Finance (No. 4) Bill

Mark Field Excerpts

Monday 16th April 2012 Commons Chamber

[Danny Alexander]

No, I am going to press on and address the question of the 50p rate. When I have done so, the hon. Gentleman and the hon. Lady will be free to intervene on me again.

Before discussing the 50p rate, I will refer briefly to clause 8, which will remove child benefit from the highest earners. We will withdraw child benefit from those in households earning more than £50,000 in a way that is gradual, so that only those earning more than £60,000 will lose all their child benefit. The measure will help to ensure that the burden of deficit reduction is fairly shared, and by implementing it as we propose, we will deal with the anomalies that have been highlighted.

[Mark Field (Cities of London and Westminster) (Con)]

I perhaps have more sympathy than many of my colleagues with the idea of the charity tax that is being introduced. Will my right hon. Friend confirm that, in regard to that tax and to child benefit, it is the Government’s intention to try to restore those benefits once the deficit has been paid down and we no longer have to service a debt of £126 billion a year?

[Danny Alexander]

I thank my hon. Friend for his support, but I cannot confirm that intention at this stage. We have a major ongoing problem with the sustainability of our public finances. We set out in the spending review last year, and reaffirmed in this year’s Budget documentation, the need for further spending—

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[Mark Field (Cities of London and Westminster) (Con)]

I want to make a brief contribution to this important debate. The phrase that comes to mind is “something will turn up”. It is one of the classic stratagems of last resort in politics and perhaps life in general. I suspect that the Treasury’s handling of the UK’s economy owes rather more than it might be willing to admit to the Mr Micawber principle. After all, time often alleviates and sometimes even eliminates what seem like intractably difficult problems. In stark contrast to the first Thatcher Government, who front-loaded much of the economic pain, the modern-day Treasury, while espousing a tough austerity message, has adopted a more pragmatic, steady-as-she-goes path.

Despite the protestations of the hon. Member for Leeds West (Rachel Reeves), we must get one thing straight: there is zero veracity in Labour’s contention that the Government are cutting too far, too fast. In the past 12 months, the UK Government’s current spending has totalled some £613.5 billion—the highest figure in history. The Government are still borrowing, even this year, £1 in every £5 that they spend. However, more than half the deficit reduction was predicated on annual compound growth through the Parliament of 2.7% to 2.9%, and it is clear that, for the first half of the Parliament, we shall struggle to achieve growth of even one third of that figure.

Rather than respond to that deteriorating situation by imposing more savings, we have taken the path of ever more debt, courtesy of the Bank of England’s quantitative easing programme. In my view, the real purpose and impact of the UK’s central bank intervention has not been to ease the path of investment borrowing for small business, which is perhaps what it should be. Instead, it has mopped up the substantial proportion of gilts that are being issued. That is where the Mr Micawber principle particularly comes into play. The Bank of England’s actions will not be sustainable in the longer term without a very real risk of inflation. I suspect that global conditions in the years ahead may make it much more difficult to finance our current levels of deficit. That is one reason why we need to get the deficit down as quickly as we can.

Before the Budget, I firmly believed that our focus should rest on some radical supply-side reform to ensure that we get the growth that we need. That would apply partly to the tax system, but also to employment legislation, with forensic attention paid to the impact of high marginal rates of income tax and the disincentives that have crept into the system as a result of both the poverty trap for the low paid and the removal of reliefs for higher rate payers.

I was pleased that a small part of my desire was realised: some progress has obviously been made on taking people out of tax entirely through the increase in the threshold for the basic rate of income tax and the reduction in the top rate tax from 50% to 45%, which is particularly important for entrepreneurs.

