Charter for Budget Responsibility
Julian Smith Excerpts(10 years, 3 months ago)
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Ed Balls
I will give way in a moment. I want the House to know what is in this document first.
The Chancellor pledged to get the national debt falling. Page 7 of the charter says that
“the Treasury’s mandate for fiscal policy is supplemented by: a target for public sector net debt as a percentage of GDP to be falling at a fixed date of 2015-16”.
So the charter says that the national debt should be falling in 2015-16, but the OBR said in respect of last week’s Budget that it expects the national debt to be rising next year. The national debt is not falling according to this charter, and it is rising according to the OBR. I want the House to understand what is before us. I have to ask the Chancellor this: how on earth did he end up putting before the House a week after his Budget a motion that puts up in lights the fact that he is failing his own target to reduce the national debt? What an own goal! Is he going to blame the chair of the Conservative party for that one, too?
It gets worse for the Chancellor. The charter goes on to say—[Interruption.] Government Members should listen—[Interruption.] They should listen to this:
“The Treasury’s mandate for fiscal policy lapses at the dissolution of this Parliament.”
Lapses! It has already collapsed. It has expired; it has ceased to be; it is an ex-mandate. The charter goes on to say:
“The duty to set out a fiscal mandate will require the Treasury to set out a revised mandate for fiscal policy as soon as possible in the life of the new Parliament”.
That is what we will do: we will balance the current budget and deliver a surplus in the next Parliament. We will get the national debt falling. We will do those things as soon as we can in the next Parliament, but we will do so in a different way, starting by reversing the Chancellor’s £3 billion tax cut for people earning more than £150,000. That is what we mean by doing things in a different and fairer way.
Julian Smith (Skipton and Ripon) (Con)
Will the right hon. Gentleman confirm his announcement earlier that Labour will be raising taxes on British business?
National Minimum Wage
Julian Smith Excerpts(10 years, 5 months ago)
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Rachel Reeves
I congratulate my right hon. Friend on his work in helping to put the national minimum wage on to the statute book. He is absolutely right to suggest that one of the contributions to the cost of living crisis that we see today is that the national minimum wage has not kept pace with the increase in prices during the last few years. The introduction of the minimum wage did indeed help to boost the spending power of workers.
Rachel Reeves
I am so shocked. We have two interventions from Government Members. I will happily give way to not one, but two Government Members.
Julian Smith
As a fellow Yorkshire Member, I thank the hon. Lady for allowing me to intervene. Will she welcome this week’s announcement on inflation at 2%, and will she accept that this, as well as the Government’s phenomenal job creation results, are a key part of the package of getting people better paid in this country?
Rachel Reeves
For 41 of the 42 months that the Prime Minister has been in office, prices have risen at a faster rate than wages, and that continues to be the case. The only month that it was not the case was in April last year, when bank bonuses were deferred from March to April to take advantage of the cuts in the top rate of tax from 50p to 45p. [Interruption.] That is the only month in which prices grew at a slower rate than wages, not for ordinary workers, but the privileged few who the hon. Gentleman’s party always supports.
National Insurance (Contributions) Bill
Julian Smith Excerpts(10 years, 6 months ago)
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Shabana Mahmood
First, may I join the Minister in paying tribute to all the members of our Bill Committee, who helped to scrutinise the Bill and provided valuable insight into its measures? If there was the occasional predictable question, it was always asked with good humour and good grace.
We have supported the employment allowance from the moment it was announced in the Chancellor’s last Budget. Our bone of contention with the Government has not been about the detail of the EA or who it applies to; rather, it has been about the time scales for its introduction. We believe that the Government should have changed course much earlier, particularly given what happened with the previous regional national insurance holiday scheme. Although that helped a lot of businesses, the number certainly fell far short of the 400,000 it was supposed to assist.
The Government say this Bill is about helping our country compete in the global race, but if we are going to compete in the global race, we will have to start getting out of the starting-blocks more quickly. I therefore say to the Minister that the Government should have acted more swiftly on national insurance. If the Government had changed course sooner, we may have been well into the take-up of the EA by now instead of having to wait for it finally to be introduced in April next year, and the country might already be enjoying all the good effects that all of us across the House hope will flow from it.
In last week’s autumn statement the Government introduced a new measure that we have also supported today: the abolition of employers’ NICs for all employees under 21 years of age. I repeat what I said to the Minister in our earlier debate, however: we would have liked bolder action from the Government in their autumn statement to help deal with the problems of youth unemployment. We do not think this measure, which will come into force only in 2015, goes far enough, nor will it stimulate higher levels of youth employment as quickly as we would like. The real bone of contention, which I fear we will continue to debate until this measure finally comes into force in 2015, is the delay. None of the reasons the Minister gave in his winding-up of the debate on new clause 3 for waiting until 2015 sounded sensible to me. He said that if the Government could have done so, they would, of course, have wanted to bring the measure forward in 2014. But the Government could also have got rid of the regional national insurance employers’ holiday scheme earlier when it was clearly failing, but they did not do so. I do not understand why it is impossible to introduce this measure earlier. I am sure we will examine that issue further when the Bill is debated in the other place and through oral and written parliamentary questions. The Minister and I will continue to debate the merits of the introduction of that measure in 2015, as opposed to the introduction of the new clause, which is what we would have liked.
We have supported the EA in the Bill and we consider that the extension of the GAAR to apply to national insurance contributions is sensible, although we continue to have very real concerns about the extent of the GAAR.
Julian Smith (Skipton and Ripon) (Con)
Does the hon. Lady wish to put on record in this Chamber that she regrets that Labour did not bring an anti-avoidance rule into law during its 13 years in government?
Shabana Mahmood
As the hon. Gentleman knows, we had exactly the same line of questioning in the Bill Committee and I remind him that the Labour Government brought in the disclosure of tax avoidance schemes, which has raised a hell of a lot more money than the Government believe the GAAR will. We have a proud and strong record on tax avoidance. Also, that does not get the Government off the hook in respect of their GAAR, which will not make quite the impact on the tax gap that everybody would like.
The measures relating to oil and gas workers and to limited liability partnerships have changed in order to clarify the Government’s intentions in the new clauses and the removal of old clauses 12 and 13, but they are both sensible measures that we are happy to support. So, although we have real concerns about the pace at which the Government are moving to deal with the challenges that this country faces—especially youth unemployment, which we are debating today as a result of the measure in the autumn statement—we support the measures themselves and will support the Bill’s Third Reading.
Julian Smith (Skipton and Ripon) (Con)
New clause 3 was a fantastic Christmas present to members of the Bill Committee and a big boost for youth employment across the UK, particularly in North Yorkshire, where I represent a very rural set of communities and where, although we have very low unemployment figures, young people still want jobs. This will be a big boost for them.
During small business Saturday, Government Members and, I hope, Members across the House, were out seeing small businesses across the areas we represent. In the town of Settle in the Yorkshire dales, people were clamouring for more information on the Government’s policy on the employment allowance and their new policy on employing under-21s without paying tax. That makes a huge difference, as other hon. Members have said, to businesses with a small profit margin that have just been set up.
Such businesses include JW Garnett, which managed to sell me a toaster on small business Saturday; 3 Peaks Cycles, which is revving up for the Tour de France in Yorkshire, which the Government have backed with £10 million; the Talbot Arms, which is being funded by a parent of the publican who is anxious to get moving and employ more people; and the Three Peaks Gallery, which is run by Hazel, who lost her husband at the end of last year, has this year been trying to keep the business moving and is now planning to use the Government’s measures to expand and employ people.
The employment allowance and the removal of employers’ NICs for under-21s, along with the business rate announcement in the autumn statement, mean that this Government now have a bumper range of policies to ensure that we are the party of business. The policies also include start-up loans, apprenticeships, the boost to the funding for lending scheme and a tax reduction whereby we will have one of the lowest rates of corporation tax in the world and thereby one of the best places in the world in which to do business and invest. My hon. Friend the Member for Macclesfield (David Rutley) has mentioned how difficult it is to employ people, but our moderate measures on employment—which faced stiff opposition from the Labour party—will make it easier for businesses to take on people.
All those measures mean that the Conservative party is the party of business. We will ram that message home as we approach the next election, because anyone who wants to start a business, who is an entrepreneur, who is thinking about being self-employed, who wants to take a risk or who thinks it might be worth investing in an initiative, market or product has only one choice in 2015, and that is this party.
Question put and agreed to.
Bill accordingly read the Third time and passed.
National Insurance Contributions Bill
Julian Smith Excerpts(10 years, 7 months ago)
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Mr Gauke
The Bill will result in a big simplification for 450,000 businesses, because they will no longer have to pay any employers’ national insurance contributions. That is significant progress. We have established the Office of Tax Simplification, which has produced a number of reports. Anyone who has studied recent Finance Acts closely will have seen that a whole range of measures have been introduced as a consequence of the OTS’s recommendations. Of course, there is more work to be done and we as a Government remain committed to that, but there have been a whole range of measures. The OTS is looking at employee benefits at the moment, and that is significant.
Julian Smith (Skipton and Ripon) (Con)
One of the concerns that small businesses had about the national insurance holiday—which was an excellent policy, despite the Opposition’s comments—was about the forms that had to be filled in to qualify. Will the Minister clarify how easy it will be for businesses to take advantage of the new proposal?
Mr Gauke
My hon. Friend makes a good point. I want to turn to the employers’ national insurance contributions holiday, because I suspect it will feature in the speeches of Opposition Members. They will make the point that take-up was not as high as we had anticipated. [Interruption.] Let me give the numbers: 26,000 employers and 90,000 employees have benefited from it. Our expectation was that take-up would be much higher. [Hon. Members: “How much?”] Don’t worry; I am going to set it out.
We said that 400,000 businesses and 800,000 employees would benefit from the scheme. I think that the reason why that did not happen is closely aligned to what my hon. Friend has just pointed out: a scheme that was, essentially, quite targeted and required businesses to apply—even though we worked hard to try to make the application process as simple as possible—simply meant that fewer businesses applied for it than we had anticipated. Take-up was lower than expected and there are lessons to be learned from that. We should be open about that.
We need a system that is simple and that can be applied easily. Under the new proposal, no application process is needed as such. Businesses will receive the benefit of the employment allowance simply by using up-to-date payroll, and the introduction of real-time information makes that much easier to apply. We believe that this is a much-improved policy. It contrasts with the employers’ NICs holiday, because that was a targeted regime. It also contrasts both with the policy advocated by Labour in its five-point plan, which was even more targeted, and with the policy we heard about yesterday on the living wage. Complicated, temporary schemes requiring applications are likely to have disappointing levels of take-up, whereas permanent schemes automated through the payroll system will, we believe, apply much better.
Julian Smith
Will the Minister confirm that he will take no lessons from the Labour party, because during the debates on the national insurance contributions holiday, it advocated more bureaucracy in the form of annual reports and the like?
