Finance (No. 2) Bill
Mark Field Excerpts(10 years, 3 months ago)
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Danny Alexander
I am grateful to my hon. Friend for her contribution on these matters and for those specific comments. She is right that these are very liberal reforms. They are something of which we as a coalition can be proud. We have swept away the morass of means-testing of pensioners that built up under the previous Government and have ensured that every pensioner has a firm foundation from the state. They have a better basic state pension paid at the level of the single-tier pension. There is much greater flexibility for people to choose how to use additional savings in defined contribution schemes; after all, it is their money. I would go even further and say that this Government and this Finance Bill are about not only freeing up pensioners but providing additional freedom both for working people to keep more of the money that they have earned for themselves and for businesses that wish to invest.
Mark Field (Cities of London and Westminster) (Con)
I welcome the simplification of the pension arrangements, which predates this Budget. As the Chief Secretary rightly says, these flat-rate pension arrangements have gone on throughout this Government. Is he concerned that there will be increasingly strong pressure from the Opposition and others, who will say that the very generous tax benefits on pensions will be more difficult to justify if the annuity arrangements—in other words, the guarantee that this money will be used in retirement—are no longer in place?
Danny Alexander
It is a long-established principle that there should be tax relief on pension contributions. This Government have sought to restrict that tax relief. We have lowered both the lifetime limit and the annual limit. I am not sure whether the Opposition’s proposal has taken into account the changes that we have made. I am not convinced that changing the rate of relief would alter very much the amount of money spent, because of the lower limits that we have already imposed. Speaking for myself—this is a matter that my party will be putting forward at the next election—the fact that we offer about £35 billion of relief on pension contributions every year and that more than half of that tax relief goes to the top 10% of earners is something that is worth further examination. As we continue with fiscal consolidation, which is necessary for our economy, we need to make absolutely sure that we are handling our tax system in as fair a way as possible, and not offering unnecessary tax relief to the very wealthiest in society.
Chris Leslie
Before I give way, let us look at what is happening in the new tax year that is about to begin. I urge my hon. Friends to think, for example, about the change hitting some of the poorest households in our constituencies, homes on the lowest incomes, which will see council tax support withdrawn at a significant level in the new financial year. Some have called this poll tax mark 2, with the poorest and most vulnerable households, carers, single parents and the disabled seeing their bills go up by 120%. The Government impose these tax rises in a stealthy way by saying, “Local government, we will devolve it down to you. It’s your responsibility”, but nobody is fooled by their techniques. Look at the squeezed middle and the extra tax those people are paying.
Chris Leslie
Before I give way to the hon. Gentleman, he can tell me this: I think about 2 million more people are being sucked into the 40p rate of income tax. I heard that that caused consternation among Members on the Government Benches. From this April, at a number of levels, people will lose out significantly.
Mark Field
I will ask the questions rather than answer them, if the shadow Minister does not mind. He implores us to look at the Bill in a balanced way. We have heard statements about tax cuts for millionaires time and again over the past year and again today in the House. Does he recognise that the top 1% of British citizens are now paying the highest share of income tax that they have ever paid in the history of that tax—some 30%? Purists such as me have at times been mildly critical of the inconsistency of elements of the welfare and tax changes that have been made even during this coalition Government, but we have gained a hell of a lot of social cohesion in this country—
Mark Field
—in marked contrast to many other European nations, and the Government should be congratulated on that.
Chris Leslie
I do not think it helps with social cohesion to move from the 50p to the 45p rate. That sends a very bad signal, and I know that Members on the Government Benches will feel that in their constituencies, especially when the Government are jacking up taxes and reducing tax credits and other help for some of the poorest in society, while giving that very generous tax cut—typically £107,000—to the average millionaire at the top of the scale. I do not think a 50p rate is unreasonable.
It is unreasonable for Government Members to say that a 50p rate does not raise any money—“we cannot possibly do it”. If it is telegraphed to that set of high earners at the point at which a 50p rate comes into effect that it will be going in a year or two anyway, of course they can stave off the point at which they draw down their dividend from their personal service company. Everybody knows how they managed to avoid paying that 50p rate. They waited until the new tax year ticked over, then they paid the lower rate. It was very simple, which is why in the statistics we suddenly saw bonus payments go through the roof, sky high, at the point when the 50p rate fell to the 45p rate. We should have been allowed a proper assessment of what happened at that point.
Chris Leslie
It is vital that we have serious consultation on those measures. We support flexibility in principle, but the changes cannot be made without taking into account the wider implications, so it is important that we have that level of information and analysis in the Treasury projections. I do not know whether the Government were motivated by the desire to benefit the population more broadly or by the short-term opportunity, following the annuities changes, to bring in a vast amount of tax revenue from pensioners much earlier than would otherwise have been the case. All I know is that the Chancellor used the annuities issue to provide a veneer of long-termism over what was otherwise an exceptionally short-term Budget and what is an exceptionally short-term Finance Bill.
Clauses 112 and 113 deal with the old question of the bank levy. My hon. Friends will be familiar with the Government’s track record on the bank levy. We will scrutinise those clauses very closely indeed, because The Daily Telegraph, among others, has reported that they could mean a secret tax cut for the banks. Last year Barclays paid £504 million in levy charges and HSBC paid £544 million—the most of any bank. But under the draft proposals the Chief Secretary is bringing forward in the Bill, Barclays’s bill would have been £129 million lower and HSBC’s would have been £169 million lower. What is going on? Given that the levy was supposed to catch up with the lack of collection in previous years—it was supposed to increase by 20% this year—it seems very strange that these clauses might give the banks a very significant saving indeed.
The purpose of the bank levy, of course, was to allow the Government to take £2.5 billion every tax year. It was an unusual tax because they set the amount of revenue to be raised and the methodology revolved around that. In its first year, the levy brought in £1.8 billion, which was a significant shortfall. Things got worse the next year, because in 2012-13 it raised just £1.6 billion. My hon. Friends know the attitude Her Majesty’s Revenue and Customs takes to our constituents if an amount of tax they are asked to pay is not forthcoming, but that is not the case when it comes to the banks. It has gone soft in collecting the money the levy was supposed to raise.
We read in the small print of the Office for Budget Responsibility’s report that accompanied the Budget that in 2013-14, for the third year running, the bank levy is projected to raise only £2.3 billion, which falls short yet again. The combined shortfall from the past three years is now a very significant £1.8 billion. We could pay the salaries of 60,000 nurses with that sum.
Chris Leslie
It is a very significant sum of money, and I am sure that the hon. Gentleman will have something to say about that.
Mark Field
I certainly do. The hon. Gentleman must also recognise the importance of banks lending into the real economy, particularly as the recovery takes hold. Does he not recognise that if we are to ensure that banks are properly capitalised again, repeated demands for an ever-larger banking levy—it is already the largest it has ever been, even before 2010—could be diametrically opposed to the long-term interests of the British economy? In other words, it could hinder efforts to get the banks lending again.
Chris Leslie
Of course the banking sector is very important. It has been dysfunctional for a prolonged period. Net lending to business has fallen consistently throughout this Government’s time in office. But I have to tell the hon. Gentleman that when the Treasury said that the levy would raise £2.5 billion, it should have got that money in. All our constituents are paying more in tax and have lost out significantly because that money has not been forthcoming from the banks, which after all owe a little bit back to the taxpayer for the bail-out that followed their reckless lending decisions in previous years.
The very least we should do is ensure that we have a functioning bank levy that brings in the expected sums. We would ensure that it raises a further £800 million. We would use that money to expand free child care places for working parents of three and four-years olds by extending free nursery care from 15 to 25 hours a week. That would also be a good way of helping parents to get back into the labour market and to get the jobs they need. A 15-hour arrangement—three hours a day—for child care does not give a parent looking after a youngster the opportunity to get into work, but 25 hours a week would make a significant difference. We could do that through a reasonable and modest change to the bank levy.
Mark Field (Cities of London and Westminster) (Con)
It is usually a pleasure to joust with the hon. Member for Nottingham East (Chris Leslie), but his comments were unremittingly negative. It is amazing that he contrived a speech lasting no fewer than 46 minutes about a Finance Bill that supposedly had so little in it.
For almost the past four years, the British electorate have, perhaps grudgingly at times, recognised that the coalition’s avowed economic plan—the elimination of the structural deficit in the course of this Parliament—has been the right path in response to our grisly economic inheritance.
Key to the plan was consistent growth. The Office for Budget Responsibility’s predicted compound growth of 2.7% to 2.9% for the duration of the Parliament accounted for more than half the deficit reduction programme. As the hon. Gentleman rightly pointed out, that has not been achieved, but the international capital markets have maintained their confidence in the coalition despite its first three years having being characterised by somewhat sluggish growth. Fears that excessive borrowing on the scale that became necessary between 2010 and 2013 would lead to higher interest rates have proved entirely unfounded.
Mr Kevan Jones
I know that 2010 seems a long time ago, but does the hon. Gentleman remember that when this Government came to office the economy was growing and we went into decline only because of the sucking out of demand and investment in the economy during their first two years?
Mark Field
The hon. Gentleman will be well aware that it is in the power of any Chancellor to orchestrate something of a pre-election boom. The VAT reduction certainly assisted in that, such that there were two or three quarters of unsustainable growth in the period from the end of 2009 to 2010, as became apparent fairly quickly.
We have seen some very significant growth. The first glimpses that came a little over a year ago in spring 2013 have turned into healthy, consistent growth that has in many ways surprised even economic experts. This has been maintained, alongside a very strong performance in employment, and barring unforeseen economic shocks it should continue for the rest of this year and beyond.
After the frenzy of Labour’s energy price freeze promise, the early new year period has allowed the Government to regain their footing and reset the important message that we are following a long-term economic plan that will benefit hard-working people. If, in the coming months, we can overlay this sober foundation with a sense of upbeat optimism and positivity about our nation, we will have a solid base from which to bat away unremittingly negative political attacks of the kind that we heard earlier. To complement consistent messaging on the deficit, we must also give the electorate a feeling of hope about life under a future Conservative Government. Nevertheless, the Treasury has been right to be wary. A giveaway Budget implemented by this Finance Bill would have sent out entirely the wrong signals. If money were found for substantial tax cuts, our opponents would question the need for further reductions in the welfare budget, and this at a time when the Institute for Fiscal Studies calculates that we are only two fifths of the way through the total planned spending cuts.
In the months ahead, the Chancellor might perhaps borrow some tricks from the Bank of England. While the notion of forward guidance has hitherto proved something of a mixed success for the Governor of the Bank of England, Mark Carney, it might prove a useful tool for the Treasury. Unlike some of my hon. Friends, I have always doubted the wisdom of promising instant and substantial tax cuts, as that puts in jeopardy our central mission of restoring order to the public finances. However, there is no doubt that reducing the tax burden should always be part of a Conservative offering, not least as we approach a general election. I hope that in a future autumn statement the Chancellor will offer his own brand of forward guidance, giving a clear signal that when progress has been made on reducing the deficit, and that progress breaks past a certain point, a series of tax cuts will kick in. In that way, the electorate will know full well that while our priority is, and must remain, stability, our ultimate aim will be a low-tax, competitive economy.
The Opposition’s messaging over the past six months, as in the course of this debate, has blended naive populism with flagrant opportunism. Their appeal has rested not on their practicality but on their exploitation of a deep sense of unease among many in the electorate that the current system does not deliver for them. The Government’s response has at times been too erratic and confusing, and has lent greater weight to policies that should rightly be dismissed as dangerous and unworkable. What voters need from us, and what this Finance Bill offers, is a sense of consistency and simplicity.
Rather than blowing us off course, the Bill implements a Budget that has been designed to cement our position as a calm and rational team slowly and patiently getting the UK economy back on track and the public finances under control. Substantial or radical reductions in tax should sensibly come only when that mission has been accomplished. Perhaps understandably, this sober message was not the headline-grabbing element of the Budget. Rightly, the proposed liberation of pensions will now be subject to extensive consultation. These ground-breaking reforms will need to be assessed to ensure that any potential unintended consequences are properly analysed before any new pensions regime is put in place.
