Finance (No. 2) Bill

Jesse Norman Excerpts

2nd reading
Tuesday 13th April 2021 Commons Chamber

[The Financial Secretary to the Treasury (Jesse Norman)]

I beg to move, That the Bill be now read a Second time.

As you will be aware, Mr Deputy Speaker, the scrutiny of Finance Bills has lain at the centre of our parliamentary process for many centuries, ever since its origins in the 13th century, and it is a rare honour for me to bring this Bill forward today.

At the beginning of last month, my right hon. Friend the Chancellor of the Exchequer outlined a Budget with three key objectives: first, to protect jobs and livelihoods and provide additional support to get the British people and British businesses through the pandemic; secondly, to be clear about the need to fix the public finances once we are on the way to recovery and to start that work; thirdly, as we emerge from the pandemic, to lay the groundwork for a robust and resilient future economy. This Finance Bill enacts changes to taxation that support all those objectives.

I will come to the Bill itself shortly, but before I do so I want to pay tribute again to the work of the Treasury and Her Majesty’s Revenue and Customs over the past year and more. I can testify from personal experience that officials have worked around the clock throughout that period to get the covid schemes up and running, to make sure that they are as effective as possible, to tweak and extend them where they can and, by those means, to support millions of people and hundreds of thousands of businesses up and down the United Kingdom in the face of the worst peacetime economic crisis in recorded history. I will not say that this was their finest hour; they will have had many of those, as these are institutions that are arguably nigh on 500 years old. None the less, this has certainly been a time to which future historians will look back when they seek examples of exemplary public service.

It has been a privilege to work alongside officials at both Her Majesty’s Treasury and Her Majesty’s Revenue and Customs, and to see the great machinery of government working so well. I will, if I may, add one other word of scene-setting about the wider approach that we have taken to tax. It is a measure of the approach taken by the Treasury and HMRC and of our own strategic approach as a Government that, alongside these pandemic measures, we have also accelerated work to create a more effective and resilient tax system. Our goal, in simple terms, is to enhance the stability and effectiveness of the UK tax system, using last year’s announcement of a new 10-year tax administration strategy as the springboard.

We want a tax system that enhances productivity, especially across the long tail of our small and medium-sized businesses. Digitisation of the tax system provides a useful nudge to these firms to upgrade their use of information technology and the skills that it demands. We want a tax system that is more flexible, so that it is better able to adapt quickly to changing circumstances and to provide targeted support for businesses and individuals when needed. We want a tax system that is more resilient—both resilient itself and better equipped to strengthen the core resilience of the UK economy in the face of a future crisis. That transformation of our tax system is already under way, but, as the House will know, we have also taken steps to improve the process of tax policy development, most recently with the tax policies and consultations day we held on 23 March. By giving this wide array of consultations more profile, we hope to make the tax policy process still more collaborative and transparent and improve the quality of tax policy making.

Let me turn to the Bill. The House is well aware of the massive public health and economic shock that this country has experienced. The damage done by coronavirus to our economy and our society has been severe. More than 700,000 people have lost their jobs since March last year. The economy has shrunk by 10%, the largest fall in more than 300 years, and this country’s borrowing is the highest it has ever been outside wartime.

The Government’s response has been comprehensive and sustained, with the total package of support to the economy this year and next now estimated at £407 billion. That response is already showing its value. Thanks to that and to the rapid roll-out of vaccination, the Office for Budget Responsibility and other independent authorities now expect a swifter recovery than previously anticipated, with faster growth, lower unemployment, more investment and higher household incomes. Indeed, the OBR expects the UK economy to recover to its pre-crisis levels six months earlier than it did—in the second rather than the fourth quarter of 2022. In the words of the Resolution Foundation, if realised, this projected rate of unemployment,

“would be by far the lowest unemployment peak in any recent recession, despite this being the deepest downturn for 300 years.”

