Charter for Budget Responsibility

Kit Malthouse Excerpts

Monday 6th February 2023 Commons Chamber

[Kit Malthouse (North West Hampshire) (Con)]

I have seen many displays of nerve in this Chamber over the last seven years, but I congratulate the Labour Front-Bench shadow, the right hon. Member for Wolverhampton South East (Mr McFadden), on his sheer chutzpah this evening. He was part of a Government who exploded the deficit under Gordon Brown, having been bequeathed a golden financial legacy, and then drove us off an economic cliff with a crash the like of which this country had not seen since the second world war. I draw attention to my entry in the register, because I still own the business that almost went to the wall during that crash, and I determined then, as I do now, to make sure that the right hon. Gentleman and his party never have stewardship of the economy of this country for fear of what they may repeat.

Before the Minister panics, I will say that I am here this evening to support the motion and the charter. While others have mentioned the renewal and the evolution of the charter over the years, it is a useful instrument that George Osborne introduced, albeit that I think he probably did so in contemplation of uncertain victory in 2015, wanting to jam an otherwise profligate and untrustworthy Labour party into a little more discipline for the future. But it is useful in giving guidelines to the wider world, and indeed the markets, about the Government’s intentions in the short and medium term. However, I have some questions for the Minister on this year’s mandate.

The first is about the independence and role of the OBR. As the Minister knows, there has been a lot of concern in the media and elsewhere about the role the OBR has played in the financial turbulence over the last few years, and in particular I want to talk about independence, accountability and its role in the formation of fiscal policy.

On independence, I must express to the Minister, an old friend and constituency neighbour, some concern about the evolution of the role of the OBR. The charter points out at paragraph 3.13:

“The government has adopted the OBR’s fiscal and economic forecasts as the official forecasts for the Budget Report.”

That means the Treasury is not now making its own forecasts; it is relying entirely on the OBR’s forecasts. In my view, that creates an element of conflict. I would hope that the Treasury would produce its own forecast driven by what the Chancellor wants to do, and the OBR would produce a parallel forecast, and then differences between the two could be highlighted and justified or argued about. Then those of us who rely on forecasts for policy making or investment decisions could decide where the fan chart of growth or of debt was likely to go. I am sure the Minister has the charter in front of him. It says in this paragraph that the Treasury still retains the analytical capability to produce those forecasts and reserves the right to disagree with the OBR, but in truth, because it is not producing a forecast, it does not and cannot.

At paragraph 4.11 the charter states that

“the OBR will provide independent scrutiny and certification of the government’s policy costings.”

Certification is an interesting word in this context, because it means that the OBR is basically approving the Government’s policy costings, which implies an element of negotiation and justification rather than assessment and opinion.

Paragraphs 4.20 and 4.21 on page 16 then say that there will basically be an iterative process between the OBR and the Treasury—and presumably the Chancellor—over the formation of the forecasts. That implies an element of negotiation—that the Chancellor will go to the OBR and say, “This is what we’re planning to do. What do you think?” and the OBR will say, “Well, we’re not sure this is going to produce quite the number you need.” So policy is formed in an iterative process.

I might have expected the Chancellor to ask his analysts in the Treasury what the impact of certain policies might be on forecasts. However, doing that directly with the OBR, which is supposedly independent, draws it into the policy formation process in a way that may not be helpful to its sense of independence or, indeed, to our sense of its assessment of the Treasury rules. Effectively, that imbues the OBR with an authority that should, in theory, bring with it an element of accountability.

Forecasts that should and could be produced by the Treasury would be produced under the name of the Chancellor, so if they are proven to be wildly wrong, there is direct accountability in this House through him or—hopefully in time—her. However, that is less the case with the OBR. It will appear periodically in front of the Treasury Committee, which is ably chaired by my hon. Friend the Member for West Worcestershire (Harriett Baldwin), who is here this evening and who has spoken. Other than that, however, the House will have no opportunity to properly scrutinise, test and understand why the OBR thinks the way it does.

[Richard Drax (South Dorset) (Con)]

If I might paraphrase, Treasury officials have Ministers by the short and curlies, which is perhaps not the best position for them to be in.

[Kit Malthouse]

My hon. Friend puts it in a pithy way, as he often does. It is not so much that there is some kind of trap or problem here; it is that a situation has evolved—probably more by accident than by design—whereby the OBR has been drawn into the machinery of the Treasury and therefore acquired an authority and an effective veto, in a way that is perhaps not helpful.

The reason that is a problem is that economics is an inexact science—if we put three economists in a room, we will have five opinions. Economics is not delineated in the way chemistry is; it is as much an art as it is a science, and much of it is actually psychology. So if the OBR is to be so involved in policy making, it is important that we understand the economic basis of its assessments. For example, do the people who produce these now Treasury —but actually OBR—forecasts appreciate, understand and believe in the Laffer curve? Do they think that if we reduce taxation, income will rise? That sits at the heart of the argument the Conservative party has had over the last few months about corporation tax. If we cut it, will we collect more money? Seemingly, the forecasts say not. Those are the kinds of judgment that anybody forming economic and fiscal policy must make.

There are also more fundamental issues—about, say, the operation of capital. If the head of the OBR is going to be so involved in policy formation—if there is to be a negotiation between the Chancellor and the OBR on an iterative basis—will that person be operating on the same ideological basis in terms of capital versus labour? Are they a Keynesian? Are they a monetarist? What is the impact of those kinds of belief system? Drawing the OBR into the Treasury machine therefore creates some difficulty for an organisation that, as I know the Minister will agree, has value because of its independence and its alternative view of what the Treasury is trying to do.

The second issue I want to raise is about the mandate. The previous charter contained a point about balancing the budget within three years; that is omitted from this charter. As the Minister said, things have changed, so that has been dropped. When we are effectively chasing a ratio as measured against GDP, we are chasing a moving number, which may make our lives more difficult. For example, if we are chasing a debt-to-GDP ratio, and our GDP is falling, we have to work ever harder to hit our target. The things we have to do to hit that target may also, paradoxically, reduce GDP even further, so we end up chasing ourselves down a spiral against a moving target. That is why, in last year’s charter, which has changed, the idea of balancing the budget within three years, and ensuring that our expenditure did not exceed our income, was quite helpful; it meant that there were two absolute numbers over which we had some control.

Fortunately, in its February forecast, the Bank of England says that if there is a recession, it will be shallower than we thought, which is good. That is not least because last year’s Budget represented a mild fiscal loosening in its initial stages, although not so much later on, with the energy price cap and all the rest of it. That may have helped with aggregate demand, making the recession less severe. However, if GDP does fall, the ratio that the Treasury is chasing will worsen, unless there are significant spending cuts or yet more tax rises, both of which may exacerbate the fall in GDP. That is why I am nervous about the mandate. The objective of reducing debt against GDP is absolutely right, but I ask the Minister to guard against the issue that I have raised.

Finally, I want to say something about the longer term. As politicians, we often focus naturally on a three to five-year horizon. We do that because, guess what, there are elections in a three to five-year horizon, and it is a horizon that is understandable and controllable. However, as the Minister will know, there are significant long-term issues for this country, which are driven by demographics and the nature of our economy. He will know that there are alarming reports that look way into the future, and if he has looked at the significant work done by my hon. Friend the Member for Wycombe (Mr Baker) before he was a Minister, he will know what I am talking about.

To take an example, the Government Actuary’s quinquennial review of the national insurance fund basically says that it will run out of money in about 20 years’ time. Indeed, the rise in the pension age that we have just put through may mean that that period will be shorter, unless there is significant Government intervention in the form of more money going into the fund, which will basically mean tax rises. In addition, the OBR’s financial stability report from last year—it now does a long-term financial stability report—forecasts that, on the current trajectory, although our debts will start to fall in the short term, by the time we get to the middle of the century, they will be well above 200% of GDP and heading towards 270%, and we will be running at a deficit of 10% of GDP.

These long-term trends are driven fundamentally by demographic issues. As a country, we are growing older. We have fewer workers per pensioner, and we are not replacing ourselves from a birth rate point of view, and that will cause an enormous problem. Other countries are in a worse situation. In Japan, on current rates, the population will have halved by the end of this century, which will be economically catastrophic for the country. Unless we start chasing our tail—raising taxes to pay more in welfare and Government spending—we will be in big trouble, which may exacerbate our GDP issues. When we put together the whole cocktail of forecasts—short, medium and long term—they scream out at us to think about the model we are operating.

The wealth of this country was built on three great leaps forward in growth. We had the industrial revolution. That was followed at the end of the 19th century and the start of the 20th century by mass industrialisation, and since the ’70s we have had the IT revolution. In some of those periods, particularly the last, growth was quite turbulent, but throughout them, there was a very high average level of growth; 3%, 4%, 5% or 6% a year was not uncommon. We stand on the verge of another technological revolution—a great leap forward with automation, artificial intelligence, the way we do things and the green economy. We are on an ellipse of scientific discovery. Life sciences are a particular passion of mine, because there are a number of companies on the verge of curing cancer.

