Finance (No. 2) Bill

Debate between Ian Swales and Shabana Mahmood

Wednesday 25th March 2015 Commons Chamber

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

Bankers’ Bonuses and the Banking Industry

Debate between Ian Swales and Shabana Mahmood

Wednesday 25th February 2015 Commons Chamber

[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.]

Stamp Duty Land Tax Bill

Debate between Ian Swales and Shabana Mahmood

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.

Diverted Profits Tax

Debate between Ian Swales and Shabana Mahmood

Wednesday 7th January 2015 Westminster Hall

[Shabana Mahmood]

I am grateful to the hon. Gentleman for giving me the opportunity to highlight Labour policy in this debate. A few months ago, we published a paper on corporate taxation that included a section on the Crown dependencies and overseas territories. We have made the commitment that, if we win the general election, we will require the Crown dependencies and overseas territories to publish a public register of beneficial ownership. That is the key demand of all in the wider tax justice and fairness community, and it would shine a light on the true owners of businesses based in the Crown dependencies and overseas territories. The Government have spoken a great deal about doing something similar, but I think it is fair to say, without being party political, that progress has stalled. We have gone further by saying that we will ensure that that process happens. I have already taken the conversation forward with Ministers and other officials from the Crown dependencies and overseas territories.

[Ian Swales]

The hon. Lady makes an interesting point. Recently, I met officials from Jersey and Guernsey, and although transparency might be part of the issue, a lot of the arrangements that shift profit out of the UK are totally transparent. The issue is not transparency, but the arrangements themselves and, for example, the allowance of huge interest payments. I know that the debate is not about Labour party policy, but since we have strayed into that area, would her party do anything about such arrangements? A lot of them occurred under the Labour Government’s watch.

[Shabana Mahmood]

Of course we will look at particular arrangements, but transparency is the starting point. The Prime Minister famously said that

“sunlight is the best disinfectant”.

There has already been some opposition to our proposals, which suggests that there is real gain to be made from a much more transparent system for the Crown dependencies and overseas territories. That will be our start point, but we will continue to look at the other issues mentioned by the hon. Gentleman.

While we are on the subject, I would be interested to hear from the Minister about the Government’s approach to tax transparency policy with regard to the diverted profits tax. She will know that, in its paper on corporate taxation published a few months ago, the Labour party committed to going a little further on the broader issue of tax transparency and country-by-country reporting of business profits than the Government have done so far. We will support multilateral action, because we think that that is the right start point, but if multilateral agreement is not reached, we are prepared to take unilateral action on public tax transparency.

The Government have fully rejected that approach, saying that it will create too large a burden on business and that, were the UK to take unilateral action on tax transparency and country-by-country reporting, it would negatively affect the UK’s tax competitiveness. The Minister is well aware that both those arguments apply equally to unilateral action on the diverted profits tax. Will she explain why the Government have used those arguments to block potential unilateral action on country-by-country reporting in the form of a public register, but are dismissive of the same concerns when they are raised by others regarding unilateral action on the diverted profits tax?

It is important to understand why the Government think that those arguments do not apply, because although we may disagree with the criticisms made by business, in particular in relation to the diverted profits tax, it is important to understand the values and philosophical thinking behind the Government’s approach, because that will give us an indication of where policy is likely to go. I would appreciate the Minister’s detailed comments on that.

Other hon. Members expressed concerns about the potential for legal challenge. The Minister is aware that there is substantial scope for discretion in the application of the new rules. Although I was not a tax specialist, as a former lawyer, whenever I see the word “discretion” I know that for lawyers it basically means that there is lots of money to be made—a point also made by other hon. Members. What assessment have the Government made of the possibility of challenges within both EU law and the terms of the UK’s various double taxation treaties? My working assumption was that conversations have already been had, particularly in relation to the double taxation treaties. Nevertheless, it would be helpful if the Minister could update us and perhaps also give further details on HMRC resourcing, particularly for known areas of risk of legal challenge.

The Exchequer impact was also mentioned. Given that the draft legislation casts a broader net than was anticipated in the lead-up to the autumn statement, it is unclear why the revenue associated with the measure is quite so low, comparatively speaking. For example, we know that Google and Amazon alone generate somewhere in the region of £7.5 billion of UK revenue between them. A £360 million tax boost at a corporation tax rate of 20% would imply taxable profits of £1.8 billion, which an aggressive interpretation of the rules could attribute to those two companies alone. The projected yield therefore implies some combination of caution and, potentially, significant ongoing royalty deductions from UK corporation tax, behavioural change, and the anticipation of legal challenges. Again, it would be helpful if the Minister could explain exactly what the Government had in mind when modelling the Exchequer impact of the changes.

Avoidance is a continuing issue. Whenever new rules are introduced, one of the first things we must all look for is the potential for avoidance opportunities. One method for avoiding the rules might be the relocation of businesses where the business model does not require a physical footprint in the UK. Have the Government done any work in consideration of such issues? The new rules read much more like a TAAR—targeted anti-avoidance rule. In the past year, I have had a number of discussions in Committee with the Minister’s colleague, the Financial Secretary to the Treasury, the hon. Member for South West Hertfordshire (Mr Gauke), about the use of targeted anti-avoidance rules to support the tax avoidance measures that the Government have introduced, and I have wondered whether we might also end up discussing a TAAR for this particular TAAR. Again, it would be helpful if the Minister could explain where the Government are coming from on that.

Has the Treasury done any modelling to take account of copycat or so-called retaliatory legislation from other countries? Could the UK ultimately be a net loser? We have some intellectual property-heavy sectors in our country, particularly pharmaceuticals and media. If other countries introduce similar rules, that would affect the UK, potentially making us a net loser. I am sure that the Treasury has done some work on such issues; we should know more about them in order to illuminate the debate.

