that is before import controls are introduced and the impact of the scrapping of mutual recognition of professional qualifications has been fully realised.

The UK economy has a difficult road ahead, and nothing in the Budget or this Bill demonstrates that the Government have a plan to lead us to new sources of productivity or prosperity. The Liberal Democrats are not opposed in principle to freeports, but they are not a sufficient solution to the current challenges of our economy. They fall a long way short of what is required to compensate for our leaving the EU and to restart our economy in the wake of the pandemic. Thank you, Madam Chair.

[Sir Bernard Jenkin]

I am very pleased, Dame Eleanor—if I may address you correctly—to make common cause with the hon. Member for Richmond Park (Sarah Olney) at the outset. We can agree that freeports are necessary but not sufficient to deal with regional disparities and levelling up.

I am none the wiser from the contribution by the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) whether the Labour party is in favour of freeports or against them. I would just point out to her that I spent a certain amount of my period in opposition, which was a miserable 13 years, as shadow Secretary of State for the regions, and though the Labour party was elected in 1997 with a very sincere determination to reduce economic disparities between London and the other regions of England and the other parts of the United Kingdom, it failed, and those disparities got wider.

This is a very difficult thing to address, and the answer is that we should use every tool in the box. We should use every tool we possibly can. It is also perfectly clear that all the tools are not available if a country stays in the European Union. Some of the tools were taken away from the Republic of Ireland at its Shannon freeport when it joined the European Economic Community, and it got worse; the notion that tax advantages or tax incentives were artificial tax subsidies was extended.

Of course, we want to see other tax advantages extended to other parts of the United Kingdom, such as differential rates of corporation tax, which we have extended to Northern Ireland, but only with the permission of the European Union to treat Ireland as a separate entity—which has a double edge to it that we perhaps do not want to pursue. We should be able to do that on a sovereign basis and to bring Ireland into the sovereignty of the rest of the United Kingdom in the longer term.

I wish to emphasise that the freeport east was very much driven by the need for levelling up. I see my hon. Friend the Member for Thurrock (Jackie Doyle-Price) nodding in sympathy, because she shares this problem. The perception is, “Oh, you’re in the rich south-east. You don’t need any help. It all needs to be directed to other parts of the United Kingdom.” Well, I can tell the House that I have red wall voters in my own constituency. Places like Clacton, Jaywick and Harwich are hard bitten by economic decline. Average weekly earnings in Tendring district, which is Clacton and Harwich, are £556, compared with a GB average of £587, and incidentally below the rate in Liverpool, which is historically regarded as deprived. We have a project that could generate, we hope, 13,500 jobs. The hon. Member for Richmond Park and others are right: we have to make sure that the minimum is substitution and the maximum is additionality. That is the challenge of making sure this works.

I will concentrate on what is in the Bill. I very much welcome the tax provisions in clauses 109 to 111, but there are bits missing from the Government’s additional proposals. Not mentioned in the Bill are the enhanced structures and buildings allowances, or the lower national insurance contributions, or the business rate reliefs proposed in freeport sites, or the local retention of business rates, so I remain concerned that we are offering only what is allowed under EU state aid rules. I will be grateful if the Minister, when he replies to the debate, addresses those points and says how those other tax reliefs will be provided.

It is worth mentioning that the Shannon freeport zone was regarded as such a success that it was imitated and adopted by China, which now has a freeport zone programme that it regards as an important enhancement of its economic competitiveness. I ask those who are cynical about freeports to open their minds, to look at the successful freeports and free trade zones around the world, and to learn from them, as well as listening to what one might call the “economic statics”—the people who think everything is about substitution and nothing is about releasing additional creativity.

I take seriously the points raised by the hon. Member for Erith and Thamesmead about compliance with the necessary conventions, such as authorised economic operator certification, World Free Zones Organisation safe zones rules and the OECD code of conduct for clean free trade zones. Those are all important, but let us recognise that, unless we avail ourselves of all the freedoms available to freeports, they will not deliver the benefits we want. I am reminded that when he was a Back-Bench Member of Parliament, the current Chancellor produced a very interesting report, “The Free Ports Opportunity”, which was published by the Centre for Policy Studies, price £10, which was rather more radical than the Treasury’s current offering. Some of us are a little worried that we will not see that enthusiasm and radicalism. Let us go step by step, let us work incrementally —that is not a criticism, but this is something to build on for the future.

Let us also recognise that the real benefit of freeports is not the tax incentives, but the customs facilitation. We must have really modern electronic customs systems to make the customs advantages of being in what is called a customs inversion zone real. Otherwise, it becomes a bureaucratic nightmare and we will not get the advantages we should get from it. Also, if it is a bureaucratic nightmare, it is the less savoury elements who benefit, not the legitimate businesses.

That is the challenge. We have a great opportunity, for which I really thank the Government in respect of my constituency and others. Incidentally, I think the freeports around the United Kingdom—this is a United Kingdom policy—should be working together. I wonder whether the MPs who represent the freeports that have been designated should get together, stop this mutual suspicion—which is understandable, as we have been competing for designation—and start working together to press the Government for the positive changes that will benefit all our freeports in the future.

[Rebecca Long Bailey [V]]

I will limit my brief comments to freeports. Detailed Government assessments on the operation and impact of freeports are sadly not yet available. As we have heard tonight, the OBR has stated that the announcements made in the Budget came too late to be incorporated into its forecast. If the Government recognise this, they must understand that they have a duty to provide such evidence and legislative reassurance in response to legitimate and wide-ranging concerns on the operation and impact of freeports.

There are concerns that, rather than complementing a local economy by stimulating the growth of new business, existing businesses may simply opt to relocate to freeports. Certainly, the Government have not made it clear how they will mitigate against the significant geographic movement of jobs away from one area and into a freeport—how they will avoid a wild-west scenario of pitting regions against each other, nor the prospect of lost revenue for local authorities from business rates, for example, if businesses opt to relocate to such a zone.

The job creation numbers are equally sketchy. The Chancellor argued back in 2016 that if the UK’s approach performs as well as that in the USA, freeports would create more than 86,000 jobs, but as the Centre for Progressive Policy found, this figure was a cut-and-paste job, being simply the number of people employed in the US free zones adjusted for the relative size of the UK population. There was no data on the labour market impact on specific regional economies or industries, nor any mention of the need for bespoke local skill strategies to feed into this.

On workers’ rights, the TUC has repeatedly warned about the gradual erosion of workers’ protections in these zones. It stated:

“Free ports are a Trojan Horse to water down employment protections”—

in a “race to the bottom”.

Finally, as we have heard tonight, there are real concerns that freeports could create a bonanza for money launderers and tax evaders. Indeed, the EU reported in 2018 that freeports were

“conducive to secrecy. With their preferential treatment, they resemble offshore financial centres, offering both high security and discretion and allowing transactions to be made without attracting the attention of regulators or direct tax authorities.”

The Government must address these concerns before pressing ahead. To that end, new clauses 5 and 25 would allow the Government to create an evidence base for freeports, which the House can then examine, and new clause 4 would impose standards and protections. If the Government are serious about addressing these concerns and building in clear legal protections, they will support these new clauses tonight.