Ways and Means

Jonathan Reynolds Excerpts

Ways and Means resolution: House of Commons
Wednesday 6th September 2017 Commons Chamber

[Wes Streeting]

I wholeheartedly agree. I am proud of the contribution that UK financial services make—not just the City of London, but other economic centres, for example, in Edinburgh and Leeds.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Manchester.

[Wes Streeting]

And Manchester, as my hon. Friend says.

Finance Bill

Jonathan Reynolds Excerpts

2nd reading: House of Commons
Tuesday 12th September 2017 Commons Chamber

[Jonathan Reynolds]

We say that all the time. We always welcome it, but we just wish it was possible for the debate to include a consideration of the situation in a huge number of households where people are in work, as child poverty rates are rising and households are in poverty. Why does the Conservative party say nothing about that phenomenon, which is a huge part of life in Britain today?

[Alex Burghart]

I listened to the opening remarks in today’s debate and I did not hear anyone from the Opposition welcoming record employment, so I am glad to hear the hon. Gentleman do so now. If I gave him the opportunity, I am sure that he would also want to welcome the fact that inequality is decreasing and that a whole generation will benefit from growing up in households with work. It is a gift that keeps on giving. The number of children in workless households has decreased by a third since 2010, and the number of households in which no one has ever worked has fallen by 40% since the previous Labour Government were in office. In fact, we are nearly back at the all-time low that was reached under the Major Government. The gift of work enables families to get on with their lives and enables children to grow up in a home where they have the example of people in work. Those opportunities cannot be taken lightly.

I am pleased that the Government on whose Benches I sit continue to feed the economy, but we are not doing that by spending money that we do not have or by borrowing money from future generations. Instead, we are spending and living within our means. I am extremely pleased to see that essential value embodied in the Bill, which is why I shall be supporting it tonight.

--- Later in debate ---

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

The British economic model is “broken” and in need of “fundamental reform”. Those are not my words, but the findings of the interim report of the Institute for Public Policy Research’s economic justice commission, which comprises, among others, the Archbishop of Canterbury, the global managing partner of McKinsey and the policy chairman of the City of London corporation. The report spells out in painful detail the situation that most Members see in our constituencies every week: the link between economic growth and higher living standards is broken; young people with no prospect of attaining the quality of life enjoyed by their parents; a UK with a fundamental imbalance between the south-east and everywhere else; a labour market characterised by insecurity and low pay; and inequality growing, with a third of children living in poverty, and that proportion going up.

[Michael Tomlinson]

Will the hon. Gentleman give way?

[Jonathan Reynolds]

I feel I have heard quite a lot from the Conservative party, so if the hon. Gentleman will forgive me, I shall proceed.

Today’s proceedings, along with the ways and means discussion last week, have been characterised by deeply held concerns about the state of our economy. There have been many fine and noteworthy contributions in what has been a wide-ranging debate, taking us from Venezuela to the application of the Laffer curve to corporation tax. I feel that Conservative Members will find it quite difficult to cope when I point out that the average rate of corporation tax in OECD countries is 25%, or that in Germany, the strongest economy in Europe, it is between 30% and 33%—and it is even higher in America. The hon. Member for South Thanet (Craig Mackinlay), who is no longer present, even questioned the very basis of taxing companies at all, but it is a reasonably held position that companies benefit from good infrastructure, a skilled workforce and a proven legal system, and it is reasonable to balance the impact of taxation between individuals and corporate entities. I feel duty-bound to point out that the tax gap fell every year between 2005 and 2010—from 8.5% to 7%.

I wish to pay tribute to two particular contributions—

[John Redwood]

Will the hon. Gentleman give way?

[Jonathan Reynolds]

I will not give way; I have listened to the Conservative party for more than eight hours.

The first contribution to which I pay tribute is the maiden speech of my hon. Friend the Member for Liverpool, Walton (Dan Carden). It was at times funny and moving, and it captured the character of his constituency extremely well, but it also had a serious and thoughtful message about the changing nature of work, automation, and the fundamental lack of opportunity faced by young people today. He described Liverpool as one of the great cities of the world, which it undoubtedly is—perhaps not quite as much as Manchester, but we can take that outside—and he proved he will be a fine representative for it. With 85.7% of the vote at the election, I imagine we will have the chance to hear from him for some time to come.

