Finance Bill (Second sitting)

Chris Philp Excerpts

Thursday 17th September 2015 Public Bill Committees

In all areas of our tax policy, we should consider our duty to endorse a fair global tax system. Will the Minister clarify what steps will be taken to alleviate concerns that we might start to be viewed as a tax haven? It is likely that some countries with which we do business may have concerns after the recent change to corporation tax. Although the Government have been quick to give to businesses, businesses themselves have not called for a cut in the rate. Given that our rate is already highly competitive, why have the Government taken the decision to progressively reduce the rate to 18%?

[Chris Philp (Croydon South) (Con)]

I suggest to the hon. Lady that businesses have been generous in passing on the fruits of their expansion and profitability, as evidenced by this week’s figures showing that wage growth is at a record recent level.

[Barbara Keeley]

I do not see how that follows the flow of what I am talking about, but if I find a place to give a reply, I will do so.

In 2014-15, corporation tax made up 7% of the total tax take in the UK. We need to be clear that cutting corporation tax amounts to a transfer to the largest businesses that disproportionately benefits them. We are concerned that a more effective policy measure, such as the one suggested at the election, could have been used to help all businesses, rather than just the largest companies. We question the reasoning behind the Government’s policy decision. It appears that corporation tax has been used because it is relatively easy to alter. I am sure the Government recognise that a substantial amount of money is going to businesses. Will the Minister outline how the Government intend to pay for the rate cut, which in 2020-21 will cost £2.5 billion? We have not seen a breakdown of exactly how that will be paid.

We have heard the point about firms being attracted to this country due to our tax regime. KPMG’s December 2014 survey of tax competitiveness revealed that only 8% of respondents saw favourable tax policies as the factor with the most impact on our recovery. Only 18% saw tax as having a high influence on where companies base themselves. That contradicts the point that the Minister just made. We believe that the focus of support for small and medium-sized businesses should be a priority and that policies to encourage businesses would have been better targeted elsewhere than this tax rate change.

Many small and medium businesses will have been disappointed that the Chancellor failed to mention business rates in his Budget speech. During the general election campaign, we outlined proposals to cut and then freeze business rates, so that smaller firms could have the support needed to invest, innovate and raise productivity. That would have helped more than 1.5 million small business properties. Small and medium-sized businesses are concerned about the pressures on business rates. Every time I visit such businesses in my constituency, that is almost the first thing they raise. Labour, along with small and medium-sized businesses up and down the country, will be waiting to see whether the Government will take action to reduce the business rates burden. There are reports that the valuation office now has to deal with 500 appeals a day. Will the Government give small and medium-sized businesses a gesture of support by providing them with an interim report on their business rates review?

Rates reform continually tops many small retailers’ and business groups’ lists of areas that need real reform, but the tax, over which there is a backlog of more than 250,000 complaints, failed to get a mention in the Chancellor’s speech. That caused a lot of disappointment. The British Retail Consortium has warned that the level of business rates could cause 80,000 shops to close by 2017, and business groups including the Confederation of British Industry say that the antiquated system of business rates is a major barrier to investment.

Let me return briefly to the point about the 80,000 shops. Very many MPs, including me, have in our constituencies the situation of empty shops on high streets and we all want to do something about that, but here is the big problem. John Allan, chairman of the Federation of Small Businesses, urged the Government to take action. He said:

“Bringing forward reforms to business rates is an immediate priority.”

We urge the Minister and the Chancellor to ensure that the ongoing review of business rates does not result in small businesses paying disproportionately more. We call for greater attention to be given to business rates as a means to support small businesses.

It is quite common in these debates to hear questions backwards and forwards about the different priorities. During the general election campaign, Labour set out further ways to support small businesses, including elements that are often talked about here in debates. One was the tackling of late payments with a new requirement on larger businesses to set out the extent of late payment that they have been responsible for and the action that they have taken to compensate suppliers. We would have given business organisations, such as the Federation of Small Businesses, the right to take cases on behalf of their members, because they believe that that is very important.

We wanted to strive to reduce unnecessary regulation in the small business arena by establishing a small business administration, which the FSB has called for, to co-ordinate work across the Government to benefit smaller businesses and cut unnecessary regulation as it affects them. Our small business administration would have been given a remit to ensure that regulations or requirements on small business were proportionate and appropriate and avoided unnecessary burdens or compliance costs. They want to see regulation designed from the perspective of the smaller firm and they feel that it is not.

