Finance (No. 2) Bill

Lord Sikka Excerpts

Committee negatived & 3rd reading
Tuesday 4th July 2023 Lords Chamber

[Lord Sikka (Lab)]

My Lords, I thank the Minister for her speech. This Bill fails to address the fundamental problems that we all face. Economic recovery is hampered because the Government have depleted people’s disposable income through real wage cuts, high inflation, high interest rates and high taxes. This Bill depletes incomes even further by continuing the freeze on personal allowance and income tax thresholds. Without adequate income, people simply cannot buy goods and services and there will not be investment.

The poorest fifth of households in this country pay 22.9% of their income in indirect taxes. The richest fifth pay 9.1%. The Government could have helped the poorest by cutting the rate of VAT or even abolishing VAT on domestic fuel, but they have not done so.

There is nothing in the Bill for women although they are on the receiving end of real wage cuts. The majority of public sector workers are female and their wages have been cut in real terms—so this Bill does not help women either.

Tax cuts for the rich are disguised as tax relief on pension contributions; the Bill estimates that they may be worth more than £1.1 billion a year. The Government say that this is really to help doctors but, of course, it helps accountants, lawyers, architects, engineers and many others too—and the Government are inflicting a real wage cut on doctors as well, which does not help in any way.

The Bill offers nothing to the millions of people who earn less than £12,570 a year or the 28.8 million basic rate taxpayers. The biggest winners are the rich, who will benefit from the pension tax changes. Can the Minister explain why tax cuts for the rich are not matched by tax cuts for low-income and middle-income earners?

The Bill is also unjust. It taxes salaries and wages at rates between 20% and 45% but capital gains are taxed at between 10% and 28%. Why is the return on the investment of human capital taxed more heavily? Why are the Government taxing workers highly? The recipients of capital gains also do not pay any national insurance, even though they use the NHS and social care. Why are they given a free ride? I hope that the Minister can explain that.

There is a sleight of hand on corporation tax. The headline rate will go up from 19% to 25%, but it is estimated that only 10% of companies will pay that because of numerous tax reliefs, some of which the Minister mentioned. Can the Minister say now, as we are possibly heading towards a recession, how many companies will pay the full tax rate of 25%?

The Bill does not expand the tax base at all. It does not consider a financial transaction tax, wealth tax, sugar tax, salt tax or any other tax, which would at least broaden the tax base. None of that is there.

The Government’s central claim is that lower corporation tax rate will somehow encourage investment. Well, we had a corporation tax rate of 19% from 2016 to 2022. That era also had low interest rates, a low inflation rate, negative real wage growth and high tax incentives, but that did not lead to any higher investment. I hope that the Minister can explain the real reasons why the UK is a laggard in investment.

On the basis of private and public sector investment in the UK, the OECD ranks the UK 35th in its league of international investment—below Portugal, Lithuania, Latvia, Mexico, Colombia and Costa Rica. That is a total policy failure, yet all the Government are doing is repeating the same thing—which will get exactly the same results. Hopefully, the Minister will confirm that.

The OBR says that the 4% loss of UK productivity is due to Brexit, but nothing in the Bill or any ministerial Statement deals with Brexit. The Government say they are creating 12 new investment zones and that the businesses operating inside them will receive £80 million over five years. Well, the cost of that will be borne by people outside. Why penalise those who operate outside those investment zones? The OBR says that the Government have not provided enough information to enable it to

“estimate the impacts that these investment zones might have”.

Can the Minister provide us with an estimate of what will happen inside these investment zones?

A few days ago, HMRC published its tax-gap figures. It said that it failed to collect £36 billion of taxes for the year 2021-22, mainly due to avoidance, evasion, fraud and error. Adding up the years from 2010, that is about £450 billion. Other models estimate the number to be over £1,500 billion. What is the Government’s response? It is to cut HMRC’s budget from £5.9 billion for 2022-23 to £5.6 billion in 2023-24 and £4.6 billion in 2024-25. Dealing with tax abuse is a labour-intensive job, but the Government are not providing resources to HMRC.

On 23 March 2023, in response to my Written Question, the Minister said that only eight enablers who devised the tax abuses—accountants, lawyers, bankers—had been prosecuted in the last two years. That is pitiful. The Government clearly are soft on tax cheats and, despite strong court judgments, have failed to investigate, fine or prosecute even one of the big accounting firms. I challenge the Minister to name even one, if she can. I will never ask this question again, so I hope that the Minister will rise to that challenge and tell us which of the big four accounting firms is being challenged. In Australia, the Government have come down hard on PwC. Here, we give it public contracts. We reward it. That is a real failure of the Government.

Can the Minister explain why HMRC’s budget is being cut and why the Government are soft on the tax abuse industry—especially the big accounting firms?

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, I was speaking about the difference between changes to any scheme and abolition of the status altogether, but I would say that there is a high degree of uncertainty about the impact of changes made in this area.

Finally, I turn to the pension tax changes made through this Bill and the Budget, which many noble Lords have spoken about. To respond to the noble Lord, Lord Eatwell, I was not implying that only the most highly skilled and productive workers benefit from these changes, but many of them will. They have been designed in response to feedback from the NHS in particular that there was an impact on retention of the most skilled staff.

Regarding the suggestion that a doctors-only change could have been implemented instead, unlike more targeted policies, the Government have considered a range of options to address this issue over a number of years. One of the elements which means that a more targeted approach would not be appropriate in these circumstances is the time it would take to implement. These changes could be implemented quickly, from April 2023, minimising the risk of early retirements in the NHS before any changes take effect.

In the Statement taken before this debate, we heard about the pressures on our NHS workforce and the pressing need to address those immediately. If we were to take a targeted approach to one profession—NHS doctors—we may well come back to the same issue, as the same issues are faced by employees in other sectors, such as air traffic controllers, the police, the Armed Forces and senior teachers. To introduce targeted measures for each profession would not be an effective way to deal with challenges across those different workforces.

The Government are aware of the concern raised by the noble Lord, Lord Eatwell—

[Lord Sikka (Lab)]

I am grateful to the Minister for giving way. Will she take up my challenge and tell me which of the big four accounting firms, with strong court judgments against them in the cases brought by HMRC, has been investigated, fined, disciplined or denied government contracts because they are peddling tax abuses? If the Minister cannot name such a firm, can she tell me why the Government are soft on tax abuses by big accounting firms?

[Baroness Penn (Con)]

I think one of the reasons why I frustrate the noble Lord in this area is that the Government do not normally comment on individual taxpayers. On his more general point, the Government have taken action to tackle tax avoidance and evasion over many years and to reduce its incidence in our economy.

Finally, I turn to the impact of the change to the annual allowance and its potential inheritance tax impacts. Noble Lords are right that the annual allowance has meant that there has been a limit on how much individuals can put into their pensions and therefore pass on. The Government are aware of concerns that some may be using their pension pots to reduce future inheritance tax liabilities, rather than for their purpose: to fund their retirement. As with all taxes, the Government keep the rules under review.