Finally, where does the Minister think the new measures leave the general anti-abuse rule—GAAR—for which the Government legislated earlier in this Parliament? Tax lawyers in particular have commented that we are seeing much more complicated new legislation, rather than better use of existing legislation, including the GAAR and, potentially, transfer pricing rules and other elements of the tax system that people feel are currently not necessarily enforced. The combination of those two measures could have dealt with many of the issues that have been raised. Instead, the Government have decided to introduce an entirely new tax. Where do they think that that leaves the wider legislative framework?

The Opposition’s general approach is supportive, and we will seek to be constructive as we debate these issues further ahead of the Finance Bill 2015.

Taxation of Pensions Bill

Debate between Ian Swales and Shabana Mahmood

Wednesday 29th October 2014 Commons Chamber

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

It is a pleasure to close this debate for the Opposition.

There have been only a few Back-Bench speeches, but they have all been insightful and valuable. The hon. Member for Reigate (Crispin Blunt) was spot on when he spoke about a deficit of consumer awareness and said that the FCA will have to be alert to the needs of all consumers across the spectrum.

My hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) sits on the Pension Schemes Public Bill Committee. He spoke at length about the evidence that was given by Mr Greenwood. I am not on that Committee, but I found the points he made about that evidence telling and concerning. I hope that the Exchequer Secretary will respond to those issues.

In particular, my hon. Friend highlighted the potential opportunities for tax avoidance. I am sure that Members across the House will want to interrogate the measures in this Bill and the Pension Schemes Bill in detail to ensure that revenues to the Exchequer are protected. I hope that the Exchequer Secretary will say more about the Government’s view of the number of employers—my hon. Friend gave the figure of 192 from the evidence that was given to the Pension Schemes Public Bill Committee—who are looking at mechanisms to exploit the changes to the pension taxation rules as a ruse to reduce employer’s national insurance contributions.

The hon. Member for Amber Valley (Nigel Mills) was right to say that we want to avoid the two extremes that he highlighted. He was also right to speak about the importance of getting the guidance to work properly. He raised an important point in asking what will be the default setting for people who have been auto-enrolled and have a pot of money, but who simply do not engage with the process. It is important to get into the nitty-gritty of what will happen in practice in such scenarios. Again, I hope that the Exchequer Secretary will respond to those issues.

The hon. Member for Redcar (Ian Swales) was right to begin his speech by reminding us of previous scandals and the lengths to which unscrupulous individuals have gone, and he concentrated our minds on ensuring that such issues do not arise again. He was right to say that we must get the guidance right first time because it only happens once for each person. That should concentrate the minds of all Members on ensuring that we get the guidance absolutely right.

The shadow Financial Secretary, my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), made it clear that we support the principle of increased flexibility for people in retirement and the reform of the pensions market so that people get a better deal. We are therefore not against the principle that people should be allowed to exercise choice. However, this is a big Bill that contains big changes that will affect tens of thousands of people, if not more, immediately. Just this week, research published by Ipsos MORI suggested that 200,000 people may choose to take their entire pension in one go next April, creating a potential tax windfall for the Treasury of £1.6 billion.

It is fair to say that some issues that are debated in this place appear to be removed from the outside world. This is not one of those occasions, as the figures show. We therefore have a bigger immediate responsibility on this occasion to get the Bill absolutely right. Although I reiterate our support for increased flexibility, I do so with a word of caution, because that flexibility will be exercised by people who have a deeply variable understanding of the marketplace in which they are operating.

The Ipsos MORI poll also showed that only a third of those planning to take out their pension pot were aware of the tax that they would pay should they take out their entire sum in one go. The 2012 Department for Work and Pensions attitude to pensions survey noted that half the respondents had no prior knowledge of annuities before being asked the questions in the survey. The Financial Services Consumer Panel also published a report, in December 2013, which said that the

“market does not work well for the majority of consumers.”

One of its key findings was that consumers were poorly placed to drive effective competition among providers and distributers of annuities. It said:

“There are many barriers inhibiting consumers’ full engagement when they decide to annuitise: low financial capability; fear of product complexity and of making an irreversible, high-cost mistake; general distrust of professional advisers, and inability to find appropriate advice at acceptable cost.”

The Bill will operate in that context, not in some fantasy world in which the majority of the electorate has an in-depth understanding of the pension marketplace. That is not to say that a greater understanding cannot be fostered, because, as we know, the same DWP survey shows an increase in the awareness of annuities between 2012 and the previous survey in 2009. However, in some cases we start from a very low base.

We also have a social responsibility to get this right. This policy needs to be fair. Successive Governments have invested in pension relief to support people in retirement. As the Government have said, it is an annual investment of £22.8 billion, and it is important that we ensure that the taxpayer gets good value for money for that. It is money that belongs to all taxpayers, even those for whom a private pension or a workplace pension are out of reach. We must ensure that the relief given generates the consequences intended, the main one of which is income in retirement, not income for other things.

[Ian Swales]

The shadow Minister raises a good point about the relief, but pensions are taxable when they are paid out, so it is important not to suggest that £22.8 billion is the net cost of the pension system. The money may be taxed at a different rate, but it will be taxed when it comes out.

[Shabana Mahmood]

I was simply making the point that the reliefs are there for a reason and we have to ensure that they work for the benefit of all taxpayers, but the hon. Gentleman is right.

There is also the hard-nosed political test of making sure it is not the Government who are picking up the pieces if this all goes wrong. I reiterate our support for increased flexibility, but we have to acknowledge that this particular system has built-in risks. Under the new arrangements, a pension pot of £100,000 could be used to secure an annuity of about £6,500 that, added to the state pension, would yield the recipient a little over the UK’s national pension income, according to HMRC’s 2013 figures. Of course, it could be drawn out in one lump sum to buy the proverbial Lamborghini—it would probably have to be a second-hand one because they cost closer to £250,000 than £100,000. But what would happen then? If the recipient in question has not made the necessary contributions to receive the single-tier pension, when it comes in, will their pension be topped up to the accepted minimum level? That is not yet clear. This potentially leaves us in a dubious ethical position as well as a financially precarious one.

