Finance (No. 2) Bill (Fifth sitting)
Peter Dowd Excerpts(8 years ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Peter Dowd (Bootle) (Lab)
I beg to move amendment 56, in clause 38, page 27, line 6, leave out “69” and insert “69(1)”.
This amendment specifies the subsection of section 69 of the Value Added Tax Act 1994 that is being amended by Clause 38(2).
The Chair
With this it will be convenient to discuss the following:
Amendment 57, in clause 38, page 27, line 9, at end insert—
“(2A) In subsection (3) of section 69, for ‘subsection (4)’ substitute ‘subsections (3A) and (4)’.
(2B) After subsection (3) of section 69, insert—
‘(3A) In relation to a failure to comply with any regulatory requirement under section 77E (display of VAT registration numbers on online marketplaces), the prescribed rate shall be determined by reference to the number of occasions in the period of 2 years preceding the beginning of the failure in question on which the person concerned has previously failed to comply with that requirement and, subject to the following provisions of this section, the prescribed rate shall be—
(a) if there has been no such previous occasion in that period, £5,000;
(b) if there has been only one such occasion in that period, £10,000; and
(c) in any other case, £15,000.’”
This amendment increases the prescribed rate of a penalty for failure to comply with a regulatory requirement under section 77E of the Value Added Tax Act 1994 (as proposed to be inserted by Clause 38(8)).
Amendment 58, in clause 38, page 27, line 15, at end insert—
“(ba) after subsection (3), insert—
‘(3A) The period specified in a notice in accordance with subsection (3)(a) may not be longer than 10 days.
(3B) It shall be the duty of the Commissioners to give notice under subsection (2) in any case where they are satisfied that to do so would protect or enhance VAT revenue.’”
This amendment specifies the period for compliance with a notice under section 77B as no more than 10 days and requires HMRC to issue a notice in any case where VAT revenue would be protected or enhanced by doing so.
Amendment 59, in clause 38, page 27, line 32, leave out “60” and insert “10”.
This amendment reduces the period at the end of which a person must cease to offer goods in breach of the registration requirement from 60 days to 10 days.
Clause 38 stand part.
Peter Dowd
It is a pleasure, as ever, to see you in the Chair, Sir Roger. My hon. Friend the Member for Oxford East reminded me of the Sherlock Holmes case, “The Adventure of the Solitary Cyclist”. I am not sure whether someone who has a dog with them still counts as a solitary cyclist, but given that there is one cyclist, I expect they do.
If hon. Members look at our explanatory note on amendment 57, they will see that our proposals and the penalties we believe should be enacted certainly do not go as far as the penalties that the hon. Member for Brentwood and Ongar will be aware of, since I understand he did his PhD on the Mercian polity. That is reminiscent of another document, “Theft, Homicide and Crime in Late Anglo-Saxon Law”, which stated:
“It is a startling but infrequently remarked upon fact that for five centuries English law, which prescribed the sternest penalties for theft, contained…a relatively minor royal fine for homicide.”
We are not going to the sternest of fines for what is perhaps de facto theft here, but we are sending a clear message in relation to online marketplace avoidance, or effectively evasion, of VAT: “You don’t try to rip off the Government.”
Our proposals seek to address the growing levels of online VAT fraud and the responsibility of online retailers to play a much-needed part in tackling it. We now all spend a large proportion of our lives online, so it is unsurprising that more UK consumers than ever are buying a larger proportion of their goods through online marketplaces such as Amazon, eBay and others. In 2016, 14.5% of all UK retail sales were online, up from 2% in 2006. Just over 50% of those sales were through online marketplaces rather than directly by the seller.
The VAT rules clearly require that
“all traders based outside the European Union (EU), selling goods online to customers in the UK, should charge VAT if their goods are already in the UK at the point of sale”,
but, as hon. Members will be aware, some are not doing so. According to the National Audit Office:
“HM Revenue & Customs (HMRC) estimates that online VAT fraud and error cost between £1 billion and £1.5 billion in lost tax revenue in 2015-16 but this estimate is subject to a high level of uncertainty… The estimate is calculated from an assessment of the extent of under-valuation in a sample of medium and high-risk imports from high-risk non-EU countries, underpinned by assumptions informed by operational data and intelligence. This method uses an estimate of import VAT fraud as a proxy for the scale of online VAT fraud and error, and HMRC considers it to be the best estimate from data available,”
which is perfectly reasonable.
The Campaign Against VAT Fraud on eBay & Amazon in the UK estimates that online VAT fraud
“equates to £27 billion in lost sales revenue & additional taxes to UK businesses and the public purse in the last 3 years”
alone. What is more, HMRC has stated that it does not have data on online fraud and other losses before 2015-16, and as far as I am aware it does not plan to repeat the review of lost tax for future years. Similarly,
“HMRC estimates do not account for the wider impacts of online VAT fraud and error such as distortion of the competitive market landscape.”
Ruth George (High Peak) (Lab)
I have worked with major UK retailers for almost 20 years, and there has been growing distortion in the market, as between brick-and-mortar retailers and online retailers, on business rates in particular. Does my hon. Friend agree that if we do not tackle VAT fraud more proactively, it simply adds insult to injury for those honourable retailers that are investing in considerable job and employment opportunities in the UK?
Peter Dowd
My hon. Friend makes a valid point that goes to the heart of much of today’s discussion: those who seek to avoid should pay appropriate penalties.
The slowness of HMRC to respond to growing fraud online has been criticised by the Public Accounts Committee, which raised concerns first in April 2013 and more recently in October 2017. It is not alone; the National Audit Office reported in 2013 that
“HMRC had not…produced a comprehensive plan to react to the emerging threat to the VAT system posed by online trading.”
The report found that HMRC had developed tools to identify internet-based traders and launched campaigns to encourage compliance, but had shown less urgency in developing an operational response to it.
Trader groups, such as the Chartered Trading Standards Institute, have been raising concerns for many years, and claim that online VAT fraud has been a problem from as early as 2009, yet the Government did not recognise the problem until 2015. Nearly three years later, the Government are finally introducing measures that will force the Amazons and eBays of this world to be held jointly accountable for the VAT of online vendors that use their sites.
My understanding is that HMRC has instead pursued civil operations against suspected evaders, as HMRC claims that difficulties in prosecuting suspected online fraud make that route lengthy, costly and uncertain of outcome; I suppose that is justice. Barriers include sellers being based outside the EU, and the need to show intent to commit fraud. I would like to ask the Financial Secretary to the Treasury how many operations HMRC has pursued since 2015, and what their outcomes were.
The Public Accounts Committee report on online VAT fraud found that HMRC had only recently begun to take the problem seriously, despite the fact this fraud leads to significant loss of revenue to the Exchequer, in effect depriving our public services of the funds they so desperately need. The Committee found that HMRC, rather than trying to use its pre-existing powers, waited until the introduction of new measures under the Finance Act 2016 before it attempted to hold online marketplaces responsible for VAT that had been fraudulently evaded by traders. HMRC has been too cautious in using those powers, and the Government have refused to name and shame non-complaint traders; so far, to my knowledge, they have not prosecuted a single one for committing online VAT fraud.
Professor de la Feria, an expert in tax law at the University of Leeds, pointed out that HMRC has not been doing enough to tackle the problem, despite the required legislation being in place. She argued that laws existing before the introduction of the 2016 measures provided scope.
Luke Graham (Ochil and South Perthshire) (Con)
As a member of the Public Accounts Committee, I was at the hearing on VAT fraud. Does the hon. Gentleman not recognise that VAT is incredibly difficult to police, especially on e-commerce platforms, given the international nature of a lot of the trade, including by small traders in China? Does he not accept that changes put forward in the Budget address some of the concerns that the Public Accounts Committee raises, and mark a positive step on the Government’s part?
Peter Dowd
Yes and yes, but that does not alter the fact that we need to push on as much as we can with tackling this issue. The amendments go some way towards helping and, importantly, towards sending a message to those who choose to evade VAT. In online marketplaces and fulfilment houses, fraudulent activity continues fairly unabated, and we must do something about it.
Professor de la Feria also believes that part of the reason that HMRC has been slow to tackle online fraud is that it is most likely considered not cost-effective to pursue it. Online marketplaces and HMRC are not doing enough together to tackle the problem, notwithstanding the action that has been taken. Online marketplaces continue to earn their commissions, and so their profit, from people who are defrauding the British taxpayer. Amazon, for example, organises regular presentations at Chinese fairs—a point referred to by the hon. Member for Ochil and South Perthshire—to recruit overseas sellers, I suspect; has plans to buy a shipping company; and fulfils orders and handles payments. That all suggests a very embedded relationship with the seller. Those connections and networks are there; people must know each other to set them up. HMRC should use those relationships and networks to do something about the problem.
Until we can incentivise online marketplaces to act, they will continue to offer a lacklustre approach to tackling online VAT fraud. In September 2016, HMRC introduced new legal powers to tackle online VAT fraud and error. They allow HMRC to issue a warning to online marketplaces about potential sellers who are not paying VAT. Since their introduction, how many times has HMRC used the new powers? How many sellers has HMRC issued a warning about, and what was the result of the use of the powers? Since they were introduced, HMRC has seen an increase in the number of new VAT registrations from non-EU sellers, but HMRC confirms that it is not aware of the proportion of those sellers that have in the past been trading and not charging VAT, or whether those sellers will be compliant in future. Last year, HMRC told the Public Accounts Committee that it expected to collect £50 million more VAT in 2017 from the traders that had recently registered for VAT, so can the Minister confirm that HMRC has collected that money, or is on course to do so?
According to HMRC, some online VAT fraud is due to a lack of awareness, some overseas sellers being unaware that they need to pay VAT. Both Amazon and eBay, when testifying to the Public Accounts Committee, agreed with that view and described the lack of awareness of VAT rules as a major element of the problem. What efforts has HMRC made to educate sellers in the UK about potential VAT fraud? More importantly, what efforts have been made to ensure that overseas sellers are aware of the need to pay VAT?
