Finance (No. 2) Bill

Ian Swales Excerpts

Wednesday 25th March 2015 Commons Chamber

[Mr Gauke]

My hon. Friend is absolutely right. Very often, the debate in this House is about the impact on individuals of the freeze on fuel duty, which has considerably reduced how much fuel costs. As a consequence of our measures, £10 is saved per tank full of petrol. He is also right to mention the impact on businesses, because many of them, particularly smaller ones, pay this tax. We can sometimes forget that in that debate. Fuel duty is now 16p per litre lower than it would have been under the previous Government’s plans.

Let me return to the provisions on oil and gas. The new cluster area allowance will support the development of one of the biggest fields in the UK continental shelf, which is expected to generate about 3,500 jobs and more than £3 billion in capital investment. As hon. Members can see, the Bill tackles some of the challenges facing our business community and our economy.

Now that I have set out such competitive tax rates, designed specifically to support our businesses, let me say that we expect those taxes to be paid. The Bill continues the Government’s firm action against the small minority who seek out unacceptable ways to reduce or delay paying the taxes they owe. Under the Bill, we will legislate to create a fairer tax system by clamping down on tax avoidance and ensuring that banks contribute their fair share. Taking effect from the start of next month, the Bill will introduce a new diverted profits tax of 25%, aimed at large multinationals that artificially shift their profits offshore to avoid paying UK tax. As part of the project, I can confirm that we are working with five other tax authorities to investigate and challenge how digital multinationals shift their profits to tax havens. For the first time, we are gathering a full global picture of the tax risks those companies pose that is invaluable in helping us take decisive action.

The Bill will also increase the bank levy to 0.21% and introduce new rules for banks on carried forward losses, to ensure that banking companies can use them only to relieve up to 50% of company profits. Combined, those measures will raise nearly £8 billion over the next five years. We have always been clear that banks should make an additional contribution that reflects the risks they pose to the UK economy, and now that banks are strengthening their balance sheets and returning to profitability, they should make a greater contribution to the economic recovery.

[Ian Swales (Redcar) (LD)]

I welcome the increase in the bank levy. Does the Minister agree that it is extremely difficult for a bank to avoid the levy, whereas the tax on bonuses, for example, would be very easy to avoid?

[Mr Gauke]

My hon. Friend makes a very good point. Indeed, that is why the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), made it clear that the bank bonus levy could only really be effective for one year. It is important that we have something sustainable that can exist for much longer.

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[Mr Gauke]

My hon. Friend is absolutely right. I believe that oil revenues are something like a 10th of what the Scottish National party predicted, but I will happily stand corrected if I am wrong. The fact is that a united kingdom is better able to absorb volatility in the oil price than an independent Scotland would ever be. Given what has happened to the oil price, it is clearly to the benefit of Scotland that those calling for independence were roundly defeated last year.

[Ian Swales]

Will the Financial Secretary give way?

[Mr Gauke]

I will give way one last time, but I am conscious that many Members will want to speak.

[Ian Swales]

I thank the Financial Secretary. I am sure that he would accept, having looked at the business case for the changes in oil taxation, that the economic effects of the oil industry are much wider than simply the winning of oil. In particular, the engineering and manufacturing industries in the north-east of England are pleased by the moves that have been made.

[Mr Gauke]

My hon. Friend makes a good point. Particularly in the north-east of England, a number of businesses are ancillary to the oil industry, so I am grateful for his remarks.

The Bill takes further steps to deliver long-term, sustainable economic growth. It puts in place a more competitive environment for business, takes more people out of income tax, continues our reforms of the tax system and supports the continued success of our industries. I commend it to the House.

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[Chris Leslie]

It is in the very first clause of the Bill: it seems that the Government’s proudest achievement is to cut the highest rate of income tax for those earning £150,000. They want the rate to be 45p instead of 50p. That has been their priority. They regard that as something that the country has been crying out for and that will make a big difference to the economy. I suppose if one views the economy through a trickle-down prism and believes that tax cuts lavished on the very wealthiest in society will percolate down and everybody else will benefit as a result—

[Ian Swales]

rose—

[Chris Leslie]

Well, maybe that is the logic of the Liberal Democrats in supporting these particular measures. I will give way to the hon. Gentleman, but he has to admit that it was an error to ensure that those earning more than £150,000 received a tax cut. Anyone earning £1 million this year will have benefited to the tune of £42,000 in tax cuts. He does have regrets about that, doesn’t he?

[Ian Swales]

Will the hon. Gentleman explain why the Government he was a part of put up 100 taxes in 13 years, but rejected putting up the higher rate of income tax for the entire period until the day they left office? It was 40% then—those same millionaires were that much better off under his Government.

[Chris Leslie]

That sounds as though the hon. Gentleman was in favour of the 50p rate and regrets that it was not implemented earlier. That is the usual argument: why did the previous Government only put it up towards the end of the Parliament? The global banking crisis hit in 2008, when we were already a long way through that Parliament. [Interruption.] The hon. Gentleman seems to be a banking crisis denier. He seems to think that it had nothing to do with the fiscal situation. He must admit in his heart of hearts that the banking crisis created great pressures on our public finances. It reduced a number of revenues and caused the deficit we have had to tackle. As a consequence, the tax changes that followed the banking crisis were bound to come in 2009, and that was the period in which we chose to introduce the 50p top rate. He should not be surprised that it came in towards the end of that Parliament, because the banking crisis and all the ripples that flowed from it also happened at the end of the Parliament. Let us nail that one for a start.

The cut in the rate of income tax was the wrong thing for the hon. Gentleman and the Conservative party to have prioritised. I think many people in our country regard it as a real obscenity. It is a perverse set of priorities and we would reverse them because the public finances need the extra support. The public finances need those with the broadest shoulders to contribute a fairer share.

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[Ian Swales (Redcar) (LD)]

For someone who did not feel that we had been given enough time today, the hon. Member for Nottingham East (Chris Leslie) made an incredibly long speech.

I welcome the measures in the Budget, especially those benefiting business, and I am not the only one. At a lunch event on Friday, I spoke to members of the North East Chamber of commerce, and they also welcomed the Budget—particularly the measures involving oil and gas, which are very important for manufacturing industry and contractors in the north-east. The moves on corporation tax and support for business are clearly welcome. I do, however, agree with the hon. Gentleman that there is concern about the speed with which the diverted profits tax is being introduced. I congratulate the hon. Member for Amber Valley (Nigel Mills)—who has just left the Chamber—on triggering a Westminster Hall debate on the subject, during which we scrutinised it a little further.

[Mr Love]

There is significant concern, indeed alarm, out there among some of the tax professionals and accountancy bodies about the lack of adequate scrutiny. Does the hon. Gentleman share that concern?

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[Ian Swales]

As I said a moment ago, I do share some of that concern. The new diverted profits tax is quite complicated, and I agree that introducing it after so little time is risky. However, I also think that it is a very necessary tax. Far too much of our economic activity in the United Kingdom has been booked elsewhere, and too many of our profits are being shoved elsewhere. I therefore welcome the overall measures, and hope that they can be made to work.

I welcome the increase in the bank levy. It is clearly more sensible than taxing bank bonuses at a total rate of 115%, which is what I understand the Opposition to be proposing. That clearly would not work, and I think that their proposal shows a lack of competence. I welcome the fact that the rich are paying more. The hon. Member for Nottingham East used the emotive word “obscenity”. I think that there was something of an obscenity in the fact that people on the minimum wage were having to pay about £1,000 a year in tax under the last Government. The Liberal Democrats’ priority is to change that, and to raise the tax threshold. Our original target was £10,000, but I am delighted to say that it is now on the way to £11,000 as a result of our work in this Government.

The rich are paying much more in tax. Their income tax rate was held at 40% for 13 years by the last Government. When we came to office, the rate of capital gains tax was 18%, lower than even the basic rate of income tax; it is now 28%. People are allowed to put a quarter of a million pounds a year into pension schemes and receive full tax relief on them: the allowance is now £40,000. The lifetime allowance has been reduced again, to £1 million. I welcome all those measures. I am not going to become involved in a long debate about VAT, but it is worth noting that the VAT on a new Ferrari is £50,000. The idea that it is all paid by pensioners is clearly not right when we take account of the goods that are not subject to the standard rate of VAT.

