Chris Philp
Main Page: Chris Philp (Conservative - Croydon South)Department Debates - View all Chris Philp's debates with the HM Treasury
Finance (No. 3) Bill
Chris Philp ExcerptsMonday 12th November 2018
(6 years ago)
Commons ChamberRead Full debate Finance Act 2019 Read Hansard Text Read Debate Ministerial Extracts
Mel Stride
My hon. Friend characteristically makes an important and insightful point. The national living wage, which this Government brought into being, was raised by 4.4% last year and will be raised by a full 4.9% in the coming year. That is well ahead of inflation, which is why in respect of net income those in the lower deciles of the income distribution have benefited disproportionately compared with those at the top end. I remind the House that the wealthiest 1% pay some 28% of all income tax that the Exchequer receives.
Chris Philp (Croydon South) (Con)
Perhaps I can amplify the Financial Secretary’s point about the minimum wage. Since 2010, the national minimum wage, or living wage, has gone up by 38%. When that is combined with the increase in the personal allowance, somebody who works full time on the minimum wage is 44% better off post tax, and inflation over that period was around 25%. Is that not delivering for those on the lowest incomes?
Mel Stride
My hon. Friend is absolutely right. The Labour party will tax and tax, borrow and borrow and spend and spend. The Conservative party is reducing the tax burden. Collectively, we have now taken more than 4 million people out of tax altogether, which has disproportionately helped those on lower incomes.
Kirsty Blackman
Not just now. In terms of the economic growth forecasts that the OBR has apparently made—
Kirsty Blackman
I am not taking any more interventions.
The OBR has made economic growth forecasts on the basis of a smooth and orderly Brexit. It has not made economic growth forecasts on the basis of us crashing out in a no-deal scenario, so its forecasts are only worth anything if the Government can strike a deal, as the Chancellor knows, which is why he has spoken about another fiscal event coming.
Frictionless trade is not frictionless just because the Government call it frictionless. If a good has to be stopped at the border, if somebody has to fill in an additional form or if there is any delay, that is not frictionless trade. Just because the Government say, “This is frictionless trade,” it does not mean that it is actually frictionless trade.
The Government need to improve their processes around the Finance Bill. This year has been the worst in terms of those processes, and they have to improve. The Government could do that by ensuring that we take evidence at the Public Bill Committee.
The Government have to actually do the things they say they are doing. If they say they are going to give Scotland the Barnett consequentials for health, they should give it the Barnett consequentials for health. If they say they are ending austerity, they should end austerity. If they say they are putting in place a living wage, they should put in place a living wage.
Lastly, if the Government are talking about tax cuts, they need to look at the situation in Scotland. The figures I have from the Library say that around half of taxpayers in England pay more than they would if they lived in Scotland, and that half of taxpayers are the people who earn the least, not the most. The UK Government should look at what the Scottish Government are doing and learn some lessons.
Chris Philp (Croydon South) (Con)
It is a great pleasure to speak in this debate. The Financial Secretary to the Treasury got it right in his introduction—I can see he agrees with that—when he set the financial scene and reminded us of the history of the past eight or so years. When this Government came into office in 2010, we faced an economic crisis of almost unprecedented scale. At around 10% of GDP, the deficit was running out of control and unemployment was at a record high. Over the past eight years, the coalition and then the Conservative Government have worked hard and tirelessly to get our public finances back under control. It has not been an easy task. Had we listened to Labour Members, who frequently challenge our agenda, the deficit would still be extremely high and the debt would be a great deal higher than it is now—[Interruption.] The shadow Minister says from a sedentary position, “You’re joking”, but I have lost count of the number of measures of fiscal responsibility that the Opposition have voted against over the past eight years. Had Labour’s programme been adopted, the deficit and the debt would both be far higher than they are today.
Next year, borrowing is going to be down to about 1.4% of GDP, and it will be down to 0.8% by 2023. Critically, the debt as a proportion of GDP has been falling since 2016. The consequence of not getting our deficit and debt under control is that we pay far more in interest payments. Even today, we are paying around £45 billion a year in interest payments, but if the debt were any higher, as it would have been under Labour’s programme, those debt payments would be higher and the interest rates on that Government debt would be a great deal higher as well. That would mean having much less money to fund vital public services.
Hand in hand with the deficit reduction programme goes the Government’s track record on jobs. The unemployment rate has decreased from around 8% in 2010 to around 4% today, and it is now at a 43-year record low. It has never been lower in my lifetime. To those who say that the jobs that are being created are not high-quality jobs, I would say that 80% of them are full time, and I would remind those who say that they are all zero-hours jobs that only 3% of the jobs in the UK economy involve zero-hours contracts.
This track record of financial responsibility over the past eight years has now enabled a certain amount of fiscal loosening, providing extra money to be spent on public services. Both Opposition Front-Bench spokesmen said that austerity was continuing, but let us look at the Red Book. The cumulative effect of all the Budget measures being announced will result, in 2023 alone—the final year of the forecast period—in a £27 billion fiscal loosening relative to the measures that were in place before. There is no way that anyone can describe a £27 billion a year fiscal loosening as a continuation of austerity. In any case, it is not austerity. Austerity implies that it was a choice. It was not a choice; it was a necessity—
Chris Philp
The hon. Gentleman says that it was a choice, but it was not. We simply cannot go on spending way more every year than we raise in tax revenue, because we would eventually lose the confidence of the bond market, as this country did in 1976. At best, we would end up saddling the next generation with a gigantic bill that they would have to pay off. There is nothing noble, ethical or moral about spending more than we can afford and sending the bill to the next generation.
If we look at the fiscal loosening in the Budget, we can see that the NHS is the principal beneficiary, to the tune of £20 billion a year by the end of the forecast period. More immediately, the Ministry of Defence gets an extra £1 billion and the universal credit system gets an extra £1.7 billion. The shadow Chief Secretary to the Treasury specifically mentioned universal credit in his characteristically lively speech earlier. I remind him that the universal credit system massively strengthens work incentives. Before, we had a system in which effective marginal tax rates were often running at 90% and in which there were cliff edges at 16 and 32 hours, after which people would actually get less money for working more hours.
The Resolution Foundation has carried out research on this. I understand that its chief executive is the former economic adviser to the right hon. Member for Doncaster North (Edward Miliband), and even he says that the total fiscal cost of the universal credit system, with these changes, will be higher than the cost of the old benefits system that it is replacing. So it is going to cost more public money than was being spent before. Universal credit’s track record of getting people off benefits and into work is better than the track record of the benefits system it is replacing. I think that universal credit has been properly funded. It might need a bit of fine tuning in some areas to do with the way in which some of the dates work, and I have spoken to Ministers about some technical changes that could be made. As a whole, however, I believe that the system is fully funded and that it will work.
Chris Stephens
The hon. Gentleman believes that universal credit is fully funded, but has he seen the evidence from DWP staff who are saying that they are spending so much time answering telephone calls that they cannot go through and answer the online journals from claimants? Does he not think that there is a problem there?
Chris Philp
When we introduce any new system that involves 5 million recipients, there will inevitably be some level of operational teething problems. These teething problems are on nothing like the scale of those we saw in the early 2000s when Gordon Brown rolled out tax credits and there was unmitigated chaos for some years.