I want to put on record some specific concerns about the tax avoidance regime that may differ from those raised by the hon. Member for Nottingham East. I addressed these last Friday in an article in The Daily Telegraph about the operation of Her Majesty’s Revenue and Customs’ disclosure of tax avoidance schemes—DOTAS—regime. I have been struck by the number of financial advisers and investors, large and small, from across the country who read my piece and have responded over the past few days by outlining their own cases of particular concern.
Last year, for the first time, aggregate investment in UK-based film production topped £1 billion. This has been aided by a crucial tax break that has attracted huge sums of private cash into the British film industry, which we can be proud of and which is recognised on the global stage with the success of many British films at the Oscars. In last month’s Budget, the Chancellor introduced a theatre tax break to match similar provisions for high-end TV, film, and televised animation. I warmly welcome this energy from the Government on behalf of our crucial creative industries. As well as being home to the much-maligned banking industry, my constituency is also the traditional home of many of our great, globally competitive creative sectors in Soho and Covent Garden. I campaigned for some three years to get the animation tax credit that was successfully announced in the 2012 Budget and agreed on in all parts of the House.
Last month, however, I heard a tale of woe from a group of experienced private investors who have found themselves squeezed awkwardly between the coalition’s ambitions for the creative industries and its other understandable priority—a clampdown on tax avoidance. Their experience should be a warning sign to any investor who has sought to engage in an open and transparent relationship with HMRC. It should also give Treasury Ministers pause for thought—not least the Exchequer Secretary, who is in his place, as he aggressively pursues the Government’s anti-avoidance agenda in the months ahead. Some years ago, the group who came to see me had approached HMRC with their model for private investment in the UK creative industries. After extensive discussion on its structure, they were not only given the green light but told that their vehicle was exactly the sort of thing that the Government were envisaging. On the basis of this understanding, the group proceeded to invest more than £1 billion of risk capital into the British film industry, leading to the production of more than 60 home-grown films.
Given the discussions they had had, HMRC considered these legitimate investors to be firmly “inside the tent”, but as a precautionary measure they elected to place themselves on the DOTAS register. Because tax avoidance measures are now so widely drawn, it has been common practice to err on the side of caution by signing up to HMRC initiatives of this sort. The investors thought nothing more of the DOTAS registration until a flurry of high-profile scandals, or so-called scandals, came to light whereby film investment vehicles had been used by celebrities to slash their tax bills. Rather than sifting through the egregious examples of so-called aggressive avoidance through legitimate investment vehicles, HMRC threw a blanket of suspicion on to any DOTAS-registered scheme. Keen to establish their vehicle’s legitimacy as swiftly as possible, and exhausted by HMRC’s consistent mismanagement of their case, as they see it, the investors elected to put their scheme before an independent tax tribunal.
Currently, if the UK tax authorities wish to challenge the legitimacy of a DOTAS-registered scheme in court, the taxpayer is permitted to hold on to the disputed tax while the case is being resolved. This was discussed earlier by the Chief Secretary. Because the Government believe that this incentivises scheme promoters to sit back and delay resolution, they now propose to extend the accelerated payments measures to existing DOTAS-registered schemes. This means that disputed tax will be paid up front to HMRC and returned only if a scheme is subsequently found to be legitimate. However—this is where the Government need to rethink their understandable enthusiasm for clamping down on tax avoidance—no exception is proposed in cases where taxpayers have demonstrably not sat back and delayed as long as possible. My investor constituents are desperate to get their dispute settled by an independent arbiter as a matter of urgency. In their case, it is HMRC that is stalling progress. Legitimate investors understand the need to deal quickly with the tens of thousands of outstanding mass-marketed avoidance cases currently clogging up the courts. They simply propose an exception in the case of existing DOTAS-registered schemes whose promoters have taken all reasonable measures to enable a dispute to be brought before the statutory appeals tribunal.
It strikes me as a shocking breach of faith that the Government are now attempting to impose a requirement on such individuals to pay a disputed up-front sum when it is an agent of the state—in this case, HMRC—that is deliberately and actively delaying the sitting of the tribunal. Worse still, I fear, is the general message being sent to other private investors, who stand to be deterred from any future investment in the UK film industry.
DOTAS was designed with the best will in mind—something you may well remember, Madam Deputy Speaker, as the system came into play under a previous Administration. It was designed, rightly, to promote openness and transparency in investors’ relationships with HMRC—in principle, a welcome step. However, DOTAS is now in effect helping to produce retrospective legislation, with DOTAS declarations being used as a stick with which to beat legitimate investors who never planned on having liquid assets to meet disputed liabilities. I fear that augurs ill for the Government’s broader, much vaunted anti-avoidance plans, as set out in the Bill, and their overarching plan to make Britain entirely open for business.
It is useful at this juncture to highlight some of the letters I have received in response to my article of last Friday. One constituent, a small-scale investor in the scheme, advised me:
“HMRC has previously offered us full relief on our cash contributions if we forgo relief on the loan element. We haven’t agreed to this. Now they plan to make us pay all the tax in the autumn. Many will feel pressured to settle on the basis of HMRC’s earlier offer as that will reduce the cash to be found by some 37%. This is harassment, which if conducted by a loan shark would rightly have you and your colleagues legislating. HMRC has no case and is relying on intimidation and extortion instead.”
A correspondent from further afield wrote:
“I am an ordinary, law abiding person who has never knowingly cheated anyone, least of all HMRC! But their endless delays and apparent moving of the goal posts make me feel almost like a criminal.”
Another wrote:
“The cries of protest highlighting this radical shift in power seem to have fallen on deaf ears of government officials. I represent hundreds, if not thousands of similar professionals that are on the brink of ruin as a result of the changing of the goal posts by HMRC whose unchecked powers seem to be morphing.”
That concern was shared by many others. There is concern that the decision process lies solely in the hands of a designated officer—some relatively anonymous HMRC official, acting as judge and jury, with no independent or proper safeguards. That does not seem right, as pressures on individuals to act in the best interests of a Department that is failing to collect taxes as quickly as it would like will be immense.
I know we discussed this matter in the House in the context of retrospective legislation last year, but we need to give serious thought to how Parliament can properly control such Executive power. There seem to be no checks or balances on a Government Department, and that does not seem the right way to address our tax policy.
In my view, if the Treasury wishes actively to encourage investment via additional tax credits, we must be assured that legitimate investors’ previously agreed, transparent vehicles are not at some point going to be subject to unplanned for, up-front tax liabilities in the event of a sudden change to the rules by HMRC. As the Exchequer Secretary will know, I have consistently pressed for Government efforts on tax evasion to go hand in glove with the creation of a comprehensive pre-clearance regime. That would allow firms and their tax advisers to road-test proposed taxation schemes with HMRC officials. Ideally, if that were to work efficiently, no new scheme would be permitted to be marketed until such time as approval had been given.
I am sorry to speak on a slightly negative note, because as I have said I support much of the Bill, but it is important to put on record some of the concerns about how the anti-avoidance process is working. Alarm bells should be ringing throughout Parliament as we preside over this unprecedented transfer of power to HMRC. This agency of the state is being empowered not only to apply the law but to a large extent to rewrite it. In summing up, will the Minister provide assurances on the steps that he is putting in place to ensure that incorrect seizures are avoided and that hardship will not follow as a consequence?
The Government’s aims to encourage investment in British industry and to clamp down on aggressive tax avoidance and evasion should not be incompatible. I trust that during the full consideration of the Bill we will further highlight some of those unprecedented powers to rewrite the laws and ensure that Parliament and, above all, the Treasury take a step back, so that we have a system that, as far as possible, promotes the sort of investment that all of us crave, not just in the creative industries but throughout the UK economy.
Richard Harrington (Watford) (Con)
Rather than try to compete with the shadow Chief Secretary’s negative attitude towards the Bill and his extended romp through it, I feel it is my role—my position is somewhat more humble than his—to stick to two or three brief points and ask the Government and him to think about them.
Although I applaud the Bill’s pension clauses, I think that two particular issues should be addressed in addition to what was said in the Budget statement. The first relates to the provision of advice and information to people who choose an alternative to the previous system whereby, for good and bad, the decision was handled by an insurance company through the annuity system. Something has been published about Government money being spent on helping to provide advice or information, but my fear is that that will turn out to be a call centre somewhere, with people who may be trained only in a limited way having to advise people on the biggest decision of their lives and finding it very difficult to do so.
Regulations were brought in by the Financial Services Authority for the smaller independent financial advisers who, for better or for worse, provided such a function for people retiring with small pension pots. A very open policy by Adair Turner and Hector Sants, part of the previous administration at the FSA, in the form of new regulations relating to the retail distribution review and the disclosure fees, has effectively eradicated the very low-level IFAs—those dealing with very small pension pots—simply because it was impossible for them to charge enough money to be able to give proper advice. I understand that, because it is just economics, but my fear is that no one or no company has adequately replaced that kind of advice, let alone in relation to what the Government are about to do.
I hope that the Exchequer Secretary and his colleagues will give that some attention. I know some money has been allocated, but for most people it is the most serious decision they will ever take, except possibly when buying a house. There must be a mechanism, whether private or Government-funded, to provide good advice. For wealthier people, there is a very sophisticated wealth management business—IFAs are very good, and I am sure that different firms around the country do an excellent job—but given that the average pension pot is probably about £20,000 to £25,000, it is a very important decision for people who have saved into it all their lives. A lot of thought must go into how such people are informed, although I accept that, for regulatory reasons, there is a big difference between information and advice.
Mark Field
My hon. Friend makes a very important point that is worth stressing. In the midst of more and more regulation, standardisation and almost a utilisation of all facets of the financial services industry, we are moving away from the very personalised advice that the sort of clients to whom he refers so desperately require.
Richard Harrington
I thank my hon. Friend, who characteristically makes a very good point. The problem is that to give the kind of detailed personalised advice that people want, the fee has to be at a certain level to reward professionals for doing the job, but smaller pension pots make that very difficult. That is nothing to do with regulation; it is simply about being able to charge the correct amount for their time. I hope that there will be alternative systems, although they may not perhaps give quite the bespoke advice that is available for people with larger pots. In other fields, such as accountancy, there are ways in which people can get good advice without having to spend the vast amounts of money available to those with larger pots.
My second point about changes in pensions legislation is just a thought. Many billions of pounds will become available that would have been dealt with directly in the insurance market through the annuity system. Have the Government given any thought to providing a facility involving national savings in which the Government or an organisation acting on their behalf deal with it on a managed fund basis? There is a similar system in Australia and New Zealand, where there is a kind of sovereign wealth fund that comes from people’s pensions pot, accrued together, with the necessary caveats about risk, a portfolio approach and all such matters. The Government thereby take advantage of the savings system, so that people can retire with a very good, solid and Government-guaranteed choice—of different types of products and risks—about what to do with their money. It would be very simple, with perhaps one or two choices; it obviously could not compete with the great panoply of schemes of the large fund management companies. It would be simple so that people could understand it, and I hope that it would provide a vehicle for funds that are safe and give a good return for the public, while also providing the Government with extra funds, as happens with National Savings & Investments.
On the Budget generally, which I support fully, my fear is that this country still lacks a business culture. Both this Government and the previous one quite rightly focused on small and medium-sized enterprises, businesses and apprenticeships, with different schemes and systems to try to help them. When I speak at schools in my constituency—as for all hon. Members, they are a regular feature in my diary—it is interesting to talk to young people about what they want in life, yet very few of the brighter ones seem to desire to go into a business environment. Those who do have such a desire tend to be interested in graduate schemes with larger multinational companies or the professions. There is nothing wrong with that—some of them, heaven forbid, want to be politicians—but these are the very people whose families often have small businesses in my constituency, and there are 1,600 businesses in Watford that employ between two and seven people. It seems to me that the establishment—schools, parents and everyone else—very much look for brighter young people to go into the professions and find alternatives to self-employment.
