Finance (No. 3) Bill

Nick Boles Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 8th January 2019 Commons Chamber

In pushing this, we want to make it clear that our position is very different from the Government’s: we would like to protect the right of people who live and work in Scotland to continue to do so.

[Nick Boles (Grantham and Stamford) (Con)]

I will be very brief, not least because my right hon. Friends the Members for Loughborough (Nicky Morgan) and for West Dorset (Sir Oliver Letwin) have described much better than I ever could why I am going to support amendment 7, which I signed almost while it was hot off the presses before Christmas. The one point I want to address is the question that has been raised, and indeed the accusation that has been made, that in doing so I and other Conservative Members are breaking faith with our constituents and somehow breaking a manifesto commitment. I believe this to be utterly wrong, and also a rather disgraceful suggestion to make.

In the referendum campaign on our membership of the European Union, I supported and indeed voted remain. However, the argument of my colleagues who voted and campaigned for leave that I found most powerful and most emotionally impactful was that Parliament is sovereign and should take control of all the decisions that affect the lives of my constituents. That was the argument that the leave campaign made that I found the most difficult to resist and the most difficult to say was worth compromising for the sake of our membership of the European Union. It is therefore somewhat extraordinary that the very same people who made that argument so eloquently and effectively during the referendum campaign should somehow have the temerity to criticise me or other hon. and right hon. Members for doing what we believe is right in the interests of our constituents and in the national interest.

[Mr Kenneth Clarke]

I cannot think of a single leading Conservative Brexiteer who would have changed his opinions on membership of the EU in the slightest had the remain side won the referendum. They made it quite clear that they had no intention whatever of abandoning their long-held, quite sincere views, which they would have carried on arguing in this House and voting for. Does my hon. Friend share my view?

[Nick Boles]

The Father of the House is completely right. I have to say—I am sure the same is true of him—that I rather admire them for it. I admire my hon. Friend the Member for Stone (Sir William Cash) for making the same arguments passionately and with principle for 40 years—longer, practically, than many Members have been alive.

I want briefly to address the question of the Conservative manifesto commitment. I should point out that quite large chunks of the Conservative manifesto were junked by the Prime Minister during her own election campaign, so I do not know quite why we have elevated it to be a sort of Moses-style tablet. Nevertheless, it contained a sentence saying that we maintain that no deal is better than a bad deal. I agree, and I agreed then, in my hospital bed, when I agreed to stand as a candidate in the election, that that was the right position for the Government to take. As my right hon. Friend the Member for South Dorset (Sir Oliver Letwin)—West Dorset; apologies to the people of Dorset—explained, it was entirely right for the Government to want to prepare for no deal. Unfortunately, as he pointed out, they failed to do so.

However, what we did not say in that manifesto is that no deal is better than any deal; we said no deal is better than a bad deal. I remind my hon. Friends that we have a deal; it is a deal that the 27 nations of the European Union have agreed, that the Prime Minister, who recently won a confidence motion in the Conservative party, and her Cabinet have endorsed and advocate, and that, at the last count, about 200 Conservative Members, including myself, intend to support when the vote is finally put. It is simply not possible to suggest that by saying that I will not countenance no deal, I am breaking that manifesto commitment. We do not have a bad deal; we may have a deal that you, individually, do not like —not you, Mr Speaker, but individual hon. and right hon. Members—but nobody can claim that we do not have a deal that it is reasonable for Conservative Members to support. It is therefore reasonable for us to say that, at this late stage, with the Government having prepared as woefully as they have for no deal, we will on no account countenance a no-deal Brexit.

Finally, I join my right hon. Friend the Member for West Dorset in very clearly saying this: I will vote on any motion, on any amendment, on any piece of legislation, proposed by whomsoever in this House to ensure that we leave the European Union on 29 March with a deal or not at all.

[Several hon. Members rose—]

Digital Taxation

Nick Boles Excerpts

Tuesday 27th March 2018 Westminster Hall

[Neil O’Brien (Harborough) (Con)]

I beg to move,

That this House has considered digital taxation.

