Finance (No. 2) Bill

Jonathan Reynolds Excerpts

2nd reading: House of Commons
Tuesday 18th April 2017 Commons Chamber

[Jane Ellison]

Members should be paying more attention. Earlier today the Leader of the House updated right hon. and hon. Members on how that motion, if it is passed, will impact on the business of the House. We hope to hold constructive discussions with the Opposition, through the usual channels, on how this Bill will proceed.

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

We are always here to help.

[Jane Ellison]

It is good to hear that Opposition Front Benchers are here to help.

To return to the matter under discussion, I will lay out the themes of the Bill and then I will allow the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) to intervene. We are very clear that our taxes and the system underpinning them need to be fair and competitive and, critically, they must be paid. This Bill will take the next steps in helping to deliver a fairer and more sustainable tax system, one that can support our critical public services and get the country back to living within its means.

The Bill implements changes that respond to the challenges that our tax system and, indeed, our society face. It delivers on intergenerational fairness by tackling inequality of health outcomes across and within age groups, and it delivers changes that better reflect the different ways in which individuals choose to work, enabling people to earn money and create wealth, whatever their chosen business structure, but at the same time ensuring that those choices are not distorted. The Bill also delivers vital revenues to put our public finances on a sustainable footing, secure the future of public services that we all value and help to further bring down the deficit.

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[Mr Rees-Mogg]

I would explain the national debt of approaching £2 trillion because of the place where we started. It is very interesting that when the previous Chancellor, my right hon. Friend the Member for Tatton (Mr Osborne), started reducing the deficit he was told by Opposition Members, “Too far, too fast!” They chanted it like a mantra as he stood at the Dispatch Box nobly defending his policies. In fact, he went at the right pace to ensure that the Budget deficit came under control, while at the same time the economy was not unduly affected by the reductions in expenditure and increases in taxes that had to be made. It was a first-class balancing act by my right hon. Friend and that is why the deficit is at £2 trillion.

[Jonathan Reynolds]

I am loth to give the hon. Gentleman further exposure, but if that strategy was as successful as he believes, why did it not meet its own objectives and we are still discussing the deficit and the very large amount of national debt today?

[Mr Rees-Mogg]

It has succeeded. We have the fastest growing economy in the G7. For all the stuff we heard a year ago, the economy has carried on motoring ahead. The economy has done pretty well every year now since 2010. That is the success of the economic strategy that the Government followed. The deficit is about a third of what it was in nominal terms, but as a percentage of GDP it is now within the normal bounds of deficits.

[Jonathan Reynolds]

I may be falling into my own trap, but I remember listening to the hon. Gentleman’s speeches in the previous Parliament when he said that if the deficit was at this level, going on from 2010, that would be a disaster. Now he is saying it is a huge achievement. Can he not understand why the lack of humility makes one cynical about the content of his speeches?

[Mr Rees-Mogg]

I do apologise for a lack of humility. I shall try to do better in that regard. I am, however, flattered that the hon. Gentleman remembers my speeches from years ago. I admire his attention to the debates in this House. The point I was making then was that a deficit of £150 billion a year, or 10% or 11% of GDP, was completely unsustainable. It is now down to about £50 billion and about 3.5% or 4% of GDP. It is at a manageable level. That is the achievement of the previous Chancellor and the current Chancellor.

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[Victoria Atkins (Louth and Horncastle) (Con)]

So much has already been said in this debate that I am going to attempt to be short and, I hope, concise in my remarks. I am aided by the fact that a little time ago I got an A-level in economics, and I hope I will be able to explain my views on the Bill in language of which my economics teacher would be proud.

It is particularly appropriate that we are discussing the Finance Bill because, of course, the Prime Minister today made a momentous statement announcing the next general election. It is only right that we are talking about the economy and finances of this great country, because a strong economy is vital to achieve all that we care about. In my constituency, Louth and Horncastle, a strong economy means jobs and successful firms creating prosperity, and from that, taxes flow. Of course, taxes pay for everything that we care about, from the national health service to defence, in which I have a particular interest because RAF Coningsby is in my constituency. They also pay for schools, and I am sure that we all in this House are united in our wish to ensure that the young generation are educated properly and fully so that we can make a success of not only Brexit but the future. I was particularly pleased today to see the Prime Minister emphasising not only her plans for Europe but the future beyond Brexit.

But—there is always a but—we must still continue to get public spending under control. There is no magic money tree, no matter how often Opposition Members would like to pretend there is. We have, sadly, a debt of nearly £1.7 trillion, which equates to almost £62,000 for every household in the country. We are spending more money on debt interest than on defence and policing combined, which is why we must learn to live within our means.

