Finance (No. 2) Bill

Kevin Hollinrake Excerpts

2nd reading
Tuesday 13th April 2021 Commons Chamber

[James Murray (Ealing North) (Lab/Co-op)]

I beg to move,

That this House declines to give a Second Reading to the Finance (No. 2) Bill because it derives from a Budget that failed to guarantee a pay rise for NHS workers after their unparalleled service over the last year; because it undermines the country’s economic recovery, targeting household finances by freezing income tax allowances before increasing the rate of corporation tax; because it does nothing to mitigate the effect on family finances of the sharp council tax rise in April; because it contains measures connected with a cut to social security later in the year; and because it fails to set out the ambitious plan for jobs and growth that is needed to help the country emerge strongly from the worst economic crisis of any major economy.

May I start by extending my deepest sympathies to Her Majesty the Queen and the royal family at this sad time? His Royal Highness the Duke of Edinburgh devoted his life to public service and, crucially, to his role as a supportive husband. My thoughts are particularly with the Queen as she mourns the loss of someone who has been at her side, or just behind her, for 73 years.

As this is my first time physically in the Chamber for well over a year, I would also like to put on record my thanks to Mr Speaker, the Deputy Speakers and the Speaker’s Office for doing so much to help all Members, particularly those of us like me with relevant medical circumstances, to take part virtually throughout the pandemic. Now, having recently had my second jab and having spoken to my doctor, I am glad to be here in person to speak today to this important Bill.

Like millions of others in this country, I feel so grateful to be benefiting from the brilliance of our NHS and GP staff, scientists, lab technicians, nurses and volunteers, but we know that the health crisis of covid-19 is very far from over and that the harm to jobs and the economy resulting from the outbreak is even further from being over. On the Chancellor’s watch, our country is enduring the worst economic crisis of any major economy, yet in his and the Government’s plan we lack the ambitious, confident modern approach we need to emerge from this crisis stronger.



The Budget in March and this Finance Bill should have been an opportunity to pull out all the stops to get the economy going. The Chancellor should have focused resolutely on supporting families, securing jobs and backing small businesses. The Government should have used this opportunity to make sure we invest in solutions to the problems that we have struggled with as a country for so long, from social care to the climate emergency and the housing crisis.

There are many missed opportunities in this Bill and the recent Budget to take on some of the big challenges to which our country is begging for a solution. Take high streets, for example. We are all acutely aware of the severe difficulties that high streets are facing because of covid and how well online delivery-based businesses have done during lockdown. We know that for years, high street businesses have struggled with business rates, while tech giants have paid very little tax by comparison, and we know that the outbreak has made that imbalance far worse. Now should have been the time to at the very least level the tax playing field for high street businesses and online firms, yet there was nothing on that in this Budget, no decisions were taken on the Government’s new tax day, and the Finance Bill is silent on this crucially important issue. That is just one example of how the Government have missed opportunities to support and shape our country for the better.

Instead, so much of what the Government have done will make the problems we face worse. This Government have the wrong priorities and the wrong values, and their Ministers are following failed approaches from the past that now lack much, if any, of the wider support they may once have claimed for them.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I agree with the hon. Gentleman that we need to level the playing field between high street businesses and online businesses. That is a very tricky thing to do, particularly when talking about business rates. What is his solution to that?

[James Murray]

I am very glad to have the hon. Gentleman’s support for our push for a solution. As he knows, the Government have been promising for some time to come forward with proposals on business rates, but we have nothing. We had the new tax day, when we were supposed to hear lots of announcements—nothing. We want to see something to help high streets, and we have not had anything. We need the Government to step up and offer a solution to the problem, which has bedevilled high streets for so long.

[Kevin Hollinrake]

rose—

[James Murray]

I will make a bit of progress.

High streets are just one example of how the Government have missed those opportunities. Ministers have shown that they simply do not have it within themselves to offer solutions to the challenge we face.

First and most immediately, the Government are taking money from people’s pockets. Families in all their many forms are the target of tax rises from this Government. People will suffer and our economy will stall if families see money taken from them when they need it most. It is unfair and economically illiterate, yet it is exactly what this Government are doing. Half the country will pay more next year, thanks to the provisions in this Bill to freeze income tax personal allowances.

At the same time, the Bill does nothing to stop the sharp council tax rise that the Government are forcing councils to implement right now. It supports the Chancellor’s plan to cut £20 a week from social security this autumn for some of those who need that help most. It tells us everything we need to know about the Government’s priorities: they raise taxes and cut help for families immediately and without a second thought, years before an increase in corporation tax. At the same time, they are letting some of the world’s biggest companies stop paying tax altogether.

If that was not bad enough, the Government are also choosing in this year of all years to take money from the pockets of NHS workers. We now know how hollow those claps on the doorsteps of No. 10 and No. 11 must have echoed around Downing Street. The Government are cutting NHS workers’ pay. Ministers are breaking their promises, and the Conservatives are showing how little they have learned from the awful experience of the last year.

If we add that NHS workers’ pay cut to the personal allowance freeze, the council tax hike and the cut to universal credit, the scale of the impact of the Government’s decisions becomes clear. To give an example, a newly qualified nurse living with their partner and two children in rented accommodation will lose more than £1,100 a year. Rather than supporting families out of this crisis, the Government are prioritising tax breaks for tech giants.

