Finance (No. 3) Bill

Lord Hanson of Flint Excerpts

Monday 4th July 2011 Commons Chamber

[Sir Robert Smith]

The purpose of the amendment is to keep the spotlight on this issue by ensuring we get updates from the Government, and that the Government can give a signal on the investment climate showing that they understand the concerns and are willing to take them on board so we can build a long-term future.

There is another gap apart from the time gap as these contracts unravel. We are a mature province so we must ensure that the infrastructure to get the next investments off the ground is still in place in years to come. That infrastructure must not be decommissioned prematurely, and so the investment must not be withdrawn. The owners of the infrastructure need to know that there is a long-term future for investment as more production will be brought in through those platforms. That is another reason why these constructive talks are so important.

I encourage the Government to do all they can to restore confidence and the positive investor climate that will unlock the full potential that exists in this country, build on the skills we already have, and maximise the benefit to the taxpayer in the long run and to our security of supply.

[Mr David Hanson (Delyn) (Lab)]

I am grateful to the hon. Member for Amber Valley (Nigel Mills) for kicking off this wide-ranging discussion on a number of important tax issues. He certainly enlightened me when he revealed that the Minister is tax personality of the year. I missed that; despite all my “Gauke” Google alerts, I missed the fact that he was tax personality of the year. May I offer the official Opposition’s wholehearted congratulations to him on that?

The hon. Member for Amber Valley gave a number of Ronald Reagan quotes and he said today was the 100th anniversary of Ronald Reagan’s birth. That was on 6 February, in fact, but this is the 100th year since Ronald Reagan’s birth. As you will know, Mr Deputy Speaker, today is the day on which we shrank the UK tax base by giving away America 200-odd years ago, and I hope that, as part of his plans for simplification, the hon. Gentleman will recall that.

New clauses 12 and 14 were proposed by the hon. Gentleman and he may be surprised to learn that I am not averse to his suggestion in new clause 14, because there are grounds for discussing the simplification of UK corporation tax returns for multinationals. It is worth while considering the review that he suggests, provided that it examines whether such a simplification will decrease, rather than increase, tax evasion—an increase is always the worry with such a simplification. New clause 14 potentially has merit and although I do not expect the hon. Gentleman to push it to a vote, I hope that the Minister will consider the issue.

New clause 12 proposes to review, or possibly even remove, capital allowances and asks the Office of Tax Simplification to report on replacing them with a different form of relief. The hon. Member for Amber Valley will know that Labour Members had substantial concerns about reducing capital allowances for firms, which explains why I cannot support the new clause. My hon. Friends and I tabled a number of amendments in Committee to oppose the reduction in the capital allowances. I realise that the reduction was tied up strongly with the decision to cut corporation tax to 24% by 2014-15—shortly thereafter it was decided to cut it to 23%— which was one of the flagship growth measures in the June Budget. However, that was paid for by slashing investment and capital allowances, which encourage businesses to take a long-term view by providing tax relief on the purchase of equipment and machinery. The view that I expressed in Committee has not changed, although I know that it will cause disagreement: companies that invest, particularly in manufacturing—car industries in my own area of north Wales, advanced manufacturing, wind turbine manufacturing, plane makers and so on—will benefit from capital allowances, whereas the tax cuts are, unfortunately, aimed at financial services.

At the time of the June 2010 Budget, manufacturers expressed concern at what this approach will mean for industry. More recently, the engineering manufacturers association warned that the Government risk moving to a tax system that contains “a bias” against big manufacturers. Members on both sides of the House are trying to encourage manufacturing growth, and I believe that the review that the hon. Gentleman seeks in the new clause could be damaging to the growth of capital investment and, therefore, to the growth of manufacturing industry.

[Nigel Mills]

I wish to clarify something. My aim in new clause 12 was not to do what the right hon. Gentleman fears will happen, but to do the opposite. I was aiming to ask the OTS to consider simplifying or replacing the capital allowances regime with one that would match the tax relief more closely to the life of the assets being invested in. My concern was that an 18% reducing balance was giving tax relief over a far longer period than the actual useful life of those assets. I felt that having a simpler system, where a shorter “life” meant that the tax relief would be obtained much faster, would incentivise investment, not discourage it.