I have to say that, having spent several hours in the Chamber listening to erudite colleagues, I was a little concerned when, in answer to how much money Labour planned to borrow after the next election, the shadow Chief Secretary to the Treasury said something along the lines of—I hope I am not misquoting him—“We will borrow less than the Conservatives.” I did not hear any detailed financial planning. I will look forward to that in the coming weeks.

One of the best ways to ensure that this country succeeds and is prosperous is to make it the best place in the world in which to do business. That is precisely why we are cutting corporation tax, which was 28% under Labour, to 20% today, falling to 17% in a couple of years’ time.

[Jonathan Reynolds]

There is no magic money tree.

[Victoria Atkins]

Indeed. I hesitate to rely on my A-level economics, but companies employ people who pay taxes, and companies themselves pay taxes—not just corporation tax, but VAT, payroll tax and business rates. This is all about giving businesses the best chance of succeeding.

[Jonathan Reynolds]

indicated assent.

[Victoria Atkins]

I am glad to see that the hon. Gentleman agrees with me.

One of the most important things about any tax system is not just that it should help to pay for the things that we care about, but that it should be fair. In my previous career, I prosecuted tax fraudsters for a living. I am delighted to say that the main offence that we used to prosecute such people was cheating the public revenue, because if they commit tax fraud, they are a cheat. I look forward to helping the Government not just in the Finance Bill, but in the Criminal Finances Bill, to ensure that tax fraudsters feel the full force of the law.

Looking beyond Brexit, the reason I welcome this Finance Bill is that it places a very great emphasis on helping working families with the cost of living. I intervened on the hon. Member for Aberdeen North (Kirsty Blackman) to say that we have raised the national living wage in April to £7.50, which means an income boost of more than £500 for a full-time worker this year. The personal allowance will rise for the seventh year in a row, benefiting 29 million people, which means that a basic rate taxpayer will pay a full £1,000 less in income tax than they did in 2010 under Labour.

I also welcome this Bill for the help that it gives local authorities for adult social services—I am talking about an additional £2 billion of funding over the next three years—and the extra £100 million it provides in 2017-18 for capital investment for accident and emergency departments in England. I also welcome the £320 million to extend the free schools programme. The fact that the Prime Minister has called an election today shows that the Conservatives are the true Government of the United Kingdom. I know that the Scottish National party will welcome the fact that, under this Bill, Scotland will get more money, as will the Welsh Government and the Northern Ireland Executive. I welcome this Bill and I look forward to the campaign on the principles therein.

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

It is a pleasure to close today’s debate on the Finance (No. 2) Bill, even if other events have possibly overshadowed today’s important parliamentary business. In fact, I understand that there are reports circulating this evening that the Crown Prosecution Service is about to charge 30 senior Conservatives with election expenses fraud, so I am afraid it is possible that we may be squeezed down the news cycle still further. I am grateful to Members for their thoughtful contributions to today’s debate.

This is a poor Government who have achieved very few of the aims set out by David Cameron when he first came to power in 2010, especially in relation to the public finances. Instead, they have created a crisis in living standards and underfunded essential public services. Those of us who entered Parliament in 2010 know that the Government’s promises on the economy when they came to power have not even come close to being fulfilled, and this Bill takes a lot of pages to deliver very few tangible improvements on that poor level of performance.

I will begin by reiterating the concerns raised by my hon. Friend the Member for Bootle (Peter Dowd) at the beginning of today’s debate. The Bill is certainly large, adding complexity and technical detail to the statute book, yet we have been presented with an almost impossibly tight timeline in which to properly scrutinise and discuss it. The stakeholders we have consulted have echoed those worries. For example, industry bodies tell us that they have struggled with interpreting and analysing the Bill’s full impact, given the time and volume involved. I imagine that that process will be truncated still further, given the imminent general election.

On the specifics of the Bill, HMRC is rightly at the centre of the Government’s plans to tackle tax avoidance. The Government’s own estimate of the current tax gap stands at £36 billion, which in the opinion of many tax experts is a highly conservative figure, given the method of calculation. It is extraordinary that the Government believe that they can address that gap by drastically cutting HMRC’s staffing and budget levels. At autumn statement 2016, the Government announced a series of cost savings via administration and operational measures at HMRC, totalling £180 million a year by 2021-22. It goes entirely against reason that the Government are trying to find £180 million in savings in an organisation that is critical to efforts to recoup a slice of that £36 billion in missing revenue.

The significance of that tax gap has never been more critical. Our NHS has been pushed into crisis by the Government’s failure to fund it and social care properly. Each week brings new and damning revelations about the state of the service we all rely on, with the end result being that in some areas the Government have simply given up on their own targets, such as the 18-week waiting time for hip and knee surgery. We need a properly funded plan for the NHS that takes into account the real needs of delivering a 21st-century health service with patient welfare at its heart.

