Finance Bill

Fiona Bruce Excerpts

Tuesday 6th September 2016 Commons Chamber

[Philip Boswell]

I must admit that I have sympathy with all who have reservations about any position taken in this Bill, given that, as my hon. Friend has said, it seeks to implement measures devised prior to the EU vote and therefore fails to provide for an economy that faces the harsh reality of Brexit. I am sure that we all look forward to the autumn or winter statement—whenever it will be—and the redress it will contain, imaginary or otherwise. We will then see, I presume, whether the new Chancellor is as good with imaginary numbers as the previous one was not.

The Federation of Small Businesses has raised serious concerns. It has highlighted that the changes are particularly acute for members of organisations who are on modest incomes. It has further submitted extensive evidence regarding member feedback on the proposed changes. A number of responses have highlighted concerns from the owners of small and microbusinesses that the changes may mean that they will not be able to continue to employ their small workforces.

In addition, evidence was submitted to the Committee by Jason Kitcat of Crunch Accounting, who has produced excellent work on the matter. I acknowledge that Mr Kitcat has been referenced several times in discussions about the proposed changes, but his analysis is significant and, as such, ought to be raised again. Crunch Accounting has highlighted how the changes as proposed hit lower-earning microbusinesses the hardest. The Government have stated that the changes in dividend income will be offset by planned future changes both to the way in which Her Majesty’s Revenue and Customs treats corporations and to personal allowances. However, Crunch has highlighted how those anticipated changes will not fully offset the impact of changes to HMRC’s treatment of dividend income for microbusinesses, as proposed by the Bill. In addition, Crunch has highlighted how measures cited by Ministers, such as changes to employment allowances and the annual investment allowance, are rarely available to microbusinesses, as they have little capital investment requirements.

I stress that the importance of small and medium-sized enterprises to the Scottish and UK economy cannot be overstated. There are few things on which I agree with the Prime Minister, but I do agree with her statement last month that

“small and medium sized businesses are the backbone of our country.”

I further welcome her indication in the same speech that she intends to listen to smaller firms. However, I am concerned that, despite that profession from the Prime Minister, the regressive changes to dividend income will not only disincentivise new SMEs from forming, but have the potential to cause existing microbusinesses to fail.

It is essential to note the number of SMEs that are categorised as microbusinesses. The UK is home to 5.2 million microbusinesses, which employ 8.4 million people. In Scotland, microbusinesses play an essential role in the economy. According to recent Scottish Government statistics, 99% of businesses in Scotland are categorised as SMEs, the vast majority of which are microbusinesses. Overall, microbusinesses comprise 81.5% of the businesses in Scotland. The figures are similar for the UK as a whole. According to House of Commons Library research in late 2015, 99% of businesses UK-wide are categorised as SMEs, 95% of which are microbusinesses.

Microbusinesses are essential and central to the functioning of both local and national economies. Given that microbusinesses make up the vast majority of businesses in Scotland and UK-wide, I find it absolutely staggering that HMRC does not make an assessment of microbusinesses as a separate group. Given the prevalence of microbusinesses throughout the economy, it does not seem on this matter as though the Government have listened to the concerns of smaller firms, despite last month’s proclamations from the Prime Minister.

When my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) introduced the original SNP amendment regarding the proposed changes to the way in which HMRC treats dividend income, the response he received to his concerns about microbusinesses was that

“the Government have considered the general economic impact of the changes…the measure is not expected to have any significant macroeconomic impacts.”––[Official Report, Finance Bill Public Bill Committee, 30 June 2016; c. 18.]

This statement taken alone is staggering, given that, as I have stated, 94% of businesses in the UK are categorised as microbusinesses. I fail to see how introducing a change that principally impacts microbusinesses would not be expected to have any significant macroeconomic impact.

The Minister stated in her introductory remarks that we do not yet know the impact of such legislation. I would like to highlight oral evidence given to a Committee of the other place on 8 February 2016 by Cerys MacDonald, the deputy director of personal tax at HMRC. When asked by the Chairman about the impact of these changes on microbusinesses, Ms MacDonald stated:

“I can assure the Committee that we recognise that the dividend tax changes will mean that a lot of people in owner-managed businesses are now paying a higher level of tax than previously, despite the benefit that they will see in the reduction of the corporate tax rate.”