It was also a pleasure to hear the maiden speech of the hon. Member for Moray (Douglas Ross). He was extremely articulate and gracious about his predecessors, and that came across very well. I have visited his constituency: I have been to Elgin and to Cullen, and I have tried Cullen skink, a dish every bit as tasty as his maiden speech. I congratulate him on such an assured debut.

Despite the party political nature of much of the debate, we have heard serious concerns about ailing productivity. We have heard worries about the lack of certainty in the Brexit negotiations and what that means for the public finances. We have heard Members reference the challenging demographic and technological changes that face our nation, and yet we have a Bill before us that has nothing to say about any of that.

When I was talking to residents in my constituency during the EU referendum, leave voters raised specific concerns about immigration and sovereignty, but more than anything else it was a sense of recurrent anger and of post-industrial decline that they had witnessed and lived through that animated so many of them. My constituents told me that they were voting leave because of zero-hours contracts, because they could not get on the housing ladder, or because they had lost their job due to austerity and now had to work for less pay and poorer conditions. For me, those people were voting not to leave the EU, but to try to leave the UK. All of us, whichever side of that referendum or this House we are on, must be concerned about that. We should want to tackle that disconnection and alienation—not just paint a rosy picture of statistics and how we want to see them for our own political benefit.

I will let the House into a secret: I am jealous—I really am—of the Ministers on the Front Bench. I am jealous of the power that they have to put this right. I am jealous of the opportunity that they have to do good. However, instead of using that opportunity and that power, this Government do not even appear to see the problems. The Finance Bill before us today seems to be legislating for a completely different set of economic circumstances. It is not difficult to see why there may be frustration among those who look at these measures and feel that they are being left behind and among those who look at this Government and ask: why is there always one rule for the people at the top, and another for everyone else?

We have had an absurd set of interventions about student debt, pretending that the Leader of the Opposition had said something, which evidently he had not. It says to me that the Conservative party is still in denial about what happened in the general election—how it lost a majority despite being so far ahead in the polls. If Members think that it was down to something that they are wilfully misinterpreting, I am afraid that they will face further difficulties ahead.

The backdrop to last week’s ways and means debate was a rally of nurses outside Parliament, rightly asking for redress for the 14% real terms pay cut they have endured since 2010. Yet while that was happening, this Government were proposing a resolution, which expanded business investment relief for non-doms. It was a stark reminder of where this Government’s priorities lie: look after the people at the top, and the rest of us will supposedly benefit from the trickle down. It is just that on the Labour Benches, we see it the other way round.

Only this Government could pretend to flirt with the public and say that they were ending the public sector pay gap, and then, on the day that the consumer prices index comes out at 2.9%, announce rises well below that. If we end up, as is looking likely, with people like those nurses taking industrial action in protest at their treatment, public sympathy will not be on the Government’s side.

As a country, we are on the cusp of huge change driven by deeper globalisation, environmental change, technology, and, most pressingly, our exit from the European Union. Brexit is now the defining issue of our generation and it brings with it significant challenges and uncertainty. Our worry is that we are approaching Brexit not from a position of economic strength, but as a rudderless ship, already taking on water and listing badly off course. The Government are failing to plan ahead for our future outside of the EU and this Bill is another demonstration of that.

I want to refer specifically to the Government’s provisions around HMRC. The Conservative party certainly talks a good game on tax avoidance, but the Government have yet to explain how HMRC will better battle tax avoidance while accommodating another £83 million of cuts. Surely this is the time that we should be investing in HMRC, not taking resources away.

One of the most pressing areas is the future of our customs system. This Bill sees the introduction of a fulfilment house registration scheme to deter VAT abuse by overseas businesses. However, experts are already suggesting that abuse may escalate faster than HMRC can keep up, particularly given the ever growing popularity of online business. More urgently, the legislation makes no reference to how this will change once we have left the EU. The scope of these measures will be altered hugely should our customs arrangements with the EU change, which they almost certainly will. There are huge implications for policing our own customs border, and for getting an IT system ready to manage customs and excise once we leave the EU, but this Government cannot even tell us what the likely transition arrangements will be, let alone start preparing for them. Surely the worst possible place to start is from a situation in which we have already lost 5,000 staff from HMRC. Time and again, we find ourselves in a situation where it is hard not to conclude that this is a Government without any substantive agenda, other than hanging on to office at all costs.