There is a need to deliver a longer-term road map for capital allowances and incentives for research and innovation such as the research and development tax credit, and not just for the headline rate of corporation tax. There is also a need to improve support for entrepreneurs and small and medium-sized enterprises that want to grow rapidly.

We understand that the Government have started to take steps to address the issue of late payments and that a consultation on the proposed role of small business commissioner was undertaken. As we are talking about the different scale of businesses, may I ask whether Ministers can provide us with an update on the new role, because that consultation ended on 21 August?

What other action are the Government taking to offer the support needed for small and medium-sized businesses? Feedback from a cross-section of businesses, ranging from start-ups to FTSE 100 companies, that was gathered by PricewaterhouseCoopers stated a number of key messages about their view on how the UK tax system should be shaped in the future. They included the following. The UK needs to be clearer on tax; that is the issue of the road map to instil confidence. A longer-term approach to tax needs to be taken. We will talk about that later in terms of how some taxes and allowances have changed. Businesses feel that the tax system should be more focused. It is too complex, with many different reliefs and exemptions; reliefs should be better targeted at specific purposes. Also—I have already made this point—national insurance contributions should be aligned with income tax. That was the view of those businesses.

Labour wants certainty for businesses looking to invest.

--- Later in debate ---

[George Kerevan (East Lothian) (SNP)]

We will not challenge the main substance of clause 7, but it has unintended consequences that reflect on later clauses that we will try to amend; I want to bring those up, and will ask the Minister to reflect on them and perhaps discuss them with the Chancellor.

The clause pre-announces the cut to the main rate five years in advance. Ordinarily, I would think that was quite a good thing to do, because it maximises revenue streams and still gets us the maximum impact of the incentive. That worked very well in Sweden, so we should congratulate the Minister on that principle. The first problem that emerges is that significant evidence shows that large amounts of corporate surpluses are staying in the bank or are being used for share buy-backs. There has been no great evidence over the past few years to show that cuts to corporation tax are leading directly to reinvestment in manufacturing plant and productive infrastructure. In fact, corporate balances have been going up significantly in the UK and, for the same reason, the United States.

My practical worry is that if we continue, over these five years, to cut corporation tax, that may incentivise profit-making in business, but the profits will not be reinvested into raising productivity in the British economy. That link has to be looked at. The issue could be dealt with by adding extra incentives for investment, so that the corporate surpluses are recycled. One of my criticisms of the Bill overall is that those incentives do not exist. I ask the Minister to look at that.

[Chris Philp]

Does the hon. Gentleman agree that if we put in place the incentives that he describes, we would add complication to an already very complicated tax code? On his point about reinvestment, if corporate profits are dividended back to shareholders, it is likely that those shareholders will reinvest them elsewhere. If the profits are deposited in banks, my basic Maynard Keynes reading suggests that the banks will lend the money to other people. The money will find its way back into the economy, but via different routes.

[George Kerevan]

Both are fair points, but the recycling is largely going into property. Every crane that we count around this building is the result of that. We have offset productive investment into an overheated property market, which is hardly what we want to do to raise productivity.

On the hon. Gentleman’s first point about how we craft incentives so that they do not become over-complicated and lead to further tax loopholes, that is an historical problem. This is a question of the here and now. I am sure that the Chancellor and the Government can come up with some good ideas on that.

I raised the issue with the Treasury Committee and the Monetary Policy Committee yesterday, because I am concerned that the Government are adding to the burden by attempting to run a permanent budget surplus—to generate surpluses that do not go into the productive economy. The representatives of the Monetary Policy Committee committed themselves to an answer that they may rue and that the Government should go away and think about. The committee was pressed on the point that if the Government run a permanent budget surplus, it must have an impact on the rest of the national income accounts. If we run a budget surplus, we are saving; we are taxing people to save. Where do the savings go? The best that the committee could do was say that there would be a further rundown of corporate balance sheets—in other words, money would flow out of the corporate sector—and that money might start flowing abroad, so we would end up investing abroad.

[Chris Philp]

We have a £1.5 trillion national debt, and I would respectfully suggest that surpluses would begin, in a very small way, to pay it down.