Finance (No. 2) Bill

David Gauke Excerpts

Monday 11th October 2010 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read a Second time.

As observant Members will note, this is the second Finance Bill of this Parliament and the third one this year. The date of the general election earlier this year reduced the time available for scrutiny of technical measures in advance of that election, and the short timetable available between our emergency Budget and the summer recess has made it necessary to have a third Finance Bill to address various technical measures.

Given the content of this Bill, I suspect that there will be a fair amount of cross-party consensus on the matters in it but, in any event, I would like to congratulate the newly appointed shadow Treasury team. In particular, I congratulate the hon. Member for Wallasey (Ms Eagle), the shadow Chief Secretary to the Treasury, both on her election success as a member of the shadow Cabinet and on her appointment to her current position. She will bring considerable experience of Finance Bills to the shadow Treasury team, both as a former Minister and from the Finance Bill earlier this year.

Although he is not present, I should like also to congratulate the newly appointed shadow Chancellor, the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson). He stated over the weekend that his first task was to read an economics primer, but he also expressed the need to hit the ground running, because of the Finance Bill today. Whatever his education programme, I suggest that he should not necessarily begin with the scrip dividend treatment of real estate investment trusts or the taxation of long cigarettes. However, we wish him well in that process.

At the emergency Budget in June, my right hon. Friend the Chancellor set out this Government’s fiscal mandate, acting swiftly to tackle the deficit and restore credibility to the public finances. In the short, summer Finance Bill, we quickly put the core elements of the Budget on to the statute book, reassuring the British people and the financial markets that we would not allow Labour’s debt to spiral out of control.

[Kelvin Hopkins (Luton North) (Lab)]

The Minister mentioned cigarettes. Are the Government going to do anything to tackle the £4 billion that is lost through cigarette smuggling? That is four times the amount of money that they are apparently hoping to save by cutting benefits to the better off.

[Mr Gauke]

The hon. Gentleman makes the fair point that there is too much cigarette smuggling, and this is a matter that we are keen to address. My right hon. Friend the Chief Secretary to the Treasury has already announced proposals to provide additional funding to Her Majesty’s Revenue and Customs to tackle cigarette smuggling, among other things. I very much welcome the hon. Gentleman’s intervention but, let us be honest, it would be unrealistic to say that we could prevent all cigarette smuggling. We can, however, take steps to reduce it. That would be to the benefit of the Exchequer, and I am pleased that the Government are moving ahead and doing that.

It is our determined actions that have restored confidence in the economy, stabilised the nation’s credit rating and halved interest rates on Government short-term borrowing. We are saving money today so that we can invest in tomorrow. Ours is the right approach for the country, and that has been widely recognised. Only a fortnight ago, the International Monetary Fund said that our deficit plan was essential to restoring confidence in the UK’s public finances and “supports a balanced recovery”. That is the approach that we will take forward, including in the spending review.

[Ms Angela Eagle (Wallasey) (Lab)]

I should like to take this opportunity to thank the Minister for his kind remarks about me and the new shadow team. If he is so convinced that the actions that the Government took in June have stabilised the economy, can he explain why a survey reveals today that confidence among Britain’s financial chiefs has slumped to a fresh low, with 34% of finance directors polled by Deloitte believing that the economy will go back into reverse? Those findings demonstrate that optimism has dropped to its lowest level for 18 months.

[Mr Gauke]

The fact is that the measures that the Government have taken have had the support of the IMF, the OECD, the World Bank and the Governor of the Bank of England. We are getting widespread support for taking these tough measures. We also have the support of the director general of the CBI. There is an increasingly large consensus—it even includes Tony Blair—that if we simply deny the existence of the deficit and avoid taking these tough decisions, we shall face a worse problem later on. It is absolutely right that we should take these measures.

[John Mann (Bassetlaw) (Lab)]

On the Deloitte survey, does the Minister agree that business people make investment decisions based on how they see the future? What will happen if those business people see a murky future? Will they not invest less? Would not that result in the Government’s optimistic predictions of private sector growth, on which they are relying, not coming to fruition?