The Budget raised stamp duty on property, and introduced yet more measures to deal with avoidance. Of course, there was industrial-scale avoidance under the last Government, and many cases are still coming to light, having arisen before 2010. I welcome the moves on the cost of living and on alcohol taxes, which support many of our important industries. I must declare an interest, as a cider drinker who greatly welcomes the reduction in cider duty. Overall, there is an inconvenient truth for the Opposition. Inequality has narrowed under this Government, whereas it widened under the last Government. People are better off than they were in 2010, and the Institute for Fiscal Studies has been saying so since January. The £1,600 figure was never about the total; it was about average incomes, which have, of course, been affected by the huge fall in youth unemployment, the huge rise in the number of apprenticeships, and the huge fall in bank bonuses. The Opposition’s stance does not bear scrutiny.

I have been asked to be brief. Let me end by saying that my part of the world has gained huge benefits under the present Government. We have benefited from the regional growth fund, from the local enterprise partnership—which is highly successful—and from the fact that this Government have spent five times more on capital investment in the Tees Valley than the last Government did in five years. In the last year, unemployment in my constituency has fallen by 781. It is still too high, but we are heading in the right direction.

My party will support the Bill today.

[Chris Evans (Islwyn) (Lab/Co-op)]

Let me begin by expressing my disappointment that there is to be no Public Bill Committee. I have served on every single one in the present Parliament. I do not know what I did wrong in the Whips Office, but I feel that I am missing out on something.

I congratulate the hon. Member for Redcar (Ian Swales), who is, of course, a Liberal Democrat. Following the embarrassment of the Chief Secretary standing on the steps of the Treasury with his Fisher-Price lunch box, announcing a Liberal Democrat Budget the day after the real one that he said he had signed off, I admire any Liberal Democrat who can stand up now and defend the Government’s policies.

I want to say something about the Finance Bill and the Budget. This is the truth as I see it: for one hour, the Chancellor, simply because a general election is on the way, changed his tune from that of the Conservative party conference in October, when he told us swingeing cuts were on the way and we should prepare for an age of austerity. Now, 44 days before a general election, he tells us, like a latter-day Harold Macmillan, that we’ve “never had it so good.”

Those of us who are historians remember what happened after the complacency of that Conservative Government of the 1950s and the eventual devaluation of the pound in the 1960s. The problem is that for vast swathes of constituencies like mine across the country which are trying to deal with the post-industrial age the Government did not offer any hope or optimism for the future. Families in my constituency are £1,600 worse off than they were five years ago; that is the truth, and I challenge any Government Member to come to Islwyn, walk down the streets with me and go to the food bank in Risca where I was taken the other day. I could not get through the front door because so many people there were in need. Some might say they were there for kicks, but so many of them just needed help with benefits or the health service—they were there because there was nowhere else to go. That is a sad indictment of this Government’s policies.

Islwyn is a constituency dealing with the post-industrial age. Under the last Labour Government we attracted investment, but the problem is that this Conservative- led Government have created two Britains. There is the Britain of the affluent, who are enjoying a tax cut because we are in the grip of an economic theory that failed and only brought about deficits in the ’80s. That continues with the tax cut from 50p to 45p. We also see a different kind of Britain, however: a Britain of people gathered around the kitchen tables worried about paying the bills—about how they are going to pay the mortgage, how they are going to pay the rent. These are the people who deserve the tax cut.

It is all very well the Prime Minister committing today at Prime Minister’s questions not to put VAT up. He made that commitment before the last general election, yet VAT went up. It is only ever the Tory party that puts VAT up. VAT is regressive because everybody has to pay it, whatever goods they buy; whether they are a pensioner, a student, in work, a lord or a duke, they have to pay VAT. It does not matter what they earn. That is why VAT is a regressive tax.

The Government have forgotten who pays the bills around here. It is not the millionaires. It is not the business people. It is the people on the ground. I have nothing against anybody earning big money; I have no problem with success or aspiration, or ambition or achieving anything. However, if we give a tax cut to the very rich in society, they will employ accountants who will hide the money, but if we give a tax cut to people in the middle, they will spend it in the shops and businesses and get the high streets moving. That is not what is happening. That is not the reality on the ground.

We can talk all we want, but the simple fact is there is a problem with the word “conservative”. It means preserve or conserve—to conserve a way of life that never existed. If we want examples of how the Conservatives constantly look back to a golden age that never existed, we need only listen to the references to Agincourt. This is what I say: if we are looking back constantly, we are not moving forward.

The NHS is in crisis but the Budget says nothing about that most important public service in Britain. The Tories last week confirmed plans for extreme spending cuts in the three years after the election, which will put our NHS at risk.

[Ian Swales]

I always enjoy listening to the hon. Gentleman’s speeches, but he ought to note that the Budget included a huge £1.25 billion for mental health spending in the NHS.

[Chris Evans]

I welcome any money that goes towards mental health, and I think anybody suffering from a mental health issue would welcome that as well, but I have to say this to the hon. Gentleman: I am fed up, especially as a Welsh MP and a Welshman, at the way the Welsh NHS has been attacked by this Government. It is a shame because when the Government attack the NHS in Wales, they are attacking the nurses, the doctors, the cleaners, the porters—everybody who works so hard to provide the best possible health care to our patients.

Finance (No. 2) Bill

Ian Swales Excerpts

Wednesday 25th March 2015 Commons Chamber

[Mr Gauke]

Well, there we go: another pledge from a Labour Member that would increase borrowing levels. I should remind the House that when VAT was increased, Labour Members did not vote against it.

[Ian Swales (Redcar) (LD)]

Does the Minister share my surprise that a policy is being proposed whereby the biggest winners would be pop stars, premiership footballers and bankers, who spend the most?

[Mr Gauke]

My hon. Friend makes a good point. I will come back to that later.

Our long-term economic plan has delivered economic growth and record levels of employment, and it has put this country on a sustainable economic footing. Specifically on VAT, we have maintained the VAT registration threshold, which is now £82,000—the highest in the EU. That is of significant benefit to small businesses right across the country. While the bulk of the deficit reduction has come from spending, we chose to increase VAT from 2011. If it is necessary to raise large sums of money, as it clearly was in 2010 when we saw the structural deficit deteriorate—at least, the assessment made by the previous Government, and then by the independent OBR, showed a significant deterioration—then it is necessary to raise one of the bigger taxes.

Happily, we are no longer in that situation under the plans put forward by the Conservative party. I am afraid that Labour Members’ plans—not engaging in reducing the welfare budget and not committing themselves to controlling departmental spending in the way we would—mean that they will need to find a substantial tax increase. A Labour Government in 2010 would have put up the jobs tax—a different choice from ours. In those circumstances, it is hard to believe that we would have 1.9 million more people in work today than we had in 2010.

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[Shabana Mahmood]

My hon. Friend is both generous and correct. Members who were here for the last debate will know that Government Members utterly failed to meet the charge levelled at them, which was that the combination of their history on VAT and what they wish to achieve in the next Parliament means that a VAT rise is inevitable if the Conservative party is elected to government in a few weeks’ time.

We know that the Government’s decision to reduce the top rate of tax for those earning more than £150,000 is as much at the heart of the current political debate today and in the next few weeks as it was in 2012. The debate is about where we raise revenue from and who we ask to shoulder the burden to help bring down the deficit further.

[Ian Swales]

I know that the shadow Minister was not a key part of the previous Government, but does she believe that the right shoulders to bear the burden were those of people on minimum wage, who were paying £1,000 in tax? The highest rate of income tax was 40% for every single day but one that Labour sat on the Government Benches.

[Shabana Mahmood]

I was not a Member at that time, so I was not a part of that Government at all, but I am proud of the previous Government’s record over 13 years. The hon. Gentleman will know that we raised the top rate of tax to 50p in response to the global financial crisis, and that was the right thing to do—[Interruption.] He asked about the minimum wage and mentions it yet again from a sedentary position, but we were the Government who introduced the minimum wage in legislation. That was one of our proudest achievements, and my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) told me last week that the last all-night sitting of the House of Commons was when the Labour Government introduced the national minimum wage. Labour Members were in the House at eight in the morning to vote it through and they were absolutely right to do so.