Mr Gauke
My hon. Friend is right. The policy of providing a NICs break only for new employees raised all sorts of practical questions such as who constituted a new employee and what perverse incentives might have been created. That is not dissimilar to the point that my hon. Friend the Member for Stourbridge (Margot James) has made about Labour’s current policy.
I will turn to the other elements of the Bill. Clauses 9 and 10 relate to the general anti-abuse rule. The Government announced at last year’s Budget that they accepted the recommendation of the Aaronson report to introduce a GAAR targeted at abusive tax avoidance schemes. The GAAR was introduced in part 5 of the Finance Act 2013 and has been in force since July. This Bill will apply the GAAR to national insurance contributions.
Clause 11 relates to oil and gas workers. In this year’s Budget, the Chancellor announced that the Government would strengthen the legislation on offshore employment intermediaries. The Bill will address the non-payment of employer’s national insurance contributions in the oil and gas industry through the placement of the employer of oil and gas workers who are working on the UK continental shelf outside the UK. The measure has been subject to consultation. The consultation document, “Offshore employment intermediaries”, was published on 30 May 2013 and the consultation closed on 8 August 2013. The summary of responses was published in October.
The Government intend to address those offshore employment schemes largely by using existing powers contained in social security legislation. The Bill supplements those with a new certification provision for the oil and gas industry. That provision will apply where the national insurance obligations are fulfilled by someone on behalf of the person deemed to be the employer for national insurance purposes.
Clause 11 is part of a measure that, as a whole, is expected to bring in the region of £100 million per year to the Exchequer, without having a significant economic impact on the oil and gas industry. Staff costs for some businesses may increase if they had not previously been accounting properly for all tax and NICs. There will be little cost to the Government through additional administration, other than HMRC implementing the new certification system, and I hope hon. Members will agree that this is a straightforward and uncontroversial provision.
Finally, I wish to refer to provisions in the Bill concerning HMRC’s partnership review, which are contained in clauses 12 and 13. Following the Chancellor’s Budget announcement, HMRC carried out a consultation on two aspects of the partnership rules between May and August this year, and the Government are bringing forward measures in the Bill as a result of that review. The Government are proposing two sets of changes, the first of which was not part of the consultation proposals but resulted directly from information received during that consultation. It concerns a tax issue that can arise from the interaction of the alternative investment fund managers directive—AIFMD—and existing partnership tax rules. Only those alternative investment fund managers who operate as a partnership will be affected by the proposed changes in the Bill.
A provision in the Bill will allow regulations to be made to modify the class 4 NICS liability of partners whose profits will be deferred under AIFMD, which aims to improve investor protection and reduce risk. The regulations will be based on new tax legislation that will be included in the forthcoming finance Bill. Measures will be included in the NICs Bill, the forthcoming finance Bill and secondary legislation to reclassify certain limited liability partnership—or LLP—members as employed earners for tax and national insurance purposes, to tackle the disguising of employment relationships through LLPs.
The tax and NICs changes are expected to bring in approximately £125 million to the Exchequer in the first year, while the broader economic impact is expected to be negligible. There will be changes to the NICs liability for certain partnerships and individual partners in the alternative investment fund sector. The Bill will also result in some LLPs in certain industry sectors where disguised employment has been most prevalent paying increased amounts of NICs.
Shabana Mahmood
I thank the Minister for that intervention. I am not surprised he wants to turn the attention away from his own U-turn. I remind him that our proposal was a refinement and an extension of his failed policy. We could see it was failing and, doing our job as a responsible Opposition, we were suggesting ways in which the Minister might be able to rescue his failed national insurance holiday. I must correct him: the scheme was not for small businesses only, but all existing businesses.
Julian Smith
This is a highly depressing speech. Should we not all be celebrating the fact that the economy is turning a corner and celebrating this policy, which will encourage the risk-takers, who are pushing the recovery on, to go further and faster and take on more people? This is a depressing speech. Let us get on with the opportunity that this policy brings.
Shabana Mahmood
I am sorry that the hon. Gentleman is so depressed that his Government’s policy has failed, but that is not a matter for me.
We will seek reassurance from the Government and test the Bill’s provisions to ensure that the new scheme does not suffer from the problems associated with the previous scheme. In particular, we will scrutinise its administration. The national insurance holiday was too complicated and the employment allowance should not suffer from the same problems. One problem affecting take-up of the previous scheme, in addition to its complexity, was the lack of publicity. Many businesses simply did not know what was available. This problem must not be repeated. This is particularly important when it comes to publicising the scheme to charities and amateur sports clubs, to which it now also applies. They are more likely to be unaware of what is available, and the Government should have a clear publicity strategy, subject to review, if take-up is, for whatever reason, lower than expected.
Clauses 9 and 10 apply the general anti-abuse rule to national insurance contributions, and enable the Treasury to ensure that the GAAR, as it applies to national insurance and to tax, is kept in line.
We support the application of the GAAR to national insurance, but we remain unconvinced that the current version is up to the job. It is the Government’s flagship policy for tackling tax avoidance, and their figures show that it will result in annual revenue of £60 million in 2014-15, which they expect to rise to £85 million by 2017-18, but that compares with a tax gap that was estimated, when the GAAR was introduced, to be £32.2 billion but which has now risen to £35 billion. Have the Government thought about reassessing their figures in the light of the slightly over-enthusiastic estimates made for the UK-Swiss tax agreement? Anyway, a dent of £85 million in a tax gap of £35 billion is nothing to write home about.
The House will recall that two months ago, a member of the GAAR independent advisory panel, which decides whether people have broken the rule, was forced to resign, shortly after the GAAR came into operation, having been caught advising people at a tax-planning conference how to keep their money
“out of the Chancellor’s grubby mitts”.
This was someone who was hand-picked to advise Ministers on the avoidance schemes the GAAR should catch. We remain concerned, therefore, that the GAAR is far too narrow, that there is no specific penalty regime, that no arrangements are in place to monitor its effectiveness and that, as a result, it has little credibility. We will continue to press these arguments when the Bill reaches Committee.
We welcome the introduction of a certification scheme for offshore employers of oil and gas workers. The extent of this problem is significant, with at least 100,000 individuals having been found to be employed through an intermediary company with no presence, residence or place of business in the UK. I note that this is the first of three measures aimed at tackling this issue. We await the introduction of the other two by way of secondary legislation and provisions to be included in the Finance Bill. We know from analysis published alongside the Bill that the changes, as a whole, are expected to result in Exchequer savings of £80 million to £100 million a year, and we will wish to review the effectiveness of these provisions as and when they come into force.
Julian Smith
Does the hon. Lady regret the Labour Government’s failure, over 13 years, to take the anti-tax avoidance measures that this Government are now putting in place?
Shabana Mahmood
I absolutely reject the hon. Gentleman’s point. We have a very good record on tackling tax avoidance, and as I said, at the moment I do not think that the GAAR is anything to write home about. We have significant issues with it, but we will return to those points in Committee.
Clauses 12 and 13 make provisions for partnership arrangements, which we support. We welcome the regulations that will prevent the misuse of partnerships for the purpose of tax avoidance by focusing specifically on two issues. The first concerns partnerships and the tax-motivated allocation of profits and losses relating to the alternative investment fund managers directive, and the second concerns limited liability partnerships and the nature of the relationship between partners and the LLP.
Focusing on the second issue, the current HMRC interpretation of the existing tax rules has meant that individuals who are members of an LLP are taxed as though they are partners in a partnership, meaning that low-paid workers taken on as LLP members have lost employment benefits and protections, while, at the other end of the scale, high-paid workers have benefited from a self-employed status and the resulting loss of employment taxes payable. It is time for the use of LLPs as a way to disguise employment status and avoid employment taxes to stop. We note that the Budget report estimated that the Exchequer gains would be £125 million in 2014-15, rising to £365 million in 2015-16, and we support action in this area.
In conclusion, key aspects of the Bill began life as Labour party policy, so I suppose I should thank the Exchequer Secretary for giving us the rare pleasure of enacting legislation from opposition. It is a first for me, but one that I hope will happen many more times. The national insurance holiday scheme was a complete failure, and it is vital that the employment allowance gives businesses the support they need, but it is unacceptable that they will have been waiting four years for this support. Three of those years were wasted while he and the Government clung to the national insurance holiday scheme, and almost another year has been wasted as they have failed to take immediate action, instead introducing the employment allowance only from next April. Even when forced to change course and do the right thing, they are still failing to go far enough and act quickly enough. Businesses up and down the country deserve better.
Margot James (Stourbridge) (Con)
Before I come to my main points about this Bill, which I support, I would just like to follow on from the speech of the hon. Member for Edinburgh East (Sheila Gilmore) and talk about the big picture for a few minutes. One can quibble about the benefits or otherwise of this scheme or that one, but the Government’s economic policies and interventions have contributed to Britain becoming the fastest-growing country in the western world. Survey after survey confirms the figures, which are extremely optimistic about this economy. I sometimes think the Treasury team is, with characteristic self-effacement, almost cautious in putting forward the record of this Government in full technicolour, so I would like to take up that role this afternoon.
The Bill is a straightforward and simple measure, top-slicing £2,000 off every company’s employer national insurance bill. As such, it will provide significant help to small businesses. I have 5,200 small and medium-sized enterprises in my constituency, and I welcome this measure on behalf of them all. We have heard the quotes from various organisations representing small businesses, social enterprises and so on welcoming the measure. The fact that it has such independent support ought to speak for itself.
I also wish to draw attention to the ambitious sole trader. The SMEs will have their employer insurance bills cut, but we also need to consider the small sole trader who is ambitious and wants one day to grow his or her business, just as I did. When I started my business in the 1980s, it consisted just of my business partner and me—everyone else who helped was begged, stolen or borrowed. I well remember the agony of the decision to appoint the first paid member of staff. One knows that one has to do it at some point if one wants to grow the business, but the responsibility that comes from knowing that someone walking through the door is then dependent for their livelihood on the success of one’s business really makes one stop and think. Anything that makes that decision easier, as this Bill does, has to be welcomed.
I wish to talk about a young woman in my constituency, Amy Fairley, who has a passion for flowers. She worked in a florist’s shop until about six month ago, when she was made redundant. She decided to follow her passion and dream by setting up her own florist’s shop. She did that with help from the new enterprise allowance scheme—another good scheme—and a Prince’s Trust grant and the mentorship that the Prince’s Trust also provides. I helped her to open her wonderful florist’s shop on Coventry street in Stourbridge three weeks ago. As a Prince’s Trust mentor for four years before I was elected, I have had similar experience and I was always reluctant to advise on taking on that first member of staff, because of the cost and the risk. One wonders whether the member of staff will be needed all the time, although, of course, they could be taken on part-time. The Bill will mitigate that caution.