[Mr Gauke]

I shall tell the hon. Gentleman what would drive down investment: the fear that the Government were not prepared to take the tough decisions. Taking decisions for the long term to tackle the deficit will encourage private sector growth, and this Government are confident that we are taking steps in the right direction. We are also confident that a policy of reducing public expenditure rather than increasing taxation—which is the forecast of our plans to reduce the deficit—is the right way forward. Spending that is funded by borrowing is just a recipe for higher taxation and bigger cuts in the future, burdening future generations with the problems created by this one. That approach would drive down investment. Simply ignoring the matter would not help investment; it would not be fair and it would not be progressive.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

Does my hon. Friend agree that the protests that we are hearing from those on the Opposition Benches are in stark contrast to the fact that the measures taken by this Government have secured our triple A rating?

[Mr Gauke]

My hon. Friend is absolutely right. The fact is that the Moody’s triple A credit rating was deemed to be at risk, and has now been stabilised. Our market interest rates have fallen, and we are restoring confidence in the long-term capability of this country. If we refused to take these measures, we would be taking the most enormous risk.

It may be helpful if I give some of the background. As I said earlier, there remain some technical changes that we could not include before the summer, and the Bill provides for those changes to be made.

I think it safe to say that Members on both sides of the House will agree on the contents of the Bill. I should be disappointed if they did not, given that within the last year all but one of the measures that we are debating were proposed by the last Government I am glad that we have reached a consensus on that, if not on other matters. None the less, we wanted to ensure that the public and interested parties had an opportunity to provide input.

In the Budget we set out our approach to tax policy making, with consultation at the heart of the strategy. In the spirit of that new process, we published the Bill in draft over the summer. That has not only allowed key interest groups to comment, but reassured those affected by the Bill. More than 60 responses were received, and nine clauses have been modified as a result. Furthermore, many groups have voiced their approval of the provision of a draft Bill to allow for additional scrutiny, which has made the Bill better, clearer and easier to apply.

We also increased opportunities for consultation by creating the Office of Tax Simplification over the summer. We need to increase transparency for businesses and the tax profession: that is a message that we hear frequently. We also hear about the importance of greater predictability, stability and simplicity in the tax system. The Office of Tax Simplification will identify areas in which complexity in the system can be reduced, and we will publish its findings for the Chancellor to consider before he presents his Budget. Simplifying the tax system is not just a means in itself, but a vital sign that Britain is once again open for business.

The Bill is not just a good example of engagement with the public; it also supports our aims of helping businesses and promoting fairness. Clause 10 provides support for real estate investment trusts by relaxing their distribution requirements. Clause 13 removes intellectual property conditions linked to research and development tax credits, enabling more small companies to claim. Clause 11 fixes issues in the worldwide debt cap regime to allow it to operate properly. The changes affect businesses large and small. Clause 9 removes an unintended tax charge from company distributions, and clause 7 makes changes to the venture capital schemes to guarantee state aid approval.

The coalition Government are committed to ensuring that the decisions that we make are fair, and that we protect the most vulnerable in our society. The choices that we have made to date, and the actions that we will take as part of the spending review, will help to make Britain fairer. Clauses 1 and 2 play their part by easing the tax rules for carers and extending the scope of the current tax relief. Clause 31 provides tax relief for trusts that compensate sufferers from asbestos exposure. I am sure that many Members will particularly welcome that clause. Clause 16 guarantees that those providing support under an adult care placement do not suffer capital gains tax as a result of sharing their home. Those too are small measures, but they provide significant and welcome support for those affected.

One clause has not been included in the Bill, although it was intended to feature. The aggregates levy credit scheme in Northern Ireland was introduced in recognition of the impact of the levy on legitimate businesses as a result of tax evasion on imports from Ireland and illegal quarrying. Over the summer, we consulted on legislation to be included in the Bill to extend the scheme beyond April 2011 to March 2021. Since then, the European General Court has annulled the Commission's state aid approval for the scheme, for the period covering April 2004 to March 2011. In those circumstances, it would not be appropriate to extend the scheme and we therefore decided to remove the clause from the published Bill. However, the Government strongly support the scheme and, if the Commission were to come to a fresh decision that the aid was approvable, legislation to extend it can be introduced in the Finance Bill in 2011.We will continue to work closely with the Commission, the authorities in Northern Ireland and representatives of the quarrying industry to find a solution that provides a level playing field for legitimate quarry operators in Northern Ireland, while maintaining environmental standards.