The other part of the problem stems not from error, but from clear criminality. HMRC’s strategic threat assessment, carried out in 2014, concluded that it was highly likely that organised criminal groups based in the UK and overseas sellers in China were using fulfilment houses to facilitate the transit of undervalued or misclassified goods, or both, from China to the UK for sale online. It is particularly concerning that HMRC is uncertain of the exact number of fulfilment houses in the UK. Surely one of the first parts of cracking down on this criminality is establishing the exact number of fulfilment houses in operation. That goes some way to dealing with the point made by the hon. Member for Ochil and South Perthshire. Perhaps the Minister can take a minute to explain what steps HMRC is taking to address the issue and crack down on organised criminal groups in the UK and other countries, and what efforts Border Force is making to tackle online VAT fraud by targeting fulfilment houses, where the goods are stored.
Once again, it seems that HMRC is hampered by the Government’s cuts to staffing and resources, and that this is having an impact on the Government’s ability to crack down on online VAT fraud. According to the Public and Commercial Services Union—HMRC’s trade union—in real terms, after the cost of inflation is taken into account, the resources available to HMRC are about 40% less today than they were in 2000. Since 2010, under this Government, HMRC’s staffing has fallen by 17%, and it is set to fall further under the “Building our Future” programme. These are important factors in relation to tackling evasion. That programme will close practically the entire departmental estate of 170 offices. How will that help with tackling the mass of VAT crime?
The elephant in the room is the added uncertainty about Brexit and its impact on the effectiveness of the measures. There is considerable uncertainty about the exact terms on which the UK will leave the EU, so it is vital to get to grips with this. Sellers based in the EU may end up operating under the same VAT terms as apply to non-EU sellers and therefore may also be tempted not to charge VAT. Perhaps the Minister can offer insight into what steps HMRC is taking to ensure that these measures will be robust, irrespective of the outcome of the Brexit negotiations.
There are already considerable control weaknesses at the border. The most recent European Anti-Fraud Office report on customs duties was scathing about the state of UK customs, arguing that “continuous negligence” has deprived the EU of almost £2 billion in revenues on lost Chinese merchandise. According to the report, British customs played a central role by repeatedly ignoring warnings to take action over Chinese textiles and footwear pouring into the EU. Since then, HMRC has failed to open any criminal investigations into specific fraud schemes. The European Anti-Fraud Office is so aggrieved with the UK Government that it has recommended to the European Commission’s directorate-general for budget that the UK should be forced to pay £2 billion directly into the EU budget.
Finance (No. 2) Bill (Sixth sitting)
Peter Dowd Excerpts(8 years ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mel Stride)
It is a pleasure to serve again under your chairmanship, Mr Owen.
The clause strengthens existing powers to make online marketplaces accountable for VAT evaded through their platforms. The growth and development of the online retail market mean that the average UK consumer can now buy a vast range of goods at very competitive prices, and have them delivered rapidly by sellers based all over the world. E-commerce plays an important part in the UK economy, but it also provides opportunities for abuse of the VAT system.
Businesses that sell goods to UK consumers via online marketplaces do not always pay the correct VAT to HMRC. When those businesses do not charge VAT correctly on their goods, they unfairly undercut the honest majority of businesses that comply with our VAT rules—that point was made by the hon. Member for High Peak. The businesses that do not charge VAT correctly abuse the trust of UK customers and deprive the Government of significant revenue.
At Budget 2016, the Government announced a package of measures to tackle online VAT fraud. That included a new joint and several liability provision giving HMRC the power to hold online marketplaces responsible for the future unpaid VAT of non-compliant overseas businesses that HMRC identifies operating on the marketplaces. It also included a fulfilment house due diligence scheme which opens for registration in April 2018 and will provide HMRC with an audit trail to track goods that UK-based warehouses are storing for overseas traders. The new package extends HMRC’s existing powers for tackling online VAT fraud. Taken together, the packages of Budget 2016 and autumn Budget 2017 are expected to raise just under £1 billion by 2023.
The clause strengthens HMRC’s existing joint and several liability powers and introduces a new requirement for online marketplaces to display valid VAT numbers on their platforms. Although online VAT fraud is not restricted to overseas businesses, the clause will ensure that joint and several liability rules cover all non-compliant businesses, including United Kingdom ones. It also strengthens the existing joint and several liability rules for overseas businesses and will enable HMRC to hold online marketplaces jointly and severally liable for the unpaid VAT of an overseas online seller from the point when the online marketplace knew or should have known that the overseas seller should be registered for VAT in the UK but was not.
At this point, I will turn to some of the specific points raised by hon. Members this morning. The hon. Member for Bootle was concerned about whether the measures are strong enough, although my hon. Friend the Member for Ochil and South Perthshire rightly pointed to the sittings of the Public Accounts Committee, in which the complexity and difficulties of this area have been highlighted.
Under the current arrangements, HMRC has received about 25,000 applications to register for VAT from non-EU-based online retailers. The VAT liability reported by such businesses has increased from £6 million in 2015 to £27 million in 2016, and we expect that to continue to rise. HMRC has issued more than 1,000 joint and several liability notices to online marketplaces resulting in the removal of non-compliant sellers. It has also issued assessments against online overseas traders for unpaid VAT amounting to more than £43 million, with a further £71 million in the pipeline. That covers at least some of the questions posed by the hon. Member for Bootle.
The hon. Gentleman also raised the issue of HMRC resourcing. We have provided HMRC with an additional £2 billion since 2010, which is part of the reason why it has been so successful in bringing in additional revenues by clamping down on avoidance, evasion and non-compliance. A further £170 million came through the recent Budget, which will raise more than £4 billion across the scorecard period. He also mentioned the issue of people and office closures. We have previously discussed how HMRC’s operations are now far more technology-driven and intelligence-led, and that kind of approach lends itself to the more centralised, high-tech, highly skilled operation that underpins much of the success that we are having today.
The hon. Member for Glasgow Central asked about VAT directives. I think—I am interpreting her remarks; she can correct me if I am wrong—that she might be referring to VAT arrangements between the EU and the UK. There is acquisition VAT, as opposed to import VAT, which applies to businesses importing from non-EU countries. The customs Bill going through Parliament at the moment will effect a change from acquisition VAT to import VAT. It will, of course, be down to the negotiation where exactly we land in terms of the arrangements that pertain after our exit from the European Union, but I assure her that HMRC will consider carefully the impact of where we land to ensure that we continue to make progress on online VAT fraud. She suggested a review after we have left the European Union of the measures and the operation of online platforms. We can certainly consider that for the future. I am sure that we will come back to the issue many times in the years ahead.
Finally, the clause requires online marketplaces to ensure that VAT numbers are valid and displayed on websites when they are provided by the seller. The requirement will be supported by regulatory penalty. Taken together, the changes will make it more difficult for non-compliant online businesses to trade in the UK, and will enable HMRC to tackle them more easily.
I welcome the opportunity to speak to the amendments tabled by the hon. Members for Oxford East and for Bootle. At this stage, I should say that something rather extraordinary and slightly worrying has occurred: the Government have decided that we are content to accept one of the amendments. After all the constant chipping away at us, one amendment has got through. I would not get too excited—it is slightly technical—but we are grateful to the Opposition for their scrutiny of the Bill and for tabling this amendment. The Government agree with amendment 56 and will therefore specify that it is section 69(1) of the Value Added Tax Act 1994 being amended.
Amendment 57 would increase the penalty for online marketplaces that fail to display a valid VAT number when provided with one. The current penalties refer to daily amounts and are entirely consistent with the penalties awarded for similar offences. In contrast, the proposed amendment could result in a marketplace receiving a penalty of up to £1.5 million for failing to display a valid VAT number for a single online sale. We believe that a sanction such as that would be unreasonable.
Amendment 58 would limit the time available for an online marketplace to ensure the compliance or removal of a non-compliant seller to 10 days after receipt of a joint and several liability notice. It would also require HMRC to issue a JSL notice in every case where VAT revenue would be protected or enhanced. Such an amendment would restrict HMRC’s ability in handling non-compliance on a case-by-case basis. It is also somewhat unfair, denying an online marketplace a sufficient opportunity to tackle non-compliance by sellers on its platforms before being held jointly and severally liable.
Similarly, amendment 59 would reduce the period in which an online marketplace must ensure compliance or removal of an overseas seller, from the point of view that it knew or should have known that a particular seller should be registered for UK VAT but is not. The amendment would reduce the period allowed from 60 days to 10 days. That would not allow enough time for an online marketplace acting in good faith to assist an overseas seller in becoming registered for UK VAT without still incurring joint and several liability. I commend the clause to the Committee.
Peter Dowd (Bootle) (Lab)
I am deeply grateful to the Government for accepting an amendment that specifies the subsection of section 69 of the Value Added Tax Act 1994 that will be amended by clause 38(2). It is very significant and a major climb-down by the Government. [Laughter.] May there be many more of them, Mr Owen. It is a delight to see you in the Chair.
I am not wholly convinced by the Minister’s protestations about the huge amounts involved and the latitude that the Government appear to give to people who, when they set up businesses, know the environment that they are operating in. These are intelligent people, entrepreneurs. They know exactly what they are doing so they should be aware, as much as they can be, of what the rules are when they get into the game, so to speak. That lots of these people are naive and not really sure what is going to happen and what the processes, the procedures and the rules are, is not the most convincing argument I have heard from the Minister.
The message that we have to send to people who wish to set up businesses is, “You will get a welcoming environment. We welcome entrepreneurs. We welcome you being part of our business society and our business communities. But you have to play by the rules, and if you don’t, your business may face sanctions.” That is the message that we want to sell, especially in the light of the fact that we are moving out of the European Union. There are huge amounts of uncertainty in the economy, so we just want to let people know that if they do come into that environment, they will have to be careful to play by the rules.
I do not think that our proposals, particularly in amendment 57, are especially onerous. The amount of money—cash—that companies will make will be quite significant; they just have to be clear that they play by the rules. So despite the Minister’s silver tongue, we will press amendment 57 to a vote, to make a point.
Amendment 56 agreed to.
Alison Thewliss
The arguments are as compelling today as they were in 2015, in 2012, or at any other point. The coincidence of it having to be done for certain fire services in certain combined authorities in England and Wales makes the case that this should have been done all along.