I also wish to make the point that the Bill is part of a package of measures designed to help employment and small businesses. The reforms to employment law are also crucial, because this is not just about the cost of taking someone on; it is also about the fear that if the wrong person is appointed, the business is in for a huge headache. The Government’s doubling of the qualifying period before people can make unfair dismissal claims to two years is a huge advantage, as is the fact that they are making settlement agreements easier, obviating the need for employment tribunals, which are expensive in many cases. I know from my work as a Parliamentary Private Secretary to Lord Green that the Government have invested hugely in UK Trade & Investment and UK Export Finance, again for the development of specific programmes to support small businesses with their exports.
Julian Smith
May I pay tribute to my hon. Friend for the work she has done to promote UKTI’s merits to MPs across the House and for doing that with a passion that I suspect has never been seen in this House before?
Margot James
I thank my hon. Friend for his kind contribution and for his wholehearted support of that work on trade—both are much appreciated.
Caroline Dinenage (Gosport) (Con)
I am grateful for the opportunity to speak in this important debate, and to follow such an array of wide-ranging, informative, quality contributions from my hon. Friends and colleagues. The Bill is a key part of a wider programme that the Government have undertaken to support aspiration, encourage job creation, and boost growth. As a small business owner, I am proud to speak in support of a policy that will help firms around the country to expand, innovate and, crucially, create jobs. To put it simply, the Bill is great for small businesses, great for charities, and great for Britain.
As we have heard, the key part of the Bill will save all businesses in the country up to £2,000 in class 1 national insurance contributions. Taking a tax off jobs will make it much easier for millions of people who have set up firms to take on new employees. Do not take my word for it; Anne Redston, professor of law at King’s College London, says:
“At a stroke, this new relief…removes the ‘jobs tax’ on millions of small businesses, and is likely to encourage one-man businesses to take on their first employee.”
What is more, 98% of the benefits of the change will go to small and medium-sized enterprises. As we have heard, 450,000 small businesses—one third of all the employers in the country—will pay no jobs tax at all.
Julian Smith
Does my hon. Friend agree that not only is this an exciting proposal overall, but the fact that social enterprises and charities—many of which, in her constituency and mine, are highly innovative and create jobs—are included is a really good thing?
Caroline Dinenage
My hon. Friend makes a key point. The fact that the measure is open to charities and social enterprises, as well as businesses, is really important. That is another step in the right direction by the Government to make it easier for small firms and charities to take on new employees. This is not just about business; the head of policy and research at the National Council for Voluntary Organisations, Karl Wilding, says that the idea is
“a very positive thing…To a small organisation, £2,000 is a lot of money.”
He is absolutely right. When I set up my business at the age of 19, £2,000 would have been a massive incentive to take the big step of hiring my first member of staff.
My hon. Friend the Member for Stourbridge (Margot James) spoke powerfully about her experiences of starting up a business. As she said, taking on that first member of staff is a really big moment—a huge decision. It is a massive responsibility; the person hiring becomes responsible for someone’s income, livelihood and wages.
Julian Smith (Skipton and Ripon) (Con)
Because I lost a contact lens on the tube, Madam Deputy Speaker, I can see you but unfortunately cannot see the Minister. I apologise in advance for the fact that my myopia means that I will be slightly less coherent than usual.
This Bill is a fantastic boost to all British business. In a constituency such as Skipton and Ripon, it is a particularly good shot in the arm for an area of Britain where employment is on the up and unemployment is going down. In my constituency, unemployment is down by about 30% and youth unemployment is down by about 35%, and more new businesses are being created. This is a big opportunity to give those entrepreneurs the backing they require to take on more jobs. The businesses in my constituency are largely based around tourism, agriculture, farming and small manufacturing. Many of the businesses in the 900 square miles that I represent are working under tough conditions, isolated and very vulnerable to the weather, and every bit of help they can get is a major boost.
We are very excited in the Yorkshire dales and in all parts of my constituency because in less than a year the Government-backed Tour de France will be on its way. I hope that the Minister may come and participate; I know that she is very into her sport. That event, which this Westminster-based, Conservative-led Government have backed, will be a major boost for Yorkshire—one of the most rural parts of our country. This policy will help businesses to try to make sure that they are taking advantage of this great sporting event.
We have talked about how this policy contrasts with the policies of the Labour party. Most of my colleagues in the Chamber have set up and run businesses, and we probably all agree that at the start of the previous Government’s time in office the messages were quite good. There were things such as taper relief to encourage entrepreneurs and talk of deregulation tsars, and it all looked as though it was moving in the right direction, but it tailed off pretty quickly. As well as pledging at the last election to raise the jobs tax, which the Federation of Small Businesses said would cost about 57,000 jobs in the UK, they raised the 50p tax rate—one of the so-called elephant traps set by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) to try to trap the next Government. Six regulations were added to the statute book per week. There were regular, astronomical rises in fuel duty, which in a constituency such as Skipton and Ripon had a major impact on businesses and families. Somebody may correct me, but I understand that not one debate about exports took place in this House under the previous Labour Government.
David Rutley
My hon. Friend is making a characteristically impassioned speech on behalf of small businesses and enterprises, which will thrive on the back of this Bill not only in North Yorkshire but in Cheshire and across the country. Will he remind the House of what steps the previous Government took to tackle the amount of regulation that was coming in from the EU at the time? I cannot remember them doing too much in that direction either.
Julian Smith
My hon. Friend makes a characteristically good point. I seem to remember that they signed up to more treaties and more red tape from Brussels. Only now have the Prime Minister and members of the current Government set up a deregulation unit to look at EU regulation, and I hope that we will all encourage them to do more. Any claim that Labour is the party of small business is a very hollow one.
The reason for my excitement about this policy is that it is one of a very large number of policies to back the risk-taker and the entrepreneur—the person who is ready to spend all night worrying about the new employee and ready to risk their capital. A few weeks ago, I went to Downing street with a number of right hon. and hon. Friends, and I met the most inspiring young people who were beneficiaries of the start-up loan scheme and the new enterprise allowance scheme. Downing street was packed with budding entrepreneurs who were benefiting from this Government’s policy. That policy is one of many, including taking out two regulations before one regulation is brought in; ensuring that 25% of all procurement goes to small businesses; taking away pre-qualification questionnaires; increasing the annual investment allowance from £25,000 to £250,000; cutting corporation tax; investing in apprenticeships; creating 27,000 business mentors; and introducing the regional growth fund and the local enterprise partnerships. There is an endless list of policies that this Government have put in place to back the entrepreneur.
That is not to say that we are perfect. The Government have a very strong record, but I would pose them a few questions. We are doing so many good things that we often fail to communicate them in as coherent and focused a way as possible and in a way that is easiest for small businesses. I encourage the Minister, who is coming turbo-charged into her new job, to consider the role of HMRC. The Government communicate more through HMRC than any other arm of Government. How can we use it better to signpost, particularly to small businesses and micro-businesses, the good things that this Government are doing?
How can we cut bureaucracy? We have heard about the bureaucracy involved in the national insurance holiday. How can we make sure that any red tape involved in this new policy is reduced as much as possible?
I urge the Government and my party to start differentiating ourselves not just from the Labour party, but from our coalition partners, with a small business Bill to show that we need to do even more to take small businesses out of the regulation quagmire they find themselves in. I remember sitting through the debate on the Government’s employment changes—colleagues have already discussed them—which were very simple and straightforward. Employers will have two years before they have to decide whether they want to keep an employee. Settlement agreements will at least allow an employer to offer an employee a deal when things are not working out. There will also be tribunal charges, not for people who cannot afford it—before Opposition Members intervene—but for most employees, who will have to pay a fee before taking an employer to tribunal. All of those really good changes—every single one of them—were opposed by the Labour party. It is heartening that, despite Labour’s rhetoric, it looks as though its Members are going to back this Bill, not by voting in favour of it, but by not opposing it.
I pay tribute to the Treasury, the Exchequer Secretary, who started this debate, the Chancellor and the Conservative Ministers at the Department for Business, Innovation and Skills, who are pushing ahead with enterprise reform. This Bill is a major step towards sealing the Conservative party’s record on backing those people in our society who want to take a risk and run a business.
David Rutley
My hon. Friend makes an important point. That is absolutely the case. This is about how we build good working relationships and a strong economic base through SMEs. That is far more sustainable than the approach adopted by the previous Government, which seemed to be underpinned by more and more public spending. That is completely unsustainable.
What a boost it will be for more of the growing army of the self-employed to become small employers. Indeed, if they all, or a vast proportion of them, took on one employee, that would make a huge dent—even bigger than the current one—in the unemployment figures. The number of self-employed people with no employees has increased, but the number of self-employed people with a small number of employees has not kept pace, and that is what the Bill seeks to address. In the past, the focus has been more on encouraging people to start up a business and less on taking the next step to becoming micro-employers. The Bill is an opportunity to further liberate the self-employed from barriers to growth and to nudge first-time entrepreneurs into becoming first-time employers. The prize is stronger, more sustainable economic growth.
Micro-businesses play an important role in Macclesfield, working in forums like Make it Macclesfield and the Poynton business forum. They make a huge contribution to strengthening the community and, at the same time, moving our economy forward by creating jobs.
Surveys and statistics abound to show that small businesses can be, and often are, job-creation machines. They also show that small businesses are more likely to employ the longer-term unemployed and those who may struggle to enter the job market as a result of a lack of formal qualifications or, indeed, their ethnic background. This is what the Federation of Small Businesses calls the “entrepreneurial pipeline” to what Professor Mark Hart calls “growth gazelles”. We need to encourage more growth gazelles. Essentially, this is about everyday entrepreneurs, street-level small businesses and office-share operators giving people a chance to work. Analysis by the FSB suggests that 74% of those who become self-employed and who have employees come from the self-employed who had no employee, and that a further 13% come from employees who had been working in micro-businesses. Clearly, there will be a multiplier effect once we get this right and start moving in the right direction.
The Government are absolutely right to introduce the new employment allowance. Slashing the cost of national insurance and taking many employees out of it completely will encourage more of the self-employed to become employers. However, this is not—and nor should it be—the only measure to increase the number of first-time employers. The Bill must be viewed in concert with the new enterprise allowance—for which Levi Roots is an ambassador for the Government—which seeks to encourage the longer-term unemployed into self-employment. The three-year moratorium on new regulations for small businesses is another important step in the right direction. I encourage Ministers at the Department for Business, Innovation and Skills to view it as a rolling moratorium.
Julian Smith
I thank my hon. Friend for giving way in his excellent speech. Does he agree that one of the most depressing things about the lack of Labour Members present is that, to make those schemes truly work, we all need to push them, whatever our political viewpoint, in order to ensure that those who are taking the risks hear about them and understand them?
