Finance (No. 2) Bill

Gareth Thomas Excerpts

2nd reading: House of Commons
Monday 11th December 2017 Commons Chamber

[The Financial Secretary to the Treasury (Mel Stride)]

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

The Chancellor recently set out a bold and forward-looking autumn Budget. It reflected and responded to current circumstances, and it will build a Britain that is fit for the future. The UK economy has shown great resilience. Our GDP growth has remained solid, continuing for more than 19 quarters. Employment has risen by 3 million since 2010 and is close to a record high, while unemployment is at its lowest rate since 1975. Those employment trends are not being felt only in the south-east. Indeed, since 2010, 75% of the fall in unemployment has occurred elsewhere, and the biggest falls in the unemployment rate took place in Yorkshire and Humber, and in Wales.

The deficit has been reduced by three quarters from 9.9% of GDP in 2009-10—that figure was a shocking indictment of the last Labour Government—to 2.3% of GDP in 2016-17. In the coming years, borrowing is set to fall even further, reaching 1.1% of GDP in 2022-23, which will be the lowest level since 2001-02. However, at 86.5% of GDP, public debt is still too high and productivity growth remains subdued. This Budget therefore balanced short-term action with long-term investment, while rightly sticking to the principles of social responsibility that will continue to improve the health of our public finances, with our debt due to start falling from next year.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Given the recent terrorist attacks in this country and the fact that senior officers say that more funding is needed for community policing to help to tackle the risk of more terrorist attacks, will the Financial Secretary tell the House why there was no additional funding for policing in the Budget?

[Mel Stride]

As the hon. Gentleman will know, we made sufficient provision for policing prior to the Budget. We recognise the challenges that the police face, but I gently say to him that to secure our vital public services, including the police, the most important thing is that we have a responsible approach to bringing down the deficit and getting the public finances under control. Having looked at the proposals put forward by his party, I have my doubts that that would be the case were he in government.

It is sensible that all this is underpinned by the tax policies contained in the Finance Bill. The Bill is a mere 184 pages—under a third of the length of the previous Bill. Its length is partly the consequence of the Government’s move to a single annual fiscal event. In this transitional year, with less time than normal between Budgets, there is less legislation in process, which should prove some welcome respite for me, as I do not think that there are many Financial Secretaries who have presented two Finance Bills to the House within their first six months in post. The Bill’s size also reflects the Government’s serious commitment not to overburden people or to overcomplicate the tax system. It is a crucial plank in the Government’s legislative programme that will help young people to buy their first homes, improve UK productivity, and further the Government’s already excellent track record of cracking down on avoidance and evasion.

The Government support the aspiration of home ownership and are particularly committed to helping young people on to the property ladder. The Government’s package on housing that was set out at the Budget will boost housing supply and address the problem of affordability. In this critical endeavour, the tax system should not act as a barrier. First-time buyers are usually more cash-constrained than other purchasers, so to help these people—typically younger people—to get on to the property ladder, the Bill permanently scraps stamp duty for first-time buyers purchasing properties worth up to £300,000. Buyers will save nearly £1,700 on an average first-time buyer property, and those buying a house worth £300,000 to £500,000 will pay the existing 5% marginal rate of stamp duty only on the portion above £300,000. In doing so, they will make a saving of £5,000. This means that 80% of first-time buyers will not pay stamp duty at all, while 95% of all first-time buyers who pay stamp duty will benefit from the changes. Over the next five years, the relief will help more than 1 million first-time buyers to get on to the property ladder.

The joy of home ownership will be greatly diminished if, at the same time, we do not protect and preserve the environment in which we all live. Therefore, as a response to the Government’s national air quality plan that was published in July, the Bill establishes measures to improve air quality through the taxation of highly pollutant diesel cars. Diesel vehicles—even new ones—are a significant source of emissions. A test of the 50 best-selling diesel cars in 2016 found that on average they emitted over six times more nitrogen oxides in real-world driving than is permissible under current emissions standards.

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[Mel Stride]

I am gratified by the hon. Lady’s confidence in Ministers making commercial judgments in respect of our banks and businesses, but it is far better to allow those businesses to take sensible commercial decisions, even though those sometimes have consequences that, in an ideal world, we would not wish to see. I go back to the point I made to the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone): we need RBS to improve its strength, grow, employ more people and, ultimately, pay more tax to support our vital public services.

