Finance Bill

Lord Leigh of Hurley Excerpts

2nd reading & Committee negatived & 3rd reading
Wednesday 21st February 2024 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, it is always a great pleasure to follow the noble Lord, Lord Desai, even though I do not agree with much of his analysis. In particular, I cannot understand why he thinks that if one takes a risk and invests capital, the rewards should be taxed at the same rate as banking a salary and working at a desk. They are two different sources of income and wealth, and therefore deserve different tax treatments, but I admire the way that he speaks so eloquently and without any notes on every occasion. I can only aspire to that.

I refer to my register of interests and remind your Lordships that I am chairman of the House of Lords Economic Affairs Finance Bill Sub-Committee, to which my noble friend alluded earlier. This sub-committee looked at the Bill with great interest and our report was published a couple of weeks ago, on 1 February. As I think this is the only time that the report will be mentioned in the House, I use this opportunity to thank the committee members, the clerk, his assistants and colleagues and, in particular, the two spads for their hard work in turning it around and delivering it in record-breaking time; as the noble Lord, Lord Desai, indicated, there was a crunch, because it followed the Autumn Statement.

The report focused on a few main areas. The main one was research and development, where we followed up on last year’s report and were pleased to see that the R&D review is now complete. We recommended that His Majesty’s Government do not make any further changes to R&D tax relief, other than some simplifications that we recommend. As my noble friend said, research and development is incredibly important to the UK economy. It is pleasing to note that gross domestic expenditure on R&D has risen from some 1.5% in 2010—to take a date at random—to nearly 3% now.

The new R&D intensive scheme needs careful monitoring and the threshold, which is a cliff edge, should be kept under review. We called for draft guidance on applying that test, as it is difficult for companies to predict whether they are going to be intensive companies. As my noble friend indicated, it is possible that the new intensive scheme will be merged with the main scheme. We hope that HMRC will enter into consultations on this issue and possibly delay its implementation until those have taken place. We also had quite a lot to say on the thorny issue of subcontracting of research and development where, in summary, we think a transitional period might be required, although we accept that this has its own challenges.

Another area we were concerned about was the changes proposed on how HMRC will collect data on issues such as hours worked. This is something different: HMRC has never collected data on anything other than tax before. We are not even sure that the Taxes Management Act allows it to do this, so we are concerned to know why it needs that data and what will be the true cost to business in supplying it. This is largely data on hours worked: HMRC has recognised that this would be difficult, so has turned it into data collection on hours paid, but we are still not convinced about the need for it.

We welcomed further attempts to punish promoters of tax avoidance schemes but have asked for some safeguards, particularly in respect of what are called stooge directors. These are people who get persuaded to become a director of a company and do not realise that the company is being used for tax avoidance, but we are not convinced that increasing prison sentences is necessarily always the answer.

Finally, in respect of our report, we were concerned about the level of resources that HMRC deploys for customer service. One obviously accepts that this is an issue across government. We recognise that steps are being taken to improve this issue—which, in my personal opinion, is not helped by civil servants working from home, but that is a wider governmental issue.

As your Lordships will appreciate, my comments are just a taster of our full report of 150-odd pages. However, this shows that our House not only gets to debate the Bill for a day but offers proper scrutiny of legislation—even if, as the noble Lord, Lord Desai, said, we cannot change it. But we are able to produce these reports, which we hope are used by Members in the other place to amend legislation. It is a little disappointing that there are so few of us speaking on this important debate, despite the fact that it is an exceptionally august selection of Peers with great depth of knowledge on the Bill.

Aside from the sub-committee report, I would like to make some additional observations and I hope that my noble friend the Minister can answer some questions that I have. The first is on the EIS, SEIS and VCT areas which she mentioned earlier. I warmly welcome the extension of the sunset clause; I have been advocating for it for some time, as she knows. I know that I have been pushing against an open door with HM Treasury and that she is convinced that I am a minority sport player with too much detail. None the less, I have to say that Clause 11 is to be commenced only by regulation, as in its subsection (2). That is a little unusual and I suspect there is a reason for it. I wonder if it is to do with some wrinkle in the Windsor agreement that is not yet quite ironed out or if we do not have permission from the EU to implement it. If so, we need some clarity that we will get that permission, and to reflect on the fact that we are trying to do things here which we are prohibited from doing by the EU, and that does not sit comfortably, particularly as we should no longer be bound by EU state aid restrictions.

I hope that my noble friend can agree to a review of all the other restrictions on EIS, SEIS and VCT, because we need to create a low-tax, low-regulation country and shed as many burdensome EU restrictions which are no longer necessary as we can. Are we restricted from doing that because of Northern Ireland issues? EIS and SEIS are incredibly important. In the year to 2022, HMRC data shows that £3.4 billion was raised to invest in SME businesses—for thousands of companies, so let us see what more we can do to enhance that scheme.

