Finance (No. 4) Bill

Bob Stewart Excerpts

Monday 16th April 2012 Commons Chamber

[Stephen Williams]

I welcome my hon. Friend’s addressing the fact that the tax system should be fair in how different individuals get relief for an activity that is to be encouraged. Perhaps the relief on pension contributions ought to be seen in the same light but I think that would be controversial among many of his colleagues. I suppose that the basic principle of gift aid relief, tax relief and what can be recovered by a charity relates to one’s net income and the money that one no longer has. It therefore has to be grossed up by the rate of tax that has already been taken off one’s income before one chose to give that money to someone else. That is the basic underlying logic.

[Bob Stewart (Beckenham) (Con)]

My problem is that I do not quite understand how it works so perhaps my hon. Friend will correct me. If a philanthropist gives a huge amount of money to a charity, does that mean that he or she chooses who they give the money to and that the only loser is the Exchequer because it does not get tax on that? It is difficult but I rather like the fact that a philanthropist can give all that money and choose what happens to his or her money and that the Exchequer is the only loser. Am I wrong or is that his understanding?

[Stephen Williams]

I intended to give a speech on the Bill this evening rather than a broad-ranging tutorial on how the tax system works, but yes my hon. Friend is broadly correct. The basic premise of philanthropy is that one chooses of one’s own free will to whom one gives one’s money, but one gives from one’s net income and the money available—that is all one has to make that donation. The gift aid system therefore works so that the tax that has been deducted from that income already is put back in place and the charity receives that benefit.

I wish to make a second suggestion about how this restriction could be addressed. Perhaps a better way of looking at it would be to exempt large gifts to certain institutions such as universities. My right hon. Friend the Business Secretary has rightly expressed concern about the effect on the alumni fundraising programmes of our universities. The Russell group universities are particularly active in raising funds from members of their alumni such as myself, although I do not think I would be caught by these provisions. Gifts to other institutions such as Cancer Research UK and national institutions and museums such as the National Gallery could also be exempted. Perhaps we need to look again at the Charities Act 2006 and the public benefit test to see which activities and donations are generally of a philanthropic nature and which may fall into the grey area. It may be an individual’s personal choice to donate to a particular cause but that cause might not be something of wider public benefit that deserves tax relief. Whatever system we come up with, whether it is what is proposed in a dry sense in the Finance Bill or one that takes on board the suggestions that I and others will no doubt make as the Bill progresses, it must support genuine philanthropic activity.

My final point is on the rather obscure clause 180, which it will probably take us some time to reach in Committee. It relates to controlled foreign companies and how the UK is changing the taxation basis for companies with activities abroad. The primary duty of the UK Government, and indeed of Members of the House of Commons, is to safeguard United Kingdom taxpayers, and we must always think about that whenever we debate these issues, but we also have a duty to make sure that our Government’s policies are joined up. At a time when despite decreases in budgets elsewhere we are increasing the budget of the Department for International Development, it would be perverse if DFID had to give developing countries more support because of the adverse effects of the tax changes we are making in this country. We cannot address all those aspects now, and we shall look at them again in Committee, but I hope we can find a way of measuring their effects and supporting overseas tax authorities more effectively to collect their tax liabilities so that they are not adversely affected by changes we are making to our basis for taxation.

I said that I wanted to make a short speech. We have long debates ahead of us over several days, both in the Chamber and in Committee. When the dust has settled on the Budget and it passes into the annals of history, despite everything that hon. Members have rightly mentioned today—whether pasties or caravans—I think it will be remembered for the huge increase in personal allowances that raised millions of people out of taxation and provided a broad cut in income tax for millions more. That is the radical measure in the Budget; it is something I am very proud of and it is why I shall support the Bill this evening.

[Nia Griffith (Llanelli) (Lab)]

I rise to say a few of the things I was unable to say just before the recess because my speech was limited to about three minutes. I shall make up for it this evening.

It is important to put the Budget in context. No Budget can be considered without the context in which it is to be carried out. My major concern is that it does not address the problems we are facing. Of course, we have a deficit and we need to reduce it, but we can do that only if we make money, and there seems to be no strategy to get the economy going. The Government do not even seem to know where to feed money into the economy, and seem to be wasting money by giving it away in the wrong places and not using it to do things that would stimulate the economy.

Let us look at what has happened to date. Since the emergency Budget of 2010, and subsequent measures, the Government have already planned to take a huge amount out of the economy, much of it from people on low or modest incomes—the very people who by necessity have immediate spending on the essentials of life simply to keep their families fed and warm. What seems to have happened in the Budget is that we are seeing money given away to those at the top end of the scale, and there is no guarantee at all about what they will do with their money. They could choose to do all manner of things with it and it may never come back into our economy. The money may go abroad or be stashed away somewhere, but it will not immediately feed back into the economy. The Budget proposals present a serious problem from an economic and a fairness point of view.

[Bob Stewart]

Does the hon. Lady agree that, from the point of view of fairness, it is a really good thing to increase the tax threshold for those people who pay little tax? That was well done in this Budget, and it will be better next year. Surely that will help the lowest-paid in our society.