We welcome this measure. We tabled our new clause, which we will press to a vote at the appropriate stage, because we would like to see some more detail about the administrative consequences and the impact on revenue of allowing retrospective claims. We know that the Government will do things in retrospect—other parts of the Bill enable them to enforce regulations relating to tax avoidance and claim money back in retrospect—so there is no argument that moneys cannot be claimed back if people should have known about them before. The Government are willing to make allowances and make changes if there are things that people might or might not have reasonably known. They have made such changes in other parts of the Finance Bill. We have received lots of correspondence from people who feel as though they have been hard done by a measure the Government are introducing now, which they see as retrospective and unfair. If the Government are allowing retrospective measures elsewhere, why will they not allow it here so that the Scottish Fire and Rescue Service and Police Scotland get the money they have been due all along?
Peter Dowd
I rise to speak to new clause 1, tabled by the hon. Member for Glasgow Central. The Opposition welcome the Government’s decision to allow the Scottish Fire and Rescue Service and the Scottish Police Authority to claim retrospective VAT funds. The measures in the clause follow the Scottish Government’s decision in 2012 to establish a nationwide fire and rescue service for Scotland. The Treasury Minister at the time, now the Justice Secretary, wrote:
“Based on the information currently available it seems that, following the Scottish government's planned reforms, neither the new police authority nor the fire and rescue service will be eligible for VAT refunds under Section 33 of the VAT Act 1994.”
That Government decision meant that the Scottish police and fire services lost out on VAT refunds worth more than £30 million, of which Scottish police forces lost out on about £26 million. As a former chair of a fire and rescue service, long before the cuts to those services, I have to say that this amount of money would have been a strain even in those days. It is even more stressful now, so I can understand the anxieties and concerns of the Scottish Government.
To some extent, one could argue that it is a sign of recklessness that, in a time of austerity, the Government would effectively leave Scottish firefighters and police officers to fend for themselves. The Opposition therefore welcome the Government’s decision to reconsider their position, and to allow the Scottish police forces and fire services to retroactively reclaim the VAT—particularly given that the Minister’s reasoning at the time for denying Scottish police and fire services access to the funds was insubstantial at best. At times, it seemed to me and to other onlookers potentially malicious. I think that was the perception that people had at the time.
The then chief constable of Scotland, Sir Stephen House, when he testified to the Justice Committee of the Scottish Parliament last year, said that he was bewildered by the fact that the Scottish police force was the only police force charged VAT, as none of the 43 police forces pay VAT, and neither does the Police Service of Northern Ireland or the National Crime Agency, both of which are centralised agencies.
The Government’s decision to allow the Scottish police and fire services to claim retrospectively should not be controversial, even if it has taken a little time to get here. The Government have acted a number of times in the past to ensure that public authorities do not pay VAT, which is laudable. A number of Governments have done that, in fact. In 2001, the last Labour Government introduced a scheme to allow eligible museums and galleries to claim back VAT paid on most goods and services purchased, in order to grant free rights of admission to their collections. In 2011, the coalition Government introduced provisions as part of the Finance Act 2011 to ensure that academies, which supply free education but are not under local authority control—the phrase “under local authority control” is a misnomer if ever there was one, but it is important to use the language that people use, so we all know what we are talking about—were allowed to recover their VAT costs in the same way as local authorities. Similarly, in the March 2015 Budget, the coalition Government announced that from 1 April 2015, hospice charities, search and rescue charities and blood bike charities would be entitled to recover VAT incurred on their business activities, so there is a fairly well-trodden path regarding this issue.
Although we welcome the Government’s change of heart, allowing the Scottish fire and police forces to reclaim VAT retroactively is a drop in the ocean compared with the levels of gross underfunding and cuts to police and fire services across the country, including services in Scotland. New figures obtained by the Fire Brigades Union show that almost one in five frontline fire service posts—some 11,000 jobs—have been lost since 2010, which is a post-war record of job losses in that crucial service. That is all the more reason why this money should come back to those services. Since 2010, almost 8,000 full-time firefighter jobs have been loss. Fire safety inspections have fallen by 28% since the Government came to power, which is all the more reason why this retrospective or retroactive decision should be put into effect. The general secretary of the Fire Brigades Union said that
“Continued cuts to frontline firefighters and emergency fire control operators…are a serious threat to public safety.”
That is worrying.
The VAT refunds, although welcome, will not stop the deeper cuts to the fire service that are currently taking place, resulting in significantly fewer firefighters across the whole country. It is increasingly clear that VAT refunds will not prevent cuts in the service. As far as I can gather, the Prime Minister oversaw that when she was the Home Secretary. This may be the hand of the Prime Minister seeking some sort of retribution—on herself, perhaps—or rather, putting paid to past decisions.
To sum up, we welcome the proposals, but it would be helpful if the Minister could offer some examples where the grant could be claimed and what the criteria would be for things such as rescue charities hoping to access the grant as well. It is regrettable the Government have chosen to spend the last four years playing politics with the Scottish police and fire services. I hope the measure will ensure that VAT on every penny the police and fire services in Scotland spend will be refunded and that the Minister, at the same time, will ask his Government colleagues to look at the state of police and fire services right across the country.
Mel Stride
Clause 42 and schedule 12 extend the scope of landfill tax to disposals made at sites without an environmental permit, in order to prevent rogue operators from profiting by avoiding landfill tax. The clause also brings clarity to what material is taxable at sites that do have a permit. Landfill tax was introduced on 1 October 1996 to discourage the disposal of waste to landfill, and encourage more sustainable ways of managing waste. Since the introduction of the tax in the UK, landfilling has gone down by more than 60%. Illegal waste sites are a blight on local communities and can cause serious environmental damage. Although the Environment Agency can impose fines and criminal sanctions on operators of illegal sites, they are outside the scope of the tax. With no landfill tax to pay, rogue operators can undercut legitimate operators and make significant profits.
The Environmental Services Association estimates that waste crime costs the English economy over £600 million annually, with up to £200 million of tax being avoided. At the spring Budget in 2017, the Government announced a consultation on whether to extend the scope of landfill tax to illegal waste sites. Following strong support from industry, the Government confirmed their intention to legislate to extend the scope of landfill tax to illegal waste sites from 1 April 2018. Alongside this, in response to broad industry support in the consultation announced at Budget 2016, the Government are amending the definition of a taxable disposal. That follows a 2008 Court of Appeal ruling that some material received at a landfill site and put to certain uses is not waste, and therefore not taxable. That has created uncertainty about what constitutes a taxable disposal and has led to increased complexity for operators.
The changes being made by this clause will make all persons who are responsible for disposals at illegal waste sites, across the supply chain, jointly and severally liable for the tax. They may also be liable for a penalty of up to 100% of the tax, and in the most severe cases, HMRC will be able to prosecute those involved. In order to address the primary concern raised by stakeholders during the consultation, safeguards have been put in place to ensure that any genuinely innocent parties will not be liable for the tax. The clause will give industry certainty about what constitutes a taxable disposal. Currently, material is considered to be waste if certain criteria apply. The changes made by this clause will remove the waste criteria; instead, all material disposed of at a landfill site will be treated as taxable waste unless it is specifically covered by an exception.
To simplify the system further, we are also removing the requirement to notify HMRC of restoration activities undertaken at a landfill site. These changes will support the legitimate waste management industry by simplifying the tax system and providing clarity for landfill operators.
Let me turn briefly to new clause 15, tabled by Opposition Members. This would require the Government to commission a review of these changes within three months of the passing of this Act. A full assessment of the impacts of this measure was published in September 2017. At that time, the Government assessed that the measure would increase the cost of the illegal disposal of waste at unauthorised sites and incentivise the disposal of waste at legal—and more environmentally friendly—waste management operations. Following this, the Office for Budget Responsibility published an assessment of the revenue impact of the changes; £145 million is expected over the five years following implementation. Those impacts were assessed with the full support of the waste industry, and after further contributions from the Environment Agency.
Information about landfill tax revenues and the volume of disposals is publically available. HMRC publishes its landfill tax receipts twice yearly. The Environment Agency publishes additional information annually about disposals at permitted sites and the number of illegal waste sites in England. As such, the Government’s view is that the proposed review is unnecessary. I therefore commend the clause to the Committee.
Peter Dowd
The clause amends the Finance Act 1996 to include disposals at sites without an environmental tax disposal permit within the charge to landfill tax.
I would like to declare an interest. My hon. Friend the Member for Liverpool, Walton, will appreciate this; it is not to do with landfill tax, but it is important to give some context. We have a huge dock complex in my constituency. On several occasions in the past couple of years, the scrap metal kept there has gone up in flames, and it has taken days and huge amounts of public resource to get the fire under control. We have had many discussions with the organisations concerned, although that is not landfill. A fire at an illegal waste transfer centre in Hawthorne Road—in a residential area—took a week to put out. There were huge plumes of smoke for weeks on end. [Interruption.] That is probably the fire chief now, telling me there is another fire. I hope not. The issue of waste disposal, landfill, and the whole area relating to waste is very important.
The landfill tax was brought in nearly 20 years ago to act as a disincentive to landfilling material, encourage the use of recycled material and incentivise recycling more broadly. The tax is due on material disposed of at landfill sites in England, Wales and Northern Ireland that have an environmental permit or licence for waste disposal.
HMRC collects the tax from the permitted operators of landfill sites based on the weight and type of material landfilled. There are two rates of tax: a standard rate of £86 a tonne, and a lower rate of £2.70 for the least polluting material. The Department for Environment, Food and Rural Affairs and the national environmental protection agencies are responsible for the regulation and enforcement of environmental policy.
I could talk for another hour or two on the issue as it relates to my constituency, but on this occasion, I will spare everybody. Although HMRC is responsible for the administration and collection of the landfill tax, and there are a range of civil and criminal powers to address tax evasion and non-compliance, the question is whether HMRC gets on and does that.
Over the past 20 years of the tax, landfilling has come down by almost 60%, which is a positive achievement for society, but we cannot continue to produce this volume of goods made of materials that vastly outlast the use of the goods. That was the subject of an item on Radio 4 this morning, featuring the chief executive of Iceland. What we are doing is leading to huge accumulations of waste across the land, and the pollution of our ocean, as the recent BBC documentary “Blue Planet” demonstrated so powerfully. It is therefore positive that the Government are extending this disincentive to those operating illegally, to ensure that where enforcement is weak, a further layer of disincentive is put in place.