That tax break is being handed to big businesses through the so-called super deduction—the £25 billion tax break for companies that the Chancellor and the Minister say represents

“the biggest two-year business tax cut in modern British history”,

and that forms our second key concern about this Bill. As the chief executive of the Resolution Foundation has made clear, investment incentives have been abused for tax avoidance purposes in the past, yet the Government have failed to say or do anything to address widespread concerns that the super deduction is open to fraud and abuse. Economists from the Institute for Fiscal Studies have said that the super deduction will

“create a risk of tax avoidance and even potentially fraud as companies essentially try to find ways to dress things up as plant and machinery investment”,

yet the Chancellor has done nothing to counter suggestions from industry consultants that the deduction could be used for luxury items, including jacuzzis.

The Government have also failed to address environmental concerns. With the deduction giving firms an incentive to buy new rather than existing assets, the Exchequer Secretary to the Treasury was recently unable to guarantee that the super deduction would be used to support green development. The Chancellor himself has seemed confused about the overall impact of the deduction, recently claiming that, as well as bringing investment forward,

“it will also increase the amount of investment”.—[Official Report, 9 March 2021; Vol. 690, c. 641.]

That claim comes despite the Office for Budget Responsibility revealing a week earlier that cumulative business investment over the next five years will be £8 billion lower following the Chancellor’s announcement of his new scheme than had been projected before.

Particularly with a tax cut of this size, it is crucial that we understand who it is helping and what it will achieve. The truth is, as we know, that companies can already benefit from the annual investment allowance, a 100% tax break on investment up to £1 million, which the Bill extends to the end of this year. The Treasury Committee concluded in its report “Tax after coronavirus” that the annual investment allowance

“appears well targeted to promote growth in small and medium-sized enterprises.”

With the existing allowance apparently well targeted at the growth of small and medium-sized businesses, and with such businesses standing to benefit only marginally from the new super deduction, we are left with an inescapable conclusion: the main beneficiaries of the Chancellor’s new scheme will be the big firms that need help least. No wonder TaxWatch has nicknamed this the “Amazon tax cut”—a giveaway from the Chancellor that could wipe out Amazon UK’s tax bill entirely.

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[James Murray]

The hon. Gentleman is right to draw attention to the fact that the Bill does everything for the big businesses that need the help most but does not do what is necessary to protect small and medium-sized businesses. I am sure that the Ministers present heard his points, and I hope that the Exchequer Secretary will respond to them in her closing speech.

Aside from all the concerns about the super deduction—from its potential for fraud, abuse and misuse to the fact that it offers to wipe out Amazon’s UK tax bill—the fact that the Government’s only national policy for growth and investment relies almost entirely on this tax break brings us to our third key concern about the Bill and the profound lack of ambition in the Government’s approach. There is simply no plan from the Government to make sure that we invest in what is needed for the future. The Bill follows a Budget of cuts. The OBR has confirmed that the Government will cut departmental resource spending plans by £15 billion a year from 2022-23 onward, and rather than bringing forward capital spending to invest in the green recovery that we need now, the Government have cut capital plans for this year by half a billion pounds.

Far from charting a course for the future, the Bill lacks any mention of a plan to tackle the big problems that we have faced in this country for a decade or more and that have in so many cases been brought into sharp focus by the covid outbreak. It is clear that over the past decade under this Government, our country’s social care system has been underfunded, with its workers chronically underpaid. Our country’s response to climate change has stubbornly lacked the urgency, ambition and scale that it needs. Our country’s answer to the housing crisis has been left to developers and speculators, leaving an entire generation let down and left behind. Investing in better social care, new green infrastructure and the council housing that we need would create jobs, improve lives and finally start to tackle the problems that our country needs to resolve.

The Conservatives have had more than 10 years to stand up to the challenges I have outlined, yet they have failed to do so. With the recent Budget and this Bill, they have proved themselves again unable or unwilling to do so. The Government’s whole approach is being exposed as one of failure rooted in the past and an inability to rise to the future. In fact, Conservative Ministers are continuing on the course that began in 2010—one that brought us a decade in which UK growth was below the average of all major economies and business investment fell to the lowest rate in the G7.

Our country’s economy will be £300 billion smaller in 2026 than was forecast at the start of the previous decade. At times during that decade, Ministers may have benefited from some international cover for their misguided and harmful choice of cuts rather than investing in growth in response to the financial crisis, but no more: a new international consensus has rapidly been gaining strength. As the International Monetary Fund’s head of fiscal policy said, our Government and others should use fiscal policy to beat covid and to stimulate our economies by reducing unemployment and restoring economic growth. That focus on growth, investment and jobs is at the heart of the approach set out by the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds). Our framework will meet the challenges of our times—it is a responsible approach in which a balanced current budget over the economic cycle would never prevent us from protecting people and businesses during a crisis or making critical investments in our future.