It is a pleasure to serve under your chairmanship, Dame Cheryl. Let me start by thanking all hon. Members who have come to take part in the debate. I feel we have a slight imbalance of forces in the Chamber, but none the less it shows the high level of interest in the subject.

My interest in it comes from talking to the small businesses in my constituency. Those Members who know my constituency well will know it is not a place with one large or dominant employer or sector but a place of very successful small businesses. We have wonderful independent shops in Market Harborough and on Bell Street in Wigston, we have fantastic manufacturing businesses such as COBA in Fleckney, which I visited the other day, and we have great high-tech businesses, particularly around Kenilworth Drive in Oadby. A lot of small businesspeople ask me, “We are paying our business rates and taxes, but are large international digital businesses paying their fair share of tax?” We need to ensure that the answer is an unambiguous yes.

This debate is timely. At the time of the spring statement, we saw the Treasury publish its position paper, “Corporate tax and the digital economy,” and since then the OECD has produced a report on the same issue as part of the work on base erosion and profit shifting that the UK has led on and, just last week, the European Commission published a paper on the same subject. It is significant that both the European Commission and the Treasury have independently arrived at some similar conclusions. In fact, both the Treasury paper and the European Commission put forward two options: a comprehensive international reform, or an interim tax to be levied before such a reform can be agreed internationally.

It is clear from reading all of those documents that taxing large digital businesses and distinguishing them from other firms that trade internationally is not simple or straightforward at all. None the less, I was encouraged to see the Treasury consulting on that question and being prepared to think radically about what we need to do to address it.

What is the case for action? Put simply, international tax treaties were designed in an era when doing business internationally inevitably meant having to have physical premises, offices, factories and lots of people in the country where business was to be done. However, today things are different. A large digital business could sell advertising to firms in country A, to be seen by users in country B, served off servers in country C, perhaps under a brand owned in country D, which is financed and owned by a company in country E. That business can ensure that its profits are booked in whichever jurisdiction taxes are lowest.

That is the issue in abstract; let me give a concrete example. I do not want to pick on a particular business, but I use the example cited by Jonathan Ford in the Financial Times relating to Google in 2014. He reported that the firm had made about £4.3 billion of sales in the UK and that, in line with its global profit margin of about 26%, that would have meant about £1.1 billion of profits to pay tax on—and, in turn, a corporation tax payment of £220 million. However, he reports that in that year it paid only £30 million in corporation tax.

A simple division of Google’s global profits by its share of users in the UK would not be a fair basis to work out its tax liability here, because obviously a large proportion of its engineers and research and development are in the US. None the less, it feels like we might expect a bit more of the value created by UK users to be reflected in taxable value in the UK.

Since 2014, things have moved on. We have seen the introduction of the so-called Google tax to stop some of the worst abuses of the international system, stopping firms from artificially signing all of their contracts in a particular country, and looking through some of the artificial arrangements put in place by some firms. However, there is much more to do.

In fact, this issue is far from unique to the UK. The European Commission reports that digital companies pay on average roughly half the effective tax rate of firms in the traditional economy. A revealing map in the Commission’s impact assessment shows very little correlation between where digital businesses’ user activity is and where in Europe their profits are booked. In other words, there is no real link between where value is being created and where tax is being paid. It is therefore absolutely right that the Treasury is consulting on going further.

That is the case for action. Our approach should be guided by three principles. First, any new tax has to be for the largest international businesses only, with generous allowances to carve out small firms. We do not want to do anything to hamper the vibrant tech start-up scene we have in the UK, and it would make no sense to try to impose a large and complex tax on minnow-sized companies where the cost of administration would outweigh the benefit of the tax we might collect. I was glad to see a nod in the direction of carving out smaller firms in the Treasury paper, if I have interpreted it right.