It is very hard to change that culture, but I want to commend the Government for what they have done to help small businesses and to help people to start up businesses. Wenta in Watford—the Exchequer Secretary may be familiar with it, because it is near his constituency —is an incubator for many start-up businesses. I saw several of them when I was there only a couple of weeks ago, including a small business started by James Morgenstern in which, in arrangement with Google, people who find an image of a building on Google Earth can then see a video of its interior. He started it in his bedroom and has now moved to an office at Wenta, and the business will expand.
To use James Morgenstern’s business as an example, his next big step is to have a first employee. I can speak with a little authority, because many years ago—I am probably about the same age as his parents or, depressingly, his grandparents—I was in that position. One starts a business and it is all great: one does everything oneself, being up 20 hours a day, and all that—it is a great pity that the shadow Chief Secretary is not in his seat at the moment, because he would be very interested in this, so perhaps I should brief him fully outside the Chamber—and the next step is to have a first employee.
I am very pleased that the measures taken by this Government have helped somebody to take that step. There have been different schemes relating to national insurance, and in particular schemes that have made it very reasonable for small companies to take on apprentices, who are given a tailor-made programme. To get to employees Nos. 1, 2 and 3—after employing only oneself—is the biggest step for a small business. From the point of view of the economy, in reducing expenditure on welfare, while people benefit from earning money themselves and eventually pay tax, that step is most critical. Many of the measures in this Budget and in previous Budgets will help with that.
In the end, most people set up businesses for one reason. It may be a noble reason or a selfish reason, depending on one’s perspective, but people set up businesses to make money for themselves and their family. When I speak to students in my constituency, I always commend those who want to be teachers, social workers and doctors because when they graduate, they will give their lives to help other people in society. However, to those people who put their hands up and say that they want to become rich, live in a big house and get a Ferrari—there are a few of them—I say that, provided that they pay their taxes and employ people, they will benefit society just as much as the first group of people. I really believe that. I believe in everything that the Government have done in the Budget and in the Finance Bill to help people to do that.
The tax cut for millionaires is a mantra for the shadow Chief Secretary. I am sure he is having his cup of tea and saying the same thing to anyone around the table who cares to ask. However, I do not believe that what he says holds water, because we want people to become millionaires. I want my constituents to want to become millionaires. By the way, on the first million, they will pay about half a million in tax and will hopefully spend another 200 grand on the Ferrari. Can we please let people become millionaires? The Government should help people to generate wealth and a lot of tax to support the people in this country who really need help.
Budget Resolutions and Economic Situation
Mark Field Excerpts(10 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Alun Cairns
I am grateful to the hon. Gentleman for making such an important point about poverty in Wales, because it needs to be recognised. However, even in the darkest, most difficult days, when coal mines and steel plants were being closed and things were extremely difficult for those communities, Wales was not the poorest part of the United Kingdom. After 13 years of Labour control, Wales is sadly the poorest part of the United Kingdom, but it is now experiencing higher and faster growth than most other parts of the UK. That goes to show that the UK Government are playing their full part in our turning the corner and getting out of the cul-de-sac that the Labour party left us in. That was what Labour left us.
We talk about balance across the economy, but more needs to be done to strike that balance in every way, and the Budget has taken a significant step in that direction. There has been significant support for manufacturing, including a £7 billion package that provides elements for capping the carbon price support scheme. One benefit of that £7 billion will be the £50,000 cut in energy prices or costs for a mid-size manufacturing plant. There are hundreds of those in Wales, including several in my constituency, and as a result of the Budget they will get a £50,000 cut in energy costs.
Mark Field (Cities of London and Westminster) (Con)
Does my hon. Friend also recognise today’s important initiative in relation to export credit guarantees, which will encourage particularly small and medium-sized enterprises looking to export beyond the shores of the United Kingdom? That will make a significant difference in the high-resolution manufacturing industry, which is so well catered for in the part of the UK he represents.
Alun Cairns
I am grateful to my hon. Friend for underlining that point. I was going to come on to it, but his intervention presents me with an opportunity to highlight again the balance that the Chancellor is determined to restore to the economy to ensure that every part of the country and every sector within every part of the country is playing a part in promoting the economic growth and is sharing in and generating the prosperity.
The other point I wanted to make on energy related to the support for the energy-intensive industries. Dow Corning in my constituency exports 90% of its output. It is a true success story in the Vale of Glamorgan. The high energy prices really did raise some serious questions for the management of the organisation, but this support will be welcomed far and wide within the group and particularly in Barry, where it is the largest employer.
We need to acknowledge that as this recovery has been built, some people have had to pay quite a significant price, including savers, many of whom are pensioners. Of course, low interest rates were essential to deliver the economic growth we all need and on which public services are built. I am particularly pleased that the Chancellor has recognised that it is time for the growth to be shared with our savers and pensioners. Today’s announcements on encouraging saving, and especially the pensioner bond, is significant. A 2.8% return predicted for one year and a 4% return for three years is really quite important for people who want to be able to plan their future and for those who have done the right thing in that they have worked hard and saved hard.
The changes to the ISA are extremely important and very welcome. They will simplify the process, again providing certainty and security: if people work hard, save hard and do the right thing, this Government are on their side.
Finally, I just want to say this: “If you’re a pensioner or about to retire, there is significant help; if you’re employed, the tax allowance will make a big difference; if you’re a saver, there is extra support; if you want to export, there is help available; and if you’re involved in manufacturing, there are significant energy cost reductions.” This is a Chancellor who is building sustainable economic growth as part of our long-term economic plan.
Tourism (VAT)
Mark Field Excerpts(10 years, 5 months ago)
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Ms Ritchie
I thank the hon. Gentleman, who is the Chair of the Northern Ireland Affairs Committee, for his intervention. I agree with him on that point, but I see restaurants and pubs that serve food as being further down the line, so to speak. Nevertheless, I do not disagree with his point, because we must invest in local economies and jobs throughout the UK.
Mark Field (Cities of London and Westminster) (Con)
The hon. Lady will appreciate that my constituency attracts a huge amount of tourism, being right in the centre of London. I therefore have some sympathy with a lot of what she says—a number of operators have lobbied me on the matter. However, she recognised and referred to the idea that the Treasury would potentially lose money in the short term. She mentioned some specifics on which she would want immediate action—tourist attractions and accommodation—but does she not recognise that if we include other things, such as pub food, we are looking at a very uncertain tax break? It could cost considerably more money at a difficult time for the public finances. Is it not therefore important that she focuses specifically on measures that will have the maximum benefit for the UK’s tourism industry, without negative effects on the public purse?
Ms Ritchie
I thank the hon. Gentleman for his intervention. Although I understand that at this stage the focus must be on accommodation and visitor attractions, it would be wrong not to pursue the Treasury and the Minister to try to ensure that we get a better deal for our tourism industry and the wider population we represent.
It might be helpful if I gave a little information from the British Hospitality Association and the Cut Tourism VAT campaign. The Government have asserted that they cannot afford to take a loss on VAT income. It is worth pointing out, however, that the direct loss of VAT incurred by a reduction for visitor accommodation and attractions would be £1.2 billion. Half of that loss would be made good within the first year via savings from social security benefits—more people would be employed—and increased tax yields, principally from employment-related taxes. The year 1 deficit would therefore be £645 million.
Financial Services (Banking Reform) Bill
Mark Field Excerpts(11 years ago)
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Chris Leslie
Well, pardon me for daring to suggest that the Government have got this totally upside down and the wrong way round. They set up the commission and asked its members to come forward with recommendations, as they dutifully did, for which I thank them, and then ignored them in the Commons Committee and Report stages. That means that it is all to be debated in the detail that is required when the Bill reaches the House of Lords.
Mark Field (Cities of London and Westminster) (Con)
Given that on Second Reading I suggested that much of the real deliberation would take place in the other place, it would be churlish of me to disagree entirely with the sentiments expressed by the hon. Gentleman. The situation was ever thus, given the parliamentary majorities. This has not been a chaotic process but, understandably, a holding response by the Treasury. It is a fast-moving situation. I suspect that a further banking reform Bill will be debated in the next two or three years.
Chris Leslie
It probably will, particularly if there is a change of Administration, but we will come to that in a couple of years’ time.
Mark Field
Two things come to mind. First, there should be a sense of due process, which I think is present in the Government amendment. Secondly, there is genuine concern about uncertainty and the notion of an electrified ring fence. As the hon. Gentleman will know, I have questioned the whole issue of ring-fencing and the potential uncertainty it provides in this business, particularly in the fast-changing world we have seen over recent years. This is therefore a sensible response from the Treasury to the whole concern, which goes well beyond special pleading from the banking fraternity.
Chris Leslie
Most of the debate we have had in the short time available has pressed for firm action to be taken towards a sector that—let us not forget—brought down the economy, created massive deficits in our public finances, and required rescue by the taxpayer because of a blurring of the lines between issues that affected ordinary households up and down the country and high-risk investment banking activities that needed strong safeguards. Simply saying that we will have ring- fencing with no means to enforce or police that—no “electrification”, as it has been termed—would make that concept totally redundant. That is why members of the Parliamentary Commission on Banking Standards were surprised that the Government always seemed to take the path of least resistance—“Let’s not upset the banks too much; let’s try and go back to business as usual”—and are not learning the lessons of history.
We have re-tabled amendment 18 not just to have a specific firm-by-firm back-stop power for separation in case ring-fencing fails, but to have sector-wide powers as a back-stop in reserve should ring-fencing not work. We have the capability for full separation, but the Government have stubbornly refused to put that on the statute book—“Oh well, if we have such circumstances we can always legislate further down the line”—as if passing a Bill on such matters can be done quickly or effectively in any way.
Mark Field
My hon. Friend talks about the idea of incentives to find holes in the ring fence. Surely it is in the nature of the way in which one looks at regulation to try to find holes in the ring fence. There is nothing untoward about the idea of looking at a regulation or law and trying to find a way around it. Obviously, one should try to do so without breaking the spirit of the rule or regulation, but if we live in a highly regulated society it is surely inevitable that those who are regulated will look to try to find ways of avoiding them. Surely that is a fault of having over-regulated societies, whether in banking or in other fields of commerce.
Mr Tyrie
I am not going to delay the House by disagreeing for too long. It is rare that I disagree with my hon. Friend, but I wonder whether we would like surgeons to test all the time the regulations that encourage them to do a good job as they pull out their scalpels and wonder if they can get away with just one incision here or there.
Mark Field
I think my hon. Friend makes my point for me. The medical profession is a profession and relies on such things as the Hippocratic oath, and it has a centuries-old approach to how they go about their day-to-day business. An over-regulated industry is one that encourages the avoidance of regulation. Genuine professionals look on their professional responsibilities in a very different light.
Mr Tyrie
There is a heap of regulation surrounding the wielding of those scalpels. The common feature of the two industries is not the professionalisation or non-professionalisation of the industry; it is that both owe a duty beyond bettering themselves. In the case of the banks, they owe a duty because of the implicit guarantee; in the surgeons’ case, they owe a duty to the patient. I will not prolong this discussion any further, but I think most people accept that we do not want banks constantly trying to find a way around or through the ring fence.
Finance Bill
Mark Field Excerpts(11 years ago)
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Chris Leslie (Nottingham East) (Lab/Co-op)
I beg to move, That the clause be read a Second time.
Hon. Members might not have spotted the announcement on this matter in the Chancellor’s Budget in March. It is a little-noticed provision that was buried on page 64 of the Red Book in the table that sets out whether individual policy decisions will mean a gain or a loss to the Exchequer. This decision did not hit the headlines and very few people spotted it. I should look back and see whether the Chancellor even referenced it in his Budget speech.