As the Bill progresses through the House, we will look at the detail in respect of the points I have outlined so far, as well as on other measures in the Bill such as those relating to freeports. We want to see good jobs and economic growth in every part of the country, irrespective of whether an area has a freeport. We need long-term, locally led investment in every region and nation, and freeports will in no way compensate for Ministers’ inexplicable decision to scrap their industrial strategy and disband their industrial council just when we need a long-term plan to support our critical industries. Furthermore, with freeports elsewhere in the world having become magnets for organised crime, tax evasion and smuggling, we fear that at a time when HMRC is already overstretched Britain is not well placed to manage such risks.

In Committee, we will challenge the Government over their approach to tax avoidance and tax evasion more widely, following up our long-standing concerns that Treasury Ministers continue to drag their feet on tackling these problems. Although the Bill contains measures to tackle the promoters of tax avoidance and change the system of penalties, there is a clear sense that those measures are extremely limited in scope, rather than the comprehensive action that we need. Indeed, those changes are not even included in the Budget report costings, suggesting that their financial impact must be minimal.

We will use the next stage of consideration of the Bill to go through the detail of the measures it contains that seek to address the problem of plastic pollution and to increase the use of recycled content. The principle of a plastic packaging tax is one that we support, and because we want it to be as effective as possible we will ask Ministers to consider the detail of its operation in Committee. Overall, however, we cannot support this Finance Bill. The Bill, and the Budget that it follows, should have seized the opportunity to help people who are struggling now; to invest in good new jobs in every part of the country; and to be ambitious in finally getting to grips with social care, housing and other challenges that our country has faced for so long without solving. In fact, rather than supporting families out of this crisis and setting an ambitious plan for the future, the Government are prioritising tax breaks for tech giants.

If this Bill had been presented by Conservative Ministers 10 years ago, it would have been the wrong solution then; a decade later, their approach has not changed but the rest of the world has moved on. No longer will they find allies for their approach in international institutions, and the politics of the United States shows that the consensus around the world is shifting. The Government are out of step with economic reality. They are taking decisions that will push up taxes for people across our country while helping Amazon to reduce its tax bill. They are choosing to cut NHS workers’ pay while failing to fix our system of social care, and they are deciding to continue a decade of cuts to public services when we urgently need to invest in the future.

[Kevin Hollinrake]

Will the hon. Gentleman give way?

[James Murray]

I have only a few moments. The hon. Gentleman may speak later.

We will vote for our amendment and against the Bill, to make it clear to people in our country that we understand that people need to be spared the Bill’s tax rises; that Amazon does not need any favours; that NHS workers deserve our support, that we need good new jobs in every region in the nation; that the economy will grow only through responsible investment; and that we need to fix social care, the climate emergency and the housing crisis. Above all, people in our country need a Government who are on their side, and it is absolutely clear from the choices that the Bill and their Budget make, and the problems that they choose to ignore, that this Government fail that test.

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[George Freeman]

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

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

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

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

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

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

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

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

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

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

[Kevin Hollinrake]

My hon. Friend makes a very good point about regional economies. On engines for growth, does he think that regional mutual banks might be part of the solution? They are very effective in places such as Germany and the US, focusing on regions, making sure that SMEs get lending into the productive parts of our economy. Would he look at that as part of his remit on regulatory reform?

[George Freeman]

With pleasure, and I can go further. My hon. Friend is typically astute and on the money—absolutely. It is true that in the pension funds of this country, we invest remarkably little in equities, remarkably little in small company finance and remarkably little in our own infrastructure. I am not for a minute suggesting that Norfolk County Council should put all of its money into the Cambridge to Norwich railway, although I think it would be quite a good investment, but it would be an awful lot better than finding it had quite a lot in the Iceland bank during the crash, where we lost a lot of money. There needs to be a reasonable balance. I think a lot of people in this country would quite enjoy having a stake in their own infrastructure.

People have season tickets. What about also having a share in the mutual railway company and a share in infrastructure that they are helping to fund and that they rely on? That is part of the revolution of place-based capitalism—one might even call it stakeholder capitalism, if one were on the Opposition Benches. We can call it what we want, but it is about giving people a stake in their own economic destiny.

The third area that I wanted to highlight is the importance of global markets. If we are really going to become an innovation nation, home to these incredibly exciting technologies that will drive tomorrow’s growth, we need to make sure we are better connected to those emerging markets around the world, which are growing at 10% or 20%. As the Foresight report highlighted, global population growth means that by 2050, we are going to have to double food production globally on the same land area, with half as much water and energy. That is a phenomenal global grand challenge, but it is one that this country is well positioned to respond to, with our historic strengths in agricultural science and technology and the biosciences I have talked about.

The real trick is how to link our leadership and innovation and commercialisation in the City to global markets. I suggest that our liberation through Brexit from the European trading structure, challenging though it is in many ways, does create an opportunity for us to embrace variable tariffs. Imagine if you will for a moment saying to countries in Africa, “Look, we are not going to charge you 40% on food tariffs, like the European Union—that is immoral. We will reduce it to 5% or 10%, but 0% is only for those who are growing and producing at the most responsible and progressive standards—the very highest standards of animal welfare and food quality. We will help you to do that by exporting the technologies that we have developed here using our aid budget.”

With those commitments to growth and local places, and to globalisation, this is an opportunity, given what the Treasury has done, to make this crisis a genuine moment to unlock a new cycle of growth for the benefit of this country and generations to come.