Secondly, we need a tax that has a clear distinction between tech businesses and other international firms. We do not want to unravel the complex web of global tax agreements we have at the moment or come up with something that can never be agreed internationally. We need to distinguish between tech and other sectors. Let me give an example. There is no real difference between selling advertising on a British newspaper website or a popular blog and selling it in a physical newspaper—the value is still created by the journalists based in the UK. If, on the other hand, I post a video I have made or a song I have recorded—many Members will be horrified by the idea of listening to me singing—even if that website is ultimately owned in some tropical tax haven, I have created the value in the UK, and it is right that the profits should be booked here and taxes paid here. The emphasis in the Treasury’s paper on the concept of user-created value is the right way to make that distinction.

Thirdly, we need small businesses to reap the benefits from any new tax on large digital firms. I am proud that we have helped hard-working people in the small firms in my constituency by reducing corporation tax and taking large numbers of small firms out of business rates altogether, but many still do pay a lot and it would be good to be able to go further.

Realistically, a new tax on large tech firms is unlikely to raise more than a few hundreds of millions of pounds, which is not a huge amount in the grand scheme of Government spending but none the less enough to help level the playing field a bit and allow the Government to do more to cut tax on small businesses. For example, the Government recently allocated £25 million to reduce business rates for small pubs, which has been a huge help to many of them. If we could raise more from large tech firms, we could do even more of that.

Those are the principles. Let me turn to the detail of how we might implement such a tax. There are a number of important decisions to make about its design. First, what should we be trying to tax? The clear principle we must push for internationally is that a business’s profits should be taxed in the countries where the value is created. At present, the accounting profits are simply too easy to move to a low-tax jurisdiction. Some in the media have talked about a tax on sales, but ultimately they are not a good proxy for value being added. Sales overseas are far from unique to digital businesses, and the idea of sales is not necessarily easy to define for businesses that have a free-to-use model. The Government are right to focus on the core concept of user-created value. What kinds of businesses does that mean we should try to tax? It means the free-to-use services that many of us use, be they search engines, social networks, app stores or online marketplaces; I am sure we could all name firms in all those categories. Those online platforms are not like other kinds of businesses, which perhaps create or store a bit of data on their customers; they are platforms substantially made up of user-generated content or have very valuable data from deep engagement with their users.

It is sometimes said online that with some of these businesses, “If you aren’t the customer, then you are the product.” Personally, I would put it more positively: the users are both the producers and the consumers for those new types of business. The European Commission uses the rather ugly word “prosumers” to describe that business model. That new business model is the reason why the tax system now needs to change to keep up.

The third question of detail is how exactly to design a tax on that new category of business. There is a distinction to be made between the ideal international agreement and something we could implement in the nearer term. Looking to an international agreement, I note that the Treasury’s paper talks about allocating,

“a share of the profits of the principal companies after routine functions in the group have been remunerated with an arm’s length return. That share would be designed to approximate the value that users generate for the business.”

That is simultaneously the right thing to be taxing, and something that will be quite an art to determine. I will give a couple of examples of the complexities here. The Treasury paper includes a discussion of the different kinds of value created by more or less active users and the issues created by users who cross borders regularly. It also explores some of the potential avoidance measures that firms might be tempted to take.

Looking at the positions that different Governments around the world are taking on this question, it seems unlikely that a new global agreement will be reached soon. Both the Commission and Treasury papers talk about a simpler interim tax on revenues in the meantime, which I think it is right for us to consider despite the difficulties of revenue-based taxes. The Commission paper talks about three types of revenues that would be taxed—revenues from selling online advertising, from digital marketplaces and from the sale of user-provided information. The Treasury’s paper has a similar range of options on the design of a tax: types of business, types of activity or a hybrid of the two. Personally, I think types of activity looks like the simplest option, but any of them could potentially work.

Finally, questions arise about what rate we might reasonably set, how much a tax could raise and who would be paying such a tax. A study by the United Nations of the largest 100 digital businesses in the world suggests that around two thirds of them are based in the United States, compared to only one fifth of other multinationals. We might expect such a levy to fall mainly on US-based firms. The European Commission in its paper goes a little further than the Treasury and sets out some potential thresholds and rates; it suggests taxing firms with worldwide revenues of over €750 million and European Union revenues of €50 million. There are, of course, very few firms with revenues on that scale. To me it feels as though that is the scale of businesses we should be aiming to tax.