Our responsibilities to get this right are clear. It will affect many people, and we have both a social and financial responsibility to make sure that the changes work properly. Given that those changes are so significant, I would have expected extensive consultation by the Government before the announcements were made, but unfortunately that was not the case. As my hon. Friend the Member for Kilmarnock and Loudoun said, despite beginning well, with work on the single-tier pension and auto-enrolment—policies based on evidence, consultation and consensus, which built on the work of the previous Government—these reforms have been rushed and somewhat erratic. The Government did not consult before making the announcements, either with consumers or with the industry. Nor have the Government allowed sufficient time for the changes to be executed.

Despite the enormity of the change and the change of emphasis from the importance of accumulation to the ease of access, we are left in a situation in which outside experts are lamenting the lack of time to get this right. Regarding the need for proper guidance for consumers, the ABI’s director general said:

“The guidance guarantee is a crucial part of the Government’s pension reform, and the industry fully supports the Government’s intention to provide free, impartial guidance to savers on their options as from next April. But time is not on our side. No one should under-estimate the work that needs to be done to make this a reality, which is why the Government have some urgent decisions to make.”

We have to ask why the Government are in such a hurry to push through reforms when some of the essential underpinning to make them work seems to be missing. I have to say I am glad that I will not be in the first tranche of retirees to experience these reforms, unlike the hon. Member for Redcar.

That brings us to the issue of good guidance, or lack thereof. We know that changes of this magnitude will bring a significant number of new products to the market. That is not in itself a bad thing, as some products will be better than others; that is the nature of the marketplace. It is also well recognised that on the whole there is a requirement to ensure that consumers are far better informed—I have already outlined the evidence provided by the Financial Services Consumer Panel. However, in addition to extensive consultation, we would expect the Government to have done significant work on the guidance mechanisms before making the announcement in the Budget, but unfortunately that was not the case. From the start, a significant level of confusion has surrounded what the Government meant when they said that reforms would be accompanied by “advice”. It later transpired that it was not “advice” that would be provided, but rather “guidance”. That is an important distinction, as we have heard, since guidance carries none of the same legal protections as advice, which is regulated and therefore considerably more expensive to provide.

When the Government have been pushed on the matter, I am afraid their language has been far from reassuring, to the extent that the measure looks like a mere add-on to the whole pension reform programme. In my opinion, that suggests a slightly cavalier attitude, which may prove to be short-sighted. The Financial Conduct Authority’s consultation, “Retirement reforms and the Guidance Guarantee”, stated that,

“to be effective the guidance will need to be tailored, providing consumers with sufficient personalised information, so that they can understand their options and make confident, informed decisions about their retirement choices.”

We appear to be getting something far less useful. In evidence to the Work and Pensions Committee in April, the Pensions Minister suggested that guidance will be more general in nature:

“The thing we are talking about is free to the customer. There is no charge for it. It is what we call ‘guidance’, rather than independent financial advice, so it is not formal, detailed or product-specific; you can go and buy that if you want to, but this is familiarising people with the options they have, and some of the concepts, even. Most people do not know what an annuity is.”

There is much that we do not know. We do not know the detail of what will be funded, the level of levy used to pay for it, what the guidance will be expected to cover, or what it is expected to achieve. Even at the end of the debate, we appear to have more questions than answers—questions that go to the heart of issues that will be central to ensuring that the programme works. We will be picking up on those issues of detail, fairness and guidance when the Bill reaches Committee.

Finance Bill

Debate between Ian Swales and Shabana Mahmood

Tuesday 1st July 2014 Commons Chamber

[Shabana Mahmood]

My hon. Friend makes an excellent point. He is of course right that this is a huge sum of money and that people are rightly concerned that £35 billion-worth of tax is potentially going uncollected in our country.

[Ian Swales]

I am certainly no defender of the tax gap, and I am on record as having challenged the whole system of tax avoidance many times. However, does the hon. Lady know what the tax gap was in 2010 when the previous Government left office?

[Shabana Mahmood]

The truth is that any tax gap, however big or small, is unacceptable to the public, and strong action should always be taken to tackle it. I was about to say that I am grateful to the hon. Gentleman and that it was £32 billion. As I say, that is too high, and it has gone up to £35 billion under this Government. These large sums of money shake the public’s confidence when it comes to believing that the Government are doing everything they can to tackle tax avoidance.

--- Later in debate ---

[Shabana Mahmood]

No, I am going to make some more progress.

Tax avoidance and how to tackle it effectively and thereby close the tax gap remains a real problem for this Government, hence our new clause. We need more action from this Government, and where they fail the next Labour Government will step in. We are pushing the Government for greater action in three specific areas. Let me take each in turn.

[Ian Swales]

The hon. Lady talks about the next Labour Government. Does she wish to apologise for the slashing of the number of compliance and investigation staff by the previous Labour Government, to the point where this Government have had to add large numbers of people to carry out the work she so much wants?

[Shabana Mahmood]

Given the cuts at HMRC, this Government’s record on HMRC resources, which is a topic I regularly debate with the Minister, is not one for Members on the Government Benches to show off about.

First, let me take the issue of the quoted eurobonds exemption. That was originally implemented to make it easier for companies to obtain finance from the international bond markets by excluding corporate debt listed on recognised stock exchanges from UK withholding tax. Making it easier for companies to obtain finance on the international bond markets is a legitimate objective that we support. However, as covered in a spate of high-profile media stories last year, the exemption can also be used for tax avoidance purposes, allowing companies to shift profits out of the UK in the form of interest payments, without making any tax payment. As HMRC has noted:

“In recent years a number of groups have issued Eurobonds between companies in the same group, and listed them on stock exchanges in territories such as the Channel Islands and Cayman Islands, where they are not actually traded. In effect, the conversion of existing inter-company debt into quoted Eurobonds enables a company to make gross payments of interest out of the UK to a fellow group company, where otherwise deduction of tax would be required.”