I also welcome the great progress on pillar 2, which my noble friend mentioned. I know that pillar 2 is not popular with everyone but we are committed to do it, so let us push ahead. It is good to see the transitional undertaxed profits rule safe harbour regimes, in addition to the multinational and domestic top-up tax, which is all part of the OECD global anti base erosion tax rules. This is a very complex and difficult area, with pages and pages of legislation, but it has been going for some time. In fact, it was the subject of my maiden speech almost exactly 10 years ago. We are still not there, but let us hope that the Government keep going in the direction they have taken to date.

Finally, it is worth using this debate on our proposed fiscal changes to reflect on what has been the effect of this Government’s fiscal policies to date on the economy. It is worth noting, as I am sure my noble friend will agree, that it is not just that inflation is falling from 11% to 4% but about the rate of growth in our economy compared to our European competitors. We are the fastest-growing European G7 economy and, from 2025 to 2028, our debt will come down as a huge part of the share of GDP. It is initiatives such as reducing national insurance in the Bill, and of course specifically raising allowances, which have enabled average taxpayers to be some £1,000 a year better off than they would be if those allowances had not risen since 2010. To keep up our outstandingly successful record levels in FDI, while achieving the success we have had in becoming the third-largest tech sector in the world, we have to keep the drive up for lower taxation.

As I understand it, the only tax initiatives announced by Labour are to increase taxation, such as VAT on schools, income tax for non-doms and enhanced tax for carried interests. Perversely, all these plans to raise tax by seeking to penalise successful people will, in my opinion, only lower the tax take. The direction of travel we need to stick to is a lower tax take, and a smarter tax system which encourages investment and increases growth and productivity.

--- Later in debate ---

[Lord Livermore (Lab)]

My Lords, the Finance Bill that we are debating today was published following the Chancellor’s Statement in November last year, in which he claimed to be delivering an “Autumn Statement for growth”. It was the 11th such growth plan that we have seen from this Government over the past 14 years, and, over that time, the UK’s growth record has been poor.

The noble Lord, Lord Leigh of Hurley, mentioned comparative growth rates. We have languished in the bottom third of OECD countries, with 27 OECD economies growing faster than us since 2010. Looking ahead, over the next two years, no fewer than 177 countries are forecast by the IMF to grow faster than the UK. Against this backdrop, in the so-called Autumn Statement for growth, the Office for Budget Responsibility actually downgraded its forecast for growth in each of the next three years—it was revised down this year, next year and the year after that. Growth this year is forecast to be just 0.7%, which is more than halved from the 1.8% predicted in the Budget, with the economy forecast to be £40 billion smaller by 2027 than the Chancellor expected back then. Now, the Office for National Statistics has confirmed that Britain has fallen into recession. We know too, as the noble Baroness, Lady Kramer, observed, that GDP per capita fell in every single quarter of the past year.

Britain is trapped in a spiral of economic decline. Having spent 14 years in the economic slow lane, the Government have now put our economy into reverse—the latest chapter in a 14-year story of failure and economic stagnation. First, we had austerity, which choked off investment, and then years of political instability, which in turn fuelled economic instability; then Brexit without a plan; then the disastrous mini-Budget, which, as the noble Lord, Lord Desai, observed, crashed the economy, sending mortgages and interest rates soaring. We have had five Prime Ministers, seven Chancellors, and 11 plans for growth, each yielding less than the last.

If the UK economy had grown at the average rate of the OECD over the past decade, it would now be £140 billion larger, equivalent to £5,000 per household every year. This would mean an additional £50 billion in tax revenues to invest in our public services. Instead, with growth so weak, taxes have risen remorselessly, with less and less to show for it. While our public services crumble, we have seen 25 tax rises in this Parliament alone. The tax burden now rises every single year for the next five years, rising to its highest ever level and making this the biggest tax-raising Parliament ever, with an average tax rise of £1,200 per household.

However, there is one small group of people who will continue to be protected from this Government’s tax rises on much of their income. Missing from this Finance Bill, once again, is any action to tackle non-dom tax status: those people who live in Britain but do not pay UK taxes on their income from overseas. Closing this loophole and replacing this archaic status with a residence scheme like other countries have could raise crucial funding to bring NHS waiting lists down. Labour believes that those who make Britain their home should pay their taxes here. That patriotic point should be uncontroversial; yet, while families across the UK face higher taxes year on year, the Government continue to enable those who keep their money overseas to avoid paying their fair share of tax. So, while we have yet another Finance Bill that leaves this loophole open, families across the UK face a tax burden that is climbing to a post-war high.