I was also personally delighted that, after three years of campaigning alongside the local animation industry in my constituency, the Chancellor announced the Government’s intention to introduce a tax credit for televised animation and video games. I congratulate him and my right hon. Friend the Secretary of State for Culture, Olympics, Media and Sport on securing a bright future in the UK for Peppa Pig, Olive the Ostrich and their animated brethren. Finally, we have the level playing field that our creative industries deserve, and the tax credit will help raise the quality of children’s television and retain valuable intellectual property in this country. That is the key reason why I agreed to lead the parliamentary charge on the matter. It is also fantastic news for the vibrant sector in my central London constituency and beyond.

However, rather less progress has been made on arguably the more urgent and important supply-side reform: legislation on employment rights. Once more, the glad, confident morning of June 2010’s Budget has given way to starker reality. It is worth recalling that, at that point, the increasingly discredited Office for Budget Responsibility predicted that unemployment would peak in 2010-11. We now know that it is likely to rise further in the next two years and remain stubbornly high for the foreseeable future. Yet the UK continues to gold-plate continental employment legislation and grant ever more generous paternity and maternity rights. Little wonder that employers are so reluctant to take on more staff.

I disagree with the analysis of the hon. Member for Leeds West about the position in the US. It is instructive to witness how the US has shown signs of turning the economic corner. In simple terms, it is easier to hire, but also to fire staff there. That allows flexibility and supports a rapid readjustment economically.

[Julian Smith]

Does my hon. Friend agree that that does not just apply to the US? Recently, Italy and Germany have exempted their small and medium-sized firms from many of the burdens of employment law.

[Mark Field]

My hon. Friend is absolutely right, particularly in respect of the German model for the micro-sized businesses that are in the growth phase. There is no doubt in my mind that our recovery phase will commence only when we are able to have that sort of readjustment.

[Katy Clark (North Ayrshire and Arran) (Lab)]

We heard those arguments in the 1980s and they have been looked at many times. Does the hon. Gentleman not know that there is no connection whatever between economic growth, and the economic competence of a country, and employment protection?

[Mark Field]

I am making a comparison over the limited phase of the past two or three years. Why have we seen the recovery in the USA, to which I referred, and recovery and economic stability in Germany? Given the fiscal stimulus, there is not all that much between the countries, but those employment rights measures have the impact of allowing recovery among small and medium-sized enterprises.

[Katy Clark]

Is the hon. Gentleman not aware that the USA has pursued different economic policies from the UK? It has not pursued the policies of austerity that the Government and other countries in Europe have pursued. There is no connection between attempts to restrict trade union and employment rights and growth.

[Mark Field]

The important thing that the hon. Lady needs to recognise is that there is a distinction, as I said in the early part of my speech, between the rhetoric and the reality of austerity. We have not really had much in the way of fiscal tightening in this country. We are still borrowing and living miles beyond our means—this is a lesson, I am afraid, for the entire political class—and we will face a huge problem. We continue to pass that burden on to our children and grandchildren, not in any meaningful way for investment, but for today’s consumption, which is not sustainable.

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

I think I agree with hon. Gentleman on that point. As I understand it, he is saying that he agrees with the point made earlier in the year by—I believe—Standard & Poor’s, which said that austerity by itself does not work and can become self-defeating if it leads to higher unemployment, slower growth, and therefore to higher spending, fewer taxes, and therefore higher deficits. Is that his point?

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[Mark Field]

My point was along these lines. One difficulty occurs if all our trading nations are going through austerity; austerity can be done only by one country in such a group. We need to focus attention on growth. Indeed, the last words of a speech I made in the House almost two years ago, after the June 2010 Budget, were that we have talked about and made the right case for austerity, but we needed attention on growth—I fear that there has been too little.

I agree with the hon. Member for Leeds West in her analysis and on trying to assist small and medium-sized enterprises by allowing them to take on extra employees over the next two tax years without paying further national insurance. Better still, we could extend a national insurance holiday to all employees under the age of 25. That opportunity was missed both in the Budget and in the Bill.