I have had direct experience of universal credit in my own constituency. Croydon South is the joint highest constituency in the country—with Great Yarmouth, I think—for universal credit roll-out, with 43% of claimants now on universal credit. I estimate that around 4,000 Croydon South constituents are now in receipt of universal credit, and in the past six months I have had 21 complaints or problems raised by constituents. That is obviously 21 too many, but viewed in the context of about 4,000 recipients, it would appear that the teething problems are limited in their extent.
Chris Philp
The growth in the use of food banks is of course a phenomenon that we have seen across western Europe. After the Budget, people on universal credit will be £630 a year better off than they were before—[Interruption.] The hon. Lady shakes her head, but that is a simple fact: the allowance has been increased. As I was saying a moment ago, the Resolution Foundation has found that the Government will be spending more money on universal credit following the Budget changes than would have been the case under the old benefits system. I would further point out that the track record of getting people off benefits and into work is better under universal credit than it was under the old benefits system. The way to combat poverty and create prosperity is to get people into work.
Anneliese Dodds (Oxford East) (Lab/Co-op)
I am listening carefully to the hon. Gentleman, but he does not seem to be aware that many of the people on universal credit are working.
Chris Philp
I realise that many people on universal credit are working. It is, by definition, an in-work benefit. The point I am making is that it is encouraging more people to take more hours, and it is encouraging people who are not working at all—[Interruption.] I would be happy to take another intervention from the hon. Lady, but perhaps she would like to listen to the answer to her first one. Universal credit is encouraging people who are not working at all to get into work, which is why unemployment is at a 43-year low. A legitimate question that she might ask is whether work is paying enough. This Government have successively increased the level of the minimum wage. This Budget increases it to £8.21 as of next April. That is up from £5.93 in 2010, which is a 38% increase. As I said in my intervention on the Financial Secretary, when we combine that with the increase in the personal allowance, from some £6,500 to £12,500 from next April, the post-tax income of someone on the minimum wage working full time—40 hours a week—has gone up by 44% over that eight-year period. Over the same time, inflation was 25%. So the personal allowance changes and the minimum wage increase have helped people on low incomes more than any other group. That is why income inequality is at a significantly lower level today than it was in 2010.
I turn for a moment to Labour’s plans. Inevitably, they involve spending a great deal of money—more money than contemplated even in the Budget. There is no great merit in spending more than we can afford today if we send the bill to our children and our grandchildren, saddling them with debt and burdening the Exchequer with very high interest charges, which are already high, at some £45 billion a year. As for Labour’s mass nationalisation programme, which it says is fiscally neutral, I point out that the last time we had mass nationalised industries—up to the 1980s—they tended to be grossly loss-making and required taxpayer subsidy, rather than generating revenue for the Exchequer. To assume that a mass nationalisation programme would be fiscally neutral is a dangerous assumption.
It seems to be assumed that the only measure of a Government’s effectiveness—or compassion—is the total amount that they spend. Of course it is important to fund public services properly, but it is the outcomes that matter, rather than the amount of money spent. Gordon Brown’s mistake was always to confuse spending money with success, when what actually matters is outcomes.
In education, for example, 86% of pupils are now in schools rated good or outstanding, compared with 68% in 2010. Notwithstanding any points that may be made about the funding levels in schools—and finding room to spend more is always welcome—the fact is that children are getting a better education today than they were eight years ago, according to Ofsted, which we can agree is an impartial observer. To the extent that the opportunity to loosen fiscally allows us to spend a little more, especially on services such as the police, it will of course be extremely welcome.
When the SNP leader replied to the Budget, he made some points about Brexit and the risks it poses. Some 61% of Scotland’s exports go to the rest of the UK, and only 17% go to the European Union. The single market that is of the most importance to Scotland, by a factor of about 4, is the United Kingdom single market—[Hon. Members: “Hear, hear.”] I see that view has support from my colleagues. That is the single market that the SNP should focus on most, because it is the one on which their prosperity most depends.
As many hon. Members wish to speak, I shall conclude shortly—[Interruption.] However, I would not want to disappoint Opposition Front Benchers by concluding too soon, so before doing so I wish to thank the Chancellor for the business rate change that he announced in the Budget. Cutting business rates for 90% of the high street—any business with a rateable value of less than £52,000—is a welcome move, and will do something to level the tax playing field. High street stores, which use real estate intensively, suffer a tax disadvantage relative to online companies. Online multinational companies also use lawful, but creative mechanisms so that they do not pay as much corporation tax as our high street shops. The business rate cut for smaller shops will really help them and I strongly welcome it.
One measure on entrepreneurship that I commend to the Chancellor for future Budgets is something that is close to my heart. Before being elected, I set up and ran businesses for 15 years. I set up the first one when I was 24 and floated it on AIM four years later—[Interruption.] I thank Opposition Front Benchers for promoting my career, but I am happy where I am. In setting up and growing that business and others, we benefited from all kinds of relief, including the enterprise investment scheme and entrepreneurs relief. I particularly commend the seed enterprise investment scheme, which is very effective in getting money into complete start-ups—companies being started from scratch. It is a very effective tax break for getting individuals to invest in greenfield start-up companies. I should declare an interest as my wife recently set up a company that used SEIS to raise capital. The limit is low—£150,000 per company—but it is very effective in getting individuals to make investments. The fiscal cost is quite low: according to Treasury figures it is about £110 million a year. I suggest that future Budgets may have scope to increase the £150,000 per company limit to encourage further significant investment in start-ups at relatively low fiscal costs—I can see the shadow Chief Secretary getting his pen out to write this down. I commend that idea to the Chancellor for future budgets.
I thank the Chancellor for the welcome business rate cut. I commend him and the Financial Secretary for delivering record high employment, record low unemployment and getting our public finances firmly back under control. Had we listened to the Opposition Front-Bench team, we would still be facing financially ruinous debt bills. It will be my pleasure to vote for the Second Reading later tonight.
Sir Vince Cable (Twickenham) (LD)
I wish to say a few words in support of the amendment in my name, about the economic context and specifically on some of the tax measures. Everything we are talking about, whether on the tax side or the spending side, depends on the overall performance of the economy and economic growth. This year, we have had fluctuations from one quarter to another, but the assumption is that growth is about 1.5%. According to the independent OBR, it will continue at about that rate for the next five years. As the hon. Member for Aberdeen North (Kirsty Blackman) reminded us, that not terribly optimistic picture is based on optimistic assumptions about the outturn of the Brexit negotiations that may of course not be realised.
There are two underlying reasons why the British economy is growing at just over what it was for the whole of the post-war period up to the financial crisis. One is the serious problem of productivity—a problem that has existed since the financial crisis. A paper was published this morning by analysts from Stanford and Nottingham who looked at why productivity performance is so poor at the moment. After an exhaustive survey, they found that the problem was that high-performing companies in the UK, in productivity terms, had fallen back very badly. The main reason is that those high-performing companies do a lot of a trade, in particular with the single market, and uncertainty has caused their performance to deteriorate. That is reinforced by the second element in the slowing of growth, which is poor business investment—less than half of 1% in terms of fixed business investment last year, and that is clearly a function of the uncertainty that is hanging over the economy because of the Brexit exercise.
