Finance (No. 2) Bill

Kirsty Blackman Excerpts

Committee of the whole House
Tuesday 18th April 2023 Commons Chamber

[The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)]

I call the SNP spokesperson.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to take part in a Finance Bill Committee of the whole House. I will raise a number of points, particularly in relation to the new clauses and to what the Minister said about them.

The right hon. Member for Witham (Priti Patel) mentioned tax simplification. During later consideration of the Bill, we will raise questions about the removal of the Office for Tax Simplification, what has happened to the Government’s assessment of the benefit of that office, whether we will have an issue with removing that office, and whether there will be a cost to the public purse or to businesses as a result of.

We will support Opposition new clauses 1, 3 and 6. We would also support new clause 10 if it were pressed to a vote. I will talk a little about new clauses 6 and 10 on requests for transparency. It is incredibly important that we have transparency about how allowances, tax and everything else put in place by the Treasury—and, in fact, by every Government Department—work. The Red Book that is produced at Budget time gives us a genuine idea and expectation of how much any measure—be it an investment allowance, a new tax measure, or something else—is expected to generate, but the UK Government are not terribly good at putting in place post-implementation reviews of such tax measures.

We do not have enough transparency on whether the tax measures put in place have actually achieved what the Government intended. In fact, I tabled a written question on this some time ago, and various Government Departments were unable to tell me even how many post-implementation reviews they had carried out and whether there were any that they had not carried out. It seems to me pretty fundamental that the Government should fulfil their role of calculating the cost or benefit and saying whether the projection has seemed accurate. It is all well and good for the Government to say, “This is going to raise £100 million,” but if they do not then assess whether it did, how can we be sure that a measure had the desired effect, particularly when it is something such as an investment allowance? We are not saying, “We don’t think there should be allowances”; we are saying, “We want the allowances that are put in place to actually work in the way that they are intended to work.” I have concerns about that.

New clauses 6 and 10 would require the UK Government and the Treasury to provide transparency on the allowances and their resulting outturn. It is particularly important to look at our climate change obligations. In fact, we have tabled an amendment specifically on looking at the entire Finance Bill through the lens of whether it will help us to meet our climate change and Paris agreement commitments. There is no point in this House agreeing to legislation that takes us further from the Government’s stated aims and legislative commitments on climate change. I am still of the opinion that the UK Government are fairly good at talking the talk on their climate change commitments but not at translating that into checking whether our climate change objectives will be hampered by the policies that are put in place.

During the Committee stage of the Advanced Research and Invention Agency Act 2022, for example, I requested that the new organisation be set up on a net zero basis from the beginning. Given that we have net zero targets, I do not think that it is unreasonable to ask for any new Government department to be set up on that basis and, at least, to not contribute in a negative way to our carbon outturns. As I said, we will support new clauses 6 and 10 if they are pushed to a vote.

New clause 8, which relates to clause 10, addresses the R&D spend on data and cloud computing. We have tabled a probing amendment on that, and although we do not intend to press it to a vote, I would appreciate it if the Minister were able—either today or at a future stage—to answer some questions. We have particular concerns about clause 10 as it relates to part 2 of schedule 1. The explanatory notes—a hefty document—state that:

“Expenditure on data licences and cloud computing services only qualifies for relief to the extent that the commercial use of that licence or service is restricted to the particular research and development activity to which the claim relates, and that the customer does not have a right to…ongoing use after the relevant research and development has ended.”

I appreciate the Government’s intention, but we have tabled new clause 8 because we are concerned that this will hamper anyone applying for the allowance in the first place, as they may want to continue to use that data licence and cloud computing after the research and development. Surely they are only doing the research and development because they think it will be profitable and positive for their company. I am concerned that they may choose not to make the investment or to apply for the allowance if they know that they will have to pay it back at a later stage if this does what the company surely wants to achieve, which is to make money.

This could have been done in a different way, by allowing companies the investment opportunity and the R&D allowance for the data licence and cloud computing, and then stopping the allowance at the point at which it begins to make money, rather than saying, “If this does begin to make money, you have to pay us back.” It would be great if the Minister could answer questions on that issue today, but if not, I am happy to receive information afterwards, so that we have clarity on the Government’s assessment of this.

--- Later in debate ---

[Sarah Olney (Richmond Park) (LD)]

I rise to speak on behalf of the Liberal Democrats to new clause 7, tabled in my name, which would require the Government to produce an impact assessment of the effect of changes to small and medium-sized enterprise research and development tax credits on the UK tech industry and on long-term economic growth.

