Oral Answers to Questions
Debate between Mark Field and David Gauke(8 years ago)
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Mark Field (Cities of London and Westminster) (Con)
I appreciate that getting back some of our EU contribution was a factor in the decision to leave the European Union, but will my right hon. Friend confirm that the Government are, at least at this stage, open to the idea of making some contribution in the future if we are to secure some sort of access to the single market for financial services, or, indeed, making some contribution in relation to passporting and equivalence?
Mr Gauke
What is important is for the United Kingdom to secure the best possible deal in our negotiations with the European Union. I do not think that it makes sense to bind our hands and close down options at this point; nor do I think it right for us to provide a running commentary on the matter.
HMRC and Google (Settlement)
Debate between Mark Field and David Gauke(8 years, 10 months ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Mark Field (Cities of London and Westminster) (Con)
No one should underestimate the complex nature of trying to tax globally active corporations such as this. It is speculation to talk in terms of the numbers that have been bandied around. However, in view of the Government’s desire to get an international arrangement in place, can the Minister tell us today whether he believes this deal sets some sort of precedent, or is it just a one-off arrangement?
Mr Gauke
The important point to note is that the individual tax affairs depend on the application of the facts in the case; as I have mentioned a number of times, it depends on the economic activity and assets that are held in the UK, or indeed other jurisdictions. But I do think this signifies that companies are looking at their tax arrangements and there is a closer alignment between tax and economic activity, which I certainly welcome. That is what the BEPS—base erosion and profit shifting—process is designed to achieve, and that is what the UK Government have been advocating for some years now, and I believe we are making progress on that.
Finance Bill
Debate between Mark Field and David Gauke(9 years ago)
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Mr Gauke
My hon. Friend draws me more into the specifics, but I hope he will be satisfied if I ask him to let me look at the particular circumstances that his constituent has raised. In that context, before we get into process matters, he should let me look at those particular circumstances. There are good reasons why we are bringing forward new clause 4, which is consistent with our general approach to ensure that the schemes are properly targeted.
As I mentioned, we shall introduce secondary legislation to exclude subsidised renewable energy generation by community energy organisations. This follows the announcement in the summer Budget that the Government would continue to monitor the use of the venture capital schemes by community energy to ensure that the schemes were not subject to misuse and that they provided value for money to the taxpayer. All these changes on energy activities will take effect for investments made on or after 30 November. The Government intend to apply all these exclusions to the social investment tax relief when SITR is enlarged.
New clause 5 corrects a technical defect in the legislation relating to corporation tax instalment payments. Instalment payments are currently made by large companies—that is, companies with profits that exceed £1.5 million. The definition of “large” was previously included in primary legislation, which has since been repealed when corporation tax rates were unified from 1 April 2015, at which point the definition moved to secondary legislation. Following that, there is a mismatch between the cessation of the repealed legislation and the commencement of the new definition, which could be interpreted to mean that corporation tax payments would be due nine months and a day after the accounting period. There is no evidence of companies having acted on the defect, and corporation tax receipts are, happily, above forecast. The changes proposed in new clause 5 correct this uncertainty to ensure that the definition of “large” will apply for accounting periods that span 1 April 2015, so that corporation tax instalment legislation will apply.
New clause 8 addresses an unfairness whereby in certain claims for repayment of tax and restitution through interest payments, taxpayers might receive a significant additional benefit at the expense of the public purse. The vast majority of interest payments that are paid by Her Majesty’s Revenue and Customs are made under the relevant Taxes Act. These will continue to be subject to the normal rate of corporation tax. However, the interest payments targeted by this clause arise from claims made under common law, which stretch over a large number of years—in some cases, going back to 1973—and represent a unique set of circumstances.
As it stands under current law, any payments will be taxed at the low corporation tax rate that applies at the time the payments are due to be made. Since the interest payments targeted by the clause have accrued over years when the rate of corporation tax was much higher than companies currently enjoy, those making the claims receive a significant financial benefit. In addition, such payments may have to be calculated on a compound basis, further improving the advantage gained at the expense of the public purse.
