Finance Bill

Drew Hendry Excerpts

Committee of the whole House
Wednesday 10th January 2024 Commons Chamber

[The Chairman of Ways and Means (Dame Eleanor Laing)]

I call the SNP spokesperson.

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

I am only going to make some brief remarks on the two clauses. The UK Government are clearly scrambling to fix an economic mess of their own making, and the Bill is full of such measures.

On clause 1, during the autumn statement I welcomed this move, but it does little to deal with the damage to business that has been caused by the big grey elephant in the room that none of the parties wishes to mention, which is Brexit. Far from the ideal of removing red tape and decreasing bureaucracy, as we have heard thrown about in this Chamber, it has actually led to more red tape and more difficulties for business. This is just one of the measures the Government should be taking, among many others they must consider in future. I hope to come to those later in the debate.

The “years of uncertainty” that the hon. Member for Ealing North (James Murray) mentioned have indeed been years of uncertainty caused by this Government, but they have definitely been impacted by the Brexit that Labour now supports, along with the Liberal Democrats. People are struggling with a cost of living crisis, and it is affecting domestic sales too, so they need other fixes. Again, I will have some questions about that later.

Clause 2 and schedule 1—I hope this will be helpful for the Minister—are like trying to make a jigsaw puzzle with no box, no picture and just some random bits and pieces to try to plug together to make something out of. Productivity does not work without the skills required in research and development. We do not get the advance or the boost we need without that and, once again, the spectre of Brexit means that we have a skills shortage across the nations of the UK. That is particularly affecting Scotland, which needs its own immigration rules. It is something we would ask to have powers over, short of our call—it would of course be the absolute best result—for Scotland to have independence so it can make these decisions itself.

[Nigel Mills]

It is a pleasure to speak in this debate. I want to direct my remarks to clause 1, on permanent full expensing for the purchase of plant and machinery, which I discussed during the autumn statement and on Second Reading.

This is actually quite a radical and expensive policy. We have, probably for longer than all our lifetimes, given companies relief for capital expenditure using capital allowances. That was originally quite a generous 25% in the first year—I suspect that most plant and machinery had a longer life than that when the rules were produced. We have chosen to do that for all these years, rather than just letting a business deduct its own accounting calculation of depreciation, because we did not want the manipulation of tax deductions by businesses doing their tax returns. We chose to do it this way.

The tool that Governments of all colours for decades have had when the economy hits trouble is to give first-year allowances and various enhancements. I remember a 40% first-year allowance and a 50% first-year allowance. We have had full expensing up to £1 million, as the shadow Minister referred to. That has been the way of incentivising investment in a period of economic recovery for probably as long back as there has been a toolkit.

Now we have landed on permanent full expensing, so businesses get full relief on plant and machinery spend in the first year. What are the Government expecting to happen differently here? Are we expecting capital investment by businesses of more than £1 million a year that otherwise would not be economically viable and would never have happened? Are we expecting investment to be brought forward and to take place earlier than it otherwise would have? That would be entirely welcome and would probably modernise businesses, protect jobs and give them a chance to grow in a way that they perhaps would not have had, which is not a bad policy aim at all. Or are we just giving business an earlier tax relief than they otherwise would have had, whereby they bank that and are happy but it does not change behaviour?

It is hard to get behind the numbers on this measure in the Green Book. As I said earlier, the estimate at the end of the five-year period, and probably the first full year that making this permanent will make a difference, is a tax cost of £10.9 billion just for this measure. If we run the numbers, bearing in mind that businesses will already have had 25% tax relief on that same expenditure in that year, that means we expect a £55 billion higher claim to get tax relief in that financial year than otherwise would have happened. However, the Minister said that only £3 billion of that is estimated by the OBR to be additional investment that would not otherwise have taken place at some point. It suggests that we have a lot of investment being brought forward with a lot of more generous tax relief that would have happened anyway. Will the Minister explain what the Government are aiming to achieve and what is being forecast? Is the OBR being unduly cautious? That would enable us to understand how we judge whether the measure has been successful.

Are we expecting to see whole loads of investment in plant and machinery that never would have been viable before, or are we expecting to see it brought forward? If what we are getting is brought forward, at some time the cost should start to taper down, because this is not a new tax relief that businesses would not have already had; it is just an acceleration of tax relief and businesses will pay more tax in all subsequent years, because they are not getting the relief they used to get. The measure could cost £11 billion in the first year and gradually that would level down and in the fullness of time there would be no more annual cost, in effect. Can the Minister clarify that?