This little-known provision is the abolition of something called the stamp duty reserve tax. It is not quite the same as the stamp duty on share transactions that many hon. Members are familiar with. That is, for want of a better term, a financial transaction tax of 50 basis points or 0.5% on share transactions. The stamp duty reserve tax is the equivalent change that was introduced in schedule 19 to the Finance Act 1999. It is essentially a proxy for stamp duty on the return of units in unit trusts to the investment managers who deal in those transactions. If individuals buy units in unit trusts and then surrender or sell them back to the investment manager, a stamp duty of 0.5% has not unreasonably been paid.
The Chancellor, in his wisdom, has decided that that must go. He has decided to forgo the princely sum of £150 million in every financial year henceforth. I am afraid to tell hon. Members that there is a lot of this story to be told. The abolition of stamp duty reserve tax is essentially a decision by the Chancellor to give a tax cut to investment managers.
The new clause calls on the Chancellor, within six months of Royal Assent, to publish and lay before the House of Commons a report on the distributional impact of the change detailing who has benefited—whether it is the lower and middle-income households and families in all our constituencies or the privileged and wealthy investment managers.
Mark Field (Cities of London and Westminster) (Con)
Does the shadow Minister not recognise that the abolition of the reserve tax will be a great enhancement to the UK unit trust industry, which has been losing a lot of business to Switzerland, Singapore and elsewhere? Although he has characterised the beneficiaries as being very wealthy, this change will ensure that jobs are retained in this important industry, especially back-office and middle-office jobs, as it goes from strength to strength in the decades ahead.
Chris Leslie
I commend the hon. Gentleman for doing his duty to his constituents in the City of London. I confess that they probably will be right up there among the beneficiaries of this change. He is assiduous in speaking up for his constituents, but I am sure he would concede that they are not exactly typical of people in the rest of the country. The people who engage in investment trust transactions and unit trust arrangements may well benefit from this £150 million tax cut.
The Chancellor of the Exchequer was supposedly faced with difficult choices and cuts in the Budget. That he has chosen to give a tax cut of this order at this time is a reflection of his priorities, which are beyond understanding for many Opposition Members.
Mark Field
Would the shadow Minister be willing to extend his new clause to ensure that it takes into account what has happened since 1999 when the tax was instituted under the previous Labour Administration? More importantly, would that reflect Britain’s place in the world and what proportion of the global asset management industry was in Britain in 1999 and is still here today, compared with other countries? That may have a direct impact on why the Chancellor acted as he did in the Budget.
Chris Leslie
Times are tough, and for most people in the country life is getting harder. I confess, however, that I have not been lobbied by or seen those poor, unfortunate City investment managers knocking at my door, coming to my surgeries, or writing e-mails and saying, “Please, the one thing we need is the abolition of the stamp duty reserve tax. There is massive hardship among investment managers at this time, which demands a £150 million tax giveaway.” Frankly, I think the investment management community is doing reasonably well relative to the rest of the country. Moreover, I do not think that the City of London is uncompetitive. Indeed, all the evidence suggests the opposite and that the City continues to thrive and do exceptionally well—something like £5 trillion in funds is under the management of those investment managers affected by this tax change, and a tax cut of 150 million quid is small change to that community.
We are having this debate because we need to know why the Chancellor decided on this priority—cui bono would be the Latin adage. In whose interest is this? Who benefits from this change? I doubt it is my constituents in Nottingham East, and Government Members must forgive me if I am left with a slightly bitter taste in my mouth when we see the hardship caused by cuts to tax credits, the increase in VAT and the bedroom tax. The Chancellor says that individuals affected by those things must feel the pain and the squeeze, but when it comes to the City and the investment management community, I do not see how they are all in it together or sharing that anxiety.
Finance Bill
Mark Field Excerpts(11 years ago)
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Cathy Jamieson
I thank the hon. Gentleman for his information; I gave way to him because I know he takes these issues seriously. As with a range of other issues, we would have to look—if the bankers bonus tax was brought in—at the circumstances at the time and how best to get young people into employment. Other hon. Members will have heard me speak about this issue before, but I can tell the House that we believe young people and those who have been out of work for two years ought to accept that there will be a compulsory jobs guarantee. From speaking to a number of small businesses and some of the larger ones, I know they believe that a range of things could be done to encourage them, as local companies and national companies, to take on young people and get them into employment.
Where the Government have done things that we think are helpful, for example, in relation to national insurance contributions, we have supported them. As has been said, we do not accept that the move away from the future jobs fund was the correct thing to do.
Mark Field (Cities of London and Westminster) (Con)
Does the hon. Lady not recognise the fatuousness of her argument that this money could somehow be ring-fenced for the less well-off, which has been exposed by my hon. Friend the Member for Bedford (Richard Fuller)? The same applies to the next set of amendments on the mansion tax and the 10p tax rate—the figures are not well-researched. The proposition might be attractive to the public at large, but the comparison is fatuous and has been ably exposed by my hon. Friend.
Cathy Jamieson
I do not think that my constituents in Kilmarnock and Loudoun who are out of work and desperate to get jobs—including the 400 or so people across East Ayrshire and into neighbouring Lanarkshire who lost their jobs as a result of the collapse of Scottish Coal, the people who lost their jobs when Diageo moved out of the town of Kilmarnock and closed the historic bottling plant, which bottled Johnnie Walker whisky, and all the people who are out of work as a result of the squeeze on small local businesses—would believe that it is fatuous to suggest that a tax cut for millionaires is the wrong priority when cuts have also been made to working tax credit and when other things could be done to support people into work.
Sir Edward Leigh (Gainsborough) (Con)
The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) has waxed lyrical at some considerable length about the iniquity of the Government’s seeking to reduce the higher rate of tax, but the question that kept occurring to me was this: if she and her colleagues felt so strongly about this, why were the Labour Government quite happy to keep a maximum higher rate of tax of 40% for their entire 13 years in office?
Mark Field
I should just correct my hon. Friend: there was one month in that 13-year period when the rate was different. Does he agree, however, that it would be interesting, if the Minister were minded to accept the new clause, to see a full analysis of that 13-year period?
Sir Edward Leigh
I was going to go on to say that the Labour Government lasted 13 years, and that it was only in the last month that, under the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), they felt so strongly that they had to impose a 50% rate.
This is an important point. For their first 10 years, that Labour Government were led by Tony Blair. When he and Lord Mandelson were planning for that Government, they made a conscious decision not to replicate the old-fashioned language of class warfare that we have heard so much of today. They made a conscious decision that, if the Labour party was ever to regain the trust of the British people and regain power after 18 years in opposition, it would have to reach out to the centre ground. One of the principal ways in which they did that was to commit themselves, before getting into government, to accepting the spending plans of the then Chancellor of the Exchequer, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), now the Minister without Portfolio. They accepted his spending plans and made it absolutely clear that they would not raise the higher rate of tax during their term of office. That was a very sensible thing to do.
In truth, the only possible justification for raising the higher rate of tax above 40% is a political one. It is political because it appeals to the argument, which we have heard repeatedly today, that a right-wing, vicious, unpleasant Tory Government are only helping millionaires. At first sight that might seem quite an attractive argument for the Labour party to adopt in opposition, but if it is so attractive, why did the right hon. Tony Blair, when he was in opposition and planning for the greatest election landslide in Labour’s history, not follow it? He did not follow it because he realised that it was nonsense economically and, ultimately, nonsense politically.
Sir Edward Leigh
I do not know why we are bothering to give the Labour party this friendly advice. Why are we trying to help it, when it is so obvious that its approach is increasingly to remain in its comfort zone on tax?
The speech we just heard was littered with the word “millionaire”. It is the old language of Denis Healey, going back to the 1970s, when they wanted to tax the rich until the pips squeak. It does not impress anybody, and one reason for that is that people think it is fundamentally hypocritical. The point has been made again and again: the Labour party is not making any commitment to reverse the changes. If Labour Front Benchers really felt so passionately about this matter, they could say now from the Dispatch Box that it is iniquitous and make an economic case against it.
Throughout the speech that we have just heard there was virtually a complete absence—a desert—of economic facts and justification on how much money would be raised. All we heard, constantly, was the mantra about millionaires getting richer. The truth is that the top 5% pay 25% of taxation. There is no evidence—Tony Blair understood this—that if we tax them more we will increase tax revenues for the Exchequer. All we would be doing is increasing avoidance. It is bad economically, bad politically and it does not make sense.
Mark Field
My hon. Friend has hit the nail on the head. I am afraid that the impulse has been a political one. If there was any understanding of economics on the Labour Front Bench—perhaps there was in the brief glimpse in 1996 and 1997 to which he referred—those Front Benchers would understand the Laffer curve and its operation and that reducing headline tax rates will bring in rather more money. That was the case in the 1970s and 1980s, as was mentioned earlier in the debate, and I am sure that it will prove to be the case again when we look at the numbers in the year ahead.
Sir Edward Leigh
We are all familiar with the Laffer curve and the point made by my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg). When taxes were reduced in the late 1970s and the 1980s, revenue increased. There is no economic case whatsoever for having a 50% tax rate. The only case, and I think it is very poor, is a political one. What I am seeking to argue—I do not know why I am seeking to help the Labour party—is that it impresses nobody.
One good point was made in the many interventions we heard from the Opposition side, and from the Government side: why are the Government dragging more people into the higher rate of tax at all? That is a fair point, and it leads me to an argument I have made many times: if we want to improve tax revenues and get more fairness in the tax system, we should move as much as possible towards a flat rate of tax. We have the longest tax code in history. If a Chancellor of the Exchequer on Budget day takes with one hand and gives with the other, and if has his little schemes to help investment or job creation, all he is doing is creating perverse incentives. A much better way of creating a modern, progressive and successful tax system would be to have as flat a rate of tax as possible, as is being done increasingly around the world. It is ridiculous that a deputy head teacher of a primary school, for example, has to pay a higher rate of tax. I think that shows some of the problems the country is in economically.
I do not want to repeat all the old arguments about who got us into this mess, but perhaps I will be forgiven for saying that unfortunately we have to pay our way, and the Government are therefore between a rock and a hard place. It is absurd to be dragging more people into higher rates of tax; what we should be trying to do, across the House, is to flatten the tax base and make it much simpler, much more coherent and much more understandable, so that people know that there is, to all intents and purposes, a single rate of tax. It does not matter whether they earn £30,000, £300,000 or even £3 million a year—they will be paying 35% of it in income tax. If we had such a modern tax system, it would generate a huge surge in productivity. The only people who suffered would be the chartered accountants, thousands of whom might lose their jobs; I pity the chartered accountants. I want to try to generate a modern, progressive tax system where people know that as they work harder they can increase the money coming into their family. If we are going to have a sensible debate as opposed to one based on party politics, these are the sorts of arguments that we should making. It is sad that we do not have the courage to do so.
Finance (No. 2) Bill
Mark Field Excerpts(11 years, 3 months ago)
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Mr Meacher
Yes, I appreciate that. It seems that Graham Aaronson, whom I have criticised pretty strongly in the House in the past, has for reasons best known to himself—although I am very appreciative that he has done this—changed his mind in the important respect that the hon. Gentleman described and which I tried to set out at the beginning. There is more joy in heaven over one sinner who repents than over 100 just men.
Mark Field (Cities of London and Westminster) (Con)
The right hon. Gentleman will appreciate that I have grave concerns about going down the route of even a general anti-avoidance rule, but surely he must recognise that if his new clauses were agreed and we took a principled, rather than a rules-based approach, that would lead to ever more uncertainty and, dare I say it, even larger fees for the lawyers and accountants whom he wishes to clamp down on in this regard.
Mr Meacher
I will come to that point. I know that the hon. Gentleman, who has spent enough time in this Chamber, as I have, might think that I am kicking it into the long grass, but I will come to it at the end. I think I have an effective answer to it, but I prefer to give it at that point.