Mark Field (Cities of London and Westminster) (Con)
While I support the robust way in which the Minister is protecting the public purse, he will also recognise, not least from the correspondence he must have received, that many colleagues and constituents feel that this fairness deal does not apply both ways. At times when individuals have owed the Exchequer rather more money, they have had interest charged at very high levels. Will my hon. Friend try to ensure that what is good for the geese is also good for the gander in respect of these matters? I entirely understand that he wants an equitable arrangement, but there is a sense from many taxpayers and indeed their financial advisers that all too often the Revenue does not see it in quite the same light when they are on the other side of the equation.
Mr Gauke
I can tell my right hon. Friend, who is a tireless defender of the interests of the taxpayer, that the measure is targeted at very specific circumstances in which compound interest may have to be paid in relation to claims which, as I have said, potentially date back to 1973. I hope I can reassure him that we do not believe the same approach should be applied in every case.
As I have said, such payments may have to be calculated on a compound basis, which would increase the advantage gained at the expense of the public purse. To address that unfairness, the Government are ensuring that an appropriate amount of tax, set at a rate of 45% , is paid on any such awards. That rate reflects the long period over which any such interest accrued, the higher rate of corporation tax which applied during the period, and the compounding nature of such potential awards. It is a special rate which applies in special circumstances. We are also introducing a withholding tax on those payments to provide for the easiest method of paying and collecting the tax that is due.
The changes will affect only a relatively small number of companies which have claims related to historical issues. They will affect fewer than 0.5% of companies making corporation tax returns. This is a prudent step to ensure that if any such payments have to be made, they are subject to a fair rate of tax. HMRC will continue to challenge all aspects of the claims on the basis of strong legal arguments.
New clause 8 will ensure that a principled and targeted system is in place to address a potential unfairness whereby a few businesses receive significant benefits resulting from the unique nature of this litigation at the expense of the public purse.
New clause 6 and amendments 71 to 88 relate to clauses 40 and 41. Let me begin with a brief reminder of the provisions in those clauses. Investment fund managers are rewarded for their work in a range of ways, one of which is known as carried interest. It is the portion of a fund’s value that is allocated to managers in return for their long-term services to the fund. The manager’s reward therefore depends on the performance of the fund. Aspects of the UK tax code meant it was possible for asset managers to reduce the effective tax rate payable by them on their carried interest awards. In particular, it was possible for them to pay tax on amounts much lower than their actual economic gains. The changes made by clauses 40 and 41 ensure that investment managers will pay at least 28% tax on the economic value of the carried interest that they receive.
Amendments 71 to 88 make a series of technical changes in relation to carried interest to ensure that it operates as intended. New clause 6 is an addition to the provisions dealing with the tax treatment of carried interest and the related measures on disguised investment management fees. It establishes a comprehensive definition when sums arise for tax purposes under these rules.
Mark Field
Will the Minister give us an indication of the amount of consultation that has taken place on these changes, which, obviously, have been introduced since the publication of the Finance (No. 2) Act 2015? While I entirely appreciate that he rightly wants to ensure that the Exchequer receives the correct amount of money, and while I also appreciate that there is clearly a potential for carried interest payments to be at least—shall we say—uncertain, is he entirely satisfied that there has been sufficient consultation to ensure that those who will be affected by the changes have had an opportunity to put their case?
Mr Gauke
The Government and the Treasury keep all taxes under review, and were contrary evidence to emerge, we would of course look at it and, if necessary, adapt the policy. We have, however, made a judgment on the evidence before us, and consumer research demonstrates that first-year incentives are by far the most important when customers come to choose new cars.
The hon. Member for Salford and Eccles asked why the Government are now taxing plug-in and hybrid vehicles the same as conventionally fuelled cars. Such cars will still benefit from cheaper rates. The updated CO2 banding on first-year rates in the new VED system will strengthen the incentive to purchase the cleanest cars, including plug-in and hybrid vehicles. As I have said, the evidence suggests that up-front incentives are the most effective in influencing behaviour. We will continue to support hybrids and plug-in vehicles with beneficial rates of company car tax and enhanced capital allowances, as well as through the plug-in car grant. The Government have guaranteed that £5,000 grant until February 2016.
