Finance (No. 2) Bill

Debate between Kirsty Blackman and Kit Malthouse

2nd reading: House of Commons
Monday 11th December 2017 Commons Chamber

[Kirsty Blackman]

I agree that employee share ownership schemes are a good thing, and I would like to see an increase in them, but does the hon. Gentleman agree that the issue that people have is not that they do not know about or cannot access employee ownership schemes, but that they do not have the money to save, given that 50% of households have less than £100 of savings? Is not that the biggest problem?

[Kit Malthouse]

The hon. Lady refers to schemes that require the employees to pay for the shares. In my view, businesses should be allowed to gift shares to their employees, and that should not necessarily form part of their remuneration package. At the moment, there are a series of ways for companies to give shares to their employees, but none is particularly tax efficient or confers particular advantages to a company. I would like a company that had a certain percentage of its shares in employees’ hands to pay a lower corporation tax rate than one that failed to involve its employees in the balance sheet. That would address the general idea that the Prime Minister has talked about—that employees should be more involved in the way that businesses, especially large businesses, are run. If shareholders at the annual general meeting every year are also employees, so much to the good. Dynamising and democratising capital has to be the way forward.

Finance Bill

Debate between Kirsty Blackman and Kit Malthouse

Tuesday 12th September 2017 Commons Chamber

[Kit Malthouse]

That is a very good and broad point, and I could talk for a long time about it—[Hon. Members: “Go on.”] I wish. It is definitely my perception, and the evidence certainly shows, however, that the operation of capital is becoming more and more sluggish across the western world.

As I said earlier when I mentioned those top 500 companies, capital is incredibly sluggish, particularly in the EU. In this country it has long been said that that is partly the fault of the housing market, in which so much private capital is tied up because we like to own our homes. In other countries, such as Germany, where that is not the case, capital may be more dynamic, and there may be more capital for investment. Whatever the problem—and we think there is a problem—Governments have a role in unlocking and lubricating the capital that is out there.

I think that both the enterprise investment scheme and the small enterprise investment scheme are good and worthy. Over the last couple of years, however, I have been pressing for them to be deregulated so that it becomes easier for people to invest, and they will not need an accountant, a lawyer and pre-approval from the Revenue to achieve—in the case of the EIS—modest tax reliefs and benefits in the future. We need a scheme that recognises the quasi-charitable nature of giving. I would like to see a system in which people who invested in a business would receive 100% tax relief up front, and then, if they ended up owing capital gains tax, would pay the tax. That would be a nice problem to have. When I have started my businesses, the last thing on my mind has been whether there is any capital gains tax to pay. What has been mostly on my mind has been raising the money, getting going, paying the staff, finding an office, and all the rest of it. I think that such a system would be simple, easy and understandable, and would encourage a great deal more investment in the drugs, therapies and technologies that we need for the future.

The Government have a patient capital review on the cards. It kicked off about a year ago under the chairmanship of Damon Buffini, who, as Members will know, is one of those much benighted private equity guys, and I shall be pressing the Government, hopefully, for its conclusion quite soon.

The second thing that we must bear in mind about the signal that we send with the change in dividend taxation concerns young people. We have talked a good deal about home ownership for young people, but their ability to access assets in general is something that should trouble us all. Those assets include shares. It might be a good idea to give young people an incentive by suggesting that it would be beneficial for them to build up small share portfolios. The Government will say, quite rightly, that they can start individual savings accounts, and of course they can. Dividends are tax-free in an ISA, and given that the ISA allowance rose to £20,000 a year in April, it is possible to accumulate huge amounts of money. The problem with ISAs, however, is that most people hold significant amounts of cash in them. There is no limit to what can be held in a cash ISA, and far too much money in ISAs is held in cash rather than being invested in the productive economy. People should be sent signals that they should be investing in companies.

[Kirsty Blackman]

Is not the problem that young people do not have enough money to save, rather than not enough different methods of saving? There is a lack of money in the system. Wages are not rising and inflation is increasing, and young people cannot afford to save because they are spending too much on rent and they are in precarious jobs.

