Finance Bill

Debate between Kirsty Blackman and Rishi Sunak

Tuesday 6th September 2016 Commons Chamber

[Rishi Sunak (Richmond (Yorks)) (Con)]

I know that when I mention the word “investor” in this House, some Opposition Members get a little a bit excited: their pupils dilate, their pulses quicken and their minds race with images of plutocrats rolling the dice of financial speculation. The reality, however, is a little different. I have spent my own career investing in businesses, and in this country private equity-backed businesses now account for almost 1 million people in employment. The latest research shows that in the run-up to the last crisis, those companies’ sales, investment in research and development, and, indeed, exports grew at a faster rate than the national average.

Furthermore, I am sure that everyone in the House would welcome more money for charities, more research funds for scientists, more scholarships for students who need them and lower insurance premiums, and that is indeed what the private equity industry delivers. The funds that private equity companies manage benefit all of us through university endowments, charitable foundations, pension funds and the floats of insurance companies. When the private equity industry does well, the pensioner, the scientific researcher and the scholar from a disadvantaged background all benefit.

This is a Finance Bill from a Government who value their investors and will not demonise an industry, and who know that no contribution, however great, should be allowed to skew the scales of social justice. The clauses that involve changes to carried interest will ensure that the rewards that investment managers receive for their efforts are taxed not only correctly, but fairly. The clauses will introduce a 40-month holding period to ensure that capital gains tax treatment is reserved for genuinely long-term investments, as it should be. I know that Members on both sides of the House support the welcome change to remove the base cost shift loophole, which allowed costs to be advantageously offset against gains. The Bill will also consolidate Government action on disguised fee income that was introduced in the last Finance Bill and ensure that fund managers are paying income tax when appropriate. All in all, the measures will raise in the order of £200 million in the next financial year.

Those new arrangements are not only fair for British taxpayers and society; they will also ensure that we remain competitive internationally. Our general treatment of carried interest, which has been the subject of much debate in this House and various Committees, is actually in line with the treatment carried out in the United States, Germany, Australia and France. All those countries agree with the notion that carried interest is capital in nature and should be treated as such. If we look across Europe, we will see that our rate for carried interest will sit in the middle of those for comparable countries: it will be a little bit above that in Switzerland and Germany, and a little bit below that in France.

The clauses reflecting changes to capital gains tax will ensure that the UK remains a pro-enterprise, pro-growth nation. Small and medium-sized businesses of the kinds that I used to invest in account for more than half of private sector employment in the UK. They are responsible for three quarters of all jobs created since 2008, yet I know from first hand that small and medium-sized British enterprises still struggle to attract enough equity capital to grow. Adjusted for GDP, the size of the UK’s venture capital market is a seventh of that of the United States. Just 3% of British companies manage to expand from three employees up to 10, which is half the rate in America.

When I hear about changes to capital gains tax rates, I think about how they will benefit all those small businesses, helping them get the capital they need to grow and to increase investment and employment. Indeed, investors’ relief and the other changes to capital gains tax included in the Bill will build on the success of the seed enterprise investment scheme, the enterprise investment scheme, the funding for lending scheme and the British Business Bank, all of which are providing British companies with the capital that is necessary for growth.

The changes will ensure that Britain remains a competitive prospect for investment without compromising Government revenue. The hon. Member for Salford and Eccles (Rebecca Long Bailey) mentioned the state of our finances and the need for revenue. I am sure that she welcomes the fact that the Office for Budget Responsibility projects that capital gains receipts will top £7 billion this year and increase to £9 billion next year, which is higher than in any other year in the past decade and a half. Rather than being a sweet deal for the rich, our capital gains tax rate actually sits in the middle of the OECD league tables of capital gains tax rates. Ten countries have rates of 0%, and our rate of 20% will sit two points above the average.

As we contemplate leaving the European Union, it will be vital that Britain’s economy remains dynamic, open and competitive to attract the investment we need and maximise the opportunities afforded to us. The clauses relating to capital gains tax and carried interest will ensure that the UK does exactly that, and I will support them later today.

[Kirsty Blackman (Aberdeen North) (SNP)]

I want to speak to the Labour party’s new clause 14 and amendment 174, which, as has been ably pointed out by the hon. Member for Salford and Eccles (Rebecca Long Bailey), would remove clause 82 and the increased nil-rate band for inheritance tax.

I will focus first on the entrepreneurs’ relief proposed by new clause 14, which makes a key point about the lack of Government transparency. When UK Governments of all colours introduce a tax change, they often do not return with the evidence to show that the policy has worked. They will implement the policy and say that it is wonderful, but they will not bring back the proof. The Minister was asked yesterday how many companies have benefited from the loan guarantee fund in relation to oil and gas, but she was unable to provide a detailed answer. I do not know whether she just did not have the answer at her fingertips or whether the Government have not actually sat down and worked it out. If Governments are going to make grand claims about what they are doing and how good their policies are, they really need to bring back their work and show it to us.