Read Bill Ministerial Extracts
Jacob Rees-Mogg
Main Page: Jacob Rees-Mogg (Conservative - North East Somerset)Department Debates - View all Jacob Rees-Mogg's debates with the HM Treasury
(1 year, 8 months ago)
Commons ChamberOne has to be a bit careful when talking about the US, because although the President might be in favour of this, the Republicans in the House of Representatives have made it absolutely clear that they are not, and as they have a majority there, that is quite significant.
Yes, of course, but we have to work with the US Administration this week, next week and the year after next. That is why, with the US having its own rules and with its encouragement that these global standards should be applied, we are in lockstep with other countries in implementing this rule. I would just make the point that this is unprecedented; this is new and we have to be realistic. A hundred years ago we did not have multinational groups operating in the way that they do today, or in the way they will in five or 10 years’ time. We as an international community are trying to deal with some of the aggressive tax planning that we have seen multinational groups indulge in. We want to raise the floor, and those economies have signed up to this. They are part of the 135 countries that have committed themselves to this agreement. That is what was so important about the agreement, and these taxes will apply in those jurisdictions even if they have not implemented it.
It is a great pleasure to follow the hon. Member for Aberdeen North (Kirsty Blackman), although I must say that there was some irony in a representative of the Scottish nationalist party speaking in favour of following financial rules, which sometimes seems not to happen in that part of the United Kingdom.
Of course, like everyone else here, I am a taxpayer, so we all have to declare some element of interest, and I am a corporate tax payer, under a particular hat, so I have an interest in the subject. Today—perhaps suitably, for what we are discussing—is the eve of the feast of St Alphege. Hon. Members will recall that St Alphege was murdered for refusing to pay higher taxes. He was, in many ways, the first tax martyr, who, reluctant to pay an additional Danegeld, had ox bones thrown at him until he was dead. I fear that, under current circumstances and with the approach taken by those on both Front Benches, we see endlessly higher taxes, and we are having metaphorical ox bones continually flung at us. Let us hope that we do not get martyred through it.
It is appropriate to think of St Alphege, because we are debating the worst bit of the Budget today, turned into law. It is the bit that will be most damaging to the economy, and it is the bit that is least in the interests of the United Kingdom. Let us start with clause 5, which is an historic mistake—it is a major blunder being made by His Majesty’s Government, and it fails politically and economically. It is worth remembering why the then Chancellor, George Osborne, started to reduce corporation tax. He got the Treasury for the first time to do a dynamic assessment of the consequences of cutting a tax. What did that dynamic assessment show? It showed that more revenue would be raised, which is precisely what happened. More revenue came through, both in actual, nominal cash terms and as a percentage of GDP. That cannot just be ascribed to general economic improvement and growth: it was a fundamental change in the level of corporation tax raised at a lower rate. Why was that? Well, it made the country more competitive, it encouraged people to set up businesses, and it created a system where people thought that the United Kingdom was open for business. What we are doing now is the precise opposite.
In her opening remarks, my hon. Friend the Minister referred to our noble Friend the late Lord Lawson—most distinguished Chancellor, most effective Chancellor—but this goes against everything that he did as Chancellor. In every single Budget that he presided over, he managed to abolish one tax. Why? Because he realised that simplification of the tax system was the right way to go, and because he realised—we saw more of this in the United States during the same period—that lower rates with fewer write-offs is a better way to go than higher rates and complex write-offs. Today, His Majesty’s Government are doing the exact opposite, because the Government think that they know how businesses should spend their own money better than businesses do themselves, which is fundamentally wrong.