Our longer-term plan will be announced after the spending review. To drive down carbon emissions and air pollutants, we will give the greatest incentives to zero-emission cars—those that produce no air pollution or CO2 whenever they are driven—which pay no VAT.
Mark Field
I appreciate that the current regime for vehicle excise duty reflects carbon emissions, but I mentioned in an earlier intervention that one of the biggest concerns in relation to clean air, particularly in London, is about NOx—nitrogen dioxide—emissions. That is a particular problem in emissions from diesel vehicles. Will some consideration be given to making that part and parcel of the consultation on adapting this duty in the years to come?
Mr Gauke
The view we have taken about NOx is that it is best addressed through regulation, rather than through vehicle excise duty. It is necessary for the Government to use all the tools in the toolbox in these circumstances. We think that that is the right way to address that concern. Indeed, new regulatory standards are being put in place for NOx.
I will, if I may, turn to the £40,000 premium surcharge. A concern was raised that it might slow the uptake of the latest carbon technologies, such as hydrogen fuel cell cars, where price is already a barrier to uptake. In response I would say that the Government are committed to supporting low-carbon vehicle technologies. All manufacturers will need to invest in affordable new technologies to meet their emissions targets, and the Government have committed £11 million through the hydrogen for transport advancement programme to support the roll-out of fuel cell electric vehicles and 12 hydrogen refuelling stations. Fuel cell electric vehicles are also eligible for the plug-in car grant and beneficial rates of company car tax. Hydrogen is also fuel-duty exempt.
Zero-emission cars, even ones with a list price of £40,000, will pay zero first-year rates. Only a small proportion of motorists can afford cars that cost more than £40,000. The most popular cars in the UK cost an average of £15,000, and even the most popular large family cars cost an average of £21,000. It is fair that premium cars—including low-carbon ones—pay more than ordinary family cars.
The hon. Members for East Antrim and for Carmarthen East and Dinefwr (Jonathan Edwards) mentioned the application of the road fund in the rest of the United Kingdom. Although changes to VED affect the whole UK, the road fund relates only to the English strategic road network, which is managed by Highways England. We are in discussions with the devolved Administrations on how exactly the money is allocated, to ensure that we reach a sensible and fair agreement that reflects the various requirements across the whole United Kingdom. In the meantime, just as for a range of other taxes and spending, the devolved Administrations will receive allocations in the normal way through the Barnett formula, as opposed to an assessment of road use or VED for the various nations of the United Kingdom. I hope that that provides some clarity.
New clause 3, tabled by the SNP, relates to carried interest. We had that debate in Committee, so it is rather familiar territory. I shall avoid the temptation to refer the House to the speech that I gave in Committee on a specific date and suggest that Members look at particular columns—[Interruption.] As the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) says, no doubt the House has already read it but would like to hear it from me again afresh. This point was also touched on by my right hon. Friend the Member for Cities of London and Westminster (Mark Field).
Carried interest is a reward for a manager that is linked to the long-term performance and growth of the funds they manage. They are therefore capital in nature, and should continue to be charged capital gains tax. The measure ensures that private equity managers pay at least 28% tax on the carried interest rewards that they receive. In addition the disguised management fee rules introduced in the Finance Act 2015 put it beyond doubt that when management fees are received by fund managers, the part of the remuneration that is not variable is always subject to income tax. If any part of the manager’s reward payment is properly regarded as income rather than capital, they will continue to be charged to income tax. The Government have launched a consultation to ensure that rewards that should be charged to income tax are always taxed in that way.
National insurance is not charged on capital returns and is payable only on earned income. Bringing carried interest into income tax could raise more initially, but over time the yield would disappear as the industry moved to more competitive jurisdictions.