I suspect that quite a lot of Members thought that the Finance Bill would be some light relief from the Brexit debate, but unfortunately it hangs over everything. It is the elephant in the room and it explains the economic problems that we face. There was an interesting debate between Conservative Members that, because of the adversarial way we discuss things, was rather glossed over. The hon. Member for Gainsborough (Sir Edward Leigh) and, in the Budget debate, the right hon. and learned Member for Rushcliffe (Mr Clarke) expressed the strong view that the Chancellor was taking too many risks and the Budget should have been a good deal tighter than it was. Today we heard the exact opposite argument from the right hon. Member for Wokingham (John Redwood)—that it was far too tight and should have been more relaxed. It was an important debate, and it would be interesting to know how Ministers will combat the arguments from those formidable people.
I will highlight one particular aspect of that debate. This is not a party political point—it happened in the coalition—but the Government continue to refer to the deficit as if it is the same as Government borrowing. Well, of course it is not. The Government borrow for different reasons. They borrow to cover the current deficit and they borrow for investment. Just as companies borrow to invest, the Government sensibly do so. The problem with the current trajectory, as I understand from the Red Book, is that we are potentially heading for yet another squeeze in capital spending. Perhaps the Paymaster General can correct this, but my understanding is that CDEL, which is awful Treasury speak for capital spending, is due to fall next year, 2019-20, as a consequence of the attempt to maintain borrowing at moderate levels while at the same time expanding the current Budget. Perhaps he will enlighten us, because if it is true we are doing potentially serious damage to infrastructure that has been starved of capital for many years, as well as to public sector housing and much else.
I would also like clarification on the overall tax burden of the economy. There is a sleight of hand in this Budget. On the one hand, the Government have given tax cuts, but on the other hand—as a consequence of the squeeze on local government spending, which continues unabated and is having a severe impact on local services—council tax will almost certainly have to rise because councils are severely stretched and are providing inadequate services. In some cases, they are approaching bankruptcy and cannot meet their legal obligations. It is not restricted to any one party but, by and large, Conservative county councils are in this position.
Council tax will have to rise, and, in some cases, it probably should have risen earlier. There is nothing in the Red Book that tells us how much revenue local authorities actually get from council tax. That is rather an important figure, and it is important that we see a future projection, which would give us a much clearer picture of what is happening to taxation. On the one hand, the Government are offering direct tax cuts, and on the other they are offering increases in council tax, which at least in income terms is one of the most regressive taxes of all.
The Government have provided substantial additional funding for the national health service for several years ahead, and rightly so, but there is no such guarantee for personal care beyond next year. That matters, because the shortfall in care will fall on the NHS.
Several Conservative Members have been bobbing up and down to ask why we do not take a cross-party approach to this problem. Of course we should—this is a long-term problem—but memories are short, or maybe they are recent Conservative Members, because there have been repeated attempts at cross-party agreement on personal care financing. There was an attempt before 2010, which the then Conservative spokesman, Andrew Lansley, pulled out of on the grounds that it constituted a death tax. We then had another attempt in the coalition, when Andrew Dilnot did an authoritative piece of work for us. We reached a consensus and both sides of the coalition agreed to it, and then, come 2015, the key implementation measures were not introduced, so we are back where we were before. Ten years later, and after several attempts at cross-party consultation, there has been no progress, which is why care funding is in such terrible difficulty.
Chris Philp
I have been looking at the Red Book while the right hon. Gentleman has been speaking. He asked two questions. First, he asked about council tax receipts, which will be £34 billion this year and are forecast to rise to £40 billion in 2023-24. Secondly, he asked about CDEL, which is £50.2 billion in the current financial year and is forecast to rise to £65.5 billion by 2020-21.
Sir Vince Cable
I think there are separate sets of figures, but I thank the hon. Gentleman for his clarification. His first point is particularly interesting, and I thank him for his rapid desktop research. His figures suggest there is potentially a very big tax increase in the pipeline, which is one of the assumptions in the Budget that was not spelled out on Budget day.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
Mr Speaker, thank you for letting me close today’s debate on the Finance Bill. The Bill represents a significant moment for this country. We have been told that austerity is over. It should be a time to rejoice. As Labour Members who have warned for eight years that austerity was the wrong choice, we should surely welcome the Bill. But the problem is, on examining the Government’s plans, you can claim that austerity is over only if you are willing to ignore the Prison Service, local government, schools, social care for vulnerable young people, social care for vulnerable older people, the police, the armed forces, those on low incomes, young people and women. I could go on, but I will not. It is enough to say that any economic policy that continues cuts to Government Departments and the squeezing of those on low incomes is not offering something new; it is simply offering more of the same.
The tragedy—the real, genuine tragedy—for those of us who were here in 2010 to listen to the emergency Budget that began austerity is that it simply has not worked. The British public have had all the pain, only to find out that there is no gain. I urge anyone who has participated in this debate to reread George Osborne’s speech in that 2010 Budget, because we know that the deficit was not eradicated by 2015 and that the retention of the triple A rating, said in that debate to be sacrosanct, does not even get a mention in a ministerial speech these days. Instead, economic growth is now the lowest in the post-war era and UK business investment the lowest in the G7. We have had eight years not even of stagnant wages, but of falling wages.
With respect, are these not the fundamentals? When we discuss a Finance Bill, should these factors—the ones that impact directly on our constituents—not be the ones we focus on? Eight years of austerity have left too many people in this country poorer, unsafe and too uncertain of their futures. It was a reckless policy that in my view directly contributed to the result of the Brexit referendum and the further chaos the Government now find themselves in. I want a Finance Bill that properly addresses these things and puts them right, but instead we have a Finance Bill that does none of these things, a Bill that offers the country nothing new—and in some areas nothing at all.
I second the concerns raised by my hon. Friend the Member for Bootle (Peter Dowd) about the way the Government have gone about the whole process of presenting the Bill. It might sound like parliamentary chicanery, but it is important. In an unprecedented move the Government did not allow us to table real amendments to the Finance Bill. By failing to move an amendment to the law resolution, they have limited the scope of amendments and new clauses only to the subject matter of the resolutions already tabled by the Government. The hon. Member for Aberdeen North (Kirsty Blackman) referenced this in her speech. In doing so, they have restricted the rights of every Member, Conservative Back-Bench Members included.
This procedure has only been used by Chancellors six times in the last century and only when a Finance Bill was tabled close to an election: Churchill in 1929, Healey in 1974, Brown in 1997, Osborne in 2010 and the current Chancellor last year in 2017—probably the only time the Chancellor has been mentioned in the same breath as Churchill. We know why these restrictions have been applied. The Government are running scared of the House of Commons and, most of all, their own Back Benchers and perhaps their allies in the Democratic Unionist party.
Time and again, the Government have used the Brexit process as a pretext for a power grab, transferring powers to the Executive without any thought for constitutional checks and balances. I ask hon. Members to have a look at clause 89, rather innocently named, “Minor amendments in consequence of EU withdrawal”. In that clause, Ministers are giving themselves the power to amend tax law outside any normal due process. That will go on the statute book with no sunset clause or limitation of any kind. It is reckless, unprecedented and unnecessary, but it is indicative of the Government’s whole approach to Brexit: grab powers first, make decisions later.