At the heart of our covid response is precisely that support for jobs, delivered through Her Majesty’s Revenue and Customs as the tax authority, with more than 11 million jobs furloughed between the beginning of the pandemic in March last year and February of this year. As the OBR outlined last month, without the additional measures at Budget, which included the extension of the coronavirus job retention scheme, unemployment would have peaked two quarters earlier and at a higher level. Indeed, it estimates that there would have been an additional 300,000 unemployed people in the fourth quarter of this year without these latest interventions.

The tax measures outlined in the Bill go further now to protect jobs and support the economy. We are extending the 5% reduced VAT rate until 30 September in order to protect 150,000 hard-hit hospitality and tourism businesses, which employ almost 2.5 million people. To help those businesses manage the transition back to the standard rate, VAT will then increase to an interim rate of 12.5% from October until the end of March.

For similar reasons, the Bill puts into legislation the temporary cut in stamp duty land tax with a residential SDLT nil rate band remaining at £500,000 in England and Northern Ireland until the end of June. This, again, will be followed by a phased transition back to the normal rate. From 1 July 2021, it will fall to £250,000 until the end of September, before returning to £125,000 on 1 October.

For any business that took advantage of the original VAT deferral new payments scheme, the Bill ensures that they will be able to pay that deferred VAT in up to 11 equal payments from March 2021, rather than by one larger payment due by 31 March 2021. For those businesses that have been pushed into losses, the trading loss carry-back rule is being extended from the existing one year to three years for losses of up to £2 million, which will deliver a significant cash-flow benefit for businesses.

As well as protecting jobs and livelihoods, the Bill takes important steps to strengthen the public finances. The damage done by coronavirus and the urgent need to respond to the crisis have created huge challenges for the Exchequer. The OBR’s fiscal forecasts show that this year the UK is expected to borrow a record amount: £355 billion. That is 17% of our national income—the highest level of borrowing since world war two. Borrowing is forecast to be £234 billion next year, which is 10.3% of GDP—an amount so large that it has only one rival in recent history, which is the level of borrowing this year.

It is our responsibility as a Government to balance the extraordinary support we are providing to the economy now with the need to start to fix the public finances, and the Bill strikes that balance.

First, the income tax personal allowance rises with the consumer prices index as planned to £12,570 from this month and will then be maintained at this level until April 2026. The House will recall that the UK has the highest basic personal tax allowance of any G20 country. A typical basic rate taxpayer now pays over £1,200 less in tax than in 2010. The higher rate threshold also rises to £50,270 from this month and will then be maintained at this level until April 2026. These changes are fair and progressive. It is important to note that the 20% highest income households will contribute 15 times that of the 20% lowest income households. An average basic rate taxpayer will be less than a pound a week worse off in 2022-23.

Secondly, the inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount in capital gains tax will also be maintained at their 2020-21 levels until April 2026. Maintaining the pensions lifetime allowance at current levels affects only those with the largest pensions—those worth more than £1 million.

Thirdly, the Government are providing businesses with over £100 billion of support to get through this pandemic, so our judgment has been that it is only fair to ask them to contribute to this overall recovery. The Bill therefore legislates for the rate of corporation tax paid on company profits to increase to 25% from 2023. Since corporation tax is charged only on company profits, businesses that may be struggling will, by definition, be unaffected.

The Government are also protecting small businesses with profits of £50,000 or less by creating a small profits rate, maintained at the current rate of 19%. The effect of this is that 70% of companies, or 1.4 million businesses, will not see an increase in their tax rate. There is also a taper above £50,000 so that only businesses with profits of a quarter of a million pounds or greater will be taxed at the full 25% rate—and that is itself still the lowest corporation tax rate in the G7. The increase is two years away, well after the point when the OBR expects the economy to have recovered, but it is important to legislate for this now in order to give businesses clarity about our future plans.

The next goal of this Budget has been to lay the foundations of our future economy as we emerge from the pandemic. If that economy is to support the creation of new jobs, to spur growth and to drive productivity forward, we need to encourage business investment now, so this Bill contains a highly innovative new super deduction measure, which is expected to lift the net present value of the UK’s plant and machinery allowances from 30th among the countries of the OECD to first.

