Finance Bill

Ian C. Lucas Excerpts

Monday 12th July 2010 Commons Chamber

[Chris Leslie]

That is especially true over the longer term, and, as I was saying, although clause 1 refers only to the financial year 2011-12, the Government clearly intend to go even further even faster.

There may well be a case for saying that all companies need to be treated the same and that it would be wrong to discriminate against a particular class, and the Minister may argue that there are other sets of corporations—large oil companies, the privatised utilities and so on—that the public would frown on if they regained a corporation tax benefit, for example. In my view, the public are getting wise to the cause of the reduction in public spending, some of which, naturally, is driven by Conservative party ideology. However, the reductions that are driven by the existence of the deficit are largely the result of the costs incurred in bailing out the banks and the subsequent recession. Because of the lack of credit available in the wider economy, we had fewer tax receipts. In fact, the real story of the deficit is not that we are spending so much on public services, but that tax receipts are considerably lower.

[Ian Lucas (Wrexham) (Lab)]

Is my hon. Friend as confused as I am by the Government’s trumpeted aim of rebalancing the economy, while at the same time they introduce a corporation tax cut such as this, which favours companies across the board—from retail to banking—but not manufacturing? In fact, the capital allowances scheme actually penalises manufacturing companies. Does not the generality of the Government’s approach contradict their own headlines?

[Chris Leslie]

Indeed. This is a very perplexing set of Budget measures and if we have the chance to debate clause 1 stand part, there are a number of other questions we might want to probe the Minister on. For instance, why, inexplicably, are the reductions in the “small profits rate” of corporation tax not in the Bill? It seems that the Government are very adept at putting at the head of the queue the large institutions that will bleat and shout the loudest. It is incredible to me that the Government are giving priority to those institutions, which should be more contrite and should contribute a fair share. It is the concept of a fair share that eludes both the banks and the Government.

--- Later in debate ---

[Chris Leslie]

The hon. Gentleman makes a fair point. I have tried to define “banking institutions” by referring to the Banking Act 2009. I believe that I would thus exclude the building societies and other more mutual, co-operative institutions that I would not regard as being as culpable as the plc-based financial institutions. Irrespective of whether a particular bank received a direct sum from the taxpayer, all those banking institutions benefited from the implicit and implied safety net that the taxpayer provided. Were it not for that underwritten implicit guarantee, banks such as Barclays and others would have been in significant trouble. They may not have taken the handout themselves, but had the markets not felt that the Government of the day were prepared to act were they so requested or had it been necessary to do so, all those banking institutions would have been in an entirely different position.

[Ian Lucas]

I commend my hon. Friend’s response, because he has just said exactly what I was going to say about the fact that the whole sector, including those organisations that did not receive direct investment from government, benefited from the decisive action taken by the then Labour Government, which, I repeat, was vociferously opposed by the Conservative party.

[Chris Leslie]

That is absolutely the case, and it perhaps betrays the enlightenment of Government Members on this particular issue. Each and every one of them who votes against my amendment, or even against the other amendments on the Order Paper, will need to go back to their constituents tonight and explain why they feel that the banking institutions deserve this handout. This is an incredibly important point and it is very useful to have the chance to debate it.

--- Later in debate ---

That goes back to an earlier debate. So, despite my having probed this matter by asking a number of questions, we do not have any clear answers on the balancing effects of the reduction in corporation tax against the banking levy.

[Ian Lucas]

I commend the hon. Gentleman on tabling the amendment, but will he clarify the reference to

“all other sectors to which corporation tax applies”?

Does he think it would be helpful if that assessment took into account, for example, the effect of the reduction in capital allowances when making judgments about whether that is a wise course to take?

[Andrew George]

I am not sure that I am qualified to advise, but I am sure that the hon. Gentleman is right. If the Treasury could be encouraged to adopt this approach, I hope that it would at least ensure that it was sufficiently free-ranging to deal with any of the consequential behavioural activities that might arise as a result of such proposals.