Damian Collins
My hon. Friend makes an important point. The quality of the advice to businesses from all quarters is important. That echoes a point made by my hon. Friend the Member for Skipton and Ripon, who said that we all need to advocate the Government’s policies to ensure that businesses benefit from them.
Julian Smith
I pay tribute to the work that my hon. Friend has done within our party for a number of years to encourage entrepreneurs. It has been a most successful scheme. May I ask him for his reflections on that scheme? We have talked about the StartUp loans scheme and the new enterprise allowance, but he probably has the most experience of any Conservative Member of the competitive encouragement of small businesses.
Damian Collins
It is very kind of my hon. Friend to make those remarks. The start-up hub competition at the Conservative party conference has given small businesses an opportunity. That has been a good way to ensure that those businesses are plugged into the decision makers and people with influence in their local communities, and to ensure that they are benefiting from the breadth of schemes that the Government have to offer. We have run the competition for three years.
At this year’s party conference, I was pleased to meet Neill Ricketts of Versarien, which employs groundbreaking technology to improve the cooling systems that are used in the mainframes of computers and data storage systems. That business, which started within the lifetime of this Parliament, is going from strength to strength. It was floated on the alternative investment market this year, employs a large number of people and is growing fast.
There is a business in my constituency that was started by a group of young men. The managing director is only just 30 years old. The business specialises in search engine optimisation and social marketing campaigns. It employs more than 20 people and is growing rapidly. It has developed a way of specialising its techniques for small local businesses so that it can design social media and search engine optimisation campaigns to help businesses on the high street to grow.
People are using their knowledge and expertise to develop innovative businesses and to demonstrate that there is a market for them that has not been realised. People are developing cutting-edge technologies and products that will be exportable and that will help businesses to develop and grow.
One business that succeeded through the start-up hub competition was started by Julian Hakes, who redesigned the high-heeled shoe. He is an architect and he applied the principles of architecture to a fashion item. This year, his product was given the accessory of the year award by Vogue. It went viral on the internet and he has export orders from around the world. That was all based on a good idea that he was able to take to market. Credit is also due to two good trade bodies, the British Fashion Council and the UK Fashion and Textile Association, which supported him in the development of his business.
There are some brilliant people who are doing great things. We need to get behind them and support them. We have good schemes that can do that. My hon. Friend the Member for Skipton and Ripon made a good point about our advocating those schemes and ensuring that people are aware of them. At Tech City in east London, one hears people talking enthusiastically about the enterprise investment schemes that are available. When we meet politicians from Germany, as my hon. Friend has done, we find that they are interested in the way that we use enterprise investment schemes to encourage private investors to invest in start-up businesses. However, I wonder whether our own chambers of commerce and people around the country know enough about the schemes that are available and that they could benefit from. We all have an important role to play in advocating the Government schemes that are there to help people get their businesses to the next stage.
That support sits alongside a strong regional growth policy that is being delivered through the regional growth fund. In east Kent in my constituency, the regional growth fund has granted a third of the money that has been awarded. Tens of millions of pounds are being spent and invested by businesses. People are being employed on the back of that investment.
H. V. Wooding in Hythe, which was visited by the Minister of State, Department for Business, Innovation and Skills, my right hon. Friend the Member for Sevenoaks (Michael Fallon), is investing in a new plant and machinery to expand its production capabilities. It is a precision engineering company that makes parts for the Hadron Collider at CERN, and it makes busbars that are used across a wide range of industry and machine parts for Formula 1 engines. It is bidding for contracts that have gone overseas in the past decade, to bring them back to this country because it can compete in that sector. It is benefiting from regional growth fund money, which is helping it take its business to the next level, and it is employing people now.
One reason why unemployment is falling much faster than predicted is that the schemes to benefit smaller businesses are helping them grow and employ more people, and we are seeing the knock-on effect. It is not only bigger businesses that are doing well and competing, but smaller ones too. The challenge we should set ourselves is: “Do we have a strong and robust investment culture? Is this a country that people around the world want to invest in?” Increasingly, we are seeing that it is. People are investing in this country because of low levels of corporation tax compared with our competitors in Europe and America. That is why people are bringing investment from all over the world to this country.
Not only are smaller businesses investing in themselves, but the investment community is investing in them through crowdsource funding and companies like Funding Circle. People can match fund some of the Government schemes to help businesses get the finance they need, and that is an important part of the growth of our economy. In the ’80s, thanks to privatisation we were seen as a nation of shareholders. In the next decade, could we be a nation of shareholder and start-up businesses where people take advantage of available schemes to invest in start-up and smaller businesses in their areas? We should set ourselves that challenge.
Finally, we should not lose sight of the big projects that the Government must back, including those that will not benefit us directly in this Parliament but are important for the next 10 to 20 years—major infrastructure projects like high-speed rail or investment in electricity power generation. Such projects are vital for our future competitiveness. We have sometimes looked at other countries and seen how their infrastructure has helped them to compete. We have the tax and investment policies, ideas and people to compete, but we must ensure that we invest now in the big infrastructure projects we need to help those people grow in future. I commend those projects that I have touched on in my remarks, as well as the Bill which, as my hon. Friend the Exchequer Secretary said, is an important part of the range of measures that the Government have put in place to support entrepreneurship in this country.
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I believe this is my first opportunity to congratulate you, Madam Deputy Speaker, on your new role. We have had a good and wide-ranging Second Reading debate on the Bill, and my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood), my new colleague in the shadow Treasury team, made an excellent opening contribution from the Opposition Front Bench. I extend my welcome to the Minister. We have already exchanged pleasantries in a Committee, but I reiterate them now in the Chamber.
Julian Smith
As well as exchanging pleasantries and niceties, will the hon. Lady commit now to backing the Government’s policies and give actual support?
Catherine McKinnell
I will repeat the words of my hon. Friend, who said that she was proud to stand in 2010 on a manifesto for a Labour Government who were committed to reducing the deficit but had an economy that was growing. Since then we have seen three years of stagnating growth, wages rising slower than prices, and borrowing not coming down anywhere near the amount the Government promised. I would caution Government Members against trying to rewrite in this Chamber the history of what they have achieved over the past three years.
On that point, let us return to 2011. The Bill taken through this House by the Exchequer Secretary—I welcome him back to his seat—included the introduction of the three-year national insurance holiday, worth £5,000 for employers. The scheme, which was originally announced at the Chancellor’s first Budget in June 2010, was not aimed at supporting just any employers, however, because it was restricted. It did not apply to businesses in London and the south-east or east of England, as we mentioned earlier, and it extended only to new business start-ups, and then only to the first 10 employees of those firms—but, of course, only to those first 10 employees who had been hired in the first year of that business. I hope hon. Members are still with me. [Interruption.] I am sure the Minister is still with me as he designed the dubious policy.
Indeed, serious concerns about the scheme’s complexity were raised at the time by Robert Chote—then at the Institute for Fiscal Studies; now at the Office for Budget Responsibility—who told the Treasury Committee that the policy
“might be a little too complicated to offer best value for money.”
Julian Smith
Was the context at the time that the Labour party had left the nation’s finances in the most appalling mess, and that for any incoming Government not to target a policy carefully would have been crazy? According to the Government auditor, three Government Departments had lost complete control of their finances.
Catherine McKinnell
Once again, Government Members want to airbrush the past three years of stagnation, lack of economic growth and the failure of the Government’s implementation of that policy. They failed to address the issue quickly enough, so only today are we finally introducing a policy that will help and that will give that support to small businesses. Unfortunately, it is a little too late in the day for some businesses, which have suffered over the last three years, and for the people who have lost their jobs as a result.
Catherine McKinnell
The budget for the policy in the Bill was there, but the Government introduced a failing policy that was badly delivered, badly thought through and not revised in the appropriate time frame. Given the Government’s record on delivering the previous national insurance contributions initiative, what reassurances can the Minister provide that they are on top of delivering this one?
Julian Smith
Will the hon. Lady confirm that, having supported the Bill, she will call on all Labour MPs to promote the Bill vigorously and dynamically in their constituencies? Will she make that commitment?
Catherine McKinnell
The Opposition support the legislation and it will pass unopposed this evening. It is rightly up to the Government to promote their support for small businesses. As Government Members have said, HMRC should take a proactive role in ensuring that businesses are aware of schemes that are available to support them.
Clauses 11 to 20 relate to the certification scheme for oil and gas workers on the continental shelf, limited liability partnerships and several miscellaneous measures, but I want to focus briefly on clauses 9 and 10, which seek to extend the application of the general anti-abuse rule to national insurance contributions. The GAAR, which came into force on Royal Assent of the Finance Act 2013, incorporates income tax, corporation tax, capital gains tax, inheritance tax, petroleum revenue tax, stamp duty, land tax and the new annual tax on enveloped dwellings.
A number of Opposition Members raised the concern that the GAAR is intended to prevent only “highly contrived tax avoidance” that has “abnormal features”. The man who designed the GAAR, Graham Aaronson QC, believes that it is
“clearly intended to apply only to egregious, or very aggressive, tax avoidance schemes”.
What deterrent effect is such a narrowly drafted GAAR expected to have? As the Government’s flagship policy for tackling tax avoidance, what dent will the GAAR make on the tax gap, which HMRC says is £32.2 billion a year?
During the debate on the 2013 Act, I pointed out that the GAAR is expected to yield £60 million in 2014-15, rising to £85 million by 2017-18. I am more than willing to acknowledge that those are sizeable sums, but the point made in the House back in April was that it represented a drop in the ocean compared with the then tax gap of £32.2 billion.
What has changed since? HMRC’s latest tax gap estimate, of the difference between what is collected and what would be collected if everyone complied with the letter and spirit of the law, concluded that it has increased to £35 billion, a staggering 8.7% increase in the space of 12 months. I accept that many dispute the figure and say it is too low—that it does not include much of what could be incorporated in the figure for tax avoided.
The latest HMRC estimate, which covers 2011-12, indicates that some £15.3 billion of the gap can be accounted for by unpaid income tax, capital gains tax and NICs combined. HMRC suggests that approximately £4 billion of the gap arises out of avoidance “behaviour”. Will the Minister therefore clarify exactly how much of the £35 billion tax gap is thought to be made up of NICs that are unpaid through avoidance? Given that the Bill deals with only the most aggressive or egregious avoidance activity, how much will extending the GAAR to NICs yield for the Exchequer in additional revenue?
The Opposition have raised many other concerns about the GAAR—my hon. Friend the Member for Birmingham, Ladywood mentioned the Swiss deal and the number of holes in that arrangement, which leave a hole in the Government’s estimates. However, there is also the highly subjective double reasonableness test, which can be used to determine whether a means of avoiding a tax can
“reasonably be regarded as a reasonable course of action”.
