Finance Bill

Bim Afolami Excerpts

Tuesday 12th September 2017 Commons Chamber

[Kit Malthouse]

I was about to come to that. The rise in taxation on dividend says something about how we treat the proceeds of risk. The argument has always been that dividends should be taxed less than income to recognise that risk. More times than not, if someone invests in a company, they lose their money. In some spheres, such as life sciences—a specialist area of mine—nine times out of 10 they lose their money. If someone invests in a drug discovery company, it is quasi-charitable giving—nine times out of time, they are giving to the economy for the good of their health, hopefully. The notion that dividends should be taxed just like every other income starts to erode the idea that as a Government and a society we want to reward risk taking.

In future Budgets, I hope that Chancellors will find a way to re-instil the sense in ordinary working people that they should think about starting and building their own business. Sadly, over the last couple of years, the number of people contemplating starting their own business has dropped. A couple of years ago, it was about 39% to 40%; according to the latest survey, it is now only about 14%, and the single largest barrier that puts them off is access to capital—the ability to get the money to start a business.

[Bim Afolami (Hitchin and Harpenden) (Con)]

What is my hon. Friend’s view of the fact that many economists, notably the American economist Tyler Cowen, have recently discussed how innovation has been slowing down not just in Britain but in America and across the developed world? Not disregarding his point about taxation, I think that points to something more fundamental about western economies and how the economic system is working.

[Kit Malthouse]

That is a very good and broad point, and I could talk for a long time about it—[Hon. Members: “Go on.”] I wish. It is definitely my perception, and the evidence certainly shows, however, that the operation of capital is becoming more and more sluggish across the western world.

As I said earlier when I mentioned those top 500 companies, capital is incredibly sluggish, particularly in the EU. In this country it has long been said that that is partly the fault of the housing market, in which so much private capital is tied up because we like to own our homes. In other countries, such as Germany, where that is not the case, capital may be more dynamic, and there may be more capital for investment. Whatever the problem—and we think there is a problem—Governments have a role in unlocking and lubricating the capital that is out there.

I think that both the enterprise investment scheme and the small enterprise investment scheme are good and worthy. Over the last couple of years, however, I have been pressing for them to be deregulated so that it becomes easier for people to invest, and they will not need an accountant, a lawyer and pre-approval from the Revenue to achieve—in the case of the EIS—modest tax reliefs and benefits in the future. We need a scheme that recognises the quasi-charitable nature of giving. I would like to see a system in which people who invested in a business would receive 100% tax relief up front, and then, if they ended up owing capital gains tax, would pay the tax. That would be a nice problem to have. When I have started my businesses, the last thing on my mind has been whether there is any capital gains tax to pay. What has been mostly on my mind has been raising the money, getting going, paying the staff, finding an office, and all the rest of it. I think that such a system would be simple, easy and understandable, and would encourage a great deal more investment in the drugs, therapies and technologies that we need for the future.

The Government have a patient capital review on the cards. It kicked off about a year ago under the chairmanship of Damon Buffini, who, as Members will know, is one of those much benighted private equity guys, and I shall be pressing the Government, hopefully, for its conclusion quite soon.

The second thing that we must bear in mind about the signal that we send with the change in dividend taxation concerns young people. We have talked a good deal about home ownership for young people, but their ability to access assets in general is something that should trouble us all. Those assets include shares. It might be a good idea to give young people an incentive by suggesting that it would be beneficial for them to build up small share portfolios. The Government will say, quite rightly, that they can start individual savings accounts, and of course they can. Dividends are tax-free in an ISA, and given that the ISA allowance rose to £20,000 a year in April, it is possible to accumulate huge amounts of money. The problem with ISAs, however, is that most people hold significant amounts of cash in them. There is no limit to what can be held in a cash ISA, and far too much money in ISAs is held in cash rather than being invested in the productive economy. People should be sent signals that they should be investing in companies.