There are other problems with the GAAR. For the reasons given, it is far too narrowly drawn, tackling only the most aggressive forms of tax avoidance. It would not, for example, tackle Google or Amazon—which have had enormous publicity over the last weeks and months—because the channelling of profits from genuine sales through tax havens would still be permitted. That is just one example. The implication—dare I say it one that was probably intended by the Government; I hope that is not unreasonable—is no doubt that a veneer of respectability is thereby cast over everything else, which might well include artificial contrivances designed to avoid tax. They will somehow be seen to be okay.
There is also no clear penalty regime in the GAAR, which is certainly needed if others are to be deterred from exploiting every opportunity to go down the tax avoidance route. Contrary to all other tax logic, where the burden of proof has always fallen on the taxpayer, uniquely in the case of the GAAR, the burden of proof that an arrangement is abusive has unaccountably been placed on HMRC. Despite the one improvement, which I am glad to mention—
Mr Meacher
I would rather get on, if I may, as many others wish to speak and it is a very short debate.
Despite the improvement I mentioned at the beginning, the net accumulated effect of all these flaws makes it reasonable to argue that the GAAR is a step backward for two particular reasons. One is that while the most heinous cases will certainly be caught—we are all agreed about that—the impression given is that virtually everything else is somehow okay and everything else goes. The other is the outrageous fact that HMRC cannot commence GAAR action on its own initiative. That is rather like forbidding the courts to take action against a thief until the honorary city guild for thieves has given permission.
The alternative is the general anti-tax avoidance principle—the GAntiP—as set out in new clauses 7 to 16. It was drafted by Richard Murphy, one of our foremost tax accountants, as the Minister knows only too well as a sparring partner, and a founding member of the Tax Justice Network. What are the advantages of GAntiP? I will set them out briefly.
First, tax avoidance is currently estimated to cost this country and its other taxpayers £25 billion or up to £25 billion—I know the figure is much disputed, but it is certainly a very substantial sum. It would be significantly reduced, so that many services now under threat because of Government cuts could be saved and more money would be available to help promote jobs, which the Government want, and economic recovery.
Secondly, to deal with the point raised by the hon. Member for Cities of London and Westminster (Mark Field), the UK tax system would be made considerably more certain if HMRC were for a small sum to provide prior indication, which I would strongly support, about whether or not an arrangement would fall within the scope of tax avoidance. No one is trying to trick companies; we want certainty, and this would be a very good way to achieve it.
Mark Field
On this matter, I entirely agree with the right hon. Gentleman. I have said on a number of occasions that if we are to go down this route, whether it be a general anti-avoidance rule or on the basis of the principles that the right hon. Gentleman prefers, it must be done hand in glove with a proper pre-clearance process. It needs to be a swift process and it may be that a fee is to be paid as well, but it must be done on the basis that before any new scheme is marketed it must get the thumbs up from HMRC that it is a legitimate one. That would provide a sensible way forward taking into account the certainty reasons that I pointed out earlier.
Mr Meacher
I am glad to have the hon. Gentleman’s agreement on that. I hope that he will also agree with me that what the Government are proposing—that the criterion should be whether a certain arrangement amounts to a “reasonable view” or a reasonable course of action—is an extremely vague, subjective and uncertain way of deciding this matter.
Mark Field
The right hon. Gentleman referred earlier to egregious schemes, and I think we all recognise that there are some, as highlighted by The Times and other newspapers in recent months. Which particular schemes does the right hon. Gentleman, who is obviously in close contact with Richard Murphy among others, think would not fall foul of the reasonableness test? Which schemes would be regarded as highly egregious yet would fail to be caught?
Mr Meacher
I have already mentioned two that have had a great deal of publicity—Google and Amazon—but there are many, many others. Only a very narrow and small proportion of the most “aggressive”—the Chancellor’s phrase—or abusive tax-avoidance schemes would be caught. What worries me is the impression given that everything else is somehow okay with the Government. I think that is a very unwise position to adopt.
Briefly, the third advantage of GAntiP is that the incentive for accountants, lawyers and bankers to sell tax-avoidance schemes would be curtailed. That would be a thoroughly good thing, because they and their clients would know that most of those schemes would fail in future.
Lastly, my fourth advantage might be the single most important one. GAntiP really could help to change the rancid culture in British society today whereby the top 1%—whether it be super-rich individuals or the big corporations—are widely perceived to be ripping off the honest remainder of the population.
Nigel Mills
It is a pleasure to speak in this debate, and I rise to speak to amendments 11 and 12, which stand in my name.
I have said this before, but I have concerns about Parliament agreeing overwhelmingly with a principle that effectively says, “We as a Parliament, even with all the specialist advice we get, cannot draft the law sufficiently well to leave our taxpayers to try to apply and follow it, and leave HMRC and the courts to determine whether that is the case.” The proposals of the Government and of the right hon. Member for Oldham West and Royton (Mr Meacher) would in effect create a power for HMRC to say, “While the law actually says that, what we really meant was something a little bit different, so while the taxpayer has complied with the letter of the law, they have not complied with the letter of the law as we wish it had been written.”
That is a real power for Parliament to give away. We are saying to an executive agency of the state, “Your job is no longer to apply the law; your job is to rewrite it as you wish it had been written by Parliament in the first place.” I think we should be very careful before going taking such a line. We need to know exactly what we are doing and we need to be happy with setting that principle. If the Government tried to apply such a principle to criminal justice law, we could end up arresting people for something that was not a legal offence but we wished had been a criminal offence. If we applied it to immigration law, for example, there would be howls of outrage saying that the state had gone mad with excessive power, and that it was the end of the rule of law and not the way for a sensible Government to behave.
Mark Field
I entirely agree. That sense of arbitrariness will potentially do great damage to the UK as a place that has always been welcoming to business internationally, benefiting our economy as a whole. He is absolutely right to draw a direct comparison between issues relating to the Finance Bill—after all, we have one every year, so we can try to tighten up any problems—and issues relating to the criminal justice system. As he says, if the same principle were applied to criminal justice, it would rightly lead to outrage.
Nigel Mills
I am grateful to my hon. Friend and I would like to expand a little on this theme. It has been said before that there are various ways of interpreting what the rule of law means. One version from the 17th century is that the rule of law is the
“supremacy of regular power as opposed to arbitrary power”.
In the case before us, rather than saying “Here is the law that applies to everyone,” we are giving the Revenue the right to rewrite the law only for certain people subject to certain permissions. That sounds like arbitrary power to me.
As a classics graduate, I thought I would dip back into history and finally find some use in having done a classics degree. Plato said:
“Where the law is subject to some other authority and has none of its own, the collapse of the state in my view is not far off; but if the law is the master of the government and the government is its slave, then the situation is full of promise.”
What we are doing here is saying that the law now has no authority, as we are giving somebody else the power to change the law, and that rather than the Government having to follow the law, the Government and its agencies can change the law retrospectively. We need to be clear that we are weighing up whether the real sin of the existing excessive, outrageous and truly abominable level of complex tax avoidance by people who should know better and should not be doing it is enough for us to risk weakening the rule of law.
Mark Field
My hon. Friend has identified the nub of the problem. The complications and the sheer size of the tax code have become the godfather of much of the tax avoidance with which many Members in all parts of the House want us to deal.
Nigel Mills
Am I right in thinking that the second sign of madness is to keep doing the same thing and expecting a different result? I think that that applies to introducing more and more complexity and assuming that the outcome will eventually be different.
Finance (No. 2) Bill
Mark Field Excerpts(11 years, 3 months ago)
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Mr Gauke
My hon. Friend is absolutely right that we need to do what we can to ensure access to finance for those strong, viable small businesses that want to expand. That is why we have taken measures such as the funding for lending scheme and why we want to ensure that we have a business-friendly environment. I am grateful for his observations on export guarantees. He will be aware of some of the measures that the Government have taken over the past two or three years to try and support those exporting businesses. I note his comments and calls for us to go further.
Mark Field (Cities of London and Westminster) (Con)
I appreciate that the Minister has to deal with an incredibly difficult situation that is not made any easier by this constant battling over borrowing figures. We all know how serious the situation is, and for my part I will not be spending my time blaming the last Government, which is unhelpful. We must look to the future.
My hon. Friend the Member for The Cotswolds (Geoffrey Clifton-Brown) rightly pointed out the importance of export guarantees. If we are to get trade moving again, it is essential that we ensure a much more efficient export guarantee process, particularly with small and medium-sized enterprises. We must appreciate—I hope that the Minister does—that part and parcel of the guarantee is recognising that some of those guarantees will not come off and so will have to be paid for by the Government. If we are to break into developing markets, however, we need to do so with some aplomb.
Mr Gauke
I am grateful to my hon. Friend for his remarks. It is right to say that exporting is important. It is one area where, as an economy, we have not performed as well as we would have liked over many years, although we are making striking progress in some of the major developing economies. However, we face difficulties, in particular with the eurozone, which is our biggest export market.
Let me return to what we are doing as a Government to ensure that we meet our objective of having the most competitive tax system in the G20. We have already made considerable progress. As evidence, let us look at the KPMG annual survey of tax competitiveness, in which senior tax professionals were asked to name their three most competitive tax jurisdictions. In 2009, just 16% named the UK among their top three, but by 2012 the UK was named by 72% of respondents, ahead of every other jurisdiction. Since that survey was undertaken, the corporation tax rate has fallen from 24% to 23%, but we will not be complacent. Clause 4 will cut the main rate of corporation tax to 21% from April 2014. As we announced at the Budget, we will then reduce the corporation tax rate by an additional one percentage point from April 2015—a measure in clause 6 that will mean that the United Kingdom has the lowest business tax rate of any major economy in the world.
Mr Gauke
My right hon. Friend makes a valuable point. This underlines the fact that the Government were right to reduce the 50p rate of income tax, because it was out of line with the vast majority of our international competitors. We have to look at the tax system as a whole. I believe that we have made striking progress in delivering that, and in ensuring that we are open for business. It is also striking that, since we have embarked on our package of reforms, the flow of businesses leaving the country has already been stemmed. Indeed, we have seen many businesses either returning to the UK or coming here for the first time. They include WPP, Lancashire, AON, Rowan and Seadrill, and I believe that more will follow.
Mark Field
I give my hon. Friend credit for what he has done for the animation and video games industries in my constituency. As he will know, there has been a long-standing campaign for such provisions, and I am by no means the only Member of Parliament who has lobbied for them in recent years. Will he ensure that we will be able to act as nimbly as possible if our tax rates become uncompetitive, for whatever reason, for those internationally competitive businesses? Such action might need to be applied to a whole range of industries, well beyond the IT and animation industries. As he has rightly pointed out, it is very easy to lose such jobs nowadays, and we need to ensure that they come back to these shores at the earliest possible opportunity.
Mr Gauke
My hon. Friend makes an important point. The Government recognise that capital and investment can be very mobile, and that they are more mobile in some sectors than others. We have demonstrated a willingness to listen in this regard. Our principal policy in this area has been to adopt a lower rate, but we have recognised that in certain areas of considerable mobility, we need to respond to what is happening. We have done so through the measures in the Bill, and through the patent box in last year’s Finance Act, which was important in further ensuring that the UK is an attractive location for investment. I shall now give way to another Member of Parliament with a constituency interest in the video games industry.
Mark Field
The hon. Gentleman will appreciate that the global situation, particularly among the eurozone countries, makes it incredibly difficult for us to achieve the export-led growth that we would all have liked over the past three years. Will he give credit to the Government for the fact that more than 1 million private sector jobs have been created over the past three years? That should be welcomed and should counter some of the pessimism emanating from his speech.
