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.

Charter for Budget Responsibility

Kit Malthouse Excerpts

Tuesday 24th January 2017 Commons Chamber

[John McDonnell]

That is interesting; I am pleased the Chancellor has raised that point. We have seen £700 billion borrowed over the last seven years as a result of economic failure. The Labour party’s policy, based on the recommendations of the CBI and others, is to spend £500 billion on investment over a decade. There would be £200 billion of mainstream direct funding and £100 billion would go to a national investment bank, which would prise from the private sector and elsewhere, on European Investment Bank rates, £250 billion. Such long-term investment in our economy has been recommended. Infrastructure investment is required to tackle the productivity crisis that has been caused by his Government.

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

I am a little confused and wonder whether the right hon. Gentleman can clarify things. He has just decried the fact that our national debt has increased by £700 billion. Is he saying that he would not have spent that £700 billion? Would he maintain the current deficit and spend £500 billion on top of that? I am not quite sure of his maths.

[John McDonnell]

We would have invested from the beginning in our infrastructure and skills, so we would have grown the economy and would not have had to borrow £700 billion for failure, rather than for growth success. Because the focus of the Government was on chasing an unachievable surplus target, they did not use the borrowing wisely. The sound policy, as recommended by international organisations such as the International Monetary Fund and the OECD, and by the CBI and the TUC here in Britain, is to put the Government to work in supporting investment. Instead, over nearly seven wasted years, the Government have cut investment to the lowest level in a decade.

Oral Answers to Questions

Kit Malthouse Excerpts

Tuesday 29th November 2016 Commons Chamber

[Mr Hammond]

I cannot give the hon. Gentleman a precise date, but I have discussed this with the business managers. The rules of the House mean that 28 days must elapse before the charter is laid. I think that that will put it in the second half of January, but we will have the debate as soon as we can after the statutory period.

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

As other Members have mentioned, there is growing alarm about the impact of making tax digital on small business people, of whom I am one. Will the Chancellor confirm that, in time, quarterly tax returns will also apply to Members of Parliament?

[Jane Ellison]

As my hon. Friend mentioned, we touched on this earlier. Making tax digital is an important reform. I have mentioned already that some important concessions were made during the summer, by taking many very small businesses out of making tax digital, but it has much to offer small businesses. I am looking carefully at all the responses that have been made, and as he knows, I have listened carefully to the points that he has made on a number of occasions.

Autumn Statement

Kit Malthouse Excerpts

Wednesday 23rd November 2016 Commons Chamber

[Mr Hammond]

No. I appreciate that the hon. Gentleman will not have had a chance to read the report, but when he does so, he will see that the big drivers of debt are: the deteriorating forecast for growth, which of course has a big impact; the structural change that appears to be taking place in the relationship between a given level of GDP and tax receipts—I mentioned in my statement that we will have to address that—and the measures that the Bank of England took, which have a direct impact on public debt, but only in the short term, because they do unwind over the course of a few years.

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

I warmly welcome the Chancellor’s significant commitment to British science today, regarding both research and commercialisation. As he moves towards his next Budget, may I urge him to look carefully at removing many of the regulatory barriers and at providing greater tax incentives for individuals to invest in science and technology start-ups so that we can start to build a true enterprise culture in which everybody participates?

[Mr Hammond]

My hon. Friend has been kind enough to come to see me over the past few weeks to make some suggestions in this area. I did announce in my statement that the Treasury will conduct a review of the availability of patient capital in this country, and I include in that genuine individual investment in start-up businesses and how we make sure that that is incentivised to stay in for the long haul. I thank him for his input and we will look at this further.

Oral Answers to Questions

Kit Malthouse Excerpts

Tuesday 25th October 2016 Commons Chamber

[Mr Hammond]

The Government are committed to the midlands engine. The hon. Gentleman is absolutely right to say that the midlands conurbation overall has a weight of population and economic activity that allows it to be a rival to the hub of London and the south-east. As I said to my right hon. Friend the Member for Broxtowe (Anna Soubry), announcements about specific projects will be made in due course by the relevant Minister.

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

One of the most important ways in which the Chancellor could boost economic growth outside—and, indeed, in—London and the south-east is by energising small business. Will he consider reviewing the small enterprise investment scheme, in the hope of simplifying it and of thereby seeing a wall of private cash invested in starting and maintaining small businesses?