That is the essence of the debate, and it is instructive to look back at what previous Ministers, not just from my party but from the Labour party, have said at the Dispatch Box, which is that we have to strike a balance, ensuring that we get the revenue we should get and that we properly tax income—certainly we want to tax income as income—while also ensuring that we have a regime that properly taxes capital gains as capital gains. There are risks if we put in place a regime that is uncompetitive and out of line with what happens in other jurisdictions. The point was made that other countries are looking at this issue and that there could be changes to the taxation treatment of carried interest in other jurisdictions. I am aware that there is a debate under way in other countries, but I am not aware of any concrete action taken by any competitor countries to change the approach that is generally followed. The UK is therefore in line with the general approach.
It is important that we do not allow income to be turned into capital in a contrived or artificial way. It is also the case that, as a coalition Government, we took steps in 2010 to narrow the difference between the rates charged for capital gains tax and for income tax. We increased the rate of capital gains tax. It is interesting to hear the argument in the Chamber today about whether there should be a greater alignment between the two. The last Government took two steps to increase the alignment: the first was to increase the rate of capital gains tax and the second was to reduce the additional rate of income tax to 45%. There is a long-standing structural danger when there is a large disparity between the two, but we should also understand why there have been differences in the rates. It comes from a desire to attract investment and encourage individuals and businesses to invest, which is why there is a separate capital gains tax regime. This is an issue that Ministers from all parties have wrestled with over many years, but by taking action in this Bill to create a greater focus on making sure that income is taxed as income and capital gains are taxed as capital gains, we are putting things on a sustainable and fair footing.
I also note the remarks that the hon. Member for Kirkcaldy and Cowdenbeath made about our constituency staff—on other occasions people have referred to cleaners paying a higher rate of tax than their employers—but the changes we have made ensure that we are not in that position. Many of the steps we have taken—for example, to increase the personal allowance—have taken many cleaners out of income tax altogether, whereas the changes we have made to capital gains tax rates have ensured that private equity managers pay a higher rate of tax than they might have paid some years ago.
The suggestion has been made that there is one rule for some and another for others, but the rule we have in place on carried interest ensures that investment managers who are receiving capital returns are taxed to at least 28%, the higher rate of capital gains tax. Any carried interest that constitutes income will be chargeable to income tax. The Government have launched a consultation to ensure that when investment managers should be charged for income tax, they will be.
I hope that is helpful to the House in dealing with the various points that have been raised. As I say, in this first group—[Interruption.]
Tax Avoidance
Debate between Mark Field and David Gauke(9 years, 9 months ago)
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Mr Gauke
I make the point that I have made before: there is no suggestion and no evidence that Lord Green was complicit in any wrongdoing—that remains the case. Opposition Members can stand up to make allegations and suggestions, but there is no evidence that he was engaged in that type of behaviour and certainly no information was available to Ministers to suggest that he was.
Mark Field (Cities of London and Westminster) (Con)
The Minister made the important point in earlier exchanges that there should never be any political inference, whichever Government are in power, in disciplining or legal action over these sorts of matters. We would be going down an incredibly dangerous path, particularly this close to an election, if the pressure became so strong that politicians tried to play to the gallery and interfere in any way with the legal process.
Mr Gauke
My hon. Friend makes an extremely good point, and the fact that some Opposition Members do not appear to agree with it is troubling. The role of the Government is to set out the policy. Our philosophy is clear: individuals and businesses must pay what they owe, just like the vast majority of UK taxpayers. That point has been reiterated by the Prime Minister and the Chancellor again and again. Aggressive tax planning and, indeed, tax evasion are simply not acceptable. As I will set out, this Government have a proud record on that front.
Tax Avoidance (HSBC)
Debate between Mark Field and David Gauke(9 years, 9 months ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Mark Field (Cities of London and Westminster) (Con)
It is profoundly depressing that there is yet another scandal on the front pages to do with one of our banks, given the importance of a functioning banking system to our whole economy. It is also a bit depressing to watch people with the benefit of hindsight suggesting that they would have acted differently when in government. Will the Minister say how we can work across Parliament and all parties, to ensure a banking system that works for all small and medium-sized businesses that desperately require money to ensure ongoing economic growth?