That said, I have, as ever, enjoyed listening to today’s debate. We have had some good speeches and the usual mix of slightly spurious claims and downright incorrect statements from the Government Benches. It seems we will never get Government Members to listen to the IFS on the cost of their corporation tax cuts, but it also seems that the Financial Secretary, whom we are all tremendously fond of, has chosen today to repeat his claim that unemployment rose under every Labour Government. I am afraid that, unfortunately for him, that is just not true.
While listening to the debate, I have taken the liberty of doing some research for the Financial Secretary. I can tell him that he need look no further than the very first Labour Government, who took office in January 1924. There was a general election in December of that year, something we are not in favour of. The very first Labour Government reduced unemployment from 11.9% to 10.9%: those figures are widely available. It is true that the Labour Government of 1945 had to deal with demobilisation following the end of the second world war, but they did found the national health service, build a million homes and still satisfy the legal definition of full employment, so I think we can say that they were the greatest Government in British history.
I must also place on record that the claim made by the hon. Member for Aldershot (Leo Docherty)—I am not sure whether he is still in the Chamber—about the book edited by the shadow Chancellor, my right hon. Friend the Member for Hayes and Harlington (John McDonnell), is simply not correct. I think that the hon. Gentleman was trying to quote the economist Simon Wren-Lewis, who accused the Prime Minister of lying when she gave a similar quote in the House of Commons. I ask for that to be recognised and I ask Members to reflect on its incorrect use.
Several Conservative Members referred to the increase in NHS spending. I felt that there was a slight lack of recognition of the fact that it is predicated purely on an improved forecast for the tax revenues. It is not money in the bank and, remarkably, the Chancellor chose to blow most of it in one go. That may not have been prudent.
I listened intently to the right hon. Member for Wokingham (John Redwood). He said many things that I thought were fundamentally wrong about Brexit and tax policy, but he did make some interesting comments about monetary policy. There has, I feel, been insufficient recognition that austerity has been accompanied by an unprecedented period of ultra-loose monetary policy. The Bank of England cut interest rates to record lows, and then introduced quantitative easing as a form of “life support” when they could not go any lower. We have not discussed that enough, and we have certainly not discussed enough the distributional impact that it implies.
The Bank has essentially compensated for Government austerity by pumping money into the economy to increase consumption and investment, while the Government have done the opposite. We would say that the lack of sustained growth under the Government’s stewardship has meant that we have not yet been able to unwind that policy, so that, at present, if we need it again it is not available to us. That is why, today, we are even more badly placed to deal with the next recession, when it comes.
As ever, I was slightly frustrated by the speeches of the hon. Member for Croydon South (Chris Philp) and others who made no distinction between Government borrowing for investment and Government borrowing to pay for day-to-day spending. As the International Monetary Fund itself has pointed out, if debt is accrued to finance investment, and if that investment will generate stronger tax revenues than the cost of borrowing, it is entirely sustainable. Debt as a percentage of GDP does not tell us much without reference to when that debt needs to be serviced, and at what cost, relative to the growth of taxes that have to pay for it. The public finances are not like a household’s finances, and every Member needs to remember that. The worst legacy for the next generation is a failure to grow the economy as we could. It is nonsense to talk about burdening future generations with debt when they are exactly the ones who would benefit from that long-term investment.
Some excellent speeches were made by Labour Members. My hon. Friend the Member for Kensington (Emma Dent Coad) made an important speech about housing and homelessness. She emphasised that, apart from increasing first-time buyers relief, the Bill does little to encourage house building or to tackle the UK’s housing crisis. As she said, many of the Government’s initiatives, such as Help to Buy, cause substantial problems in themselves. She also updated the House on the Grenfell situation, and I pay tribute to her for all her work on behalf of her constituents and the nation in that regard.
My hon. Friend the Member for Lincoln (Karen Lee) spoke with passion about what austerity has done to living standards in this country. There is no better example of that than the impact of universal credit. Let us not forget that the £1.7 billion promised for universal credit is only a third of the £7 billion cuts in the social security system that were already scheduled. The hon. Member for Glasgow South West (Chris Stephens) made that point well. Let me tell Conservative Members, with complete sincerity, that I am kept awake at night by the casework that I receive on universal credit, and I do not believe that I am the only one.
Chris Philp
Does the shadow Minister accept the Resolution Foundation’s analysis, published after the Budget, that said that the total fiscal cost of the amended universal credit will exceed that of the preceding benefits? That is, more money is going into universal credit now than even was the case before.
Jonathan Reynolds
I have seen that analysis. The Resolution Foundation said that the cost is greater, so the question for the hon. Gentleman is this: if more money is going in and so many people are still losing out, what terrible choices have the Government made to produce a situation as bad as that?
My hon. Friends the Members for Swansea East (Carolyn Harris) and for Mitcham and Morden (Siobhain McDonagh) mentioned the Government’s shameful delay in limiting the maximum stake for fixed odds betting terminals. Many Members, including me, see the damage done in our constituencies by these machines every week. They both gave forceful and persuasive speeches, but I am hopeful that the will of the House on this matter is clear and that the Government will be forced to do the right thing, especially given several speeches by Conservative Members. My hon. Friend the Member for Enfield, Southgate (Bambos Charalambous) gave a powerful testimony about what austerity has meant in his borough. I only hope that his school governors’ meeting was quorate without him.
There was a lively exchange on the environment. I do not think it is unreasonable to say that, given the potential catastrophe we face—as outlined in the Intergovernmental Panel on Climate Change report published in October—this Finance Bill is unsatisfactory. I sat in Mansion House in June, listening to the Chancellor promise that the UK would be leading the way on green finance, but we have yet to see any tangible evidence of the Government’s intentions on the statute book. We are lagging behind our European counterparts, which already have mandatory climate disclosure laws, and those that have issued their own sovereign green bonds. This just does not seem to be a priority for the Government.
The good news for all my colleagues is that they can join me tonight in voting for Labour’s reasoned amendment, which declines to give this Bill its Second Reading on the basis that it continues the austerity policies that have caused so much damage, and instead proposes a progressive taxation system, real funding for public services, greater public investment and a halt to the roll-out of universal credit.
I say to colleagues across the whole House, is it really unreasonable in Britain today for people to want to take their children into a city centre without having to explain to them why so many people are now sleeping on the streets? Is it really unreasonable to believe that, if we really had a strong economy, thousands of our fellow citizens would not be dependent on food banks to get by? And is it really unreasonable to believe that, when a Government present a Finance Bill, their priorities should be those most in need, not those who are already better off? We do not think that any of those things are unreasonable, so we will vote against the Finance Bill tonight. We know that this country does not just need new ideas; it needs new hope for the future. The Bill sadly offers neither and it does not deserve the endorsement of the House tonight.