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[David Wright]

Is my hon. Friend interested, as I am, in the line developed by the Liberal Democrats that the 50p rate was in place only at the end of the previous Labour Government for a very short time?

[Ian Swales]

One day.

[David Wright]

Indeed. This is all about the choices made to bring down the deficit. We made a choice—a forward offer or plan—to use a higher top rate of income tax to bring down the deficit, and the Liberal Democrats decided to vote against that strategy.

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[Mr Gauke]

None the less, under this Chancellor and this Government, we will stick to the long-term economic plan and avoid populist giveaways that could damage the public finances.

I could spend some time on these clauses—they are a significant achievement for the Government and I am delighted we are making further progress on increasing the personal allowance—but I shall deal with amendment 1, tabled by the Opposition. It is the annual debate we have on these matters; it is familiar to me and, I suspect, to you, Sir Roger. It proposes that the Government publish a report reviewing the impact of setting the additional rate at 50% within three months of passing the Bill. In addition, it asks for an assessment of

“the impact of setting the additional rate for 2015-16 at 45 per cent and 50 per cent on the amount of income tax currently paid by someone with a taxable income of…£150,000…and…£1,000,000 per year.”

To be credible, such an analysis would need to take behavioural impacts into account, like the HMRC report on the additional rate published at Budget 2012. Simply looking at theoretical income tax liabilities when increasing taxes is not enough. For perhaps the first time in a long time in these debates, we might have made a bit of progress in trying to understand Labour’s position. The HMRC report concluded that the underlying yield from the introduction of the 50p rate was much lower than originally forecast owing to large behavioural effects. It would be fair to say that when the 50p rate was introduced by the previous Government, they made allowances for behavioural effects. The question is whether it was sufficient.

When HMRC looked at this again, it was clear that the behavioural effect was greater than anticipated by the previous Government. Indeed, it is quite possible that it cost the Exchequer money. So let me take this opportunity to assure hon. Members once more that the Government already consider the impacts of any policy decisions taken, and they take the behavioural effects into account. The simple point is that the 50p rate was failing to raise the money anticipated.

[Ian Swales]

People find some of these behavioural effects hard to imagine. One of them, of course, was that under the previous Government somebody paying tax at that kind of rate could put £250,000 into a pension fund and save all the tax—£125,000. The maximum that can be saved now is £18,000.

[Mr Gauke]

My hon. Friend raises an important point. There are a number of behavioural effects. Sometimes when we have this debate, there is a tendency for Opposition Members to say, “Ah, behavioural effects. You are just talking about tax avoidance.” Tax avoidance can be an element, but it can also be behaviour that is clearly compliant both with the letter and the spirit of the tax system yet will reduce yield. Increasing contributions to pension schemes, for example, could result in a reduction in revenue. It could be that somebody decides to relocate out of the United Kingdom. It could be—an important point that gets to the heart of why we reduced the tax— that international businesses in deciding where to locate staff might conclude that the costs of doing so in the UK are greater than elsewhere, and that there are better climates and environments in which to locate highly paid staff.

Those are some of the behavioural impacts that are a consequence of having an uncompetitive rate of income tax. That is one of the challenges that Governments have to face. To be fair, the previous Labour Government, for the vast majority of their time in office—this point has already been made by my hon. Friend the Member for Redcar (Ian Swales)—did not increase the 40p income tax rate. Tony Blair was very clear that in his view increasing the rate above 40p would be a mistake. We have taken the view that it was right to reduce the rate down to 45p, but the important question remains of what is the purpose of having a high rate of income tax. Is it to raise revenue or is it simply about sending a signal? If it is to raise revenue, we have to ask ourselves how much it will raise.

This is why I return to the comments—I cited them accurately and in context earlier—made by the shadow Chief Secretary on 5 November:

“We have a choice about a tax rate”—

he is clearly talking about the 50p rate—

“that would raise £3 billion, and it is important that we take that opportunity to tackle our deficit, rather than giving that money away to those people who are already in an extremely privileged position.”—[Official Report, 5 November 2014; Vol. 587, c. 849.]

He is talking about raising £3 billion. I pressed the hon. Member for Birmingham, Ladywood (Shabana Mahmood) on two or three occasions because she was making a different argument. She was saying that the static cost is £3 billion, and then it is a question of working out what the dynamic and behavioural effect will be so that we have a true and accurate position on how much this tax will raise. That is a perfectly reasonable point—it is not possible to disagree with the fact that there is a static number, but that is not terribly helpful in guiding us towards a sensible policy, because we have to know the behavioural effects. Let me be clear. The hon. Lady is clearly stepping away from the suggestion that this will raise £3 billion—

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[Mr Gauke]

I accept that I can be carried away with party-political knockabout. I look to the hon. Gentleman as a statesman who rises above such lowly behaviour, and I shall always seek to emulate his balanced and considered approach to the House of Commons.

[Ian Swales]

I thank the Minister for giving way again. He is being very generous with his time.

As assessment has been made by an independent group, the Institute for Fiscal Studies, which came up with a figure of about £100 million. Labour Members have used the word “exact”. Does the Minister reject the idea that the amount can ever be estimated exactly, partly because of the behavioural factors to which he referred a few minutes ago?

[Mr Gauke]

That is a very good point, which leads me to the two quotations that I was about to give. Paul Johnson, the head of the IFS, said in a paper that was published on 27 January 2014:

“The best available estimate of what reversing the cut would raise is therefore about £100 million too.”

He also said that

“the best evidence we have still suggests that raising the top rate of tax would raise little revenue and make, at best, a marginal contribution to reducing the budget deficit an incoming government would face after the next election.”

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[Shabana Mahmood]

My hon. Friend is right. This comes back to the impact of the choices being made—who is being prioritised and who is not, who is bearing the greater share of the burden and who is not. That is the material point.

We know that the Government’s impact assessment prepared for the 2014 Budget estimates that the cost to the Exchequer of the corporation tax cut would be some £400 million in 2015-16, £785 million in 2016-17 and £865 million the following year. In the 2015 Budget Red Book the estimates are revised upwards: for 2015-16 £550 million, for 2016-17 £1.045 billion, and for 2017-18 £1.1 billion. Those are not insignificant sums for a policy that affects a relatively small number of businesses. That is exactly my hon. Friend’s point.

The Government estimate that some 40,000 businesses pay the main rate of corporation tax and a further 41,000 businesses pay at the marginal relief rate. The Department for Business, Innovation and Skills estimates that the UK has some 5.2 million private sector businesses, the majority of which—3.9 million—are sole proprietorships, and 1 million have fewer than 10 employees. Clearly, if about 81,000 businesses benefit from the corporation tax cut, the opposite is also true—5.1 million businesses do not benefit in any way from that rate change.

The Government believe that a further cut in the corporation tax rate makes UK plc a more attractive place to invest and a more attractive destination for business to locate. The Minister and I have often debated the importance of the headline rate of corporation tax when that judgment call is made by businesses. It is important—a point that I have made on several occasions—but it is worth noting that on the former point it is far from clear that this is the case. We know that business investment fell from 8.2% of GDP in 2010 to 7.8% in 2013. That should not come as a big surprise.

Businesses tell us that they face a range of issues and that their decisions about where to locate and where to remain and invest are not based only on the headline rate of corporation tax. They take many other factors into account, such as infrastructure and the skills available in the labour market. Businesses often say that these factors are very important to their decision making, but they worry that under this Government those areas of policy have not gone in the right direction.

[Ian Swales]

This is one point on which I think we can agree. Does the hon. Lady share my worry that investment is threatened partly by the uncertainty about the UK’s place in Europe, and that evidence is growing that that is already having an impact?

[Shabana Mahmood]

This might be the one time during a Finance Bill debate when the hon. Gentleman and I have been in complete agreement. The uncertainty caused by the Conservative party’s positioning over Europe and the Prime Minister giving in to the needs of his party, rather than the national interest, have caused a huge amount of uncertainty. In every conversation that I have had with businesses ever since the Prime Minister made his announcement, that has been the No. 1 issue that they have raised when talking about their future in our country, their future ability to invest in our country, and their future ability to employ more people in our country. It has caused a huge amount of consternation and uncertainty, and the Conservative part of the coalition has been wrong to put its party interest ahead of the national interest.