[Mr Hammond]

My hon. Friend is right. Ensuring the supply of funding to start-ups and smaller enterprises as they grow is a key to the future of our economy. I assure him that all schemes, taxes and other such structures will be reviewed in the run-up to the autumn statement, and I will let him know my conclusions on 23 November.

Savings (Government Contributions) Bill

Kit Malthouse Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 17th October 2016 Commons Chamber

[Rebecca Long Bailey]

I thank the hon. and learned Lady for reading from the impact assessment, but I was asking whether specific groups are more likely to save than others, and I do not think the assessment provides that information.

Most importantly, however, how will the scheme help the remaining 3 million people who simply cannot afford to participate in it? I can sum up my concerns about this element of the Bill by reiterating comments made by our former shadow Work and Pensions Secretary, who stated that the scheme was

“like stealing someone’s car and then offering them a lift to the bus stop.”

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

I have to confess that I am a little confused by the hon. Lady’s arguments. Is she saying that because the scheme will not target all 3.5 million people who may be eligible, the Government should do nothing? Despite the fact that it might be a partial success or that a large number of people might take up the scheme, she seems to be saying that because not everybody will take it up, this is not worth doing.

[Rebecca Long Bailey]

No, that is not what I am saying at all. It is important that we address this issue, but we have to be clear about how we do so. Dealing with the root causes of poverty and people’s inability to save is the first important thing that the Government need to look at, and then the second element they need to consider when rolling out the measures in the Bill is the specific groups they intend to target. If they do not target the 3.5 million people who are eligible to take part in the scheme, how will they help those who do not take part in it?

There is considerable unease about the lifetime ISA policy across the pensions industry, the trade union movement, the Office for Budget Responsibility and Select Committees of this House. The Opposition support the idea of incentivising people to save for the future, especially for retirement income, but we are concerned that the scheme could create a diversion from saving in traditional pension products, rather than being an add-on to one’s main pension plan. Even a former Pensions Minister stated that the LISA “could even destroy pensions”. The UK faces a pensions time bomb. Eleven million people are signed up to defined benefit schemes in 6,000 pension funds in the UK, but PricewaterhouseCoopers recently produced data showing that the collective deficit in those 6,000 schemes had risen by £100 billion in just one month so that it stood at £710 billion at the end of August. Earlier this year, the OECD reported that we were facing a “global pension crisis” in which a person buying an annuity today who had saved 10% of their wages into a pension for 40 years could expect just over half the earnings of someone who had saved the same amount but retired 15 years ago.

This situation is very worrying, especially when the state pension in its current form certainly cannot be relied on to plug the gap. Last week, the OBR published a report concluding that recent pensions and savings measures introduced or announced by the Government would create a £5 billion a year black hole in the public finances. The report states:

“The net effect on the public finances is positive in the early years, peaking at £2.3 billion in 2018-19 before turning negative from 2021-22—the year after our March 2016 forecast horizon…But the small net gain to the public finances from these measures over the medium-term is reversed in the long term as the net cost continues to rise, reaching £5 billion by 2034-35. Expressed as a share of GDP—a more relevant metric when considering fiscal sustainability—the net cost builds up until it reaches a steady state toward the end of the period of just over 0.1 per cent of GDP. If that steady-state effect was to continue to the end of our usual long-term projection horizon of 50 years, that seemingly small cost would add 3.7 per cent of GDP to public sector net debt.”

The report also said that these measures

“shifted incentives in a way that makes pensions saving less attractive—particularly for higher earners—and non-pension savings more attractive—often in ways that can most readily be taken up by the same higher earners.”

That is a pretty worrying assessment of the Government’s pensions and savings policy, in which the LISA will play a large part.

I am also worried about the level of assessment that the Government have carried out about the impact that the LISA could have on pension savings, and, more specifically, their auto-enrolment scheme. The Work and Pensions Committee has outlined its concerns about the threat to automatic enrolment in workplace pensions, the roll-out of which is having a great deal of success. The Committee was particularly worried about the risk of people opting out of a workplace pension in order to save in a LISA, thinking that it will be more of a beneficial pension savings product when it is not. The Committee highlighted extreme ambiguity about whether the LISA is intended to be a pension replacement.