[Gareth Thomas]

I am grateful to the Minister for giving way to me a second time. May I just remind him of the Competition and Markets Authority investigation into banking, which noted the lack of competition in banking and highlighted the lack of innovation and the fact that the big five banks control 85% of the retail banking market and make excess profits? Might keeping the bank levy at its current rate not be compensation to the consumer and the taxpayer for those excess profits?

[Mel Stride]

At the heart of the hon. Gentleman’s point rests the notion, which I agree with, that we expect the banks to pay their fair share and recognise that they received bail-outs some years ago, and tax policy towards the banks has been geared towards making sure that they make a fair and proportionate contribution to our tax take.

The hon. Gentleman mentioned the importance of competition in the banking sector, and I wholeheartedly agree with him on that, which is one reason why we are keen to ensure that as many banks as possible are headquartered in our jurisdiction rather than in others. That goes to the heart of the changes in the Bill to ensure that banks domiciled here are not penalised by being charged on capital assets held overseas—a situation that does not pertain to overseas banks that operate in our jurisdiction.

We have included an 8% surcharge on banks’ profits over £25 million. The package will help to sustain tax revenues from the banking sector in the long term, and it is forecast to raise an additional £4.6 billion over the current scorecard period.

The Bill continues the Government’s already vigorous efforts to crack down on tax avoidance, tax evasion and non-compliance. Since 2010, the Government have introduced over 100 avoidance and evasion measures, securing and protecting over £160 billion of additional tax revenue. This has helped reduce the UK’s tax gap to a record low of 6%, which is one of the lowest in the world.

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[Peter Dowd]

The hon. Gentleman is right. The only people to whom the Government seem to pay attention are the DUP and right-wing Tories.

The bottom line is that, since 2010, HMRC’s staffing levels have been reduced by 17%. The Bill creates even more powers for revenue and customs officers, with even more work, but very little if any resource to go with it.

[Gareth Thomas]

I know that my hon. Friend is a proud Liverpudlian, but on his point about children’s services, may I tell him—Londoners will agree—that over two thirds of London councils are reporting a huge increase in demand for very expensive placements? I hope he agrees that it would be good to hear from the Exchequer Secretary, when he winds up the debate, how the Government will help local authorities—particularly those in London, but also others across the country—to deal with that huge increase in the pressure on children’s services.

[Peter Dowd]

I say to my hon. Friend that—to use an old phrase—he should not hold his breath.

The Government need to wake up and face the cold, hard reality that the Exchequer is losing billions every year and letting multinationals, which do not pay their fair share, off the hook because HMRC simply does not have the resources.

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[Mel Stride]

The hon. Gentleman is being very generous in accepting interventions. From what I can understand, every time the shadow Chief Secretary is asked a question about what Labour promises and pledges will cost, he reverts to saying that people can go and look it up: they can dig into the documents and get on the internet. Equally, he is saying that the public are shifting his way. Is his message to the electorate to get on the internet and to look at his policies in order to understand them?

[Gareth Thomas]

Speech!

[Madam Deputy Speaker (Mrs Eleanor Laing)]

Order.

[Gareth Thomas]

I beg your pardon, Madam Deputy Speaker.

[Madam Deputy Speaker]

I am very pleased that the hon. Gentleman—from a sedentary position, which he is not allowed to do—has apologised. If the Minister was making an intervention that was too long, I would stop him so doing. I have allowed the hon. Gentleman and several other Members to make fairly long interventions because I thought we were having a meaningful debate, but we will not have shouting from a sedentary position. I will allow the Minister to finish his intervention.

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[Gareth Thomas (Harrow West) (Lab/Co-op)]

It was interesting to listen to the hon. Member for Ayr, Carrick and Cumnock (Bill Grant), not least because of his reference to that great Scot and great Brit Sir Alexander Fleming. If I remember rightly, he did his pioneering work on penicillin at what is now St Mary’s hospital in London. I raise that point to gently chide the hon. Gentleman about the funding crisis in the national health service, particularly in London, which has led Lord Kerslake, following a distinguished career in public service, to resign from his position chairing a key NHS trust.

I commend my hon. Friend the Member for Bootle (Peter Dowd) for his speech, but I want to make two different, broad points about the productivity challenge facing our country, and to propose some additional solutions that I hope the House will consider incorporating in the Bill. I also want to make a brief point about credit unions and, finally, press for further measures in the Bill to fund more investment in public services, not least policing.