Our amendment seeks to put flesh on the bones of what is happening to corporation tax by assessing the impact on and the benefit to smaller companies with 50 or fewer employees, which make up the vast majority of private companies in our country. At a time when there are still difficult financial choices to make and a relatively limited number of ways to raise revenue and help support businesses to grow, the evidence suggests that now is the time to give much more support to smaller businesses, and to prioritise smaller businesses for some change in their circumstances, ahead of larger businesses, which have, with the support of all parts of the House, fared pretty well when it comes to cuts to the headline rate of corporation tax.

There is general agreement that small and medium-sized enterprises are the engine of growth in our country, employing more than half the private sector work force and contributing to 50% of UK GDP, but times remain tough and they face wide-ranging challenges. They struggle with high energy costs that do not seem to be getting much better despite wholesale price cuts of 20% in the past year, and with late payments and charges. According to the Government’s own figures, 44% of SMEs had a problem with late payments last year, with the average small business owed over £30,000—an astonishingly high figure.

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[Shabana Mahmood]

My hon. Friend is absolutely right and her point takes us back to our earlier debate about the value of the headline rate of corporation tax and the policy environment that supports it.

Clearly, more needs to be done on the business rates regime. We back the announcement of a review of business rates. There are problems in the system. For example, a factory investing in a new piece of equipment will find that its bill will go up next year because property is now worth more, which could be a disincentive to invest. Although our corporate property tax system needs to be fundamentally rethought, small businesses need urgent and immediate relief. Our proposal for a cut in business rates in the first year of the next Parliament, followed by a freeze in the second year, will make a genuine difference. I hope that Government Members will today take the opportunity that they have failed to take previously, support our amendment and thereby show their support for small and medium-sized businesses.

[Ian Swales]

This might be my last contribution in this place, so I would like to say what a great privilege it has been to represent the people of Redcar for the past five years. I thank colleagues for making my time here such a vivid experience. I would struggle to apply the word “vivid” to the many Finance Bill Committees and finance debates I have taken part in, but overall I have had a terrific time.

I support the lower rate of corporation tax. When opponents of such things talk about lower tax rates, retaining profit is often described as some kind of evil, but what happens to that money? The characterisation is that it will probably end up in high pay for the people at the top, but companies with money have lots of choices and do lots of different things. They might pay more money to their shareholders, the vast majority of which are institutions such as public sector pension funds. They might invest the money or employ more people. They might spend the money on innovation or on building skills, and they might spend more money with SMEs, because all big companies have supply chains that involve small companies.

[Fiona O'Donnell]

It is an honour to intervene in what might be the hon. Gentleman’s last speech in this place. Has he considered the impact on the rural economy, which suffered particularly harshly during the recession? The recovery there is very fragile and corporation tax cuts will not help rural communities. Does he not think that this could be the wrong cause?

[Ian Swales]

The economy of the country is an ecosystem. No company exists in isolation and each relates to other companies. One measure that we are not talking about this afternoon is the cut in fuel duty, which is enormously helpful to rural citizens and rural companies, so the Government have taken some steps, although that is probably not relevant to this debate.

Of course, we expect people to pay their share of corporation tax and to do it properly. I remember the head of the CBI saying towards the end of 2013 that he was confused about what Parliament wanted because there was so much noise about tax avoidance. It is not very confusing at all: we want businesses to account for their operations in the UK properly and to pay tax on the money they make in the UK. I do not think that that is complicated, but some businesses appear to think that it is.

I welcome the successive measures that the Government have taken on tax avoidance. They are not just about individual avoidance but about corporate avoidance, too. The Bill contains many provisions, but I shall mention just three: it stops contrived arrangements on carried forward tax reliefs; it restructures bank loss relief; and it puts limits on research and development tax credits to deal with certain items. Once again, the Government are looking in great detail at how companies sort out their tax and picking up anything that looks anomalous. I welcome that.

We can go a step further. Both the Chancellor and the Chief Secretary to the Treasury said last week that we are now consulting on new criminal measures to deal with companies that advise on or enable tax evasion. I am choosing my words carefully. Aggressive tax avoidance, which we often hear about, is more of a grey term, but tax evasion is very clear. If a company advises people on how to evade tax or enables that through the provision of accounts or processes, it is not just the person evading the tax who is criminal. We want those who help—I think aid and abet is the legal term—to be in the dock, too. That will further help to change the climate and the number of prosecutions necessary will be much less than the amount of activity that the provision prevents just by existing.

I welcome the consultation that has started, which is yet another step that would be helpful. We are talking about corporation tax and it is relevant to mention the diverted profits tax. As we know, a lot of corporations divert their profits or do not account properly for their operations in the UK. The diverted profits tax is a good step forward. It is quite limited in scope, but it will help to put the initial stakes in the ground for how we want to deal with things in the future.

There is more to do. I was pleased to hear the Minister talk in his opening remarks about the need to look further at internet companies, because we all know that they can position themselves anywhere. It is quite wrong to assume that the address of the server is where the business is. It is really where the customer is. In fact, the HMRC small print already says that, but it is quite difficult to implement. There is a lot more to be done for internet companies, not least because they are competing against bricks-and-mortar companies, particularly the small businesses that the shadow Minister has been very vocal on and quick to talk about. That is another step that needs to be taken.

--- Later in debate ---

[John Robertson (Glasgow North West) (Lab)]

Does the hon. Gentleman think it right for a Government to take money from a city where a lot is paid in rates—with people from outside the area coming into it—and then spread it around the rest of the country?

[Ian Swales]

Another thing that the Government have done is to move towards localising business rates again. Certainly my part of the world, which had huge industrial sites such as the one I have mentioned, was pretty nonplussed when all that money was collected by a Government in the 1980s, taken to the centre and then doled out in different proportions. We need to move towards more localisation, not least to incentivise councils to drive economic development. I would argue that that has not been happening sufficiently in some parts of the country, and I live in one of them.

I understand the hon. Gentleman’s point, and there is also the issue about where people live, where they work and what services they use. The south-west has a particular issue when its population doubles every summer, because people may not make a contribution through taxes paid directly in the south-west, but they are using services there. There is another whole argument to be had about the location of rates versus how they are collected.

I will not detain the Committee long. The Government are on the right track with corporation tax. Let us put it this way: there is plenty of work for the next Parliament to do, and I shall watch with interest from afar.

[Sheila Gilmore]

It is a great pleasure to follow the hon. Member for Redcar (Ian Swales), because we have served together on a number of Finance Bill Committees during the past five years. The debates on the details of a Finance Bill in Public Bill Committee are often better than those on the parts of the Bill taken on the Floor of the House. The theory is that the debates on the more important and bigger parts of the Bill are taken in the Chamber and then the Bill goes upstairs, but the Public Bill Committee often allows us to have quite fruitful debates on many of the issues.

One thing that has been very clear during this Government—perhaps this has always been the case, but it seems to be growing—is that all the political parties are falling over themselves to talk about the importance of small and medium-sized businesses, and we are all the friends of small business. Small businesses are probably very pleased to hear politicians talk so much about them, but then the issue becomes one of whether it is talk or action. It is very easy to praise small businesses, but such businesses, especially new ones, sometimes feel that the system is set against them.

One new business in my constituency involved two young women who set up a fitness studio. They went into premises on what was effectively a redevelopment area after our old hospital had been relocated. Largely because of the financial crash and the recession, the whole redevelopment took longer than expected, so the population to support new businesses had not arrived at the expected rate. Although they got a rent holiday for the first 18 months from the developer who was renting them their premises, which was welcome, they were struggling with business rates. Oddly, even though my local council said that it wanted to encourage economic development and had particularly encouraged the redevelopment of that site, it was not particularly forthcoming with help for a new business.

Those young women were not in the region of having to worry about corporation tax—that was not where their business was. They had to worry about the rates. It was touch and go, but I was pleased to see recently that they are still there and have managed to overcome their initial difficulties. Some of the other redevelopment is beginning to happen, so I hope that they will continue to be successful. However, we do not always join the dots either locally or nationally. Things such as rates are essential for a lot of small businesses, and we have to support such businesses to the greatest extent that we can.