The Conservatives’ constant flip-flopping on tax and investment rules and their badly targeted incentives have not achieved the growth they promised, or are promising. Just last week, the International Monetary Fund predicted that the UK economy would contract by 0.3% this year, making us the worst-performing major economy. Prolonged weakness in business investment and productivity are a major barrier to economic growth, and if the Government want to boost innovation and drive long-term sustainable growth, they need to implement effective and well-designed policy on tax and investment.

The Federation of Small Businesses calls research and development tax credits for SMEs the most effective industrial policy of the last 10 years, enabling small businesses to develop cutting-edge products and foster competition and innovation within industry. The Government’s decision to dramatically slash R&D tax credits has therefore come as a blow to thousands of businesses. The Chancellor’s new policy of targeting tax breaks at research-intensive firms has been celebrated by the life sciences industry, but many other industries will fall outside the 40% intensity threshold. The Institute of Directors has also warned that targeting tax credits at research-intensive firms could lead to less innovation across the economy more widely.

We need to incentivise companies across all sectors to innovate, and particularly to encourage those that have not habitually been innovators. The manufacturers’ organisation Make UK has warned that further damage has been caused by the Conservatives’ chopping and changing on tax credit policy, which leaves businesses struggling to keep up and weakens business confidence. On Second Reading I urged those on the Treasury Bench to reconsider their policy and to reinstate the R&D tax credits for SMEs in full, and I am disappointed to see a lack of movement in that area.

The Liberal Democrats would introduce the kinds of incentives that have been proven to boost productivity, such as tax breaks for training to ensure that employees can continue to develop their skills, both for their own benefit and for the benefit of their employers; allowances for digital investment, to enable businesses to invest quickly and early in the newest digital tools in order to make productivity gains; and, most importantly, encouraging proper, ambitious, bold investment in energy efficiency. Whether for switching a fleet to electric cars or installing solar panels, reducing demand for energy is essential not only for decarbonising our industrial sector, but for bringing down production costs.

The need for targeted incentives for energy efficiency has been underlined by the ongoing energy cost pressures that businesses are experiencing, and the Conservatives’ decision to slash energy support for businesses by 85% will force countless shops, pubs and restaurants to pass increased costs on to their consumers, further fuelling inflation. The Liberal Democrats have repeatedly called on the Government to do more to tackle rampant inflation by supporting businesses with their energy bills. Amidst Government inaction, last month the rate of inflation in the UK jumped to 10.4%, driven largely by the cost of food and alcohol in hospitality venues. I urge the Government to look again at their policy on energy support and tax incentives offered to business, to tackle inflation, to stimulate economic growth and to drive productivity across all sectors.

[Kirsty Blackman]

The hon. Lady is making an important speech on new clause 7. I did not mention this in my speech, but we will support the new clause if it is pressed to a Division today.

[Sarah Olney]

I welcome the Scottish National party’s support for our new clause.

I ask the Government to accept the Liberal Democrat amendment proposing an impact assessment on the changes to R&D tax credits. It is essential that this policy is kept under review and its impact on the UK’s tech industry and long-term economic growth is monitored if we are to ensure that the UK becomes the powerhouse of technical innovation it so badly needs to be if we are to drive the productivity we need to increase growth across all economic sectors.

--- Later in debate ---

[Victoria Atkins]

I thank all Members for a most interesting debate. It is not often that the public—if people have been watching this debate—are able to see us scrutinise measures in this way. Committee debates often take place in rooms off the Committee Corridor, and although they are sometimes available for public consumption, it is very helpful when they happen on the Floor of the House. I am genuinely grateful to all who have contributed.

I am afraid I cannot resist picking up, very gently, the points made by Opposition Members about the role that my hon. Friends have been playing during this Committee stage in scrutinising legislation. This is exactly what Members of Parliament are supposed to do. Their job—your job, dare I say it to Members—is to scrutinise our legislation, and I welcome that. It may well be that Opposition Members have highlighted a fundamental difference between the Labour and Scottish National parties and the Conservative party: we have the intellectual self-confidence to hold these debates, and to debate policy. [Laughter.] Opposition Members may laugh, but we know how difficult internal debate has been in the Labour party. It has meant inquiries by the Equality and Human Rights Commission, it has meant a Labour MP being protected by the police in order to attend her own party’s conference, and I understand that a member of that party is currently being ostracised because her views on what a woman is differ from those of the Leader of the Opposition. So we on this side of the House do welcome debate, and we are able to conduct it properly and professionally within the rules of this Chamber.