As the House will recall, the previous Chancellor stated in his Budget speech that the LISA was for

“those under 40, many of whom have not had such a good deal from the pension system”.—[Official Report, 16 March 2016; Vol. 607, c. 966.]

That was something of an indication that this was a new-generation pensions product. On the other hand, the Department for Work and Pensions has stated that the LISA is

“not a part of the pension system but an additional flexible savings product”.

I am pleased that the Minister has, once and for all, clarified this point and stated that it is a complementary product. None the less, many witnesses who gave evidence to the Select Committee said that all indications so far suggested that the LISA was being interpreted as a pension product, including those from the Centre for Policy Studies, which actually developed the LISA and stated that many employees not already in a pension scheme would have to decide whether to save through a LISA or enrol in the pension scheme. Royal London stated that many people could in fact opt out of workplace pensions.

Will the Minister therefore confirm whether she has made any assessment of the impact of the LISA on automatic enrolment into workplace pensions? Will she confirm what safeguards will be put in place to ensure that people do not opt out of auto-enrolment? Will the Government mount a detailed advertising campaign, as suggested by the Select Committee, to ensure that people do not wrongly view the LISA as their main pension product? The Pensions Regulator has argued that by 2017, when the LISA is available, thousands of small and micro-businesses will not have rolled out auto-enrolment. Have the Government considered timing the LISA roll-out to coincide with the full completion of auto-enrolment to avoid the risks I have outlined?

It is acknowledged that LISAs will be successful among those who have savings elsewhere. There might simply be a case of them transferring those savings into LISAs, but will the Government provide the distributional analysis of the income groups who will specifically benefit the most? Will they confirm what impact the scheme will have on women and minority groups, especially, and therefore provide a much more detailed impact assessment, as the Work and Pensions Committee suggested? Will the Minister confirm what the Government will do to assess those groups that are not currently saving or unable to save, and what will they do to ensure that these people will be able to avail themselves of the scheme? The Select Committee has suggested that those who might benefit most from the scheme could be those who can afford to contribute to a pension scheme and deposit additional savings in a LISA to complement their retirement savings—higher earners, in other words. In these difficult economic times, Opposition Members question whether the scheme is an effective use of up to £2 billion of public funds.

Another concern is not simply that people will use the LISA as an alternative pension product, but that there will be nothing to stop them from taking the money early for other purposes, aside from as a deposit for a house. The Bill enforces a 25% charge for the early withdrawal of funds, which effectively removes the Government bonus, but people will not lose anything from their savings. That will therefore not be a significant deterrent from removing money early, so there is a significant risk for those who use the product as their sole pension income.

LISA funds may be used towards a deposit for a first home. That is not a bad thing, but the Government are failing to address the wider problems that are causing the housing crisis. There is no point having a deposit if there are no houses to buy. We need a significant private and social house building programme supported by the Government, not populist policy making. It is a shame that fewer new homes were built during the previous Parliament than under any peacetime Government since the 1920s. Labour has committed to build more than 1 million new homes over the next Parliament, and that is the level of intervention that is required of any Government who truly want to ensure that everyone can live in a decent and secure home.

--- Later in debate ---

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

I hesitate to detain the House by repeating much of what was said by my hon. Friend the Member for Newark (Robert Jenrick) in his thoughtful speech, but I particularly wanted to speak in support of the Help to Save scheme, which seems to be the Cinderella scheme in today’s debate.

Rare is the politician who understands the difference between profit and loss and the balance sheet. That is normally left to dull accountants like me. We spend a great deal of time in the House talking about people’s differential profit-and-loss accounts—the difference in earnings, and whether some members of society earn far too much in comparison with others—and we do a fair amount in trying to close that gap. However, we often fail to recognise that the solution to those inequalities in society, and the solution to the problem of poverty more generally, are first multi-generational and secondly as much about the balance sheet—the asset share that those people may have for the future—as about how much they happen to earn at the moment. Anything that enables people with low incomes, who may be on benefits or the like but who are certainly at the bottom of the socio-economic ladder, to start to get the idea of saving and, in particular, investing the money saved in assets can only be applauded.