[Nia Griffith]

The difficulty with raising the personal tax allowance is, first, that those on very low incomes—those who will have their disability living allowance or housing benefit cut—do not even pay tax. Secondly, those much higher up the scale will benefit from the increased personal allowance. It is often dual-income families, quite high up the scale, who benefit from the personal allowance being pushed up. It is a very expensive way of helping people who are in the position that the hon. Gentleman sets out.

Although people criticised the tax credit system, the whole point of it was that it maximised the amount of benefit that went to the people who really needed it. The irony is that when we were in government, we were often accused of introducing stealth taxes, but look at the amount of indirect taxation now. What people have supposedly been given back through the direct taxation system—that is, through their personal allowance—has already been taken off them through the 20% VAT rate. That is the type of “stealth tax”—the same goes for fuel and so forth—that people resent. They are actually saying that they are paying more tax than before. Even the increased personal allowance will not make up the difference.

The Government propose making a very expensive move that is not properly targeted, and that is worrying, because the money will not feed back into the economy as quickly as it would if it were targeted at those who really need it and would want to spend it straight away. The first problem is that the money is going to the wrong place.

Secondly, we seem to have no growth strategy at all. We are lucky that some of our manufacturers are able to export because they are selling to markets in countries where there are stimulus packages, or strategies to stimulate growth. The fact remains that if we were relying solely on the home market, our manufacturing would be in a dire condition.

With growth flatlining and unemployment rising, the Government, far from bringing the deficit down, are facing the fact that they will have to borrow an additional £150 billion simply to pay people who are out of work. What is the point of that, when we could be paying them to do constructive things such as build council houses or schools? Through employment in manufacturing, they could be learning skills that they could use later. That would keep the skills base going. One of the big problems when there is mass unemployment and a massive drop in the number of people in an industry, whether it is coal mining or building, is that we lose a generation of skills.

People do not want to sit about doing nothing. The overwhelming majority of people whom I meet who cannot find a job are very frustrated at not being able to find work. They are looking for anything and everything. It is often older workers in their 50s and early 60s who particularly suffer. They feel that time and again, they turn up for an interview only to be told that they are too old and cannot be taken on. We want the opportunity for all people—young and old—to get back to work.

Let me give an example of the type of money being taken out of the economy, so that we can see the real problem. In Wales alone, some £6.3 billion will be taken out of the economy over the next three years. We are talking about a very small population of not even 3 million people. The money is coming directly out of the Welsh economy. It is coming from the VAT increase, the loss of jobs in the public sector, and, significantly, most of all, from cuts to the tax credit system and to a wide range of allowances, including the disability living allowance, housing benefit, and council tax benefit. It is coming from a whole range of moneys that were put in to help people who struggle to pay particular bills—people who really could not make ends meet without the money.

As was mentioned, many of the people affected by the housing benefit changes will either find themselves homeless or simply have to use money that they would normally use for food and heating to pay the rent.

--- Later in debate ---

[Charlie Elphicke (Dover) (Con)]

It is a pleasure to follow the detailed and forensic speech of the hon. Member for Llanelli (Nia Griffith). However, unlike her, I support the Finance Bill, and hope that it will go further, particularly on business and the reductions in corporation tax. By 2014, corporation tax will be 22%—the lowest rate in the G7. I strongly believe that if the rate is cut, the take is increased. However, in cutting the rate, we also need to take firm action to stop tax avoidance and to have a new tax compact. A low rate means great responsibility, and a greater responsibility to pay the tax that is due. We need business to pay a fair share of taxes, especially multinationals that are located not here in the UK, but overseas. For too many years, they have failed to pay their fair share.

Let me give some numbers. In 1997-98, income tax raised £77 billion a year; in 2008-09, it raised £153 billion a year. In other words, income tax receipts doubled. Let us look at corporation tax. In 1997-98, corporation tax raised £30 billion; in 2008-09, it raised £43 billion, an increase of just a third. How can it be that income tax receipts doubled in the same period that corporation tax receipts went up by only a third? The rate during the period was largely unchanged. The answer is that the Labour Government allowed massive, egregious and unacceptable tax avoidance for a decade on an industrial scale. That is a disgusting record in government.

There was a massive change during that period. With the rise of the internet, tax bases were threatened, but the Labour Government were asleep at the wheel and failed to reform our tax system, and to understand and take into account the new technologies and the new threats to our tax bases.

Let us look at this massive and inexcusable tax avoidance by multinationals. Who am I talking about? I shall give a few examples. In the last financial year, it is estimated that Apple had earnings of about £6 billion in the UK. Apple has an operating margin of some 33%, meaning that profit in the UK would be roughly £2 billion. Tax attributable to UK profits should be roughly £500 million, but how much tax did Apple pay? It paid £10 million—not £500 million. That is unacceptable.

Let us take the case of Amazon. In 2010, Amazon had revenues attributable to the UK of £2.8 billion. It is estimated that it should have paid some £35 million in tax on profits of some £125 million. How much tax did Amazon pay? The answer is nothing.

[Bob Stewart]

So we are going to sort this, are we? Will it be sorted as soon as possible so that it does not happen again? We must ensure that it does not happen again.

[Charlie Elphicke]

I am grateful to my hon. Friend for anticipating the next part of my speech, but let me first give some more examples.

Google revenues in the UK were £2.15 billion in 2010. Estimated UK profit was £700 million. How much tax should have been paid? Google should have paid around £180 million, but how much did it pay? It declared a loss of £22 million.