[Kirsty Blackman]

rose—

[Victoria Atkins]

I will not give way, because I know it has been a busy day for the SNP. [Interruption.] I will not say any more.

My right hon. Friend the Member for North West Hampshire (Kit Malthouse) rightly raised the subject of the corporation tax increase, but so, significantly, did Opposition Members. They have made much play of the tax rate, and I thought it important just to remind everyone why we are where we are.

The Government borrowed an additional £14 billion in 2020-21 and 2021-22 to fund the response to covid. I cannot imagine that any Opposition Member—including those on the Front Bench—actually disagreed with, for example, the furlough scheme, which protected more than 11 million jobs and companies throughout the country. However, that enormous sum has to be repaid. In response to the energy crisis, the Government have provided just over £100 billion to help households and businesses with higher energy bills in 2022-23 and 2023-24. That has contributed to a significant increase in our public debt, which is forecast to reach 100.6% of GDP in 2022-23, the highest level since the 1960s.

That has happened precisely because the Government have responded to the pandemic, to the international crisis in Ukraine and, importantly, to the knock-on effects that that has had on our cost of living. I cannot imagine that Labour Members really begrudge the support that we are providing—more than £3,000 for every household, including households in their constituencies, to help those people with the cost of living.

However, as my right hon. Friend rightly pointed out, we also believe in the principles of sound money. In the autumn statement, my right hon. Friend the Chancellor explained that some very difficult decisions had to be made. Indeed, even with the increase in the rate to 25% that was originally announced by the Prime Minister when he was Chancellor, we will still have a corporate tax system that remains one of the most supportive of business anywhere in the world, with the lowest headline rate of corporation tax in the G7, the joint most generous capital allowances regime for plant and machinery in the OECD, thanks to the full expensing in this Bill, and the joint highest uncapped headline rate of R&D tax relief support for large companies in the G7. That is in addition to the features of the corporate tax system that make the UK an attractive location as a global hub, including having the largest tax treaty network in the world, mitigating the risk of double taxation. I point out for the sake of clarification that at 25%, the rate of corporation tax will be lower than at any time before 2010 under the last Labour Government.

I will move on to the provisions in relation to pillar two. My right hon. Friend the Member for Witham (Priti Patel) raised some important questions, including about capital flight. We have looked carefully at this and I understand why she is asking about this. I hope she will be reassured that this has been at the forefront of negotiators’ minds as we have looked at this agreement. The rules contain defensive measures to prevent capital flight. If a country does not implement them, the top-up tax will be collected by other countries instead, so there is no incentive to move or escape from these rules.

My right hon. Friend also asked about the Chartered Institute of Taxation’s view that this measure might raise less than expected. Again, I hope she will be reassured that the costing for pillar two was certified by the Office for Budget Responsibility and published at the autumn statement. The estimates are that pillar two will raise £2 billion a year by 2027-28. This includes revenue arising from UK-headquartered groups that are subject to low tax on their foreign operations, the diminished incentive for groups to shift their profits out of the UK and the qualified domestic minimum tax.

My right hon. Friend also asked about Japan. It has passed its legislation and it is implementing this in April next year, three months after we are legislating for. I hope that that timeframe gives her some comfort. I also note that 40 countries have implemented or announced pillar two or a similar rule, and I am told that they make up around 60% of global GDP. It is precisely because of the interlocking nature of the rules that revenues will be taxed at 15%, no matter where they are shifted. I am going to move on to three new clauses that I have a feeling might be the cause of contention and therefore Divisions tonight, but I will happily write to the hon. Member for Aberdeen North (Kirsty Blackman) about her point on data licences, because I want to reassure her on that.

On new clause 1, the Government are committed to sharing expertise on implementation and to co-ordinating our efforts internationally. We are playing an important and active role in the design of pillar two rules and we are achieving the delicate balance between having rules that are effective in tackling profit shifting and being proportionate. It would not be appropriate to provide a running commentary on international discussions ahead of the agreed outcomes of these meetings, which are published by the OECD, including in the administrative guidance to the rules published in February. We therefore say that the new clause is unnecessary and we urge colleagues to vote against it if it is pushed to a Division.