If we are to capture this upswing in human ingenuity, we have to think about the model of our economy and the operation of capital within it, and whether we have the right fiscal measures to encourage the kind of buccaneering capitalism that took advantage of those three previous upswings. We did less of that in the third period, the IT revolution. We went through a period of what I suppose we could call centre left or socialist Governments, and it was not de rigueur until the ’80s to be an entrepreneur. We sat on the operation of capital and, as a result, we missed the swing. That is why we do not have an Apple, a Microsoft, a Facebook or a Google. We have some companies coming, and we had some nascent companies. Some Members will be old enough to remember Acorn. For a while it was going to be a great world-beating company, but it fell by the wayside.

The Minister thinks about these issues carefully, and is conscious of the need to energise capital in a way that will build the businesses, products and jobs of the future. I urge those on the Treasury Front Bench to reflect on the longer-term issues that I have raised, and to recognise the kind of straitjacket that we are putting ourselves in. That, and the debts we incurred during covid, may well mean that we miss the next upswing in the world economy, unless we are willing to take risks with the mandate. There has been much debate in this House, and certainly in the media, about going for growth, but if we miss this upswing in growth, we really will miss a huge opportunity for the next generation of our fellow countrymen.

--- Later in debate ---

[John Glen]

It is a privilege to close this debate on behalf of the Government. I thank those who contributed to the debate, including the distinguished Chair of the Select Committee, who highlighted some of the issues and presumptions of Government policy. I cannot comment on what will happen with fuel duty, as that will be the Chancellor’s decision. I thank the right hon. Member for Dundee East (Stewart Hosie) for his contribution, in which he seemed to suggest more targets and a poverty of ambition on behalf of the Government, and I can assure him that that is not the case.

I would like to respond to my right hon. Friend the Member for North West Hampshire (Kit Malthouse), who made a number of observations about the independence of the OBR; its certification and validation role; and the iterative process and whether that compromised the apparent independence of the Treasury. He described economics as not just an art or a science but even psychology. I can confirm that the OBR’s remit is unchanged: it is the Government’s official forecaster. But—as he notes and I am pleased to confirm—the Treasury maintains considerable analytical capability to support the policy advice to Ministers, and it does a very good job of it too. There is a clear separation between the OBR and policymaking, but it is a matter of securing credibility for those policies, and I think he would agree with me that that is a very important point.

[Kit Malthouse]

I guess the issue is: whose forecasts are they? If the OBR produces forecasts and Treasury officials say, “Well, Chancellor, we have looked over the forecasts and we think they are right,” that is qualitatively different, in the public’s mind, to the Treasury producing a forecast and the OBR saying to the public, “Well, we have looked over them and we think they are right.” While it does say that the Treasury reserves the right to disagree with the OBR, the nature of the iterative process presumably means that will never happen, because they agree before anything is published.

[John Glen]

What we can agree is that the budget responsibility committee has discretion over all judgments underpinning its forecasts. Of course, there is obviously a range of views—my right hon. Friend the Member for Wokingham (John Redwood) is always clear in his disagreements with what the OBR may or may not forecast—but what we are saying is that there is validity in and a need for an official forecast, and that is what we have.

With respect to the shadow Chief Secretary, the right hon. Member for Wolverhampton South East (Mr McFadden), before he gets a little too complacent he should be wary of the £90 billion of uncosted net spending commitments that his party has made since the turn of the year. I think the OBR would be very interested in what we would find there.

The charter represents our bedrock to prosperity. It will get debt falling but invest in the future. It will rebuild our fiscal buffers, bolster our economic fundamentals and deliver for the whole country. A vote for this charter is a vote for sustainable public finances, and that is why I commend the motion to the House.

Question put and agreed to.

Resolved,

That the Charter for Budget Responsibility: Autumn 2022 update, which was laid before this House on 26 January, be approved.

Business of the House (8 fEBRUARY)

Ordered,

That at the sitting on Wednesday 8 February, notwithstanding the provisions of Standing Order No. 16 (Proceedings under an Act or on European Union documents), the Speaker shall put the Questions necessary to dispose of proceedings on

(1) the Motion in the name of Secretary Suella Braverman relating to Police Grant Report not later than three hours after the commencement of proceedings on that Motion, and

(2) the Motions in the name of Secretary Michael Gove relating to Local Government Finance not later than three hours after the commencement of proceedings on the first such Motion or six hours after the commencement of proceedings relating to Police Grant Report, whichever is the later; proceedings on those Motions may continue, though opposed, after the moment of interruption; and Standing Order No. 41A (Deferred divisions) shall not apply.—(Penny Mordaunt.)

Financial Services and Markets Bill

Kit Malthouse Excerpts

Report stage
Wednesday 7th December 2022 Commons Chamber

[Andrew Griffith]

We talked about my right hon. Friend’s relative munificence of 53 free cash machines in his constituency—I think it was that at the last count. What he says is the case. The Bill gives the Government the ability at any point in time to give direction to the Financial Conduct Authority, the relevant regulator—this is the basis on which we regulate all our financial services in this country—through a policy statement that will set out the Government’s policy on such matters as cost and location. I am being clear that it is our expectation that the industry will deliver on this important issue for our constituents. If not, the Bill gives any future Government the ability to mandate that.

[Kit Malthouse (North West Hampshire) (Con)]

Notwithstanding the support that the Minister is giving to the notion of free cash, he will recognise that the Government cannot sit there like King Canute, and that between 2010 and 2020 the number of payments made in cash went from 50% to 17%. That has fallen yet further during the pandemic. There are significant advantages to cashless transactions, not least in the elimination of crime. Actually, it is a bit of a myth that there are sections of society that struggle, and we see that most apparently in the advent of cashless parking. There are hardly any councils left in the country now that use cash for their parking. They are all using apps on smartphones. When we introduced it when I was at Westminster City Council, we did not have a single complaint from an elderly person—quite the reverse. They often found it much easier than fumbling around for coins and notes to be able to park, as well as having the ability to extend the time using the phone. There are great advantages to the elimination of cash in society too.

[Andrew Griffith]

My right hon. Friend is right and illustrates well the Government’s desire to achieve the right balance in this debate, rather than operate at either extremity. He will know from his former role the significant move in relation to Oyster and the ability to be cashless.

--- Later in debate ---

[Andrew Griffith]

I agree with the hon. Lady’s point that it becomes a pressing issue. The justification, having successfully transacted in cash since the first Roman emperor decided to dispense pieces of metallurgic value with his head on them, is precisely that we see the transition and we want to get it right, in the interests of the vulnerable. The Bill also contains powers to regulate the wholesale distribution of cash—those people who trunk cash up and down cash centres across the United Kingdom.

[Kit Malthouse]

Will the Minister give way?

[Andrew Griffith]

We have spent a long time on cash, so I will take one final intervention on this. Then I will make progress, simply to allow other Members the chance to make the points that they are here to make.

[Kit Malthouse]

I am grateful to the Minister. He may not be old enough, but some of us will remember the moment the cheque started to go out of usage. There were lots of claims of damage to certain sections of society, and that lots of people would be outraged when the cheque disappeared. Now people operate without chequebooks on a daily basis, and no retailers, as far as I am aware, accept cheques. On the idea that we should mandate that cash be accepted, we cannot stand in the way of the fact that consumers are voting not to use cash. The market is telling us that cash is running out of use, and let us scotch the myth that there is such a thing as a free ATM. The network at the moment costs about £5 billion to operate. That is paid for by every user of the bank, whether they use the ATM or not.

[Andrew Griffith]

My right hon. Friend makes his points very well. As he said earlier, there are significant benefits in relation to fraud, traceability and the environment from dematerialising, but it is not the position of the Government to advocate for it.

Energy (oil and gas) profits levy

Kit Malthouse Excerpts

Tuesday 22nd November 2022 Commons Chamber

[Kit Malthouse (North West Hampshire) (Con)]

It is obviously foolish for the Opposition to pretend that a pandemic and a continental war, with its associated energy shock, would not be felt economically in this country. At the same time, it is clearly preposterous for them to try to talk down the UK economy as some kind of basket case, when we compare very favourably to some of our peers on debt to GDP, employment is still very high and we have an economy that exhibits so many underlying strengths. At the same time, it is fair to say that the autumn statement was greeted with some dismay on the Government Benches. The Chancellor of the Exchequer has obviously had to make some very difficult and challenging decisions, given the economic headwinds we face.

First of all, however, I should point to one of the bright moments in the statement, which was the Chancellor’s pledge on education funding. The £2.3 billion extra on top of what is already in the baseline over the next two years was very welcome. I am grateful to the 27 colleagues who, along with me, signed a letter urging the Chancellor not only to protect schools funding, but to invest further. Our view was that one of the groups most hard hit by the pandemic and that awful disease was children. The case for investing further in their education to deal with the backlog, helping them to catch up and ensuring they can have productive lives in the future, felt to us morally strong and it would have been indefensible to cut that spending. We are therefore extremely pleased that he responded in such a positive way.