That subjectivity is helpfully explained in the GAAR guidance, which states:
“The words ‘contrived’ and ‘abnormal’ are not defined, and therefore will be applied in their normal sense”.
We have long argued that that is a fig leaf, or could be used as a fig leaf, for tacitly legitimising tax avoidance that does not fall within those definitions. We tabled amendments to ensure that the GAAR would be reviewed, and to assess its effectiveness.
Most critically, we have questioned the independence of the advisory panel established by the Treasury to oversee the GAAR. At the time, I said:
“What a tax expert considers to be reasonable might be regarded differently in the eyes of a member of the public. Indeed, many tax experts will differ on what they believe to be reasonable tax planning, as opposed to something egregious that would fall under the GAAR.”—[Official Report, 17 April 2013; Vol. 561, c. 425-426.]
What has changed since April? A matter of weeks after being hand-picked to deliberate on the Government’s flagship anti-avoidance policy, one panel member was caught on camera at a tax planning conference offering tips to people on how to keep their money
“out of the Chancellor’s grubby mitts”.
HMRC’s website simply tells us:
“David Heaton resigned from the Advisory Panel on 13 September 2013. Arrangements are being put in place to appoint a successor.”
It would be helpful to hear from the Minister exactly what those arrangements are, when she expects the appointment to be made and, most importantly, how she and her ministerial colleagues will ensure that this never happens again. If the GAAR is to retain or, indeed, regain any shred of credibility, what are the Government going to do about that?
As we have said, we back the Bill, especially the main provision—the employment allowance. We repeatedly called for changes to the previous national insurance holiday scheme and we consistently warned that it would be a flop. Many of the changes we called for will be introduced in the employment allowance, but it is disappointing that for hundreds of thousands of small businesses it has taken almost four years to deliver the policy that they need. They deserve better, but the Bill is a small step in the right direction today.
Investing in Britain’s Future
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Danny Alexander
I am committing to undertaking the improvements that are necessary to bring that road up to a proper standard. There is clearly the need for a detailed feasibility study to consider precisely what is needed at every stage of the route. The money is set aside for that investment between now and 2020, so it will take place.
Julian Smith (Skipton and Ripon) (Con)
Superfast North Yorkshire is about to make North Yorkshire one of the first counties in England to deliver 90% broadband coverage, but we need a bit more help to get to 95%. We also have the Tour de France coming next year, and there is a big risk that the cyclists will come a cropper on our potholes. Can we have a conversation soon about how North Yorkshire can get the cash quicker?
Danny Alexander
I am sure that Ministers at the Department for Transport would be happy to have that conversation. As the hon. Gentleman will know, in the autumn statement last year, we set aside additional funds this year and next year for road maintenance and dealing with pinch points. I dare say that some of that money could be used to ensure that the Tour de France passes off without pothole-caused incidents.
Royal Bank of Scotland
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Julian Smith (Skipton and Ripon) (Con)
May I add to the tributes to Stephen Hester? He was very responsive to MPs’ letters and he was also very good at briefing Members of Parliament. May I also pay tribute to RBS staff, however, who across the country and worldwide have been working in very difficult circumstances, and may I urge the Minister to make sure that in this transition period towards privatisation a lot of focus is put on them?
Sajid Javid
I agree. We have talked about Stephen Hester and the role he has played in bringing the bank back from the brink, but that would not have been possible without the dedicated staff that RBS has had, and we must never forget the contribution they have made in repairing the bank.
Financial Services
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Greg Clark
I am not aware of those allegations but I will look into them. Any criminal activity in any part of the financial services industry ought to be prosecuted and pursued with the same degree of vigour as in any other walk of life. The hon. Gentleman overstates the case in his reflection of the City. Hundreds of thousands of people work in the City and do a decent job working hard for their clients and businesses up and down the country. They are as outraged as any of us in this House about the damage done to the City’s reputation. The future for us and for our interests is to see that reputation restored and root out the corrupt individuals—corrupt is the word in this case—who have done disproportionate damage to the reputation of a set of institutions that should be one of the prides of this country.
Julian Smith (Skipton and Ripon) (Con)
In the light of the report, I urge the Minister, and my hon. Friend the Member for Chichester (Mr Tyrie) and his commission, to look carefully at the Securities and Exchange Commission’s highly successful whistleblower incentive scheme, which gives whistleblowers a cut of fines, and at how we begin to replicate that model.
Greg Clark
The discount in fines given for co-operation is one reason for organisations to co-operate, but I will look at my hon. Friend’s point on individuals.
Autumn Statement
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Mr Osborne
I should like to take this opportunity to welcome the hon. Gentleman to the House of Commons and to congratulate him on his by-election victory. He rightly wants to speak on behalf of his constituents, but I would point out that the pressure on London school places has existed for some years and was a huge issue when we came to office. We have provided additional capital spending for new school places. We have also announced more than £1 billion today to deal with areas where there is high pressure. He makes a powerful case for Croydon, and I will make sure that my right hon. Friend the Education Secretary hears him.
Julian Smith (Skipton and Ripon) (Con)
More money for the regional growth fund and local enterprise partnerships is great news for Yorkshire. Can the Chancellor give further details of that?
Mr Osborne
There will be more money for the regional growth fund. That has been helpful in securing and creating up to half a million new jobs. I am glad to say that I am sure businesses across Yorkshire will benefit from that. We are also, of course, investing in enterprise zones and LEPs across Yorkshire, and Yorkshire businesses will benefit from the enhanced capital allowance and the increase in the annual investment allowance.
Business and the Economy
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Vince Cable
That is not correct. There has been a sustained improvement in private sector employment.
Julian Smith (Skipton and Ripon) (Con)
Will the Secretary of State list some of the international companies that have invested across Britain during the past six months?
Vince Cable
I would be here for much of the afternoon if I listed all of them, but I am sure that my hon. Friend will be familiar with some of the big and high-profile investments, including those in the car industry by companies such as Nissan, Jaguar Land Rover and others, which are important not just in themselves, but because they involve a long-term investment commitment to the UK and bring behind them a large supply chain of small companies.
Vince Cable
No, the Volcker rule as such is not in the legislation, but there is nothing stopping the hon. Gentleman bringing his proposals forward when the Bill is debated on the Floor of the House.
As several colleagues behind me have said, regulation is an issue, particularly excessive regulation for small companies, but inconsistent regulation damages businesses just as much, so the enterprise and regulatory reform Bill, as well as repealing some unnecessary requirements on business, will extend the primary authority scheme, enabling businesses that trade across local authority boundaries to deal with one authority on particular regulatory issues. If we consider that local authorities are responsible for 80% of inspection activity, covering areas such as trading standards, health and safety, and environmental health, the benefits of this approach are clear. As of last month, more than 450 businesses were members of the scheme, covering more than 50,000 premises in the UK, including many of our major high street retailers. Our reforms will make the primary authority scheme available to many more small and medium-sized enterprises and help improve the targeting of inspections, which can be so time consuming.
The Bill also contains provision for accelerating deregulation. Much is being done at present through the one-in, one-out system to prevent small companies, in particular, from being suffocated by red tape, and we are working with like-minded Governments in Europe, as I pointed out to the hon. Member for Stone (Mr Cash) a few moments ago, to roll back excessive regulation emanating from Brussels. The red tape challenge is repealing many of the 22,000 Government regulations that impose unnecessary costs on business, mostly by secondary legislation, but also, where necessary, through the Bill. The Bill will also embed sunset clauses.
Julian Smith
Will the Bill include the possible inclusion of European legislation in the quarterly statements that are now put in place for all Departments? Is that under consideration?
Vince Cable
I do not see why we should not do that, but I do not think that legislation is required to make that possible. We will certainly see whether it is feasible.
Small businesses also tell us that the fear of employment tribunals is a real disincentive to expanding and to taking on new staff. An employment tribunal is often a costly and stressful process for all concerned. I am fully persuaded that there has to be a balance between the legitimate expectations of workers that they will be protected from abusive employers and the legitimate expectation of businesses, especially small companies, that they can dismiss underperforming staff and not face costly and bureaucratic procedures. That balance is best pursued not through an adversarial system but by fostering conciliation in the workplace.
Our reforms will therefore promote the early resolution of disputes through the greater use of early conciliation and settlement agreements, so that fewer disputes end up in a tribunal. A tribunal is an admission of failure, so we want tribunals to be a last resort.
Vince Cable
That proposal is not in the enterprise and regulatory reform Bill. We are committing to extending flexibility at work in a way that avoids unnecessary costs for companies and delivers real economic benefits. Research from the CBI, for example, found that 63% of firms offering flexible working reported lower staff turnover, saving on recruitment and training costs.
Julian Smith
Will the Secretary of State confirm that there is a strong argument for excluding micro-businesses—those comprising fewer than 10 employees— from these proposals and allowing them just to get on and run their businesses on their own?
Vince Cable
I recognise that there are particular problems for small companies in adapting their work practices, but of course many of the most successful small companies have flexible practices. The idea of creating a two-tier labour market in this respect has many practical difficulties, but we can debate that as the Bill goes through Parliament.
Mr Umunna
If only the Foreign Secretary’s comments had been limited to those that I have just cited. There was more, however. Asked whether they amounted to a modern-day call to our people to get on their bikes, echoing the call from the noble Lord Tebbit back in the 1980s, the Foreign Secretary said:
“Well no, it’s more than that. It’s ‘get on a plane, go and sell things overseas’…It’s much more than getting on the bike. The bike didn’t go that far. ‘Get on the jet.’”
I know that senior members of this Government have a penchant for hanging out with people who own yachts and jets, but most business people in this country do not have those things or mix in such company. Chris Romer-Lee, the director and co-founder of an award-winning architecture practice here in London, said to me yesterday that his firm is working flat out and has been doing so through these bad economic times. He said that
“to suggest we could work harder is insulting.”
That is what a business person said to me yesterday.
Julian Smith
The legislation that we are discussing today deals with deregulation. Will the shadow Business Secretary tell us about his proposals to lift the burdens on British business?
Julian Smith (Skipton and Ripon) (Con)
It will come as no surprise that I, in turn, disagree with most of what the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) said. This Government have done a lot of excellent work for British business. We have an increasingly competitive tax rate—now at 24%, but lowering by one percentage point a year until the end of this Parliament—and a 20% rate for small businesses. There is a wide range of schemes for investment, business support and business lending. The Chancellor has set the country on the right course to attract global business, and we have seen many businesses investing in Britain over the last 12 months.
From the Prime Minister’s trade missions, to Lord Green’s remodelling of UKTI, there have been great strides on exports. When they reported back to Parliament last week, British ambassadors were sizzling with ideas for British exporters. There was a £50 billion increase in exports in 2011. Exports to India were up by 37%, with 28% more sold to Thailand and 44% more sold to Indonesia. I hope that, with a rethink on runways in the south-east, British business will soon be able to maximise those opportunities further. The Government are doing a great deal for our businesses, from credit to exports, and from support to mentoring. The only frustration is that it does not always get through to every business in the land. I hope that the Minister will allow BIS to utilise all HMRC’s regular mailings, which would be a good route to get its message across.