In most cases, this measure will allow companies to reduce their taxable profits by 130% of the cost of investment they make, equivalent to a tax cut of up to 25p for every pound they invest. The super deduction is expected to be worth £25 billion during the two years it is in place, which would make it the biggest business tax cut in modern British history. The OBR has said that, at its peak in the financial year 2022-23, the super deduction is expected to bring forward an additional 10% of business investment, with a value of £20 billion.

Alongside a programme of national recovery, we also want to stimulate regional recovery. That is why this Bill also enables the Government to designate tax sites for freeports in Great Britain. Once approved, eligible businesses will be able to benefit from a number of tax reliefs, including an enhanced 10% rate of structures and buildings allowance, an enhanced capital allowance of 100% for companies investing in plant and machinery, and full relief from stamp duty land tax on the purchase of land or property—and to help them to invest and grow, the Bill maintains the annual investment allowance at the higher level of £1 million until the end of this year.

The House will also recall that these measures are supplemented by the Budget’s new Help to Grow: Digital scheme, which will assist smaller businesses in developing their digital skills by giving them free expert training and a 50% discount on new productivity-enhancing software. This is all part of a package that the Institute of Directors has called

“a big win for SMEs.”

[Sammy Wilson (East Antrim) (DUP)]

It is significant that no freeport sites have been allocated in Northern Ireland. Will the Minister clarify whether all the measures that will be included in freeport status will be exempt from the state aid rules, which will still apply in Northern Ireland because of our association with the EU single market rules?

[Jesse Norman]

I am grateful to the right hon. Gentleman for his question. He will know that it is absolutely the Government’s intention to have a freeport in Northern Ireland, and that they are in discussion with officials and members of the Northern Ireland Executive to discuss precisely how it will work. I am not in a position to comment on how it will work, but certainly the expectation is that this should be a functioning, highly successful and effective freeport. It should enjoy a very attractive set of benefits that will benefit the companies involved and be comparable to the ones we will see elsewhere, although it is important to note that freeports are themselves a mixed bag. We have had a variety of different bids of different kinds to the competition that has been run.

All the measures we have taken in relation to business growth and investment are part of a package, which the Institute of Directors has called

“a big win for SMEs.”

I was also pleased to see that the Resolution Foundation said that the Budget

“rightly sought to boost the recovery before turning to fixing the public finances”.

That is an important point.

I have discussed the work we are doing to create a more flexible and resilient tax system, but the Finance Bill also includes important measures to make it fairer and more sustainable. As part of the United Kingdom’s commitment to be a global leader on tax transparency, the Bill allows for the implementation of OECD reporting rules for digital platforms. The rules will help taxpayers in the sharing and gig economies to get their tax right. It will also help HMRC to detect and to tackle non-compliance.

To build on the successful introduction of Making Tax Digital for VAT, the Bill will enable the extension of MTD requirements for smaller VAT businesses from April next year. It also makes widely welcomed reforms to the penalty regime for VAT and income tax self-assessment, so that it is fairer and more consistent as a system, and harmonises interest for VAT and income tax.

The Bill tackles promoters of tax avoidance through strengthening existing anti-avoidance regimes and tightening rules. Importantly, it introduces an exemption from income tax for financial support payments for potential victims of modern slavery and human trafficking, made by the UK Government and devolved Administrations.

Finally, let me turn briefly to how the Bill helps us to deliver the important commitments the Government have made on the environment and on carbon reduction. The new plastic packaging tax, first announced at Budget 2018, will encourage the use of recycled plastic instead of new plastic in packaging. For plastic packaging that contains less than 30% recycled plastic content, the rate of the tax will be £200 per tonne. This will transform the economics of sustainable packaging.

The last 12 months have delivered a grave shock to this country and its economy, but the Government have met that shock with a determined and sustained response. That work is not done. With this Finance Bill, we are continuing to support the lives and livelihoods of families and businesses up and down the land, while simultaneously setting the terms for an investment-led recovery. The Bill puts in place the foundations for a fairer and more sustainable tax system. It further enshrines commitments on the environment and the work we are doing to tackle climate change, and it begins the work to rebuild the public finances. For those reasons and more, I commend it to the House.