One of our problems in this country is that the collective balance sheet—the assets held both privately and publicly—is concentrated in far too few hands. Over the last 20 or so years there has been a diminution in the number of people who own shares or, indeed, have any asset base, even ownership of their houses. We need to reverse that, but sadly it has been far too low on Ministers’ agendas. A good example is the sell-off of the Post Office. The retail tranche of sales—the shares that were to be sold to members of the public in small lots—was scaled back, while the tranche that was being sold to large institutions such as Goldman Sachs was inflated. It seemed insane that a Liberal Democrat Secretary of State, in particular, would do that. There was a lost opportunity to spread what was known back in the 1980s, in the heyday of a certain politician, as the “ownership society”. The former Member of Parliament for Richmond, Yorks, William Hague, said that we should be a share-owning, property-owning society, and should roll back the frontiers of the state to enable that to happen.

I am keen for Help to Save to be promoted, because it allows people with very low incomes, or no incomes at all, to start thinking about their own asset bases and start saving for the future. However, I should like the Minister to consider a couple of issues. First, I do not understand why there is a cap on the amount that can be contributed. If someone earning a very low wage is able to contribute £20 a week or £20 a month year in, year out, why should we seek to limit that? Why should we not allow such people to build up a fund which they could use in the future, possibly passing it on to their children, who might then decide to do the same? Secondly, £50 seems a rather small amount to me, particularly for someone who is starting to build up an amount and getting into the spirit of saving. Thirdly, especially in the current interest-rate environment, requiring people to hold their savings in cash strikes me as self-defeating. Allowing them to go to their banks and buy, for instance, shares in Marks & Spencer or Royal Bank of Scotland—when, hopefully, they become available—would give them the idea that they could benefit from the country’s asset base.

It is worth noting that, when it comes to the lump sums that people want to accumulate over their lives, their aspirations are often quite modest. Many years ago a great friend of mine who works in television was devising a new quiz show, and wanted to establish what prize money he should offer so that he could deal with the show’s finances. A survey was conducted, and people in the United Kingdom were asked what amount constituted “change your life money”. In this age of the lottery, my friend thought that the answer would be hundreds of thousands of pounds, but in fact it was just over £6,000. That is what the vast bulk of British people thought was “change your life money” which would give them the chance to start to build for the future.

[Suella Fernandes (Fareham) (Con)]

The Money Advice Service recently found that 21 million families had less than £500 in savings. What does my hon. Friend think about the lack of financial literacy and money management skills among people who do not have the techniques and the basic understanding that would enable them to manage their personal finances?

[Kit Malthouse]

My hon. Friend has touched on an interesting issue. What she has said reflects one of the observations made by the hon. Member for Ross, Skye and Lochaber (Ian Blackford). Over the past three or four decades people have, perhaps, been infantilised in respect of the financial choices that they make, and politicians in the House of Commons may have sought to make their choices for them. Personally, I would like the opportunity to decide between a lifetime ISA, a pension and a normal ISA, for instance, but then I am a chartered accountant of moderate skill—deeply moderate; I resigned on the day I qualified for exactly that reason—but I recognise that plenty of people feel confused and are unable to do so. We have taken the power away from them over the years, and we must start to reverse that. We must either put choice back into their hands, or educate them so that they can make those choices in the future. The financial world is becoming ever more complicated, and if people are to do well out of it—particularly those on lower incomes—they will need to have that kind of knowledge.

Another reason why people should take an interest in acquiring assets rather than the mere ins and outs of their monthly incomes is the fact that a number have missed out, recently in particular, on what could have been a big upswing in their wealth. Brexit has seen a massive rise in the stock market, and anyone who has had stocks and shares over the last couple of months will have done extremely well. Similarly, the housing market has risen prodigiously over the last three or four years.

[Ian Blackford]

Does the hon. Gentleman not realise that there has been a massive 16% decline in the value of sterling over the last couple of months? Moreover, the fact that the market has risen as much as it has is due, quite simply, to the overseas earnings of United Kingdom companies. It is not that the world thinks the United Kingdom has become a more investable case; indeed, some would argue that it has become a basket case.