I wish to touch on three specific concerns that I strongly hope will be dealt with in Committee in the weeks ahead. I confess that I am a little uneasy at the prospect of the general anti-avoidance provisions and powers that are heralded in the Bill and to which the Chief Secretary referred. Senior coalition Ministers interchange the terms “avoidance” and “evasion” in a rather casual way, which should be of concern to more than merely the tax advisory community. Individuals and businesses in a free society are, and should be, entitled to organise their affairs in such a way as to minimise their tax liability. I have no problem with that.

Although I sympathise with the Treasury, which is forced virtually continuously to update its rules and regulations, any general powers on avoidance should keep retrospection to an absolute minimum, and should be used only in extreme cases of what is regarded as so-called aggressive anti-avoidance. Moreover, it is surely incumbent on the Treasury, if it moves in that direction, to ensure a comprehensive pre-clearance regime to allow companies and their advisers to road-test their proposed taxation schemes with senior HMRC officials.

I appreciate that banks have few friends—I represent the City of London and am perhaps one of the few left—but the treatment meted out by the Treasury to Barclays bank in February set a very unfortunate precedent, not least because in recent weeks the Treasury has sought to lecture the Indian Government on the undesirability of retrospective tax. Barclays bank had sought and obtained clearance for its £500 million tax minimisation scheme. It was overturned in a blaze of publicity. If we are to raise the substantial levels of taxation that UK Governments of all stripes need, given the electorate’s addiction to public spending, we should be wary of anti-business rhetoric, which will give further encouragement to globally mobile institutions wishing to leave these shores. Being open for business depends on certainty in commercial practice, not simply verbal assurances.

[Julian Smith]

Will my hon. Friend update the House on what contribution the financial sector makes to the tax take of UK plc?

[Mark Field]

I am not sure I can, to be honest, but suffice it to say it is a significant amount. I can appreciate, though, that in these difficult times it is hard to make the case for the huge bonuses in the banking sector, other than to say that it is a globally competitive industry. Financial services will be a big industry going forward. Growth in Asia is adding 20 million or 25 million people a year to the ranks of the global middle class in India, China and South Korea. These will be the customers and consumers, not least because of the cultural reasons for saving, of the financial services industry in the future. That is one reason, in the midst of trying to rebalance our economy, as the Chief Secretary mentioned, we should not lose sight of our global competitive advantage. In the financial services industry, in particular, our global advantage is looked upon jealously in France, Germany and other European countries. They often feel that some of the anti-banking rhetoric coming through will be entirely self-defeating.

[Mrs McGuire]

Will the hon. Gentleman give way?

[Mark Field]

If the right hon. Lady will forgive me, I would like to make some progress because others want to get in.

The provisions in clause 8 on the high-income child benefit change to income tax will doubtless be the subject of extensive controversy. In spite of the misgivings I have expressed since the scheme was proposed in October 2010—in particular, that it seems to act as a penalty on aspiration and families in which one parent stays at home to rear children—I accept the overriding need to reduce the vast fiscal deficit. However, the tapering of the change to income tax for those earning between £50,000 and £60,000 a year will result in marginal tax rates of 65% for families with three or more children. Conservatives such as me believe in promoting incentives, but it is difficult to reconcile the proposition that those earning more than £150,000 are deemed to require a highest marginal rate of 45%—a proposition that, I hasten to add, I fully support—with the proposal that earners with several children at the level affected by clause 8 must apparently settle for paying marginal rates of up to 20 percentage points higher. I fear that the controversy in middle Britain about these child benefit changes will continue to resonate strongly in the months ahead.

[Mr Christopher Chope (Christchurch) (Con)]

I think that my hon. Friend and I share similar views on this. Does he accept that if, for example, we were to take all people earning more than £60,000, regardless of whether they have children, and charge them £1,000 a year, the yield would be £2 billion in 2013-14—far more than the yield from this complicated tax targeted at those with children rather than those without them?