The Government consulted on the issue in 2012, with HMRC proposing to amend the eurobond exemption so it would not apply where the eurobond is issued to a fellow group company and listed on a stock exchange on which there is no substantial or regular trading in the eurobond. HMRC stated:

“The effect of the amended rule would be to leave untouched the quoted Eurobond exemption for the overwhelming majority of Eurobond issues. It would deny the exemption only in the case of intra-group Eurobond issues that appear to be undertaken for the purpose of circumventing the requirement to deduct tax at source rather than being directed at the raising of third party finance.”

Despite HMRC estimating that the proposed restriction could have an extra impact of £200 million a year, in their response, the Government stated that they did not intend to proceed with it. Why not? Well, the Government said they made that decision in the “light of the responses” they received around a number of technical issues and after respondents questioned the positive Exchequer effect set out in the impact assessment.

That is simply not good enough. We say that abuse of the exemption can be shut down and must be shut down. Our proposals will explore removing the exemption where bonds are issued to connected persons, such as where a subsidiary issues a bond to a corporate parent or its private equity fund owners. To minimise disruption to private equity funds using the mechanism to simplify investor rebate claims under double taxation treaties, we would explore either offering an exemption for private equity partnerships where all, or the vast majority of, the ultimate beneficiaries would qualify for double taxation relief, or streamlining the withholding tax rebate process in consultation with the industry. So there is a mechanism to shut down the abuse of the exemption. It could and should have been taken up by the Government.

The estimates of the Exchequer impact of closing the loophole range from £1 billion to the Government’s estimate of about £200 million, with many more commentators saying that they would place it at about £500 million. In a letter to me dated 4 March 2014, the Minister said:

“Some newspapers quoted a figure of £500m for the tax at risk. This appears to be based on the unrealistic assumption that the interest paid out of the UK had not been restricted for tax purposes and that the beneficial recipient would not be entitled to gross payment. You will appreciate that I cannot discuss individual cases, but HMRC has confirmed to me that computational adjustments are frequently made. Consequently, the £500m sum is very wide of the mark. Any change here will not raise any significant yield.”

I was interested in that response, for which I was grateful and which I received after I had tabled a number of questions about the quoted eurobond exemption, because it displayed a concerning lack of clarity. The Minister says that the numbers quoted are “wide of the mark” but he does not say where the mark actually is. That is surprising, given that HRMC and the Minister have examined this in detail and have consulted on it, and given that they tell us that “computational adjustments” are regularly made for it. Despite that, still no figure has been given.

--- Later in debate ---

[Shabana Mahmood]

I would be happy to have a long conversation with the hon. Gentleman about all the different experts, but let me just say that our experts were drawn from across the business and legal worlds. They gave advice and assisted us in thinking through many of the issues related to the abuse of the quoted eurobonds exemption. I will not take this opportunity to put that advice on the record, because I have not sought the permission of those experts to make public some of the assistance and advice that they have given to us. However, our paper is thorough on the issue of how we would seek to close down abuse of the exemption. That tells the House that we have considered these issues deeply, and have thought through all of the problems that might arise from the different attempts to close down the exemption.

I was talking about yield, and how far a potential yield should dictate the Government’s policy in deciding whether to close down an abuse of the system. I referred to the business premises renovation allowance in clause 61. The Government have taken action to close down some of the abuse associated with that allowance, but the impact on the Exchequer was, we were told, negligible. So we see the Government proactively closing down a loophole in which the Exchequer impact is expected to be minimal, but where a loophole exists that is estimated to cost the Exchequer upwards of £200 million a year, they do nothing. How can they justify their decision not to take action to prevent the abusive use of the eurobonds exemption when there are hundreds of millions of pounds at stake?

The potential complexity of the change that would be required is no justification for the failure to act. It has not stopped this Government on other measures, including on the business premises renovation allowance. There seems to be no reason—not money, complexity or anything else—that could stop the Government from acting other than intense lobbying from the affected parties seeking to protect their own interests.

The Government have failed to act, but our new clause gives them the opportunity to do so. If they do not act, the next Labour Government will.

[Ian Swales]

rose—

[Shabana Mahmood]

I want to make some more progress.

Secondly, we want to push the Government to take action on disguised employment in the construction industry. Employers falsely declaring their workers to be self-employed is a long-standing and well-documented issue in the sector. Although there is of course some necessary and genuine self-employment in the sector, employers are currently able to declare someone to be self-employed when they exhibit all of the characteristics of an employee.

That results in three problems. The first is a cost to the Exchequer. The Treasury has estimated that that entailed a static cost of £350 million in 2009 and the House of Commons Library recently produced an estimate of about £500 million. The second problem is that those falsely classified as self-employed are denied their employment rights. That means that workers might work for the same company for several years, effectively as an employee, while not receiving any of the resulting employment rights, such as sick pay, holiday pay and maternity and paternity leave.

Section 5 of the European Communities (Amendment) Act 1993

Debate between Ian Swales and Shabana Mahmood

Wednesday 30th April 2014 Commons Chamber

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

I am grateful to the new Financial Secretary to the Treasury for her introduction to the debate, and I congratulate her on her promotion to her new post. I look forward to continuing the debate with her in the Finance Bill Committee, which got off to such a strong start yesterday.

