Finance Bill

Mark Field Excerpts

Tuesday 6th September 2016 Commons Chamber

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

It is important, particularly in relation to entrepreneurial relief, to point out that the last thing we want is an economy where there are quick-fire gains. One of the criticisms of the tax treatment in the area of private equity and venture capital is that there have been too many incentives for people to sell out too quickly.

The corollary of that surely must be that if an entrepreneurs’ relief is designed to encourage entrepreneurs to hang on to their businesses in the longer term, it is difficult for the Treasury to bring back, in a shortish period of time, figures that suggest that a scheme has been a success. We have to look at the general tenor of an economy such as the UK. To that extent, I think that positive changes are being proposed, but I do not think that it is realistic or fair to expect the Treasury to come back in double-quick time and say, “This has been a great success.”

[Kirsty Blackman]

To be fair, the new clause does not ask the Treasury to come back in such a short time; it asks for a six-month review period. Instead of just saying that they will not do a review, the Government could quite easily say, “We will do a review, but we will do it in 18 months.” I would find that acceptable. I would like to see how the schemes are working. I am not necessarily saying that any of them are particularly bad, but the Government need to come back with their workings and tell us how those things are performing.

The UK tax system is incredibly, massively complicated, and there are tax reliefs and taxes for all sorts of things. I am not convinced that the majority of them are working as they were intended to, particularly those put in place 20 or 25 years ago. The whole thing needs looking at, and considering individual things is a sensible place to start. The new clause is about Government transparency, and anything we can to do increase Government transparency around tax reliefs, in particular, is great. It would be very good if the Government considered this for some point in the future, even if not exactly in the terms suggested.

The other thing I want to talk about is inheritance tax. The Conservative manifesto said that the party intended to

“take the family home out of tax for all but the richest”.

As I mentioned in Committee, I have a real issue with regarding £1 million homes, or homes that are worth close to £1 million, as normal family homes and not the preserve of the very richest. In Scotland, the average sale price in 2015 for a detached house was £238,000. In Edinburgh, which is at the higher end of the market in terms of price, the detached average sale price was £382,778. Those are detached homes—not family homes, necessarily—so they are specifically at the higher end of the market. In the most expensive place in Scotland to buy, we are looking at homes costing £382,778.

I have been looking at what someone could get for £1 million. In Orkney—fair enough, it is probably not the best example—they could get a six-bedroom home with an attached three-bedroom lodge and a guest wing for less than £1 million. Nobody would call that a normal family home. In Ayr, they could get a 10-bedroom detached category B listed mansion for less than £1 million. Also in Ayr, they could get a six-bedroom home, which seems relatively modest, in these terms, with a swimming pool for under £1 million. None of those could be classed as normal family homes. They are, in the main, homes that have been inherited—[Interruption.] Very few people will have just picked up these homes.

The other thing that the Conservatives said in their manifesto was, essentially, “You have worked hard for your money; we would like you to keep it.” The vast majority of the homes in question will not be first-generation owned. They will have been sold by the second or third generation because they have been owned by the family for a long time. They are not, by any stretch of the imagination, normal family homes. Even in the centre of Edinburgh someone could manage to get an eight-bedroom, detached, very large house for £1 million, and that is the most expensive place in Scotland to buy a home.

The problem—this applies to a huge amount of the Conservative manifesto—is that the Conservatives think that what happens in the south-east of England is normal for the rest of the UK. It is not normal for the rest of the UK. I know that the south-east is where the majority of the population are based, but some thought needs to be given to this. Members will expect me to say this as a Scottish National party politician who supports independence, but if decisions were made closer to home, they would be more appropriate for people in Scotland.