--- Later in debate ---

[Mr Jones]

I am grateful for my hon. Friend’s intervention, which completely blows a hole in the myth that this coalition Government are somehow being tough with the banking sector. Not for the first time, we are seeing rhetoric overtaking reality. The spin and presentation that is the hallmark of the Prime Minister is clearly catching up with him now he is in power and able to help his friends in the financial sector.

This policy also has an effect in terms of the banking sector itself, because the banks that are being rewarded are the ones that got us into the mess in the first place. Most people will rightly be horrified by that prospect.

[Ian Lucas]

Does my hon. Friend agree that what makes it even worse is the fact that the banks are still not lending? We all have examples in our constituencies of businesses that have good business cases but are not securing the lending from these banks that are making massive profits.

[Mr Jones]

That is a good point. We have heard about banking codes and other ways of forcing the banks into lending, but many small and medium-sized enterprises will be paying for this. They are facing a double whammy, because they are paying for it not only through the reduction in investment allowances but, as my hon. Friend rightly says, through not getting access to the lifeblood of working capital that they need.

That brings me to what the hon. Member for St Ives said about other sectors. Amendment 50 says:

“This section shall not come into force until the Treasury has laid before the House of Commons an assessment of the impact of this section on—

(a) the banking sector, and

(b) all other sectors to which corporation tax applies.”

That makes an important point about how this cut in corporation tax is being paid for—that is, through the reduction of the annual investment allowances, which from 2010 will fall from £100,000 to £25,000. That will affect a lot of SMEs in the manufacturing sector. One need only look at some of the comments that were made on Budget day. The Engineering Employers Federation, representing manufacturers, said:

“Reducing the corporation tax rate over time was in principle the right course of action. But financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”

That reflects a key point made in the amendment—the need to look at the effects on other sectors of the economy and how they are paying for this.

Even members of the coalition are feeling some concern about the corporation tax plans. The Secretary of State for Business, Innovation and Skills signalled a recognition that they could hinder the interests of British industry when he said in the Financial Times on 14 May:

“The one thing I would want to make sure is that the productive parts of the British economy are helped and not hindered by corporation tax changes…I will certainly make an input to the debate defending the interests of British industry and making sure there are proper incentives to invest.”

We are now seeing this time and again in policy areas. The Liberal Democrats can protest all they wish, but they are being overruled on every single occasion, and this is clearly another example of that happening.

The Institute for Fiscal Studies and the EEF have both criticised the Government for reducing investment and capital allowances. The IFS’s post-Budget briefing on business and capital taxes dated 23 June said:

“Biggest benefits go to low-investment, high-profit firms—banks and supermarkets rather than manufacturers”.

The Budget talked about rejigging the economy away from the public sector and the banking sector into manufacturing, but this will not assist the manufacturing sector in any way at all. One can add to that the pressures that are resulting locally from the abolition of the regional development agencies and the nonsense that is going on with the freezing of grants for business investment. For example, Geka Manufacturing in my constituency, which vitally needs such a grant to secure 130 jobs in Stanley, has had it frozen by the Government. Local manufacturing SMEs are not only being hit by the corporation tax changes in the Budget but affected by the winding up of the RDAs in terms of the small business support that is vital for their investment decisions.

If we are to consider the effect on other sectors, as the hon. Member for St Ives suggested, we need to ensure that that includes not only SMEs but the manufacturing sector. If the Red Book is to be believed, I do not understand how the levy will result in a rebalancing of the burden of taxation between banking and other sectors. Clearly the SME sector will pay dearly, and that is in addition to some of the other matters that will affect it.

The cuts in capital allowances will prevent many SMEs from investing in vital equipment. That is no way to grow the economy in the way that the Government are suggesting. Despite the rhetoric that we heard before the election about bashing the bankers—[Interruption.] I say to my hon. Friend the Member for Glasgow East (Margaret Curran), who looks at me in horror, that I said “Bashing the bankers”. Instead, the Government are going to give back to banks the money that they will take from the levy. As my hon. Friend the Member for Nottingham East pointed out, it would have been right to wait for the results of the 1 January review, whenever they come, before introducing the decrease for the banks.

I ask hon. Members to support the amendment, which makes sense. Once the public recognise what the Con-Dem Government are doing, they will be disappointed that the Government are basically letting the banks off scot-free.