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[Bim Afolami]

I welcome that intervention. Opposition Members have also been saying, “This is only going to benefit the big companies, and the poor small companies won’t benefit.” First, it does benefit all companies if they qualify. The smaller companies already have the annual investment allowance, which is continuing and has been welcomed by everybody, including by them. And—whisper it—big companies are important for our productivity too! Big companies employ lots of people, so it would be negligent of the Government to say, “We are not going to bring forward a measure that will help our economy because it might benefit big employers that employ thousands of our constituents.”

[Kevin Hollinrake]

May I add another point to my hon. Friend’s list of positives? Lots of the money spent because of the super deduction will be spent in the supply chain, thereby helping SMEs.

[Bim Afolami]

Indeed. I am having too much fun on the super deduction—I will talk about the Help to Grow scheme in a moment—so I shall finish on it. The super deduction is not something that the Chancellor just thought up as something that it might be a good idea to try; it is backed by fundamental economic analysis by people as eminent as Andy Haldane, the chief economist of the Bank of England, who I saw today has been appointed chief executive of the Royal Society of Arts. He is an incredibly able guy who has done a huge amount of work and thinking on this issue and is one of the many economists who have talked about investment being a key problem for our economy.

That brings me to the second key thing that the Budget will do for productivity: the Help to Grow scheme. So much of what we talk about in this place is the big numbers—the massive infrastructure projects, the huge budgets for the public services and all of that, which is all very important—but specific measures for small and medium-sized businesses often do not reach the Floor of the House. They are either hyper-localised in one’s constituency or they appear to be too big and too macro. The Help to Grow scheme could be really important, because it does two things that will directly help small and medium-sized businesses such as the family business that my wife runs, which employs five people, and hundreds of thousands of other companies like that.

First, the Help to Grow scheme helps to deal with our economic difficulty—pointed out by Andy Haldane, among others—which is that in most areas of the economy and of the country, we have an incredibly well-performing top 10% of highly innovative, successful companies, and we have our poorest-performing companies, and the gap between those two groups is greater than it is among all our competitors. That gap is around 80% larger in the United Kingdom compared with France and Germany. That is a significant economic difficulty for us. The question is: why is that the case?

The Bank of England’s analysis points out two key things among lots of different things. The first is technology adoption. In effect, the most successful, innovative companies adopt the newest technology and use it well, and the companies at the bottom end do not. The Government are trying to address that diffusing of knowledge throughout the economy and throughout different regions with the Help to Grow scheme. How? The Government are providing grants and assistance for productivity-enhancing software for companies in every single sector and the ability for them to get online help and advice on what technology to adopt. That could make a huge difference to hundreds of thousands of businesses all around the country and should be welcomed by everybody in this House.

The second aspect of our productivity difficulty is management and our utilisation of human capital—that is, the people who work in businesses up and down the country. How are we dealing with that? The Chancellor has an MBA from one of the best MBA schools—if not the best—in the world, Stamford, and went on to have a very successful career in finance. Not everybody will be able to do that or has the time and ability to do that, but everybody—right down to the small companies in each of our constituencies—can get huge benefit from access to high-quality management training provided by the very good local business schools up and down the country. The Help to Grow scheme gives the individual managers and owners of SMEs the ability to access that sort of knowledge, which is the sort of knowledge that most people running SMEs do not get.

If we combine that improved management capability—by the way, the Bank of England has identified that management capability is poorer in this country than it is in our competitors—with the adoption of technology, we have a ready-made mix of policies directly targeted to improve the most difficult aspects of our productivity problem. I do not know whether Help to Grow will deal with everything—I suspect it will not—but it will make a big difference, and it is a shame that so few Opposition Members have managed to understand and see the depth of seriousness of the Chancellor’s approach in that regard. That really needs to be brought out.

I shall finish—[Interruption.] Yes, I know I should finish. Hanging over us today is not just as an unusually cold April but the spectre of inflation potentially coming back in the next year, two, three or four years. There are many people warning about this from all over the world. If inflation does come back to whatever degree, interest rates may need to go up in future. If interest rates do go up, lest the House forgets, the need for fiscal responsibility will not have gone away. Small rises in interest rates do not just affect households trying to get mortgages or businesses trying to expand or to get debt; they also affect the Government hugely. Underpinning the Chancellor’s approach across everything I have said and lots of other things that have been talked about is a core understanding that fiscal responsibility matters. This Finance Bill helps to keep that in check, reminds the House of that, puts us on the right course and deals with our productivity problems, and I welcome its Second Reading.

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[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to follow my right hon. Friend the Member for Wokingham (John Redwood). My comments relate to the small and medium-sized enterprises that he was talking about so passionately. The sage of Omaha, the great Warren Buffett, once said that what we learn from history is that we do not learn from history. I particularly want to look at what happened to the SMEs after the last recession—the global financial crisis. It was the five years following 2008 that were so destructive for SMEs, and I am very keen to ensure that we do not make the same mistakes again. I draw the House’s attention to my entry in the Register of Members’ Financial Interests.