Chris Leslie
If I can try to be optimistic, I hope that there will be a sustained increase in employment, but I am getting worried. The latest figures showed that unemployment is rising again. We must look at the underlying situation reflected in the productivity gap and the capacity problem in the economy, which the Treasury is worsening. The Minister spent a large part of his speech trumpeting the reductions in corporation tax that the Treasury have put into the Bill as the big solution to those problems. Of course we want the UK to be seen as a good place for investment, but the Treasury has not produced any analysis of how those further cuts in corporation tax will feed through into economic growth. We hope they will, but it is time we saw some clear proof that inward investment and business growth are flowing from that approach, and that we are not just stacking up corporate surpluses which are locked away because businesses fear that they will not be able to access bank credit.
Chris Leslie
We will undoubtedly be able to judge the success of these issues, but there are some deeper flaws in the design of the Help to Buy scheme; we will debate that issue in more detail this week. It all reeks of a policy that has not been thought through properly—designed in haste and yet again not having the intended effect.
Understanding what the Government have put into the Finance Bill requires an understanding of what they have not put in. This was the Budget and the Finance Bill that were supposed to learn the lessons of the 2012 omnishambles Budget and Finance Bill—the pasty tax, the granny tax and the caravan tax. Here is the product of all the Government’s care and vigilance this year; I am sure that the Minister’s officials will be proud of him. The Government have painstakingly avoided anything that will have a positive and significant impact on growth, meticulously evaded any measures that might stimulate job creation and sidestepped anything that might repair the mess that they are making of the public finances.
In fact, the only real aspiration in the Bill is to get through it without any more U-turns. But by avoiding the bold action that we need to stimulate the economy, the Government have created a Bill bereft of the major reforms we need. So many measures are conspicuous by their absence. The Government have cut public investment, and now they are cutting back on policies, too.
I had hoped that the Chief Secretary to the Treasury would be here today; normally, he would open the debate on the Finance Bill. I do not know whether his not being here is a deliberate strategy or whether he has a decent reason; the shadow Chief Secretary has a decent reason for not being here, but that could not apply to the Chief Secretary.
We had hoped, before the Budget, that the Liberal Democrats would stick to one pledge—their pledge to support a mansion tax. We even tabled a one-line motion for Lib Dems to vote for, but they did not want to offend the Conservatives. But they should not worry because we will give them another chance to support their own policy later in the week—a mansion tax on properties worth over £2 million to deliver a tax cut for lower and middle-income households. We favour a 10p starting rate of income tax as the best way to do that and we think that should be in the Bill.
Why have the Government not legislated for their child care voucher extension, which has been pencilled in vaguely for some time after the general election? Where is the national insurance help for small businesses that we have been calling for and which the Chancellor should be acting on sooner? Why is that not in the Bill? It is not good enough for such provisions to be in black and white in a Budget book; it needs to be in the Bill. There have been so many promises in the media, but they have not been seen through in the Finance Bill.
The Finance Bill could be the moment when the Government change their mind on the bedroom tax, and it should be the legislation that repeals their lovely gift of an average £100,000 tax cut for Britain’s lucky millionaires through the cut to the 50p tax rate. As I have said before, it seems that with this Government there is one rule for the rich, but only one room for the poor.
Where do the Government get such a gratuitously unfair sense of priorities? The language used to validate a cruel, harsh, selfish approach is breathtaking—they insist on the caricature of the “spare room subsidy” and bristle at the term “bedroom tax” because they know that the public can see the policy for the disaster it is proving to be. The Chief Secretary to the Treasury, who is not here, wrote in The Sun on Easter weekend that he wanted to tackle the “bedroom blockers”—that from a Liberal Democrat Chief Secretary who could and should have blocked the bedroom tax in the first place.
Mark Field
Like me, the hon. Gentleman represents an inner-city seat. He will know from his own mailbag that the biggest housing issue is overcrowding. I find that in my constituency, and I cannot believe for one moment that the hon. Gentleman does not get similar letters from constituents. That is what is behind the so-called “bedroom tax”. We are trying to ensure that more vital social housing resource is made available to those in genuine need.
Chris Leslie
The Government are not putting any of those resources into building affordable social housing. Kicking people out of their homes will not help people in that way. We have already seen evidence that nine out of 10 of those affected by the bedroom tax have no option of going anywhere else at all. The Government have totally neglected the supply of affordable housing. They have not prioritised that.
Then we come to the grotesque spectacle of a Chancellor of the Exchequer demeaning his office—using the case of a multiple child killer to argue for his changes to the welfare system. We knew that Conservatives relish any opportunity to do down social insurance protections and that the Government’s policies are actually pushing more people into welfare—not helping them out, but pushing up the welfare bill to record levels. However, we did not know the depths to which the Chancellor would stoop. The nasty party is back.
The Chancellor certainly grabbed the headlines, but I say to Government Members that what he said diminished his standing in the eyes of millions who rely on benefits—those in work relying on tax credits as well as people looking for work, pensioners and the disabled. Those millions have absolutely nothing in common with Michael Philpott whatever and were all sickened by the evil behind those crimes. In his speech at the beginning of the month, the Chancellor had the audacity to castigate his critics for their “shrill, headline-seeking nonsense”—he said that without a hint of irony. He suggested that those who dared to criticise his plans
“always complain, with depressingly predictable outrage”
and are just another bunch of “vested interests”.
Let us just think about that accusation—“vested interests”. Putting to one side for a moment the fact that the Chancellor knows a thing or two about defending positions of privilege, is he really saying that those who care about defending the well-being of some of the most vulnerable in society are “vested interests”? Well, for the record, yes—we are interested in, and deeply concerned about, the impact that the bedroom tax, the withdrawal of council tax benefits and the changes to disability benefits will have. However, the more important question is why the Chancellor is not interested. Why does he think it makes sense to tell 660,000 people, most of whom have a disability, that they need to give up a spare room but leave nine out of 10 with no option of moving anywhere smaller? Why does he think that some of the poorest and most vulnerable can cope with significantly higher council tax bills as a result of the withdrawal of council tax benefit, the arrears from which could end up costing a fortune to collect? Why does he think it makes sense to penalise working people by cutting their tax credits at a time when we should be making work pay?
The Chancellor is not concerned because for him this is a political game. He is not serious about helping those on welfare; for him, and for the Conservatives’ new spin supremo, Lynton Crosby, this is all about ideology and tactics.
Mark Field (Cities of London and Westminster) (Con)
If there is one small area where I would agree somewhat with the hon. Member for Nottingham East (Chris Leslie), it is that the Chancellor’s room for manoeuvre was incredibly limited as he delivered the Budget four weeks ago. There is no doubt that many of those constraints come as a result of global events. The latest stage in the eurozone debacle as Cypriot banks have been underpinned is a contemporary case in point, and we see ongoing problems in Portugal that I fear will deteriorate as the weeks and months go by.
However, it has become ever clearer that in the coalition Government’s first Budget in June 2010, they were, I accept, complacent about growth. The short pre-election boom following the 2009 VAT reduction and the very large early rounds of quantitative easing lulled the coalition, on assuming office, into believing that the growth that had come about in the two or three quarters before the 2010 election was baked into the system and would somehow do the heavy lifting when it came to deficit reduction. The coalition’s plans to eliminate the structural deficit required the gap between revenue and expenditure to be narrowed by some £159 billion by 2014-15. Tax rises were expected to contribute £31 billion and spending cuts £44 billion, and the remaining £84 billion was meant to come from compound growth of 2.7% throughout the Parliament.
Unfortunately, however, as we now know, the coalition ended up with possibly the worst of all worlds. It has received unwarrantedly relentless criticism from Labour Members for so-called harsh austerity measures when, in reality, it has too often lacked the political will to execute the levels of savings required. For all the rhetoric, we are still overspending by some £300 million every day. We are borrowing, not spending, that amount each and every day, and that means that we will continue to have to borrow to the tune of some £120 billion year on year.
Kelvin Hopkins
The hon. Gentleman seems to be saying that the Conservative coalition Government had the benefit of Labour’s reflationary strategy, which was implemented before the election, but then reversed it so that things have got worse ever since. Should they not simply have carried on with Labour’s strategy?
Mark Field
The hon. Gentleman makes a good case, I suppose, but we all know that the reality was that the short-term boost of VAT reduction and the early batches of QE was unsustainable. They were a pre-election boomlet, but, as I have said, the entire political class became rather complacent and thought, somehow, that the worst was behind us after the crash of 2008. We now know that that simply was not the case.
In 2010 the entire political class should have looked the electorate in the eye and been clear about the magnitude of the task that lay and, I am afraid, still lies ahead to rectify the public finances, but we are where we are. I personally take the view that talk of radical tax cuts from some on the Government Benches is perhaps unrealistic. I fear, for a start, that confidence is so low that until it is restored almost any tax give-aways are more likely to be squirreled away by individuals and companies than pumped back into the economy.
I also think we would run the serious risk of the markets losing faith if we were to play even faster and looser with public borrowing. In spite of the recent loss of our triple A rating from Moody’s, the Chancellor’s great achievement—it should not be underestimated—is that we are still able to borrow in international markets at such low interest rates. The lesson of both 1931 and 1976 is that once the markets turn, all is lost.
My main hope for the Budget and this Bill was that the coalition would take some of the longer-term decisions that the British economy requires. I am pleased that resource is being set aside for key, shovel-ready infrastructure projects. I had hoped that cash would be accompanied by decisions and leadership on aviation and energy infrastructure. We cannot let these sensitive political footballs be kicked once again into the next Parliament. I think that the UK, as a trading nation, requires certainty on those issues, not an endless parade of commissions and reviews.
I am pleased, however, that the Treasury has helped out small business. The march towards ever lower rates of corporation tax, as the Exchequer Secretary has pointed out, is highly welcome, as are assurances that small firms will be given a chance to bid for Government contracts under the small business research initiative.
The extent of capital gains tax relief to attract start-up capital for new limited companies is also very good news. Best of all, however, is the knocking off of the first £2,000 of employer national insurance contributions for small and micro-sized businesses. That will, I hope, begin to chip away at the worryingly high levels of youth unemployment by lifting some of the obvious disincentives to taking on new staff.
I am afraid that I am a little less sanguine about the Chancellor’s flagship Help to Buy plan. I appreciate its raw politics, underpinned as it is by a desire to help struggling younger people on to the housing ladder, many of whom are paying much more in rent than they would as part of a mortgage, if only they had a deposit. Nevertheless, I ask the Treasury to give considerable thought in the consultation period to what we are trying to achieve. Let us look carefully at supply rather than just finance, since I suspect that the latter will simply help keep prices out of the reach of the very people whom we wish to serve, as the hon. Member for Edmonton (Mr Love) has said. I do not wish the taxpayer to be on the hook for the consequences of a reinflated property bubble. Let us not forget the US experience that lay at the heart of the financial crisis.
I, like many other Members, am also disappointed that the Office for Budget Responsibility’s predictions for our economy as recently as the autumn statement on 10 December 2012 were proved, only 14 weeks later in the March Budget, to have been so considerably off beam. Few doubt that economic forecasting is an especially dismal science. However, the OBR’s intervention in December proved essential in buying the Chancellor crucial breathing space at a time when many commentators had assumed that we were about to flunk our plan to reduce the deficit year on year. To that extent I accept what the hon. Member for Nottingham East has said. Many even-handed people will regard that as a sleight of hand, but, more importantly, the scene was set for cynicism and deep disappointment when aggregate borrowing for the next four years was projected at some £49 billion higher only 14 weeks after the autumn statement.
It is worth saying, however, that that is part of a tradition during all my 12 years in this House. Every single Budget between 2001 and 2007 forecast that public finances would move back into surplus in about three or four years’ time. Instead, as the hon. Gentleman will remember, debt and the annual deficit rose inexorably while the Treasury conjured the illusion of fiscal stability. Similarly, at every autumn statement since June 2010, the OBR has, I fear, been forced to downgrade growth out-turns while continuing to hold somewhat optimistically to the notion that the public finances will be transformed by robust growth in two years’ time.