Chris Philp
Main Page: Chris Philp (Conservative - Croydon South)Department Debates - View all Chris Philp's debates with the HM Treasury
Finance (No. 3) Bill
Chris Philp ExcerptsTuesday 20th November 2018
(6 years ago)
Commons ChamberRead Full debate Finance Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 20 November 2018 - (20 Nov 2018)
Anneliese Dodds
The hon. Gentleman has made the point for himself. It is precisely because we do not have the ability to table meaningful amendments that we are in this position. I am sure that he is aware that, when it was possible for Labour Members, often with other Members, to table meaningful amendments to Finance Bills, there was a huge amount of participation, such as when amendments were tabled on country-by-country reporting. Sadly, despite those amendments, we have not yet seen the change in Government policy that we would have liked. When the House is given the power, we exercise it; when we are not given the power, we are unable to exercise it.
As “Erskine May” sets out very clearly, in these circumstances, the only permissible amendments are
“strictly limited to what is authorized by the specific resolutions on which the bill is founded.”
Because of those restrictions, the Opposition cannot expand the scope of measures against tax avoidance and evasion beyond the very limited scope presented in the Bill.
There is a whole host of areas in which the Government should be taking action but where the Bill is completely silent. There has been no new approach from the Conservative Government on the verification of information supplied by companies when they register, despite widespread evidence of tax avoidance and money laundering being facilitated through the registration of fake companies via Companies House.
On shell companies, the Government have provided only a consultation on partnerships rather than action, and they have failed to use to any great extent their legal ability to impose fines on partnerships that fail to provide beneficial ownership information. Despite their consultation on a new offence of failure to prevent economic crime finishing more than a year ago, we still appear to have no more progress on that. Although our Government now have, as I mentioned, the legal means to require country-by-country reporting wholesale, following that amendment to a Finance Bill two years ago, when we were able properly to amend the Bill, they have refused to take up that option.
Despite this catalogue of failure, the Government continue to talk up their record. We saw this elevated to the level of farce last night, when Conservative central office—I assume—released a graphic on Facebook with the laughable claim that Labour had just voted against cracking down on tax avoidance. Labour has consistently advocated much stronger measures on tax avoidance than this Government have done. Indeed, the weakness of measures in the Bill is one of many reasons why we oppose it. The graphic included a background of palm trees, presumably a bizarre reference to our overseas territories. It is bizarre, given the woeful lack of action by our Government in this regard.
Chris Philp (Croydon South) (Con)
Would the shadow Minister like to join me in congratulating the Government on having reduced the tax gap from 8% under the last Labour Government to 6% today, which is the lowest level in the developed world?
Anneliese Dodds
I will go on to talk about the assumptions that the Government currently use to calculate that tax gap, and the hon. Gentleman will learn that their claims to have massively reduced the amount of tax avoidance through that measure are potentially questionable, to say the least. Perhaps after we have had that discussion, we will see whether he still holds to that assessment.
Anneliese Dodds
Of course we need a business-friendly tax environment, but we should also recognise, just as I find when I talk to many international businesses, as I do in my shadow ministerial position, that the vast majority of businesses want to be compliant. Sadly, a small number of firms are not necessarily complying with the letter of the law and some are also not complying with the spirit of the law. That is leading to a situation where our public services are starved of the funding we need, which has a huge impact on business, as I am sure the hon. Gentleman is aware through his discussions with businesses in his constituency.
Let me return to the matter of overseas territories, which strangely appear to be referred to in pictorial form in material released by Conservative central office. This Government were forced kicking and screaming by this House to require our overseas territories to produce public registers of beneficial ownership, but I understand that all that has happened since the vote that forced that change in policy is one conference call, leading to a vague commitment to convene a technical working group—but it is not going to meet until 2019. So we have had many months since that vote in this House but almost no action. In addition, rather than fulfil the commitments the Opposition were given that our Government would work with Crown dependencies towards transparency, tax treaties were presented to this House last week that included no such provisions whatsoever.
The Minister has, as ever, opined that his Government have reduced the tax gap, and indeed other Members have just referred to that. I am sure, however, that he will not illuminate us with the fact that his Government’s tax gap measure excludes the costs of profit shifting and that it starts from the assumption that companies are declaring the correct amount of tax, which surely begs the question. The tax gap for this Government is assessed on the basis of whether Her Majesty’s Revenue and Customs has found errors or evidence of avoidance on tax returns, an approach that has rightly been criticised by the Public Accounts Committee, given that it leads to a situation where much of the tax lost through avoidance simply does not count as part of the tax gap. The Government’s tax gap does not appear to include cases of avoidance or evasion that do not fall under existing legislation, so it fails to capture numerous loopholes that continue to be exploited simply because they are exactly that: loopholes.
Chris Philp
Did I detect a sigh when the hon. Lady gave way? She is questioning the basis of the tax gap as a sign of progress, so let me try a different statistic that she might feel better about. The amount of corporation tax collected has gone up from £35 billion a year to £55 billion a year; is that not evidence that these tax-raising measures are effective?
Anneliese Dodds
I am always delighted to hear from the hon. Gentleman, but when he talks about the tax-gap measurement, he is talking about his Government’s tax-gap measurement, not one that is universally accepted. In fact, it is quite the opposite, and many alternative measures suggest that much larger amounts of tax are being avoided and, indeed, that larger sums could be rectified if tax evasion was dealt with. Yet again, we hear this comment about the cut to the corporation tax rate. I am sorry to sound like a stuck record, but I have to remind the hon. Gentleman that every expert commentator on this matter has intimated that the rise in the corporation tax take is not because of the cut to the rate and that, in fact, had the rate not been cut, more revenue would have accrued to the Treasury. As I will go on to discuss, that revenue could have been used to support public services and social security for our constituents.
Anneliese Dodds
I know that the hon. Gentleman has worked on the issue of cuts to HMRC’s capacity, as have many Members across the House. I will return to that important issue soon, because sadly the reality does not reflect the rather rosy picture that we were provided with by the Minister on that subject.
I return to the distributional impact of this Government’s tax measures. We had an interesting discussion about fairness following some comments by the hon. Member for Beckenham (Bob Stewart), who is no longer in his place. The Minister intimated that he was in favour of a fair tax system and said that the wealthiest people pay a large proportion of all tax. He is absolutely right: the wealthiest people do pay a large proportion of income tax. That is because of how wealthy they are. However, if we look at the impact of the tax system on different income groups, we find—I should not say “we” because it is the Office for National Statistics that has discovered this—that the best-off 10% of people pay less of their income in tax than the worst-off 10%. I note that the Conservatives did not contest this statistic when it was mentioned in the House yesterday. Surely that is a ringing indictment of their approach to taxation.
Chris Philp
I am delighted that the shadow Minister has given way once again, without sighing this time. The poorest in society are not in tax at all thanks to the increase in the threshold. The richest 1% do indeed pay 28% of tax, but they only earn about 12% of all income, so she will see that the amount of tax they pay is a great deal higher than their share of income.
Anneliese Dodds
It is always a pleasure to hear from the hon. Gentleman, who is always a very friendly face. Sadly, however—I feel bad doing this—I do have to correct him on two of the points that he mentioned. He stated that the poorest people will not pay any tax at all. That is simply not the case. Of course, they will pay—[Interruption.] No, no—he said “any tax”. Let us be clear: of course, large numbers of very badly off people pay a lot of value added tax, which is a regressive tax, even with the exemptions that apply to it.