[Mr Hanson]

That is an interesting argument, and I bow to the hon. Gentleman’s detailed knowledge of these matters, which goes back to his professional experience before entering the House. My worry has been placed on the record on Second Reading, in Committee and on several other occasions. For the moment, it is best that we keep our arguments to the effectiveness of capital allowances, and I will, thus, still be unable to support the new clause.

My hon. Friend the Member for Hayes and Harlington (John McDonnell) tabled amendments 15, 20 and 17. I suspect that he was even more surprised than me to hear the hon. Member for Wycombe (Steve Baker) offer his unflinching support for my hon. Friend’s suggestions on this matter. I thank him for tabling his amendments because they make an extremely important contribution to the debate. We face a real issue in how we collectively address what is now a cross-party concern and shed light on the remuneration of executives, who are ultimately paid by the companies for which they work and by us as consumers of those goods in our society at large.

[John McDonnell]

I had better correct the record. As someone who still sees the relevance of Trotsky’s transitional programme, I am attempting not to salvage capitalism but to expose its weaknesses.

[Mr Hanson]

Far be it from me to engage with my hon. Friend on the benefits or otherwise of Trotsky’s theory, because I am sure that he would win that discussion hands down.

The key point is that we all seek transparency in remuneration. My hon. Friend the Member for Hayes and Harlington will be aware that there is already legislation on the statute book that means that banks must have transparency in their remuneration. The Government should enact that legislation and should also push for a wider European agreement on transparency, an act of faith that they have so far failed to push for.

The previous Government, in our Financial Services Act 2010, allowed the Treasury to issue regulations that forced banks to disclose in bands the number of staff earning more than £1 million a year. That legislation has so far not been pursued with any vigour by the Government. The Act, which gained Royal Assent in April 2010—just before the general election—gave the Treasury the power to regulate on this issue. It is an issue that my hon. Friend the Member for Hayes and Harlington has raised and for which the Government must account today. The Opposition will continue to consider it in the future. Indeed, my right hon. Friend the Leader of the Opposition made a clear speech to the Coin street neighbourhood centre on Monday 13 June in which he committed the Opposition to ensuring that we had such transparency and that chief executives were accountable not just to their shareholders but to the wider community.

[Kate Green (Stretford and Urmston) (Lab)]

Does my right hon. Friend agree that an important feature of exposing those very high bonuses to public scrutiny was to make it clear that other lower paid workers in the banking sector receive some bonus payments? It is very important that we distinguish between the excessive bonuses at the top and the bonuses that top up relatively modest wages for the bank clerks, who are feeling quite attacked personally when the banking crisis was none of their making.

[Mr Hanson]

My hon. Friend makes a valuable point. She will know that the legislation passed by my right hon. Friend the Member for Edinburgh South West (Mr Darling) in the last Parliament allowed salaries of more than £1 million to be open to scrutiny, which would address the issue she mentions.

There is some merit in bringing this issue to the attention of the House, and I am grateful to my hon. Friend the Member for Hayes and Harlington for doing so. He will know that there are some issues to do with his amendment delaying corporation tax cuts, but I am grateful that he has addressed the issue and I hope the Minister will respond in due course.

Amendment 17 is about the enterprise investment scheme, which we support. In Committee, we asked the Minister whether he had state aid approval for the EIS and I would welcome an update on whether he has since made progress on that.

I have some sympathy with amendment 51, tabled by the right hon. Member for Gordon (Malcolm Bruce). On Second Reading and in the Committee of the whole House, we tabled amendments that mirrored his amendment in many ways, asking the Chancellor to produce before the end of September an assessment of the impact of taxation on ring-fenced profits, business investment and growth, including an assessment of the long-term sustainability of oil and gas exploration in the North sea. For the reasons mentioned by my hon. Friend the Member for Aberdeen North (Mr Doran), the way that the proposal was brought forward contained elements of surprise for the industry. There was a lack of consultation and there have been consequences. The right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) both mentioned Statoil and the great impact that the decision has had on that company’s potential $10 billion—or £6.1 billion—investment in the North sea.