I was interested in the comments of the shadow Minister, the hon. Member for Ealing North (James Murray). On tax avoidance, he must never have heard about the diverted profits tax or the digital services tax; they are very key measures. One thing about the DST that should be looked at—perhaps he will join the calls for this to be looked at as well—is that direct sales of Amazon are not covered by the digital services tax. That gives Amazon a competitive advantage over the other sellers on its platform, which cannot be right.

The Government are consulting on business rates reform and have three ideas: a land value tax; an online sales tax; or VAT. I strongly urge the Minister to consider VAT as a replacement for business rates, which I advocated in my ten-minute rule Bill.

The shadow Minister talked about social care a lot. He mentioned many problems, but did not come up with any solutions. One solution that I have advocated long and hard in this place is a German-style social care premium, which, hopefully, will feature in the Green or White Paper that is due to come forward shortly.

The Government have included many things in this Bill for SMEs. A typical SME is very grateful for the support that it has received from the Treasury, which has done a tremendous job in concert with its various agencies, introducing the job retention scheme, VAT discounts, and rates grants, particularly rates discount.

The Government have also introduced some very good loan schemes. I speak as co-chair of the all-party group on fair business banking. A very wise commentator said at the start of those loan schemes that the Government would not lend £1 billion using those loan schemes; some £75 billion later, we can see the success of those schemes. That, of course, has led to an unprecedented level of debt among SMEs in this country, which is what I am particularly worried about. On top of that are the new loan schemes coming from the recovery loans, which will be more difficult for SMEs to access. Unlike the other schemes, there is a forward-looking viability test, which will be challenging. Either way, it will mean that many SMEs are carrying lots of debt, which they will struggle to service over the next few months and years.

Furthermore, what will happen when the Government pull those schemes and let the banks go on their own in terms of lending? After the last crisis, banks were not very good at lending to the SME community from their own resources—bank lending to SMEs reduced by 25% between 2008 and 2013, just at a time when SMEs needed it. In Germany, where there is a high proliferation of regional mutual banks, which take a much more patient approach to SMEs, lending went up by 20% from those bodies. A policy that we should really push in this country is decentralising our business banking system, so that, rather than 80% of lending coming from large banks, we move towards a more regional, mutual, not-for profit system of banking, which would have a transformative effect in terms of lending to the productive economy.

The key thing in terms of making sure that SMEs are treated fairly is in the forbearance process. When businesses hit trouble, they need to be treated fairly and consistently. The Government did absolutely the right thing with bounce back loans. They set up a framework for how it would work, which lets SMEs take 12 months interest free, or payment free. They can take another six months of no payments whatsoever, and then another 18 months of interest only. They can also extend the loan to 10 years from the standard six years, which more than halves the payments on bounce back loans, which is great, without getting into any credit problem with their bank.

Similar measures do not apply to coronavirus business interruption loans or the larger scheme, CLBILS. That leaves businesses on their own. I urge the Government to work with the banking system to ensure that businesses of all shapes and sizes that have accessed these loans to help them through the crisis have these forbearance measures at their disposal without them having to go cap in hand to the bank. We know that banks are not very good in these situations when their money is at risk. Their shareholders need returns. We need support for SMEs.

Personal guarantees are also an issue, which will come as a surprise to many. I have put personal guarantees up for my business lending most of my life. If someone puts up a personal guarantee, most people think the bank will go to the business first, look at the business assets and realise those before it goes to personal assets. That is not the case—it does not have to do that. It can go straight to personal assets. The Lending Standards Board put in place a policy that banks should look at business assets first before going to personal assets, which has now been dropped from its regulations or guidance. I would very much like to see that brought back in, particularly at this time.

Thankfully, there is now dispute resolution in the form of the Financial Ombudsman Service and the Business Banking Resolution Service. All businesses with a turnover of up to £10 million will get access to free dispute resolution, which should mitigate some issues, but there are concerns nevertheless. I urge the Treasury to look at this point and make sure that businesses are treated fairly over the next few years in the fallout of this crisis.

Finance (No. 2) Bill

Kevin Hollinrake Excerpts

Committee stage & Committee of the Whole House (Day 2)
Tuesday 20th April 2021 Commons Chamber

To sum up, the amendments we have suggested would improve the Bill, although they would not make it a good Bill—there are still far too many omissions and weaknesses in the Government’s proposals for tax avoidance prevention. However, because of the way the Bill has been put together, and because of the procedures in the House, it would not be competent to move further amendments at this stage. The SNP will continue to hold the Government’s feet to the fire until we get to the day when everybody who makes money from running a business in the United Kingdom pays their fair share of tax to pay for the essential services that all of us enjoy.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to speak in this part of the debate, and I draw the House’s attention to my entry in the Register of Members’ Financial Interests.

It was probably 15 years after we set up our business that our own accountants came to us—we were making reasonable profits by then—and suggested that we take advantage of a tax avoidance measure, and a pretty aggressive one in our view. This was not a particularly unusual accountants—it had a decent reputation locally— but so much money potentially runs through these schemes that some promoters inevitably see an opportunity for themselves.