The OBR’s devastating indictment of seven years of underinvestment and austerity and the prospect of many more such years to come was the real headline of the Budget. Productivity gains across all parts of the UK would mean higher wages and higher living standards, so if the OBR is right and productivity is to remain stagnant, the personal finances of too many people in our country will remain grim for the foreseeable future. We are already more than 15% less productive than the rest of the G7, Greece is the only developed country where real pay has fallen further, and the UK has now slumped to fifth in the G7 table for productivity.

To be fair, the Government at least acknowledge that there is a problem, but their solutions largely ignore, first, how to motivate employees, who are fundamental to productivity improvement, and, secondly, the growing concentration of power in key markets in the hands of a small number of very big companies, which stifles the innovation that is fundamental to productivity improvement.

Let me give some context for those two broad points. The average UK worker has not had a real-terms pay rise since 2006. Zero-hours contracts and bogus, Uber-style self-employment are creating an economy in which work is transient and precarious. Too often there are simply not incentives for a business to invest in its staff, and if there is no guarantee of work tomorrow there is not enough incentive, or indeed time, for staff to go the extra mile for the business they are with.

[Rachel Maclean]

The hon. Gentleman is talking about zero-hours contracts. Does he therefore welcome the work we have done in the Select Committee on Business, Energy and Industrial Strategy, chaired by his colleague the hon. Member for Leeds West (Rachel Reeves), looking at the Taylor review and making sure that, where there are zero-hours contracts, they are fair and are a mechanism of choice for a worker rather than being forced on them?

[Gareth Thomas]

I would always commend the work of a Committee chaired by my hon. Friend the Member for Leeds West (Rachel Reeves), and if the hon. Lady agrees with my hon. Friend, I welcome that. I commend the Government for setting up the Taylor review in the first place, but we clearly need radical measures to tackle the problem that it identified.

The context to my second broad point is that in all but a handful of cases, the major players in markets—particularly markets where there are fewer businesses operating—are plcs, owned by shareholders in the UK and abroad. Too often regulators treat this business form as the default, whereas in other European countries markets have a mix of plcs, publicly owned businesses, co-operatives, mutuals and social sector firms.

How might the Government use this Finance Bill to rectify those two broad problems? First, I hope that Ministers will find the courage to recognise that if productivity is to improve, workers and staff will have to drive that change. Basic measures such as a significantly higher living wage are essential, as is creating disincentives for businesses to opt for Uber-style employment practices. At the moment, there is too often too little incentive for the employee to go the extra mile, as they are unlikely to benefit directly from the extra profits that innovation and higher productivity might deliver.

This Finance Bill could have been the moment for that to change, and indeed even at this late stage I hope it will be, so let me offer the Minister the example of France, where businesses with 50 employees or more have to set aside 5% of their profits as a reward for their staff. If those who are helping to generate profits know they are going to share in them—if they know it is not just the chief executive and the rest of the executive team who are going to benefit—their motivation and commitment to helping the business prosper might just be a little stronger.

I was interested in the comments of the hon. Member for North West Hampshire (Kit Malthouse)—who, sadly, is no longer in his place—because I share his view that businesses in which employees have a say and a stake tend to be more productive; they tend to be better at incentivising their staff and channelling workers’ ideas and talents. Indeed, a 2007 Treasury review found that employee ownership can boost productivity by as much as 2.5% over the long run. So, as the hon. Gentleman asked, why are there no further tax incentives to encourage genuine employee share ownership?

The Government should revisit the idea of compulsory employee representatives on company boards, mirroring the success of Germany and Sweden, where employees have sat on boards for decades. Given that the idea was in the Prime Minister’s personal manifesto when she ran for leader of the Conservative party and that a significant number of Conservative MPs backed that manifesto, and given that we on the Opposition Benches support employee representation on boards, I suggest that there is a majority in the House willing to vote for such a measure if only the Government could find the courage to act. Why not, at the very least, have more favourable tax treatment for firms that are employee-owned? The hon. Gentleman also touched on that point extremely well.

Ministers must also overhaul the regulation of markets and recognise that key markets have become too uncompetitive and, in a number of cases, oligopolistic. This Bill could have begun the process of changing that. Let me give two examples. Banking and energy have both had highly critical regulator investigations, noting the lack of innovation and the excess profits in crucial consumer markets. Where is the commitment to create diverse and vibrant markets in those areas, with the plc model no longer favoured over other business forms such as building societies, mutuals and co-operatives? I suspect that regulators know that there simply is not the political will on the Treasury Bench to confront the Institute of Directors’ insistence that big plc businesses know best.