[Mark Field]

I worry that too much of this tinkering will be counter-productive in any event and that the tapering of the child benefit system will be hugely expensive. Many people do not know whether they will earn between £50,000 and £60,000. They might work on a consultancy basis or spend a few months a year unemployed or travelling. Trying to unravel all that will be incredibly difficult.

I wish to make a few provisional passing comments on clauses 211 to 213 and 224 relating to the Chancellor’s decision to impose a 15% stamp duty land tax on acquisitions of £2 million and residential properties by non-natural persons—in other words, companies. Although I support the essence of the proposal, it might have the unintended consequence of stalling development, particularly in central London. I appreciate that high-end property developers might not necessarily be seen as deserving of particular Government acknowledgement, but there is no doubt that the property development industry in and around central London generates significant tax revenues and creates jobs. Not only are the profits taxable here but significant amounts of irrecoverable VAT are often incurred on redevelopment projects. Developers will generate SDLT revenue by buying and reselling redeveloped properties.

In the Budget press release, it was noted that the 15% SDLT charge would not apply to developers because they tended to use companies for limited liability rather than tax avoidance reasons, but when the draft legislation was published, the relief for developers was limited to bona fide developers who had been carrying on a residential property development business for at least two years. The two-year requirement may seem eminently sensible as a means of ensuring that short-life development companies are not established by individuals who ultimately wish simply to use the property in question. Nevertheless, I fear that the qualifying period will discriminate against new property development businesses, which cannot show the requisite track record. Indeed, all new entrants into the market are likely to be priced out because their acquisition costs have suddenly become 8% higher than those of their competitors. We therefore risk creating an uneven market—indeed, a market against newcomers.

The 15% charge is also likely to be an issue for experienced developers. The scarcity of bank finance for development properties at the moment means that much of the finance for high-end residential property development is coming from equity investors, who are bridging the significant funding gap that now exists. The requirements of equity investors will often mean that stand-alone special purpose vehicles are established for individual projects, so once again, the statutory test will not be met. If HMRC wants to consider an alternative policing arrangement and seeks to avoid creating a dual market, it might consider imposing a second charge—either another 7% or the balance of the 15%—if the property is used before being sold on by a developer with SDLT. Alternatively, there could be a time-based charge, so that if the property has not been sold after, say, three years, the second charge comes into play.

It is perhaps understandable that this afternoon I have dwelt on some of my concerns about the Bill. Nevertheless, I appreciate the acutely troubled state of the public finances. The Chief Secretary was absolutely right when he said that it was important that we should not pass on the costs of this generation’s excessive consumption to our children and grandchildren. I therefore reiterate my support for the deficit reduction plan that the coalition set out almost two years ago. I trust that the Bill will progress swiftly and smoothly to the statute book.

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[Mr Howarth]

My hon. Friend is precisely right. I worked in industry on the shop floor prior to the introduction of health and safety legislation. On another occasion—this is not the appropriate time—I might, if I get the opportunity, describe the conditions in which people worked in a lot of factories in those times. Often they were almost Dickensian.

[Mark Field]

No one is suggesting that we should try to encourage some sort of sweatshop regime; but equally, during these difficult economic times, there is a tendency for businesses—particularly small and medium-sized enterprises—to batten down the hatches. We want to encourage them to take the risk—“Yes, let’s take on an extra employee. Maybe some more business is coming through”; “Okay, but will we be able to expand in three or six months’ time?”; “Let’s try and take employees on.” The difficulty for small and medium-sized enterprises is not the idea of employment rights, but that the difficulties and costs of taking on new employees—particularly young employees—become so overwhelming that there is a massive disincentive so to do.

[Mr Howarth]

I am grateful to the hon. Gentleman for having rebalanced his view slightly, but I still think that he is wrong. When I talk to employers about the difficulties they have in recruiting, they tell me that they have two priorities, particularly in regard to young people. The first is that the young people should have the right skill set and should be capable of doing the job without needing too much training from the employer. The second, which is harder to pin down, is about attitude. Employers are looking for people who are disciplined enough to turn up at the right time and not to take days off on a whim. Such considerations come ahead of the concerns that the hon. Gentleman has described.