I have only a few minutes, so I want to outline three lessons from the recent turmoil, two warnings and a hope for the future. The first lesson is predicated on a phrase that does not go down well in either marriages or politics—the four little words, “I told you so.” For those of us who have been tracking the path of the UK money supply over the last 10 years, the underlying inflation, which was baked into our system and has emerged over the last 12 months, has not, I am afraid, come as any great surprise. The fact that the Bank of England has been slow to recognise the importance of monetarism and money policy over the last couple of years is a cause of great dismay, not least because a number of us consistently raised this issue with the previous Governor when he was in front of the Treasury Committee and since. The denial of the kind of Bank of England orthodoxy that the money supply mattered has come back to haunt us in a big way. The enormous growth in the money supply has outstripped the growth in our economy—yes, coming out of the crash in 2007-08, but in particular coming out of the pandemic—and resulted in the inflation in this country that is now taxing every family. It is hard to see that the Bank has moved with alacrity to deal with it—if anything, I think the criticism is that it has been a bit slow—but I hope the lesson we learn for the future, and on which this House should concentrate and focus, is that the money supply matters. When we look around the world we see consensus around a loose monetary policy for far too long and we need to bear that in mind.

The second lesson is that the Bank’s handling of the bond market really matters as well. We had assumed that that was a benign market that we could take for granted, but it became clear that the Bank’s hangover from its quantitative tightening—its declaration of sales forward into the market—had a significant impact. That was then exacerbated by the so-called fiscal event. We also bear huge losses on that market from the Bank’s dealings. Admittedly, there have been profits in previous years, but the fact that we are bearing about £11 billion-worth of losses from the Bank’s trading in that market matters. Also, within that market, we discovered to our horror that pension funds were effectively gambling with borrowed money, shorting inflation through the so-called LDI— liability-driven investment—strategy, which became so systemically problematic for the economy that the Bank had to intervene again. That points to lax supervision and comprehension of the weaknesses in the bond market.

The third lesson is that we as a House have perhaps not concentrated enough on the operations of the Debt Management Office. I have yet to see anywhere an obviously declared policy decision to move our debt more towards index-linked or inflation-linked bonds. We have moved from 6% of our debt being index-linked 10 or so years ago to about 22%. That is a near-quadrupling of the figure. As I think the Chair of the Treasury Committee—my hon. Friend the Member for West Worcestershire (Harriett Baldwin)—said yesterday, that effectively means that the Government were shorting inflation. At a time when we had lost track of the money supply, or in fact, had decided that the money supply did not matter, that proved to be a foolish bet.

[Bim Afolami]

When I was on the Public Accounts Committee a couple of years ago, we looked at index-linked debt on the whole of Government accounts. If I recall this correctly, the answer we received was that there was no long-term risk of widespread inflation because there were global forces that were becoming deflationary, rather than inflationary. The points that my right hon. Friend is making illustrate well the poor analysis in that approach.

[Kit Malthouse]

I completely agree. I remember well debates with Mark Carney, when he was head of the Bank of England, about the combination of a rise in the money supply and the underlying inflationary effects in our economy being masked by deflationary effects, not least of global supply chains, and the fact that we now have so much stuff made and imported from China, as well as the effect of the internet. Once the curtain was pulled back and we had problems with our supply chains—and that curve of deflation bottomed out—lo and behold, the money supply suddenly became important again. Let us hope that we learn that lesson for the future.

Notwithstanding the difficult decisions that the Chancellor has made, another opportunity is coming for us to trim the sails: the Budget in the spring. As we move towards that moment, I hope that we can look towards some positive changes in the global economic environment. Hopefully, the war in Ukraine will start to recede. International container prices are already falling, as are energy costs. We can therefore think again in the spring and I hope that we will bear two things in mind.

First, we need to bear in mind that, in a tight labour market, tax rises can prolong inflation. If we, through tax rises, give people, in effect, a take-home pay cut at the same time as they face higher costs because of their mortgages and generally because of the cost of living, they are likely to start to demand more from their employers. I am afraid that that has a possibility of sparking a wage and price spiral, particularly as we know that the secondary effects of that inflation will take some time—possibly months, if not years—to work their way through the system. I would bear that in mind when we think about possible tax rises, particularly from fiscal drag.

My second concern—I give this warning to Ministers—is that chasing debt to GDP could become a hare that they are unable to catch. If the actions taken from a fiscal and monetary point of view damage our GDP number—if GDP falls—we have to work even harder to reduce costs, or debt, against that number. If the action taken to reduce the numerator in the equation paradoxically damages the denominator, the equation becomes harder and harder to reach. If we base our ability to reach that debt-to-GDP ratio on a lower figure—particularly with a 3% GDP debt limit—through tax rises, the only way to avoid a doom loop is to tax and tax, even if we know that we can never fill in the hole that we are digging.

Finally, let me turn to my hope for the future. When we get to the spring Budget, I hope not only that the global winds that are blowing against us will have receded somewhat, but that, frankly, we can restore our belief in capitalism. My strong view is that the only way that we will get out of this hole—a number of Members have said this in the past few days—is through growth. We will not tax our way to prosperity, nor will we tax our way out of this debt-to-GDP problem. We need to inject growth into the economy. The only way to do that is to let the wealth creators free by loosening the ties that bind them and by looking at the regulation and taxation on capital, in particular, so that people are willing to take risks. One of the most dismaying choices in the statement was the proposed increase in capital taxes, not least because that changes the risk-reward ratio, meaning that it is less likely that people will go out and start a business.

Although some of the decisions about research and development, including the vast amount of money that is being pumped into that across the whole UK, are extremely welcome, unless there is a strong, pullulating, dynamic private sector out there to pick up the ball and run with it, all the intellectual property that the money creates will just end up overseas, where plenty of venture capitalists and entrepreneurs will be willing to pick that up and run with it.

Believing again in capitalism, allowing people to keep more of their money and to invest it, and building businesses for the future will be critical to our overall success in the months, years and decades to come. As we move towards the spring Budget, I hope that Ministers will look again at the five-year OBR forecast, remembering that it is there not to be fulfilled, but to be beaten and bested. It is there to warn us of what might happen so that we can take action now to avoid it. I hope that come the spring Budget, that is exactly what the Government will do.

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[Dr Liam Fox (North Somerset) (Con)]

It has been clear from this debate and the previous debate that the backdrop to our economic discussion is one of continuing post-pandemic global economic disruption and the rise of global inflation, caused not least by Putin’s invasion of Ukraine. If anyone still believes that we do not live in an interconnected and interdependent world, they are simply not looking at the evidence around us.

Part of the difficulty in assessing the data is the opacity of some of the figures on post-pandemic global trading and investment, but some patterns are now clearly beginning to emerge. According to the Office for Budget Responsibility, in the fourth quarter of 2021, UK imports from the European Union dropped by 18%, but global imports from the rest of the world were up by more than 10% and UK exports to the European Union in July this year reached an all-time high of £17.4 billion. In other words, despite the fact that there are greater barriers to trade on the European Union side than on the UK side, British exports to Europe are actually managing to be more robust than European exports to the United Kingdom. So let us be clear: we do not need a new relationship with the European Union, Swiss or otherwise. We do not require freedom of movement, integration into the European single market or integration of EU law into the UK.

[Kit Malthouse]

My right hon. Friend has outlined some impressive figures. Does he recall that one of the themes of the Brexit debate was that our trading patterns should change? We said that there was a big wide world out there to which we had to look, from a trade point of view, that we had become over-reliant on the EU and that there were more exciting markets elsewhere that were growing much more strongly and that we could participate in.

[Dr Fox]

I entirely agree. The concept of the bloc in trade terms is very second half of the 20th century. We need to look at the growing markets that give greater opportunities for the United Kingdom in goods and services. The fact that they are not immediately geographically adjacent to us should not be our primary concern. We need to move with the trends in the global economy, not focus on what is a largely ossified view of the world based on the post-second world war consensus.

When we look at the origins of the inflation that we are facing in the United Kingdom, we see that there are several of them. They have been referenced a lot during this debate. The post-pandemic supply issues are still ricocheting around the global economy and particularly harming developing countries at the present time. Also, the central banks—not just the Bank of England but the Federal Reserve in the United States and the European Central Bank—got into a group-think on what they laughingly call the modern monetarists, which means that they are not monetarists at all. They believed that they had found some sort of monetary alchemy through which they could continue to print money faster than the economies were growing without creating inflation. I believe that is why there is higher inflation in the United States, the United Kingdom and Europe than in other countries—notably Switzerland, which sits in the middle of the eurozone but did not follow the same expansionist monetary policies.