Mr Gauke
I refer back to the point made by my hon. Friend the Member for Wyre Forest (Mark Garnier) about the work undertaken by the Banking Commission. I hope we have built a consensus around the significant reforms that occurred under this Government, which have put our banking sector on a much firmer footing.
Finance Bill
Debate between Mark Field and David Gauke(10 years, 4 months ago)
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Mr Gauke
I am grateful to my hon. Friend for another example of Labour opposing yet another measure that this Government have taken to try to reduce the deficit. At least Labour Members did not make another spending pledge on this occasion, but we will, of course, continue to monitor their remarks very closely because they frequently do make spending pledges. [Interruption.] Perhaps the presence of the shadow Chief Secretary, the hon. Member for Nottingham East (Chris Leslie), has instilled some uncharacteristic discipline in Labour Front Benchers.
Let me turn to the question of why some circuses are excluded and some points of definition. With the exception of the named exclusions, other types of performing arts can benefit, provided that those giving the performance can demonstrate that they are wholly or mainly playing a role and that each performance is live and that the presentation of live performance is the main object, or one of the main objects, of the theatre production company’s activities. The Government believe that using that definition, which considers the nature of the performance, is more appropriate than listing types of performing arts. In cases where further clarity may be required, companies should seek professional advice or contact HMRC. On the subject of HMRC, I was asked about its resources. The House may be pleased to know that a specialist unit has been provided to assist businesses with making claims under this relief.
The definition of “touring” has been raised and whether more should be done in terms of relating it to geographical location. A production can qualify as “touring” if there is an intention to perform at six or more separate premises or to present 14 performances in two or more premises. The hon. Member for Bishop Auckland (Helen Goodman) is right to say that we considered alternative definitions of “touring,” including the use of geographical restrictions, but we believe that our definition provides a simple and effective way to support the range of types and sizes of tours that take place. That is why we have gone with that definition.
On the question whether this will cause a significant administrative burden for charities or not-for-profit theatre companies, minimising complexity and ensuring straightforward compliance was one of the central considerations in designing the relief. That is why we are basing it on the film tax relief model, which is also used successfully for other creative industry tax reliefs. We have worked closely with industry in determining the design of the relief, to ensure that it works for the industry, particularly the not-for-profit sector. Officials continue to engage with industry, including by attending events to help and advise in the run-up to companies starting to make claims in September. Ultimately, detailed guidance will be published on the HMRC website to ensure that companies and charities get the support they need.
Mark Field (Cities of London and Westminster) (Con)
Is it the Treasury’s intention, for the sake of simplicity and certainty, to ensure that the definition of “touring” is a nationwide one? In central London, which has a lot of theatres, it would be very easy to suggest that performing in only two or three theatres would not be a tour.
Mark Field
I am glad that I am looking more youthful and Conservative this afternoon, Mr Deputy Speaker.
This is a very good Bill containing much that I agree with. The Minister has rightly pointed out that it does some important things, particularly on something close to my heart—the theatre industry in my constituency—but also on technology, which is one of the big growth areas for the future prosperity of this country.
I want to talk about an ongoing concern of mine. The Minister will be aware of what I am about to say. Barely a fortnight ago, Her Majesty’s Revenue and Customs began writing to some 5.5 million taxpayers to confess that it had got things wrong. Errors in the pay-as-you-earn calculation had led the taxman to charge some 2 million fellow citizens too much tax and a further 3.5 million Britons had been assessed too leniently. That latter group now faces the prospect of several years of repayments. All this is in spite of expensive IT and personnel reforms that were meant to improve the system’s accuracy.
That news came at a time when the House was scrutinising this Finance Bill, which proposes bestowing ever more powers upon that organisation—in my view, an unjust reward for yet another year of error-strewn performance. Meanwhile, a consultation is now under way as to whether HMRC should be given direct access to UK citizens’ bank accounts so that it can claim from source any tax that it believes it is owed. I share the view of many people on the Government Benches who are concerned that this coalition Government are overseeing the transfer of very considerable powers to the state. I fear that a precedent will be set for a future Labour Government, which we all hope will not come any time soon. However, such a Government might well be minded to expand further the taxman’s remit.