One of the biggest issues, which a number of Members have raised, is the burdens on business from regulation. Although unsexy, the work of the Minister of State, my hon. Friend the Member for Hertford and Stortford (Mr Prisk), to reduce regulation has been significant. We can now see, Department by Department, who has done what, and, with the one-in, one-out policy, which regulations have been introduced and which removed. As my hon. Friend the Member for Newton Abbot (Anne Marie Morris) described, the red tape challenge will see hundreds of regulations removed.
There has also been some dull, heavy lifting at the European level. Ministers have reduced the cost and the burden of the pregnant workers directive by about £2 billion. In health and safety, the Young and Löfstedt reviews will see positive and radical action in the months ahead. As my hon. Friend also described, in the area of employment law there is a big focus reform on mediation. The two years to trial employees is a great improvement and will allow more employers to take a risk. However, companies continue to complain about the burden of employment legislation. The reason this is important—Opposition Members seem not to get this point—is not to do with some ideological issue on our side, but because we want companies to take people on and take the risk. Indeed, a MORI poll has shown that more than 50% of small businesses say that the thing putting them off taking on new staff is our employment legislation.
Unfortunately, some of the developments on this front are clogged up in coalition politics. One side believes that we should take the risk on employment rights, in return for getting more people into work; the other side believes that we should simply explain things better. We need to meet halfway and find a compromise, whether through the use of sunsetting or reviews, to achieve a change in our employment legislation. There is currently a call for evidence on simplifying the dismissal process and the introduction of compensated no-fault dismissal. Those measures should be introduced as soon as possible. They could be voluntary or incentivised, but they would give a clear route for employers to terminate employment situations.
It is not only a radical approach to regulation from the Government that is required. Quangos need to get their act together, too. I have spent the past two years trying to sort out issues relating to brown signs that have been removed from the A1 around Masham with no explanation from the Highways Agency. This has been detrimental to the hundreds of small businesses in the town, which has had no directional signs on the upgraded A1(M) for the past two years. The fact that it has taken tens of meetings with the community, its MP and councillors to fix the issue shows that our Government agencies are not responding to the needs of business. The Bill should contain a duty of engagement with business for every public quango.
On Europe, the Prime Minister, along with 11 other countries, wrote a very good letter last February to the EU Commission advocating a more radical approach to growth. When I went to Brussels about four weeks ago with the all-party parliamentary group on European reform, we raised questions about what the Commission was doing to remove regulatory burdens. One of the directors general openly admitted that the regulatory reform agenda had stalled, and another felt that our questions about removing rules meant that we did not want any rules at all. We need a British-driven agenda at the heart of Europe to look at which rules and regulations can actually be removed and how we can institutionalise deregulation at Commission level.
Greater radicalism in employment law; starting to include EU legislation in our regulatory statements; a hard-line approach to deregulation in Europe and a statutory duty on every public body to get—
Chris Evans (Islwyn) (Lab/Co-op)
If there were a parliamentary award for the most bizarre speech of the day, I am sure that the hon. Member for City of Chester (Stephen Mosley) would earn it. We have heard that the happy days are around the corner. We have double-dip recession, but it is okay, because it was all Labour’s fault, even though the economy was growing when Labour left power. Apparently, 1 million young people unemployed is good news. Wonderful! That is not the only thing we have heard; we have also been told that stripping people of their employment rights is the way forward. Is it not funny that when they have blamed everything else, they start blaming employment rights for our problems?
I say that the major aim of a Government of any colour should be to make this country the best place to start and grow a business. Yes, I agree that a cut in corporation tax is a good way forward. I believe that cutting red tape is a good idea, too, and I look forward to seeing more concrete proposals over this Parliament. When red tape is tackled, I hope that the Government will start to talk about tax reform. When I speak to anybody who is hoping to set up their own business, they tell me that the main barrier they face is the fear of the complex tax system that they will have to tackle. It seems strange, but the more complicated the tax system, the more there is only one winner. It is not the small business man; it is the accountant. It seems odd that small businesses have to spend time form filling when they could be chasing orders. We need to realise that, however good the Government believe they are, it is ultimately people who make businesses successful.
Talking of people, and young people in particular, we are now operating in a globalised economy. Young people in Wales will not be competing with young people from the north-east, the south-west, Scotland or Ireland; they will be competing with the Chinese, Indians and Brazilians. That is why our competitive edge is all about creating a highly skilled and highly motivated work force.
I have two friends—[Interruption.] Yes, I have only two friends; I would only have to borrow 20p and I could phone them both. The two friends in question work in the training industry. One works in further education; the other works for a training company. Both come from the old school, where it was said that an apprenticeship lasted four years. What they tell me worries me. My friend in FE says that some FE colleges are subcontracting training contracts to training companies, offering so-called apprenticeships that are supposed to last for three years, but saying that people can become a qualified electrician in a year. Courses that should take three years are being done in three months. All the while, people are driving around in their high-performance Mercedes and Aston Martins—no doubt bought out of the money that they should be investing in young people. This scandal is already going on, as we saw in a BBC “Panorama” programme. It should be seriously investigated, because this seems to me to be a misuse of the word “apprenticeship”.
The word “apprentice” conjures up images of the ’60s and ’70s and of young people between the age of 16 and 21 doing full-time apprenticeships and coming out as draftsmen, toolmakers or even, for the lucky few who aspired to it, with a footballing career. The problem is that people are being called apprentices nowadays when they are nothing of the sort. Why is it that of all the apprentices in this country, one in 10 is based in the supermarket Morrisons? Are they apprentices when they are working in retail? What skills are they getting? What trade are they developing?
Julian Smith
I am shocked that the hon. Gentleman does not feel that the sort of training people get in a supermarket like Morrisons would provide a very good basis for a whole range of jobs.
Chris Evans
What I would say is that that is not an apprenticeship in the traditional sense. I believe that the word “apprentice” is being misused. All that is happening is that apprenticeships are taking the place of the youth training schemes that failed in the 1980s.
This is the main point that I want to make. We must formalise the process that apprentices undergo. In the 1960s a UK training industry board formalised the apprentice system, producing training manuals and setting the standard for what apprenticeships should be. Now the definition is so muddled that we do not know what apprenticeships actually are, and that is why we must take serious action now. Recently I went to Pensord, in my constituency, where Pensord Press has launched a major apprenticeship scheme. I fear that good schemes like that will be mixed up in the scandal of our not knowing what “apprenticeships” means.
When I speak to people who take on apprentices, they tell me that they meet young people who do not have the necessary skills. They do not turn up on time, they play with their mobile phones during interviews, or they do not know how to speak to people; sometimes they swear in ordinary conversation. That worries me. I could talk for a long time about it. We need to hold a serious debate in this country about how business and education can work together.
I visited Cwmcarn high school when I worked for my predecessor, and it was launching what was described as a basic skills passport. All the children in the school would be assessed for literacy, numeracy, performance and public speaking, so that when they were interviewed by employers, they would be able to say “These are my skills: this is what I have achieved during my time at school.” It is a good scheme, and it should be rolled out throughout the country.
Last Friday I went for a chat with people at the University of Wales, Newport, who talked of universities’ becoming hothouses for businesses. I have always said that we have massive academic resources in research, and that we should open up the universities for that purpose. Those people talked to me about the concept of an entrepreneurial university, drawing a parallel with teaching hospitals where the practitioners are lecturers and students must undergo internships as part of their qualifications. That could be applied to skills in areas such as computing, engineering and business. I do not know whether anyone has watched the documentary about Ayrton Senna, but that was made by a student at the university, or the BBC programme “Rhod Gilbert’s Work Experience”, produced by a company called Zipline Creative— another company formed by some of its graduates. We need to have that debate about business and education.
I prepared a longer speech, but I have only 30 seconds left, so let me say just one more thing. We must be very careful when we talk about employment rights. I was a trade union official, and I do not think that we should clamp down on people who go to tribunals with trade union representatives. It is hard enough already for someone, even with a strong case, to undergo the grievance procedure. If we take the vital right to union representation away from people we will cause trouble, and we will do nothing for competitiveness in this country.
Stella Creasy (Walthamstow) (Lab/Co-op)
I was very challenged earlier when I heard the hon. Member for Blackpool North and Cleveleys (Paul Maynard)—I am sad that he is not here—demeaning the contributions of Labour Members by saying that we thought that this was a “state of the nation” debate rather than a debate on the Queen’s Speech. That struck me as a powerful example of the strong differences between Labour Members and Government Members when looking at our country. While Government Members believe that we are just bystanders to the crises that are unfolding across kitchen tables, in businesses and in our economies at local and national level, Labour Members believe in action. That is why we hear this Queen’s Speech and ask, “What is it doing to act on the central crisis that we now face in our economy?”
We are in a double-dip recession for the first time since 1975. Our economy, which was recovering, has slumped backwards—not by accident, but by design. What is more, there is no end in sight—no happiness to come for our constituents, who are struggling in these difficult economic times. The most optimistic pundits say that we might get growth of about 0.4 %, but the majority are gloomy, with some even saying that the economy will continue to contract. In 2010, this Government inherited an economy that was growing, thanks to an active Government who were seeking consciously and purposefully to intervene to make sure that this country pulled through the economic times we were living in—a Government who invested in our infrastructure and, yes, used temporary tax cuts and looked at how they could grow the economy. What a contrast!
That is the context in which we judge this Queen’s Speech, because two years on, things are getting worse, not better, for our constituents and for our country. A range of factors have been blamed for that situation, whether it be snow or the royal wedding; this afternoon I even heard that television was the problem. It is as though the Government cannot see what is staring them in the face—the fact that the impact of the decisions that they have made and the way in which they are dealing with the deficit has exacerbated the situation.
Whether it is about the future jobs fund, which they have had to reinstate because it is bad value for money to have nearly 1 million young people out of work, or the fact that only 30% of the cuts have taken place so far, which means that the problems are going to continue, they simply do not get “it”. “It” is a very simple issue—the crippling lack of confidence that consumers and businesses are now experiencing. I have spoken at length in this House about consumer confidence and my concerns about how consumers are behaving in the present economic situation. That is why tonight I want to talk about businesses, which cite the lack of consumer demand as the biggest barrier to growth.
Many hon. Members have talked tonight about the problems in our economy as a result of firms sitting on £750 billion worth of cash and deposits. They are not investing because they have no confidence in this Government and how they are managing the economy. All the prophecies about austerity have become real, because everybody is shutting up shop, such is the uncertainty. Businesses themselves say, “We will continue to be on the critical list until companies get their chequebooks out.” That is the problem that Britain faces and this Queen’s Speech should be addressing it.