I have some sympathy with the hon. Gentleman in his points about business rates being retained locally. We have to work through the conflict between that and redistribution to ensure that different areas of the country are assisted in developing. When I was on the council in Edinburgh, we often raised the issue. It was and still is an expanding city, and it generates a lot of business. We have big events that generate worldwide attention, and a lot of businesses feel that they bear the cost of all that without necessarily seeing the rates coming back to the city. It is all very well to say that we get rates in because we have events such as the festival and big tourist attractions, but sometimes it feels that the rates are not coming back. I understand the tension between that and looking at the region or country as a whole and trying to build wealth. It is not easy, but we have to incentivise businesses as far as possible to feel that keeping on growing is to their advantage as well as to wider advantage.

Politicians and political parties must not just pay lip service to the importance of small business. We must do specific things to assist, and that is what amendment 2, moved by my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood), is intended to do.

The hon. Member for Redcar probably has a different view of economics from mine, but he appeared to be of the view that if a company is making a profit, it will be ploughing it back in the right directions. I do not think that is necessarily always the case. Big businesses in particular should make a good contribution to our society, and we have to ensure that they do. I urge the House to support the amendment.

Fiscal Responsibility and Fairness

Ian Swales Excerpts

Thursday 19th March 2015 Commons Chamber

[Danny Alexander]

I think that the hon. Gentleman is trying to make a serious point. Officials in HMRC have worked very carefully on writing a definition that is appropriate. I will certainly take his points back to HMRC and see whether they can be taken on board.

[Ian Swales (Redcar) (LD)]

I welcome the Chief Secretary’s statements on tax evasion and avoidance. Does he agree that it should no longer be a respectable occupation to advise those who want to avoid paying their share towards our schools, hospitals, our armed forces, pensions and all the other things on which our country relies, and enable them to do so?

[Danny Alexander]

I wholeheartedly agree with my hon. Friend. I have championed action on that matter in the Treasury over the past five years, and today’s Government announcements show the next stage of that. As he says, this country does not and should not tolerate the abuse of the tax system that has gone on in the past.

Oral Answers to Questions

Ian Swales Excerpts

Tuesday 10th March 2015 Commons Chamber

[Danny Alexander]

The hon. Gentleman clearly was not listening to my first answer, because we have put in place something unprecedented: working with our colleagues in other countries, the common reporting standard will mean that more than 90 countries will be automatically exchanging information on offshore accounts, so that HMRC has the information it needs to find and pursue offshore tax evaders successfully. We need to make further progress on how we deal with organisations that encourage, promote or facilitate tax evasion. I have said I want to see further work done on that, and I am sure we will be hearing more about it soon.

[Ian Swales (Redcar) (LD)]

In 2006-07, a hedge fund manager avoided millions in tax through a film scheme later judged unlawful. HSBC received £438,000 for acting as an intermediary, so does the Chief Secretary agree that there should have been a penalty on HSBC for its role in this scam?

[Danny Alexander]

I do not know the details of the specific instance to which my hon. Friend refers, but I do think that in cases where an organisation is facilitating or promoting tax evasion and a penalty is then paid and tax is paid, as it should have been in the first place, the organisation facilitating the tax evasion should be liable for exactly the same amount of money, to be paid to the Exchequer. In that way, there would be a strong financial as well as legal incentive for people not to get involved in this practice in the first place.

Bankers’ Bonuses and the Banking Industry

Ian Swales Excerpts

Wednesday 25th February 2015 Commons Chamber

[Mr Bain]

My hon. Friend’s point will have as much salience in Inverclyde as it does in Glasgow North East and, I believe, in every constituency. When the maximum number of people in this country are involved in the economy, we have a broader tax base and more tax revenue coming in. That is the only credible plan for reducing the deficit in a fair way in the next Parliament. Any Chancellor who wants to have a credible deficit reduction plan has to have a credible plan for abolishing long-term and youth unemployment.

[Ian Swales (Redcar) (LD)]

I am aware that the hon. Gentleman was not here during the last Parliament—at least, I do not think he was—but how does he feel about the fact that his party was in government for 13 years to deliver its vision, yet youth unemployment rose and inequality widened? Why should we believe that it will be different in the future?

[Mr Bain]

I was here for four months of the previous Parliament, when a tax on bankers’ bonuses brought in £3.4 billion in revenue and we introduced a 50p top rate of tax for people earning £150,000 a year or more. The next Parliament should reintroduce that to ensure that the wealthiest in society make a fairer contribution to getting our deficit down, and so that we bring back opportunities for young people who have been denied them during this Parliament.

--- Later in debate ---

[Ian Swales (Redcar) (LD)]

It is interesting to take part in another Opposition day debate on this subject. The Opposition had 13 years to deliver their dream for the financial services and banking sector, but what they left us was, of course, a nightmare, and we have had to do a lot to tidy it up. Without wanting to threaten coalition entente cordiale, I should say that people who examine this subject trace some of the problems back to the deregulation that took place in 1986. It was so drastic that it has been called the big bang. It is certainly true that my coalition partners were still calling for lighter regulation as late as 2007.

However, between us, we recognised that there was a nightmare to sort out, and a great deal has happened, principally the Financial Services (Banking Reform) Act 2013. Let me pick out three items. First, there is a new criminal offence that covers those who run banks and building societies and have engaged in reckless misconduct. The penalty is a maximum sentence of seven years in prison, or an unlimited fine. Secondly, we have worked closely with other countries to tackle risk by introducing strict requirements in relation to the capital that banks must hold. Thirdly, we have prevented banks from engaging in or promoting tax avoidance by making the 15 biggest banks sign up to a code of practice. My party wants more to be done about that: we think that there is room for a new offence of corporate failure to prevent economic crime. We believe that not just those who evade taxes but those who advise or enable them should be prosecuted.

We are still seeing scandal after scandal, and it is notable that most of the scandals that are still hitting the news arose on the last Government’s watch—or the seeds were sown then—so we have had a great deal to do. We introduced the banking levy, and we have kept it going. My party wants it to continue, so that banks go on contributing to the process of rebalancing our budget and helping our economy.

As we have heard from several Members today, bankers are paid a lot. I think that there is a fundamental cultural problem. When an organisation has money to allocate, it has to think about its stakeholders. It has to think about its customers in terms of services and pricing, and it has to think about its shareholders in terms of the reward on the capital that they have invested. It also has to think about investing in its own business. About 10 years ago, my daughter worked in a branch of Barclays bank that was still using punch card machines that I thought had gone out in the late 1970s.

Staff are, of course, part of the balance, but I think most of us feel that the balance between the various stakeholders in some of the big banks has been tipped too far towards senior staff. However, bonuses are a great deal lower than they were. They have fallen from nearly £11 billion, or £33,000 a head, in 2007 to less than £2 billion, or £6,000 a head, in 2013. They are rising a little as banks are getting their act together, but they are nowhere near as high as they once were.

As so often happens with Labour motions, the Opposition have tried to connect two completely disconnected issues. We can have a debate about banking and we can have a debate about youth unemployment, but it is not logical or correct to suggest that the one either depends on the other or is solved by the other.

Of course I support moves to reduce youth unemployment. For me, however, unemployment is not about percentages but about people, and 830 fewer people in my constituency have been out of work in the last year. Unemployment remains far too high, and it is particularly high in the north-east, but it has fallen by an average of about 1,000 people per constituency in the north-east over the past year. In my constituency, youth unemployment has fallen by 43% since the 2010 election, when I inherited my legacy.

The motion asks us to consider the issue of youth unemployment, and also to consider the proposition that the bankers’ bonus tax will help to sort it out. The bonus tax has become the magic porridge pot of Labour policy making. I have a list of nine uses to which Labour Members have put it so far, and I think that my hon. Friends could raise the number to about 11. The last occasion on which we discussed the subject was quite remarkable. The shadow Minister who opened the debate referred to one use for the tax while the Minister who closed it referred to a different one, so they obviously had not shared notes. Perhaps, given that we are so near to a general election, they will finally settle on a use for it.