In addition to that, increasing numbers of low-income people across this country are now paying council tax, many of them for the first time, because of the swingeing cuts that the hon. Gentleman’s Government have delivered to local authorities’ budgets for council tax relief. So we now have very large numbers of very-low-income people being taken to court because they are unable to pay their council tax. That situation is novel in our country but some might say it approximates things that happened back in the 1980s, which I am sure that the hon. Gentleman is too young to remember but which the history books have certainly not forgotten.
We also need a thorough understanding of how the failure to tackle tax avoidance affects our different regions, given that austerity’s impact on incomes has been strongest in areas that were already struggling economically. We need a thorough impact assessment of the impact that the failure to deal with tax avoidance is having on child poverty. Yesterday Ministers tried to deflect attention from their record on poverty by using only figures on absolute poverty. They never speak about the measure that is instead used by most academics and experts—relative poverty—because they know that more children are now living in relative poverty under their watch: almost a third of children, in fact. The problem is such that the chief executive of the Child Poverty Action Group has described the Conservative Government as being “in denial” on child poverty.
I will explain why we need to look at relative poverty. We should not look simply at whether people are destitute, as measured by absolute poverty, even though, sadly, many are having to resort to food banks for bare necessities; we also need to look at what people’s incomes are in relation to the living standards that everyone else enjoys. That is why the concept of relative poverty measures whether people are poor in relation to median-income people. Relative poverty matters because it shows whether people can afford to live a decent life.
Anneliese Dodds
I will not give way, because I fear that the Committee is losing patience with the length of my comments. [Hon. Members: “More!] It is wonderful to see so much interest in the topic of taxation; I only wish that were always the case.
The Conservatives’ mood music on this issue has been worrying, as I have said. As I have referred to previously, the Conservatives’ MEPs have consistently either voted against or abstained on EU-level measures to promote tax transparency, and the Conservative Government were, sadly, unwilling to meet representatives from the European Parliament’s Panama papers investigative committee when they came to the UK.
Our amendment 23 would force these issues into the open and require a proper consideration by Government of how they could act to ensure proper data sharing, in order to combat tax avoidance and evasion. It is paralleled by our amendment 19, which would require the Government to undertake a review of our controlled foreign companies regime, with particular consideration of how it would be affected in the event of a no-deal Brexit.
The Conservative Government appear to treat countering tax avoidance as a game of whack-a-mole, rather than the long-term strategic approach that is surely required. As a result, we wish to press new clause 5 and amendment 23 to a Division.
In conclusion, the Government have no long-term plan for protecting the revenue on which our public services rely and appear to have no clear idea of how they will co-ordinate, or otherwise, our measures on tax avoidance with the EU27. A different approach is needed and my party stands ready to implement it as soon as we get the chance.
Luke Graham
I thank my hon. Friend for his intervention and I could not agree more. Intangible assets are becoming an increasing part of the global economy. Just a few years ago, I did a study in relation to the Prince’s Accounting for Sustainability project. When we looked at some of the figures, they clearly showed that up to 80% of the value of the Standard & Poor’s 500 index in the United States was being held in intangibles. In considering some of the accounting standards and taxation measures that we are introducing, we could be missing up to 80% of that value, which would not then be reflected in the share price or indeed in the tax revenues that could be captured. I agree with my hon. Friend that we should look at those measures.
Without giving the Prince’s Accounting for Sustainability project too much of a push here in the Chamber, I will say that a number of the reports that it has put forward, in partnership with businesses in the United Kingdom and internationally have been really positive. They look at how we can capture some of the value of intangibles, but they also consider human and social capital. The organisation has published a number of reports, and I encourage Members to read them, because they could help to inform our policy making not only on the digital services tax, but when it comes to evaluating the impact and true value of some of the companies and enterprises across our country. It does not matter whether it is the small enterprise on our high street or, indeed, the new multinational that is capturing funds from around the world. It is about our identifying value and then being able to show to shareholders, Government and the local community the social, human and physical capital contributions that are being made to our economy.
Some people find Budget debates dry, but I find them incredibly exciting. The hon. Member for Aberdeen North (Kirsty Blackman) said last night that she enjoyed a good read of the Budget documents at home—I could not agree more. This Budget gives us plenty to read and plenty of food for thought, which is why I will support the Bill today.
Chris Philp
It is a huge pleasure to follow my hon. Friend the Member for Ochil and South Perthshire (Luke Graham), who is always an incredibly eloquent and articulate commentator on matters financial.
I am delighted to see that news of my speech has spread to the office of the shadow Chancellor, the right hon. Member for Hayes and Harlington (John McDonnell), and that he has come to the Front Bench especially to hear it. I am delighted that he has chosen to come to the Chamber for this purpose; I eagerly await the imminent arrival of the Chancellor as well.
I want to speak to new clauses 5 and 6, which were tabled by the shadow Minister, the hon. Member for Oxford East (Anneliese Dodds). Their substance would require more analysis and reports on various aspects of the Government’s programme in the areas of avoidance and evasion. However, as so often in life, action and results speak much louder than reports and words. The Government’s actions and the results they have achieved are far more powerful than any call for evidence or any call for a report can demonstrate.
The hon. Lady posed some questions about whether the tax gap is the best measure. It is an internationally accepted measure and it provides for consistent comparison over time, so it is a good way of consistently comparing the record of one Government with that of another. There may be other measures, but it is at least a consistent measure and it is also a good way to compare different countries, as well as to make comparisons within a country over time.
The current tax gap in the United Kingdom is 5.7%, which is extraordinarily low by comparison with other major countries and significantly lower than it was when Labour was in office, when it was between 8% and 10%. Whatever quibbles the hon. Lady may have about the things that are included or excluded, what is clear is that the tax gap is low compared with what it was under Labour and low by comparison with other countries. That is not surprising.
Chris Philp
But before I lay out the reasons why it is not surprising, I will give way to my hon. Friend.
James Cartlidge
My hon. Friend is making an excellent speech on what action is happening, but does he agree that one thing not captured in the statistics is what I would call positive inducement as opposed to avoidance? If there are competitive rates of tax, people are encouraged to avoid avoidance and conduct legitimate activity by paying a standard tax.
Chris Philp
My hon. Friend is quite right. Having low and competitive rates of tax does attract people to this country, who then pay corporation tax they otherwise would not pay. I will come on to precisely that point in a few moments.
The reason I was explaining why it was not surprising that our tax gap has reduced is that the Government have taken quite a large number of measures to combat tax avoidance and tax evasion since 2010. In this Budget alone, there are 21 such measures. I was rather disappointed that by voting against the Budget on Second Reading, Opposition Front Benchers were expressing their disagreement with those 21 anti-avoidance and anti-evasion measures.
Anneliese Dodds
I fear, very sadly, that the hon. Member did not hear what I said on that point earlier. It is because those measures are far too weak and do not go far enough that we are voting against them. I set that out very clearly in my previous remarks.