I must tell the House that we told our adviser that we did not want to take part in such a scheme, and there were two reasons: we believed that people should pay their tax—that we should all pay a fair amount of tax—but also that any person who takes up such measures should be afraid that HMRC will one day come along and say, “Those measures were not appropriate.” By that time, a lot of the money that they think they have saved has gone out in costs to promoters and the rest of it, and they are left with a huge bill.

Had the person who promoted that scheme to us—our accountant—thought that he would potentially end up on jail, I do not think he would have come to us and told us about it. This was a reputable local person, and perhaps he did not even think that tax avoidance at that point was fraud. Nevertheless, it certainly can be fraud, and in many cases it is. If we are willing to hold people to account, ultimately through a criminal prosecution—as HMRC can, of course, as the Minister pointed out earlier—there would be a lot less of this kind of promotion and a lot fewer of these activities.

Before I talk in more detail about that, I want to tackle some of the shadow Minister’s points. It is a little churlish not to recognise the steps that the Government have taken since 2010. There have been 150 measures to tackle tax avoidance; that was at a cost of £2 billion to the taxpayer, but it brought in £250 billion in contributions to our public services. Of course, the Minister said that we need to go further, but it is wrong to simply say that the Government are not doing enough. Some of those measures, such as the digital services tax and the diverted profits tax, are very significant internationally.

[Ruth Cadbury (Brentford and Isleworth) (Lab)]

I acknowledge the point that the hon. Gentleman makes and the amount of money brought into the Revenue by the measures, but is he not also conscious that the sheer number of different measures has, for many taxpayers, added to the complexity? We have one of the most complex tax regimes in the world and that complexity often catches people unawares, and costs them lots of money and sometimes their businesses and their homes.

[Kevin Hollinrake]

I absolutely accept that our tax system is very complex, and I have proposed a number of measures on the Floor of this House to try to simplify it. For example, abolishing business rates and replacing them with an increase in VAT would simplify the tax system, instead of having an online sales tax. However, in terms of this debate I do not think it is the complexity of the issues that catches people out. We can see that 99% of tax avoidance schemes in the UK involve disguised remuneration—these are very contrived schemes. We should look at amendment 77 carefully. As to whether it is unfair on a person who is a promoter of what I would say is an extremely contrived tax avoidance measure, I am not totally sold that that should be a problem.

One of the biggest problems we have is faith in the system. This Government have done a huge amount to reduce the tax gap, which is at a record low of 4.7%, but if there is a £20 billion tax gap from fraud, the person in the street might reasonably say, “Why should I pay my tax?” This creates an incentive then for people to look at ways of avoiding tax. As to whether tax avoidance is fraud, the Government’s own call for evidence last month says clearly:

“The Government recognises that the design of arrangements that are sold as avoidance schemes may in fact enable fraud.”

So there is a good case for being able to take these further measures, as the Government are doing through stop notices, further civil penalties and stopping individuals hiding behind corporate structures.

The trouble is that, as we see in many areas, not least the banking sector, which I am pretty active in through my work in the all-party group on fair business banking, these kinds of organisations see a fine—a civil penalty—as a cost of doing business; the real deterrent for people is a criminal penalty. One of the best examples of this is to be found in a completely different sector, with the personal liability for a director in the construction industry. As soon as that personal liability came in and there was the potential for someone to go to jail if they did not make sure their sites were safe or they did not put measures in place, there was a huge decrease in the number of injuries and fatal incidents in the workplace in construction. That speaks to the point that if there are real criminal sanctions that we are willing to take forward and people think that that is going to happen, this promotion of avoidance schemes will start to drop significantly.

We probably have better resourced areas in terms of the prosecution of avoidance; I believe there are about three and a half times this number of people in the Department for Work and Pensions looking at benefit fraud, despite the fact that it is a much lower level of fraud—the level of benefit fraud is about 10% of that seen by HMRC. A beefing up of the resources in HMRC is therefore something we should consider. We have seen very famous schemes. I believe the Ingenious film scheme cost the taxpayer £1.6 billion, but not a single promoter has been held to account for it. We need more resources, but we should also look at legislation. This country does not have a great record on prosecuting serious fraud. There are a number of examples where the Serious Fraud Office has failed to make charges stick—I think, for example, of cases involving Tesco and Barclays. That is why the SFO wants to bring in more legislation, which the Government have agreed to do, to create a corporate offence of failing to prevent economic crime. This would be a personal sanction on the directors of a corporation that failed to do that. Of course, in banking we now have the senior managers regime that the Financial Conduct Authority put in place following some of the scandals there, when nobody was held to account for the disgraceful abuse of both consumers and businesses through the past couple of decades in the sector. The excellent Minister might say that amendment 77 is not the right vehicle for this, but some beefing up of the legislation to make it easier to prosecute fraud—criminal activity—is something that we should seriously consider.

[Christine Jardine (Edinburgh West) (LD) [V]]

It is a pleasure to take part in this debate and to follow the hon. Member for Thirsk and Malton (Kevin Hollinrake).

I welcome the action that the Government are finally taking against the promoters of tax-avoidance schemes. My Liberal Democrat colleagues and I will be supporting new clause 29, which would require the Government to review the impact of provisions relating to tax avoidance and publish regular reports that set out the findings. We will also support amendment 77, which would cause the promoters of abusive tax-avoidance schemes to be treated as acting dishonestly for the purposes of criminal prosecution for tax offences, without dishonesty having to be proved separately by the prosecution. We believe that the measures we are considering are what the Government should have been doing earlier. The promoters of abusive tax-avoidance schemes have deprived the public purse of millions of pounds and defrauded countless people who thought that their services and the advice offered were legitimate.