As such, we get a raise in the basic rate, which will hit small businesses. It actually hits them at a higher marginal rate, because between £50,000 and £250,000, it has to make up the 19% to the 25%. As people get their business out of the foothills and begin to climb the mountain, we start hitting them with a high marginal rate, which is not particularly clever. Then we say, “You, dear business, do not know how to spend money—you are far too stupid—so we will tell you how”, which fundamentally misunderstands the British economy. It may be that we were a wonderful manufacturing economy in the 19th century. I love the 19th century; I have great affection for the 19th century. Some people accuse me of being the hon. Member for the 19th century—I would point out that it is the right hon. Member, and it may be earlier than that, but never mind. However, that is not the economy we have now. Our economy is primarily a service economy, and providing complex write-offs for investment that benefit manufacturing but hit services does not understand where our economy is based.
I agree with my right hon. Friend. I would add that, even for the manufacturing sector, we are obviously facing an extremely concerning tax situation—I refer him to AstraZeneca’s recent decision to locate in the Republic of Ireland rather than the UK. It is absolutely imperative that we lower our corporation tax rather than raise it, because that is ultimately the key test of our competitiveness.
My right hon. Friend is right, and for once, those on the Opposition Front Bench were right as well. Part of the problem with the write-offs is that they are temporary, but why are they temporary? Not because that is what the Government want to do, but because the Government are in hock to the OBR, which gets all its forecasts wrong. All the OBR has managed to say about the write-offs is that they will bring forward investment. That is not a bad thing in and of itself, but the long-term benefit is not being achieved because we insist on following what a bad forecaster tells us will happen. Actually, to the credit of the bad forecaster, it admits that what it says will happen will not happen, so we are doing something on the basis of something that even the forecaster says will not be the case when the years have passed. That cannot possibly make sense. We are making it more difficult to do business in this country, and our aim should be lower rates and fewer write-offs. That is the way to encourage business, and it is the way to grow the economy. If we grow the economy, we can afford the public services that we want. At the moment, we are risking shrinking the economy, encouraging business to leave and set up elsewhere and not having the money we need for public services. Clause 5 is a bad clause; it is a bad thing to be doing, and it is a bad thing for the British economy.
I would go further, because this idea that attacking corporations is a free lunch for Governments is a mistake. Corporation tax is of itself a bad tax, because it is not a tax that falls on nobody; it actually falls directly on consumers. It comes through to consumers, because businesses thinking of operating in this country do not care about their gross margin; they care about their net margin. When the corporation tax rate goes up, what do they do? They say, “We either have to increase prices or reduce employment to maintain the net margin.” Increasing corporation tax from 19% to 25% in a period when there is already inflation in the system will be more inflationary, as multinationals will raise their prices to compensate and maintain the net margin, or they will reduce employment, which makes the cost of living crisis worse for people, because people’s incomes then fall when they are trying to deal with rising prices.
I fear that there is a view among politicians that we tax corporations because they do not vote, and it is therefore an easy raid to make and therefore it does not matter. It is the old saw about plucking the goose with the least amount of hissing. Unfortunately, the hissing on corporation tax is delayed, but all taxation ultimately falls on individuals, and that is true of corporation tax. That is why it is a bad tax and why increasing it is a mistake in these current circumstances—indeed, it is a mistake in almost all circumstances.
The multinational minimum tax is also a mistake, and it is a mistake in terms of diplomacy and foreign policy. It was a daft thing to agree at the G7. We had no interest in doing it, and my hon. Friend the Minister said that they have all done it in the EU, as if that was meant to be any salve or balm in Gilead for us anyway. The fact that the high-tax, highly inefficient, highly regulatory EU is keen on it is enough to make most people reach for the smelling salts, rather than to think it is some glorious success of His Majesty’s Government. Why is it a bad idea? It is a bad idea because it deprives us of ambition. My right hon. Friend the Chancellor himself called for corporation tax to come down to 12.5%, and we are now legislating to make his ambition impossible. That is not something that Governments usually do; they normally try to ease their way through to something that they have set out, even if they recognise that the circumstances are not immediately possible in which to do it.