New clause 3 would require the Government to conduct a review of the UK’s business tax regime. This is business as usual for the Treasury and the Government. We have done, and continue to undertake, significant work to understand the impact of tax incentives on business investment. The tax plan published at spring statement 2022 set out the Government’s vision for using the tax system to incentivise investment in capital assets and in research and development, and we have set out detailed information on the Exchequer, macroeconomic and business impacts of these policies at the Budget. The evidence for this continuing work lies in both the full expensing policy in clause 7 and the increase to the annual investment allowance in clause 8, both of which I trust the Opposition will support.

I remind colleagues that the full expensing policy is equivalent to a £27 billion tax cut for businesses over three years. It saves eligible businesses 25p in tax for every £1 they invest. That is the Conservative approach to sound money, and that is what we will do to help grow our economy. The impact of our plan to halve inflation, to grow the economy and to reduce debt is demonstrated in the rising confidence of finance executives, as reported in the recent Deloitte survey. Do not listen to the doom-mongers opposite; listen to British businesses.

Turning to new clause 6, the Government expect the energy profits levy to raise just under £26 billion between 2022-23 and 2027-28, helping to fund the vital and unprecedented cost of living support orchestrated by this Government. This includes the impact of the investment allowance. HMRC regularly publishes estimates for the cost of various tax reliefs where relevant data is available and identifiable in tax returns. For example, estimates for the cost of the investment allowance against the supplementary charge and the first-year allowance of the ringfencing regime are regularly included in that publication. HMRC intends to make a cost estimate for the investment allowance against the energy profits levy in due course.

We have always been clear that we want to see significant investment from the sector to help protect our energy security. Oil and gas accounted for 77% of the UK’s energy demand last year and, as set out in the energy security strategy, the North sea will still be a foundation of our energy security, so it is right that we continue to encourage investment in oil and gas. Supporting our domestic oil and gas sector is not incompatible with net zero 2050, as we know we will need oil and gas for decades to come.

As the energy crisis in the UK has shown, constraining supply and dramatically increasing prices does not eliminate demand for oil and gas. A faster decline in domestic production would mean importing more oil and gas at greater expense, potentially resulting in additional emissions, especially in the case of gas.

On the climate targets, the Treasury carefully considers the impact of all measures on the UK’s climate change commitments as a matter of course. It should be noted that the Government have made the UK a climate leader and have reduced emissions faster than any G7 country over the last 30 years. We are on track to deliver our carbon budgets and on course to reach net zero by 2050, creating jobs and investment across the UK while reducing emissions.

I hope I have been able to reassure Members. I have genuinely enjoyed the scrutiny they have brought to this important piece of legislation. I urge the Committee to reject new clauses 1 to 3 and 6 to 10, and amendment 26. For the reasons I set out at the beginning, I commend Government amendments 12 to 13 and 15 to 20.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clauses 6 to 10 ordered to stand part of the Bill.

Schedule 1

Relief for Research and Development

Amendment made: 14, page 283, line 27, at end insert—

‘(3) In section 1057 (R&D relief for SMEs: tax credit only available where company is a going concern), after subsection (4C) insert—

“(4D) For the purposes of this section, where a company (“A”) is a member of the same group as another company (“B”) and A’s latest published accounts were not prepared on a going concern basis by reason only of a relevant group transfer, the accounts are to be treated as if they were prepared on a going concern basis.

(4E) For the purposes of this section—

(a) a “relevant group transfer” is a transfer, within the accounting period to which the latest published accounts relate, by A of its trade and research and development to another member of the group mentioned in subsection (4D);

(b) A and B are members of the same group if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief).”’ —(Victoria Atkins.)

This amendment would make an amendment to section 1057 of the Corporation Tax Act 2009 that is equivalent to the amendments being made by the Bill to sections 104T and 1046 of that Act.

Schedule 1, as amended, agreed to.

Clauses 11 to 15 and 121 to 125 ordered to stand part of the Bill.

Schedule 14 agreed to.

Clauses 126 and 127 ordered to stand part of the Bill.

Schedule 15 agreed to.

Clauses 128 to 173 ordered to stand part of the Bill.

Clause 174

Amount of covered tax balance

Amendment made: 12, page 119, leave out lines 4 to 8.—(Victoria Atkins.)

This amendment omits Step 4 in clause 174(1). That Step is unnecessary as it duplicates the effect of provision in clauses section 175(2)(e) and 176(2)(i).

Clause 174, as amended, ordered to stand part of the Bill.

Clauses 175 to 222 ordered to stand part of the Bill.

Clause 223

Adjustments

Amendment made: 13, page 163, line 19, at end insert—

‘(10) Where the covered tax balance of an investment entity includes an amount allocated to it under section 179(1) or 180(3)(a) (allocation of tax imposed under controlled foreign company tax regimes), only so much of its covered tax balance as is not comprised of amounts allocated under those sections is subject to adjustment under this section.’.—(Victoria Atkins.)