The action being taken now comes too late for so many victims of these schemes who had no intention to do anything unlawful or to evade taxes and have already been unfairly penalised. Liberal Democrats are committed to clamping down on tax avoidance, but the retrospective nature of the loan charge is causing uncertainty and financial hardship to ordinary working families, most of whom acted in good faith. Thousands of IT support professionals, social workers, teachers, cleaners and nurses—all of whom acted in good faith, based on professional financial advice that what they were doing was legal—now face immense pressure, which is impacting on their mental health and causing serious financial hardship, which will only be magnified by the economic consequences of covid-19.

Meanwhile, online tech giants and international corporations have been avoiding tax for years but have not been clamped down on in the same way, even internationally. With the load charge, the Government are going after nurses and teachers. Like many other right hon. and hon. Members in this place, I have a number of constituents who find themselves in exactly the position that I have described, facing retrospective taxation since HMRC changed its rules in 2017. One constituent whom I have been representing has attempted to correspond with HMRC on anomalies in the settlement agreement policies, but to no avail. Although he is categorised as fully compliant and not liable for the loan charge and pre-2010 loans, he is not being refunded any settlements that include pre-2010 amounts. The fully compliant are not benefiting from the pre-2010 amendments, while other categories are.

As I have said, we undoubtedly need to clamp down on tax avoidance—the deliberate evasion of taxes—but we should be clamping down on those who promoted it, not on those who took advice believing that it was lawful. The Chancellor must also go further than his recent decision merely to limit, in the Budget, the retrospective element of the charge to 2010; he must end the retrospective application of the rules altogether so that nobody who fell victim to such schemes before 2017 should be unfairly penalised. The Government must also further re-examine IR35.

I shall end my speech there, but it is important that we recognise that the steps that we must back today should have come before us much earlier.

--- Later in debate ---

[Catherine West]

How delightful it is to see you in the Chair, Ms McDonagh. I am very pleased to speak to amendment 77 and new clause 29, and to have listened to the excellent speech by my hon. Friend the Member for Ealing North (James Murray). I pay tribute to Members from across the parties who have stood up for those who have been so badly affected by the loan charge scandal, and I was particularly pleased to hear my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) speaking so eloquently on Radio 4 on Sunday evening. We are getting these important messages across.

I also wanted to pay tribute to the important work that is being done by the all-party parliamentary group on anti-corruption and responsible tax, led by the right hon. Member for Sutton Coldfield (Mr Mitchell) and my right hon. Friend the Member for Barking (Dame Margaret Hodge), on simplifying things and making the basics better, for example by improving the Companies House regulations. I understand that some of that is coming forward shortly, but the general picture is that things are quite slow.

It was lovely to listen to the hon. Member for Burnley (Antony Higginbotham) speaking about the importance of taxation. Once upon a time, I am sure that would have been quite a tricky topic for certain Conservative Members to talk about, but there is a new wind blowing. It is great to hear President Biden talking about the global minimum corporate tax level and the importance of an online sales tax, and even to hear our own Government leading the charge across Europe on the importance of introducing a digital sales tax and simplifying things to bring in the important public funds that we all need to keep our society going.

The scale of tax offences is clear, with a recent TaxWatch report finding that between 2009 and 2019, the UK prosecuted 23 times as many people for benefits offences as for tax offences—that theme has been echoed in today’s speeches—despite the fact that the value of tax fraud is nine times higher than that of benefit fraud. We know that American research has shown that for every $1 the Internal Revenue Service invests, it gets back $10 of benefit for the public purse, and I wonder what the consultation the Treasury ran said about incentivising officers based in HMRC so that the more money brought back, the more colleagues come on board to help them in their important work.

We know that a lot of this work is about priorities, and we need to prioritise criminal prosecutions so that there is not a decrease in taxation, as there has been of 39% since 2015. We need to look at the balance of the DWP employing 3.5 times more staff in compliance than HMRC. We know that we have to improve that balance, because quite simply there is much more money to be found in illicit finance and among tax avoiders than from those eking out a living on universal credit or personal independence payments.

The Minister will I am sure make it clear in his remarks that the Bill is intended to tackle some of these issues and to amend that imbalance, and I look forward to hearing that. However, I make the case for quicker progress so that we can move forward as fast as possible, particularly given the fact that, as the hon. Member for Burnley mentioned, the furlough scheme and some of the other schemes are quite expensive, and therefore the need to find more in this way from tax evasion is ever more pressing.

I want briefly to mention the importance of the provisions on freeports and the corporation tax super deduction, which do not appear to come with sufficient tax avoidance and evasion safeguards. I hope that during the debate—perhaps not right at this instant, but over the course of today—we will get some reassurances on that matter. In March, the Financial Secretary was unable to say how many additional staff HMRC plans to recruit to deal with taxation, duty, excise and customs issues pertaining solely to freeports, but I hope that that information is forthcoming. Given the attention and focus the Government gave to these announcements, we would have expected them to get the basics right, but we still have some questions that are outstanding.