[Nick Boles (Grantham and Stamford) (Con)]

I congratulate my hon. Friend on securing this debate. This is an important, interesting and tricky subject, and one that we need to take a good long run-up to, so it is exactly the kind of debate we should be holding. He seems to be addressing mainly the question of how to make corporation tax, the historic tax on profits, work in a new age with these new kinds of businesses. Does he not feel that we should also be thinking about what is happening to the property taxes we have historically raised from business, and our likely need to replace business rates as a source of revenue? Rather than just fixing the profit tax, which he seems to be mainly suggesting, should we also be thinking about whether we might use whatever new tax base and taxing mechanism is created to also replace some of the property tax that businesses currently pay?

[Dame Cheryl Gillan (in the Chair)]

Order. I am delighted to welcome the hon. Gentleman back to Westminster Hall for, I think, the first time in two years. I will just remind him that interventions need to be short.

[Nick Boles]

Forgive me, Dame Cheryl.

[Neil O’Brien]

I thank my hon. Friend for his thoughtful contribution. I agree that there are a number of different aspects of the tax system that are no longer very buoyant and need to be modernised. He picks on one that is perhaps a debate for another day, but none the less an important one.

Coming back to my point, few businesses would be affected by a tax with the kind of carve-outs that the European Commission is talking about. I hope that similarly, when a detailed proposal comes from the Treasury, we will also see a generous carve-out for smaller businesses. To give a sense of the difference it makes, I note in the Commission’s impact assessment that reducing the threshold for inclusion from €750 million to €500 million would double the number of firms affected and caught up by such a tax, but only raise revenues received by 7%—a lot more bureaucracy for not a lot of gain. That suggests to me that a focus on the very largest players is the right one.

On that basis, and on that base, the Commission suggests a 3% tax on revenues of those kinds, which it believes would raise around €5 billion a year across the EU as a whole. That would potentially mean hundreds of millions of pounds in the UK if we did something similar. As the Treasury moves towards making its own decisions on setting rates and thresholds, I am sure the Minister will be thinking about the same considerations and thinking about how a UK tax might fit alongside an EU one, if the EU ends up with a consensus to take action.

To conclude, while a new tax on large digital businesses might not raise vast sums, it could raise enough to make a substantial difference to small businesses in my constituency. It would be a welcome addition to the raft of anti-avoidance measures that we have seen in recent years—over 100 measures now, raising over £175 billion since 2010 alone—and if we can get those large, digital businesses to pay a fairer share of tax, we can go further in cutting the taxes small businesses pay, such as doubling the small business rate relief we have seen and extra help for small shops and pubs on top of that.

To get big tech to pay a fair share of tax, it seems to me that the Treasury is gearing up to propose some pretty bold and unconventional measures. I am sure some people and some firms will come out to oppose that, but given that we have completely new business models changing our economy and a clear case for reform, Ministers should be bold and I encourage them to go for it.

Proposed Public Expenditure Cuts

Nick Boles Excerpts

Monday 13th September 2010 Commons Chamber

[Mr Osborne]

As well as considering reforms to the formula grant, we took some steps earlier this year, and we hope to take further steps, to increase the freedoms that local authorities have to spend the money and to have fewer ring-fenced programmes from central Government Departments. We are looking at a review of the formula grant.

[Nick Boles (Grantham and Stamford) (Con)]

If we do not put up VAT, do not cut defence expenditure—as the Labour party proposed during Defence questions—and do not cut the welfare bill, as the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper) proposes, will the Chancellor confirm that the only way to have a sustainable budget is to slash spending on the NHS?

[Mr Osborne]

My hon. Friend is absolutely right. The Labour party has opposed the £13 billion VAT increase, even though we now know that the shadow Chancellor, Tony Blair and Peter Mandelson all supported that increase; and it has opposed some of the other measures to which my hon. Friend refers. There is a difference when it comes to the NHS: I believe it is the official policy of the Labour party that the NHS should not be protected from cuts and should not have a real increase in funding. I happen to disagree with that policy, and we will see what the public think about it.