When I first looked at the motion, I was mystified about the nature of the debate, which is why I have thanked the Financial Secretary for her introduction to it. The motion, as framed, does not exactly leap off the Order Paper. When Members go to the Vote Office, as I did to find the convergence documents, they will find that the motion still does not quite leap out at us in respect of what is going on in the House this afternoon. That situation is not a state of affairs that is alien to Members, given that we often have to debate issues that can sometimes seem impenetrable to those on the outside, and often to those on the inside too.

Let us turn to what could be described as “minus page 2” of the Red Book. I thought it quite telling that underneath a note about the Crown copyright and the ISBN number, are the words:

“Printed on paper containing 75% recycled fibre”,

and

“The Budget report, combined with the Office for Budget Responsibility’s Economic and fiscal outlook, constitutes the Government’s assessment under section 5 of the European Communities (Amendment) Act 1993”.

That is relevant to today’s debate, as the Minister helpfully outlined in her introduction. This is in a very small font and is easy to miss, and it is not immediately clear what it really means.

Looking at the 1993 Act, Members will have spotted that it refers to the Maastricht treaty, article 2 of which states:

“The Community shall have as its task...a harmonious and balanced development of economic activities, sustainable and non-inflationary growth”.

Article 103 is relevant, too, as it talks about economic policies being a “matter of common concern” that should be co-ordinated within the Council. For some Members of all parties, these are the sort of words that are difficult to stomach. That article continues:

“For the purpose of this multilateral surveillance, Member States shall forward information to the Commission about important measures taken by them in the field of their economic policy”.

Once we break through the rather impenetrable language and the odd nature of this old treaty obligation, the emphasis of which has changed from when the obligation was made to the state of play within the EU today, what we get to is the fact that the House is essentially being asked to approve the Budget Red Book as a true and accurate reflection of what is happening in the UK economy. When we are finally able to frame the question in that way—asking whether the Red Book is in and of itself a true and accurate reflection of that—I would have to say, “Where shall I start?” It will probably not surprise Government Members to know that the Opposition do not consider it a true and accurate reflection of what is happening in the UK economy

Let me start with the top line of page 4 of the Red Book:

“The government’s long-term economic plan is underpinned by its commitment to fairness.”

I seem to remember that during the run-up to the last general election, before the Government began their life in the current Parliament, the right hon. Member for Tatton (Mr Osborne), who was to become Chancellor of the Exchequer, uttered his famous line about how they were not going to balance the books on the backs of the poor. There was also that other famous line about how we were all in it together. On the face of it, who could say that those sentiments were wrong? Certainly, if they had proved to be genuine, we should be in a very different place.

At the heart of those lines of rhetoric, however, is the implication of a deep commitment to fairness. My charge against the Government is that that commitment—and the “commitment to fairness” to which the Red Book refers—can only be seen as genuine if we accept that “fairness” can describe an economic plan that gives a huge tax cut to the wealthiest in our country. In the 2012 Budget, the Government announced a tax cut for millionaires that would be worth an average of £100,000 to each of them—a sum that is far out of the reach of millions of people in our country today. Meanwhile, the Government are presiding over what might be termed one of our more successful growth industries, which, unfortunately, happens to be the food bank industry. The number of people receiving three days of emergency food has grown from 67,000 four years ago to 913,000. How can it possibly be true that, as the Red Book states, the Government have a deep “commitment to fairness”, when the richest members of our society receive a huge tax cut while the poorest, in ever growing numbers, are being forced to use food banks?

[Ian Swales]

Perhaps the shadow Minister will quote another statement in the Red Book, namely the statement that net income inequality is at its lowest since 1986. The period following that year has included 13 years of her party in government.

[Shabana Mahmood]

Later in my speech, I shall deal directly with issues relating to household income and what is happening to the ability of families on low and middle incomes to make ends meet.

--- Later in debate ---

[Shabana Mahmood]

I am grateful to the hon. Gentleman for his intervention, but he will not be surprised to learn that I wholly reject the point he makes. Government Members often try to lay the whole cause of the global financial crisis at the door of the previous Labour Government, but it was a global financial crisis that affected countries all over the world; the Labour Government were not responsible for the fall of Lehman Brothers in the United States. That is the first point I would make in response to him. The second point is that this Government have now been in power for four years and they cannot keep trying to get off the hook about their own record. The important point is that they set a target for themselves. Previous Red Books show what was supposed to happen with this programme of fiscal consolidation, but it has not proceeded at the pace the Government set for themselves. That is not spelt out clearly in the Red Book in open language that anybody could understand.

Anyone looking at the Red Book would be forgiven for thinking that these are halcyon days and everything is exactly as it was always planned to be, but that is not a true and accurate reflection of what is happening in the economy. On page 1 of the Red Book, in a section from which the Minister quoted, we see that

“GDP growth has exceeded forecasts”.

It also states that

“the deficit as a share of GDP is forecast to have fallen by a half by 2014-15 compared to 2009-10”.

Again, that implies, “Everything is okay. Move along. There is nothing to see here.”

Yesterday’s growth figures and the 0.8% growth we have seen in the first quarter are welcome, but they do not make up for the previous three years of flatlining in the economy. We have to remember that in quarter 2 of 2010, growth was at 1.2%, and in 2010 after coming into power the Chancellor said that the economy would have grown by 8.4% by now, whereas in fact it has grown by just 3.8%, which is less than half of what he forecast. Again, what has happened is not quite as rosy when compared with what was supposed to happen in terms of the challenge the Chancellor set himself. It is also not as rosy a picture as is painted in the Red Book.

Let me deal with the point about personal allowances raised by the right hon. Member for Chelmsford (Mr Burns). We see a similar flannelling about what is really going on in the economy when we look at the impact of tax and benefit changes on people on lower and middle incomes and, in particular, on the interplay with their living standards. The Red Book tells us that

“a typical basic rate taxpayer will pay £705 less income tax…in cash terms than they would have paid in 2010-11.”