The Government’s consultation set out the logic of that extension, using the examples of three people who were fined by environmental agencies for illegally dumping 6,000 tonnes of waste. Under the law, they can be fined only through environmental protection levies, which in this case amounted to £170,000. However, if further legislation had been put in place to extend the territories that could be included under the landfill tax, that fine could have been as much as £500,000, plus a penalty of 100% of the tax and interest.
The landfill tax gap—the difference between what is collected and the estimates of what it should be—is £150 million, not including the waste dumped at illegal sites. There is clearly much more to be done to address this problem. Strangely, however, the Government’s impact assessment does not include information on Exchequer impacts of this extended tax. Fortunately, the OBR is here to help, with a prediction that tackling waste crime will raise £30 million in the first year. That will rise to roughly £45 million a year after. Will the Minister explain why the OBR believes that this measure will recoup only a third of the revenue that the Government estimate is missing? I am sure he will have the figures available, even if not today. As far as I can see, it does not seem a particularly good return on investment.
Peter Dowd
Fine. The point I am trying to make is that landfill capacity across the UK has decreased from thousands of sites, with only about 50 sites predicted to be in operation by 2020. Although we have talked about the period of time that our proposed reviews should cover, it is crucial that this one takes place not once, but regularly. The issue is serious, as I have set out.
Crucially, regional capacity also varies greatly, and the Government are not tackling that. This review will help us to identify the differences in a systematic way. For example, Kent is likely to have no landfill sites at all by 2021, according to SUEZ, which suggests that the Department for Environment, Food and Rural Affairs does not have the resources to look at its concerns. Perhaps if the tax was sent in the right direction, the Department would have the capacity. Although it is not his Department, I ask the Financial Secretary what contingency planning DEFRA has put in place in case the record on recycling worsens. It is important that the suggestion of a review is taken into account.
This proposal extends charges to illegal landfill. Illegal landfill will only increase if we begin to produce more waste than our capacity can handle. How does the Minister plan to deal with excess waste that surpasses our current capacity? He may want to pass that question on to one of his hon. Friends. Under the Prime Minister’s plan, by of which year will the UK end the use of landfill completely? How are we going to keep tabs on that, and what systematic process will we use? If we use the same methodology that the Chancellor used to get the deficit down, we will all be pushing up daisies by the time it is sorted. We hope that the clause will ensure that landfill waste falls, across both permitted and illegal sites, but the Government seem to be unable to tell us exactly how much landfill will be diverted into ecologically sound management as a result. Perhaps the Minister can enlighten us about those projections.
That is why we have tabled a new clause that is designed to establish how much revenue this measure will generate, as well as to measure the behavioural impact that it sets out to achieve. Our suggested review would look at the impact of extending landfill tax on the volume of disposals at both permitted and illegal sites. Alongside that, we believe it is important to measure the impact on the prevalence of illegal sites, as well as the amount of waste disposed at them. Everybody on the Committee recognises the importance of consigning landfill to the dustbin of history. To do so would deliver unquantifiable ecological effects and would, we hope, form part of a new respect shown by our society for the environment on which we rely.
Extending taxation to illegal sites will deliver a reduction in landfill, and it can therefore only be a good thing. I commend the Financial Secretary for introducing this measure. It is all the more important that the Government monitor and assess the impact of the measure, as well as investing revenue to ensure that it is enforced. We hope that all Members present today will support our review, in the name of good governance, to ensure that the UK continues to take steps towards no longer producing damaging and unnecessary landfill.
Mel Stride
I thank the hon. Member for Bootle for commending us for introducing this measure. Many of his remarks were fairly wide-ranging, and I think he recognised that some of them—for example, those concerning the amount of landfill that we have available and what our plans for it might be—related to other Departments. I hope that he will indulge me when I say that on those issues, it might be better for him to go direct to the Departments concerned.
Peter Dowd
I take your exhortation to keep things as tight as possible, Mr Owen, but there are occasions—I have asked the Minister about this—on which Departments really ought to work closely together to ensure that we have the balance right. That is difficult sometimes when we are doing something specific and technical. Nevertheless, I am sure he will agree that it is important to be able to bring other factors into the equation and get a proper bigger picture.
The Chair
I am grateful. Before the Minister proceeds, as both hon. Members have agreed that this is outside the remit of the Bill, I ask them both to confine their remarks to the Bill.
Mel Stride
The hon. Lady raised the issue of the potential substitution effect in individuals trying to avoid the priced-in tax on cigarettes by purchasing illegal cigarettes, which might increase the amount of illegal trade. I can tell her that tacking illicit tobacco is a key priority for the Government. Since 2000 the UK has adopted a strategic approach, with a wide range of policy and operational responses, in collaboration with other enforcement agencies in the UK and overseas. That effort has achieved a long-term reducing trend in the illicit tobacco market, despite duty rates increasing substantially over the same period. The percentage tax gap for cigarettes was reduced from 22% to 15% and for hand-rolling tobacco from 61% to 28%, so there appears to be some evidence that the substitution effect, or the increase in illicit tobacco coming into the country, is not quite as sensitive to some of the tax rises as one might instinctively imagine.
The hon. Lady asked what other measures the Government are engaged in to try to reduce smoking. As I have said, we are committed to reducing the prevalence of smoking through our tobacco control delivery plan 2017 to 2022, which also provides the framework for robust and ongoing policy evaluation. The plan sets out ambitious objectives to reduce smoking prevalence, including reducing the number of 15-year-olds who regularly smoke from 8% to 3% or less, reducing smoking among adults in England from 15.5% to 12% or less, reducing the inequality gap in smoking prevalence between those in routine and manual occupations and the general population—that touches on her point about the potentially regressive nature of tobacco tax—and reducing the prevalence of smoking in pregnancy from 10.5% to 6% or less.
We will of course continue to keep those measures under constant review. In fact, tobacco and smoking is one of the areas of public policy on which Governments of all colours have placed particular emphasis. There is a huge amount of scrutiny in that area and we will continue in that vein.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Clause 46
Power to enter premises and inspect goods
Peter Dowd
I beg to move amendment 60, in clause 46, page 40, line 18, at end insert—
“(9A) The powers under subsections (1) to (6) of this section are not available in any case where—
(a) information has been provided on oath by an officer in accordance with section 161A(1) of the Customs and Excise Management Act 1979 (power to enter premises: search warrant) and a justice of the peace has not issued a warrant in consequence, or
(b) an officer could reasonably have been expected to seek a warrant in accordance with the provisions of that section of that Act.”
This amendment provides that the powers to enter premises and search goods may not be exercised in cases where a warrant to search premises in relation to goods subject to forfeiture has been sought and refused or where such a warrant could reasonably be sought.
The Chair
With this it will be convenient to discuss the following:
Clause 46 stand part.
Clause 47 stand part.
Peter Dowd
As I said earlier, the Opposition are well aware that we need serious measures to tackle VAT evasion in this country. A National Audit Office report published in 2017 revealed:
“HM Revenue & Customs (HMRC) estimates that online VAT fraud and error cost between £1 billion and £1.5 billion in lost tax revenue”.
I referred to that figure earlier, but no one is certain that it is accurate. I also referred earlier to the fact that 14.5% of sales in Britain in 2016 took place online. I reaffirm what I said pretty unambiguously in my earlier speech: the number of online sales is growing and growing, so it is essential that we get to grips with VAT evasion. The picture has the potential to become more complex, depending on our direction of travel in relation to Europe.
We are absolutely clear that evasion is not acceptable and must be clamped down on. The National Audit Office report highlighted:
“UK trader groups believe the problem is widespread, and that some of the biggest online sellers of particular products, such as mobile phone accessories, are not charging VAT”
at all. It is therefore important that robust action is taken to address the issue before it creates an even bigger tax gap. We have already discussed the potential for that in clause 38, where we think the Government need to take a different approach.
That said, we have serious concerns over the scope of clause 46 in relation to that issue. The clause seems to give HMRC officials pretty wide-ranging and almost uncurbed powers to enter premises and search vehicles and vessels. There might be a civil rights issue regarding that power, and, as a result, the rules might be open to significant abuse. Although it is clear that action must be taken to tackle tax avoidance, we are worried that not enough thought and consideration are being given to the potential impact of the new powers. Indeed, this is evident in the Government’s own tax information and impact note on the measure, which was published just a couple of years ago, on 5 December 2016.
The delay here is notable, as this piece of legislation was originally intended for last year’s Finance Bill. It was postponed because of the general election and failed to appear in the Ways and Means resolutions once the Bill resurfaced. We have tabled an amendment to add a much-needed layer of security and protection for individual rights, while giving officers what they need to pursue suspicious vehicles or vessels and search buildings as necessary. As a result of our amendment, those actions would not be permitted if they did not satisfy the conditions usually needed for a search warrant. That would at least provide some judicial oversight and security for a procedure that could give HMRC and, potentially, other agencies carte blanche—I am not saying that they would do this—to abuse powers with no recourse.
Mel Stride
I thank the hon. Gentleman for his contribution and observations. Clause 46, as he pointed out, extends HMRC’s existing powers, allowing it to examine goods thoroughly away from ports, airports and other approved places that are under customs control. The power is expected to be exercised mainly in situations in which goods have been mis-declared at import and thus the correct amount of duty has not been paid.
Under their current legislative powers, HMRC officers working inland and post clearance are not permitted to examine and take account of customs goods; that includes opening, marking, weighing, loading and unloading them. Under section 24 of the Finance Act 1994, a customs officer has the power to enter the premises of a business that contains goods subject to customs duty, and to inspect those goods. That means that if there is reasonable cause to think that there has been a violation of customs law, an officer is only allowed to pick up and inspect goods visible at those premises. Today, HMRC officers often investigate sophisticated frauds involving customs goods, the majority of which are at inland premises and not within the confines of approved places such as ports and airports. It is therefore essential that officers are empowered not only to enter and inspect, but to examine and take account of goods.
The changes made by clause 46 will extend officers’ powers to examine goods thoroughly post clearance, inland, where a customs offence is suspected. The power covers all customs offences, but current operational experience suggests it will be largely used where goods have been mis-declared at import. The clause will enable officers to examine and take account of goods found on premises. It will allow the officer to mark, move, open or unpack goods or containers, or require a relevant person to provide assistance that is reasonable for the purpose of examining the goods. As the search power is for the purpose of searching containers, boxes and so on and not the premises, a warrant is not needed.