While the Government are bringing forward—perhaps deliberately, some of us would say—a weak set of measures in the Finance Bill, other tools that we need to tackle evasion and avoidance, such as the draft Register of Overseas Entities Bill, could well sit gathering dust, since they were initially announced quite some time ago. Will the Minister use today as an opportunity to outline his views on that particular Bill?

On the question of illicit money, do not forget that our own Intelligence and Security Committee called London a “laundromat” for illicit and dark finances, often coming from Russia. I would hope that the Minister will redouble his efforts to understand how to clamp down on the facilitation of those finances through the UK financial system. We would have expected such a description of our capital city to force action from the Government, but we are still waiting to see exactly who owns some of the foreign companies buying up British property. Can someone still walk in and purchase a £1 million property in cash, and does the Minister believe such a way of purchasing expensive properties in London is appropriate?

[Kevin Hollinrake]

I draw the Committee’s attention to my entry in the Register of Members’ Financial Interests. Is the hon. Member aware that there are very strict requirements for people involved in the property market to check the identity and the source of funds of those she has just described?

[Catherine West]

I thank the hon. Member, and it is always lovely to have an accountant in the room. If there are some improvements, we are very grateful for them.

--- Later in debate ---

[Jesse Norman]

HMRC is addressing these issues. That is why this Bill has so many measures in it that are focused on the disclosure of tax avoidance schemes, toughening up that regime and improving the regime against the promoters of tax avoidance. But let me say to the hon. Lady that I thought her remark was dripping with condescension towards the ordinary taxpayers of this country. The fact of the matter is that people, from whatever walk of life, are perfectly competent—they do not need to be patronised by Labour Members of Parliament—at working out when something looks too good to be true. That is why so many—such a high percentage; well over 90% of people—do manage to work out what is too good to be true and behave on that basis. To suspect otherwise, when HMRC is absolutely working as hard as it can to make sure that the truth is out there and well understood, and is closing down opportunities for misleading advertising, in a recent initiative with the Advertising Standards Authority and a whole host of other things, is completely wrong.

I am grateful to my hon. Friend the Member for Burnley (Antony Higginbotham) for what I thought was a very robust and thoughtful contribution. He is absolutely right to highlight that HMRC has not been slow in this area. He was right to pick up the point about VAT on online platforms, but, of course, that is merely the tip of the iceberg. The hon. Member for Ealing North (James Murray) somehow suggested that we were failing to tackle this issue. The tax gap, as he pointed out, is 4.7%—a historic low. Let me remind the House and him of some of the actions that the Government have taken—leadership on base erosion and profit shifting over many years, the diverted profits tax, the corporate interest restriction, the tax charge on offshore receipts, hybrid mismatch rules, our new digital services tax.

[Kevin Hollinrake]

I very much welcome the digital services tax, which is there to try to make sure that everybody pays their fair share, as the Minister said in his opening remarks. Having said that, it does not apply to Amazon’s direct sales on that platform. It applies only to third-party merchants, so there is not that much of a level playing field between those two different cohorts. Will he look at that in future?

[Jesse Norman]

Brilliantly, my hon. Friend has intervened just before I was about to mention that we are consulting on an online sales tax, which is a parallel initiative. Indeed, the digital services tax includes the introduction of a new basis for tax—that is, UK user content. That itself is a flag to the energy and innovation that the Government are seeking to bring to this issue, and I thank him for his comments.

The hon. Member for Ealing North asked about the beneficial ownership registry on overseas companies that own or buy property in the UK. As he will know, the Government published a draft Bill. It has gone through prelegislative scrutiny. The process has, for reasons that the House will not need any reminding of or highlighting, been somewhat interrupted over the past year, but the Government plan to introduce the Bill in due course, so I reassure him on that point.

The hon. Gentleman raised the question about minimum corporate taxation. He should know that the Government have been, as I said, in the international vanguard in trying to drive change on base erosion and profit shifting, and processes of international tax agreement through the OECD. We were also in the vanguard of delivering the creation, originally, of the G20 commitments for a comprehensive global solution to this issue, based on two pillars, and we are leading the way, during our G7 presidency, on this issue, as the Chancellor has made clear. So we absolutely welcome the renewed commitment that the US Administration have made in this area, which we think is a very important change.

Finally, I turn to the important amendment 77, which was tabled by my right hon. Friend the Member for Sutton Coldfield and the right hon. Member for Barking (Dame Margaret Hodge). My right hon. Friend was right to highlight the importance of eternal vigilance—I absolutely share his view on that—and he was right, as the right hon. Lady was, to talk about the ever-shifting and evolving ways in which some of the malefactors in this area are ceasing to operate, and, of course, that is true. However, if I may say so, he erred in suggesting that the penalty on the enablers—that is to say, a sum equal to the gross fees to be collected in relation—was in any sense modest or small. It is one of the largest charges in the tax system, and because it is a gross fee, it is of course charged on the total amount of income. It is therefore income on which the promoter will have to recognise all their costs, and indeed any profit and any tax they may have paid, so it is actually a fairly formidable penalty.