Let us now think about what will actually happen. If I understand the Opposition’s policy correctly, they want individuals to pay 50% tax on their bonuses, and they want banks to pay 50% tax on those bonuses. Of course, banks have other employment costs, particularly national insurance. Barclays has calculated that, when all that is added together, it will be paying 115% tax on its bonuses. Is it really likely that a bank will continue to declare £1 of bonuses to ensure that a Labour Government receive £1.15?

Matt, the famous cartoonist, must have been very prescient when he prepared his 2015 calendar. The cartoon for this very month shows a banker sitting behind a desk and someone else standing some distance away from him. The banker is saying “I cannot give you a bonus, but there is a £2 million reward for the person who finds my umbrella”—and there is an umbrella on the floor between them. In other words, banks will find ways around this.

It is not just Matt who has made the point. Referring to Labour’s bankers’ bonus tax, the right hon. Member for Edinburgh South West (Mr Darling) said:

“I think it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and...will find all sorts of imaginative ways of avoiding it in the future.”

[David Mowat]

The Opposition’s policy would result in avoidance of the tax through increased fixed-level pay and reduced variable-level pay. A much better way of taxing banks is to tax their balance sheets, which is what the Government have done, because taxation of that kind cannot be avoided in the same way.

[Ian Swales]

My hon. Friend has made an extremely good point, and his words stand on the record. In fact, I was about to mention an aspect of what he has said. It is interesting to note that the motion itself refers to an avoidance method, and tries to close the loophole. As for the clawback proposal, the more we disincentivise banks from paying bonuses, the lower will be the amount that is available for clawback purposes. So, as my hon. Friend has just suggested, the policy is self-defeating.

The banks say that high pay and large bonuses are necessary for competition, but new competition is already emerging. I recommend all Members to visit their local branch of Handelsbanken, which has no targets and does not pay bonuses. It is an incredibly successful bank, and is growing very fast in this country. Competition has already started to undermine the business models of the large banks. My hon. Friend the Member for Hexham (Guy Opperman) mentioned Atom bank. I too have visited its offices, and I am trying to support it as much as I can. Banks of that kind will disrupt existing business models, because they have a much lower cost base than traditional banks. We will see movement: the banks that think life will continue unchanged will find themselves pursued by competition.

One aspect of new funding that needs to be examined is crowdfunding. I think that the next Government will find that they need to consider regulation in that area. We are just starting to hear about some of the scandals involving a practice that is, at present, largely unregulated.

In general, we need to encourage competition, we need disruptive business models, and we need to recognise that, in the private sector, competition should be allowed to beat down bad practice and encourage good practice. We need a successful financial services sector, and we need it to be well regulated. The sector has made it very clear that it does not want a Government who are either anti-Europe or anti-business.

My conclusion is this. If the question is “How do we make our economy stronger and society fairer?”, nothing that we have heard from the Opposition today makes me feel confident that they are the answer.

--- Later in debate ---

[Helen Goodman]

The hon. Gentleman, if I may say so, makes a fair point. One of the regrets of Opposition Members is that not all the recommendations of the Parliamentary Commission on Banking Standards have been implemented. The weakness of the arrangements set up by the Government was illustrated only this week in the statement by Mr Gulliver, who now heads up HSBC. He said that he could not possibly be expected to know what his many thousands of staff were doing. If we are to have a proper accountability mechanism looking from the outside in at what the banks are doing, we need proper internal management systems; otherwise, the whole thing becomes meaningless. Mr Gulliver is therefore hoist by his own petard.

[Ian Swales]

I used to work in a large global organisation, and does the hon. Lady accept that part of the problem is culture? It is true that someone cannot be expected to know what every employee is doing at their desk at any moment, but if people do not have the right culture down the management chain those sorts of things happen.

[Helen Goodman]

That is common sense, and that is why the right culture was not encouraged when the Chancellor toddled off to Brussels to defend high bonuses. That did not engender the kind of attitude that we want to see.

--- Later in debate ---

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to wind up the debate and speak in favour of the Opposition’s motion. We have had a very good debate and heard some excellent contributions. My hon. Friend the Member for Glasgow North East (Mr Bain) spoke powerfully about youth unemployment and the danger of insecure employment. I think that Government Members are too often unwilling to engage with the difficulties posed by insecure employment, and not only for those individuals working on zero-hours contracts, but for the economy as a whole.

My hon. Friend the Member for Heywood and Middleton (Liz McInnes) made an interesting point about the experiences of members of her family who have worked in banks and the pressures put on ordinary bank workers to meet selling targets. It is the ordinary workers in banks who are often first in line for abuse when a scandal hits, rather than the small number of individuals at the top of those institutions who might have engaged in the reckless behaviour.

My hon. Friend the Member for Bishop Auckland (Helen Goodman) made a speech that was a tour de force. She spoke about how banking has not served her region, the north-east, particularly well. She made an interesting point about the dangers of crowdfunding, which the hon. Member for Redcar (Ian Swales) also mentioned. Her points about financial exclusion and the failures of regular banking to serve all our communities, particularly those at the lower end of the economic spectrum, were very well made, and they had not been picked up by others in the debate.

As my hon. Friend the shadow Financial Secretary set out in her opening remarks, the time has come for bonuses to be a reward for exceptional performance, not compensation for failure. With the bonus season upon us, this debate is a timely reminder that the public remain rightly angry about the many banking scandals we have seen and that they will be astonished if they see failure continue to be rewarded with sums of money so far out of the reach of working people on lower and middle incomes.

Our banking sector is vital to the UK economy. Banking and insurance make up 8% of the UK economy and provide employment for up to 2 million people. Without the banks, individual consumers would be unable to save and borrow and businesses would not have access to the finance they need in order to grow and create high-quality, well-paid jobs. The importance of banking for individuals, businesses and UK plc means that it is vital that our banking system is underpinned by the principles of fairness, trust and transparency. The next Labour Government will restore those principles to the banking sector.

Too often fundamental trust in the system has been shaken by behaviour that has been unfair, reckless, unethical or a combination of all three, and 2014 was a record year for fines in the City of London. The FCA levied £1.1 billion on five banks, including HSBC and RBS, for their part in the forex fixing scandal, and four UK banks—Barclays, HSBC, RBS and Lloyds—have paid £1.5 billion in compensation for mis-selling interest rate hedging products, which we have debated on a number of occasions in the Chamber. We have also had the LIBOR and PPI mis-selling scandals. Trust and confidence have been fundamentally shaken by the recent revelations about the Swiss arm of HSBC helping its customers to avoid and evade tax. On the one hand customers have been exploited, and on the other hand the taxpayer has been ripped off.

That unacceptable state of affairs is made worse by the fact that the sector has not fulfilled some of its core functions. Banks must provide basic borrowing and saving facilities for consumers and finance for businesses so that they can either start up or grow. However, we know that net lending to business has fallen by over £55 billion since 2010. A couple of Government Members made the point that of course we do not want to see irresponsible lending and suggested that businesses are actually sitting on large cash reserves and somehow the lack of lending from banks is not a big problem.

That is clearly not the Government’s view, because they keep coming up with different schemes to try and encourage lending by banks—schemes which have, unfortunately, failed to turn the situation around in any meaningful way. I am sure Members across the House regularly meet business people in their constituency advice surgeries, who come to us with complaints that they have viable businesses looking to grow and employ more people, but they cannot get access to finance from banks. This remains a key problem, which the Government’s various schemes to try to get net lending up have unfortunately failed to resolve.

So there are huge fines for breaking rules and a failure to fulfil the core functions of the sector. Despite all this, senior employees continue to receive huge bonuses. We can all see that the current state of affairs is difficult to justify. We know that last year’s bonus round exposed the gap between pay and performance. Barclays and RBS increased their bonus pool, despite falling profits. Indeed, at Barclays we saw a fall in profits of 32%, yet the bonus pool increased by 10%. We now learn that at HSBC the chief executive will receive £7.6 million and 330 staff will receive more than €1 million each, at a time when profits are down and the tax avoidance and evasion scandal continues to rage. What are the public supposed to make of all this? Not much, I would say.

The Government for their part have failed to act fully on proposals for reform and have failed to provide answers on HSBC—

[Ian Swales]

Will the hon. Lady give way?

[Shabana Mahmood]

I am sorry, I will not because of time.