By far the greatest boost to inflation has come from Putin’s invasion of Ukraine, however. That has come about in a number of ways, which I will come to in just a moment, but we must remind ourselves that inflation is not just an economic evil; it is a moral and social evil as well. The poorest people in our society are hit the hardest by inflation because they spend more of their income on non-discretionary items. It also transfers money from the savers to the borrowers in society, which is not something that a Conservative Government should want to see. The Government have done much in this statement to protect those on low and fixed incomes, including an extra £26 billion in cost of living support, particularly on fuel, on top of what we have spent already, and an extra £11 billion on uprating benefits. The Government introduced those two items to protect those on low and fixed incomes and, taken together, they are the size of the United Kingdom’s defence budget. These are not small sums. Our increased spending on education and health is hugely welcome, especially as we catch up on the post-pandemic disruption, but to be frank, even the generous sums put forward by the Government will largely be eaten up by inflation until we get it under control.

And that is before we come to the most frightening item of all, the fact that this year we will be spending £120 billion on debt interest payments. For reference, we spend only £134 billion on NHS England each year, so we are spending almost the NHS budget on debt interest payments. We need to recognise that we cannot increase our debt further. As my right hon. Friend the Member for North West Hampshire (Kit Malthouse) said, around 20% of our debt is now index-linked and is therefore very vulnerable to rises in the retail price index. Duncan Simpson, the chief executive of the TaxPayers Alliance, said:

“The spiralling cost of servicing the national debt is deeply concerning. Taxpayers’ money that should be spent on frontline services or keeping rates down is instead going towards interest payments that outsize the costs of government departments.”

If we cannot raise debt any further, either we have to see spending come down or taxes go up, or we have to increase Britain’s wealth from the rest of the global economy. The latter is difficult in current global conditions and the Government have correctly, but rather disappointingly, from a political perspective, had to see taxes rise. That sets a clear way in which to see our future priorities. The first thing is to bear down on inflation. At the same time, we have to get control of the public finances and then we have to get our taxes back down.

I hope the Opposition will reflect on this point today. We have heard from the Opposition Front Bench on both days of this debate that we are facing a recession made in Downing Street. Currently, the greatest source of global inflation is Putin’s invasion of Ukraine and rising global commodity prices, particularly food and fuel, which is causing potential starvation in vulnerable states, with widespread social dislocation and increased international migration.

Oral Answers to Questions

Kit Malthouse Excerpts

Tuesday 15th November 2022 Commons Chamber

[Jeremy Hunt]

I did actually reverse most of those measures within three days of becoming Chancellor, so, among my many failings, the one thing I cannot be accused of doing is being slow to change things.

[Kit Malthouse (North West Hampshire) (Con)]

As I understand it, the Chancellor is basing his fiscal strategy on Office for Budget Responsibility forecasts, but does he agree that the only thing we know for certain about those forecasts is that they are wrong?

[Jeremy Hunt]

We know that all economic forecasts are inaccurate, but that does not mean that it is better not to have a forecast than to have one. In defence of the OBR, I would say that its forecasts are more accurate than the Government forecast that we used to use before it.

Finance (No. 2) Bill

Kit Malthouse Excerpts

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

[Kit Malthouse (North West Hampshire) (Con)]

It is a great honour to be the first Back Bencher to be called; it has never happened to be me before. It must be Christmas.

“So the last shall be first, and the first last”.

Thank you, Madam Deputy Speaker.

I welcome the Bill, and particularly the fact that it will be the last Finance Bill for some time—hopefully for at least a year. In my business life—I draw attention to my entry in the Register of Members’ Financial Interests—the shifting sands of British tax policy, with two Budgets a year, as became the norm after Gordon Brown’s chancellorship, caused an enormous amount of uncertainty for British business. It propelled a lot of short-term thinking and hampered the ability to plan for the long term. Having fewer Finance Bills is an enormous boon and benefit, particularly to the business community.

Contrary to what my fellow Scouser, the hon. Member for Bootle (Peter Dowd), maintained, the Finance Bill contains a veritable smorgasbord of large and small measures, which will touch many people’s lives. For example, the staircase tax rectification is very welcome to small businesses, particularly the removal of the retrospective claims that the judgment in the Supreme Court brought down on those who happened to have a staircase between two rooms. That is a brilliant move, for which many Conservative Members campaigned.

Smaller but equally beneficial to those affected is the exemption from tax of the armed forces accommodation allowance. That will make a difference, as will the extension of the seafarers’ earnings deduction to the Royal Fleet Auxiliary Service. Those two measures will reward two groups of people who deserve it.

However, in my hopefully brief remarks, I want to concentrate on two matters. First, the Government’s response to the patient capital review is welcome. The Minister referred to the increase in the research and development tax credit from 11% to 12%, which is enormously welcome, especially alongside the Government’s stupendous support for British science. The Conservative Government have recognised that our future economic success will rest largely on our ability to invent and sell things to the rest of the world. The Government’s standing shoulder to shoulder with Britain’s scientists and inventors is therefore critical. I am sure that the enormous amounts of money that are being devoted to primary research in this country, with, for example, the Francis Crick Institute opening a couple of weeks ago, will pay dividends in the future. It is exactly the sort of investment that the country needs.

However, all that Government expenditure will pale into insignificance or be much less effective unless we can energise private capital to sit alongside it. The Government have therefore attempted in the Bill, through amendments to the enterprise investment scheme, the seed enterprise investment scheme and the venture capital trust regime, to promote the idea that we should all invest much more in business.

Some measures are particularly welcome, such as the increase in the lifetime allowance for investment in business, and the increase in the amount that an individual can invest in one year. Those people who are wealthy enough—there are not that many—to put £2 million a year into business should do so. It is their duty, having done well out of the British economy, to reinvest that money in risk-taking businesses to create wealth and jobs for everybody else.

I strike a slight note of caution about one or two of the Government’s measures. The notion of a knowledge-intensive company test effectively introduces an extra layer of regulation into the system that may deter people from investing more money. Although the Government rightly seek to stamp out capital preservation schemes that take advantage of tax-efficient structures, I hope that Ministers will watch carefully over the next few months to ensure that the capital going into British industry through those routes does not start to drift away.

I have given several speeches in the House making the case that the tax relief incentives are not necessarily strong enough to bridge the risk-reward divide. Through EIS, UK individuals are investing about £1.8 billion a year. That figure has been pretty constant over the past few years. Similarly, SEIS rose on its introduction but has been pretty static at a few hundred million pounds a year. Against a country with a GDP of $2.6 trillion, those numbers are frankly paltry. In the past 200 or 300 years, we have been incredibly good at starting and building large, innovative and dynamic businesses, but we have spent the past 20 or 30 years selling a lot of them, and we have not really generated any more. We have had one or two huge British successes—Vodafone, Virgin, Arm—that have come from nowhere, but we have not yet invented a Google, a Facebook or a large conglomerate. We need to do that, which requires private capital to play its part.

[Stephen Kerr (Stirling) (Con)]

Does my hon. Friend think that the banks’ lack of willingness to lend to small and medium-sized businesses—there are several in my constituency that suffer from chronic lack of availability of capital from banks—is killing the nursery of burgeoning businesses that we need in this country?

[Kit Malthouse]

Small-ticket debt definitely has its place in starting businesses, but they need—the Government are trying to propel this into the economy—patient capital: money that will be invested and sit as a shareholder in the company for some years. In truth, while it is wonderful to build a company like Instagram—I think it was built in 14 months, went from zero to a valuation of more than $1 billion and then was sold—such things happen rarely. Most businesses are built over a much longer period, often over many generations. That is why, certainly in my youth, all those businesses had family names—Marks and Spencer, Reckitt Benckiser. They were family businesses that had come together over two, three, four or five generations to take on the world. We need to create an atmosphere in which people do exactly that—invest for the long term.

I hope that Ministers will monitor the scheme carefully and, if we are not getting the kind of capital flowing through that we need, we can tweak it. If we see an overall reduction, as we may, as capital that was previously going into protection schemes now does not immediately transfer to risky schemes, we might need to look at this on an emergency basis.

My second, related point is on the general availability of shares and assets. The Government are doing a lot in the Bill to help the housing market and have rightly identified that home ownership has fallen relatively significantly over the last few years. They should be commended for the action that they are taking, certainly with regard to young people, but housing is not the only asset class available. The solution to the housing market will be a long-term one. We are trying to build as many houses as we possibly can—we need 250,000 to 300,000 houses a year to bridge the demand and supply problem—but that will take some time to do. It is possible, however, to get assets into the hands of people, particularly young people, much sooner than that, through employee share ownership plans.

I have said before in the House that it is my view that as well as creating a pool of dynamic private capital, we must democratise capital. That means spreading the ownership of British business as far and wide as we can. I urge the Government, as part of the patient capital review, to look at how they can improve the employee share ownership options for companies, to make it easier and even favourable through the tax system for employees to be gifted shares in their businesses. We know that employees who own part of their business are much more productive, and companies that have employees as shareholders are much more stable and tend to be much more successful in the longer term. It creates a much better environment and relationship between management and the employed. Just ask the postal worker wandering up the front path to deliver Christmas cards what the price is of their shares; I bet that they can tell you, with a big, broad grin. British Steel recently rewarded its workers for the company’s turnaround by giving away 5% or 10% of the equity in the business to them. The way forward is for everybody, young and old, to participate in the balance sheet of UK plc.

[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.