It is important that the Economic Secretary has had discussions—some potentially very exciting and energetic—with oil companies on these matters as part of her initiation into her role in government. I hope that she will ensure that she reports back. I also hope that the Minister will accept amendment 51, or at least accept an amendment in principle for the future.

Finally, although my hon. Friend the Member for West Bromwich East (Mr Watson) is not present today because of other matters, I very much welcome his amendment 9, which is part of this group. We raised the issue of video games tax relief in debates on the Finance (No. 2) Bill. However, we need to look at the issue again in detail, if only because the hon. Member for Wantage (Mr Vaizey) said when in opposition:

“We are committed to a tax break along the lines of the video games tax credit. We have been calling for tax breaks for the video game industry for the last three years.”

He said that during the general election, on 13 April 2010. He is now the Under-Secretary of State for Culture, Olympics, Media and Sport, yet he has been sat on by the Chancellor of the Exchequer, who said in his Budget statement last June:

“In the current climate, with the deficit the size…all those reductions in tax must be more than paid for by other changes to business taxation, so we will not go ahead with the poorly targeted tax relief for the video games industry.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]

My hon. Friend’s amendment 9 asks the Government to look again at the issue. I simply put on record the fact that, yet again, those in government said one thing during the election and something else afterwards. We need to encourage the video games industry so that we can compete on a global scale.

In summary, there are some useful amendments in this group. I cannot accept everything that the hon. Member for Amber Valley said, but the other amendments before us have some merit. I look forward to hearing what the Minister has to say.

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

We have had an interesting and wide-ranging debate on this group of amendments, which propose a number of changes to the taxation of business. Let me start by reiterating our position on business tax. The first step in the Government’s plan for growth is a competitive UK tax system. In fact, the Government’s aim is to create the most competitive corporate tax regime in the G20, and we have been clear about how we intend to achieve that. Last November we published our corporate tax road map, setting out our plans for reform over the next five years and the principles underpinning those reforms. I am quite clear that if we are to provide business with the certainty that it needs to invest in the UK, tax reforms need to maintain stability, avoid complexity and ensure a level playing field for taxpayers.

Let me deal first with the amendments tabled by the hon. Member for Hayes and Harlington (John McDonnell), and in particular amendment 15, which deals with directors’ pay, and on which we saw an unlikely alliance between him and my hon. Friend the Member for Wycombe (Steve Baker) in defence of the interests of capital versus workers—if I can phrase it in a way that will please my hon. Friend but not the hon. Gentleman—albeit the highest paid workers. It is worth noting that both hon. Members have made many declarations of independence, and today was no exception. As I have said, a competitive tax regime is the foundation of our plan for growth, and the consequence of amendment 15 would be to delay the reduction in corporation tax.

The Government take the essence of the hon. Gentleman’s concern—directors’ remuneration—seriously; indeed, my right hon. Friend the Secretary of State for Business, Innovation and Skills raised it on 22 June in a speech to the Association of British Insurers, asking how we can ensure that directors’ remuneration is effectively linked to company performance. To help answer that question, the Government already have plans to consult in two relevant areas. In July, the Department for Business, Innovation and Skills will look at the narrative aspects of reporting directors’ remuneration, examining the provisions dealing with the disclosure of directors’ remuneration and making the link to company performance much clearer. In the autumn, the Department will explore other policy options related to the role of remuneration committees and company accountability to shareholders.

Turning directly to the proposals made by the hon. Member for Hayes and Harlington, let me first remind him that UK-quoted companies are already required to publish a directors’ remuneration report. That includes full individual details of each director’s pay, including salary and bonuses, share schemes and all other forms of remuneration. His proposal to make the remuneration vote binding in nature would raise difficulties, as such a vote would inevitably cut across contractual arrangements already entered into between the company and the director. That is why the vote is currently advisory in nature.

