Finance (No. 2) Bill

John Howell Excerpts

2nd reading: House of Commons
Monday 11th December 2017 Commons Chamber

[Mel Stride]

I think that the right hon. Lady is referring to an amendment of the law resolution. The previous Finance Bill was introduced under exactly the same Ways and Means procedure. There is nothing in the resolutions that prohibits full, open and proper discussion and scrutiny of the Bill. It will go through all its usual stages, including two full days in Committee of the whole House, and eight sittings—if it takes that amount of time—upstairs in Committee, before coming back to the Chamber for Third Reading.

Since the financial crisis, UK productivity growth has slowed. It now stands at just 0.1%. The Government know that restoring strong productivity growth is the only sustainable way to increase wages and improve living standards in the long term. Consequently, a quarter of a trillion pounds of public and private investment has been funnelled into major infrastructure projects since 2010, including the biggest rail modernisation programme since Victorian times, the Mersey Gateway bridge and, more recently, Crossrail. Many others are detailed in the Infrastructure and Projects Authority’s national infrastructure pipeline. The Government have also cut taxes to support business investment and improved access to finance through the British Business Bank. However, we can and will go further.

To boost productivity and create sustainable economic growth, the Government are making further provisions to support the UK’s dynamic, risk-taking businesses. The UK continues to be a world-leading place to start a business, with 650,000 start-ups in 2016 alone. However, some of the UK’s most innovative new businesses with the greatest potential are struggling to scale up due to lack of finance. Specifically, 10 of the UK’s largest 100 listed firms were created after 1975, compared with 19 in the United States of America. In order properly to understand these barriers to finance, the Treasury commissioned the patient capital review, led by Sir Damon Buffini. Supported by Sir Damon’s industry panel, the review concluded that knowledge-intensive companies, which are particularly research and development-intensive, often require considerable up-front capital to fund growth. It may be many years before their products can be brought to market and, despite their growth potential, such companies often face acute funding gaps.

In response to the review’s findings, the Government are acting. We are setting out a £20 billion action plan, combining investment with tax incentives. As part of the plan, the Bill will make more investment available to high-risk, innovative businesses. It does so by doubling the annual limits for how much investment knowledge-intensive companies can receive through the enterprise investment scheme and venture capital trusts schemes to £10 million, and doubling the limit on how much investors can invest through the EIS to £2 million, providing that anything above £1 million is invested in knowledge-intensive companies. In 2016-17, 62% of investment by EIS funds was aimed at capital preservation, rather than higher-risk, higher-potential, long-term growth companies. The Bill therefore reforms the schemes, redirecting low-risk investment into growing entrepreneurial companies, while changing venture capital trust rules to encourage higher-growth investments. In all, we expect these changes to result in over £7 billion of new and redirected investment in growing companies over the next 10 years.

Additional efforts to boost productivity also focus on increasing funding for research and development. At the 2016 autumn statement, £4.7 billion was allocated to R and D, and this Budget extended the national productivity investment fund to £31 billion and increased R and D investment by a further £2.3 billion. This means that the Government will be investing an additional £7 billion in R and D over the next four years—the largest increase in four decades.

We have already announced initial plans for this investment, including £170 million to help the construction industry to build cheaper and better homes; £210 million to develop new technologies that enable the early diagnosis of chronic diseases; a commitment to supporting the development of immersive technologies and artificial intelligence; and more than £300 million to develop and attract the skills and talent necessary to deliver our scientific ambitions. These efforts are complemented by our decision to increase the rate of R and D expenditure credit from 11% to 12%, as set out in the Bill.

The Bill will ensure that the tax system is fair, balanced and sustainable. To that end, it freezes the indexation allowance that currently allows companies but not individuals to reduce their taxable gains in line with inflation. It allows Scottish police and fire services to recover future VAT payments, which would otherwise be lost following the Scottish Government’s decision to restructure those services. I should pay tribute to my Scottish colleagues on the Government side of the House who lobbied so effectively in that respect.

The Bill narrows the scope of the bank levy so that, from 2021, all banks—UK and foreign-headquartered—will be taxed only on their UK operations.

[John Howell (Henley) (Con)]

Is not the important point about the bank levy that we are trying to get a fair contribution paid by the banks, matched against the risk they pose to the whole UK economy?

[Mel Stride]

My hon. Friend is entirely right, which is why we have generally moved away from a levy on the capital assets of banks as regulation has improved, and towards a tax on the profitability of banks as that profitability has recovered following the events of 2008, which happened on the watch of the last Government. This re-scope forms part of the broader package of reforms announced between 2015 and 2016 that included an 8% surcharge on bank profits over £25 million. The package will help to sustain tax revenues from the banking sector in the long term.