[Vicky Ford]

My hon. Friend has made excellent points about share ownership, but I want to bring him back to property ownership. Does he agree that reducing stamp duty for first-time buyers will make it so much easier for people to get on the property ladder—it is worth more than £3,000 for the average first-time buyer in my constituency?

[Kit Malthouse]

There is no doubt that stamp duty, as a frictional cost, causes all sorts of problems and distortions in the property market, and one may be at the lower end, particularly when dealing with an asset class that is highly geared—where taxation effectively has to be paid out of equity or deposit. That is operating throughout the property system. We are seeing a slowdown in the number of transactions, largely because of the frictional cost of exchange. That mechanism operates in any capital market. I may be out on a limb, and I am not the Chancellor of the Exchequer, trying to collect money to pay for everything else, but a general loosening of the stamp duty regime, and therefore more transactions in the property market, is more likely to mean that more people can access it at all levels.

[Kevin Hollinrake]

Employee shared ownership is something that I did with my business—I draw attention to my entry on the register—but my hon. Friend is right: there are no incentives to do that, other than trying to build loyalty in the workforce. We were advised against it by our tax advisers on the grounds of complexity and cost. We went ahead with it anyway, but putting incentives in place would increase the number of companies that consider taking that important route.

[Kit Malthouse]

My hon. Friend makes a strong point. How can it be that an enlightened farmer is deterred by the tax system from spreading to his employees the wealth that his company creates? Something is fundamentally wrong if that deterrent is created.

I know that the Minister can see the truth of my argument and will want to address it in a future Finance Bill. I am sure, given his performance thus far, that his tenure in the job will be a long one—so much to the good, for us and for the economy.

I have one small note of caution about clauses 46 and 47. They would give Her Majesty’s Revenue and Customs the power to enter premises and break into vehicles or vessels without a warrant. I stand to be corrected, but as I read them, they would grant more powers to the taxman than the police have to pursue crime. That makes me a little nervous.

Over the last few years, we have seen a general trend towards a new style of legislation and law on the powers of the Revenue. We have seen legislation that allows the taxman to help themselves to money in someone’s bank account without judicial oversight. We have seen the extension of retrospection, and we have seen a reversal of the burden of proof—not “You’re innocent until proven guilty”, but “We think that you need to prove that you are innocent”, in certain circumstances. While I understand that the powers are merely an extension of the old excise men’s powers to deal with smugglers in ports and airports—Daphne du Maurier fans who have read “Jamaica Inn” will know of the problems in the 18th and 19th century—I question whether such powers are appropriate today. I hope that Ministers will think carefully about whether it might be more appropriate for a warrant to be obtained to access someone’s premises, in the same way that the police do when they have suspicions.

I understand that the imperative for the Government is to deal with criminality that is often clever and smart. Sometimes such powers are contemplated because we cannot think of any other way, but unless we maintain the rule of law, especially on taxation, and unless we have a sensible, level playing field, the relationship between business, individuals and the Revenue becomes much more antagonistic. That would be an unfortunate development.

All in all, the Bill is solid and welcome. Those who are perhaps a bit more radical might like the Government to go a bit further in the next two or three years, in particular on the idea of dynamic capital and spreading share ownership, but the Minister is to be congratulated on his conduct. I look forward to Report.

Finance Bill

Kit Malthouse Excerpts

Committee: 1st sitting: House of Commons
Wednesday 11th October 2017 Commons Chamber

[James Cleverly]

I thank the hon. Lady for informing me of that. I am more than happy to look in more detail at that definition, because I do not have it at my fingertips, but putting it in the Bill would present to unscrupulous employers something that looks like an invitation to use this as a back-door route to avoid the tax that should rightly be paid upon severance. It would be unwise for that to go through, because it would send exactly the opposite signal to what we are trying to achieve with the relevant clauses elsewhere in the Bill, which is to say, “If you play by the rules, fine.” The vast majority of people who receive severance pay have no need to concern themselves and neither do the vast majority of businesses. The only individuals who should be a little distressed by what is going through in the Bill are the very small number of companies that have abused the severance payment structures to avoid paying the tax that is fair. I have little sympathy for those companies. If they play by the rules, we are on their side. If they seek to bend or break the rules, I have no sympathy whatsoever.

[Kit Malthouse (North West Hampshire) (Con)]

I am seeking to ensure my hon. Friend understands that this does not benefit the companies; this is of benefit to individuals who take advantage. There is no tax benefit to the companies because it is income tax that is payable. [Interruption.] Well, there is national insurance—employers’ NI.

[James Cleverly]

I thank my hon. Friend for that intervention. There is little direct financial benefit to the company—

Finance Bill

Kit Malthouse Excerpts

Tuesday 12th September 2017 Commons Chamber

[Mr Harper]

The hon. Gentleman makes a very good point. It would be helpful if we reduced the level of air passenger duty, but the Government have to be mindful, since I have heard lots of bids in the debate for money to be spent, that we also have to raise it. If we want to reduce air passenger duty and we think that that will reduce the amount of revenue we collect, we will have to look at areas where we can reduce spending, at other taxes or at growth in productivity in the public sector, as my right hon. Friend the Member for Wokingham said, in order to do that. It is not a simple question. The Chancellor will no doubt look at it in the round as he makes his Budget judgments later this year.

[Kit Malthouse (North West Hampshire) (Con)]

I understand my right hon. Friend’s explanation, but perhaps the point the hon. Member for East Antrim (Sammy Wilson) was making—one with which I have some sympathy—was that, in the same way that we make the argument about corporation tax that if we lower the rate we will collect more money, perhaps if we lowered air passenger duty more people would fly and we would gather more revenue. There may also be more economic activity generally around the airports that would see an increase in passengers.

[Mr Harper]

My hon. Friend makes a very good point. I accept that this is an area that is difficult to model, but when the Treasury does its Red Book and its economic forecasting—I think I understand this correctly —it uses a largely static model for tax forecasting. It assumes that if we reduce the rate of tax, we will collect not more money, but less. I understand that there is difficulty in doing the opposite, which is a dynamic model that tries to take into account the fact that there might be more economic activity and that looks at whether more or less revenue would be raised. I accept that that is a difficult process and I suspect that, on balance, the Treasury is trying to be relatively conservative with a small “c”. However, there is merit in looking at that. The Financial Secretary might want to consider the extent to which the Treasury, in making judgments about taxes, can look at how much we would drive up economic activity if we were to reduce tax rates, and therefore whether we would produce more tax.

[Kit Malthouse]

There is a particularly strong case where aviation is concerned—a number of airlines, such as easyJet and Ryanair, rely on dynamic pricing and the elasticity of demand to fill their planes. They recognise that the lower their prices, the more likely they are to fill their planes, and that the greater frequency with which they fly their planes, the more people are likely to come. In my view, lower APD would therefore result in more economic activity and more people flying.

[Mr Harper]

My hon. Friend has made that point powerfully and I see that it has landed with the Financial Secretary. We will see whether it fructifies into a policy shift.

--- Later in debate ---

[Kit Malthouse (North West Hampshire) (Con)]

I, too, congratulate my hon. Friend the Member for Moray (Douglas Ross) on his fantastic exposition. I know that he is a Member of Parliament, but he is obviously also an unpaid advocate for VisitScotland. I will do my best to visit his beautiful part of the country, having had a fantastic February half-term there just this year.

I also congratulate the hon. Member for Liverpool, Walton (Dan Carden), who is not in his seat, on his maiden speech. He and I were brought up about a mile and a half apart. We obviously had fairly similar experiences of the city we both come from, but we have gone different ways in politics. I am slightly older than him, so I guess that I experienced the Liverpool of the hard left and he experienced the city where the hard left had broadly been expelled and that had started to recover. Having heard his speech, I think perhaps the hard left is back, but I nevertheless welcome him to his place.

Before I start, I draw the House’s attention to my entry in the Register of Members’ Financial Interests. I am a small business founder and owner, and my business will be affected by some of the measures in the Bill. I am happy to say that it will no longer be affected by Making Tax Digital. I offer my thanks again to the Financial Secretary for his reasonable and sane approach to the revision of that policy.

My right hon. Friend will know that I ran a low-level campaign to advise the Government of the error of some of the measures they had put into Making Tax Digital early on. Frankly, I am pleased to see that the parliamentary system worked: the Government proposed something; Members scrutinised it and opined upon it; the Treasury Committee, on which I sat and still sit, issued a report on the policy; and the Government listened to lots of industry groups and amended the policy to one that was roundly and warmly welcomed by industry generally. That is the way things should work and I am very pleased that they have in this particular instance.

I am pleased to hear the Minister announce from the Dispatch Box that the scheme, although delayed, will now be open for voluntary participation. I assume that will also be the case for corporation tax purposes, and not just for VAT. The new measure applies only to VAT, but the Government, I think, are going to consider including corporation tax from 2020. It might be sensible to allow companies to participate on corporation tax earlier than 2020, so that the system could operate like the old self-assessment system did when it came in. That was entirely voluntary for the first few years until 60% compliance was achieved, when it then became compulsory for everybody. Notwithstanding that people always grumble about paying their taxes, the transition was pretty smooth and seamless. It is now an accepted part of the tax landscape, as I hope Making Tax Digital will be in the future.