This Finance Bill, now finally coming to the end of its Second Reading after months of delay, was sadly not worth the wait. It is a damning reflection of the Tories’ priorities—fiddling on the deck of the rudderless ship as it cruises straight towards the rocks. We need answers on investment, productivity, fairness and prosperity, but we have a Government who are not even willing to ask the right questions. Listening to some of the contributions today—we heard some presidential quotes in the maiden speeches—I was reminded of a line from President Obama’s first campaign, when he said

“it’s not the magnitude of our problems that concerns me the most. It’s the smallness of our politics.”

Our message to the Government is that we will vote against this Bill tonight because it is not worthy of the challenges this country faces. The British people have had enough of an austerity policy that has comprehensively failed, and they are desperate for something better. If this Government cannot bring themselves to face up to the challenge of building a post-Brexit country that is fairer, more competitive and more prosperous, they should get out of the way for the people who can.

Finance Bill

Jonathan Reynolds Excerpts

Committee: 1st sitting: House of Commons
Wednesday 11th October 2017 Commons Chamber

[Mel Stride]

My hon. Friend makes a powerful point. This is about strengthening Northern Ireland’s economy, society and infrastructure, to the end that we all seek, which is a stronger and more united Northern Ireland.

In conclusion, these provisions include changes that will ensure that the regime is robust against abuse, in order to maintain the regime’s focus on encouraging genuine additional economic activity in Northern Ireland.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I thank the Financial Secretary for introducing this group. This is an important debate, not only for the future of Northern Ireland, but for this country’s overall approach to taxation and devolution.

We know—we have discussed it frequently throughout this process—that our country faces a substantial tax gap. The official estimate of the UK’s tax gap is at least £36 billion, up from £33 billion in 2010, but that is at best a conservative estimate, given that the Government’s definition of the tax gap excludes convoluted corporate structures, which we know are used by multinationals to minimise their tax liabilities. The view that the tax gap is underestimated is shared by the Institute for Fiscal Studies and the Public Accounts Committee. I think that we all agree that that £36 billion, and possibly more, is money that should be used to fund our public services, and that everybody should pay their fair share.

Corporation tax is an important part of the UK’s tax revenue. In 2016-17, HMRC collected £56 billion in corporation tax receipts. Although it is important that we keep the rate competitive, particularly in the light of the UK’s exit from the European Union, it is worth noting that we face a law of diminishing returns in this regard. At 19%, the UK’s corporation tax rate is already one of the lowest in Europe. We should be confident that we do not need to plunge the rate to rock bottom in order to encourage businesses to invest and domicile here. The UK plays host to a wealth of resources that enable it to be globally competitive, including our legal system, our language, our time zone, our infrastructure, our regulatory bodies and, most of all, our people.

It is equally important that Northern Ireland is equipped with the tools to compete in that international landscape, as has been brought to the fore recently with the punitive tariffs aimed at Bombardier in the United States. As the Financial Secretary has explained, the corporation tax rate has already been devolved to the Northern Ireland Assembly, through the Corporation Tax (Northern Ireland) Act 2015. Now that that legislation has been decided, it is for Northern Ireland’s politicians to work together and use those powers to see where the line lies between a lower tax rate and the broader appeal of Northern Ireland as a business destination. At present, the decision has been that 12.5% best achieves those ends. It is not my intention to revisit those arguments today, and nor would it be appropriate to do so, given the reasons already outlined.

What is relevant, and the reason Labour has proposed new clause 2, is the relationship between that rate and the rest of the UK. The gap between 12.5% and 19% represents a significant potential for arbitrage between Northern Ireland and the rest of the UK. Some businesses might base their decisions on where to domicile purely with regard to taxation, and that is a risk that we accept—indeed, we already compete with the rest of Europe on that basis. Our concern is that the Government are introducing measures that could be exploited by companies that will seek to abuse the proximity between Northern Ireland and the UK simply to divert profits and benefit from a lower tax regime, which would benefit neither the UK nor Northern Ireland.