Amendment 60 seeks to deny HMRC those powers in cases where a search warrant has been sought and refused, or where a warrant could reasonably be sought. The purpose of entry under section 24 will be to carry out compliance checks, which will include examining goods to ensure they comply with any paperwork. That cannot be done effectively under the current power, because it only allows the inspection of goods.
Section 24 is not—and is not intended to be—a substitute for seeking a warrant. A warrant will be used when there is a need to enter and search a building or place where there are reasonable grounds to suspect the presence of forfeitable goods. A warrant also grants the power to force open doors and windows and open any obstruction. Unlike section 24, warrants can be used outside of business hours. If a warrant to enter and search a building or place was required and refused, the amendment could not be used to gain access.
We are amending these customs powers to ensure they work effectively, not as a means of unduly expanding customs power. At the moment, officers can merely pick up goods that are immediately visible to them, but on some occasions that is not enough. For example, to ensure that the contents of a box correspond to the relevant paperwork, it is necessary to be able to look inside the box and examine the goods. Under section 24, all visits are strictly regulated. They must be carried out during business hours, and most visits will be pre-booked, routine compliance visits. Officers currently receive training in how to conduct visits, which includes the legal basis and powers available to them. In addition, stringent rules, safeguards and guidance place limitations on an officer’s powers, ensuring that they are used proportionately and only where necessary. That will be updated when the measure is introduced.
The measure will extend the powers available to officers when visiting premises where there are customs goods. It will allow them to take account and examine goods thoroughly, making operational duties more effective. I therefore commend the clause to the Committee.
Peter Dowd
We take the Minister’s reassurances and explanation at face value. I am sure he will appreciate that, from that our side, the civil liberties issues are absolutely crucial. We will not be pressing the amendment to a vote but, given the civil liberties issues, we will be keeping a very close watch on the matter. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 46 ordered to stand part of the Bill.
Clause 47 ordered to stand part of the Bill.
Clause 48
CO2 emissions figures etc
Peter Dowd
I beg to move amendment 61, in clause 48, page 42, line 15, leave out from “effect” to end of line 16 and insert
“from the date on which the Chancellor of the Exchequer lays before the House of Commons a report of the review carried out under subsection (13).
(13) A review under this subsection shall consider the appropriateness of the use of the New European Driving Cycle methodology for calculating carbon dioxide emissions for the purposes of the provisions amended by this section.
(14) A review under subsection (13) shall also consider the effects if carbon dioxide emissions were to be calculated for the purposes of the provisions amended by this section using the Worldwide harmonized Light-duty vehicles Test Procedure including
(a) the effects on the operation of those provisions,
(b) the revenue effects, and
(c) the effects on progress towards the Government’s targets for reducing carbon dioxide emissions.”
This amendment requires a pre-commencement review of the appropriateness of the current regime for calculating carbon dioxide emissions and the effects of a change to the WLTP procedure.
Peter Dowd
As we move towards the denouement of today’s proceedings, I thank you for your chairmanship, Sir Roger. The formalities will ensue later on, no doubt.
Clause 48 is designed to ensure that a car’s carbon dioxide emissions for the purpose of the Income Tax (Earnings and Pensions) Act 2003 and the Vehicle Excise and Registration Act 1994 will remain based on the existing testing regime known as the new European driving cycle. I hope that that is not the cycle we were referring to earlier. This is a Government clarification, following the introduction of a new regime for calculating CO2 emissions that is called worldwide harmonised light-duty vehicles test procedures, or WLTP.
I always welcome clarifications, as the Minister well knows. This clause specifically relates to the car benefit charge and car fuel benefit charge, which are duties paid by motorists and employers who provide and use company cars. Those charges are calculated using CO2 emission figures published by a car’s manufacturer. Higher emission vehicles are subject to higher charges than are vehicles with a smaller environmental footprint.
We need to examine the implications of the clause quite closely, especially in the light of the Government’s recent interest in the environment. I expect, as I alluded to earlier, that that is an attempt to enamour young people, and so far they have not taken the bait. This clause, which attempts to demonstrate the Prime Minister’s commitment to environmental protection, demonstrates that that commitment is not as deep as it could be. Before we examine the particulars, it is useful to reflect on the reason why the EU developed new emissions testing procedures—the WLTP and the real driving emissions test—which the Government are effectively suggesting we ignore.
In September 2015, the automotive sector was plunged into crisis when the Volkswagen Group admitted that it had installed defeat device software in 11 million vehicles that had been sold across the globe. The implications of that still rumble on. It was a clear case of corporate deception, in which vehicles were mis-sold using information that suggested that their environmental footprint was smaller than it was. The Transport Committee’s report into the scandal described how it
“brought the integrity of the auto sector into disrepute”
and “led to confusion”.
The same report points out, however, that although the case was one of corporate deception, it was also a matter of regulatory failure. The automotive sector is a large part of the UK’s manufacturing base, accounting for nearly £7 billion of turnover and more than £15 billion of value added, and roughly 1 million people are employed in the industry across the UK. It is clearly an important part of the economy, and that is all the more reason to ensure that it is properly regulated and trusted by the British public. I know that the Minister will completely agree with that.
The Transport Committee suggested, however, that regulators have known for years that the test used to measure emissions—the very same new European driving cycle test that the Government suggest we should continue to rely on—is unfit for purpose. The test was introduced in the 1990s and, in the words of the Select Committee, it
“has become unrepresentative of modern vehicle technology and real-world driving.”
Under the NEDC, testing takes place under laboratory conditions that are not reflective of real-world driving where, for example, speed and temperature differ.
You may be wondering, Mr Owen, why the specifics of emissions testing should be of concern to Members. One reason is that the evidence around the impact of car emissions on public health is stark. A growing body of evidence shows that nitrogen oxides are a significant hazard to human health. They can increase the risk of heart attacks, strokes and low birth weight, and they can aggravate a number of other lung and pulmonary conditions. According to the Department for Environment, Food and Rural Affairs, nitrogen oxides contribute to 23,500 deaths a year. That is why it is so vital that we get testing right and strengthen enforcement to ensure that a corporate deception akin to the Volkswagen scandal can never happen again.
Indeed, the European Union developed the new emissions testing framework as a direct response to some car manufacturers’ bad behaviour with regard to emissions testing. It is therefore odd that the Government should choose to stick to the old system for the purposes of taxation. The question is: why do they seek to do that? My assumption is that they know that taxing emissions on the basis of the new testing procedures will increase the level of taxation being applied through the car benefit charge and the car fuel benefit charge.
The Transport Committee report to which I made reference suggested that the Government should publish information explaining how vehicles tested under the WLTP compare with those tested under the new European driving cycle. Is that information in the public domain? Can the Minister confirm whether the Department has assessed the effects on the Exchequer of using the new testing regimes to calculate the amount of tax due, and can he set out the results of those assessments in due course?
My office made contact with the International Council on Clean Transportation Europe, which identified VW’s deception in 2015 and passed the information on to the United States Environmental Protection Agency. The council was clear that the type approval carbon dioxide emission values are expected to be about 20% higher under the new WLTP test than under the NEDC testing procedure, which the Government are suggesting that we stick to. The council said that that was due to a more dynamic speed profile, a more realistic vehicle test mass, lower ambient temperature and other conditions that reflect more closely typical real-world driving conditions.
However, the council informed my office that the political consideration has already been made regarding the jump in emissions figures through the testing regime, and that adjustment has been made to ensure that only three quarters of any increase in emissions will be counted. Can the Minister explain whether the Government have considered a similar compromise in the taxation being applied to emissions—one that recognises that the new tests are a better reflection of the actual emissions being produced, but that does not penalise those paying the car benefit charge and the car fuel benefit charge to the full amount?
Mel Stride
Clause 48 confirms that for vehicle excise duty and company car tax purposes, the data for a car’s CO2 emissions will continue to be based on the new European driving cycle, or NEDC. As the hon. Gentleman says, NEDC, which is the current testing methodology for producing definitive car emissions values, is being replaced by a new lab test, known as the worldwide harmonised light vehicles test procedure, or WLTP, which is designed to be more representative of normal driving behaviour. For example, it contains more accelerating/decelerating and includes variable-speed driving. At the autumn Budget, it was announced that the Government will transition the tax system to using these improved readings from April 2020. The announcement was made now to give notice to drivers and the industry.
The Government will discuss with the industry next year whether the current CO2 band thresholds in VED and CCT are appropriate. In the interim, this clause clarifies that vehicle taxes will continue to use NEDC values until April 2020. The hon. Member for Bootle asked why we could not use the real-world driving emissions test in the interim. It is used as a complement to lab tests, to check whether cars produce similar emission values on the road as in the laboratory. We could not use the RDE as the primary basis for saving tax bands, because that is not how these tests work; they would not allow us to compare two cars on a like-for-like basis. The changes made by the clause will ensure that drivers’ tax rates are unaffected for vehicle excise duty, company car tax and fuel benefit charges.
Let me turn to amendment 61, which proposes that the Chancellor review the appropriateness of the NEDC regime prior to the clause commencing, and the effects of the change to the WLTP on the Government’s targets for reducing carbon dioxide emissions and on revenue.
I appreciate that Opposition Members want to ensure that the Government continually review the appropriateness of their policies for reducing carbon emissions. However, delaying the commencement of the clause to review the appropriateness of NEDC would be inappropriate, as it would mean that the Driver and Vehicle Licensing Agency and HMRC would not have clarity about which emissions figures they should use to set tax rates for vehicles. For clarity, I reiterate that NEDC is the established methodology for calculating CO2 values.
Clause 48 is designed to clarify the law. Since September, manufacturers seeking type approvals for new cars have been required to show two different CO2 readings for their vehicles—one produced under the new WLTP test and another consistent with the current NEDC test. We cannot use both numbers for tax purposes. Therefore, to avoid confusion, the clause makes it clear that the DVLA and HMRC will continue to assign tax bands using the current NEDC procedure.
The Government will transition the tax system to the new WLTP test from April 2020. That transition period gives the Government time to consider, in consultation with industry, what the effects of the new system will be and whether the band thresholds remain appropriate in the context of recorded WLTP results. We are actively discussing that topic with industry, and we will announce our decisions at the Budget in the usual way. On that basis, I believe that the amendment is unnecessary, and I ask the hon. Member for Bootle to withdraw it.