One area the Government might think more about in the next two or three years as they move towards greater implementation of the scheme, is the notion of quarterly reporting, in particular for corporation tax. As I have said in the past, VAT quarterly reporting is a relatively simple exercise for the vast majority of businesses. They do not need advice on a quarterly basis to compile their VAT returns—it is a simple calculation. Corporation tax, however, is an entirely different exercise of deep complexity and, frankly, fear for a lot of companies. No one communicates with the Inland Revenue on corporation tax unadvised. This is where the problem exists, because the compliance cost of corporation tax, particularly for small businesses, is extremely high. The Federation of Small Businesses estimated that the compliance cost for Making Tax Digital would be about £2,500 to £3,000, even for the very smallest companies. For medium-sized companies, it can run into the tens of thousands of pounds just to make sure they get their corporation tax calculation right, because our system is incredibly complicated—about which, more in a moment. So, Making Tax Digital—fantastic. I will be an enthusiast for it on the basis that it is voluntary at the moment.

I am very pleased with the anti-avoidance measures in the Bill. Anti-avoidance is not just good for the Exchequer; it is good for all the other taxpayers. Recovering more tax from those who avoid and evade it means that the taxes for those who pay their tax on time and to regulation do not have to rise quite as high as they otherwise would—indeed, they could be cut. We ought to bear in mind the Government’s proud record of recovering, I think, £140 billion under anti-avoidance and anti-evasion measures. That says something about how the tax system was run before they came into office. That this amount of excess was squeezed out of the lemon says something about the way previous Chancellors ran the system, and perhaps about how they would in the future.

I join my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (John Lamont) in welcoming the end of the permanent non-dom status. It seems insane to me that people who have lived in this country for decades could have a more beneficial tax arrangement than those who were born here and have lived here for exactly the same amount of time. The Government are doing the right thing in plucking the goose of non-doms enough to recover the money that they should be paying, but not so much that they migrate elsewhere.

I want to raise with the Government two areas on which I recognise that something needs to be done, but where there are wider implications for the economy. The first is the change to the nil rate band for dividend taxation. I declare an interest as a business owner who is, from time to time, in receipt of dividends. Like many small business owner-managers, I will be affected by the change. I recognise that I have to shoulder my share of the burden of dealing with our national finances. We are still running a deficit. We have massive and increasing national debts that need to be addressed at some stage and it falls to my generation of business people to help to do that. However, we have to take care in this party about what signals our taxation policy sends to people about how they should behave, what we value in society and the nature of capital.

We are incredibly good in this country at inventing things. We have the largest agglomeration of scientific research on the planet and more Nobel prizes in one Cambridge college than in Germany and France combined. In fact, Trinity College, Cambridge has more Nobel prizes than Japan, the third-biggest economy in the world. We are incredibly inventive but not very good at turning those inventions into companies. We used to put capital and idea together, under the great Queen Victoria, when we built our wealth on ingenuity and buccaneering capital, but since then we have not done it quite so well or with such frequency.

Of the top 500 companies in the world, only two were created in Europe in the last 40 years, while dozens have been created in other parts of the world in that time. Those two are both British—Vodafone and Virgin—but there should be a lot more. There are lots of 18th, 19th and early 20th-century companies in the top 500 from this part of the world but no recent ones, and that says something about the dynamism of capital in this country.

As we look towards the future economy, we know that our success is not guaranteed. It is likely that we could be squeezed between the United States, with its incredible appetite for ideas and its romping capital constantly looking to invest in those ideas, and China, with its incredible ability to spend enormous amounts of public money and its disrespect for intellectual property derived elsewhere in the world. If we cannot close this gap between idea and capital, we could find ourselves squeezed.

[Stephen Kerr (Stirling) (Con)]

There should be a relationship between risk and reward, should there not? It is a delicate balance. What is my hon. Friend’s view on whether the balance is right in the measures before us?

[Kit Malthouse]

I was about to come to that. The rise in taxation on dividend says something about how we treat the proceeds of risk. The argument has always been that dividends should be taxed less than income to recognise that risk. More times than not, if someone invests in a company, they lose their money. In some spheres, such as life sciences—a specialist area of mine—nine times out of 10 they lose their money. If someone invests in a drug discovery company, it is quasi-charitable giving—nine times out of time, they are giving to the economy for the good of their health, hopefully. The notion that dividends should be taxed just like every other income starts to erode the idea that as a Government and a society we want to reward risk taking.

In future Budgets, I hope that Chancellors will find a way to re-instil the sense in ordinary working people that they should think about starting and building their own business. Sadly, over the last couple of years, the number of people contemplating starting their own business has dropped. A couple of years ago, it was about 39% to 40%; according to the latest survey, it is now only about 14%, and the single largest barrier that puts them off is access to capital—the ability to get the money to start a business.

[Bim Afolami (Hitchin and Harpenden) (Con)]

What is my hon. Friend’s view of the fact that many economists, notably the American economist Tyler Cowen, have recently discussed how innovation has been slowing down not just in Britain but in America and across the developed world? Not disregarding his point about taxation, I think that points to something more fundamental about western economies and how the economic system is working.

[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.

[Mr Speaker]

I hope that the hon. Gentleman feels that in the course of his comparatively brief contribution he was at least able to clear his throat.

Ways and Means

Kit Malthouse Excerpts

Ways and Means resolution: House of Commons
Wednesday 6th September 2017 Commons Chamber

[Mel Stride]

I thank the hon. Lady for her further thoughtful point, but I just return to my comments, which are that those who will be affected by the retrospective measures in this Bill will have had an opportunity to be fully apprised of them prior to their coming into force under an Act of Parliament.

In conclusion, the resolutions provide for the Finance Bill to legislate for Making Tax Digital. The Government are committed to creating a tax system fit for the digital age. Businesses increasingly interact with customers, manage their purchasing, organise their payroll and undertake a host of other functions online. It is the future for keeping their accounts and reporting their tax affairs. Moving to a digital system will help us to address the £9 billion annual cost of taxpayer errors. It is right that we act.

[Kit Malthouse (North West Hampshire) (Con)]

As one of the Conservative Members who was gently trying to persuade the Government to take a more staged approach to Making Tax Digital, may I take this opportunity to thank the Minister for his announcement in July of the changes to the scheme? Those changes have been greeted in particular by the small business community with some relief and gratitude, and I speak as a small business owner myself. The prolonged nature of introducing the full-throated Making Tax Digital programme means that business has time to adapt. Will he confirm that that means the Government have plenty of time to tweak the system for some of the perhaps unforeseen burdens that may still arise?

[Mel Stride]

I thank my hon. Friend for his kind remarks. By way of mutual appreciation, I thank him for his input around the discussions I held immediately prior to taking the decisions to which he alludes. He is right that we now have the time to ensure that the measures are sufficiently piloted, are robust and are not overly onerous on the businesses and individuals to whom they will apply, and that they work to make businesses more efficient and effective in themselves while reducing the tax gap further and raising much needed revenues.

I have heard the representations from businesses and from members of the House about the speed of the transition to Making Tax Digital. To ensure that businesses are ready, I announced a new timetable for the programme before the summer recess. In the first instance, from April 2019 participation will be required only for businesses that have to register for VAT and they will be required to provide only updates on their VAT liabilities, which they already report quarterly. We will extend mandatory participation further only once the programme has been shown to work well, and at the very earliest in April 2020. As my hon. Friend the Member for North West Hampshire (Kit Malthouse) suggested, I know that will be welcomed by Members from all parts of the House who have raised such concerns with me.

As I have outlined, the purpose of the resolutions we have tabled is to enable the introduction of a Finance Bill that will legislate for a number of tax changes announced before the general election. The changes the Bill will make are important. They will make a major contribution to the public finances, tackle tax avoidance and evasion and address areas of unfairness in the tax system. We will doubtless debate the principles of the changes fully on Second Reading and consider them in detail in Committee. Today is an opportunity to begin that process and take forward again the tax legislation curtailed at the end of the last Parliament. I commend the resolutions to the House.

--- Later in debate ---

[Nicky Morgan]

The hon. Gentleman is absolutely right. We have agreed that people want more digital interactions. They are now much more used to them, and that is how people do their banking and lots of ordering. However, when there is a problem—we have seen this with the introduction of free childcare, which was the subject of the urgent question earlier today—people do need to speak to someone. That is particularly true for the smallest businesses, for which dealing with HMRC can be stressful and something they want resolved as quickly as possible. HMRC will want to consider whether that is done through face-to-face contact at offices, or by ensuring that there is a really good phone helpline system or another way of speaking online to people who are able to respond rapidly. I do not want to pre-empt what the Committee will look at, but as constituency Members of Parliament, we have all heard about cases when people have found getting hold of HMRC frustrating. HMRC is aware of that, and it has done a lot of work to improve customer service, but that is something that Members of Parliament could certainly look at further.