Page 10 of the Red Book tells us that pressures on household budgets “have eased”, but that is simply not the experience of millions of people on lower and middle incomes in our country. I fail to see how that statement can be true at the same time as the OBR tells us that wages will be 5.6% down in 2015 compared with 2010.

Treasury Ministers have failed to admit that latter point; they have been asked a number of times to accept that the OBR has said that wages will be 5.6% down, but no Treasury Minister has ever answered yes or no to that question. I will happily give way to the Financial Secretary if she wants to confirm that that is the case, but she is looking at her papers and I think she is going to do what every other Treasury Minister and colleague of hers has done, which is duck the opportunity to confirm on the Floor of the House and for the benefit of the record that the OBR is right in saying that wages will be 5.6% down in 2015 on the 2010 level.

[Ian Swales]

I am listening to the hon. Lady’s arguments. Would she like to add that because the income tax cut is a flat-rate amount it has the biggest impact on the low-paid and that the low-paid, particularly those on the minimum wage, have had a real-terms increase in their net pay?

[Shabana Mahmood]

And yet people in our country are on average £1,600 a year worse off. Let us look at the combined impact of tax and benefit changes. The Institute for Fiscal Studies figures, analysed for us by the House of Commons Library, show that on average people will by next year be about £1,000 a year worse off. This comes back to the central point: the Government say in the Red Book that pressures on household budgets are easing, but people are worse off, and not by trifling amounts, such as a tenner or £20 quid—they are worse off by nearly £1,000. That is a huge sum and it has a huge impact on a family’s ability to make ends meet.

The Government talk a lot about the personal allowance, and when the charge is made that ordinary people are suffering a deep-seated cost of living crisis, they often say, “But of course we have taken a large number of people out of tax altogether because of the increase in the personal allowance.” Although the personal allowance increases have been welcomed and supported by everybody across the House, they do not in and of themselves give a family the ability to make ends meet. We still have people who are desperately struggling, and who have their head in their hands every time a bill comes through the door. The truth remains that people on lower and middle incomes are worse off, and they will be worse off at the end of this Parliament than they were at the beginning of it. The balm offered, by the increases in the personal allowance in particular, is not enough to heal the deep wound that has been inflicted by all the other changes this Government have implemented since they have been in power. As I say, the combined impact of tax and benefit changes means that by next year people on lower and middle incomes will be about £1,000 a year worse off.

The Red Book also talks a lot about the Government’s economic policy in relation to savers. The Chancellor famously said:

“If you are a maker, a doer or a saver, this Budget is for you.”—[Official Report, 19 March 2014; Vol. 577, c. 781.]

There was not much in the Budget and the Red Book to help those who are making do—the people struggling with the cost of living crisis. But for the savers, there is much in the Red Book: about retirement choices, individual savings accounts and other savings devices. The Red Book has twice as much about savers as about supporting households. Again, however, it is not a true and accurate reflection of what is going on in the economy, because the Red Book fails to recognise that for many people saving, particularly at the moment, is a luxury that is desperately out of reach. I can imagine the welfare Minister I described earlier as being baffled about why people go to food banks being equally baffled about why people cannot save. People go to food banks because they have no money and they are going hungry. People do not save because they do not have any money left once they have met their other costs of living.

Hidden away in the documents that accompanied the Budget we found that the OBR says that the savings ratio has fallen in recent months and is projected to fall every year until 2018. I put that point to the Chancellor yesterday when I asked him to confirm that, despite his Budget for savers, the savings ratio is forecast to go down. He ducked the question and refused to accept that that is what the OBR is saying is happening to the savings ratio.

In recent weeks, we have had a number of surveys, particularly an important one carried out by the Money Advice Service, which have shown that 16 million British people are living life on the edge with no savings at all. Just 27% of people say that they can save on a monthly basis, and 37% say they have fewer savings now than they had last year. The truth, which we do not see in the Red Book, is that savers withdrew money from their accounts last year at the fastest rate for nearly four decades, according to Bank of England figures. Britons ended up taking out £23 billion from long-term savings in 2015. The ability of ordinary people on lower and middle incomes to save and to have enough money left over after the working week to put aside even £1 a day is fairly limited. Again, that is something that has not been spelt out in the Red Book.

Finance (No.2) Bill

Debate between Ian Swales and Shabana Mahmood

Tuesday 8th April 2014 Commons Chamber

[Shabana Mahmood]

I will come to the point about the different tax choices that we make and measuring their impact. Unlike the Minister, I do not have access to Treasury officials, so I am not versed in their methodology, but I do not deny that the Government’s corporation tax rate cuts in this Parliament, which we have supported, have benefited 2% of businesses. I will come later to the 98% of businesses that have not benefited from the cuts to the main rate of corporation tax, but which are struggling with the costs of running their business. The Opposition believe that the Government can and should go further in helping those businesses cope, in particular, with the business rates that they have seen increase.

[Ian Swales (Redcar) (LD)]

Will the hon. Lady acknowledge that the Government inherited plans to increase corporation tax for small businesses by 1%, but have cut it by 1%, so it is not true to say that the Government have done nothing for small businesses?

[Shabana Mahmood]

I will come to the Government’s record in helping small and medium-sized enterprises.

As I said, we have supported the reduction in the rate of corporation tax in this Parliament, except to raise concerns, which I am sure the Exchequer Secretary will remember, well before I was in my current post, about the financing of that change at the start of the Parliament by getting rid of investment allowances on which the Government have recently U-turned. But as the figures show, the change to the main rate of corporation tax, the central policy for business taxation, does not help 98% of business in this country. How are they faring under this Government?