It is not immediately clear how the Government plan to assess whether the measure has worked or is working. I assume that from electronic corporate tax returns we can track down to the pound the amount of investment claimed for full expense relief every year. We could have a report within six months of the end of a calendar year on how much of these 100% allowances has been claimed and compare that with the total amount claimed for capital allowances in whichever preceding years we like. We could see whether full expensing was driving behaviour change. Will the Minister talk us through what he expects to happen and how he will assess whether this has been an effective way of boosting productivity and increasing investment for £11 billion a year? It is probably one of the most sizeable line entries we have seen in a Finance Bill in my 14 years here. Normally we expect the big number to be a tax cut for individuals, and this measure is significant.

As we are making this measure a permanent feature of our tax system, it shines a light on what we are trying to get from our corporation tax system. There will not be any kind of compliance saving. The Minister made a brave attempt at saying there might, but effectively all that will change is that the number that a business currently puts in its additions to its writing down allowance pool will now be put in the 100% first-year claim box. It is the same number in a different box; that is the only compliance change we have here. It throws into question some previous policy decisions we have made, because for a business to get full benefit from this, it needs to be paying enough tax to use the full relief in that first year.

If a business cannot use the full relief, the incentives are not as powerful as they would otherwise be, because then the option is effectively to carry that excess deduction forward, but we introduced rules a few years ago that are strict on how many losses a business can use in a year. If we really think that giving people the earliest possible cash tax benefit for capital investment drives investment, we should probably take away that restriction on using losses, so that businesses can get the benefit as early as possible and not have it spread over a number of years going forward. Will the Minister explain whether the Government will look at that and make sure we are not accidentally undoing some of the benefit we are seeking to get?

My second question is: what do we do with the legacy writing down allowance pool that relates to plant and machinery expenditure for God knows how many past years? On a reducing balance basis of 25%, it takes many, many years to get full tax relief for expenditure, so every business will have a large pot of money that it has not yet had tax benefit for. Are we expecting them to run that down at 25% reducing balance a year and still be doing so in 23 years’ time, by which point no one will have any idea what on earth that balance ever was? Or should we say, “That is a bit of a nonsense. Why do we not just let you take the whole balance at 20% a year over the next five years and finish that problem off, because we do not need to be focusing on that?”? We could find any number we like there, but it would draw a line under that past expenditure in a way that genuinely simplifies things.

We then have the question of, “What do we do with capital expenditure on items that are not plant and machinery?” The tax relief we give on structures and buildings is not generous, but if we are trying to drive an increase in productivity and large businesses to invest in new gigafactories to build batteries for electric cars or for electricity storage or whatever, do we not want to incentivise them to build the factory building as well, rather than either giving them no relief or giving it over a long time? If we are spending £11 billion a year to encourage investment in plant and machinery, should we not spend a little money on trying to encourage other things that are key for industrial investment to take place, by being a bit more generous on buildings and structures? Has the Minister any thoughts on that?

The Government did a capital allowances review only a year or two ago, which did not look at permanent full expensing as one of the options, but it would be interesting to see whether they have had any further thoughts on that. We are now asking every business to go through and track every item of capital that they spend and treat it differently in their tax return from how they treat it in their accounting records. Then we have all manner of different laws depending on whether it is a long-life asset, a short-life asset, a car or an environmentally friendly car—I could go on. For the amount now at stake, and given that we have given full relief for plant and machinery, which is the biggest amount, do we really need all that cost and complexity? Or should we just say for all those other items, “You can just have your accounting calculation”? Okay, businesses might take it a bit quicker than we would like, but in actual fact the cost of that is not all that material in the grand scheme of things.

We could move to a system where the only adjustment someone has to make to their tax return is to claim a very generous tax relief on plant and machinery, and they would not have to touch anything else. That would be a more coherent corporation tax regime, now that we have spent all this money incentivising plant and machinery. It would then genuinely be a compliance saving for a business in that situation.

I support the measure and truly hope that it works, but, as a significant amount is being spent, it would be helpful to understand what we are trying to achieve and how we will know whether we have been successful. I hope that the Government will move on to think about how we can slightly recast our tax system so that it makes sense, having made this radical and generous change.

--- Later in debate ---

[Sir Mike Penning (Hemel Hempstead) (Con)]

It is a pleasure to have sat through the Committee stage of the Bill and to hear the Government talk about the advantages we have from Brexit. I am pleased to hear that the Government have looked, and continue to look, extensively at the taxation system—in particular at the interpretation of VAT, as mentioned in this clause.

One interpretation of VAT in this country massively affects people who are visually impaired and those who cannot read, perhaps because of dyslexia: there is no VAT on books, but the Treasury apply VAT at 5% to audiobooks. If that interpretation of VAT is to be taken as far as it possibly can, I am disappointed that disabled people are not being protected within the structure of the Bill, in the way that they have been for many years.