Peter Dowd
Again, I appreciate what the Minister has said about keeping this under review, and about the 2020 date. We will keep looking closely at this issue, but on that basis, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 48 ordered to stand part of the Bill.
Clauses 49 and 50 ordered to stand part of the Bill.
The Chair
I am conscious of the television monitor, as there may be a Division in the Chamber at any time. When it is called, we will suspend for 15 minutes if there is one vote, and for an additional 10 minutes for each vote thereafter.
New Clause 1
Review of retrospective VAT refunds for the Scottish Fire and Rescue Service and the Scottish Police Authority
‘(1) Within one month of this Act receiving Royal Assent, the Chancellor of the Exchequer shall commission a review of the potential consequences of allowing the Scottish Fire and Rescue Service and the Scottish Police Authority to claim VAT refunds under section 33 of VATA 1994 retrospective to the date of their establishment.
(2) The review shall consider—
(a) the administrative consequences of allowing retrospective claims, and
(b) the impact on revenue of allowing retrospective claims.
(3) The Chancellor of the Exchequer shall lay the report of this review before the House of Commons within six months of this Act receiving Royal Assent.’—(Kirsty Blackman.)
This new clause would require the Chancellor of the Exchequer to commission a review into what the potential consequences of allowing the Scottish Fire and Rescue Service and the Scottish Police Authority to make retrospective claims for VAT refunds would be.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Mel Stride
As is traditional on such occasions, I will say a few words about the Committee. I thank everybody who has participated in what has been a full and robust debate at every stage. I particularly thank the Opposition Front Benchers for their contributions and the good humour and levity that has been on display at various points in our proceedings.
I thank the hon. Member for Bootle for his frequent biblical and literary allusions, his classical quotations—a few of which I actually understood, but they were impressive none the less. We concede on this side that there were no Marxist mumblings, for which we were very grateful. At one point, he compared the Labour party to John the Baptist, but then accepted that that did not end very well. We were grateful for his contributions.
I thank the hon. Member for Oxford East for her forensic examination of all issues. It is agreed by popular acclaim, and by Members on both sides of the Committee, that that was impressive to say the least. When serving with her on a particularly memorable Statutory Instrument Committee, I was horrified to discover that she had digested in microscopic detail not only the treaty that we were discussing, but its forerunner as well, and she was able to draw on that experience in our exchanges.
I thank the hon. Member for Aberdeen North, who is not in her place, for her thoughtful contributions and the gentle but firm and persistent way in which she pursued the points that mattered to her.
It is fair to say that we have spent much time together—especially today, what with Treasury questions and the Committee. We have statutory instruments to look forward to, and we will also be engaged in considering the customs Bill. I hope that we do not forget sharing these golden moments. When we retire and Parliament disappears into the dim distance, perhaps we will have some kind of revival band and go out on the road to share our highlights of these occasions with the general public, like a band of ancient rockers who just keep going. Of course, the highlight of all highlights will be the story about the dead dog and the bicycle, which will never fade from our memories.
More seriously, Mr Owen, I thank you and Sir Roger very much for having chaired the Committee with such good humour, patience and impartiality; of course, we take that for granted. I thank the Whips as well. Having served as a Whip, I know how hard they work. They do not often receive much glory, but we are grateful to them for having kept things running so smoothly that the Committee is finishing early.
I thank Back Benchers on both sides of the room for their contributions—some were very good contributions, and there was a wealth of contributions from Members on our side of the Committee—which were gratefully received. I thank the Committee Clerks, Hansard and the Doorkeepers for their good service. I also thank all those who provided evidence to the Committee earlier on.
Almost last but certainly not least, I thank my officials at HMRC and at the Treasury: Dom Curran, Rachel Crade, Harry Pearse, George Houghton and Hugo Popplewell from my private office, all of whom have served and looked after me with great efforts, and to great effect. Finally, I thank parliamentary counsel, with whom I have struggled on this third Finance Bill of the last 12 months. Until we meet again, Mr Owen, thank you very much.
Peter Dowd
I would like to mirror everything that the Minister has said. It is not goodbye but au revoir, as far as I can gather. I thank you, Mr Owen, all Members who have participated, the Minister for his assiduous answers to questions—some of which I never asked—and all my colleagues. I also want to thank my staff and my colleagues’ staff, who have worked hard behind the scenes, while we have taken the credit.
The Chair
May I echo what both Front Benchers have said? I thank the House staff and the Clerks for the support that they have given us throughout proceedings on the Bill.
Question put and agreed to.
Bill, as amended, accordingly to be reported.
Finance (No. 2) Bill (Fourth sitting)
Peter Dowd ExcerptsThursday 11th January 2018
(8 years ago)
Public Bill CommitteesRead Full debate Finance Act 2018 View all Finance Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 January 2018 - (11 Jan 2018)
Peter Dowd (Bootle) (Lab)
I beg to move amendment 48, in clause 26, page 18, line 35, at end insert—
‘(7A) Within 12 months of the passing of this Act, the Chancellor of the Exchequer must review the impact of the provisions of this section.
(7B) A review under subsection (7A) must consider the revenue effects of freezing indexation allowance for gains chargeable to corporation tax.
(7C) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under subsection (7A) as soon as practicable after its completion.”
This amendment provides for a review to be undertaken on the revenue effects of freezing indexation allowance for gains chargeable to corporation tax in Clause 26 of the Bill.
Peter Dowd
The measures in clause 26 are aimed at aligning and consolidating tax and accounts. This clause will freeze the indexation allowance currently in place for companies’ gains that are chargeable to corporation tax. As things stand, companies do not have to pay tax on the proportion of their capital gains attributable to inflation. Instead, as hon. Members know, what happens is that when calculating a gain on the disposal of an asset, companies apply an indexation factor on the acquisition, enhancement or disposal of the asset that reflects movements in the retail prices index over the period since the expenditure occurred.
This system is different from the treatment of individual taxpayers, for whom the allowance was first frozen in March 1998 and then abolished in April 2008. That prompts the question: why was the allowance for companies not reformed and abolished at the same time, to avoid the situation that we have had for the past nine years, whereby there has been one set of rules for individual taxpayers and another for companies? However, we are where we are. It is another example of a needless complication in the tax system that causes problems for lawmakers, tax accountants, financial advisers, Her Majesty’s Revenue and Customs and taxpayers alike.
The indexation allowance is in effect a tax relief from capital gains tax on inflation. The allowance may have been minimal before the drop in the pound, but with inflation at 2.8%, 3% and so on, it is potentially becoming a substantial amount of money. According to the Treasury’s estimates, the change could be a significant revenue raiser. It estimates that it will raise £30 million this year alone, and that that will go up to £525 million for 2022-23. Of course, that revenue would be a welcome addition to the public coffers, but we have a degree of scepticism about the figures, because in the past we have had from the Government figures and costings for measures that have been out of kilter quite heavily.
The most recent example was the revenue to be raised from the soft drinks industry levy, which was introduced in the first Finance Bill last year. Hon. Members may recall that that was dealt with in the wash-up. Opposition Members agreed to it going through its stages pretty smoothly. We always have concerns when there is a question about whether we can sufficiently challenge Government proposals, but as this was the sugar tax, and it was not just a tax-raising measure but had broader public health benefits, we were happy to allow it to go through. It was suggested in the draft proposals that the levy would raise an ambitious £520 million. However, the Chancellor announced in the 2017 spring Budget that its estimated revenue had been revised down to £380 million, and the Office for Budget Responsibility forecast in December, on the basis of the Government’s Red Book for the autumn Budget, that it would raise only £300 million. That is a whopping £220 million less than the Government’s original forecast, and a further £80 million less than the revised figure that the Chancellor provided in the spring Budget.
It is important for us to be clear. If the Government provide us with figures—I believe that they did so in good faith—we have a duty to challenge them. That miscalculation—I use that word rather than any other—only adds to the growing hole in the public finances. It is important for us to challenge the Government’s figures and assumptions.
That is why the Opposition tabled amendment 48, which would require the Government to commission a review of the revenue effects of freezing the indexation allowance for gains chargeable to corporation tax. I am sure that the Minister is sympathetic to our concern that some companies may still seek a way round the change, rather than paying an increasing amount on the inflationary element of gains. The amendment is an attempt by the Opposition to say, “Fine, the Government’s indexation proposal is okay—but let’s test the figures a little more.” Let us have a review. Let us ensure that we are not in the same situation as we were with the soft drinks levy, which does not raise as much revenue as we thought it might.
Alison Thewliss (Glasgow Central) (SNP)
The Minister will be aware that the insurance industry has raised concerns about the impact of the clause on fairly small savers, such as people with endowments that were sold door to door. There is a report on the BBC website that quotes Steve Webb, a former Minister who now works with Royal London, on the impact that the clause will have on Royal London’s savers. Standard Life is also reported to have concerns. We are therefore not entirely content with the clause. We will not oppose it at this stage, but we reserve the right to look at it again on Report.
We would like the Government to address the industry’s concerns, and I have a few questions for the Minister. It is estimated that the clause will affect 11.6 million policyholders, most of whom are basic rate taxpayers, and the industry estimates that the impact will be in excess of £250 million per year—double the figure implied by the Chancellor at the Treasury Committee in December. Individual life insurance policyholders may pay an average of £21, and in some cases up to £150, per policy per annum. That is a considerable impact given that such people have relatively small savings.
The Chancellor said in December in response to my hon. Friend the Member for Dundee East (Stewart Hosie), who sits on the Treasury Committee, that the change will have a “modest impact”, but that is not a modest impact for those savers—it is significant. The policies that the clause will affect include non-pension unit-linked, non-pension with-profits and whole-of-life policies, as well as endowments, which I mentioned. On what basis did the Government reach the conclusion that the change will have a modest impact and affect a relatively small number of policyholders? We are talking about 11.6 million people—not a small number by any manner or means. Those policies may represent a relatively small amount of money to the Government, but the change will have a significant impact for those people.
Have the Government made an assessment of the number of policies affected? Have they produced a detailed impact assessment that can be shared with members of the Committee? Will the Minister commit to providing further information on the impact of the policy on individual savers? The coverage in newspapers at the time of the Budget and since raises concerns that more policyholders will be affected than the Government at first assumed.
