Finance (No. 2) Bill

Iain Duncan Smith Excerpts

Report stage
Tuesday 20th June 2023 Commons Chamber

[Priti Patel]

I thank the hon. Gentleman for his comments. I would rather businesses had zero taxation policies. I should declare an interest: when I was a Treasury Minister many years ago, I undertook the fiscal review of oil and gas. Frankly, we need to do everything to stimulate investment in both oil and gas and renewables. I would like to see consistency in policies on that.

Specifically to my point about multinationals and how they are taxed in jurisdictions, I support the Government in the sense that it is right to look to close tax loopholes where we see companies operating in multiple jurisdictions, but the plans for a global minimum tax are wrong, as I have raised in the House before. They are wrong and flawed for a number of reasons.

No one would deny that the introduction of such a measure is complex—it is not straightforward. I paid attention to the comments made by the hon. Member for Ealing North. There is no point just saying that we need to crack on and implement this; we have to do it in the right way, which is why I put forward the amendment. It even gives the Government scope for more time to look at the complexities around its implementation and to look at what our competitors are doing. We should not rush headlong into this. These are complex changes that will be challenging to enforce; I will speak about that, too.

I believe the measure is anti-competitive. It undermines our fiscal sovereignty. Without labouring the point too much, we have left the EU. The Government have the ability to make their own tax laws and fiscal sovereignty is crucial to this, too. Why are we are now going to surrender tax powers to the will of the OECD?

Economic growth has already been mentioned by my hon. Friend the Chair of the Treasury Committee. We do not want to undermine our ability to be a low-tax global beacon of free trade. The Government are pursuing policies such as freeports. We all welcome that when it comes to competition, but we do not want to encourage a culture of subsidies, which this policy will do.

I believe that Governments and Parliaments must have flexibility to set their own fiscal policies and tax rates, striking a balance across all sectors, including multinational companies and small and medium-sized enterprises. Speaking as an MP for Essex, which is known to be an entrepreneurial county, SMEs are the backbone of our economy. We have to strike a balance between being competitive and having low tax rates to attract investment, and generating revenue to support public services—I agree with the hon. Member for Ealing North about that. If we are not competitive, we will not have the tax revenues to support public services. However, a minimum corporate tax would prevent us from doing that.

There are problems with the OECD’s plan, which is why I want to have greater scrutiny on implementation. The enforcement and implementation mechanisms are unclear and countries could find ways around them, which should concern us. They could find loopholes to circumvent the policy. The UK looks set to gold plate measures. We follow rules and standards when we sign up to them, which is the right thing to do when it comes to our Government policies. The same cannot be said for more than 130 countries that have taken an interest in the matter. For many, agreeing to the OECD framework appears to be more about rhetoric and the ability to take action on taxing multinationals, than making the changes necessary and following the committed approach that this Government plan to take. I have no doubt that the Minister will want to speak about that, because the Government are being diligent in their approach and more scrutiny is required.

Moreover, limiting fiscal freedoms opens the door for countries to entice investment from big businesses with big subsidies, which distorts the market. All hon. and right hon. Members will understand that in a subsidy race we simply cannot compete with the United States or even China. Some countries can pump millions of dollars into supporting investment from multinationals. That is not what we do in this country.

We are more competitive as a country in being able to deploy a full range of fiscal and tax-cutting powers, than we are in a race to the bottom with subsidies. There are serious concerns about how these plans will be enforced and, importantly, how disputes between countries will be resolved. I understand that negotiations with the OECD are taking longer than expected, which is not a surprise, and I think it will be some time before an agreement is reached, but by baking into primary legislation a requirement for us to implement without any further flexibility, we risk blindly signing up to a package where foreign officials could overrule decisions and interpretations in our own jurisdiction and in on our own Government.

The peer review panels, being set up to review implementation, could be made up of representatives from China or other hostile states—for example, Russia—all countries which are involved in the process and states that have concerning records on human rights, war crimes and other conflicts, which we debate in this House day in, day out. Frankly, they do not meet our standards and we should be cognisant of that. Our tax affairs could be judged by representatives from states that many in this House are concerned about.

There is then the issue of the date of implementation, which I have referred to in my amendment. The Government have been clear that they will implement the policy by the end of this year— as clause 264 states, from 31 December 2023. This measure, despite the concerns I am raising, can only have a chance of succeeding in the way the Government hope if it is implemented in a constituent manner by all states—or, if not that, by a critical mass—at the same time. This is where we have concerns. We are just not seeing this right now in other countries and among our competitors, because they are not as wedded to the date as we are. I understand why we have to put down the date to enshrine it in law.

The United States, as my hon. Friend the Member for South Dorset (Richard Drax) has mentioned, will not be able to take this through to implementation by 2024. The Republicans in the House of Representatives are opposing those plans. But as well as opposing and preventing the US—our largest trading power—from introducing them, they are threatening retaliatory measures on countries that implement the policy, and in doing so will penalise US-based companies. So we could have a situation where this Government introduce a tax measure that adversely impacts on our trade and investment with the US. Of course, that could have an impact on trade negotiations and some of the work that other Departments are doing—such as Business and Trade, for example.

It would be interesting to know from the Minister whether this issue was discussed by the Prime Minister and the President in their recent bilateral talks. The US is crucial in this, but it is not just the US that will not implement the policy. The EU members are not going to implement the policy fully on day one. They have been given six years to implement tit. In Asia, major economies and competitors are setting dates behind the UK: Japan, Singapore, Thailand and Hong Kong. Although that the Government have been clear about their intent, we need to know what they intend to do on implementation. I have put my own concerns about this tax on the record. I think the date is wrong.

[Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)]

My right hon. Friend knows that I have signed her amendment. It is a good amendment because the compromise, as it stands, gives the Government more time to think carefully about what we are doing here. As she said, the Americans are almost certainly not going to implement this measure. That means that the single largest trading nation in the world will not play a part in this. What assurances has she secured from the Government? Will she press her amendment tonight? If she does so, I will support her. If she does not press it, I will understand that she has some assurances. Can she spell out what the assurances from the Government are?

[Priti Patel]

This is important. The purpose of scrutinising the Bill and discussing the amendment is about the implementation and how the Government will pursue that. We have big concerns. Other countries are not moving forward, so we will be the first. We need a sensible and practical course of action. My amendment is reasonable.

I have had discussions with the Chancellor in particular. He has given some very clear assurances that, in the light of the points that I have raised, not just today but previously, and the conversations that I and all colleagues who have signed the amendment have had, in respect of the implementation of the tax, the Government have committed to bring to this House regular updates on what the OECD is proposing with regards to policing pillar 2. That speaks to my point about how all the enforcement mechanisms will work and about whether countries will be circumventing the rules and the structures of pillar 2. Also, before the summer recess, they will bring forward some detailed assumptions and modelling. The Treasury has forecast and scored, as I understand it, the expected tax revenues from pillar 2. That is something that I have been pursuing and asking specific questions about. It is important that we understand not only what revenues are gained, but the costs that will be incurred, particularly by businesses.

I have received clear assurances that the Government will publish, ahead of the autumn statement, details on the compatibility—or even the lack of compatibility—and interoperability of the US’s global minimum tax legislation and that proposed by the OECD. That, of course, has an impact of double taxation for companies.