--- Later in debate ---

[Nigel Mills]

My purpose in moving the new clause was to encourage the Government down the route of tax simplification, which I hope I have achieved tonight. Therefore, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Clause 1

Charge and main rates for 2011-12

[Mr Hanson]

I beg to move amendment 10, page 1, line 9, at end insert—

‘(3) By 31 March 2012 the Office of Budget Responsibility, in consultation with HMRC, will report to Parliament on the revenue of the 50 per cent. rate of income tax and its impact on the UK economy.’.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

With this it will be convenient to discuss the following:

Amendment 14, page 1, line 9, at end insert—

‘(3) A report on the impact of the current rates of income tax on inequality in the United Kingdom, also taking into consideration all other direct and indirect taxes including duties and excises, council taxes and mandatory charges for the use of cars and televisions and making specific reference to the overall tax rate of taxpayers grouped by decile in the United Kingdom and by each individual constituent country shall be prepared by HM Treasury and laid before the House of Commons not later than 1 December 2011.’.

Amendment 30, page 1, line 9, at end insert—

‘(3) All public sector employees whose earned income does not exceed £21,000 shall be entitled to a £250 reduction in tax liability for the tax year 2011-12.’.

[Mr Hanson]

I do not intend to detain the House for long on these amendments, although they are important. I particularly welcome amendment 30, which stands in the name of my hon. Friend the Member for Hayes and Harlington (John McDonnell) and my right hon. Friend the Member for Birkenhead (Mr Field), and which I will touch on briefly. Clause 1 deals with rates of taxation and, if approved, will set the rates for the next financial year at 20%, 40% and a special rate of 50%. Amendment 10, which is simple and straightforward, has been tabled by the shadow Treasury team because we want to shed a little light on how the Government will report on their future plans for the 50% rate of tax.

We already know certain key facts. We know that the Chancellor has asked HMRC to collect tax receipts for this financial year and that he has assessed the revenue levels of the 50% rate for this year. In Committee, the Exchequer Secretary said:

“The Chancellor’s Budget statement to the House on 23 March simply highlighted the fact that he has asked Her Majesty’s Revenue and Customs, as part of that ongoing work, to see how much the additional rate actually raises. HMRC will look at all the available evidence about the impact of the 50% rate, including data from the 2010-11 self-assessment returns, which will become available next year.”––[Official Report, Finance (No. 3) Public Bill Committee, 10 May 2011; c. 22.]

My concern, which I will put directly on the table, is that the Government have already prejudiced any decision on the 50p rate of tax by stating clearly that they believe it will do lasting damage to the economy. We want further explanation of the methodology that they will use to consider the 50p tax rate for future Budgets, and I think that the best organisation to do that is the Office for Budget Responsibility. The Government set up the OBR and gave it a number of key roles, one of which I have helpfully drawn from its own website. Under the heading “What we do”, it states:

“We scrutinise the Treasury’s costing of Budget measures: During the run-up to Budgets and other policy statements, we subject the Government’s draft costings of tax and spending measures to detailed challenge and scrutiny.”

All the amendment would do is formally recognise that role in relation to the Government’s forthcoming review of the 50p additional rate.

The Chancellor has said to the House of Commons, the public and anyone who will listen that he sees this as a “temporary measure” and that it will do “lasting damage” to the economy. He has signalled that he will abolish the 50p rate as soon as he can, in line with Conservative thinking before the election. However, the timing remains uncertain. I believe that the Chancellor has pre-empted the review. When HMRC undertakes the review, it will do so on the assumption that at some time around 2013 the Chancellor of the Exchequer will abolish the rate on incomes above £150,000.

[Charlie Elphicke (Dover) (Con)]

May I congratulate the Opposition on submitting the amendment on time and on its being selected? In relation to this report, I ask the right hon. Gentleman whether it is fair, right and proper that in 1978 the top 1% of earners paid 11% of all tax and that they now pay 25%.

[Mr Hanson]

I am grateful to the hon. Gentleman. I presume that he does not support the 50p tax rate, whether it raises revenue for the Treasury or not. We do not want HMRC to do a private report for Ministers, and for Ministers then to make political judgments about the 50p additional rate. Through the OBR’s involvement, we want there to be a public report on the impact of the rate which is open to scrutiny.