As all hon. Members have mentioned, John Cridland, the director of the CBI, said that he wanted a Queen’s Speech to help businesses grow and create the jobs that we all want. Even the Secretary of State himself admitted that we needed a compelling vision, for our economy and for the future, that we could all fight for, but there has to be more to drive economic growth in this country than hope that the Olympics or the jubilee might do it. It is striking that the contrast between a bystander Government and an active Government is shown in the concept of growth. The previous Government had Ministers dedicated to a plan for growth, but it has taken this Government two years to get round to a growth plan, and what do we see? It is small beer and not the kind of thing that will challenge the £750 billion sitting there waiting, not being used. That is why businesses have been so disappointed.
Let me mention just one example. The hon. Member for South Down (Ms Ritchie) spoke passionately about our green economy—a massive growth industry that in 2009-10 was worth £116 billion. We were sixth in the global economy in this regard, but where are we now? What has happened to our green economy? What does the green investment bank really offer? It offers little to change the situation, let alone solve the problems caused by cutting off the solar panels tariff.
Yes, there are good things in the Queen’s Speech, including measures on parental leave and shareholders’ rights, but they are not the drivers of growth that we need. We need something stronger. Many hon. Members from all parties have made many serious points about things that we could do to drive growth, so let me offer some ideas that have not yet been talked about.
First, this Government need to learn from America and Germany and create a state investment bank that could lead to businesses having the cash they so desperately need. This would not be one of my speeches if I did not talk about credit and the problems caused by a lack of credit or by expensive credit. Those problems are now affecting businesses, too. There is no more damning indictment of this Government’s failure to manage our economy and support businesses than the fact that the legal loan sharks have stepped into the breach. Ministers should be ashamed that Wonga sees a business opportunity in the failure of Project Merlin. This Government could have used the Queen’s Speech to correct that. They could have intervened and set up a state investment bank—22% of small businesses say that access to finance is also causing them problems—but they did not do so.
Julian Smith
Does the hon. Lady welcome the Government’s national loan guarantee scheme, which will reduce the cost of loans to those small businesses that apply through it?
Stella Creasy
The hon. Gentleman does not understand the scale or the severity of the problems that businesses are facing in getting hold of credit, whether that is because the loan system is not working or because there has been a contraction in the amount of money in our economy in the past year. In part, that is because people are paying off loans and the banks are not lending to people—indeed, one of the banks in whose operations we have the most say, Royal Bank of Scotland, has failed substantially to do so. Whether for consumers or businesses, credit at an affordable rate just is not there to allow them to grow and give them the confidence to invest in the plant and materials that they need to help get our economy going again.
In addition, I want the Government to take seriously the role that small businesses could play in our economic revival. All hon. Members have mentioned that this evening. We know that two thirds of new jobs in economies such as ours come from small businesses—those employing fewer than 50 people. We needed a Queen’s Speech for small businesses, announcing an arsenal of measures to help them and a tough look at what could be done in the tax and regulatory regimes to help start-ups and small and medium-sized enterprises—perhaps even a start-up business Bill. Where was that? Where was the recognition of the different needs of small businesses, as opposed to big businesses?
We could even have gone further and used sunset clauses to give tax breaks in this financial year alone to help unlock that £750 billion—money we need to be out there, being invested in our companies and our communities. However, it is not going to be out there, because this Queen’s Speech will not deliver the kick-start that our economy so desperately needs, as shown in the picture painted by my hon. Friends the Members for Birmingham, Erdington (Jack Dromey) and for Edinburgh East (Sheila Gilmore) of the human cost of doing nothing and of being bystanders as our economy continues to deteriorate. There are consequences for our communities and our country.
This Queen’s Speech could have been a brilliant masterclass in thinking creatively and strategically about the role of Government in investing in our communities and in getting our economy to grow, but it was not. I believe the country will view the economy and the Queen’s Speech as people do when they see a toddler holding a hammer—with a deep sense of foreboding about the damage that it will do to anyone within its radius and no sense of how to stop it. I really hope that the Government will think again about both how they deal with people’s need to access credit in our communities and how they need to support small businesses. I fear that the Queen’s Speech does not meet the test that the country so desperately needs it to meet.
Rachel Reeves
I am happy to take an intervention if my hon. Friend wants.
The Chief Secretary to the Treasury and the Government have serious questions to answer after this debate, because there remains concern about the stewardship of the economy. As my hon. Friends said, particularly my hon. Friends the Members for Bethnal Green and Bow (Rushanara Ali) and for Huddersfield (Mr Sheerman), my right hon. Friend the Member for Birkenhead (Mr Field) and my hon. Friend the Member for City of Durham (Roberta Blackman-Woods), there is a lack of vision, leadership and imagination in the Queen’s Speech on the economy and business. The hon. Member for Cleethorpes (Martin Vickers), too, said that the Government needed a new narrative.
The facts are undisputed. Our economy is in recession—the first double-dip in four decades—with unemployment rates too high and business investment too low, although to listen to some speeches from Government Members we would think that the economy was booming, with businesses spoilt for choice over whether to invest. In contrast, we have heard excellent speeches from Members on both sides of the House about the concerns raised by our constituents. We heard particularly powerful contributions from my hon. Friends the Members for Llanelli (Nia Griffith), for Houghton and Sunderland South (Bridget Phillipson), for Newcastle upon Tyne North (Catherine McKinnell) and for Edinburgh East (Sheila Gilmore)—on the human stories behind the raw statistics, sound and successful businesses shutting up shop because no one is buying, families facing rising bills, rents and mortgage payments while wages are not keeping pace, school leavers and university graduates losing hope as months on the dole turn into years.
However, the Government’s legislative programme seems utterly disconnected from those realities. There was no mention of the new jobs that we need, and nothing to turn round the crisis of more than 1 million young people being out of work. The modest measures that the Government have claimed will help struggling families and businesses are turning out, under examination, to be woefully inadequate to the task with which we are confronted. Perhaps it is because, as the Foreign Secretary said yesterday, the Government think that it is just not their responsibility and that the reasons for the recession are to be found not in their own failure, but in the fact that the rest of the country is just not working hard enough. That is a view backed up by the Business Secretary, who referred to the Foreign Secretary’s remarks as “commercial diplomacy”, and by the hon. Member for Salisbury (John Glen), who criticised businesses for their ill-advised criticism of Government policy. I am not surprised that the Foreign Secretary’s comments have been met with incredulity by small business owners, who are working every hour of the day to keep their books in balance.
Julian Smith
Does the shadow Minister welcome the £50 billion increase in exports in 2011 from the UK to international destinations?
Rachel Reeves
I am sure that businesses welcome the fact that sterling has depreciated, which has made it easier to export, but that is because of the Bank of England’s decision to cut interest rates, under the last Government, and quantitative easing, also under the last Government.
We have seen another example of how out of touch Government Members seem to be with the reality facing businesses, families and young people. School leavers and graduates are filling out dozens of job applications week after week—should they be working harder? Millions of people who would work extra hours if the work was available; families feeling more squeezed by the month, worried sick about how to make ends meet—is it their fault that we are back in recession? Should they be working harder?
Let us remind ourselves—for the Government seem to be in denial—that the backdrop to this debate is the first double-dip recession that the UK has experienced in 37 years, an outcome that the Government assured us would not happen. However, less than two years after boasting that the British economy was
“out of the danger zone”—[Official Report, 15 December 2010; Vol. 520, c. 901]
and was now a “safe haven” from the storms raging through the global economy, the Government have succeeded in steering us into a recession of their own making. They have tried to blame the instability of the eurozone, but I point them to the European Commission’s spring forecast, which says of the UK economy:
“The main cause of weakness in 2011 was household consumption, which contracted for four consecutive quarters…Investment, which had been expected to contribute positively to growth, actually fell by 0.6% in the final quarter of 2011 and by 1.2% over the year.”
Indeed, contrary to Government claims that storm winds from the continent blew their plan off course, the European Commission confirms that for the UK:
“Net exports were the main source of growth in 2011, contributing 1% to GDP growth.”
We should therefore be in no doubt and under no illusion: this is a recession made in Downing street.
With the eurozone now teetering on the brink of another downward spiral, the real worry is that we have yet to feel the full effect on the UK of the economic turbulence on the continent. The Business Secretary is right to warn that the worst may be yet to come, which makes it all the more serious a failure to have put the UK economy in such a weak position to withstand further deteriorations in financial market confidence and export demand. As my right hon. Friend the shadow Chancellor warned over a year ago, when a hurricane is brewing, we do not rip out the foundations of the house, but that is exactly what the Government have done, and the hurricane is now gathering force.
Let us look at what this recession means for jobs and business in our country. The latest jobs figures show that unemployment remains at a 17-year high. Youth unemployment is at more than 1 million—an issue raised in today’s debate by my hon. Friends the Members for Birmingham, Selly Oak (Steve McCabe) and for Birmingham, Erdington (Jack Dromey) and by my right hon. Friend the Member for Knowsley (Mr Howarth). The number of 18 to 24-year-olds claiming dole for more than six months has gone up by 115% over the past year. The number of those claiming for more than 12 months is up by 213%. In the Prime Minister’s latest desperate dissimulation, the austerity he is inflicting on the country is now called simple efficiency. However, I do not see anything efficient about presiding over rising youth unemployment, as my hon. Friend the Member for Walthamstow (Stella Creasy) also pointed out.
There is surely no greater waste than the waste of youth unemployment. It is a waste of talent and of life chances that will cost our economy and our Exchequer for decades to come, as the commission headed by my right hon. Friend the Member for South Shields (David Miliband) set out so lucidly in its report. There is no more egregious an example of Government mis-spending than the billions that they are spending on benefits—the cost of their own economic failure. They are now borrowing £150 billion more to cover rising benefit bills and the loss of tax revenues as businesses go out of business.
Finance (No. 4) Bill
Julian Smith Excerpts(12 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Danny Alexander
I shall return to the subject of tax avoidance and I want to make some progress, as I know many hon. Members wish to contribute to the debate. We are taking decisive action to clamp down on avoidance. It is utterly abhorrent that a minority of the population seek to avoid paying their full and fair share of tax, distorting the tax system to the detriment of the vast majority who pay their fair share of taxes in full. Whereas the previous Government allowed avoidance to grow and spread, we are putting a stop to it.
In total, this Finance Bill contains 15 measures to close loopholes and tackle avoidance. For example, clause 212 introduces a new stamp duty rate of 15% to deter those seeking to put their high-value property into a corporate structure to avoid tax—so-called enveloping. In a future Finance Bill, we will put in place an annual charge on properties that are enveloped in this way. Residential properties should be within the stamp duty system, full stop. It is shocking that the previous Government did so little on this matter. We are not being so complacent about the tax position of the most expensive properties in the country.