I would like as much clarification as the Minister can give us today. If he could write to me later with more detailed information, that would also be welcome. We want to put on record our concerns about the impact there might be; perhaps there will be unintended consequence, and maybe the impact has not been fully considered. Given the concerns that the industry is raising, it would be good get a commitment from the Government on how those will be addressed.
Peter Dowd
I hear what the Minister says. I am sure that he will appreciate that the figures produced by the OBR are different from those produced by the Chancellor of the Exchequer. None the less, in the spirit of co-operation, I am happy to withdraw the amendment and keep tabs on this. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 26 ordered to stand part of the Bill.
Clause 27
Assets transfer to non-resident company: reorganisations of share capital etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 11—Review of financial impact of postponement of charge on share exchange in overseas transferee company—
‘(1) Within twelve months after the passing of this Act, the Chancellor of the Exchequer must review the financial impact of the changes made by section 27 of this Act to section 140 TCGA.
(2) The review under this section must consider—
(a) the revenue effects of the change made, and
(b) the extent to which the change has supported UK companies to conduct international business.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.”
This new clause provides for a review of the revenue impact and the impact on business of the change to TCGA to prevent a postponed chargeable gain from becoming chargeable following further restructuring of a UK Company’s overseas business.
Mel Stride
Clause 27 will ensure that where a series of changes have been made to the corporate structure of a group, the rules for taxing the capital gain at the final stage of the change work as the Government intend.
The situation that the clause addresses is where a group reconstruction involves a part of the business that has previously converted from a branch operation into one carried on by a separate overseas company. That is done through an exchange of the foreign branch business and assets for shares in the overseas company. If the assets have increased in value, the group may be liable for tax on the capital gain. The tax system allows it to defer paying that until either the assets of the business or the shares in the overseas company are sold or otherwise disposed of outside the group. That is a sensible approach. It means that groups pay tax on the full level of gains when they realise them through selling an asset and generate a profit to pay the tax with, but they are not charged on a purely internal restructuring.
The introduction of the substantial shareholding exemption in 2002 affected those rules in a way that was not intended, meaning that the tax on the earlier capital gain may become payable if there is a later restructuring, even if that does not involve a sale outside the group. The need to undertake such reconstructions has been rare since 2002, so the anomalous tax outcome was not identified as problematic until recently. However, it is now a cause for concern to some businesses, mainly due to changes in regulatory requirements of some overseas tax jurisdictions. The clause corrects that anomaly.
The change made by the clause will affect groups that commonly operate overseas through branches. It will be welcomed by them, as it will give them certainty in arriving at their commercial decisions when considering restructuring. It is a wholly relieving measure with negligible fiscal impact, as the groups that were affected by the problem would either have found other ways to deal with it or simply not have proceeded with the proposed transaction.
Opposition Members have requested a review of the revenue effects of this change and of the extent to which it has supported UK companies in conducting international business. I am happy to provide them with further information on those points. The OBR has agreed that there will be no revenue effects, because if the changes were not made, the companies concerned would either not undertake the reorganisation or would reconstruct in a way that did not create a tax charge. In either case, they would have to suffer a less than ideal commercial structure because of an anomaly in the tax rules.
This change will help a small number of businesses. On its own, it will not make a big difference, but it will contribute to our wider approach of encouraging UK businesses to conduct international business. The purpose of the change is to remove an anomaly at no cost to the Exchequer. On that basis, I hope that the hon. Member for Bootle will not press the new clause to a vote, and I commend clause 27 to the Committee.
Peter Dowd
Clause 27 amends the Taxation of Chargeable Gains Act 1992 to ensure that tax postponed does not become due on the occasion of a subsequent corporate restructuring involving the exchange of shares in an overseas transferee company where the substantial shareholding exemption applies to the share exchange. The Government’s explanation for this change is that the measure removes an unintended tax barrier to commercial restructuring of groups. I will not go into the ins and outs of this, which the helpful explanatory notes set out.
The argument for this change is that currently, companies that use the substantial shareholding exemption can treat the gain or loss on a disposal of shares as exempt from corporation tax on chargeable gains. A by-product of that is that a chargeable gain could be chargeable on a further restructuring of the company, with the old shares of the securities treated as new ones, despite the same corporate group continuing to own them. The new clause seeks to track that unintended change.
Clearly, the Government’s case is that the unintended tax change creates barriers, particularly for financial sector businesses that have traditionally operated through a network of foreign branches and need to restructure, for example to meet changing regulatory requirements in the territories where they conduct their business. That seems perfectly reasonable, but will the Minister give us a few examples, now or in due course?
While we accept the Government’s argument about the unintended consequence of correcting the tax change, we do not necessarily accept the costings put out by the Treasury, which argues that the change would in effect have zero impact on its finances. In our view, there is a lack of information from the Treasury and the OBR about the revenue that the unintended tax change has raised. I press the Minister to, if possible, publish those figures.
That is why we have put forward new clause 11, which would require the Minister to report back to Parliament on the revenue implications, on the impact on the Exchequer and on the restructuring of UK companies’ overseas business. If the Opposition are to accept the Government’s case that the current measures are a barrier to restructuring, leading to lost revenue for UK companies and lost investment in the UK, it is only reasonable that the Minister should produce evidence to that effect.
We are also interested to know whether there are any losses of revenue to the Exchequer. The Minister says they are “negligible”. It is not that I do not accept that; I am just trying to be clear about this. The Minister should explain, if there is a loss of revenue, how that loss will be filled, how much it is, whether he will be clear in keeping tabs on the process—for example, through the review we want—and how the measure will be implemented.
Mel Stride
The first point to make is that the measure will affect an extremely small number of businesses. We are talking a multiple of handfuls. That is one of the drivers for the negligibility of the costs. I am pleased that the hon. Gentleman appears broadly to welcome the thrust of what we are doing. On the issue of cost that he raises, the figures have been verified by the Office for Budget Responsibility, so an independent organisation has had a look at them, and we are not relying on the Treasury. By “negligible”, I mean that we are looking at an impact of less than £5 million in any one year across the scorecard period.
The figures would be relatively negligible not just because of the small number of businesses involved, but because, in the absence of the changes, we would expect those companies either not to restructure in the way we are now facilitating, or to find different ways of approximating the same thing without incurring the tax disadvantages that we seek to remove through this clause.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clause 28 ordered to stand part of the Bill.
Clause 29
First-year tax credits
Question proposed, That the clause stand part of the Bill.
Finance (No. 2) Bill (Third sitting)
Peter Dowd Excerpts(8 years ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Kirsty Blackman
I very much agree with my hon. Friend. A lot of these projects have been brought to fruition because of the benefits of EU money. The UK Government have not committed to filling the EU funding gap that there will be, particularly for universities and for the research and development of vital products that UK companies can sell on.
It is welcome that the Government are putting some focus on research and development expenditure. That is a positive thing. However, it is not in any way the end of the story. To simply stand still, the Government need to make significantly more commitments. We would appreciate the Westminster Government being much more positive about the innovation culture. They need to put their money where their mouth is and make sure they fund these things more appropriately.
Peter Dowd (Bootle) (Lab)
Again, it is a pleasure to serve under your stewardship, Mr Owen. I want to speak first to the points made by the hon. Member for Aberdeen North and then go on to my substantive comments on our amendment. It is worth noting what the hon. Lady says about funding research. Bill Gates, who knows a thing or two about research and development, said:
“I believe in innovation and that the way you get innovation is you fund research and you learn the basic facts.”
Are the Government funding research and development sufficiently? The answer, quite simply, is no. Neil Armstrong said:
“Research…is creating new knowledge.”
When set against that, the amount of research and development that the Government are funding, or indeed encouraging, is not creating that much more new knowledge.
Following on from the comments of the hon. Member for Aberdeen North about new clause 4, I am deeply concerned about the level of the Government’s research and development expenditure, particularly once we have left the European Union. The important question is not whether we are in or out—we are moving out; we recognise that—but how we fill that gap.
There is a rightly held concern that as a result of Brexit, the UK risks losing its reputation as a scientific powerhouse. In November, the Chair of the Public Accounts Committee stated that we are “sorely lacking” in leadership from the Government to maintain Britain’s position as a leader in robotics and in research to tackle climate change. She was responding to a National Audit Office report that highlighted that between 2007 and 2013, the UK was a “net recipient” of EU research funding and received more than £7.9 billion. In 2015, the UK Government’s expenditure on research and development was £8.7 billion, so it is almost equal.
The Government will have to make up the funding shortfall once we leave the European Union if the UK is to keep its status as a world leader in research and development.
Laura Pidcock
Even within the European Union, the north-east has suffered grave inequalities when it comes to research and development jobs, of which there are 5,300 compared with 36,000 in the south-east. Does the hon. Gentleman agree that the Bill does nothing to get rid of that disparity? The worry is that outside the European Union, it will be further exacerbated.
Peter Dowd
That is an important point. As I said, it is irrelevant—academic—where someone stands on Europe or whether they were in or out, because we are moving out of the European Union. There are all sorts of debates about the customs union, the single market and all the rest of it, but the bottom line is: what will the Government do to plug that gap? Will they give the commitment that they have given to other industries, such as agriculture, to plug that gap?
Dan Carden
One of the reasons that there is scepticism on this side of the Committee Room is because European money has been funnelled towards cities such as Liverpool. We have seen great investment from Europe, whereas this Government have cut council budgets in Liverpool and across the north by more than 70%. Does my hon. Friend share my scepticism?
Peter Dowd
I appreciate that reminder, Mr Owen. My hon. Friend the Member for Liverpool, Walton makes a good point that goes to the heart of our wish to have a review of how the Government’s proposal will affect research and development. That is absolutely crucial.
Research and development expenditure credit is used to encourage companies to invest in technology and research in the UK. Will the Bill do enough for that? The 1% increase announced in the autumn Budget will not be enough. Historically, the Government’s investment in research and development as a proportion of GDP has been woeful. The UK spends less on research and development than many comparable nations do, which is why we need a review of the implications of the Government’s proposal.
Dan Carden
This relief means a hell of a lot, especially to some larger companies, which sometimes make hundreds of millions of pounds from it. We have seen artificial schemes designed to secure the tax relief whereby it has not been appropriately used. Would not a review also help to sort out that problem?