--- Later in debate ---

[George Freeman]

The hon. Member makes an interesting point that I relish responding to. My praise was for the Treasury in moving at pace to solve and sort a crisis incubated by the last Labour Government in leaving this country deeply vulnerable as a result of a whole series of measures put in place during the Blair and Brown years, not least the smash-and-grab raid on our pensions and the foolish and reckless deregulation. The Treasury moved quickly to solve a crisis, but I am not claiming, at the same time, that the Government of the day were not responsible for incubating that crisis. They are different points.

[Jesse Norman]

May I remind my hon. Friend of a fact that he will know well? The leverage ratio of the British banking system was 20 times equity for 40 years until the year 2000, after which it went up from 20 times to 50 times in seven years under a Labour Government.

[George Freeman]

I thank the Financial Secretary for pointing that out. I am tempted to remind everyone that the former Chancellor of the Exchequer and then Prime Minister sold the gold at a record low and various other things, but I shall not be distracted—I simply record that—and focus on this Budget. I will not list all the measures in it, but I want to highlight one or two that the people of Mid Norfolk and I particularly welcome and then highlight three points that we need to think about as we seek to drive a powerful recovery.

I particularly welcome the measures in the Budget for the self-employed, who, in the first part of covid last year, were hit hard. Many of them were living at risk, hand to mouth and on each month’s proceeds, without the stability of a company behind them.

There is also the support for apprenticeships and traineeships. In Norfolk, when the furlough ends, we are expecting to see between 30,000 and 50,000 unemployed. The Government have rightly moved quickly to make sure that a very powerful skills and training pathway package is in place, so that people who have left old jobs that have not survived this accelerated crisis—it has accelerated much of the challenge on the high street—can quickly find jobs in the new economy that we are creating.

I want to highlight the £700 million package for the arts, culture and sport. In particular, we need to support the artists and creative people at the heart of those industries, not just the buildings. It is that genius—that creativity—which is so key to the British instinctive creative spirit, that we need to support. Rather too many of our great artists are working in all sorts of jobs and seeing their artistic careers disappear. We need to make sure that we keep them busy and get them back to work.

On levelling up, I highlight the Government’s phenomenal package of support, rightly making the crisis not just a moment to prop up the pre-covid economy but to drive growth out. The 45 town deals and the eight freeports are genuinely transformational for places such as Teesside that have been left behind by successive Labour Governments, who ought to have been representing them better. There is the move of the UK infrastructure bank to Leeds, the levelling-up fund, the community renewal fund, the Help to Grow for SMEs, the future fund and the substantial commitment to net zero and the green infrastructure that we need for a proper recovery. This was a Budget not just to repair the damage of covid, but to lay the foundations for a more sustainable and sustained economic recovery, creating jobs and opportunities for generations to come. I welcome it particularly for that reason.

That financial package is allied with the extraordinary success of the UK life sciences community, and perhaps at this point I could, as a former life sciences Minister, pay tribute to its extraordinary work. In particular, there are the scientists at Oxford and AstraZeneca, to whom we owe so much, and in Norfolk, there is the work of the Norwich Research Park and the Quadram Institute, which has done pioneering work in some of the genetic sequencing. At the same time, I welcome the work of the vaccine taskforce, led by the redoubtable Kate Bingham, with whom I know the Financial Secretary has a strong working relationship. I am tempted to channel my inner William Hague and remember the time when he commended Yorkshire for having more gold medals in the 2012 Olympics than France. In fact, he went further, saying that Mrs Brownlee had won more gold medals than France in those Olympics, and I do not think any couple has done more for the UK health economy than the Financial Secretary and the head of the vaccine taskforce.