The establishment of the OBR was meant to herald a fresh era of forecasting credibility, but it now seems all too reminiscent of the previous Administration’s discredited financial projection. I think that observers are beginning to wonder whether we should have any regard for the OBR’s latest set of predictions or, indeed, take with anything more than a pinch of salt assurances that recovery is only around the corner.
Sheila Gilmore
Will the hon. Gentleman clarify his position? Is he suggesting that the OBR—which was hailed as a great independent organisation that would keep us right—has somehow gone wrong, rather than that it is his Government’s policies that have lead the OBR constantly to downgrade its predictions?
Mark Field
I am expressing the concern that the OBR was somehow seen as a panacea of independence in a lot of its projections when it has got things uniformly wrong almost every time. As I have said, that is partly because of international events that one cannot exclude. We live in a global economy and are a great global trading nation. The problem is that we have not been able to get the export-led growth that we all want and as a result there has been constant downgrading.
There was some good news in the Budget, as the Exchequer Secretary has said, about the co-operation between the Treasury and our Crown dependencies of Jersey, Guernsey and the Isle of Man on new financial disclosure agreements. As an adviser to the law firm Cains, I am pleased that our Crown dependencies have led the way with the FATCA—Foreign Account Tax Compliance Act—arrangements. That is to the Treasury’s credit. We saw at ECOFIN only last weekend that we are also looking to bring on board the Cayman Islands and the British Virgin Islands to ensure that there is more transparency. It is very easy to berate a lot of the international financial centres—many of which have long-standing historical links with not just the City of London, but the UK—but the importance of the liquidity that they bring into play should not be underestimated. It made a big difference in the immediate aftermath of the crash of September 2008 and might yet do so at some point in the future.
I am a little more concerned that the Treasury is not making entirely clear what is considered abuse and avoidance when it comes to tax arrangements. The earlier exchange between the hon. Member for Burnley and the Exchequer Secretary brought that to mind. [Interruption.] I apologise: it was the hon. Member for Redcar (Ian Swales)—my view of the hon. Gentleman means that it was an all too easy mistake to make. Without clarity about what amounts to avoidance as opposed to abuse, we risk throwing a veil of uncertainty over the UK’s business environment.
I speak to firms large and small in my own constituency. I say to those on the Treasury Bench that, suddenly, for the first time ever, global corporations are beginning to consider the almost unthinkable prospect of a certain amount of political risk being attached to the UK. Foreign direct investors would be right to feel aggrieved if legitimate tax-planning activities suddenly were deemed by Her Majesty’s Revenue and Customs to be aggressive tax avoidance, with punitive fines and damaging public relations to follow.
On that note, I should like to raise a specific instance of retrospection that is causing financial hardship among some of my constituents. Section 58 of the Finance Act 2008, brought in by the previous Government, was designed to close down certain tax-planning arrangements with retrospective effect. I am afraid that it has left some residents in my constituency with demands for huge amounts of back tax, which in some extreme cases is leading to threats of bankruptcy.
The Exchequer Secretary is aware of those concerns, because he has responded to my correspondence on them. Unfortunately, however, some of those affected by section 58 are not convinced that he is properly listening to the argument. One constituent advised:
“The tax arrangements I used were not only legitimate and openly declared, but expressly considered, debated and approved by parliament back in 1987. This means that according to the HMRC’s declaration, I was not engaged in aggressive and abusive tax avoidance but simple, legitimate tax planning.”
Although I accept that HMRC wants to bring more money in and to close down aggressive tax avoidance schemes, if it has known that arrangements or schemes have been in place for 25 years and has made no move to close them down, it cannot be right for retrospective activity to take place. My constituents therefore request the repeal of section 58.
I would be grateful if the Treasury gave serious consideration not only to the arguments of the campaigners, but to the message that retrospective legislation sends to business people who are trying to act in a lawful and transparent way in planning their taxes. The Exchequer Secretary rightly pointed out that we should be proud of being a country that is open for business, but we must ensure that what we do and what we say in that regard coincide.
To conclude, if I have one message for the Treasury as we consider the Finance Bill in the days ahead, it is to forget about the pressure for quick fixes and transient boosts, and instead to focus relentlessly on delivery and longer-term measures to make the UK an ever more tempting prospect as a place in which to do business. If the UK economy is not to get substantial growth before the 2015 election, let the coalition at least get some credibility for doing the right thing for the nation and giving our people a genuine sense of hope for the future.
Financial Services (Banking Reform) Bill
Mark Field Excerpts(11 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Pat McFadden (Wolverhampton South East) (Lab)
I would like to begin where the Minister began, with this issue of the British dilemma: the relationship between the size of our financial services industry and the rest of our economy. It is right that it is a very big UK industry. It is a big contributor to taxes, as the Minister said, and it is a major employer. It has a cluster of expertise around it, including law, accountancy, and consultancy services, which are also important contributors to our exports.
There are two views that we can take because of that importance. One is the view, sometimes canvassed, that because of its size we cannot touch it, or only in a minimal way, because if we harm this huge industry it will go to Singapore or the United States; it will go somewhere. But there is another view, which I would like to advance in this debate, that the very size of the industry in relation to the UK economy places a responsibility on us to ensure that that size does not damage the interests of UK taxpayers or the real economy.
We have seen through the crisis that occurred several years ago precisely how damaging failure in that industry can be to the wider economy. I do not have to remind the House about the results of that failure in terms of the bail-outs, the deficits and the decisions about tax and spending, the consequences of which our constituents are living with today and will be living with for many years to come. The approach that we should take to this British dilemma is to say, yes, the industry is valuable and important, but because of its very size we believe in the need for particular measures in the UK to insulate us from wider damage. Simply to stress the size of the industry and to ask for it to be left alone whenever someone comes up with a regulatory proposal is, to put it in the language that bankers would understand, a one-way trade, and a one-way trade is not good enough. We need a two-way trade that protects the interests of taxpayers too.
Mark Field (Cities of London and Westminster) (Con)
The right hon. Gentleman was a Minister in the Department for Business, Innovation and Skills at the time of the bail-outs of the banks, which are commonly regarded as a great success. As part and parcel of looking back on the past while also preparing for the future, does he recognise that elements of those bail-outs were not quite the success that they were portrayed as at the time? To get out of the large positions that we still hold in Lloyds Banking Group and RBS with any profit, let alone the large profit that perhaps we should have been negotiating at the outset, seems a long time away. Does he recognise that mistakes were made over the bail-outs which will be with us for many years to come?
Mr McFadden
One of the reasons for having this debate is that when the crisis hit in 2007-08 there was no proper resolution mechanism or bail-out regime in place to ensure that bondholders, rather than taxpayers, were on the hook for bank failure. We are having this debate precisely because we did not have the tools in place in legislation to deal with the global crisis when it unfolded. As I have said, what we need is a two-way trade.
Mark Field
I do not buy into the argument that the tools were not in place. In reality, it was not that many of the businesses were too big to fail, but that they were too interconnected, which I accept put us in a very different position from that in any previous bail-out. In relation to any insolvency or restructuring, there were and are protocols in place, and they should have been adopted to ensure the best value for the taxpayer in the long term. That did not happen in 2008-09.
Mr McFadden
If the hon. Gentleman believes that the tools were in place, I must refer him to the Chancellor, who is constantly saying that his predecessor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), had no alternative when the crisis hit in 2008.
Let me turn to the Bill and some of the issues before us today. There is broad agreement on the need for some kind of structural separation between retail and investment banking. It is important to understand that the point of ring-fencing, as recommended by the Vickers commission, is not to ensure that no retail bank can ever fail—that is impossible—but to make failure, if it does occur, more manageable by insulating the risks and focusing the resolution effort on the essential services that the Government judge it in the public interest to protect: people’s savings, the payments service and simple consumer and SME lending. It would be going too far, and it would be far too rash, to say that that solves the “too big to fail” problem. However, ring-fencing ought to reduce the risks of future failure to taxpayers and the wider economy.
As the hon. Member for Chichester (Mr Tyrie) has said, the parliamentary commission, on which I serve, made two proposals in relation to structural separation. The first was the reserve power to separate individual banks should they try to burrow under, climb over, erode or get through—or any other metaphor that has been used—the fence, and the Government have accepted that recommendation. The second was to have a wider power to enforce separation on the sector as a whole. That second power would be needed precisely because problems in the sector do not come in the neatly wrapped form of one institution. As we saw in 2007-08, contagion is a fact of life in banking; the weakness of one can quickly affect others. Cultural problems in one part of the sector also spread quickly. It is precisely because problems in the industry are often widespread that there is a strong case for taking a reserve power to enforce separation on the sector as a whole, in the event that the sector tries to get around the intention of the Bill.
Alison McGovern (Wirral South) (Lab)
I congratulate the hon. Member for Eastleigh (Mike Thornton) on his maiden speech, which was a really good first contribution. As a former railway person, I know that the town of Eastleigh is extremely important to that industry, but there is no more important a subject for him to make his maiden speech on than this Bill. I offer him my sincere congratulations.
Let me say why I think this Bill matters. By way of setting the scene, I want to explain something from which I think the financial services industry suffers. There has been a recent influx of Members to the Chamber for this debate, although I fear that it is not entirely due to the subject under discussion. Normally, the financial industry is quite a niche subject, which is partly to do with the fact that people often talk in code about financial services. There is a certain language that people are supposed to use when talking about financial services, and I suspect that those who work in the industry feel a bit as though they are part of a special club. They use words that normal people cannot really understand; they repeat their shibboleths and some of them live in their gated community, quite apart from normal society. Well, hands up, Mr Speaker, it takes one to know one; Parliament is just the same in so many ways. If we make things sound complicated, people will think we are really clever, but I think we should learn that democracy and financial services are too important for that.
Unfortunately, the culture in financial services makes scrutiny much harder than it ought to be. We now know that in the 2008 crash, the real risks taken by the banks were hidden, and that happened because of the insider culture. We are yet to hear from the Parliamentary Commission on Banking Standards about the cultural aspects of the financial services crash, so I repeat to Ministers earlier pleas about the timing of that advice. As I have explained, cultural aspects are important for effective scrutiny and good legislation in the future, so can we not ensure that we proceed with the best possible advice from the parliamentary commission? We in this House would probably all agree that we have been sent here to speak up for ordinary people, but what happens in the City’s square mile matters on every high street in Britain. It is not good enough anymore for financial services to be a niche interest in Parliament.
Growing up in the 1980s and 1990s I often felt that Merseyside was being buffeted and shaken in the interests of the City of London. Given the Chancellor’s words over recent months, it has sometimes felt a little like my teenage years on playback. The Chancellor talks about defending the interests of London as a financial centre—for example on leverage ratios—but how much do financial institutions worry about the average British high street?
Alison McGovern
Let me finish the point, and then of course I will give way to the Member who represents the square mile.
Let us be honest: some financial institutions do worry about that, and some are very large employers, and I know that many people in the financial services would agree absolutely with my point. However, wage inequality skews influence to insiders at the top.
Mark Field
Does the hon. Lady recognise that as well as the hugely important business, which is perhaps based culturally within the square mile in my constituency, a vast number—indeed, the majority—of jobs in UK banking and financial services are based not just outside the City but outside the capital? She will be aware, for example, that not too far from her constituency in the city of Chester, a huge number of employers employ many thousands of people in the financial services.
Alison McGovern
That was the point I was trying to make, and I refer the hon. Gentleman to comments made by my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), who said that although that is true, it is not enough to say, “We’re a big employer; leave us alone.” The influence of the financial services in the City is greater than that, and that will not do anymore.
Wage inequality in financial institutions skews influence to insiders at the top. This is a classic insider-outsider problem, and we in Parliament must work out how to scrutinise more what goes on in the City. I believe that the Royal Bank of Scotland’s final report makes great play of how it is finally a living wage employer. Well, good for RBS, but it is perhaps a little too late.