The other clauses help to align HM Revenue and Customs’ interest and penalty regimes; enable the National Employment Savings Trust to operate as a registered pension scheme; assist with the correct allocation of overpayments of tax to settlers of trusts; and tackle evasion of excise duties. Although those clauses could not make it into the previous Government's final Finance Bill—although 71 clauses did make it into their four-hour Bill—we are ensuring that these necessary but less glamorous changes are made.

This is a simple, straightforward Bill that eases burdens on individuals, businesses and HM Revenue and Customs. It is one that the previous Government all but enacted themselves. In brief, it is an important but, I hope, uncontroversial Bill, and I commend it to the House.

--- Later in debate ---

[John Mann]

rose—

[Mr Gauke]

rose—

[Ms Eagle]

I am anxious to get on. I have given way a lot and many other Members wish to speak.

The Irish example demonstrates the risks of focusing on getting the deficit down—too high a cost to the growth potential of the economy. The Irish have had deep and fast cuts as well as tax rises, but growth has been hit, which is making getting the deficit down harder rather than easier.

[Mr Gauke]

I am grateful to the hon. Lady for giving way and I am listening carefully to her somewhat gloom-laden speech. I can see why her military role model is not so much General Kitchener as Private Frazer. May I press her on one particular point? The position of her party at the general election was in favour of spending cuts of 20% over the Parliament and halving the structural deficit over four years. Does she still support that position?

[Ms Eagle]

That is our starting point as we move forward to judge what the Government will announce in a few days’ time. The issue here is the scale and speed of the deficit reduction, and how that impacts on our approach to being able to see some kind of economic recovery sustained, given what is happening in the rest of the world. The worry that we have always had about the Budget judgment implicit in the June announcements and soon to be reinforced in the forthcoming spending review is that the medicine being fed to the patient runs a higher risk of killing it off. We do not want the deficit reductions to be too soon and too deep to sustain a recovery. The Irish example demonstrates the risks of focusing on getting the deficit down at too high a cost to the growth potential of the economy. The Government have a particular view on those judgments, but we disagree with them on the necessity for speed and the ferociousness of the deficit reductions. We are not saying that deficit reductions will not be necessary. The Chancellor used to mention the Irish example all the time as the Irish Government made their extremely deep and fast cuts, but lately he appears to have stopped referring to it at all. I wonder why.

The Government are gambling on their outdated and dogmatic view that if only the state would get out of the way, the private sector would spontaneously move to fill the gap and quickly create the 2.5 million extra jobs that the Office for Budget Responsibility has calculated would have to be created to get the deficit down as forecast. Thus our economy is meant to perform better in job creation terms than it has ever done before, even in much more benign economic circumstances than those we face.

We have just lived through the most dramatic example of the limits of that market fundamentalism that any of us are likely to see in our lifetime. It was not the private sector that rescued the world financial system from meltdown in the credit crunch; it was the co-ordinated action of Governments. Governments have a crucial role to play in fostering economic growth and helping to encourage the emergence of a better, more balanced economy, yet the Bill does nothing to restore the support for industry that the Government have already cut. It does nothing to reverse the £3.6 billion tax hike that will hit our manufacturers in order to pay for the corporation tax cuts announced in the June Budget, £1 billion of which will go straight back to the banks.

Abolishing allowances and reliefs effectively hits businesses with a tax hike when they invest. It benefits investment-light industries such as financial services over investment-heavy industries or new sectors looking to grow. That change penalises companies that need to make sustained investment to establish themselves and grow. It is a strange way for the Government to signal that they wish to see a rebalanced economy and the creation of new industry. Little wonder, then, that the plans have been described as “a disaster” by the senior economist at the Engineering Employers Federation and that the Institute for Fiscal Studies has said:

“Cutting investment allowances to fund a cut in the mainstream corporation tax rate would help companies which make large profits with little investment, at the expense of businesses that are investing heavily in the UK but making only marginal returns.”

There is no sign of a serious growth strategy.