I genuinely believe that this package is responsible, responsive and lays the foundations for a resilient set of public finances. The challenge now is to get the growth that we need from the private sector to build a really sustainable recovery, and I want to turn to that and make three key points. First, if we are really to escape debt—the debt legacy from the crash in 2007-08 and the debt legacy from covid—and to build a clean, green, smart economy, we need not just to get back to ticking over with 2% to 3% growth; to get to 4%, 5% or 6% growth, we will have to be able to host, or incubate, economies growing at 100% a year. That is the key to growth in this economy. We cannot escape debt by building over the whole of the south of England or building over any last rural area around Cambridge. To support growth, we have to make sure that we grow the economies that will grow our economy, building back better one local economy at a time and one sectoral economy at a time. To avoid the boom and bust of the City, housing and retail cycles that have left us in this state, the Treasury is absolutely right to commit to the deep infrastructure investment for tomorrow’s growth sectors. I am delighted that after my short period in the wilderness, the Prime Minister has asked me back to lead his taskforce on innovation, growth and regulatory reform to look at where, as we come out of covid and seek to lay the foundations for this recovery, free from the European Union’s regulatory frameworks but still able to trade with its market, we may be able to strike a blow for bold innovation and regulation for innovation.

I want to highlight some sectors that are growing spectacularly and that, if we were to invest strategically, would help to grow our national economy in the same way. The broader bioscience sector includes not just pharmaceuticals but the bioeconomy sector of food, medicine and energy, and, in particular, areas where those three support each other. In Norfolk I recently sat in a Lotus built at Hethel Engineering Centre that was powered by a Formula 1 low-carbon biofuel made by genetically modified bugs breaking down agricultural waste. That is what I mean by bioscience and the bioeconomy. In this century, it is biology and bioscience that will drive growth globally, just as physics did in the last century and chemistry in the one before. We are a phenomenal powerhouse in the biosciences, and if we invest in that, support it and commercialise it better, we will grow the industries of tomorrow.

Similarly, in nutraceuticals, where pharmaceuticals meet food and nutrition, there is a whole range of new crops that support growth and crops that are drought resistant and disease resistant, such as crops we export to Africa to help drive sustainable development. In biosecurity, and plant, animal and human health, we share much of the genomic sequence with most of the animals that we rely on in our agricultural system. There are huge opportunities for us to breed out susceptibility to disease and traits that will lead to huge suffering. There is a huge opportunity to harness genomics for the benefit of animal welfare, as well as progressive agriculture, in artificial intelligence, in immunotherapy, in space, in biofuels, in carbon capture and storage, and in biodiversity investment. These are huge sectors that this country is poised to grow into substantial industries, creating jobs and opportunities for tomorrow. If we get the regulatory regime for this right, which Brexit gives us an opportunity to do, and, as the Treasury is doing, we invest in the deep infrastructure and create the right commercial environment, I genuinely think that this is a moment when we could unleash a new cycle of growth, so that we look back at this, yes, as a crisis, but also as an opportunity, such that future generations will thank us for getting us off the boom and bust cycle of over-reliance on short-termism, the City, housing and retail booms, and laying the foundations for serious global growth based on technology transfer.

Secondly, from the perspective of rural Mid Norfolk—not 40 miles from Cambridge but at times feeling like 100 miles, or 100 years, from it—the small towns are fundamental. That is why I welcome so much the 45 town deals in the Budget. I hugely welcome all of them and the work that is being done. However, it is vital that as the Treasury launches these funds, we also think about how we can make it easier for the places and communities that have often been left behind because they do not have the resources of a metro Mayor or the big capacity to access multiple Government funds. Somewhere in the mix is a role for what I might call local regeneration corporations—small, fleet of foot, locally place-based public-private partnerships with powers to access money for multiple funds and deploy them over a five or 10-year plan to drive transformational local change and to pull in private finance alongside public. They would have the powers to do some compulsory purchase, to move in quickly and regenerate land left fallow after covid, to embrace some of the opportunities of land value capture and tax increment financing, and to raise infrastructure bonds and finance. Many investors around the world would love to contribute to and have a stake in this British recovery. Many places around our country will not be able to access on their own sufficient finance from the Treasury. We need to make it easy for them to drive local engines of growth that will go on in decades to come, in a similar way to the successes of the London Docklands Development Corporation, the Tyne and Wear Development Corporation and the County Durham development corporation in the ’80s and ’90s, which were so transformational.