[Mr Gregory Campbell (East Londonderry) (DUP)]

The hon. Gentleman spoke a few moments ago about the importance of competitiveness throughout Europe. Does he agree that the argument that he is making runs counter to the attempts to make Northern Ireland’s private sector business more competitive, when we have a difficult relationship with the Irish Republic and its very low corporation tax, which he has alluded to?

--- Later in debate ---

[Jonathan Reynolds]

I take the hon. Gentleman’s point, but I would not agree with his characterisation of the situation. We are making the case that our amendment will really benefit Northern Ireland, because if the relationship was abused and firms sought to benefit from the lower rate without investing in Northern Irish jobs or business production, that would surely defeat the purpose of having a lower corporation tax rate—that is the sole point of trying to devolve the rate to Northern Ireland. Our concern is that loosening the rules could lead to brass-plating, where UK businesses are given a loophole that allows them to domicile their businesses in lower-tax jurisdictions while they continue, in reality, to operate in the UK.

[Ian Paisley]

The hon. Gentleman recognises that the one sector in which the proposals might be abused, the financial services sector, is specifically precluded from taking advantage of them. Could he provide the House with an example of a sector that he thinks would abuse the rules?

[Jonathan Reynolds]

I do not agree with the hon. Gentleman’s assertion that only the financial services sector will seek to do that. We are proposing a very reasonable review of the measure after one year, and he has nothing to fear from such an amendment.

Labour, more than any other party in this House, has consistently made the case for a level playing field between larger and smaller businesses, but a level playing field cannot be simply an equal race to the bottom in which smaller businesses are given the same tax avoidance opportunities as larger ones. That is not to say that the rule changes will necessarily lead to a flight of small and medium-sized enterprises rushing to domicile in Northern Ireland. We note that the majority of enterprises operating in the UK are honest and committed to paying their fair share. We should be vocal in praise of that contribution and its role in making the UK economy a success. However, opening what could become a loophole is significant, and it is critical that we protect against unforeseen consequences.

At this stage we have little indication of the potential impact of this measure, because behavioural effects are notoriously unpredictable to model. For that reason, we have tabled an amendment that calls on the Government to review the measure as soon as is practicable after the completion of the first financial year in which it has been fully in force. The report of that review would be presented to the House within one month. That would allow us to understand fully the impact of chargeability, see how companies are responding and react accordingly if the measure is being treated as a loophole. In turn, if evidence shows that the measure is forging stronger business links between Northern Ireland and the rest of the UK, and that the impact to the Exchequer is minimal, at least a proper assessment will have been made.

We are at a critical time when the UK economy simply cannot afford to lose revenue to tax avoidance. We have heard in the Chamber many times the arguments about why it makes little sense to drop corporation tax rates to below European averages. To do so betrays a lack of confidence in the many attractions of the UK as a domicile for ambitious companies that seek to grow their businesses. We should not be compounding revenue loss by opening a back door to even lower corporation tax rates without a framework in place to assess the impact properly.

[Jonathan Edwards]

I am sure that the hon. Gentleman agrees that one of the biggest economic challenges that we face is the huge and gross geographical wealth inequality within the British state. Is the Labour position that fiscal devolution has no part to play in the strategy for dealing with geographical wealth inequalities?

[Jonathan Reynolds]

The hon. Gentleman is not correct in that assessment. I certainly agree with him that regional disparity in the UK is one of the principal economic challenges that we face, but I do not agree that the solution is a race to the bottom in corporation tax rates between different parts of the UK. That would be neither effective nor the right way forward, and it would almost certainly fail to address the problems that he raises.

I put it to the House that new clause 2 is a sensible, pragmatic and effective proposal to deliver objectives that are widely shared by Members from all parts of the House: a prosperous Northern Ireland, an effective partnership across the nations of this country and a competitive UK with strong public finances supporting quality public services.