Chris Philp
I am not sure that that is a very good basis for voting against something. A move forward is a move forward. I have yet to hear a detailed and coherent set of proposals that would take these measures further forward. I am sure that those on the Treasury Bench are always eager to receive ideas on measures that would raise revenue. If the hon. Lady wanted to propose ideas on the Floor of the House, I am pretty sure she would find a ready audience. One such measure, the diverted profit tax, has directly raised £700 million since 2015. In addition, it is interesting that businesses talk about not just the direct effect of the diverted profit tax. Some companies, realising that they might be caught by the diverted profit tax, choose to change their behaviour and effectively choose to pay ordinary corporation tax in a more compliant way. That does not appear in the diverted profit tax figures, but it is none the less successful in changing behaviour.
Anneliese Dodds
I am very grateful to the hon. Member for giving way; he is being very generous. I would like to mention, however, that I did refer in my speech to Labour’s tax transparency and enforcement plan. In fact, I referred to three cases where the Government have rightly learned from that plan, which is fabulous, and are either completely or partially adopting some of our suggestions. There are, however, many other areas where they need to take action. They should look at our plan and learn.
Chris Philp
The fact that the Government have adopted three measures shows that they are not only a Government who listen and adapt, but a Government who have taken more than 100 anti-avoidance and anti-evasion measures since 2010. That is a record the Government can be proud of, although there is always more that can be done. I will come on to one idea later.
The hon. Lady suggested in her very long and at times entertaining speech—perhaps inadvertently entertaining, but it was entertaining—that the Government had not shown leadership in the area of organising international co-operation to combat tax evasion. She also said it was a concern that we are leaving the European Union as we might lose that as a forum in which to combat tax evasion and tax avoidance. The most effective forum is the OECD’s BEPS initiative—the base erosion and profit shifting initiative. The UK Government have been a leader in this area—for example, on action five, which limited the deductibility of interest payments against corporation tax. That is another area where the UK Government have shown genuine global leadership.
Kevin Foster
Listening to my hon. Friend’s speech, I can see exactly why the shadow Chancellor rushed to the Chamber to enjoy it. On global co-operation, what does he make of the many treaties we have signed with other jurisdictions, such as Liechtenstein, which have allowed us to get hold of tax information and ensure there cannot be places where British taxpayers hide?
Chris Philp
That is an example of one of the many areas where we have taken action. Getting information from that jurisdiction and, I think, Switzerland has helped us to combat people who are not paying the tax they should. The proof of the pudding is ultimately—I can see the flood of hon. Members on to the Opposition Front Bench continuing—in the eating. The fact is that the amount of money collected in corporation tax has gone up from £35 billion to £55 billion.
The hon. Member for Stalybridge and Hyde (Jonathan Reynolds), who was in his place earlier, shook his head when that point was made and referred to an IFS report, which he said made the point that if corporation tax rates were higher, they would raise more money. I have had the opportunity to look up that report since then. The article was in The Guardian, which is hardly a Conservative or right-wing newspaper—it may be too right wing for the shadow Chancellor, but it is not too right wing for me—and although any amount of money that might be raised in the short term is one thing, it goes on to say the IFS stated that “substantially less” will be raised in the medium term as companies respond by investing less.
The hon. Member for Oxford East asked what the intellectual backing was for suggesting that lowering tax rates increases revenue. That backing comes, of course, in the form of the Laffer curve, named after Professor Arthur Laffer, who made the case very coherently that lowering rates can increase the take—my hon. Friend the Member for Solihull (Julian Knight) made this point earlier—by encouraging investment and encouraging companies to relocate to a jurisdiction where there are lower rates of tax. That is no theoretical thing—[Interruption.] It is not only a theoretical thing, but a practical thing.
Since the Government introduced lower rates of corporation tax, a number of companies have chosen to take advantage of them by locating into the UK. Most recently, in August this year, Panasonic moved its European headquarters from Amsterdam into the United Kingdom, and clearly, competitive rates of tax were part of that. Back in 2012, when the former Chancellor, George Osborne, set this course, a whole number of companies announced that they were locating back into the UK, including Aon, which located here from the United States, Starbucks, which located its corporate HQ here from the Netherlands, and WPP, which located its corporate HQ here from the USA. More recently, Unilever considered moving its corporate HQ out of the UK to the Netherlands, but there was a huge shareholder revolt and it chose to stay here. Those are practical examples of a competitive tax system in action. That is part of the reason why the tax yield has gone up so considerably.
Alex Chalk (Cheltenham) (Con)
Not just companies but entire sectors and industries might be attracted to come here. The UK film industry is so buoyant and world-leading in very large part because of the benign tax environment that it can enjoy.
Chris Philp
My hon. Friend is right to draw attention to the way in which very favourable tax systems can indeed attract companies to this country. We should be proud of the fact that we are attracting the world’s leading companies to the United Kingdom.
I am sorry to refer to the speech by the hon. Member for Oxford East so often, but it was a very full speech and there was a great deal to reply to. She suggested that the Chancellor of the Exchequer said that our plan was to become a tax haven. He never used the words “tax haven”, but he did say that we could be a tax competitive economy. There is nothing to apologise for in saying that we will be a tax competitive economy and attract companies to locate here. If there is a tax haven in Europe, it is Luxembourg, so the hon. Lady should reserve her ire for that jurisdiction.
Anneliese Dodds
I am very grateful to the hon. Gentleman for giving way; he is being very generous. I have not been reserved in showing my ire for Luxembourg; in fact, I have campaigned for a long time in relation to its tax practices. I am very glad that he has given me the opportunity to respond on this point, because I looked up exactly what the Chancellor did say. He was asked by the newspaper Die Welt in January 2017 whether the UK would become a “tax haven” for Europe, and he responded that the UK could be “forced” to abandon its European economy with European-style taxation. When the Prime Minister’s spokesperson was asked if she agreed with this assessment, she confirmed that the Prime Minister was in agreement and would stand by him.
Chris Philp
The words “tax haven” were not his, and what he clearly confirmed in response was the he intended to create a tax competitive economy, which we can all be proud of, and I will certainly support him in creating it.
I feel that I should move on—although I will happily take more interventions—to new clauses 14 and 15, which were spoken to by the hon. Member for Glasgow Central (Alison Thewliss), the SNP’s Front-Bench spokesman. In her speech, she drew attention to the importance of transparency, and she was right to do so. We have already made significant moves on limited companies and limited liability partnerships. Persons of significant control now have to be disclosed on the Companies House register, and I fully agree with her that that should be comprehensively enforced.
Alison Thewliss
The problem is that it is not being comprehensively enforced. About £2 billion is due in fines from SLPs. If the Government are not going to collect £2 billion, why on earth are they putting forward austerity cuts? They could have that money easily.
Chris Philp
It will not have escaped the hon. Lady’s notice that by the fifth year of the five-year period there is a fiscal loosening of £30 billion—that is hardly austerity—and that the NHS will receive a huge amount of extra money, including the NHS in Scotland via Barnett consequentials. I think that we can say very clearly that this was not an austerity Budget. I agree, however, with her more serious point. As my hon. Friend the Member for Ochil and South Perthshire said, where a law is passed, it should be properly enforced, and if there is more scope to enforce this law, it should certainly be done.
