Finance Bill

George Kerevan Excerpts

Monday 26th October 2015 Commons Chamber

[Sammy Wilson]

I accept that the provisions would not be retrospective. Nevertheless, older cars tend to more polluting and would therefore, under the new clause, carry the higher rates of duty.

The second argument that has been made is about the sale of low-emission cars, whereby it is said that the duty that will be imposed, which is a small percentage of the cost of a new car, will distort the market or dissuade people from purchasing one. When people are purchasing a new car, whether it is a hybrid car or a low-polluting car, the last thing on their minds when deciding to lay out £20,000, £25,000 or £30,000 will be whether they will pay a couple of hundred pounds in vehicle excise duty. It is argued that this will hurt the car market and the emerging market for more energy-efficient cars, but the price elasticity of such cars, or their running cost, is unlikely to impact on the demand for them.

I think the Government have got the balance right on this one. Yes, we do have to consider the detrimental impact of emissions that come from cars, and there should be a tax on that, but we must also recognise that a vehicle is very important for most families across the United Kingdom. As lower-income families tend to have older cars, a regime that ramps up tax payments according to the car’s age and emissions would be unfair. The proposal in the Bill is therefore acceptable.

I have a question that the Minister did not give a clear answer to, and I hope he will do so when he sums up. On the road fund that is being proposed as a result of the money that is collected, given that infrastructure developments are devolved issues in Northern Ireland, Scotland and Wales, it will be important to know how exactly that fund will be allocated. Will there be separate accounting for the tax that is collected in each of the areas? Will it be done on the basis of Barnett consequentials or will some other regime be put in place? It is important that we know that, because if this is to be one of the ways in which infrastructure developments are to be financed in future, there needs to be certainty for devolved Administrations as to what money is likely to be coming their way and how it will be calculated.

[George Kerevan (East Lothian) (SNP)]

I want to make a brief contribution on new clause 3. The Minister, elegantly as he does, fobbed us off by saying, “We’re having a consultation and so on, but meanwhile we’ll press on regardless.” However, there is still a major issue regarding a potential tax loophole that has not been closed.

I accept that fund managers are remunerated on two different and distinct levels: they are paid for the work they do as investment managers and also receive a reward for hazarding their own capital. I also accept that there is a gain in having fund managers hazard some of their own capital, perhaps more so than they do at the moment. Unfortunately, though, if we charge very different marginal rates on the income component and on the hazarding their own money component, we will create the capacity for a loophole in paying the lower tax on the capital gain and less on the income.

It does not matter what short-term changes the Minister makes to try to prevent existing ways in which hedge funds allow the personal investment component of the investment to be organised, because people will just think up new ones. We have to close the loophole at source. The obvious way to do that would be to go back to a previous situation in which income tax and capital gains tax were charged at the same marginal rate.

Unfortunately, for the past several decades we have proceeded down a road of constantly cutting taxes on capital. I think there was a case in the 1990s for cutting marginal rates of tax on capital, because it was a difficult economic period and we had to encourage investment, but the Government have transformed that into an ideological demand that we always go on cutting taxes. Indeed, one of the core philosophies of the Finance Bill is to cut corporation tax even more, despite the fact that, on both a UK and a global level, we have pyramided up corporate surpluses, which are not being used. The current problem is not to find more loose capital, but to find fiscal incentives to make the owners of capital invest it.

The inherent philosophical problem with which the Government present us in the Bill is the imbalance created when marginal rates of taxation on capital are pushed lower and lower while significant taxes on labour are not reduced effectively and significantly. Our new clause 3 is specifically designed to force the Government to respond to the philosophical principle that the loophole should not be created in the first place. I do not think that the Minister has answered that effectively, which is why we will press new clause 3 to a vote.

[Mr Gauke]

Let me respond to what has been an eclectic debate. I welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to the Dispatch Box for her debut. I echo the comments of my right hon. Friend the Member for Cities of London and Westminster (Mark Field) and wish her a long and successful career speaking from the Opposition Dispatch Box. I am sure she will be something of a star of the Labour Opposition Front Bench for years to come.

The hon. Lady said that the explanatory notes were only made available this morning, but I understand that they have been available on the gov.uk website since Thursday 22 October, which was the day after the amendments and new clauses were tabled. If she has any contrary information, I will happily look at it.

The hon. Lady touched briefly on the compound interest charge and asked me to respond to hostile comments from business. The measure is being introduced to ensure that a fair amount of corporation tax is paid and that any awards of restitution interest are paid by Her Majesty’s Revenue and Customs. We are setting the special rate to reflect the unique circumstances of the claims. It will affect only a relatively small number of companies—about 0.5% of those submitting corporation tax returns in relation to specific payments—and it will not affect the benefit given by the historically low rates of corporation tax on the trading and investment profits they currently make. It will ensure that relatively few do not gain a significant additional benefit at the expense of the public purse.