[Kit Malthouse]

As I have said, part of the problem is related to housing. However, the Government have made huge strides in trying to increase the take-home pay of the lowest paid. There is the rise in the personal allowance, which will increase even further. There is the national living wage, which has raised wage rates altogether. There is the apprenticeship scheme, which is giving young people a route to higher-paid jobs by giving them more and more skills. There are plenty of things that can be done.

There will be no overnight solution, but once the Government manage to move young people up the income scale, and as they get older and more money accretes to them, we should encourage them to think about saving—not just about home ownership but about saving for their futures. We are doing that in the case of pensions: through auto-enrolment, we are making employers responsible for instilling in young people the idea that they should be joining pension schemes. I am trying to think in decadal terms about the signals that we send about the operation and dynamism of capital in this country. Unless we start planting some acorns now, we will not have oaks to sell in 20 or 30 years’ time, as we have been able to do in the case of all the companies that have been founded in the last couple of hundred years.

The second issue that the Bill raises in my mind is the nature of the tax system in general. This Finance Bill is incredibly thick for what is actually a relatively short Bill, because the complexity of it is incredible. In some of its measures, the Government are rightly closing loopholes, such as through the disguised remuneration rules, and when we look at them we suddenly realise that our tax system has become a game of 3D chess, whereby the Government are engaged with business and individuals in a constant cat and mouse game around what has become a Byzantine system that is choking economic growth and development and distracting entrepreneurs and others far too much from their day-to-day work of creating wealth and jobs. Most small businesspeople I know spend far too much time on compliance costs, with taxation regulations, and this Bill illustrates that in no uncertain terms.

The Bill also illustrates that it is going to become ever harder for the Government to tax the new economy. We have heard talk today of the fourth industrial revolution, and even in my working lifetime of 20-odd years the nature of work has changed almost completely, as has the way we work. My business is almost entirely cashless. There are vast corporations that operate without cash, and that trade in one jurisdiction, fulfil in another jurisdiction, bank the money in a third, and pay tax in a fourth. Chasing this money around, combined with this incredibly complicated system, is going to become harder and harder. Part of the reason for this Bill, as the Minister said, is to maintain the sustainability of the tax base. The Government are worried that it is getting away from them; it is like a wild horse straining at the leash or reins, and galloping off across the field given half a chance. [Interruption.] Leash or reins; I do not know what we hold a horse with.

All of this means that we are going to have to do some pretty heavy fundamental thinking over the next couple of decades about the way we tax. We often talk about how much we tax, but rarely talk about how we tax. How are we going to tax these enormous corporations that are bigger than nations? How are we going to make it fair between them and small businesses? How are we going to tax a changing economy of individuals, who might have four, five or six different jobs, with somebody in this country perhaps performing a job in another country, but doing it digitally? All of these matters raise questions, and it is perhaps becoming harder to tax in a direct way and easier to tax in an indirect way.

I have talked in this House before about the notion of getting rid of business rates— which are biased against small businesses, and certainly small retail business on the high street, and which favour the massive internet companies—of getting rid of corporation tax, which is hard to collect and for which compliance is not great, and of thinking about moving to an easy, collectible turnover tax. A huge company like Amazon, which is completely electronic and totally cashless, could pay its turnover tax every day: at the end of the day it knows how much money it has made, and the computer can tell how much tax there is and transfer the money across to the Government. That would be an enormous win.

The advent of the cashless society means it is much easier to track people’s turnover, and to take that little clip that the Government want to pay for all the services we need. In time—perhaps not in my political lifetime, but in the future—we might even move to a situation where there are no direct taxes on individuals, and where tax becomes voluntary, with people paying it as part of their spending, in the form of indirect taxes through VAT, duties and so forth. Certainly that is the tax that those at the lower end pay; the only tax those who earn less than £11,000 will pay is indirect, such as VAT, which they pay voluntarily when they spend. These are the broad themes we are going to have to think about over the next couple of decades if we are going to be able to raise the money to pay for the services the country rightly needs.

While welcoming the Bill, therefore, I would like the Minister, certainly as the Budget approaches, to think in decadal terms about the foundations we need to create now for a sustainable tax base and a vibrant economy for the future.