Budget Resolutions and Economic Situation

Charlie Elphicke Excerpts

Friday 23rd March 2012 Commons Chamber

[Sarah Newton (Truro and Falmouth) (Con)]

When I talk to businesses in my constituency in Cornwall—this goes for families as well; a party from Shortlanesend community primary in my constituency were just in the Gallery, so some young people from Cornwall have been here today—they tell me that, in such a part of the world where we are so far away from major markets, transport infrastructure is absolutely essential and vitally important.

I very much welcome, therefore, the Secretary of State’s introduction to the debate this morning, as it underlined the Government’s commitment to ensure that we invest in our vital transport infrastructure, which is important not only for individuals but for businesses—businesses that need to get their goods and services to market.

One area of transport, which we have not touched on today but that is very important to the nation, is shipping and ports. More than 90% of the value of goods entering this country enters on ships, as does 95% of everything that we consume in this country. Of course, it has to go through a port, or we would not be able to export. My hon. Friend the Member for West Suffolk (Matthew Hancock) quite rightly reminded us of the huge importance of international trade to our great country. Growth will come from exporting more of our goods and services, and they will be exported by and large on ships. Therefore, ensuring that we have the right port infrastructure to support the growth of trade—and foreign trade—in and out of our country is vital.

I therefore welcome in particular as part of the Budget—a small but important part in this context—the Chancellor’s report back on his commitment in the autumn statement to look at the planning issues surrounding ports development. I see nodding those colleagues who represent ports, because whether one represents a small port, a relatively small port in terms of shipping turnover, as I do in Falmouth, or one of our great container ports, one realises that how port operators develop those businesses is a real issue.

[Charlie Elphicke]

My hon. Friend will be aware that the national ports planning policy framework was recently put before the House. Does she agree that it is a positive step forward, although we should perhaps support mankind a little more vigorously and the humble shellfish a little less?

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[Charlie Elphicke (Dover) (Con)]

I welcome the Budget. I particularly welcome the reduction in the rate of corporation tax. By April 2014, it will be 22%, the lowest rate in the G7. As I have previously argued, I would like us to go further and reduce business taxes, in time, to 15%. With lower taxes comes greater corporate social responsibility, however. We need a new social compact: low taxes and low rates, but business must pay up.

We need a sense of social justice and of corporate social responsibility in the tax system, especially for multinationals that are quartered overseas. Let us take the case of Google. We can examine that example because Google’s numbers are publicly available, unlike those of many other companies, and it is unfair to single out Google, as the practice that I am about to describe is widespread. It took about £2.15 billion in revenue from the UK in 2010, making an estimated £700 million profit, yet it did not pay any tax. In fact, it declared a loss of £22 million. I am all for the silicon roundabout, but it should not be a magic roundabout, in which going around it twice means not paying any tax or going round it three times, like Google, means turning a massive profit into a tax loss. Even with this routing through Ireland, it is not as if the company is paying in America either, as the effective tax rate in the United States is 2.4%. As I say, we need to take much further action. We need to know more about what other companies are doing and how much they are paying to the UK.

I thus propose a tax compact. The first element is that business tax rates should be low, simple and attractive. Secondly, however, business should have a social responsibility to pay a fair share of taxes. Thirdly, tax avoidance must be dealt with firmly and rules changed to ensure that a fair share of tax is paid. Fourthly, the European Union should support member states in protecting their tax revenues rather than undermining them at every turn, with discrimination rules gone mad, as it does at the moment. Fifthly, every multinational should publish the effective rate of tax paid on UK revenues, and no Government contract should be awarded unless a fair share of tax is paid in the UK.