The Social Market Foundation is not necessarily a think-tank that we on these Benches would reach for first when it publishes a report, but it has recently produced an interesting interim report on the lack of competition in key markets. The Innogy/SSE merger is just the latest example in the energy sector of the trend towards even more uncompetitive markets. If it goes ahead, it will lead to two big firms dominating the energy market. It should be blocked by the competition authorities, and it would be good to see Ministers encouraging that to happen. We also need a new generation of energy co-operatives, mutuals and municipal businesses encouraged to put consumers in the driving seat in the energy market, holding real economic power in that market, and keeping the profit from the generation of energy in local communities.

In many industries there are, in theory, ombudsman services, able to support consumers to seek redress from large businesses offering poor customer service. In practice, such ombudsman services often have limited powers and limited ability to enforce any redress they suggest. What is needed now is a proper champion for consumers, with the teeth to hold businesses to account. A consumer ombudsman with class-action powers and the information-gathering ability to match has always been opposed by big business groups in this country, but it is needed to help the consumer stand up to powerful big businesses when their concerns are ignored.

I draw the Committee’s attention to the case of the consumers taking action against Bovis Homes for shoddy building work, which has recently attracted some media attention; they are having to crowdfund the funding for court action. If there was a strong consumer ombudsman, those people who have moved into Bovis homes that are badly in need of further work would not be having to raise their own funds; instead, they could have turned to that ombudsman to take their case forward.

The truth is that markets need robust competition, and big plc businesses need strong challenges from other types of business. When 85% of all current accounts are held in just five big banks, of course it is no surprise that the regulator should find that there is not enough innovation in the retail banking sector. I therefore gently ask Ministers why they are committed to a long-term future for RBS as just another private sector bank. Why not turn it into a mutual, or a new building society, to challenge what would then be just four privately owned plc-style businesses?

Why are we not learning from the USA and Germany in encouraging more regional, mutually owned savings and investment banks that are focused on driving long-term investment—perhaps the patient capital that the hon. Member for North West Hampshire referred to—rather than on short-term dividends for shareholders, which are then used to justify ever-higher levels of executive pay? With sub-prime lending on the rise, and with the UK having the largest and fastest-growing consumer credit market in Europe—mostly, sadly, in high-cost options—it is difficult to understand why Ministers and regulators alike do so little to champion responsible finance operators such as community banks and credit unions.

On the point about credit unions, I welcome the limited moves in the Budget to help credit unions to expand, but I wonder why Ministers are not considering a wider package of reforms of the objectives and powers of credit unions, to allow for more innovation in services and in particular to enable them to provide a full retail banking offer, including in areas such as insurance and secured car lending. Why is there not more help for credit unions to market their low-cost credit offer to ordinary working people? If the Treasury were minded to take such action, that would bring UK credit union legislation into line with best practice in America, Canada and Australia. As the balance within the financial markets shifts farther and farther away from unsecured personal loans and cash savings, credit unions need the freedom to be able to rework their offer, and, as I understand it, legislation would be necessary to enable that to happen. I therefore encourage the Minister and his colleagues to consider that question sympathetically.

Lastly, I want to raise the issue of funding for public services. Sadly, there was no mention in the Budget of extra resources for policing. In my London borough, we have seen a reduction of 170 police officers since 2010. The recent terrorist incidents, which the whole House is familiar with, and the concerns of senior police officers that more resources need to be put into community policing—to ensure, among other things, that intelligence can be obtained about future attacks—should surely have prompted the Treasury to make additional funding available for policing.

[Stephen Lloyd]

Does the hon. Gentleman share my disappointment that the armed services were not even mentioned in the Budget, either generally or in relation to the pay and salary of their staff?

[Gareth Thomas]

The hon. Gentleman makes his point well, and I agree with him. He also made a point earlier that many Members have raised before, when he expressed disappointment at the paltry level of additional funding for schools. Similarly, we have heard about the scale of cuts to local authorities such as Harrow, which has lost some £83 million over the past four years. The council is facing huge difficulties in meeting the demand for increased children’s services, for housing people who are homeless and for meeting the growing social care challenge in our borough. Even at this late stage, I encourage Conservative Members to press Ministers for more investment in public services. Brutally, this was a grim Budget, and the Bill holds out no hope for anything better.

[Several hon. Members rose—]