Years ago, when I was disabilities Minister, I was told that VAT changes could not happen because we were in the EU. We are no longer in the EU and we can set our VAT rates as we would like. It would be fundamentally good if the Government came forward with an interpretation of VAT that said that people who rely on audiobooks, through no fault of their own, do not have to be penalised by VAT at 5%. I am not talking only about the visually impaired—I declare an interest: I am dyslexic and rely on audiobooks, although not completely. People who do not read Braille are being punished as well.

The Government continue to look at new taxation rules and new ways of making sure that people do not get around the taxation system, and it is clear that they are looking at the implementation of VAT. What better spring present for those who rely on audiobooks than for the Minister to say that he will meet me, talk about the issue further and perhaps look at the early-day motion in my name?

[Drew Hendry]

The technical changes in clauses 25 and 27 open up a lot of questions. I agree with the Labour Front Bench spokespeople that there are many questions on operation that still have to be answered, but there are wider questions about both these clauses, inspired by their context. Before I get to them, I want to point out that this Finance Bill is a stark reminder that the Westminster Government never reflect the values of the people of Scotland. We need independence so that we can build a fair and dynamic economy that works for everyone. People are suffering through the bitterest cost of living crisis. The provisions set out in the Finance Bill are nowhere near enough to help households in Scotland, which have been left paying the price for disastrous decisions by Westminster Governments—not least the harm of Brexit. There is no help for families struggling with rocketing food prices, and no help for mortgage payers, many of whom are now seeing huge increases in their fixed-rate deals.

--- Later in debate ---

[Patrick Grady (Glasgow North) (SNP)]

Is this not the problem? If we do not invest in people’s health and wellbeing, in the long term it will cost the NHS, social services and the Department for Work and Pensions even more to support people as they continue to spiral down. Does that not contrast with the preventive approach that the Scottish Government take, with such innovations as the baby box and the child payment?

[Drew Hendry]

My hon. Friend is right: the on-costs of not doing so lead to further problems, and to higher costs not only to the public purse but to the mental and physical wellbeing of those who are impacted by the cost of living crisis.

These major fiscal events serve as a tangible example of the total mismatch between the values of the UK Government and the people of Scotland. The things that the UK Government choose to spend money on and the tax measures that they have chosen to leave out of the Bill, such as abolishing non-dom status, are a clear reminder of that. It is abhorrent that at the same time as announcing cruel measures to force ill and disabled people into work, the UK Government did not include any provisions on making the tax system fairer. There are countless examples of the UK Government wasting money and then attempting to claw back the funds by targeting groups who are the least well off. The return to draconian measures forced on ill and disabled people is just the latest example. The stark difference between the Bill and the Scottish Government’s Budget, which prioritises ensuring that everyone in Scotland can have a decent standard of living, is a timely reminder of why we need independence.

The SNP believes that building a strong economy starts with giving people a decent standard of living, and our most recent Budget reflected that, as my hon. Friend the Member for Glasgow North (Patrick Grady) mentioned. The Scottish Government’s Budget reflects the people of Scotland’s shared values and speaks to the kind of Scotland that we want to be. It is important to remember that the Scottish Government have achieved that against the backdrop of their very limited ability to raise additional revenue through taxes, and having to work largely with a fixed budget. Despite those very difficult circumstances, the Scottish Government have once again shown their commitment to protecting the NHS from strikes, as well as investing in it and shielding the most vulnerable people, as far as possible, from the impact of regressive Westminster policies.

While the Tories have just delivered a 3% real-terms cut to England’s NHS in their autumn statement, the Scottish Government announced an increase to the frontline NHS budget in real terms. They also remain committed to helping those most impacted by the cost of living crisis. In their Budget last month, the Scottish Government increased the game-changing Scottish child payment in line with inflation to £26.70 a week, giving more support to the more than 323,000 under-16s who receive it. They maintained their commitment to invest £1 billion over the course of this Parliament to tackle the poverty-related attainment gap, with £200 million to be distributed in 2024-25. They are committed to funding the £12-per-hour real living wage for adult and child social care, and early learning and childcare workers in the private, voluntary and independent sectors that deliver funded provision. They have helped households through the cost of living crisis by making available an additional £144 million of funding to councils that agree to fully fund a council tax freeze in 2024-25—the funding equivalent of supporting a 5% increase. Those are just the latest measures the Scottish Government have taken to promote equality.

The Scottish Government have of course introduced landmark policies to ensure that everyone in Scotland has access to a decent standard of living. If Westminster was in charge, Scotland would lose things like free university tuition, free school meals, free period products, free bus travel for under-22s and free childcare for three and four-year-olds, as well as eligible two-year-olds. All that is possible because the Scottish Government take a different approach to a Budget than this place, and we need to ensure that we can do that in a much more effective way through the powers of independence.