[Kit Malthouse]

I entirely agree that overseas earnings are rising. That is why the stock market has increased so significantly, and I think that is a good thing. I am proud to say that I voted “out”. I am not sure what the hon. Gentleman thinks should be the level of the pound, but I think it should be at a level that increases our overseas earnings, means that people will re-shore manufacturing—because it is now more expensive for goods to be made overseas—and helps our exporters. I cannot see that that is anything other than beneficial for a country that is carrying a massive current account deficit.

The point that I am trying to make, however, is that 40 or perhaps 30 years ago many more people were investing in the stock market by buying shares in British Gas and all the privatised industries, and those people would have been benefiting from the present upswing. I am proud to ask my postman how his shares are doing every time I see him, and I should like to be able to say the same to most people on low incomes.

[Ian Blackford]

Perhaps the hon. Gentleman should ask his postman how much his holiday will cost him next year. There is a real problem for the United Kingdom, which is that inflation is now going to increase. We have already seen the impact of the likes of Unilever seeking to pass on 10% price increases. At a time when wage growth in the United Kingdom is limited, we have choked off next year’s consumption. That is the effect of Brexit. This is not about wealth; it is about an economy that has been damaged by the Brexiters.

--- Later in debate ---

[Kit Malthouse]

The hon. Gentleman will not be surprised to know that I disagree with him. I hesitate to get into a bit of economic argy-bargy in this debate—I was hoping to keep my comments short—but inflation is currently running at 0.6%, and as a result we have extremely low interest rates. The Bank of England’s target is 2%. I am pleased that the low pound may help it to get to that level because there is no doubt that low inflation, or a deflationary environment in real terms, is extremely damaging to the economy. The hon. Gentleman will be pleased to hear that the effect he desires of the drop in the pound has happened: my wife and I decided just this week that this February half-term we would go to Scotland on holiday rather than overseas. We would like to explore the glorious land of his birth. I hope that more and more British consumers will do the same. We may even see the rejuvenation of the tourism industry in lovely places such as Blackpool.

[Mr Gareth Thomas]

The hon. Gentleman has set out three concerns, if I remember rightly, about Help to Save. I wonder whether he shares my view and that of the hon. Member for Newark (Robert Jenrick) that the Government need to do more to explain why they think there should be a two-year qualifying period for the Government bonus for Help to Save, as opposed to just 12 months.

[Kit Malthouse]

I completely agree with the hon. Gentleman. The Government should look at exactly that. The barriers to saving that are in the way of people on low incomes should be removed as much as possible. I like his suggestion that people should be able opt to save out of their payroll—that employers should make the deduction. I like anything that makes it painless. The Government opt for PAYE because it takes our taxes away from us painlessly; we do not actually have to give them over. Doing the same with savings would be a good idea.

Throughout my life, my granny, until she sadly died when she was 94, put £5 every month in a post office savings account for me. She gave the savings to me on my 21st birthday. I have always been grateful for that money. I still have it sitting in that savings account. I hope and believe that I will be able to pass it on to my three children as a sign of what can be done by putting £5 away every month—a sign of the change that is possible from the first generation, from the back streets of Harrogate, to me now as a Member of Parliament.

--- Later in debate ---

[Richard Graham (Gloucester) (Con)]

I congratulate the hon. Member for Harrow West (Mr Thomas) on his comments, particularly those about the Help to Save product the Government are introducing. He talked about the Government looking at the role of credit unions and whether it would be possible to use payroll. It would be helpful if the Ministers, whom I welcome to the Chamber, commented on those matters, as well as some of the IFS criticisms and the very helpful Library briefing.

I want to focus on the Government’s lifetime ISA. We should not question its intentions. Its simple aim is to increase savings among the young and to help more people on to the housing ladder, and surely none of us can have any objection to that in principle. The difficulty is that we do not, of course, start with a blank sheet of paper, and adding yet more products to the already complicated savings landscape risks bringing unintended consequences. I want to focus on that risk.

As the Library briefing rather coyly puts it, over the past 25 years, a string of largely tax-based savings incentive schemes has been brought in under different Governments. Some Members will remember the stakeholder scheme, yet not many will perhaps now remember personal equity plans, tax-exempt special savings accounts, child trust funds—they ceased not that long ago—or indeed the saving gateway, which was never rolled out nationally. When we consider the lifetime ISA and what it is proposed that it will achieve, we must also bear in mind what other savings products exist.