The hon. Member for Dover (Charlie Elphicke) will know that about 308,000 people are affected by the 50p rate. I am not surprised that he supports its abolition and a lower rate, because he knows that it is paid less in my region in Wales, in the north-west region of my right hon. Friend the Member for Birkenhead and my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) and in the north-east region of my other hon. Friends. The benefit of this tax cut, if it happens, will predominantly affect south-east and east England and the wealthier parts of London, although it will not particularly affect the constituency of my hon. Friend the Member for Vauxhall (Kate Hoey). I understand why the hon. Member for Dover wants to get rid of the rate. If he does, there will be a tax benefit for the richest people in our society and for certain parts of the United Kingdom.

All I am saying to the Minister is that we want to see the evidence on whether the additional rate raises money. If it does not raise money, we want to see it openly scrutinised. If it does raise money, we want to expose that, so that if the Minister and his hon. Friends cut the rate, it will be clear that they are doing so for political reasons and not because it is ineffective.

[Charlie Elphicke]

The right hon. Gentleman should know that in Dover there is a lot of deprivation. My case is not that we should get rid of the 50p tax rate tomorrow, but that we should do so at the right time. My question was simply whether it is safe and sensible for so much of the tax base to depend on so few people in this country?

[Mr Hanson]

I just say to the hon. Gentleman that in south-east England, which I recollect covers Dover, some 67,000 people pay the additional rate, whereas in north-east England, which is represented by some of my hon. Friends who are present, only 5,000 people pay it. Clearly, there will be a regional imbalance if this tax cut goes ahead. We will consider those issues in due course. I know that there are areas of great poverty and deprivation in Dover, where people do not pay the additional rate, but the hon. Gentleman has imposed value added tax on those people through votes in the House of Commons, and that is an unfair tax.

The simple point I make to the Minister is that we want open scrutiny of the decisions he takes on the ending or otherwise of the 50p additional rate. The leader of the Labour party has said that we would maintain that rate for the duration of this Parliament. The Minister and his colleagues have indicated that they want to do away with it. They are now trying to produce the information to show why that should be done. I believe that the Office for Budget Responsibility would provide greater scrutiny of that decision than—dare I say it?—the Minister in an in-house decision. We will test the matter tonight, and I hope that the Exchequer Secretary will accept the amendment. It relates to a core role and duty of the OBR, which is on its website, and I cannot see why he would not wish it to review the Government’s decision formally.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Is it not important that the matter is subject to scrutiny, because the Government continue to tell us that they are looking after everyone in the community, including the less well-off? A review would show whether they have plans to reduce the burden on the highest paid.

[Mr Hanson]

That is true. My hon. Friend will know that “We’re all in this together” is one of the Government’s refrains, and a review would show whether that is true. I want to know that preferably from the OBR, as suggested in the amendment, but otherwise from the Exchequer Secretary. The Government need to set out why they have decided to reduce the 50p rate in 2013, if that is their decision; what it will cost; what the forgone income will be; and who will benefit. There should not just be internal discussions—the decision should be open to public scrutiny through the OBR.

I am grateful to my right hon. Friend the Member for Birkenhead for tabling amendment 30, which highlights an extremely important issue. Again, I wish to hear the Exchequer Secretary’s response today. I do not wish to steal my right hon. Friend’s thunder, but he will know that the Conservatives pledged in their manifesto to freeze public sector pay, but to exclude from that 1 million of the lowest-paid workers. It stated that they would

“freeze public sector pay for one year in 2011, excluding the one million lowest paid workers.”

Through great effort, he has used parliamentary questions to uncover the fact that that is not the case, and that the Conservative Government have yet again broken a promise in their election manifesto. I believe that he will make a strong case that we need some explanation from the Government of what they are doing about the impact on low pay of the public sector pay freeze that has been put in place.

My right hon. Friend will know that there are issues to consider about the applicability of his amendment to clause 1 and its workability, and indeed its fairness. However, he has highlighted an extremely important issue, and I want the Exchequer Secretary to explain why the Conservatives’ words about ensuring that low-paid workers were not disadvantaged have proved to be weasel words.

