Income Tax

Kevin Hollinrake Excerpts

Wednesday 3rd July 2019 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

The Minister said that he got support from businesses for tax relief. Well, that is not a surprise: when people are offered tax reliefs, they will accept them because it is cash in their pocket.

In a document published on 5 March last year, the Institute for Fiscal Studies said that our current tax system

“does not consistently deduct the cost of investment meaning that some investments are discouraged, some are incentivised and some are unaffected by the tax system.”

It went on to say that there should be

“a clear policy justification”,

which should be focused, and that we should ensure

“that the benefits outweigh the costs.”

The document also said:

“Too many reliefs have weak or poorly articulated policy aims”,

and that

“digging into the details and evaluating how each relief stacks up against a clearly stated tax design”

is important. It continued:

“The bar for introducing any new relief should be high.”

On the very same night, the Chartered Institute of Taxation and the Institute for Fiscal Studies had a debate about business tax reliefs, which asked whether they were

“corporate welfare or essential elements of the tax system”.

The question is, do we think they are an essential element of the tax system? In the debate on the Finance Bill, we raised these matters, but we were not able in any way to amend the law, which is regrettable. However, we did raise, in a sense, the whole question of tax reliefs, and it is a desperate shame to find ourselves here again debating the introduction of what amounts to another corporate tax relief, when so little has been done to sort out the scope of the scores of tax reliefs already in operation.

At the last count, the Government were responsible for managing 115 principal tax reliefs totalling £430 billion, as well as 80 minor tax reliefs totalling an estimated £690 million. However, alongside those, there are up to 235 reliefs in operation for which we have no cost data at all. I repeat: we are forgoing revenue on 235 tax reliefs, but Her Majesty’s Revenue and Customs does not count the cost. I find that quite remarkable. I cannot think of a single other policy area where the Treasury would be uninterested in Government expenditure.

Ministers tell us that the cost of these reliefs is negligible so there is no point making efforts to manage them more effectively. I do not believe that that holds water, especially when we consider that the Government regularly deprive citizens of small but essential sums of social security for the crime of being perhaps five minutes late to the jobcentre. Perhaps the Minister can explain why the Government can give away millions to large companies without counting the cost, while stripping the poorest in our society of the pounds and pence they need to survive. I ask that especially in the light of an interesting article by the Minister in The Sunday Times some weeks ago about our being one nation. It would be interesting to hear him comment on that. I agree with him that we have to bring the nation back together again, and that is an important part of this issue. I would also like to know what efforts the Government have made to improve the management of tax reliefs at HMRC. Will the Minister now commit to a moratorium on introducing further tax reliefs, unless the annual cost data on them can be collected and published by HMRC?

Turning to the measure before the House, it will not surprise anyone here that the pile of opaque and unaccountable tax reliefs is being added to, with yet another tax relief for businesses that does not necessarily fit the robust criteria set by the Institute for Fiscal Studies—criteria that this House should set in relation to the introduction of tax reliefs.

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

The hon. Gentleman was talking about the cost of tax reliefs. Has he worked out the cost to UK business and investment of imposing a policy that would requisition 10% of businesses that have more than 250 employees? I understand that that is Labour party policy.

[Peter Dowd]

I do not think it is a question of requisitioning; it is about a different approach and taking a different look at engaging workers in our economy. That is it—it is as simple as that. I appreciate and completely accept that the hon. Gentleman does not accept the concept, but that does not mean that the concept is wrong.

The Government boast about their corporation tax giveaways, but it is clear that even those billions, stripped from our public services, are not enough to satisfy their intentions in relation to corporate welfare. Furthermore, it seems that, in their rush to hand out giveaways, they have given no consideration to how this measure will fit into the already complex and convoluted system of capital allowances. It is not necessarily a question of saying whether I agree or disagree with these things; it is a question of saying we have a convoluted system—and it is incredibly complex. We do not have any review mechanisms of these reliefs, and we do not have any sunset clauses on them—in fact, we have debated that in Committee in the past, but the Government seem to have no response.

This new measure on structures and buildings allowances will, as the Minister said, provide relief for qualifying expenditure on new non-residential structures and buildings incurred on or after 29 October 2018 on a 2% per annum, straight-line basis. At the Finance Bill earlier this year, the Government blocked our attempts to require Ministers to publish details of the likely take-up of this new allowance across different-sized businesses.