I want to talk briefly about the cumulative effect that the measures in the Budget will have on the people in Knowsley whom I represent. I also want to cover the proposals for minimum unit pricing for alcohol, as one of the major employers in my constituency will be affected by them. I have also received quite a lot of correspondence from individual constituents on that matter.

I am concerned about the impact that the working tax credit changes will have on my constituents, in conjunction with the other changes to the benefit system that are already taking place. To qualify for working tax credit, couples with children will now have to work at least 24 hours a week between them, instead of 16, with one of the couple working at least 16 hours a week. There are exceptions for people with a disability or incapacity. There is also an issue with the backdating of the entitlement to tax credit. It will now be one month, instead of three months. A further concern is that the main elements of the tax credit have been frozen for 2012-13.

I am unable to give the House any statistics to show how those changes will directly affect my constituents, but it is clear that changes to tax credits impact most heavily—indeed, entirely—on those on low incomes. That is another contrast between the situation experienced by the hon. Member for Cities of London and Westminster and me. It is estimated that, nationally, 212,000 working couples with children who earn less than £17,000 a year will lose all their working tax credit. Unless those people are able to find someone who will employ them for an extra eight hours a week, that could equate to a loss of £3,870 a year. That will be a substantial loss for the many families in my constituency who will be affected by the change. We must also take into account other things that have been going on. Low-income families are already disproportionately affected by rising fuel costs and rising food bills, for example, and these changes will only add to those pressures.

Child benefit has been frozen for another two years, until April 2014. Before the Budget, there was a lot of negative publicity about the plans to withdraw child benefit from families with a higher-rate taxpayer in the household. The hon. Member for Cities of London and Westminster referred to that in his speech. In the Budget, however, the Chancellor backtracked a little. From January 2013 there will be no loss of child benefit until at least one parent earns £50,000, after which the benefit will be gradually reclaimed through increasing the take up to £60,000. Beyond that, people stop getting the benefit at all. That will be a very complex system to administer, and my major concern is how it will affect people in my constituency. If the benefit had been raised in line with inflation, a couple with one child would have received £88 a year more in child benefit or £145 a year for two children in 2012-13, but now they will simply not get that.

The latest Department for Work and Pensions figures show that in Knowsley 21,185 families were in receipt of child benefit, with 35,725 children between them. That is a substantial number of people who will be adversely affected by these changes in my constituency alone. It is inevitable that I should comment on that, as it is totally unacceptable for those families. I fear that one consequence will be—perversely perhaps, or even unintentionally—that some families that manage to convince the Jobcentre Plus people that they are genuinely unemployed, might decide that they will be better off if they are not working.

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[Mr Chope]

I agree with my hon. Friend that there is a lot to be said for simplification and stopping the churning effect. The late Lord Joseph was a great campaigner on these issues, and other Conservatives in the past have campaigned to simplify the tax system, which is the avowed intent of this Government. I also think it right to recognise in the tax system that when people have equivalent incomes, those with children have higher costs than those without children. If we are to recognise families in the tax system, one way is to have what used to be a child allowance, which is now incorporated into the child benefit.

If parents have higher costs, why should they start to pay tax at the same level of income as somebody who is not a parent and does not have those higher costs? That is where I disagree with the Government on this policy, which I do not think is fair or consistent. When it has been justified by the Prime Minister, the Chancellor of the Exchequer and the Exchequer Secretary, they have argued that it is wrong that people who earn £20,000 or £30,000 a year pay for the child benefit of people like my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). The answer to that is that neither my hon. Friend nor other people are being subsidised in that way by other taxpayers, because, as the Exchequer Secretary confirmed in a written answer to me just before the recess, somebody would have to have 10 children and be on the threshold of higher-rate tax before they started to receive more child benefit than they were paying out in tax. The Government deploy a specious argument when they say that someone on £20,000 or £30,000 a year is paying for my hon. Friend’s child benefit.