On the bonus culture, the Government have said that there could be a perverse incentive in controlling bonuses and that people might be paid more if their bonuses are reduced. That is true if—and only if—they think the following two things: that it might not be better to have more fixed costs and less turbulence, and that we might want to think about the impact of those highly variable costs on incentives; and, secondly, that the overall remuneration of bankers is just fine and the current inequality in the financial services sector is okay. Well, it is not okay. The hon. Member for Cities of London and Westminster (Mark Field), who represents the City, mentioned the many people all over the country who work in financial services, but when I make the point about inequality in the financial services sector, it is those very people, and the money in their pockets, who I am thinking of.
Mark Field (Cities of London and Westminster) (Con)
I shall endeavour not to stray quite so far from the Financial Services (Banking Reform) Bill as the right hon. Member for Holborn and St Pancras (Frank Dobson) has just done.
No one could accuse the Treasury or the coalition of rushing into banking reform; nor, to their credit, has there been anything other than the most comprehensive consultation with—and without—the banking industry here in the UK. I shall not repeat the timeline that other hon. Members have referred to, save to say that I accept the concern expressed by my hon. Friend the Member for Chichester (Mr Tyrie) that the Bill will not be considered directly in tandem with the report of the Parliamentary Commission on Banking Standards.
Above all, we all need to face up to our complacency. The conventional wisdom of the day, to which I fully signed up in the first half of the last decade, was that financial services would thrive best with light-touch regulation. What a difference half a decade makes! It was also during that period that the present Chancellor fatefully nailed his colours to the mast. Despite clear evidence that we were collectively living well beyond our means during the previous Administration, and amidst growing public and private debt, he decided to stick to the outgoing Labour Government’s spending plans and characterise our fiscal aspiration as “sharing the proceeds of growth.” I regret the fact that as a result, when the crisis hit home, my party was unable to make the orthodox Conservative case that the seeds of that financial destruction had been profligacy and the leverage that was referred to earlier. Instead, the established view was, and continues to be, that regulatory failings—of which there were undisputedly many—and reckless actions by the bankers were the primary, if not the sole, cause of the financial calamity. Hence the persistent demand for more extensive and punitive regulation of the banks, and the constant chatter of hostility towards bankers and all that they do.
My contention remains that the core issue that we need to tackle is global imbalances, many of which are still worryingly in place after a half decade of near stagnation economically. Alongside this, a generation of Britons—as well as Americans and continental Europeans—have lived and continue to live miles beyond their individual and collective means. We are still mortgaging the future of our children and grandchildren.
The Chancellor’s recent declaration that any UK bank failing to adhere to the Vickers safety regime would run the risk of being broken up was an understandably uncompromising response to the Treasury Committee’s demand for an electrified ring fence. Similarly, few could criticise the populist insistence that RBS would have to fund LIBOR—and, presumably, other future mis-selling—penalties from senior executive bonus pools. At a stroke, however, the Treasury has inadvertently imposed a permanent impairment on the value of the UK Government’s still huge stakes in the banking business. Our £66 billion investment in RBS and Lloyds is currently worth two thirds of what we paid for it. Nothing in the Bill will bring forward the date on which we, as taxpayers, will be compensated.
It is often claimed that the banking lobby, here and on Wall street, has used its considerable muscle to water down, undermine or even cast aside moves by politicians and public interest groups to rein in the banking system. Several Members have mentioned that tonight. Ironically, much of the criticism comes from the self-same media outlets that have placed intense pressure on elite politicians to dismantle the proposals for their own industry, as set out in the Leveson report. As a matter of fact, the banks have taken much of what has been proposed on the chin. Many have privately expressed great concern to me about the wisdom and practical application of ring-fencing, but they feel that they have no choice but to accept Vickers virtually in its entirety.
Ironically, existing financial services players could reap the unanticipated benefit that comes from erecting ever more onerous barriers to entry for potential new banks. Sadly, as the hon. Member for Wirral South (Alison McGovern) suggested, the zest of competition has been largely ignored in an effort to make banking safe and to punish banks for their past wrongdoing.
The City of London’s size and global reach continues to make the UK economy especially vulnerable to turbulence in the financial markets. The centrepiece of the Bill’s reforms—the plan to ring-fence domiciled banks’ retail arms from their investment ones—is based on the notion that the less risky retail operations require protection from the so-called casino excesses of investment banking. The aim to reduce the burden on the British taxpayer in the event of banking failure is, of course, a laudable one. Many in the financial fraternity are simply glad that the reforms fell short of a return to a full-blown plan along the lines of Glass-Steagall, to which my right hon. Friend the Member for Louth and Horncastle (Sir Peter Tapsell) referred. That was the US legislation that separated commercial and investment banking for almost seven decades until 1999. In addition, the big banks will now need to raise capital and loans equivalent to 20% of the part of their balance sheet for which UK taxpayers would be liable in a crisis.
The coalition Government were swift to accept the Vickers recommendations almost without reservation, giving British banks until 2019 to install their ring fence. However, I fear that the question of the separation of banks’ retail and investment arms has still not been successfully settled here in the UK. Fears have been raised that the Vickers reforms will tie up billions of pounds in additional capital and impose on banks a requirement to overhaul compliance and corporate affairs—a burden that will, I am afraid, have to be met by our constituents, the general public, in higher interest rates and in the sharply reduced amounts that banks are willing to lend.
One of the causes of this paralysing uncertainty that has enveloped the UK’s big banks is the mixed messages coming from the Treasury on the one hand and the central bank on the other over the dual requirements to recapitalise, and thus reduce the risks of future taxpayer bail-outs, while also being ready to lend to credit-starved UK plc as if it were 2006 or 2007 all over again.
Meanwhile, at EU level, the Liikanen report has recommended to the European Commission a similar, Vickers-style ring-fencing of retail banking from investment banking. This has given a small crumb of comfort that the UK might not be going down this path alone. However, I fear that the Liikanen proposals are sufficiently different from the Vickers proposals to heap further uncertainty on financial services here in the City.
Since there is likely to be precious little consensus between the EU, the UK and the US authorities any time soon as to whether the structure of banking is best under Liikanen, Vickers or indeed Volcker, how should banks realistically now prepare? Once again, I fear that the cost of all that uncertainty will be borne by the consumer and the wider economy, not to mention heavy job losses throughout the financial services industry. In this regard, it is important to nail the understandable public misconception, also heard here tonight, that it has been “business as usual” in the City since 2008. It would be fair to say that particularly over the past two years, volumes of business have collapsed, state financial support has been largely withdrawn and there has been and will continue to be a huge jobs cull. If we couple that with falling salaries and bonuses for the vast majority of workers, it means bad news all round, as Treasury receipts from financial services have plunged to what I suspect will be a new norm for the future.
Aside from the issue of commercial uncertainty, there are, I believe, question marks over whether the ring fence will actually work. The Bill’s template is based on a somewhat simplistic and outdated division between what amounts to wholesale and retail banking. There are numerous transmission mechanisms between the two that make a hard-and-fast split between high street and casino investment banking very difficult to achieve.
Historically, the City of London has repeatedly benefited from arbitrage with Wall street, from the withholding tax under President Kennedy over 50 years ago, which precipitated the creation of the eurodollar and eurobond markets, right through to the “big bang” in the mid-1980s and the effects of Sarbanes-Oxley in 2002 in the aftermath of the Enron and WorldCom collapses. If the UK is to prevent its competitors from benefiting from unilateral action along the lines set out by Vickers, it must continue to press for international agreement on the future landscape of the financial services world.
There is, in my view, a danger that the UK and EU regulators will somehow look at the Bill’s ring-fencing as a panacea, and will sell it as such to the general public. Instead, in the light of the pitfalls of the ring-fence options, it might prove more effective to look at an alternative dual system when it comes to ordinary deposit accounts. This would allow those who desire a risk-free place to store their money to place it in savings banks, while those happier to take a risk—unprotected, of course, by any Government guarantee—could have an account with a fractional reserve bank, as used to be the case in the UK until the mid-1980s.
Tighter regulation, newfangled restrictions and imploring banks to behave ethically as set out in this Bill and future legislation will no doubt do little to restore the City’s reputation for integrity. I fear that the spate of mis-selling scandals still has a hell of a long way to run, especially as, in fairness, 20:20 hindsight now deems that almost any novel financial product created and marketed by our banks since 2000 will be regarded as having been mis-sold against consumers’ interests.
Mr Love
If I may characterise the hon. Gentleman’s argument, it seems to be that a race to the bottom in terms of regulatory cover will be to the advantage of the City of London. Many, however, including the witnesses who gave evidence to the parliamentary commission, have said that there should be a race to the top to provide safety and security, which will attract investors to London. Why does he not accept that argument?
Mark Field
I am afraid that the hon. Gentleman has mischaracterised what I was trying to say. What I would say is this: we do not know—we cannot be sure, so it is better to approach the problem by trying to organise international agreements rather than by “a race to the bottom”, as he puts it. I do not believe that either. Much of the evidence taken by the parliamentary commission has played an important part in ongoing thoughts about the whole landscape of international financial services for the future. It is wrong to mischaracterise what I said, but there are risks and, given the importance of the financial services industry, whether we like it or not, we need to ensure that we go into this with our eyes fully open.
If Governments of any political colour continue to take ultimate responsibility when consumers purchase products from our banks, a whole set of unhealthy and perverse incentives will continue to plague our financial services industry. It is imperative to remember that regulation is often the sworn enemy of competition—one of the other avowed goals in the Bill. Public confidence and ethical foundations will slowly and surely be restored in financial services only when the landscape becomes far more competitive. That means, in my view—whether we like it or not—that consumers of financial products need to take a far greater level of responsibility. No amount of banking reform or new regulation will otherwise create the conditions for free-flowing capital to build the successful businesses of the future, let alone restore the reputation of our nation’s most important invisible export, which is and remains financial and business services.
Financial Services
Mark Field Excerpts(11 years, 5 months ago)
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Greg Clark
I very much agree with the hon. Gentleman that we should have more local, business-focused banks in this country. I hope that we can recover the personal knowledge, service and understanding of the needs of business that branches used to have in abundance. RBS is not nationalised, so we cannot direct it in the way that he suggests. However, the reforms that we are making, particularly in the Financial Services (Banking Reform) Bill, emphasise the importance of increasing competition and of having new entrants. As he knows, some of the divestments that have been required recently have brought entrants into the market that have concentrated on lending to small and medium-sized businesses. That is a force for good, but we need—and I want to see—much more of it.
Mark Field (Cities of London and Westminster) (Con)
May I, too, welcome the Minister’s statement? I also associate myself with the words of the Treasury Committee Chairman, my hon. Friend the Member for Chichester (Mr Tyrie).
The City of London should have nothing to fear from arbitrage, although it is sometimes said that it should. If we have a regulatory system that is robust and fair, it will pass the test of time and, in the medium to long term, will become a great attraction of the City of London.
Whether we like it or not, we need our banks more than ever, whether we are small businesses or individuals. There is a danger that with 20:20 hindsight, we are finding ever more scandals and examples of mis-selling, whether with LIBOR, interest rate swaps or payment protection insurance. Will the Minister make it clear to the banks that we need to draw a line under these scandals? There is a danger that we are falling further and further down a slope and that it will be extremely difficult for banks to regain the trust of the public at large. Without that trust, the broader economy will suffer
Greg Clark
My hon. Friend speaks with great expertise. He has worked in and represented with distinction the City of London over the years, and more than anyone he recognises the importance of it re-establishing its prestige. Part of doing that and of sending a signal to the current generation working in financial services is to say clearly that the misdeeds of the past need to be put right. Where people or small businesses up and down the country have suffered detriment, we should not turn a blind eye. We should be rigorous in holding people to account, and acknowledging the harm done to businesses that have suffered from past mis-selling, and when we do that we should look—as in this case—to recover the costs of such mis-selling from the perpetrators. The Chancellor has set out that principle and I expect the banks to follow it in the months and years ahead.