The Government have failed to provide answers on HSBC in a way that would inspire confidence and they have wasted money challenging the EU bank bonus cap. What can we do to turn this situation around? It is clear that we need to reconnect the level of pay and bonuses of some highly paid bankers with the wider performance of the banks and their wider economic contribution.

A Labour Government would repeat the tax on bankers’ bonuses, which we introduced in 2009, to raise £1.5 billion to £2 billion. This tax—[Interruption.] I will come to that point in a moment for Government Members. This tax, alongside a restriction on—[Interruption.]

Tax Avoidance (HSBC)

Ian Swales Excerpts

Monday 23rd February 2015 Commons Chamber

[Ian Swales (Redcar) (LD)]

Does the Chancellor think that corporate entities that advise on tax evasion or enable it to take place should themselves be subject to criminal prosecution?

[Mr Osborne]

Yesterday the Chief Secretary referred to a policy that the Treasury has been considering for the purposes of the Budget, involving the penalties that should be paid by those who actively facilitate tax evasion. As I have said, we are considering that policy, but the hon. Gentleman will have to wait for the Budget.

Tax Avoidance

Ian Swales Excerpts

Wednesday 11th February 2015 Commons Chamber

[Ian Swales (Redcar) (LD)]

This whole area of tax ranks as another mess that the Government are having to clear up. We inherited a situation in which the Labour party had put into action the philosophy of its former Business Secretary in being

“intensely relaxed about people getting filthy rich”.

[Frank Dobson]

The hon. Gentleman should complete the quotation. I am not usually regarded as the greatest defender of Lord Mandelson, but the part-sentence he has just quoted was followed by the words “providing they pay their fair share of tax”.

[Ian Swales]

I accept that correction. On Labour’s watch, the rate of capital gains tax was 18%, and it had been as low as 10%, which especially benefited hedge funds; it is now up to 28%. There was pensions tax relief on up to £250,000 a year; the figure is now £40,000. The rate of VAT on their yachts, sports cars and Rolexes was 2.5% lower. There was lower stamp duty on property, and there was no duty on property bought and sold through corporate envelopes. The rate of income tax was 5% lower throughout the 13 years of the previous Government until 5 April 2010, the day before they left office. There was also tax avoidance on an industrial scale.

We have to be careful of our language, but it is worth saying that avoidance is fine as long as it follows the law. As with pension contributions, many ways of saving tax are perfectly legitimate—in fact, they are encouraged by the Government, sometimes to support economic activity—but many others are not. For example, a Radio 1 DJ used the so-called “working wheels” bogus scheme to create losses on a used car business. That scheme was promoted by NT Advisors. The clue was in the name, because NT stood for “no tax”. That happened in 2007-08. The appropriately named Take That and many others used a scheme to shelter £340 million from the taxman. There was the case involving Patrick Degorce, in which Goldcrest Pictures sold him the rights for two films for the artificially inflated amount of £21.9 million. They were immediately sold back for a fraction of that, which meant that his hedge fund profits of £18.8 million could be entirely sheltered from tax. The promoters of that scheme made £1.6 million on the deal and HSBC made £438,000 for giving the advice. Incidentally, Patrick Degorce later worked with Lansdowne Partners, which is a hedge fund founded by a Conservative donor. To me, such schemes look not just like tax avoidance, but like fraud.

I welcome the moves that the Government are making. The number of prosecutions is up from 165 in 2010-11 to 1,165 in the current year. However, there is a lot further to go. A culture change is needed. When people engage in such activity, they are depleting the public purse. Whereas benefit fraud is treated as a crime in this country, tax fraud is treated as a sport. It is perhaps ironic that tax avoiders often give a great deal to charity. I do not know whether that is because of guilt or because they feel like giving back some of the money that they have salted away.

I have often spoken about tax avoidance in this place. I will repeat what I have said before about one big issue that I constantly raise, where there is more that the Government need to do. International finance directors will say that the main way in which they shift profits around is through their financing structures. It is simple and totally legal to finance a UK activity from offshore, then export the UK profits via interest payments to a low-tax regime. Many companies do that and those that do not may be aggressively taken over, as was Boots, so that somebody else can do it.

Large parts of the financing of the private finance initiatives that ballooned under the last Government have been moved offshore. Some 50% of the PFI schools in my constituency are owned in Jersey. Junctions 1A to 3 of the M40 are 50% owned in Guernsey. Famously, HMRC’s own offices are wholly owned in Bermuda after a deal that was done in 2001.

Dealing with tax evasion and avoidance is important to my party because they are not victimless activities. Every pound that is lost is a pound less for public services or a pound extra that has to be raised from other taxpayers. As the hon. Member for Glasgow Central (Anas Sarwar) said, charities such as ActionAid and Christian Aid point out that aggressive tax avoidance is a drain on third-world countries. I disagreed with him when he said that the UK is not taking a global lead on the issue, because that is one of the things that the Government are doing. We are changing the international climate, as well as closing many loopholes and spending much more to deal with the issue in this country.

There is more that needs to be done. We have not made much headway on tax simplification in this country. We still have the most complex tax code in the world. We need more transparency and more country-by-country reporting. As I said, we need a culture change, so that tax cheats are seen as just as antisocial as benefit cheats.

Based on my experience of this issue in this place, I am left with the nagging feeling, which I think is shared by the public, that Labour lacks the competence to deal with it and the Conservatives sometimes lack the will, whereas the Lib Dems are proud of our contribution and will keep campaigning.

Oral Answers to Questions

Ian Swales Excerpts

Tuesday 27th January 2015 Commons Chamber

[Ian Swales (Redcar) (LD)]

The north-east chamber of commerce recently said:

“Businesses are surging into 2015 on a wave of sustained growth and positivity”,

and unemployment is falling faster in the north-east than anywhere else in the country. Will the Chancellor ensure that the north-east is properly connected to the northern powerhouse and that the necessary infrastructure investment is delivered?

[Mr Osborne]

I assure my hon. Friend that that will be the case. The north-east is an incredibly important part of the northern powerhouse, and that is why we are investing in road and rail links there. We are also putting investment into science there, for example at Newcastle university, and of course in his constituency he has seen steelmaking begin again after it ended under the Labour Government. People will have a clear choice at the general election.

Charter for Budget Responsibility

Ian Swales Excerpts

Tuesday 13th January 2015 Commons Chamber

[Ian Swales (Redcar) (LD)]

I rise to support the Chancellor and in particular to draw attention to the second line of objective 3.1, which talks about “intergenerational fairness”. That is incredibly important when we discuss these issues. There is a moral aspect to balancing the books and not relying on our children and our grandchildren to pay for the deficit. I would find it particularly galling to draw a pension that my five grandchildren—they are still at school—were paying for. We have a moral duty to get a grip on this issue and ensure that we get things balanced. In its draft manifesto, my party mentions 2017-18 as the year we get the current budget into balance, and I expect that to be the platform on which we fight the election.

When we are talking about moral issues, it is also perfectly valid to talk about investment for my children and grandchildren from which they will benefit. I do not see any problem investing in the schools, roads, universities and so on that they will use, particularly when those assets are productive and help the infrastructure and economy of the country. Balancing the current budget is the right way to go, but we also need to address paying down the debt in the years after 2017-18.

The document includes extensive clauses on the welfare cap, which was widely supported in this House. I am not surprised that it was supported by the Labour party since, to quote the shadow Work and Pensions Secretary, it is going to be tougher on welfare than the Tories. I would love to hear how it is going to be tougher on welfare, because it is not selling that to the electorate. Having said that, I note that paragraphs 3.26 and 3.28 allow a future Government to change the amount of the welfare cap and items included in it simply through a vote in this House, which I guess means that it could well change in the future.

The role of the OBR features heavily in the document and the Liberal Democrats have been the only party in the past few elections to present a balanced budget to the country going into a general election. I am proud of that, but I do not believe that the OBR should be the organisation to certify and test that. It has a particular job to do and a level of impartiality that means that it should not get involved in party politics. The Institute for Fiscal Studies is already more than capable of doing that. It has been heavily quoted in today’s debate and already receives more than half its funds from the public purse, so we should rely on it to sense check the various budgets. It is in the interests of the IFS to maintain its independence in doing that.