[Mark Field]

I appreciate that my constituency is hardly typical as far as these matters are concerned —nor, indeed, is the Minister’s constituency on the other side of the river—but the logic of what the hon. Lady is saying is that we should move towards a regionalised tax system. I guess that she would quite like it to be a nationalised system, with the nation beginning on the other side of Hadrian’s Wall, but does she not recognise that the Barnett formula gives particular incentives to the nations of the United Kingdom, rather than to London and the south-east? I can understand the irritation that she feels about the fact that perhaps too much thinking is done for London and the south-east, but £1 million buys virtually nothing not only in my constituency but in many of the 73 constituencies in London, as well as those in the home counties. Short of regionalising our tax system, surely this is, at least, a sensible step forward to ensuring that those who have been able to bring up a family in a home are not forced to sell the home when a relative dies.

[Kirsty Blackman]

The right hon. Gentleman makes a good point. Perhaps we need to think about having differential policies across the UK, and possibly further devolution. That would be fantastic, and if he wants to support us in that cause, he is welcome to join us at any time.

This policy highlights a major difference between the south-east of England and the rest of the UK. The problem with Government being so far from people who are outside London is that policies are made for the benefit of the majority of the population—the people who live around here. That is really unfortunate for people in the north of England and in Wales, because the policies made by the national Government do not make sense for us.

[Mark Field]

Will the hon. Lady give way?

[Kirsty Blackman]

I will not take another intervention; I am sorry. I just want to mention briefly the Prime Minister’s statement that she will take “bold action” on tax. We have a big problem—we will still have a big problem after the changes that will be made by the Finance Bill, including the tax changes that we discussed yesterday—with the lack of parity and fairness in tax. Nurses, carers and people who work in all sorts of professions pay 20% tax. I acknowledge that the personal allowance has been raised, and that is very much appreciated, but those people pay the tax that is due on the majority of their income.

There are still too many loopholes in the rest of the system. I understand the point that was made about carried interest, and we need to see how that works going forward. I would love to see the Government’s working on that, and whether the policy has the effects that the Government intend. However, unearned income is still taxed at different rates from earned income. I understand the point that was made about private equity supporting our economy and supporting some of our community organisations, for example. However, the people in question are not paying the level of tax that they should be paying to the Government, so the Government do not have the funds to disburse that they should have to disburse.

We need to do something a bit more radical than tinkering around the edges. We need to look at making changes that actually bring about parity. We need to look at ensuring that the people who are making the megabucks in the City of London pay at least as much tax, and as high a percentage of tax, as our nurses and carers pay.

[Mark Field]

I will speak briefly in favour of amendment 151 on carried interest. In my time as a Member of Parliament, I have sometimes been critical of elements of the tax regime that applies in the private equity and venture capital world. It seems to me that the generous tax regime, although it has been justified to support entrepreneurs, has often been misused by those in the industry—inadvertently; I am not suggesting that anything untoward or nefarious has taken place. I believe that many in the private equity field have, particularly in good times, in effect been financiers rather than risk takers. As such, it would surely be more equitable for their rewards to be treated more like income than capital gains. That has been at the heart of the whole debate about carried interest.

The Government have been aware of this issue. Let us give them some credit for that. To some extent, we are trying to play catch-up on it. Inevitably, there has been controversy about the treatment of private equity firms’ carried interest, which is levied as a capital gain, rather than as income. There was a time—pre-2010—when the difference between those two things was rather greater than it is today. That may be because capital gains tax has been raised, but the starkness of the problem is to some extent less pronounced now than it was during the time of the last Labour Administration in the noughties.

It is clear that the Treasury is doing the right thing in trying to provide a more favourable regime that is intended to reward genuine entrepreneurs. In principle, that must mean that where carried interest looks like income, it should be treated as such for taxation purposes. That is what we are slowly doing with amendment 151.

[Rob Marris (Wolverhampton South West) (Lab)]

Has the OECD not recommended that all carried interest should be treated as income?

[Mark Field]

It has, but there is a distinction between different elements of carried interest, and we are trying to get to the bottom of that. To be brutally honest, in the longer term I would be much happier to have a regime in which we treated capital gains and income identically. There would not then be any sense in trying to arbitrage one way or the other. In many ways, perhaps inadvertently, the coalition began to move in that direction.