Under the general heading of “savings” I include pensions; they are simply a particular form of savings designed primarily to provide people with adequate income in retirement. Of course as we live ever longer, the value of having those savings, lasting well beyond an age to which people were expected to live not long ago, becomes more important. The Government have a crucial role to play as the body that will prop up all or any of us when we run out of savings. I want to focus on a couple of things within the product range of savings and the potential unintended consequences of this Bill.

The LISA was introduced in this year’s Budget after the Chancellor said that it was clear there was no consensus on the future development of pensions. But in a sense he revealed his own hand by increasing the ISA limit and proposing the introduction of the lifetime ISA. This showed the Treasury’s direction of travel very clearly. It is no surprise that the Centre for Policy Studies has welcomed this ISA since, it says, it is similar to a proposal made in the past. Indeed, Michael Johnson at the CPS has been advocating the end of pensions for a long time. I have described him as the Guy Fawkes of the pensions industry—he would love to blow the whole thing up tomorrow if he could. The lifetime ISA was just one of his steps towards that goal, with a workplace ISA coming in next.

That is where some of the problems start. The Chancellor’s main underlying argument for introducing the LISA was that younger people did not understand pensions—that they were far too complicated and were not popular and therefore we needed to use the well-known brand of the ISA. I have clashed many times with the hon. Member for Ross, Skye and Lochaber (Ian Blackford)—mostly happily—on pensions issues. His contributions are normally way over the top, as, unsurprisingly, they were again this evening. However, he was right to use the quotation in the Association of British Insurers briefing, demonstrating that, interestingly, the opt-out rates in auto-enrolment among the under-30s have been the lowest of all age groups. That arguably suggests that younger people do not necessarily find pensions complicated when they are provided with a solution in the workplace into which they, their employer and the Government can all contribute and the paperwork is easy. So pensions do not have to be any more complex than any other form of savings, but what makes the whole sector more complicated is the constant temptation of successive Chancellors to act as product designer for the industry and introduce yet more different products.

[Kit Malthouse]

I am a little puzzled by my hon. Friend’s use of the statistic that the under-30s have the lowest opt-out rate. The under-30s will of course become the over-30s and the over-40s, and they might well opt out at that point. Their continuing to opt in at this early stage, when they might not have quite so much pressure on their wage packet, is not necessarily indicative of what they will do in the future.

[Richard Graham]

My hon. Friend makes a perfectly reasonable point, but he should bear in mind the fact that opt-out rates were expected to be 25% and are averaging 9% so far. The Government’s expectations about opt-out rates have therefore, happily, been proved wrong. He is right to say that the under-30s will become the over-30s, but we should all be trying to encourage those people to stay in and build up their savings through the pensions scheme, rather than introducing a competitive product that could, for various marketing reasons, seem more attractive and therefore divert people of all ages from the good and noble cause, which I think he supports, of building up more savings for their retirement.

Oral Answers to Questions

Kit Malthouse Excerpts

Tuesday 19th July 2016 Commons Chamber

[Mr Hammond]

My hon. and learned Friend is absolutely right; raising the UK’s productivity is the long-term challenge of our economy, and infrastructure investment is one of the ways we do that. I draw attention to another point: the success of Cambridge today, not only as a centre of academic excellence but as an innovation hub of global importance, has arisen because of the very foresighted decision of Cambridge City Council many years ago to allow development around the city and the creation of the Cambridge business park, which is now a world magnet for investment.

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

I, too, congratulate the Chancellor on his ascension. One of the key flows of capital that is likely to increase post-Brexit is the £300 million or so that is invested every year in gilts by those seeking a UK investor visa. This is of little productive value to the UK economy. I wrote to the previous Treasury team suggesting that this money would be better invested in drug discovery but, amazingly, I got the brush-off. May I impose myself upon the Chancellor of the Exchequer and ask for a meeting to explain the merits of requiring these people to invest in the productive part of the UK economy?

[Mr Hammond]

I anticipate that there will be a need to fund UK Government gilt issuance for the foreseeable future, but I understand my hon. Friend’s point and I would be happy to discuss it with him.