Those two statements seem to me to be at variance with each other. Do the Government believe, as indicated by the Chief Secretary to the Treasury that the proposed changes to dividend income will not significantly impact on microbusinesses? Or do they believe, as indicated by Ms MacDonald of HMRC, that the changes will impact on owner-managed businesses, despite the planned future change to the corporate rate?

Given the uncertainty surrounding the inconsistent responses from Government, coupled with substantial evidence from the Federation of Small Businesses, Crunch Accounting and others, it seems as though the Government have not fully and comprehensively considered the impact of the proposed changes on small and microbusinesses—the backbone of our economy, as I am sure we all agree.

New clause 8 would require the Government to conduct a review of the impact of the changes on microbusinesses, including the impact on the failure rate of microbusinesses and the options for minimising the impact of the changes on directors who are on low incomes. I therefore advise hon. Members that we will press new clause 8 to a Division.

[Fiona Bruce (Congleton) (Con)]

I rise to support new clauses 2 and 3, the social justice arguments for which, in support of some of the most vulnerable individuals and families in our society, have been so eloquently and comprehensively set out by my hon. Friend the Member for Enfield, Southgate (Mr Burrowes) that, although I had prepared speeches on both new clauses, there is no need for me to take up the House’s time to echo what he has already said. I therefore simply put on record my full support for what he said, and I ask to be identified with his remarks.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I rise to support amendment 141, which is in my name and those of my hon. and right hon. Friends. I am extremely grateful to Mr Speaker for selecting my amendment, and I would also like to place on the record my thanks to the Public Bill Office, whose advice and help on the matter have been greatly appreciated by me and my office.

I hope that the amendment will find agreement on both sides of the House, and I hope that the Government will not oppose it. The amendment would establish a very small tax exemption for residual cash balances that remain in an employee share incentive plan when an employee leaves such a plan. A residual cash balance is a sum of money, insufficient on its own to buy a single share that month, which would usually be carried over to the next month but which has to be refunded if an employee leaves the scheme. I propose that that balance, capped at a maximum of £10, would instead be donated to charity. That would have the added advantage of reducing costly and burdensome processing by company payroll departments.

Share incentive plans are a good and tax-efficient way to save for the future, and many employees take them up. I believe we should encourage employee share ownership. When an employee leaves a share investment plan, there is commonly a cash residual amount remaining in the account; often, it is just a few pence or a few pounds. When the employee chooses to leave the plan—that is mandatory if the participant leaves the company’s employment—the cash residual can no longer be carried forward. Under the current system, any remaining cash held in the plan when the employee leaves the plan is required to be processed, via the employer’s payroll, to apply national insurance contributions and income tax via PAYE and to pay the net balance to the employee. This process typically costs between £2 and £9, but provides little benefit to the individual receiving such a small amount.

Furthermore, the benefit to the Exchequer is far less than the total cost to companies of administering these payments, with companies paying almost twice as much to process the payments as the Treasury actually receives. To put that into numbers for the ease of Members in the Chamber, it is estimated that the administration costs for companies are between £400,000 and £500,000, while the benefit to the Treasury is just £200,000. If amendment 141 was accepted, charities and good causes would benefit by about £360,000, on top of the savings that companies would make.

There is a precedent for such a change. There are already examples of situations in which HMRC has agreed to individual exemptions to share incentive plan providers, which are currently based on specific requests assessed case by case. There is an appetite for this change among share investment plan providers and HMRC. Amendment 141 would be only a very small change to this Bill compared with what it covers, but it is one that could bring benefits both to companies and to charities and good causes, while at the same time supporting share investment plans by removing a costly and bureaucratic part of the system. The amendment would also help to simplify the tax system and encourage more charitable giving, both of which are stated priorities for this Government and would be priorities for any Government.

I was very pleased and heartened yesterday when the Government accepted amendment 145 in the name of my right hon. Friend the Member for Don Valley (Caroline Flint). I sincerely hope that the Minister will accept this amendment and that we can achieve the same result today. If she does not say she will accept it, I will seek to divide the House, but I can genuinely see no reason why the Government would not want the amendment to be agreed to.

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[Jim Shannon (Strangford) (DUP)]

I commend all hon. Members who have made very valuable contributions, in particular the hon. Member for Enfield, Southgate (Mr Burrowes). He is no longer in his place, but I would like to speak to his presentation on new clause 3. He set out clearly where we stand.