I am sorry that I was not in the Chamber to hear the whole speech of my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), but he is absolutely right. Private equity has had a bad rap because of certain high-profile concerns—partly because of the misuse of tax to allow huge amounts of debt on to balance sheets—but a large number of businesses in each and every one of our 650 constituencies in the UK benefit from having private equity investors. Many jobs now exist because of the private equity investment that has come into play, particularly in growing businesses that will make a real difference in the future. The Government have broadly got this right, although I am sure we will have to come back and look at it again.

I would make one point to the hon. Member for Aberdeen North (Kirsty Blackman). It is not about inheritance tax—we have had our joust on that—but on a more fundamental point, on which I think she is absolutely right: the more complicated a tax code, the more the door is open to tax avoidance of all descriptions. We very urgently need to begin to simplify our tax code. We will add yet more pages to it today. A lot of them are to apply Elastoplast in ways that we can all support for individual reasons, but we need to get back to the principles of a much simpler tax system.

I believe that one of the impacts of leaving the European Union will be not a race to the bottom in lowering tax, but a much simpler tax system. This is a wake-up call for all of us in the House—obviously, particularly for those in the Treasury—to have a much simpler tax code. Such a code will be readily understandable and supported by all our constituents, which is one of the issues we face. It will also say to those bringing in much of the inward investment that will come to the UK from across the globe that we have a simple tax code, which will not be tinkered with in successive Finance Bills because it is very straightforward, and they will be able to work on that basis. I know that may be wishful thinking—going back many years, most Chancellors have talked about having a simpler tax code—but this now needs to be looked at urgently. Urgent attention must be paid to getting simplicity. If we do not do so, we will all very much pay the price.

[Rob Marris]

I entirely echo the right hon. Gentleman’s comments about simplification. I may attempt to catch your eye, Madam Deputy Speaker, to address the House on that issue later. However, I caution him against linking that to Brexit, because almost all the complications, of which there are many in what we now call the tax code, are due to domestic legislation and are nothing to do with the European Union. Brexit may afford us an opportunity to start at the bottom on various areas of Government policy and endeavour, but leaving the EU will not provide such an opportunity in this case.

[Mark Field]

Obviously, the hon. Gentleman does not know me, or indeed the Minister, well enough to know that we are both very much on the pro-European wing of our party. I was not in any way blaming the EU. I was simply trying to make the point that, in looking to get a new set of trade arrangements with dozens of countries across the globe, we should not rush headlong into making lower corporation tax the incentive for companies. One of the big factors for them will be the sense that there is a simpler and more straightforward tax code in the United Kingdom, and that will make us open for business in the way that we have traditionally been open for business during the past 200 to 300 years.

The Floor of the House of Commons is not the place on which to make such a policy, but I very much hope that we will keep this very firmly in mind. There is now an urgent case for having a more straightforward tax system, even if it is one that only says what we are aiming to achieve. It will obviously be difficult to unravel tax benefits created in the past. I accept that it will be difficult to unravel all the reliefs, not least because entrepreneurs in the future, like those in the past, will want to rely on them in making investment decisions.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

The right hon. Gentleman is making some very important points about simplification and its impact in ensuring that measures work in the way intended. Does he agree that simplification and clarification of the objectives of reliefs would go a long way to making sure that small enterprises or first-time entrepreneurs could understand and gain greater access to the available reliefs, which may be intended for them but are perhaps used by others with greater experience?

[Mark Field]

I am sure there is a lot of truth in that. I was a businessman before I entered the House. It was a relatively straightforward business, based in the City of London, in the service industry, so there were not a huge number of reliefs available, although it may well be that 20 years of additional pages of the tax code have made it even more bloody complicated than it was for those working in and setting up businesses in the 1990s. I agree with the hon. Lady. Again, getting rid of reliefs and making the system more straightforward is the right way forward. Rather than having a whole lot of reliefs to recommend to would-be entrepreneurs, let us try to cut down the whole thicket.