I welcome the deferral that the Financial Secretary announced on 13 July. It means that digital record-keeping and reporting for income tax and national insurance will not become mandatory until at least 2020. Although his statement kept open the possibility that Making Tax Digital would never be made mandatory for income tax and national insurance, resolution 38 suggests that that remains the Government’s medium to long-term ambition. His statement confirmed that the process will start with VAT in 2019. Most businesses already file their VAT returns quarterly and online, so it is sensible to start with a tax for which Making Tax Digital will not require such a significant change in businesses’ practice. Smaller businesses in particular will have breathed a huge sigh of relief when the concession was announced in July, so I thank the Minister for that.

[Kit Malthouse]

I congratulate my right hon. Friend on her election as the Chair of the Treasury Committee. Does she think it would be sensible for the Government—notwithstanding the fact that they are not planning at the moment to include income tax for sole traders in Making Tax Digital—to make provision for voluntary participation, so that they would see the popularity of the scheme if people did volunteer in numbers, as they did with the introduction of online self-assessment? The Government might find that 60% or 70% of businesses participate anyway within the timeframe they are proposing, so making participation mandatory would become relatively painless.

[Nicky Morgan]

I thank my hon. Friend very much for that suggestion. What he says has much merit, and it may well be something we want to explore in Committee. It would be fair to say that a common view among Conservative Members, and the reason why we are on this side of the House, is that we believe in encouraging, not compelling, people to do something that the Government and the state want them to do. If there are ways of encouraging and incentivising people to get online and to use this system, and if it becomes clear at some stage in the future that that is the way forward, many businesses and sole traders will already be online and used to using the system.

Deferring the change for some taxes for a couple of years or more will give everybody welcome time to prepare, but it will not solve all the problems. I therefore suspect that the new Committee will want to explore the costs and benefits fully, as its predecessor had started to do. There is definitely scope to scrutinise the Government’s published estimates for the administrative costs to business and for the supposed reduction in the tax gap as a consequence of businesses making fewer mistakes because they are reporting digitally and quarterly. But that, you will be pleased to hear, Madam Deputy Speaker, is for another day.

Meanwhile, the forthcoming Finance Bill, which the House will consider shortly, will pave the way for the implementation of Making Tax Digital. The Bill that was introduced before the election was called did little more than pave the way; nearly every paragraph in the relevant schedule contained a regulation-making power. This meant that the Bill would have delegated nearly all the key details to secondary legislation under the negative procedure. Compounded by the fact that the draft statutory instruments were not published for consultation, that does not make for good parliamentary scrutiny, and the House will return to the overall principle of the scrutiny of secondary legislation when we consider the European Union (Withdrawal) Bill tomorrow, before we even get to the Finance Bill.

At a more general level, I suspect that the new Committee will also want to scrutinise Budgets, Finance Bills and possibly even spring statements in a similar way to its predecessor. It is important that tax policy gets adequate parliamentary scrutiny, and I hope that the new Treasury Committee and Public Bill Committees will get more chance to scrutinise the Treasury’s proposals at autumn Budgets than the Select Committee did with the last spring Budget, given the circumstances of the general election.

Telecommunications Infrastructure (Relief from Non-Domestic Rates) Bill

Kit Malthouse Excerpts

3rd reading: House of Commons & Committee: 1st sitting: House of Commons & Report stage: House of Commons
Tuesday 5th September 2017 Commons Chamber

[Mr Jones]

I understand the concerns raised by my right hon. Friend, and I have great respect for his considerable knowledge of the matter. I reassure him and the various bodies that hold concerns that the relief is not a measure to support the relighting of fibre that has been turned off. Indeed, it is to support the laying of new fibre in the ground. This technical matter is laid out in the draft regulations and explained in the accompanying consultation document published by my Department last week. Consultation will ensure that the proposal reaches the right audience in the telecoms sector. With business rates experts, we will ensure that the relief will work as planned. The consultation will also allow us to move quickly to implement the relief once the Bill has passed and ensure that support is available for new fibre.

[Kit Malthouse (North West Hampshire) (Con)]

Even if this were a relief that applied to currently dark fibre that is lit, or to fibre that was lit, is unlit and is then lit again, if the premise of the scheme holds true, this is an investment. The idea is that this is meant to spur more economic activity. Therefore, more tax will be gained from corporation tax, pay-as-you-earn and other forms of business rates because people will have premises that become available for use and that are then much more commercial. Rents will rise, values will rise and all the rest of it. The Government do not need to be too chary about where the relief goes, because if the relief is seen as an investment, not just some kind of freebie for the industry, it will benefit everyone, including the Government.

[Mr Jones]

My hon. Friend is right that this is an investment in the infrastructure of the country. Indeed, it is a relief that is time-limited for five years. After that five-year period, that fibre will attract its own income into the business rates pool, whether on the local list or on the central list.

--- Later in debate ---

[Mr Jones]

My right hon. and learned Friend hits the nail on the head. The whole design of this legislation and this tax relief is intended to encourage providers—not just the large ones, but the smaller ones, which these proposals are very good for—to bring that new, direct fibre cable to homes and businesses.

[Kit Malthouse]

Will the Minister give way?

[Mr Jones]

I will just make some progress first, if I may.

The Bill contains six clauses. Clauses 1 to 3 provide the powers for the relief, and clauses 4 to 6 cover consequential and financial matters. Business rates are payable on three classes of properties: first, occupied properties shown on the local rating lists held by local authorities; secondly, unoccupied properties shown on local rating lists; and, thirdly, properties on the central list, which is held by my Department.

The main business rates legislation in the Local Government Finance Act 1988 contains separate provisions for charging rates on those three classes. Clauses 1 to 3 provide powers to allow relief in those three classes. Clause 1 allows for relief for occupied hereditaments shown on local ratings lists. Clause 2 allows for relief for unoccupied hereditaments shown on local ratings lists. Clause 3 allows for relief for hereditaments on the central list.

Clauses 1 to 3 have similar structures and serve the same purpose. First, the powers in the clauses will allow the Secretary of State to set conditions as to when the relief will apply. This is not a wide-ranging power covering all properties. The power can be used only for telecommunication hereditaments. Through these powers we will target the relief on operators of telecoms networks who deploy new fibre on their networks. That will incentivise and reward those operators who invest in the fibre network.

--- Later in debate ---

[Mr Jones]

My right hon. Friend is quite right. Developers who are not necessarily compelled to provide superfast broadband should think to themselves how the installation of superfast broadband could become a selling point for the property. The provision of superfast broadband is becoming more and more important, particularly as more and more people work from home.

[Kit Malthouse]

I acknowledge that the Government made huge progress in changing the building regulations so that this becomes mandatory for developments of over 30 houses. However, does it not strike the Minister as peculiar, in this century, that building regulations require the provision of electricity, water and drainage to every house, no matter the size of the development, but not, now, this vital piece of infrastructure that is becoming mandatory for modern living?

[Mr Jones]

Even in developments of under 30, developers are required to provide a broadband connection for the people who are going to be occupying those properties. It is the developments of over 30 that require fibre broadband to be connected. While my hon. Friend does not seem happy with the premise on which that is based, the rationale behind it is based on the viability of new developments. Quite often, the smaller developments are more difficult for developers to find viable. Therefore, rather than prevent those developments from taking place by overburdening developers with regulations, a balance was struck.

Finance (No. 2) Bill

Kit Malthouse Excerpts

2nd reading: House of Commons
Tuesday 18th April 2017 Commons Chamber

[Kit Malthouse (North West Hampshire) (Con)]

It is a joy to follow my Treasury Committee colleague, the hon. Member for East Lothian (George Kerevan). That should imply not an endorsement of his views, but rather an appreciation of his passion and erudition. I rise to welcome the Finance Bill—if it goes through unmolested, and even if it does not—and to concentrate my remarks, brief as they may be, on a couple of areas.

As an aficionado of my speeches and interventions, Madam Deputy Speaker, you will be aware that I have developed something of an obsession about the future of the British economy being based on a combination of science and private capital. We are fortunate in this country in being a science superpower. In the south-east of England we have five of the world’s top 20 science universities: in King’s, UCL, Oxford, Cambridge and Imperial, we have possibly the largest agglomeration of scientific research on the planet, not just in life sciences, but in physical sciences, synthetic biology and all sorts of new exciting and interesting areas.

We are incredibly good at science. Our history of scientific endeavour points to that. There is one Cambridge college that has more Nobel prizes for science than the whole of Japan, for example. So we are good at science; what we are not so good at is turning those scientific discoveries into companies. We used to be good at that of course, back in the 19th century; much of the wealth of this country was built on the discovery and innovation of the Victorian era, put together with what was then much more adventurous private capital to create some of the monoliths—the huge companies we built over the following century and have sadly too often since sold to the rest of the world.