We also face the significant added complication of Brexit, which remains unaddressed in the plans for HMRC. Although we all remain in the dark about what exactly our departure terms will look like, we face the reality that we may for the first time in decades have a customs border between us and the EU that will need policing. We are already seeing a crisis in VAT evasion from overseas sellers, potentially costing the Exchequer as much as £1.5 billion a year, by its own estimates. Should we leave the single market, there will be a huge increase in pressure on the customs system, which is struggling to cope as things stand. These are serious matters for consideration, related to the fulfilment section of the Bill. UK retailers are not on a level playing field with unscrupulous sellers from around the world, at a cost to both our competitiveness and our Exchequer, and HMRC is currently ill-equipped to tackle that abuse.

Businesses of course operate in a global environment today. That brings its own challenges, and we need to make sure we are providing the right framework for businesses to handle it. We are approaching what has been termed the fourth industrial revolution, which has precipitated a huge shift in the nature of work and employment. It is unsurprising, therefore, that many of the clauses in the Bill legislate for those changes, such as those involving IR35 and Making Tax Digital.

Undoubtedly, we must change our approach to how we treat employment in the 21st century, but the Government seem to be firing unsuccessfully at a moving target. This change in approach comes far too late and, in our opinion, has the wrong focus. The rise of the gig economy has brought opportunities for some, but challenges and exploitation for others. Flexibility and independence have been highly valued advantages for some workers, but self-employment has also been abused by unscrupulous employers as a means to reduce their tax bill and to avoid giving contractors the rights and entitlements of employees. So far, the Government’s only answer has been to propose punishing the employees by increasing taxes on them, not to consider the rights and obligations of both sides of this equation.

We saw that reflected in the chaos of the Budget last month, when the Chancellor’s completely wrong-headed decision to introduce NICs parity with employed workers highlighted the lack of understanding at the highest levels in the Treasury of the modern nature of work. The Government rightly backed down on the issue, but it showed that trying to legislate piecemeal for what has effectively been a revolution in the world of work has been ill thought through and will not succeed.

For example, IR35 shifts the entire burden of taxation on to contractors, rather than looking at the underlying issue of why the public sector has become so dependent on these types of employees. As is argued by the Low Incomes Tax Reform Group, the rules on errors in taxpayer documents seem to ignore the fact that low-income groups could now be caught in punitive anti-avoidance measures simply because they have no choice but to operate through an agency, or because they cannot afford accountancy advice to help them to fill out their tax returns. As an alternative, we advocate a wholesale review of the package of measures offered to self-employed individuals. Our scrutiny of the measures in the Bill is delivered through that lens: these are a succession of piecemeal changes that risk hurting people unwillingly caught in the net of self-employment, rather than wealthy tax avoiders.

Opposition to the NICs rise for the self-employed was so intense because the UK prides itself on being a country of entrepreneurs, and on being able to create an environment in which small businesses and independent workers can thrive. The Making Tax Digital proposals are yet another illustration of how the Government continue to miss the point when legislating for a changing world of work. These proposals will put undue pressure on small businesses and the self-employed, who simply do not have the resources to input tax information on a quarterly basis.

Even the House of Lords Economic Affairs Finance Bill Sub-Committee has said that it does not share HMRC’s confidence in its estimates of how far the tax gap will be reduced by this measure, which it has described as fragile and little more than guesswork. Evidence given to the Sub-Committee showed that the initiative is in fact likely to result in greater errors in taxpayer reporting, not fewer, as businesses come under pressure to fill out accounts four times as frequently. Again, HMRC will be expected to accommodate this system at the same time as its resources are being cut and even more legislation is being piled up for it to enforce. In line with the rise in business rates, it is difficult to see how the Government can truly say that they are seriously committed to helping UK business to succeed. Instead, 2017 has so far been characterised by punitive measures and uncertainty, and this looks set to continue.

We should be discussing a Finance Bill—this is what we needed—that would address the real problems that exist in this country: the fact that real pay is still lower than before the financial crisis, that 6 million people earn less than the living wage, and that 4 million children live in poverty, two thirds of whom are in households where their parents work. We should be talking about how to balance the tax system and spread the burden, not simply getting into a race to the bottom on corporation tax while seeing crushing rises in business rates, alongside increases in bureaucracy and administration. We should certainly be discussing a serious and realistic plan for the NHS and social care; from what I have seen in my own constituency, I reject entirely the Government’s assertion that they are properly resourcing social care in particular. We have a Finance Bill that does none of these things. For that reason and many others, we will oppose giving it a Second Reading tonight.