[Charlie Elphicke]

Is the right hon. Gentleman’s position and that of the official Opposition that they support amendment 30?

[Mr Hanson]

I have not yet heard what my right hon. Friend the Member for Birkenhead has to say about it, but the hon. Gentleman might be interested to know that we have discussions not just in the Chamber but outside it as party colleagues. My right hon. Friend will make his case in a moment, and I will listen to it and respond in due course. There are some issues that we need to consider, but it is not for me to respond to amendment 30; it is for the Exchequer Secretary to say why he has let down low-paid workers across the United Kingdom through his promises before the elections and his actions in the Budget. I look forward to hearing my right hon. Friend in short order.

My hon. Friend the Member for Hayes and Harlington has yet again tabled an amendment that has a great deal of merit. Although I do not expect it to be pushed to a vote, I want to hear what he says about it, because he has important points to make. The key point on all the amendments is that the Government need to provide clarity. We need clarity about what they are doing on the 50p tax rate and on low-paid workers, and on the points raised by my hon. Friend’s amendment. I look forward to hearing my hon. Friend, my right hon. Friend the Member for Birkenhead and the Exchequer Secretary in due course.

[Mr Frank Field (Birkenhead) (Lab)]

I shall not press amendment 30 to a Division tonight, because we will return to the subject in greater detail later in the Parliament. However, I want to address some questions to those on the Treasury Bench. I accept that there are problems with the amendment, but it was the only way that I could find to debate the matter in the House.

I wish to remind the Minister that in the Budget debate of 2010, the Chancellor said that

“the Government are asking the public sector to accept a two-year pay freeze, but we will protect the lowest paid…They will each receive a flat pay rise worth £250”—[Official Report, 22 June 2006; Vol. 512, c. 171.]

He said that the cut-off point would be not £18,000 but £21,000 a year, and he, not the Opposition, estimated that 1.7 million people would receive that pay increase.

A number of Opposition Members, including those who put their names to amendment 30, and many hon. Members, have constituents who believed what the Government said. They believed that they would be protected. The Chancellor’s announcement was a crucial part of protecting those workers, but it was also a crucial part of selling to the wider public the pay freeze that the Government announced. However, those people have so far received no £250 pay increase.

I should therefore like to ask the Minister two questions. First, of the 1.7 million whom not I, but the Chancellor, said would be eligible, how many have received the £250 across-the-board pay increase? Next year’s earnings figures show that the numbers eligible will rise to 2.2 million. Therefore, my second question for those on the Treasury Bench is this: how many of that 2.2 million will receive their £250 pay increase?

I conclude by merely trying to express, perhaps inadequately, a sense of how low-paid workers in my constituency feel. They feel that they have again been let down. The previous Labour Government did not do too well by that group, with the 10p tax rate abolition, and this Government have done not too well by them. Many are women coming up to retirement age who now learn that they must work two years more. They thought they would get £250 as a lump sum to protect them against rising prices and a general wage freeze, but many now find that no such increase is forthcoming. I would therefore be grateful if the Minister could give us answers to those two questions.

--- Later in debate ---

[Mr Gauke]

I have given way to the right hon. Gentleman on a number of occasions, and I think it is time to conclude.

I have explained why the assessment of the additional rate of income tax requested by my right hon. Friend the Chancellor must be prepared by Her Majesty’s Revenue and Customs. I have explained that the analysis the hon. Member for Hayes and Harlington seeks already exists, and I have explained why the Government’s approach to assisting the lowest-paid public workers is the right one. There is no need for these amendments, so I ask for them to be withdrawn.

[Mr Hanson]

What is clear is that my right hon. Friend the Member for Birkenhead (Mr Field) has exposed completely the fact that the Chancellor of the Exchequer promised one thing at the election and one thing in his Budget, and has not delivered on that promise completely. I know that we will return to that issue during the next few weeks and months.

On the issue of the Office for Budget Responsibility, I wish to press amendment 10 to a Division and I urge my right hon. and hon. Friends to support me in the Lobby.

Question put, That the amendment be made.