The other reason that the tax is wrong and deprives us of ambition is that it is about settling for a high-tax, inefficient world. I think Angela Merkel, the former German Chancellor, said, “We have a system where we have all this welfare, and other countries do not. How are we going to carry on paying for it when they are so competitive?” That is a quotation from her from a few years ago. We are trying to make the whole of the rest of the world as uncompetitive as we have allowed ourselves to become. That is surely not the answer; the answer is to make ourselves more competitive and therefore to have and to be able to afford lower taxation. Instead of looking at those countries that have low-tax regimes as pariahs, we should look at them as models. Instead of saying that Ireland with its low tax rate is doing something scandalous and should be punished, we should say, “No, Ireland has got more from corporation tax than it gets from value added tax.” We do not get a fraction of the money from VAT and corporation tax, because we have a much higher rate, and we have not attracted the businesses that Ireland has attracted.
I am somewhat sorry to interrupt my right hon. Friend, but I am interested in his views on international competitiveness. One of the issues that the Minister mentioned in relation to the application of global minimum tax is that it will affect companies that have a large amount of their asset base in intangible assets. Those are primarily in the more advanced countries—western democratic countries—which will find it much harder to justify some of the deductions they can make from the amount of tax they will be subject to under that global minimum tax. What is his consideration of the global political impact of that on the competitiveness of our advanced economies versus China, and of the other implication about the valuation of pensions, many of which are invested in companies that will be disproportionately affected by this legislation?
My hon. Friend is absolutely spot-on that intellectual property rights are, of their nature, much harder to tax, but they clearly belong in the country that invented them or that owns the intellectual right, which is a saleable asset. If that is in a low-tax jurisdiction, why should it be taxed at a falsely high rate? If Disney makes a plastic toy in China, where is the value? It is not actually in the plastic toy being created; it is in the fact that millions of people like watching Disney characters. Trying to locate where that tax ought to be paid is therefore an extremely complex issue, and not one that is solved by a minimum tax. All that does is make it less efficient for companies to invest, develop and do things here, and they might as well do that somewhere else. They might as well do it in China, actually, because China does not seem to be very enthusiastic about this minimum tax anyway.
I do not think this will succeed in stopping complexity. Indeed, it adds to the complexity of the system, and we need only look at this Finance Bill to see by quite how much. The Minister, to her credit, did admit this, and said it was so important that we debated it, with which I thoroughly agree, but the dozens of pages of clauses and schedules on this are making our system fundamentally more complex.
My right hon. Friend the Member for Witham (Priti Patel) raised the issue of tax sovereignty. We got into a terrible muddle by signing up, in the European Union, to a minimum rate for VAT. We thought at the time it was a success, because the EU wanted to be able to set a unified rate, and we got just a minimum rate agreed. However, that led to suddenly finding that it was impossible to lower VAT rates, as we discussed during the Brexit debate, and as we still cannot do in Northern Ireland, where we are stuck with VAT rates still being set according to the minimum agreed in the European Union. So we remove flexibility, remove sovereignty, increase complexity and make it less competitive for business, and we are selling the pass on becoming a tax-efficient, tax-competitive country.
Tax competition is a good thing for those of us on this side of the House, who are meant to be capitalists. I accept that the socialists do not want it, and that is fair enough—that is what they believe in—but we believe in growing economies through free-market solutions. Therefore, we believe that if we have a lower tax rate than Germany, that is a good thing because it makes our economy more competitive and makes the British people richer than the Germans. That is not something we are achieving currently, but that I would like to achieve, Mr Evans—the independent Chairman seemed to be nodding at that, but I am sure that Hansard will take no notice of his agreement that we ought to be richer than the Germans.
This is about a failed economic orthodoxy of an undynamic kind that is leading to the increase in corporation tax, when the evidence from George Osborne showed that that is not true, so clause 5 is a mistake. Then the multinational minimum tax is about making globally the rest of the world as inefficient as the European behemoth has become, and that is the wrong approach to be taking. Where is our ambition, where is our vision and where is our free-market approach?