Let me turn to the lengthier debate we have had about reforms of vehicle excise duty. The hon. Lady raised a concern that they may damage UK car manufacturing and penalise cars built in the United Kingdom. We are not doing that. The supplement will apply to all cars worth more than £40,000, regardless of where they are manufactured, and we are supporting cars such as the Nissan Leaf, which is built in Sunderland, through zero rates for zero-emission cars. We think it is fair that more expensive cars pay more than ordinary family cars.

On the accusation that it is unfair that cars that are more fuel efficient pay the same as gas-guzzling vehicles, I would argue that they do not. Under the new system, the first-year rates for the highest-emitting cars will be doubled compared with the current system. Zero-emission cars will continue to pay no annual VED rate, and more expensive, bigger, higher-polluting cars will pay the standard rate supplement, so there will be incentives to buy smaller, lower-emitting cars on the second-hand market. What is unfair in the current system is that those who can afford to buy a brand-new car pay less than those who cannot do so. That point was made by the hon. Member for East Antrim (Sammy Wilson). In the new system, those who can afford an expensive car will pay more.

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[George Kerevan]

I congratulate the hon. Gentleman on reaching the Front Bench after far too long a wait. I can tell him that we would be more than happy to take over the setting of VAT in Scotland. That could remove the anomaly.

[Rob Marris]

I thank the hon. Gentleman for that. We shall shortly be having a discussion about the mechanics of setting VAT in the United Kingdom.

New clause 7 has been tabled by my hon. Friend the Member for Dewsbury (Paula Sherriff). New clause 2, tabled by the Scottish National party, is similar but not as good. It was also tabled in Committee. The greater virtue of my hon. Friend’s new clause—in contradistinction to new clause 2—is that she has carefully listened to what the Government said in Committee about the road map, as we say these days, to achieving this worthy goal. She has worded her new clause in the light of the remarks made by the Minister in Committee, and I commend her for that. Her proposal has gained considerable momentum on both sides of the House, for obvious reasons. Of course, those of us on the Labour Front Bench will support it and I urge hon. Members on both sides of the House to do the same. I will not say a great deal more about the new clause—

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[George Kerevan]

I remind the hon. Lady that under the sixth directive, which sets out the tax rules in the EU, the anomalies that she mentions between different kinds of medical products, including tampons, are precisely the evidence we need to take to the VAT Committee in order to get a derogation that would allow us to move to the zero rate for all these products. In advancing her line of argument, would she like to ask the Minister why the Government have never asked for that derogation, which is perfectly possible given the evidence she has raised?

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[Mr Gauke]

My hon. Friend is right. Whereas the previous Labour Government doubled the 10p rate of income tax, this Government and the coalition Government increased the personal allowance very substantially from below £6,500 to the levels I have set out this evening.

I turn now to the support that the Bill will provide to business. We want to provide certainty to businesses, increase investment and improve our infrastructure, because that will drive growth and job creation in the coming years. First, it is clear that we need a business tax regime that is stable, competitive and fair. This is essential to make the UK more competitive and to support growth. In the previous Parliament, the main rate of corporation tax was cut from 28% to 20%, which led to more businesses coming to the UK to carry out their activity. Given the global competition that the UK faces, we must go further. This Bill cuts the corporation tax rate to 19% in 2017 and to 18% in 2020, saving businesses more than £6 billion in 2021 and giving the UK the lowest rate of corporation tax in the G20. The Bill also sets the annual investment allowance at the permanent higher level of £200,000. This will provide long-term certainty to businesses and encourage them to invest in plant and machinery.

Finally, I would like to turn to the measures in the Bill that tackle tax avoidance and evasion, tax planning, compliance and imbalances in our tax system. Hon. Members will recall that the summer Budget announced a raft of measures to tackle those who do not pay their fair share of tax. The measures will collectively raise £5 billion a year by 2019-20. I am proud to say that the Bill will implement a number of those measures and will make an important contribution to the further £37 billion in fiscal consolidation that is required over the course of this Parliament to run a budget surplus by the end of this Parliament.

[George Kerevan]

Will the Minister give way?

[Mr Gauke]

Let me make a little progress.

First, the Bill ensures that investment fund managers cannot exploit tax loopholes to avoid paying capital gains tax. We will also address a tax planning risk in which corporate groups could exploit tax rules for asset transfers between connected parties. This ensures that profits are brought to tax.

Finally, the Bill modernises HMRC collection powers by allowing HMRC to recover tax and tax credit debts directly from a debtor’s accounts. This measure will tackle those who seek to play the system and who are avoiding paying their fair share of tax, which they can afford to pay. This measure will also, of course, be subject to robust safeguards and the most vulnerable will be protected. Taken together, these measures will protect our public finances and send a clear message that everyone in Britain must pay their fair share of tax.

[George Kerevan]

In terms of helping business, would the Minister care to comment on press reports this morning that the Government are planning to abolish research grants to industry and replace them with loans, on which interest would be paid?