Economic Affairs and Work and Pensions

Nick Boles Excerpts

Tuesday 8th June 2010 Commons Chamber

[Nick Boles (Grantham and Stamford) (Con)]

Thank you for calling me, Mr. Deputy Speaker, and for giving me the opportunity to address this House for the first time. I start by congratulating hon. Members who have just concluded their maiden speeches. I hope that, after six hours here, they enjoyed the experience, and I hope the House will forgive me if the microphones pick up the mild rumbling of my stomach at this late hour in the evening.

I should like to thank my predecessor, Quentin Davies, for his long record of service. He worked hard for the people of south-west Lincolnshire, and played a crucial role in securing the future of Grantham hospital when it was under threat. It is therefore with a heavy heart that I report to the House the shocking truth about Mr Davies’s recent ordeal. Three years ago he was kidnapped by a brutal and unscrupulous gang. As a political prisoner, he was spared no indignity. He was even forced to sign a statement hailing the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) as

“a leader, who is entirely straightforward, who has a towering record, and a clear vision for the future of our country”.

Last week, Mr Davies suffered the final humiliation—exile to the House of Lords. We can only imagine his anguish as he protested his belief in a fully elected second Chamber and his scorn for titles and other baubles. I hope that the House will join me in sending our condolences to the newly ennobled Lord as he starts his life sentence on the red leather Benches.

I feel immensely lucky to be representing south-west Lincolnshire in Parliament. Nowhere in the country is there a town more lovely than Stamford, but living in a place of ancient beauty creates its own challenges. Stamford’s residents have to work out how to preserve their town for future generations, while finding a way to live and work and have fun in the 21st century. I would not presume to tell them how to strike that balance—but I can think of no place better equipped to run its own affairs without interference from regional commissars in Nottingham and planning gauleiters in Bristol.

North-east of Stamford is Bourne, a small town that boasts two great secondary schools, Robert Manning technology college and Bourne grammar. Together, they demonstrate that selective education, where it is well established and accepted by parents, can provide children of all abilities with superb teaching. I am delighted that my right hon. Friend the Secretary of State for Education has also invited outstanding selective schools to become academies.

At the northern tip of the constituency is Grantham. The first thing one sees on approaching the town is the magnificent spire of St. Wulfram’s, but it is not church architecture that has made Grantham world famous. It is not even Sir Isaac Newton, who grew up nearby in Woolsthorpe manor and discovered gravity while snoozing in its orchard. Grantham achieved global celebrity because of Margaret Thatcher. Thirty years ago, she smashed through the glass ceiling in this House, and gave us all a master class in true grit. I pay tribute to her today.

Traditionally, Grantham was an engineering town. I believe it can be so again if we learn from the mistakes of the past. In 1905, Richard Hornsby and Sons of Grantham invented the revolutionary caterpillar track. By 1914, Hornsbys had only sold one caterpillar vehicle, so they transferred the patent to the Holt Manufacturing Company of California for $8,000. Thanks in part to this patent, Holt became Caterpillar Inc. and went on to dominate the global market in construction and mining equipment. What haunts me about that story is that none of us is surprised by it. We have ground-breaking research, brilliant design, even watertight patents, yet the conversion of that technological potential into orders and jobs often passes us by. If we are to restore our economic fortunes, we must change that. I spent the best part of 10 years running a small business, making paintbrushes and rollers. I will not pretend that I made a huge success of it, but it did help me understand the challenges facing modern manufacturing. I am determined to help others who make a living by making things.

Thank you for your patience, Mr. Deputy Speaker. I would like to conclude with a few words to Labour Members. We disagree about much and will have fierce battles in the years to come, but I will never forget what they, and their recently departed colleagues, did for gay women and gay men such as me. I would not be standing here today if they had not passed legislation to extend full equality and respect to everyone in Britain—and thereby entrench a change in culture and attitudes that my own party has now embraced. This was the Labour party at its best: brave, principled and humane. I thank and salute it, and hope that some day in this place I will have the chance to do something as good.