Julian Smith
The Yorkshire Post has recently established that the police chief constables’ body ACPO—the Association of Chief Police Officers—has been paying money to ex-chiefs of police forces through special purpose companies. Will the Chief Secretary confirm that the rules on this process will be tightened up under Government proposals?
Danny Alexander
I certainly can confirm that, and I shall bring some proposals before the House in due course. The hon. Gentleman may recall that it was the case of the chief executive of the Student Loans Company that brought this issue to light. We have conducted an investigation into this practice in and across government, which has highlighted the fact that this process is far too widespread. As I say, I shall announce the details in due course, but the hon. Gentleman can rest assured that the Government take this issue very seriously indeed.
Debt buy-back measures announced last month will raise more than £500 million from banks that tried to avoid paying their due tax. In addition, the introduction of the UK-Switzerland agreement into legislation will help to ensure that we can tackle the tax loss from those who put their money into Swiss banks to evade paying tax.
Through the anti-avoidance measures in this year’s Finance Bill, we are already increasing revenue over the next five years by around £l billion and are protecting a further £10 billion that could have been lost. Going even further, we will consult on the potential for a general anti-avoidance rule—a new rule that will at last put the Government one step ahead of the tax avoiders. It is because of these far-reaching reforms that we will raise £500 million more each and every year from the wealthiest in our society. That is five times more than we lose by cutting the ineffective and uncompetitive 50p tax rate.
The 50p rate raised just a fraction of the amount that the previous Government said it would raise, but by cutting the rate to 45p, the direct cost to the Exchequer is only £100 million—a figure certified by the independent Office for Budget Responsibility, which I thought the Labour party welcomed, which described the figure as “central and reasonable”. Instead, the measures we have announced in the Budget will raise considerably more from the wealthy—five times more in total—allowing us to help millions of people on lower incomes to keep more of their earnings through the largest ever increase in the income tax personal allowance.
Rachel Reeves
The analysis of the measures in the Budget shows that the changes to the personal threshold are not a progressive policy, as hon. Members seem to be claiming. In fact, they benefit those dual income households on higher salaries much more than they benefit the poorest people in society, many of whom do not pay tax. Of course, the changes do not benefit pensioners at all as they are seeing their tax allowance frozen. As a result, many pensioners will lose out by up to £83 whereas people who are coming up to retirement will lose out to the tune of more than £300 a year.
The Chancellor of the Exchequer’s new economic model—this idea that we will have a rebalanced economy with lower borrowing, more saving and more investment—has failed to materialise. Indeed, the precise opposite is predicted. Their plan has failed: the policies are hurting, but they are not working. This Finance Bill, which was a chance for the Chancellor and the Chief Secretary to learn the lessons and to start to repair some of the damage that they have done, has been a huge missed opportunity.
Julian Smith
Does the hon. Lady agree that at the moment business confidence is key? I was surprised that at the start of her speech she did not welcome GlaxoSmithKline, Nissan, Sahaviriya, Jaguar and the other international investors that have made a commitment to Britain because of this Government’s policies. Is she not pleased that those companies are bringing jobs and investment to Britain?
Rachel Reeves
The hon. Gentleman said that investment is coming to Britain, but business investment fell by 2% last year, whereas a year ago the OBR predicted that it would grow by 8%. The reality is that the economic data show that investment is falling and the OBR says that nothing in the Budget will materially affect the economic forecast. The proof of the pudding is in the eating and the numbers show that things are moving in the wrong direction. I find it incredibly out of touch for Government Members to try to speak about the economy as if it is booming and creating jobs and as if businesses are investing when all the economic data show just the opposite. Jobs are being shed and investment is falling, rather than rising.
Mark Field (Cities of London and Westminster) (Con)
I want to make a brief contribution to this important debate. The phrase that comes to mind is “something will turn up”. It is one of the classic stratagems of last resort in politics and perhaps life in general. I suspect that the Treasury’s handling of the UK’s economy owes rather more than it might be willing to admit to the Mr Micawber principle. After all, time often alleviates and sometimes even eliminates what seem like intractably difficult problems. In stark contrast to the first Thatcher Government, who front-loaded much of the economic pain, the modern-day Treasury, while espousing a tough austerity message, has adopted a more pragmatic, steady-as-she-goes path.
Despite the protestations of the hon. Member for Leeds West (Rachel Reeves), we must get one thing straight: there is zero veracity in Labour’s contention that the Government are cutting too far, too fast. In the past 12 months, the UK Government’s current spending has totalled some £613.5 billion—the highest figure in history. The Government are still borrowing, even this year, £1 in every £5 that they spend. However, more than half the deficit reduction was predicated on annual compound growth through the Parliament of 2.7% to 2.9%, and it is clear that, for the first half of the Parliament, we shall struggle to achieve growth of even one third of that figure.
Rather than respond to that deteriorating situation by imposing more savings, we have taken the path of ever more debt, courtesy of the Bank of England’s quantitative easing programme. In my view, the real purpose and impact of the UK’s central bank intervention has not been to ease the path of investment borrowing for small business, which is perhaps what it should be. Instead, it has mopped up the substantial proportion of gilts that are being issued. That is where the Mr Micawber principle particularly comes into play. The Bank of England’s actions will not be sustainable in the longer term without a very real risk of inflation. I suspect that global conditions in the years ahead may make it much more difficult to finance our current levels of deficit. That is one reason why we need to get the deficit down as quickly as we can.
Before the Budget, I firmly believed that our focus should rest on some radical supply-side reform to ensure that we get the growth that we need. That would apply partly to the tax system, but also to employment legislation, with forensic attention paid to the impact of high marginal rates of income tax and the disincentives that have crept into the system as a result of both the poverty trap for the low paid and the removal of reliefs for higher rate payers.
I was pleased that a small part of my desire was realised: some progress has obviously been made on taking people out of tax entirely through the increase in the threshold for the basic rate of income tax and the reduction in the top rate tax from 50% to 45%, which is particularly important for entrepreneurs.
I was also personally delighted that, after three years of campaigning alongside the local animation industry in my constituency, the Chancellor announced the Government’s intention to introduce a tax credit for televised animation and video games. I congratulate him and my right hon. Friend the Secretary of State for Culture, Olympics, Media and Sport on securing a bright future in the UK for Peppa Pig, Olive the Ostrich and their animated brethren. Finally, we have the level playing field that our creative industries deserve, and the tax credit will help raise the quality of children’s television and retain valuable intellectual property in this country. That is the key reason why I agreed to lead the parliamentary charge on the matter. It is also fantastic news for the vibrant sector in my central London constituency and beyond.
However, rather less progress has been made on arguably the more urgent and important supply-side reform: legislation on employment rights. Once more, the glad, confident morning of June 2010’s Budget has given way to starker reality. It is worth recalling that, at that point, the increasingly discredited Office for Budget Responsibility predicted that unemployment would peak in 2010-11. We now know that it is likely to rise further in the next two years and remain stubbornly high for the foreseeable future. Yet the UK continues to gold-plate continental employment legislation and grant ever more generous paternity and maternity rights. Little wonder that employers are so reluctant to take on more staff.
I disagree with the analysis of the hon. Member for Leeds West about the position in the US. It is instructive to witness how the US has shown signs of turning the economic corner. In simple terms, it is easier to hire, but also to fire staff there. That allows flexibility and supports a rapid readjustment economically.
Julian Smith
Does my hon. Friend agree that that does not just apply to the US? Recently, Italy and Germany have exempted their small and medium-sized firms from many of the burdens of employment law.
Mark Field
My hon. Friend is absolutely right, particularly in respect of the German model for the micro-sized businesses that are in the growth phase. There is no doubt in my mind that our recovery phase will commence only when we are able to have that sort of readjustment.
Mark Field
My point was along these lines. One difficulty occurs if all our trading nations are going through austerity; austerity can be done only by one country in such a group. We need to focus attention on growth. Indeed, the last words of a speech I made in the House almost two years ago, after the June 2010 Budget, were that we have talked about and made the right case for austerity, but we needed attention on growth—I fear that there has been too little.
I agree with the hon. Member for Leeds West in her analysis and on trying to assist small and medium-sized enterprises by allowing them to take on extra employees over the next two tax years without paying further national insurance. Better still, we could extend a national insurance holiday to all employees under the age of 25. That opportunity was missed both in the Budget and in the Bill.
I wish to touch on three specific concerns that I strongly hope will be dealt with in Committee in the weeks ahead. I confess that I am a little uneasy at the prospect of the general anti-avoidance provisions and powers that are heralded in the Bill and to which the Chief Secretary referred. Senior coalition Ministers interchange the terms “avoidance” and “evasion” in a rather casual way, which should be of concern to more than merely the tax advisory community. Individuals and businesses in a free society are, and should be, entitled to organise their affairs in such a way as to minimise their tax liability. I have no problem with that.
Although I sympathise with the Treasury, which is forced virtually continuously to update its rules and regulations, any general powers on avoidance should keep retrospection to an absolute minimum, and should be used only in extreme cases of what is regarded as so-called aggressive anti-avoidance. Moreover, it is surely incumbent on the Treasury, if it moves in that direction, to ensure a comprehensive pre-clearance regime to allow companies and their advisers to road-test their proposed taxation schemes with senior HMRC officials.
I appreciate that banks have few friends—I represent the City of London and am perhaps one of the few left—but the treatment meted out by the Treasury to Barclays bank in February set a very unfortunate precedent, not least because in recent weeks the Treasury has sought to lecture the Indian Government on the undesirability of retrospective tax. Barclays bank had sought and obtained clearance for its £500 million tax minimisation scheme. It was overturned in a blaze of publicity. If we are to raise the substantial levels of taxation that UK Governments of all stripes need, given the electorate’s addiction to public spending, we should be wary of anti-business rhetoric, which will give further encouragement to globally mobile institutions wishing to leave these shores. Being open for business depends on certainty in commercial practice, not simply verbal assurances.
Julian Smith
Will my hon. Friend update the House on what contribution the financial sector makes to the tax take of UK plc?
Mark Field
I am not sure I can, to be honest, but suffice it to say it is a significant amount. I can appreciate, though, that in these difficult times it is hard to make the case for the huge bonuses in the banking sector, other than to say that it is a globally competitive industry. Financial services will be a big industry going forward. Growth in Asia is adding 20 million or 25 million people a year to the ranks of the global middle class in India, China and South Korea. These will be the customers and consumers, not least because of the cultural reasons for saving, of the financial services industry in the future. That is one reason, in the midst of trying to rebalance our economy, as the Chief Secretary mentioned, we should not lose sight of our global competitive advantage. In the financial services industry, in particular, our global advantage is looked upon jealously in France, Germany and other European countries. They often feel that some of the anti-banking rhetoric coming through will be entirely self-defeating.