Everyone agrees that SMEs are the engine of growth, a phrase that we hear regularly in the Chamber and the House, and it is also fair to say that they are part of our national life. High streets and corner shops are part of the very British way of life that we enjoy in this country. I have a personal affinity with these enterprises, as when I was younger, my parents had a corner shop. My first job was helping my parents by serving customers in our shop after school and at weekends, doing the stock-take and going with my dad to the cash-and-carry. Even if one did not grow up in such a business, they are easy to call to mind because there are so many of them. As I said, there are almost 5 million, and they are the heart and soul of our villages, towns and cities. They also provide about 47% of private sector jobs.

As for everyone—SMEs are no different—times have been tough, and SMEs have been struggling with a number of issues during this Parliament and I will come to the points raised by the hon. Gentleman. The first of those issues has been access to finance. Every time we discuss SMEs, access to finance is one of the key issues raised. It is fair to say that the Government have failed to get lending going to businesses. They are in their fourth year of office and their many schemes keep failing to have a significant and game-changing impact on the access to finance landscape. For example, business lending fell towards the end of last year as banks continued to squeeze funding for SMEs, despite attempts by the Bank of England to boost finance to the sector. Bank lending figures also show that businesses paid back £4.3 billion more than they had borrowed in the three months to the end of November. SMEs were the worst affected by that particular brake on lending, and that is despite the tweaks to the funding for lending scheme announced by the Bank that were designed to try to ensure that loans to smaller businesses would be favoured.

Although larger businesses can access the growing market for debt financing in the bond market, there is a problem for small businesses that are reliant on high street banks and specialist finance and lending businesses, which have become much more conservative in their lending practices since the global financial crash of 2008. SMEs have consistently reported that credit is either refused or offered at very high prices by the major lenders, as Members on both sides of the House must regularly hear from businesses in their constituencies. There has been much talk in this Parliament about the problems of access to finance for SMEs, but despite several different schemes being announced, the change in practices that is required if SMEs are to have the finance they need has not been seen.

That issue has also been considered by the Public Accounts Committee, which made a number of worrying findings in relation to the landscape for SMEs. It said:

“The departments’ schemes are managed as a series of ad hoc initiatives that are launched to address particular weaknesses in the market, rather than to act as a coherent programme.”

That is a real problem. The lack of a coherent programme from the Government, despite what I am sure are the best efforts of the Business Secretary and the Chancellor, has led to piecemeal action—a little bit here and a little bit there, but no overall drive to action, only some good rhetoric for set-piece debates in the Chamber, leading to not very much at all.

--- Later in debate ---

[Ian Swales]

Will the shadow Minister enlighten us on how the calculation of a £5,000 saving is made, and on what she predicts about prices before and after such a freeze?

[Shabana Mahmood]

The hon. Gentleman is welcome to see our detailed calculations, which I can provide to him and are a matter of public record. If he really wants auditing of manifesto commitments, he should support our call for the Office for Budget Responsibility to be allowed to audit parties’ manifestos. We have nothing to hide on the policies that we have announced and the numbers behind them. We are very happy for the OBR to look at all that and to prepare a report for the benefit of the public so that they can see that what we are saying is based on good numbers and is deliverable. If the Government—both parts of the Government—have nothing to hide, they should fully support our proposal on the OBR audit, which is a good one. I am glad that the hon. Gentleman has given me a chance to remind the House that it is not Labour Members who are scared to have their numbers looked at.

--- Later in debate ---

[Ian Swales]

rose—

[Shabana Mahmood]

I will not give way; I am going to make a little more progress.

As hon. Members will know, the level of business rates is set by the Treasury, although the revenues are collected locally. Business rates increase with inflation, and the rate of increase each April is set according to the rate of retail prices index inflation in the previous September. In September 2013, RPI was 3.2%, so business rates were due to rise by 3.2% this year. Of course, that was before the Government made their autumn statement announcement, which capped that increase at 2%. Business rates have risen rapidly during this Parliament because of high inflation. More than one in 10 small businesses now say that they spend the same or more on business rates as on rent. This April, businesses have been hit by a rise of £270, on average, at a total cost to business of £45 million.

--- Later in debate ---

[Shabana Mahmood]

I will come on to the point about tax avoidance. One option open to the Government to protect revenue from the 50p rate was to do more on tax avoidance. This is a Government who like to trumpet their record on tax avoidance, but they certainly ducked the opportunity when it came to dealing with potential avoidance in relation to the 50p rate.

[Ian Swales]

Will the hon. Lady give way?

[Shabana Mahmood]

I will not, because of a lack of time.

The HMRC report says that all the analysis and estimation is highly uncertain, as does the Institute for Fiscal Studies. The scale of behavioural change is ultimately decided by Ministers, and it is primarily based on an assessment of taxable income elasticity—TIE. The IFS says that there is a huge margin for error. Staying within that margin, one could easily say that, depending on the TIE, cutting the rate could cost £700 million or could raise £600 million. That gives us an idea of the range of figures that we are talking about and how uncertain the projections are.

It might have fitted the Government narrative for them to imply that they knew for certain that the 50p rate would raise only £100 million, but even on their figures and HMRC’s report, there is a huge margin for error and this is all very uncertain. That is not the only thing that was wrong with the analysis. The HMRC report was based on only one year’s worth of data—the data related to 2010-11—which is a weakness in itself. It came too early. Given the history of the introduction of the rate and the Government’s decision to cut it, the reliance on year one is a further weakness in the Government’s argument, because we know that incomes were taken earlier to avoid the 50p rate and as a result incomes in 2010 and 2011 were artificially lower, suggesting a lower yield. Hence our request for a review.

The original HMRC analysis does not give a true picture, was done too soon after the rate had been introduced and was based on only one year’s worth of data. Income figures for that year were lower than otherwise might have been the case because people brought their income forward to 2009-10 before the rate came into effect. No one has redone the analysis so we are still going on the figures from the 2012 Budget. The Government should, at the very least, update the analysis based on the more recent data and prepare the report that our amendment and new clause 4 call for. A comparison of 45p and 50p rates for those on incomes over £150,000 and £1 million would be instructive to the public debate about the top rate, especially as some Members on the Government Back Benches want to reduce the rate to 40p.