Madam Deputy Speaker, I have spoken for long enough. I almost veered off the subject, but had I done so, I am sure you would have been the first to stand up and say so. I very much hope that amendment 151, among others, will be supported. It is definitely a move in the right direction, although I am sure we will have to come back to the issue of carried interest in the future.

[Seema Malhotra]

I am grateful for the opportunity to speak in this debate, which was opened by my hon. Friend the Member for Salford and Eccles (Rebecca Long Bailey), on the new clause and amendments relating to capital gains tax. I will speak particularly about new clause 14, on “Entrepreneur’s Relief: value for money”, amendment 174, which would remove the capital gains tax cut, and amendments 175 and 176 on the investors’ relief sunset clause. Labour’s main issue of contention with the Government is the reduction of capital gains tax, the reasons for which have been well outlined. I want to highlight the very serious issue of value for money in public finances, and to continue to make our call for the Government to look at the way in which we scrutinise and review tax reliefs.

As we have argued since the Budget, the Finance Bill is inadequate if we are to rise to the challenges we face and to work towards a very strong economy in which we can all feel and believe that prosperity is shared by all. At a very tough time for the public finances, the Government have chosen to prioritise a corporation tax cut and a capital gains tax cut. Certainly while working on the Finance Bill, including as shadow Chief Secretary, I have had several conversations with business figures who quite openly said that they did not necessarily expect a corporation tax cut while other issues that are so important for their business success—investment in skills, housing, infrastructure and superfast broadband, and ensuring that we get the productivity shifts this country so desperately needs—require great attention. To purport that there is a simplistic link between a capital gains tax cut and a strong enterprise and investment culture is therefore not very honest, because it has not been proven that the cut is either necessary or sufficient to achieve that outcome, which we do indeed want.

Let us not forget that at the last Budget, the OBR took all the Chancellor’s measures into account and still downgraded the business investment forecasts. The latest figures from the Office for National Statistics estimate that business investment decreased by 0.8% between the second quarter of 2015 and the second quarter of 2016. Therefore, it continues to be a concern that the Government’s economic strategy does not take into account the wider needs of businesses beyond tax cuts.

It is the context of squeezed public services and lack of investment that leads me to raise the issue of tax reliefs, particularly those pertaining to capital gains tax, and the way in which we understand the needs of businesses. Tax reliefs are an important part of our tax system and have been needed for a variety of reasons, many of them extremely valid. However, after six years of this Government’s failure on the economy, in so many ways, with many people feeling the brunt of the cuts and with our public services under considerable strain, every penny of public spending should be going on much needed investment in our schools and hospitals and on supporting the most vulnerable. The figures got even worse this summer, with more than a third of children leaving school without the equivalent of five good GCSEs, and schools in my constituency tell me that they are giving out money every day to help parents buy school uniforms and shoes. We therefore need to justify every penny that is spent by the Exchequer.

That also has to apply to every penny that is not collected. Tax reliefs are effectively tax forgone. I firmly believe that we need to apply just as much scrutiny to relief as we do to expenditure. That is not to say that I am opposed to tax reliefs to incentivise good and positive business behaviours—far from it. For me, providing behavioural incentives to achieve economic and social goals is a central part of the role of Government, but they must use effective judgment that is based on the interests of fairness and prosperity. A Government who are working in strategic partnership with business and industry in the interests of the economy and society will actively consider such measures.

However, there is a serious paucity of scrutiny of whether and to what extent various tax reliefs are achieving those goals and whether they remain value for money for the taxpayer. The HMRC website lists 405 tax reliefs in the UK, but in reality there are many more. The Office of Tax Simplification has identified 1,140 tax reliefs. Of the 405 tax reliefs listed by HMRC, 102 cost more than £50 million, 84 cost under £50 million and there are 219 for which HMRC does not provide cost data.