The chair of the UK Statistics Authority rebuked Government Ministers this week for making misleading claims about their record on tax. Let us be clear: while the cut in national insurance announced in the Autumn Statement was welcome, it was more than eclipsed by increases in taxes that the Government had previously announced. For example, as my noble friend Lord Davies of Brixton mentioned, the freezing of national insurance and income tax thresholds for six years is now expected to cost taxpayers £45 billion. This fiscal drag means that nearly 4 million more people will pay income tax and 3 million more people will pay the higher rate. To quote Paul Johnson from the Institute of Fiscal Studies, the cut in national insurance rates

“pales into … insignificance alongside the … increase in personal taxes created by the six year freeze in allowances and thresholds”.

The IFS has calculated that, extraordinarily, almost every single person in the UK who is liable for income tax or national insurance will now be paying higher taxes overall. As a result, the tax burden will now reach 37.7% of GDP by the end of the forecast period, an increase equivalent to an astonishing £4,300 additional tax for every household in the country.

We have an economy in recession, the tax burden rising to its highest ever level and the biggest fall in living standards since records began. We must break this spiral of economic decline. Increasing growth is clearly the biggest economic challenge that our country faces. In government, Labour’s defining economic mission will be to restore growth to Britain, with good jobs and productivity growth in every part of our country. Our plan to deliver that mission, supported by British business and developed in partnership with British business, is built on three pillars: stability, investment and reform.

Stability will be brought about by strong, robust and respected economic institutions. Rather than criticising the Bank of England, as a number of prominent Conservative politicians have, we will protect its independence, and we will strengthen the Office for Budget Responsibility. We will introduce a new fiscal lock and tough new fiscal rules. Iron discipline will ensure that every policy we announce, and every line in our manifesto, is fully costed and fully funded. With a Labour Government, never again will a Prime Minister or Chancellor be allowed to repeat the mistakes of the Liz Truss Budget. Never again can we allow a repeat of the devastation that that Budget brought to family finances or allow a plan to be pushed through that is uncosted, unscrutinised and wholly detached from economic reality.

We prize stability and predictability for business, as we know how highly businesses that are considering investing in the UK prize stability, predictability and a long-term plan. This Finance Bill contains a number of measures that we have been calling for for some time. We welcome the Government finally making full expensing permanent after so many years of chopping and changing capital allowances; we have made it clear we will maintain this policy if we are in government. We have also made it clear that we will maintain the system of R&D tax credits introduced by this Finance Bill—again, after so many years of this Government chopping and changing the design of the scheme.

Of course, there is still a general election to face, so I use this opportunity to invite the Minister to put on the record whether the Government will follow our lead. Will she confirm that, should they win the general election, they will maintain permanent full expensing? I am sure that many businesses would welcome the certainty that comes from knowing that both main parties are going into the election fully committed to keeping this policy in place.

Let me be clear about another area where we will provide certainty, should we win the next general election. As the shadow Chancellor has set out, we believe that the current corporation tax rate strikes the right balance between what our public finances need and maintaining our competitiveness in the global economy. That is why we are pledging to cap the headline rate of corporation tax at its current rate for the whole of the next Parliament. We would take action if tax changes in other advanced economies threatened to undermine UK competitiveness. That choice provides predictability and has a clear rationale; that is the pro-business and pro-growth choice. So, again, to offer businesses as much certainty as possible, I ask the Minister whether the Government will follow our lead and also pledge, today, to cap corporation tax at its current rate for the next Parliament?

Our commitment to stability will be matched by a commitment to investment, through partnership with the private sector, to power the industries of the future with a modern industrial strategy; a new national wealth fund to invest alongside business, in our automotive sector, in our ports, and in the future of our steel industry; and a new national champion in homegrown power, leading the way on floating offshore wind, tidal and nuclear power, to ignite growth, boost our economic security, drive down energy bills, and create good, well-paid jobs across Britain. This will be combined with our commitment to reform, starting with our planning system, taking on vested interests to get Britain building again. Stability, investment, reform—the foundations of a plan to break free from the vicious cycle over 14 years of stagnant growth, rising taxes, and falling living standards.

[Lord Leigh of Hurley (Con)]

Can the noble Lord clarify a point that he made in response to a point that I made about non-dom taxation? I understand that the Labour Party originally thought that taxing non-doms in the way that he described would raise £3 billion—it then reduced it to £2 billion and I think that it now thinks that it is £1 billion. It would be very helpful to have precision and clarity on the estimate that this will raise. Will he also confirm, now that Labour Party officials are talking to the Treasury, that they have asked the Treasury for its figures on the Labour Party’s proposals on non-doms, which, as I understand it, show a net loss to HMRC in respect of those proposals?

[Lord Livermore (Lab)]

I do not think that I am at liberty to divulge the exact nature of those discussions, but I can certainly say that that is not correct.

[Lord Leigh of Hurley (Con)]

Does the noble Lord have an answer to my question on the specific amount that the non-dom tax proposals will raise?

[Lord Livermore (Lab)]

I do not have the exact number to hand.