During that period, and particularly after the war, we were, however, lax in planting the acorns that would be required to produce the forest of oaks that we could chop down and sell to the highest bidder in the future, so our stock of these large companies has diminished. In fact, this is a European problem. Of the top 500 companies in the world, only two have been created in the past 40 years. Fortunately, those two are both British—Vodafone and Virgin—but that is not enough. If we are to continue our proud history of industrial innovation and of creating these large multinationals, we need to start planting those acorns. The operation of private capital and its dynamism in finding the ideas, the discoveries, the molecules, the therapies and the inventions are absolutely critical.

I have raised this issue again and again with the Chancellor in questions and during debates. I have asked about the complexities that are put in the way of individuals who wish to invest in innovations. The primary vehicles for investment that the Government allow private individuals to use are the enterprise investment scheme and the small enterprise investment scheme. They are welcome schemes that provide incentives for investors and some tax relief on disposal, but they are complex. Over the past eight to 10 years that the EIS has been in place—the SEIS has been in place for slightly less time—a body of case law has built up around their operation, as always happens with these things. Investors have tried to be innovative with the schemes, and investments have often been disallowed on technical bases. As a result, people are to a certain extent becoming shy of using them. Looking at the SEIS in particular, we see that the number of companies availing themselves of the scheme has levelled off. It has been broadly the same for the past three or four years.

I therefore welcome the measures in the Bill to introduce flexibility into the EIS and SEIS. If the Government really want to see a cascade of private capital into small, innovative businesses and into scientific endeavour, they need to make those schemes as flexible and easy to operate as possible. At the moment, if I want to invest a relatively small amount of money—£10,000 or £15,000—in a company, I need an accountant and a lawyer, and I need to get pre-approval from the Inland Revenue to ensure that I get my tax relief. I have to do all that in order to invest a relatively modest amount, in investment terms. So is it any wonder that the level of investment in these schemes is not enormous?

In this country at the moment, the Government are making 60% of the investments below £2 million through various schemes and funds and through the British Business Bank. That is all very welcome, but for a capitalist country, this is not right. The majority of investment should be from private capital, and it should be individuals who are making those investments. Accessing retail capital and putting it next to science to allow the two to create a powerful cocktail of wealth creation is key to the future of the British economy. I hope that, if we have another Finance Bill this year, the Government will seek to liberalise the investment regime for private investors in private businesses, particularly those that are innovative or science based.

The same applies to venture capital trusts. These were an enormously beneficial invention when they came in about a decade ago. They attracted huge amounts of capital. There was a time when people saw them as the last 100% tax shelter, but they, too, have fallen out of fashion. Their complexity and the poor returns that they produced compared with the tax relief available for them have meant that the number of VCTs has shrunk and the capital under management by VCTs has been broadly static over the past few years. These two things together—private capital investment through the EIS and SEIS and private capital coming in through VCTs—must be the twin planks underpinning the future of the British economy. We know that we cannot rely on foreign investment and that we cannot rely entirely on institutional investment. They are far too cautious for some of the innovations that need investment. So re-energising private capital and providing easy, flexible ways for individuals to invest quite small amounts of money into innovative companies will be absolutely key. I welcome some of the flexibilities in the Bill and I hope that the Government will be more ambitious over the next 12 months.

[Mr Steve Baker (Wycombe) (Con)]

My hon. Friend’s speech is an absolute treat because it is a much better version of the speech that I made on science and markets in the Vehicle Technology and Aviation Bill Committee on which we served together. Does he agree that one of the key spirits that we need to recapture from the 19th century, when we took science and innovation and turned them into big companies, is getting people who know how to do things, such as engineers, to become entrepreneurs—perhaps in the spirit of I. K. Brunel? In that way, those who know how to produce will also know how to invest and how to serve people in a commercial way.

[Kit Malthouse]

My hon. Friend makes a powerful point. This is a chicken and egg situation. If people with ideas and inventions who are thinking about starting their own business know that capital is more easily available, they will be much more likely to go out and take the risk of starting that business. It is often the paucity of capital and the difficulty of raising it that lead such people not to proceed.

Let me give the House a small anecdote. When I was deputy mayor for business and enterprise in London, I went to a life sciences fair where companies were making presentations about their inventions. I came across a group of young biochemists from Cambridge who had invented what they called an espresso machine for DNA. When people are doing primary research, they often need to manufacture DNA on which to carry out their research. The standard ways of doing that are either to send off to have it made elsewhere, which is time consuming and expensive, or to make it themselves by trial and error. This group had developed software and invented a machine to produce the necessary kind of DNA. I thought that was incredible. It was an amazing British invention. The group had won a prize at Cambridge and received a small grant. I thought that they would need £5 million or £10 million, and if I had had it, I would have given it to them. When I went up to them afterwards, I discovered that they were trying to raise only £250,000, but they were having difficulty in doing so, even though, as far as I could see, their incredible invention was going to revolutionise research. Time and again while I was doing that job, I met young, ambitious and exciting scientists who had a molecule, a therapy or an invention but who were unable to access the necessary capital and would therefore go off and become chartered accountants, like me, instead. We lose a huge amount of talent that way. My hon. Friend has made a strong point.

I lament the passing of the employee shareholder scheme, which was introduced by the previous Chancellor, under which employees could enter into an agreement to vary their employment rights in exchange for which shares in the company. Sadly, the scheme was abused. It was often not taken up for the purpose for which it had been intended. It was abused by some as a form of disguised remuneration. The Government are quite right to close the scheme down, but that nevertheless leaves us with a problem. Not enough people in the United Kingdom participate in the balance sheet of this country. The Prime Minister has often talked about having an economy that works for everyone, but such an economy surely has to be one that is largely owned by everyone. I do not mean owned in a statist or communist way; I am talking about an economy in which everyone has some kind of financial interest from a balance sheet point of view.

We spend a lot of time in this House obsessing about people’s profit/loss account. Is my income bigger than the next chap’s income? Am I earning more than the lady round the corner? We obsess about income inequality, but we rarely obsess about wealth inequality; yet intergenerational wealth is built on the balance sheet of the family. It is built on the investments, albeit small ones, made by one generation. That wealth is expanded by the next generation and built on by the third one. That was certainly the story in my family. We came from fairly lowly beginnings, yet here I am now. This has been built on the fact that my grandparents made investments and my parents started a business. Hopefully, in turn, they will pass some of that wealth to me, although not, I hope, for a long time yet. We have a collective family balance sheet. We are able to buy stocks and shares, for example, but that is denied to lots of people in this country.

The one place in which individuals should have a share of wealth is in the companies that they work for. If we are really to have an economy that works for everyone, we need an economy that is largely owned by everyone. The Government have schemes available, particularly for employee share ownership, in which companies can set up pools of capital for their shareholders. I have been looking into this for my own business, but the scheme is incredibly complicated. In dealing with relatively small amounts of money, I need lawyers and accountants and pre-approval from the Revenue. There is an incredible frictional cost involved in getting such a scheme under way.

My plea to the Government, having got rid of the employee shareholder scheme, is to think about how to facilitate that idea—how to make sure that it is in the interests of employers and business owners to involve their employees in the business in a capital sense. That will enable employees to create for themselves a balance sheet on which to begin the intergenerational wealth creation that the country needs. If we can do that, we will start to build an economy that works for everyone.

I want to talk about two other small things. I welcome the change to the allowance for investment in grassroots sport. Members may not have noticed, but the Finance Bill will make investment in grassroots sport deductible for businesses, and that will be extremely welcome to football, cricket, hockey and many other clubs. I am proud to say that my business has sponsored local children’s football clubs at schools and so on. The more we involve business with school and grassroots sport for young people, the more both parties will see each other on the same level and the more interested they will be in each other. That is a good thing.

Finally, I want to say something about the overall tenor of the Bill. It has become clear to me over the last three or four Finance Bills that we in this House will increasingly struggle to tax a changing economy. We have seen in the discussions about national insurance and business rates that because of the changing nature of business, the standard Whitehall way of taxing the world will not last that much longer. We are moving into a world of cloud computing, the gig economy, non-domiciled businesses and cashless businesses that operate from third or fourth countries. All those things will be difficult for us to tax, and one of our challenges over the next Parliament will be to think more radically about how to deal with the changing nature of our economy and how to tax it to pay for the things we need.

My personal view is that given the changing nature of our economy and the removal of a lot of cash from the business cycle, it may be time to start to look at things other than direct taxation. Corporation tax is difficult, complex and hard to collect. There is a big tax gap compared with VAT, which is relatively easy to collect and where compliance is high. If I were Chancellor, I would probably prefer to have VAT.

With international businesses transacting in the UK and extracting money, we may need to start to look at the notion of a universal sales tax. Such a sales or turnover tax would be more easily collected and might well allow us to have a lower tax rate, spread across a wider tax base, because we would catch international businesses that transacted from, say, Luxembourg or Ireland. Fundamentally, the rule should be that if the sale takes place in the UK, the tax on the sale is collected here, no matter where the company is domiciled.

We will have to think quite carefully over the next five years, after we get through the general election in the next few weeks, about the changing nature of the economy and the radical measures we need to take to keep up with it. Beyond that, we are making good progress.