One item not mentioned in the charter that I would like to see a lot more of is the whole of Government accounts. There is a move behind the scenes in Government to start doing proper accountancy in the public sector. As an accountant, I am stunned by how the Government account for their affairs. For example, the Government have accounted for the sale of 3G licences in a similar way to that which got the Tesco management into huge trouble. We do not account properly for our pensions liabilities and the way we do our accounting has led to the huge scandal of the sleight of hand in the private finance initiative that has cost taxpayers dearly. I hope that in future charter updates the whole of Government accounts will be a key plank of the Government’s strategy for fiscal responsibility.

We are living in difficult times. We had a huge economic crash and it is amazing that the people who crashed the economy are now seriously suggesting that they should have the keys back. We had chronic neglect of the north of England and of manufacturing in particular under the previous Government while they added 1 million people to the public sector payroll. All that was disastrous for my constituency of Redcar. The Liberal Democrats have a clear plan. We want to cut less than the Tory party and borrow less than the Labour party. We think that that is the right way forward to a stronger economy and a fairer society.

Stamp Duty Land Tax Bill

Ian Swales Excerpts

Monday 12th January 2015 Commons Chamber

[Shabana Mahmood]

I am delighted that the hon. Gentleman has given me an opportunity to tell his constituents that their fears are entirely misplaced. Anyone who publishes literature suggesting that the threshold will lower is doing nothing more than scaremongering. As we have made clear, the number of high-value properties will not increase, because the indexation of the threshold will be in line with the average rise in value for the highest-value properties. That means that the number of properties caught by the tax is not expected to increase. I am, as I say, delighted that the hon. Gentleman has given me an opportunity to reassure people who are currently living in properties that are below the £2 million threshold that they will not be caught by our proposed mansion tax.

The Minister explained that the changes in the Bill would not apply to commercial property, and I am grateful for his clarification of the Government’s thinking. However, I should like to press him a little further on a couple of matters. First, one of the reasons why the Government were so keen to proceed with stamp duty changes applying to residential property was their anxiety about labour mobility. Has any thought been given to the impact on business mobility of maintaining the slab structure for commercial property transactions?

Secondly, changes will come into effect later this year in Scotland, where stamp duty is now a devolved matter. The Scottish Government will introduce a land and buildings transaction tax, which will apply to both residential and commercial properties. Have the Minister and the Treasury considered whether there is a risk that England might be disadvantaged, particularly in relation to business mobility? Does the Minister agree that the differential in the treatment of commercial property in Scotland and England is not ideal, and is the Treasury taking account of that aspect of the changes?

Finally, I want to raise a point that has been highlighted by the Chartered Institute of Taxation. It noted the different treatment given to definitions of residential dwellings, and observed that clause 1(3) inserts new subsection 1B:

“If the relevant land consists entirely of residential property and the transaction is not one of a number of linked transactions, the amount of tax chargeable is”,

and so on. The CIOT notes that various amendments to the tax system, including the introduction of the annual tax on enveloped dwellings, or ATED, have led to subtly different definitions of “residential” property for the purposes of SDLT. In schedule 29A to the Finance Act 2004 there is different treatment for investment-regulated pensions and potentially for capital gains tax, capital gains tax-related ATED, business investment relief for non-domiciliaries, capital allowances and VAT.

The Minister and I have had a number of debates when discussing other Bills about the different treatment given to particular phrases in employment law as against taxation law. There seems to be a nuanced difference in the way residential dwellings will be identified in these different elements of different taxes. I am concerned that inconsistencies are creeping in, which lead to complexity and create more work for lawyers. They will welcome that, of course, but ordinary taxpayers will not. It would be helpful if the Minister could give us his comments on those differences in definitions and say whether the Government are considering clarifying that.

[Ian Swales (Redcar) (LD)]

I will keep my remarks brief. I have spoken in each previous debate and do not have a great deal to add. My party very much supports these measures and, as I have said in previous debates, dealing with the slab system that we had and the consequent cliff edges and removing the incentives for strange behaviour and sub-optimal activity has to be the right thing to do.

I have only one point to add, which partly follows on from the remarks of the right hon. Member for Wokingham (Mr Redwood) and the assessments of the Office for Budget Responsibility. I would have thought that the taxation of a fixed asset transfer like this, with the certainty that that implies, would mean this is a very low risk method of changing a tax system, but if the OBR regards it as medium to high risk, and if the right hon. Gentleman is suggesting there may be more complex effects that I have not understood, I would like the Minister to clarify whether I am missing something. I would have thought this was a very straightforward way of raising taxes in a highly certain manner—and certainty is, of course, one of the hallmarks of a good tax system.

I will not detain the Committee any longer. Our party supports these measures. They affect 98% of the population favourably, and, broadly speaking, the other 2% are millionaires, and therefore those with the broadest shoulders. I am pleased that through this Bill this Government have found yet another way to help deliver a small amount of redistribution, with the pain felt by those with the broadest shoulders. The support for it is universal in my constituency, as I think everybody will be a winner. Overall, these measures will lead to a more liquid housing market and therefore a stronger economy, and they also make the system fairer.

[Mr Redwood]

First, may I remind the Committee that, as listed in the register of Members’ interests, I provide advice to an industrial company and an investment company?

The Minister has produced what is on the whole an excellent scheme. I support most of it and was one of those, along with my hon. Friend the Member for St Albans (Mrs Main), who was lobbying hard to get this major reform through. I congratulate the Minister and the Chancellor on dealing with the problems that the slab system created. The peaks and the dead areas were damaging to the property market and made it difficult for some people to buy or sell properties in certain price ranges. The system probably distorted pricing as well, to the benefit of some people and the detriment of others. It is therefore good that we have smoothed it out and introduced a more sensible progression up to £937,000, where most of the transactions lie. The new arrangements will represent a fairer, lower-cost system for practically all transactions, which is wholly admirable.

I want to tease out a little more information about the rather pessimistic forecasts of how much revenue will be lost up to the end of this decade. It is clear from the figures that cutting the higher rate of income tax has produced considerable extra revenue, as it was bound to do, given that the previous rate deterred people or meant that they did not come here at all. It is also clear from the figures that the much higher rate of capital gains tax has been very damaging to revenues, which are still miles below where they were prior to the crash. This is a difficult one to call, and I am not saying to the Minister that the proposals would either damage or increase revenues. I am merely suggesting that the Treasury’s forecasts for that lengthy time period could prove to be inaccurate, and that it would be nice to unpack those forecasts in order to understand what the Treasury thinks is going on.

The problem with trying to forecast the revenues at this juncture is that, on the one hand, we have seen a slowing of the mortgage market in recent months through regulatory intervention, and we would therefore expect fewer transactions because the regulators and the banks are now being much tougher about mortgages. On the other hand, however, we have Government intervention trying to mitigate that effect through the very successful and helpful Help to Buy scheme, which I believe to be necessary. It is certainly helping people in my area to buy their own home. However, the net result of these arrangements seems to be a dampening of transactions, and we must bear that in mind when trying to judge the impact of those policies and to assess the impact of the stamp duty change. All things being equal, we should expect to see an increase in the volume of transactions under the £937,000 level because buying such homes will be a bit cheaper, and in certain price bands we will see activity occurring that would not have occurred at all because of the slab effect.

--- Later in debate ---

The overall impact will be additional revenue being raised at the top end—those transactions above £937,000 where a higher rate would apply. Even accepting that there may be an impact on the number of transactions and on property prices, the changes in the amount of stamp duty paid per transaction will mean that the overall effect will be to bring in revenue. But the reverse process applies for the vast majority of transactions where there is a reduction in rates. We may see more transactions and prices increasing slightly, which means that a slightly higher amount of SDLT will be paid. But the overall effect will be less revenue from those areas.

[Ian Swales]

I thank the Minister for giving way and for his very helpful clarification. It is worth putting it on the record that the opportunities for avoidance of this particular tax, such as time shifting, charging different expenses and reclassifying income or capital gains, are simply not there against a fixed asset of this nature. Although I accept his clarification around those behavioural effects, it is worth saying that the public will not have any opportunities to avoid this tax in the way that they might avoid other taxes.