[Mark Field]

I think my hon. Friend and I agree that one of the most important tasks for any Government is to get the huge deficit down. One of the single biggest costs is the cost of welfare, which this year, for the very first time, will go through an aggregate £200 billion mark. Does he not accept that reconsidering the universality of certain benefits would be a sensible way to get the deficit down? Although I do not disagree with elements of what he has said about the workings of clause 8, consideration of removing universality from relatively well-off people, not just for this benefit but for others, would be a desirable way forward.

[Mr Chope]

My hon. Friend makes a good point. As I said at a press conference organised by the Child Poverty Action Group, there is a strong intellectual case for saying that we should revisit universal benefits. What is happening here, however, is that one particular universal benefit—child benefit—is under attack whereas others are not. Will we say next that if somebody with wealthy parents presents themselves at a hospital, their parents should have to pay a charge? Are we going to start saying that free dental treatment for children should not be available to the children of better-off families? Are we going to remove a whole load of other universal benefits? If we are thinking of going down that route, we should have a big public discussion and a public debate. We should put all the universal benefits into the melting pot and decide whether we think there would be a big benefit if the number of universal benefits were reduced or eliminated and whether, as a result, the overall levels of tax could be reduced.

[Mark Field]

I know that my hon. Friend is a very brave man and I recall that Christchurch is the constituency with the largest number of pensioners. Does he think that the universal benefits of the television licence allowance and the winter fuel allowance should not necessarily go to the wealthiest of his pensioner constituents?

[Mr Chope]

My hon. Friend gives me the opportunity to hide behind the manifesto commitments made by the Conservative party and the Prime Minister. I was going to refer later to some of the background, but, prompted by that intervention, I will perhaps say the following. When the Prime Minister was Leader of the Opposition, he said:

“I want the next Government to be the most family friendly Government we’ve ever had in this country”.

On 5 March 2010, he told a public meeting in Bolton that he would not change child benefit. On 6 October 2009, six months or so earlier, the then shadow Chancellor, now the Chancellor of the Exchequer, told the Conservative party conference:

“We will preserve child benefit”.

I certainly went into the general election thinking that we would preserve child benefit as part of the universal benefit system in the same way as we would preserve the universal benefits that are applicable to so many of my constituents, as my hon. Friend points out.

My belief was reinforced on 22 June 2010, when the Chancellor said in his Budget speech in this House that

“we have decided to freeze child benefit for the next three years. This is a tough decision, but I believe that it strikes the right balance between keeping intact this popular universal benefit, while ensuring that everyone across the income scale makes a contribution to helping our country reduce its debts.”—[Official Report, 22 June 2010; Vol. 512, c. 173.]

At that stage, everybody thought that that was the end of it. We would retain child benefit, but freeze it for three years, The yield to the Exchequer of freezing child benefit in 2013-14 is no less than £1 billion. Looking back, I think that that was also the point at which the Chancellor should have said that he was going to freeze the age-related allowances. If that had been presented in the same context, with those in receipt of child benefit having their benefit frozen at the same time as those in receipt of age-related allowances had theirs frozen, I do not think that there would have been a row about it as there has been this time.

That is the background, so how were we able to end up with the Government effectively launching an attack on hard-working families with children? The Government have got themselves into a mess because they have not complied with their own policy of properly discussing the issues in advance of introducing measures. An interesting document, “Tax policy making: a new approach”, was produced immediately after the election. It was issued by the Treasury in June 2010 and in the preface, my hon. Friend the Exchequer Secretary said:

“I want a new approach to tax policy making; a more considered approach. Consultation on”

tax

“design and scrutiny of draft legislative proposals should be the cornerstones of this approach.”