These are my specific proposals. Tax is avoided by use of branch tax rules and by claiming to have a representative office and no tax presence. Used and abused are deductions of interest, royalties and management charges. We need to consider tightening the representative office rules so that people have a branch and pay a fair share of tax in the UK. We should consider tightening up on the abuse of the rules of deductions. We should consider tightening up on individuals who abuse personal service companies—and I do not mean only Ken Livingstone and a load of former Ministers, as there are many people up and down the country who have been abusing the tax system and avoiding paying tax in entirely unacceptable ways. Finally, we need reform in the European Union—first of the procurement rules and secondly of the tax rules—so that we can ensure that our tax base is protected and that people who work for the Government pay a fair share of tax to the Government on their fair profits.

Finally, on stamp duty avoidance, we need to consider an annual levy on all properties owned in a corporate wrapper—not just residential, but commercial properties should pay their fair share. I do not think that any stamp duty land tax or stamp duty predecessor was paid in relation to Canary Wharf. I think it is wrong that large commercial property companies do not pay their fair share as everyone else does. Everyone should pay a fair share of tax; that is what corporate social responsibility should be about. That is social justice. That is the deal in the tax compact: a lower rate of corporation tax, lower business taxes—but no playing the system.

--- Later in debate ---

[Owen Smith]

The principal reason why we did not introduce it was because the economy was growing through most of our period in government, unlike the economy under her Government.

Let us return to the taxable income elasticity measure. The OBR says that it might be reasonable, but it also says on no fewer than seven occasions throughout the document that there is “huge uncertainty” around the assumptions—not small uncertainty, but huge uncertainty. The Treasury itself, in its document—albeit buried on page 68 of 69—says:

“The results of this evaluation are highly uncertain.”

The reality is that, based on the Laffer curve, the Government have made up that £100 million number, but over the last year we got £1 billion from the 50p rate.

[Charlie Elphicke]

There is more evidence that reducing the rate ups the take. Each time there was a reduction, from 80% to 60% in the ’80s, and then to 40%, revenues went up hugely. We know that it works, from the evidence.

[Owen Smith]

What we know is that last year we got £1 billion from the rate—not £100 million, but £1 billion. What we also know is that the OBR thinks the estimate of £100 million is highly dubious. That is the reality. If we had waited two or three years—a reasonable period—to make the estimate, when people would not be able to pull the money into an earlier year, which is increasingly difficult as the years go by, we should have seen a reasonable number.

The real issue is not the estimate, but what will actually happen as a result of the Government’s cooking the books in that fashion. Ordinary people will pay the price. In this country, 4.77 million pensioners will pay between £80 and £280 extra as a result of the changes to the personal allowance. That is the reality of the Budget, not what the hon. Gentleman describes.

What about the 1.3 million ordinary working people earning about £41,000 who have been sucked into the 40p rate? We have not heard a lot about them in the Budget. We have not heard about the teachers, policemen and middle managers who will be paying more, or indeed about the 1.3 million who will be affected by the big cut in their child benefit—£1,300 for most of them. That is the reality of the Budget for ordinary working people.

Many Members talked about business and growth. We heard a fascinating contribution from the hon. Member for West Suffolk about the need for an interventionist business and industrial strategy. I completely agree. There were two measures in the Budget along those lines: one was for video games and the other was the patent box that is said to be benefiting GSK. I know a bit about the patent box, because I was one of the industry side negotiators with the Labour Government back in 2009 when we struck the deal on the patent box. It was not a Tory policy—an industrial strategy made not by the Tories, but by Labour, and we are now reaping the benefits.

What about the video games measure? The hon. Gentleman thinks of himself as a bit of a historian of economic facts, so he should look back to the first Budget of his great friend the Chancellor, when the right hon. Gentleman got rid of tax relief for video games. Two years later, with the video games industry pointing out that it was a really duff move, the Government have reinstated the relief: not a policy made on the Tory side, but on the Labour side.

What is the reality? It is 0.1% extra growth, 4.77 million pensioners paying the price, inflation still at 3.2% and wages only up 1.4%. The reality is that the Government are ill serving our economy and ill serving Britain. They do not know what they are doing. They are making a mess and the time has come for us to think again.