I want to put on record again the consistent support of the Democratic Unionist party for the provision of the transferable allowance for married couples. I remember the hon. Member for Congleton (Fiona Bruce) and I taking some verbal attacks in this Chamber—mostly from the Opposition Benches, I have to say—for our stance on this issue, but we persevered and the Government persevered. I thank the Government for bringing in the provision in their previous term. I had hoped there would have been some indication that the Government could support new clause 3. I understand, after talking to the hon. Member for Enfield, Southgate, that he will not press it to a Division. If that is the case, we have to abide by that.

The sadness for me is that the Government have, until today, chosen to invest the lion’s share of their resources in their other income tax policy of raising the personal allowance. It is undoubtedly true that that policy helps poorer families, but it is very badly targeted. If I may say so in a respectful way, it seems to be targeted at those who can well afford it, as against those who cannot. I have to put on record that I have some concerns about that. The Institute for Fiscal Studies has demonstrated that 75% of the benefit—and now, as the allowance is being raised from £10,000 to £12,500, even more than 75% of the benefit—goes to those in the top half of the income distribution. That is what the available statistics and charts indicate and I have to say they are very stark. They indicate an imbalance in the system that, as the hon. Gentleman clearly stated, is a concern.

[Fiona Bruce]

There is another imbalance in the system. I do not know whether the hon. Gentleman is aware that the married couple’s allowance, which provides support to married couples where at least one spouse was born before April 1935, is worth £8,355 a year. Should we not also be looking at providing for those families with young children who are in the lowest socioeconomic bracket and supporting them similarly?

[Jim Shannon]

I could not agree more and I would like to make a comment on that later. New clause 3 clearly outlines the importance of that, but unfortunately we do not have the opportunity to support it today. I am sure the Minister, who knows I respect her greatly, will be able to respond to some of our concerns.

The IFS has demonstrated that, in contrast to the personal allowance, the transferable allowance results in 70% of the benefit going to those in the bottom half of the income distribution. The problem is that so far this has received only symbolic recognition. That has had two effects. First, the fundamental marriage accessibility challenge has not really been addressed, which is a massive issue given the impact on life chances of being brought up in a married home compared with a non-married home. Secondly, the very limited symbolic recognition has translated into low take-up. Given the distributional impact of the two tax policies and the impact of the transferable allowance on life chances, I have to say that if the Government are to have one symbolic policy and one substantive policy, they have got it the wrong way around. I say that with great respect. It would have been wiser to focus investment on the transferable allowance rather than redistribute billions to those in the top half of the income scale by raising personal allowances. I believe that we urgently need to change that. If the allowance cannot be made generally available to basic rate married couples, it should be focused, as the hon. Member for Congleton said, on families with children under five.

--- Later in debate ---

We—and when I say “we”, I mean this Government and this House—should focus on families with children aged five or under, because it is in that group that child poverty is growing right across the United Kingdom of Great Britain and Northern Ireland. I am greatly concerned about, because child poverty levels in my region of Northern Ireland are the highest—a fact that cannot be ignored. We must do something to address this issue.

[Fiona Bruce]

Is the hon. Gentleman aware that the highest levels of marriage breakdown occur when children are aged between nought and three? We are looking to support marriage at just that moment of greatest strain.

[Jim Shannon]

As always, the hon. Lady is wise in her interventions. I thank her for what she said, which underlines other important issues. If we can help at that critical time when the pressure is on, I believe that this House should do so. I hope that the Minister will do so, too, in her response.

The impact of the allowance on low-income households also needs to be addressed, as new clause 3 proposes. I hope we can do that at the right time. The new clause refers finally to

“ways in which the allowance could be changed to target low-income families with young children.”

Those points clearly illustrate for me what is necessary in this Bill, although the provisions may not be as hard and fast as I would like them to be.

Let me conclude; I am conscious of the time. In the longer term, there is a pressing need to adopt a more balanced approach to the resourcing of raising the personal allowance and increasing the transferable allowance. I fully support the transferable allowance and I would have hoped that the Government could commit themselves to it. Speaking as someone committed to progressive tax policy which targets those in the lower half of the income distribution scales rather than those in the top half, if the proposal means less money going to the personal allowance, in my judgment and, I believe, in the judgment of many in this House, that would be no bad thing.