This amendment prevents adjustments being made to the covered tax balance of an investment entity in relation to amounts of controlled foreign company tax allocated to the entity (to avoid the same adjustments being effectively made twice).

Clause 223, as amended, ordered to stand part of the Bill.

Clauses 224 to 260 ordered to stand part of the Bill.

Schedule 16

Multinational top-up tax: transitional provision

Amendments made: 15, page 395, line 8, leave out paragraph (a) and insert—

‘“(a) assets are transferred from one member of a multinational group to another member of that group,

(aa) either—

(i) the Pillar Two rules do not apply to the transferor for the accounting period in which the transfer takes place, or

(ii) an election under paragraph 3(1) (transitional safe harbour) applies in relation to the transferor for that period, and’.

This amendment provides for the anti-avoidance provisions in relation to intragroup transfers to apply to transfers from a member of a multinational group until that member is fully subject to the Pillar Two regime.

Amendment 16, page 395, line 17, leave out “beginning of the commencement period” and insert “relevant time”.

This amendment is consequential on Amendment 15.

Amendment 17, page 395, line 19, leave out from “transfer,” to end of line 24 and insert “and”.

This amendment is consequential on Amendment 15.

Amendment 18, page 395, line 27, leave out from “assets” to end of line 32.

This amendment is consequential on Amendment 15.

Amendment 19, page 395, line 32, at end insert—

‘(3A) For the purposes of this paragraph “the relevant time” means the later of—

(a) the date of the transfer, and

(b) the commencement of the first accounting period in which—

(i) the Pillar Two rules apply to the transferee, and

(ii) an election under paragraph 3(1) (transitional safe harbour) does not apply in relation to the transferee.

(3B) Where the relevant time is after the date of the transfer—

(a) the value of the assets at the relevant time is to be adjusted to reflect—

(i) capitalised expenditure incurred in respect of the assets in the period between the date of the transfer and the relevant time, and

(ii) amortisation and depreciation of the assets that, had the transfer not occurred, would have been recognised by the transferor if the transferor had continued to use the accounting policies and rates for amortisation and depreciation of the assets previously used, and

(b) the tax paid amount in relation to the transfer of the assets is to be adjusted to reflect the matters referred to in paragraph (a)(i) and (ii).’

This amendment is consequential on Amendment 15.

Amendment 20, page 398, leave out lines 36 and 37 and insert—

‘(3A) Information derived from qualified financial statements as to revenue or profit (loss) before income tax must be adjusted—

(a) as the information was adjusted for the purposes of its inclusion in a qualifying country-by-country report in relation to the territory, or

(b) if the information was not included in such a report, as it would have been adjusted had it been included in such a report.

See also paragraph 6 which provides for circumstances in which further adjustments are required to profit (loss) before income tax and circumstances in which adjustments are required to qualifying income tax expense.’—(Victoria Atkins.)

This amendment makes it clear that in determining whether the transitional safe harbour provisions apply for the purposes of multinational top-up tax, revenue and profits are to be as stated in a country-by-country report, or adjusted as if they were included in such a report.

Schedule 16, as amended, agreed to.

Clause 261 ordered to stand part of the Bill.

Schedule 17 agreed to.

Clauses 262 to 275 ordered to stand part of the Bill.

Schedule 18 agreed to.

Clauses 276 and 277 ordered to stand part of the Bill.

New Clause 1

Statement on efforts to support implementation of the Pillar 2 model rules

‘(1) The Chancellor of the Exchequer must, within three months of this Act being passed, make a statement to the House of Commons on how actions taken by the UK Government since October 2021 in relation to the implementation of the Pillar 2 model rules relate to the provisions of Part 3 of this Act.

(2) The Chancellor of the Exchequer must provide updates to the statement at intervals after that statement has been made of—

(a) three months;

(b) six months; and

(c) nine months.

(3) The statement, and the updates to it, must include—

(a) details of efforts by the UK Government to encourage more countries to implement the Pillar 2 rules; and

(b) details of any discussions the UK Government has had with other countries about making the rules more effective.’—(James Murray)

This new clause would require the Chancellor to report every three months for a year on the UK Government’s progress in working with other countries to extend and strengthen the global minimum corporate tax framework for large multinationals.

Brought up, and read the First time.

Question put, That the clause be read a Second time.