Despite those concerns, the secondary legislation before us remains vague, with important definitions that would assist in addressing areas of ambiguity delayed and deferred to guidance. We have had lots of this deferral to guidance, secondary legislation and other things—potentially even tertiary legislation in due course. It really is not good enough. We need transparency and openness; we do not need to be told, “This is going to happen, but the detail may come a little later on.” Similarly, the decision by Ministers to delay finalising the details of this new allowance until June, when the final stages of the Finance Bill took place in January, is yet further evidence of the continued environment of uncertainty that business is forced to operate in under this Government.

The Chartered Institute of Taxation rightly criticised the Government over these new regulations, stating at the time of the 2018 Budget that

“it is neither sensible nor responsible for the government to introduce reliefs into the tax system at a time before they have consulted upon the scope and application of the relief or fully considered, and are therefore able to legislate for, the details of the relief.”

It concluded that these regulations will only complicate matters, particularly given that plant and machinery are excluded. That means that taxpayers are still required to identify the plant and machinery in buildings, with the same grey area that currently exists between buildings, fixtures, plant and machinery. The administration of this new allowance will be substantial and burdensome for businesses, flying in the face of the Government’s initial promise to simplify the tax system.

The demotion of much of the detail of this allowance to secondary legislation remains of great concern to the Opposition, particularly given that capital allowances are yet another means of extending tax breaks to large businesses, many of which do not necessarily need the relief. The reality is that many small and medium-sized businesses that desperately need support from the Government will struggle to access this relief without incurring substantial costs as a result of hiring tax experts to guide them through its complexities.

Rather than continuing this piecemeal approach, which seems only to confuse and deter businesses in need, Labour remains committed to carrying out a review of tax reliefs once in government to evaluate individual reliefs against their effectiveness and value for money. It seems that, again, this opaque Government will not commit either to a proper review of the measure before us or to a wider review of the full plethora of their corporate relief giveaways.

This is no way to run the country. Once again, the devil will be in the detail of the guidance that HMRC publishes, particularly when it comes to what constitutes qualifying expenditure, the definitions of terms such as “dwelling-house” and “mixed-use building”, and clarification of the treatment of successive leases and the new flexible rules in instances where expenditure is incurred after a building comes into use.

Although the Opposition remain sceptical about the introduction of yet another poorly-considered allowance on top of the 1,200 allowances that already exist—many of which have existed for decades without review—we will not be voting against the secondary legislation today. Instead, we will wait to scrutinise the guidance when HMRC publishes it later this year. [Interruption.] I can hear Ministers sniggering. A responsible Opposition will vote against something when they disagree with it and will support something when they agree with it. When we want to consider the detail, implications and other information that comes from the Government, we will hold back. That is what a responsible Opposition should do—not automatically vote against or support things willy-nilly—and that is what we are trying to do, because we are being responsible. Ministers can snigger at that responsible approach if they want to, but we will continue to be responsible, and we will continue to oppose this Government as and when we feel it is necessary to do so.

--- Later in debate ---

[Jesse Norman]

Those companies’ return to profitability was the result of proper, prudent financial management. I remind the hon. Lady that in the specific case of the financial sector, the bank levy has taken billions of pounds a year more from the banks than the Labour tax that it replaced. I do not think her view has credibility.

The hon. Member for Bootle criticised the timetable, but it is designed specifically to keep uncertainty to a minimum. Far from the suggestion that it would create more uncertainty, the point of my saying that qualifying expenditure on new builds or renovations for which all contracts for the physical construction works were entered into on or before 29 October 2019 will be eligible for relief is precisely to give very clear direction to future investment. I do not agree with many of the points that he made.

[Kevin Hollinrake]

Does the Minister think that the hon. Member for Bootle understands how reliefs work? He said that it was about giving away millions of pounds to corporations. Actually, if a corporation invests on the back of a relief, it still costs that corporation money; it just makes the investment slightly more attractive.

[Jesse Norman]

My hon. Friend is right. The point of the relief we are giving through the structures and buildings allowance is precisely to level the playing field and to enable and encourage more business investment.

The hon. Members for Bootle and for Aberdeen North (Kirsty Blackman) asked about reviewing or monitoring. As they will be aware, the Treasury and HMRC continuously monitor tax reliefs according to the level of risk they pose, and they publish annual statistics on tax reliefs, including cost estimates where they are available.

I will now turn to the other points made by the hon. Lady. She says charitable organisations will be heavily affected. The statement that the acquirers of structures or buildings are asked to fill out consists of four factual pieces of information: first, what is the asset; secondly, when was it built; thirdly, when did it come into use; and, lastly, how much did it originally cost? That is not a heavy burden on any institution.