A further legislative measure was announced over the summer in relation to transparency. By 2021, we will start recording the ultimate beneficial ownership of property owned by companies, which is an important measure, because some properties, particularly very expensive, high-end properties, are often owned in offshore companies, but there is currently no transparency in respect of who owns those companies. As of 2021, we will know who the ultimate beneficial owners are, and that will also create an interesting taxation opportunity that I strongly commend to the Financial Secretary.
At the moment, when an ordinary property is bought or sold by an individual, it triggers residential stamp duty, but when a transaction takes place whereby the company owning the property is sold, no residential stamp duty is paid, because, as far as the Land Registry is concerned, no change of ownership has taken place. At the moment, we have no visibility over any change of ultimate beneficial ownership, because it is not registered, but from 2021 we will, because that change will have to be registered. I suggest, for a future Budget, that a change of ultimate beneficial ownership should trigger a stamp duty charge as though for a direct change of ownership, as would happen if any of us bought a property. That would yield significant extra residential stamp duty.
I will give an example. I am aware of a transaction in Belgravia, not far from here, that took place two or three years ago. It was a collection of luxury houses developed by an offshore company—based in the Cayman Islands or British Virgin Islands—and sold to a Chinese gentleman for £110 million, but he did not buy the property and therefore no stamp duty was payable. He bought the offshore company and no stamp duty was paid. Had that change of ultimate beneficial ownership been registered and had stamp duty been payable, a stamp duty charge of about £16 million would have been crystalised for the Exchequer’s benefit.
I suggest we collect that sort of money in the future. Of course, that property is liable for annual taxation on envelope dwellings, because it is held in a company, but that only levies at a rate of £226,000 a year, so the payback period is 73 years, and most of these properties are traded more frequently than that. I challenged the hon. Member for Oxford East earlier to come up with some ideas for raising revenue and combating non-compliance. There is my idea. I hope that a future Budget adopts it and takes it forward.
I will conclude—I know the shadow Chancellor wants to hear more, but I have to disappoint him—by briefly addressing Government clauses 15 and 16 on intellectual property charges and charges in relation to fragmented profits. This is an extremely important area, because a number of large corporates are using intellectual property charges to spirit away profits attributable to UK operating activities.
Most notoriously, Starbucks used this about five or six years ago. It managed to extract almost all its UK profits by levying an intellectual property charge in relation to its beans. It said the beans were special beans and had a very high charge on them, and it managed to register pretty much zero UK profit. That is precisely the kind of intellectual property charge that these measures are designed to combat. An arm’s-length, third-party intellectual property charge cannot possibly result in zero profit for the company paying that charge, and it is right that the Government are taking further action.
Multinationals take their profits out of the UK and into, typically, the Luxembourg, Swiss or Caribbean jurisdictions, and intellectual property charges are more often than not the means by which they do so. I strongly commend clauses 15 and 16 for taking direct action to prevent avoidance measures that have undoubtedly cost the Exchequer. I think that I have spoken long enough about these clauses, which I shall be extremely happy to support if there are Divisions in 10 minutes’ time.
Paul Masterton
It is a pleasure to follow my hon. Friend the Member for Croydon South (Chris Philp), although, as ever, the problem with following him is that he has done such a thorough and detailed job of going through the minutiae of pretty much every single piece of the Bill that there is not a huge amount left for me to say. However, I will do my best and raise a few points that I know are particularly important to people and businesses—particularly small businesses—in East Renfrewshire.
One reason why these measures are so important comes back to the perception of fairness. Action to deal with tax avoidance and evasion is important because people often perceive that they are playing by the rules and doing everything right, while other guys—often the big guys with lots of money, who can afford to pay the “big four” huge sums—are able to find clever ways of reducing their tax liability.
There have been many examples of companies diverting profits, in a way that is not fair and is not right, to other jurisdictions with much lower tax levels to save themselves money. They are taking money that was produced when taxpayers in this country went into their shops and bought their goods, supporting them and their products, but that money is not being kept in our economy or reinvested in our economy. It is being shunted offshore to other jurisdictions, where it is swept up and often manoeuvred around other areas, particularly when a global business is moving it around to prop up less competitive and less successful parts of that business offshore.
Since 2010, an extra £180 billion or so has been brought in as a result of some of the measures that we have introduced. That is a huge amount, which is being reinvested in the country in which it was produced. It means more money for our schools, hospitals and small businesses—the sort of money that can give people a bit of a break.
I want to touch briefly on the new clause tabled by the hon. Member for Glasgow Central (Alison Thewliss). She talks frequently, and with a great deal of knowledge, about Scottish limited partnerships—rightly, I think, because they are being increasingly scrutinised and are coming under the spotlight. They have been around for a long time, and previously no one paid much attention to them—no one really understood what they were being used for. They fall within a slightly odd grey area in terms of the Companies Act 2006. In my former job as a pensions lawyer, they were used as a vehicle to allow companies to put an extra step between them and an investment. They helped companies to reduce their tax in relation to employer contributions that they had made through the sweeping round of funds.
That was a legitimate funding mechanism, but there is no doubt that because of where Scottish limited partnerships sit in relation to the wider tax system, they are being used pretty unscrupulously. A lot more stuff has been coming out about them, and I think that the hon. Lady is right to go on probing and testing to establish whether their proper use is being properly enforced and checked.
Chris Philp
Main Page: Chris Philp (Conservative - Croydon South)Department Debates - View all Chris Philp's debates with the HM Treasury
Finance (No. 3) Bill
Chris Philp ExcerptsTuesday 8th January 2019
(5 years, 10 months ago)
Commons ChamberRead Full debate Finance Act 2019 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 8 January 2019 - (8 Jan 2019)
Jonathan Reynolds
We simply do not know the answer to that question. I always listen to what the right hon. Gentleman has to say in Treasury and Finance Bill debates, but he is one of the archetypal Members who come to the House and pursues what I call the BMW argument: “Everything will be fine because we buy BMWs and everyone will give us what we want.” That argument is still being pursued in these debates, but it has been proved completely untrue by the stage of the negotiations that we are at. It is simply not good enough to say, “It will all be alright on the night. Everyone will transfer over the benefits we currently have. It will be as straightforward as that.” If that were case, the Government would not be in this morass and the country would be in a far better position.
Chris Philp (Croydon South) (Con)
First, is it not the case that the UK and, indeed, the entire EU currently trade with major economies, such as the USA and China, under WTO terms? Therefore, while not desirable, they can be made to work. Secondly, if we adopt the shadow Minister’s approach and rule out no deal, we have no choice but to remain in the EU or to accept whatever the EU sees fit to give us, which is not a great negotiating position.
Jonathan Reynolds
I thoroughly agree that what the Government have got us into is not a great negotiating position, but that is because the negotiations have been driven by the best interests of the internal politics of the Conservative party. If the national interest had been considered, we would be in a completely different place.
Trade can exist on WTO terms. It is not that the UK would somehow no longer be a trading nation, but that is not the test of good Government policy. The test is to consider the ramifications of that decision and to decide whether it is in the UK’s best interests, but I cannot believe that anyone would look rationally at what a no-deal outcome means and say, “I would find that acceptable for this country.”