Will the Minister reconsider the new accelerated payments regime that is proposed in the Bill—other Members have spoken on that in the past couple of days—about which I raised my own concerns at Second Reading? It is vital that the Treasury considers carefully the impact of granting such powers to an organisation that, I am afraid, has proven itself time and again to have incorrectly calculated tax on a grand scale.
Mr Gauke
Since 1944, there has been an end-of-year reconciliation under the PAYE system, because not all the information necessary to calculate the PAYE amount is available to HMRC during the year. To some extent, the PAYE amount is a provisional one, which is corrected at the end of the year. Notifying people at the end of the year quickly is not the system failing; that is how the PAYE system operates. It is not errors; that is the system.
Mark Field
I do appreciate that, but the Minister will also appreciate that trust in many institutions, whether Government, banks or this House, has been at an all-time low in recent decades. If we are going to pass on more powers to such institutions we—
Finance (No. 2) Bill
Debate between Mark Field and David Gauke(11 years, 7 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.
Finance (No.2) Bill
Debate between Mark Field and David Gauke(14 years ago)
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Mr Gauke
We have heard the figures quoted by TIGA, but we do not accept the validity of that analysis because we feel that some of the assumptions underpinning those estimates are erroneous. The research commissioned by the industry implicitly assumes that the investment incentivised by the subsidy is entirely additional to the UK economy. In reality, it is likely that the relief will displace investment from elsewhere in the economy, so the net impact on total UK investment could be limited. For example, it is possible that such a tax subsidy would divert investment from more productive sectors to the detriment of the productivity of the UK economy as a whole.
If Opposition Members are making the case that lower taxes always result in growth in the economy, I would listen with great interest and it would—my right hon. Friend the Member for Wokingham (Mr Redwood) made this point—be an interesting conversion to supply-side economics. I do believe, however, that the strongest economic case can be made for lower tax rates as a whole, across a broader base, as opposed to targeting some sectors, unless there is a strong case that there is some kind of market failure. We have not yet heard such a case being expressed in a way that we find persuasive, and that is why we decided not to proceed with video games tax relief.
That is not to say that we do not wish to support British businesses—far from it; we do. It is vital that we have a strong private sector to drive the recovery, but we must support that growth in the right way. In the emergency Budget, the Government announced a major package of reforms to the business tax regime with the aim of creating the most competitive corporate tax system in the G20.
Mr Mark Field
The Minister has twice referred to the concept of market failure. Did not the hon. Member for Dundee East (Stewart Hosie) make a compelling argument when he spoke about the very nature of this market? Perhaps we should be talking not about market failures but about the way in which the video games industry operates and the fact that its nature makes it susceptible to the kind of tax relief that we are looking for. The Minister is understandably, and rightly, sceptical about some of the figures being put out by TIGA, but a multiplier of nine seems pretty high. What level of multiplier would be so unacceptable as to allow this kind of relief to be put in place?
Mr Gauke
The TIGA analysis makes the assumption that everything achieved as a consequence of the relief would be additional to the economy. It does not appear to recognise that there would also be displacement, and that highly skilled graduates would not remain unemployed if they did not find work in the video games industry. We are therefore sceptical about the TIGA analysis. My hon. Friend makes his point well, however, and the nature and profile of the video games business clearly have some significance for his constituency, but we are as yet unconvinced of the necessity for the tax relief that was proposed by the previous Government, and that is proposed in the new clause.
The Government’s focus must be on providing a strong business environment for sectors across the board, including video games. Our reforms will reduce rates of corporation tax by four percentage points over the next four years, which means that the UK will continue to have the lowest main rate in the G7. This will improve our relative position significantly, compared with that of our competitors, after the years in which we have fallen behind. This will benefit companies across the economy, including those in the video games industry.