National Insurance (Contributions) Bill

Debate between Ian Swales and Shabana Mahmood

Tuesday 10th December 2013 Commons Chamber

[Shabana Mahmood]

I will repeat exactly what I said to the hon. Gentleman when we had this debate in Committee: we have been unequivocal in our support for employment allowance since it was introduced in the Budget earlier this year. We have taken every opportunity to say to the Minister and his colleagues in the Treasury team that it should be introduced sooner. We could not have been more unequivocal in our support.

The purpose of the review is not to put the employment allowance at risk. The regional national insurance employers’ holiday scheme had problems with take-up from the start. They were raised with Ministers in this House at every available opportunity—in oral and written questions—yet we had to wait for the full three years of the scheme to run before the Government brought forward a proposal without the same problems. That is the context for tabling new clause 1. We want employment allowance to succeed and not suffer from low take-up—we want it to be taken up. The Government say that it will be taken up by 90% of eligible employers. I am sure that all Members want to see 100% take-up, and there seems to be no real reason why 10% should be missed off. We want to ensure that take-up is not affected by any unforeseen issues during roll-out.

[Ian Swales]

Does the hon. Lady accept that she can comment on the previous scheme precisely because the Government keep all such schemes under review? Neither scheme needs a review to be in the Bill.

[Shabana Mahmood]

It would be helpful for the review to be in the Bill, as it would concentrate the Government’s mind in ensuring that it works. We had to wait the full three years for the previous scheme to finish before we had a change of course towards something that will not suffer the same problems. Both points are good reasons to include a review in the Bill.

In Committee, the Minister remarked on take-up and geographical location. I am sure all Members want the scheme to be taken up nationally, and for it not to be skewed by region because promotion is not good enough in some parts of the country and employers do not find out about it. We had a good debate on whether the review should consider the impact on the overall number of jobs and wage levels. I included both in the new clause because they are worth considering.

The Minister and other members of the Committee said that they hoped the £2,000 made available to employers through employment allowance will be passed on to employees, either by increasing wages or taking on more employees. There was also the hope that employers would be encouraged to reinvest that money in the business, in research or innovative practices to help productivity. It is worth trying to measure the impact of employment allowance on job levels and wage levels. I take on board the point made in Committee by the Minister, and by members of the Committee on both sides of the House, that the decision to either increase wages or take on new workers is, for any business owner, based on a number of factors, and that employment allowance may be one of them. The policy is not being introduced in a vacuum. There is a clear intent and desire for it to stimulate employment and, hopefully, an increase in wages.

It seems sensible at least to consider the relationship between the employment allowance and job and wage levels. The new clause does not envisage a methodology, but I remind the Minister and hon. Members that when the Bill was introduced, the Federation of Small Businesses carried out a survey asking its members what they expected to do with the £2,000 allowance, and many said that they would increase job or wage levels or reinvest in their business. Employer surveys and other stakeholder engagement methods would be useful means of interrogating the impact of the employment allowance on job and wage levels. It is worth putting that in the Bill.

[Ian Swales]

The hon. Lady makes an interesting argument, but who would be responsible for carrying out such a survey? Would the FSB, for example, be the best people to carry it out or does she envisage some kind of Government process?

[Shabana Mahmood]

In evidence to the Committee, the FSB said it would survey its members again anyway. The Government could look at that survey and work with the FSB to see how it surveys its members. They might want to take a representative cohort of people who have taken up the employment allowance; discuss with them its impact on their businesses; and then extrapolate lessons for national take-up. I do not seek to prescribe exactly how they should carry out the review—I am sure there are clever bods in the Treasury whose job it is to think of these things—but given what has happened already in this Parliament on national insurance, it is important that we concentrate the mind of the Government. The House expects and wants this policy to succeed and not to suffer the problems of the previous policy. It also wishes to continue pressing the Government on this point.

The last element of new clause 1 concerns the effective promotion of the employment allowance to all who are eligible. In particular, I have in mind the FSB’s evidence to the Committee about the effectiveness of that communication. It is worth considering that in a review, particularly if there is a problem, such as a geographical inequality, with overall levels of take-up. How the allowance is promoted will clearly have an effect. Charities and sports clubs are rightly eligible for this £2,000 reduction in their national insurance bill, but there is a risk that they might miss out and that we promote the allowance to businesses more effectively just because they have more stakeholders and larger bodies getting the message out. The new clause seeks to ensure that we keep across that concern and that not only eligible businesses but other groups that rightly fall within its scope take up the employment allowance.

New clause 2 seeks a short administrative and compliance costs review six months after the Bill comes into force. It is motivated by two things in particular. First, as I mentioned earlier, the Government expect 90% of those eligible to claim the employment allowance. The Institute for Fiscal Studies and others—we heard this in the Committee evidence session—have asked about the other 10%. The system for claiming the employment allowance is straightforward and everybody expects the running of it to be smooth. However, one wonders why 10 per cent. are always assumed to miss out.

National Insurance Contributions Bill

Debate between Ian Swales and Shabana Mahmood

Monday 4th November 2013 Commons Chamber

[Shabana Mahmood]

The hon. Gentleman makes a fair point, but there were many other problems with the national insurance holiday, which I shall return to later.

[Ian Swales (Redcar) (LD)]

As we are having a national insurance history lesson, what does the hon. Lady think the impact would have been of a 1% increase for employers and employees in April 2011?

[Shabana Mahmood]

I thank the hon. Gentleman for that intervention, but I prefer to look at the record. When the Government came to power, they inherited a growing economy. They choked off the recovery, resulting in three years of flatlining and stagnation, and the current cost-of-living crisis that affects businesses and people up and down the country.