Peter Dowd
It would, and I will come to that in my final comments in relation to the speech by the hon. Member for Aberdeen North. There is a wider point, which the hon. Lady has highlighted perfectly. How much difference will raising the expenditure credit by one percentage point make to companies investing in the UK? That is the question, and we need to know the answers to it, hence the proposal for a review. I sound like a stuck record, but this issue is very important. It is only right that the Minister should come back to the House at a later stage and provide it with that information.
Laura Pidcock
Does my hon. Friend think that the Government have calculated the one percentage point figure on the basis that we are exiting the European Union and on formal calculations about what the net consequence of removal from the EU will be, or is this just an arbitrary figure?
Peter Dowd
The honest answer is that I do not know. If I can be the postperson for that question, I will pass it on to the Minister and perhaps he will answer it. I am sure that he will be able to do so, if not today, certainly in due course.
On new clause 9, the research and development expenditure credit gives corporation tax relief to companies that undertake research and development, as the Minister said, as well as to small and medium-sized enterprises subcontracted to undertake work of that nature. The current rate of relief for those companies is, as everyone knows, 11% of their qualifying expenditure, through either reduced liabilities or cash payments. As the Minister set out, clause 19 increases that to 12% of qualifying expenditure.
On Second Reading and today, the Minister has talked about the contribution that research and development makes to our nation’s productivity. It is worth our while to reflect on the Government’s record when it comes to productivity, because that goes to the heart of the matter. If we are to raise productivity, how do we know that it is linked somehow with research and development, or vice versa? If the figure is being moved from 11% to 12%, how do we establish the interaction, the causal links and the correlations? How do we do that? We do not do it, which is why we need a review.
As you know, Mr Owen, productivity has flatlined, and it has remained lower than its peak under the last Labour Government for the full eight years of the current Government and the coalition. The Office for National Statistics has found that since this Government took office, they have presided over the worst period of productivity growth since the Napoleonic wars. I think that was the last time we came out of Europe—well, perhaps not the last time, but one of the times. [Laughter.] That was a dodgy link, I have to say.
At present, UK productivity lags behind that of most of the G7 nations, notably the United States, France, Germany and Italy. What the Germans produce in four days, Britain achieves in five. We have heard that so many times, and the question that arises is: does the Government’s proposal do anything to enhance productivity? We do not know. Do the Government have any proposals for us to suggest how they might do that via a review? No, they do not. That is why we want a review.
This is not a mere technicality; it has serious consequences. As the Nobel prize-winning American economist Paul Krugman once said,
“Productivity isn’t everything, but in the long run it is almost everything.”
More than many other indicators, our productivity has a huge impact on both our future economic growth and the living standards of millions of British workers, who rely on productivity gains to improve their pay and conditions. We know that investment in research and development can, and does, enhance productivity. The question is: do the proposals do that? We do not know. Why do we not know? Because the Government—I suspect—will not agree to our review today. We will persist on that. As far as I can see, we do not have any information from the Government on the correlation.
Sadly, we are heading in the wrong direction. The Office for Budget Responsibility predicts that the Government’s plans will leave us with a 17-year period of wage stagnation. The Institute for Fiscal Studies agrees, arguing that we face two decades of lost pay growth. Will the Government’s proposals do anything significant to deal with that? We do not know, but we do not think so.
Time and again, the Chancellor has watered down the Government’s promise of increases in the wage floor. That will not help, either. We know that the most sustainable way to ensure a return to wage growth is to boost productivity, as well as ensuring that there is a strong framework of other worker representation to make sure that gains are shared evenly across any enterprise. That is also important. Research and development not only helps companies to grow, helps profits and helps income tax and tax generation, but helps workers and wage growth. Are the Government doing anything in the proposals to assist with that? No.
The Prime Minister recognised the importance of economic democracy and worker representation all the way back when she became Prime Minister. It is also important that workers can see what research and development investment there is, and what the Government’s proposals on it will do to help. It is difficult to establish what gains there will be under the proposals, and that is why we need to check and challenge the Government time after time on this one.
Of course, while research and development investment is not going into businesses, companies can rely on large pools of pretty cheap and expendable labour. That is important. In the past, the Minister has referred to us having quite high levels of employment, but we come back to the issue that the levels of employment per se—
The Chair
Order. We are straying a little bit and having a general discussion on the economy rather than on research and development expenditure credit under new clause 9.
Peter Dowd
I appreciate that, Mr Owen. The point I am trying to make is this: in relation to the increase from 11% to 12%, what will the Government’s proposals do that will help any of these elements of the economy? We must set it in this context. What is the purpose of the increase from 11% to 12% if not to increase economic growth? We are trying to establish what the link is, and we cannot find it at this stage, hence the need for a review of the proposals. We fear that, unless we have significant increases in research and development, we will not get out of the difficult economic circumstances we face.
There is the further issue of regional research and development, which my hon. Friends have alluded to. A recent report from Sheffield Hallam University shows vast regional disparities in research and development funding. Today, we are asking the Government to produce a review that would also cover those regional disparities, because that is crucial. None of the Bill’s proposals come in isolation. We acknowledge that the report from Sheffield Hallam included universities and charity sector organisations, which, of course, are exempt from the research and development expenditure credit. It is nevertheless pertinent to highlight that in relation to regional disparity and overall Government research and development expenditure. The university also demonstrated that the Government expenditure on research and development is spent in the south-east, which employs 36,500 people in research and development, compared with the west midlands, which employs only 3,100. We propose including that in any review of the impact of the increase from 11% to 12%.
Peter Dowd
Again, I do not think there is anything in the Government’s proposals that helps to address that disparity. We do not know. That is part of our reason for making our proposal, and I suspect it is also the reason behind the proposal made by the hon. Member for Aberdeen North: to try to tease out those particular issues and get information from a review that would help us to determine that. It is important to make the point that we are restricted by the amendment to law proposals and can only ask for reviews. It is a concern that we are not able to push this more. That is why, to some extent—with your consent, Mr Owen—we are slightly widening the debate. We need to widen it out to be able to focus, in a bizarre sort of way, on the specifics of the Government’s proposals and how they might enable research and development, and the 11% to 12% increase, to help.
In talking about regions and trying to make those important comparisons, the question is what the 11% to 12% increase will do for those regions. The Cambridge area has twice the research and development jobs of the entire north-west, for example, where my Bootle constituency is. Even when we exclude Cambridge University, as this credit does, the Cambridge area has twice as many such jobs as the midlands, more than Scotland and Wales combined, and only 2,000 fewer than the north of England. One has to ask the question, “What do the Government’s proposals do to help that?” We cannot see what they are doing to help it, hence the need for a review. I persist with the issue of the review, hence the new clause. We can push on and increase the 11% to 12%, but what is the evidence that it will be not only evenly spread across the country, but rebalanced? I do not see that at all in the proposals, which is why we must look at them in more detail.
To take another example, we talk about the northern powerhouse, but eight years on the economy is still not rebalanced and there is nothing in the proposals to help with that. In that regard, it is difficult not to comment on Lord O’Neill’s resignation over that particular matter, because he did not see the Government in any way pushing the issue of research and development in some of the regions. Take, for example, the fact that only two of the 20 most expensive infrastructure projects being financed by the Government are in the north-east, the north-west or Yorkshire and the Humber. We could look at all the other cities in the broader sense—I will not go there—but the point is that research and development expenditure does not seem be going to the areas that perhaps need it most to help their economy.
I have asked the Minister, as have other hon. Members, whether the Government plan to redress that imbalance in regional research and development expenditure. If the extended credit being debated today might contribute to rebalancing, will he tell us the percentage change in regional distribution that that might account for, rather than generalisations? We need details. Some regions right across the country are calling out to know what this will do specifically for the regions. We have heard a lot from the Government about rebalancing, but that has not yet been translated into action.
That is why we tabled the new clause: to enable us to review the change and better to understand both the revenue effects of the proposal and its effects on research and development expenditure more generally. Should the new clause succeed—we will press it to a vote—we hope it will encourage the Government to reflect on the scale of the productivity challenge and the action required to address it properly. We hope that, if the Government agree to the review, it will also give us some insight into the revenue forgone in specific parts of the country.
I hope that hon. Members consider supporting the new clause for the reasons I have set out. If they will not support it, I exhort them to push the Government to give us more detail about how this is going to impact on all the regions and nations of the United Kingdom. There will be a consistent and persistent belief that we are not a one-nation country and that not everybody is in it together. An awful lot of people are out there on their own, and the Government must give us information through a review to show in solid terms how this increase from 11% to 12% is going to help those communities.
The Chair
I call the Minister to respond within the parameters of the three proposals under discussion.
Mel Stride
The hon. Lady knows that we are reviewing that specific point in the context of the negotiations. Those are decisions, among others, that we will have to take in future. My point is about that critical flagship programme, Horizon 2020. The hon. Member for Bootle suggested that we have not treated universities in the way that we have the agricultural sector, to which guarantees have been provided, but this is a clear example in the universities sector of where we are doing precisely that.
I will not dwell on those matters; I am aware that they are more directly related to R and D tax credits, but the patient capital review is a commitment that we put a lot of money, effort and research and development into. The intellectual property issue was mentioned in the debate. There is the patent box, which provides a lower rate of taxation for those businesses that develop intellectual property, so that we make sure that that is developed and exploited in this country.
The hon. Member for Aberdeen North quite rightly mentioned the North sea, which is absolutely critical to her part of the United Kingdom. There are measures in the Bill that we will come to shortly that further ease tax pressures in that sector, and certainly there were measures in the last Finance Bill, when she and I both served on the Committee.
Peter Dowd
I know that the Minister is aware that the Public Accounts Committee reported that the cost of R and D tax relief increased from around £100 million in 2001 to more than £1 billion in 2011 and 2012, while the actual amount of business expenditure on research and development stayed more or less the same. We have seen large increases in the costs as a result, potentially—I am not saying there was, but potentially—as a result of some abuse. The question I want to try to tease out is, how do the Government know that the increase in research and development reliefs will achieve the desired result, without having a proper review?
Mel Stride
In my opening remarks—I will not re-rehearse them—I talked about the evidence of the amount of money going into R and D and the return per pound. There is a relationship between the amount that goes into R and D tax credits and the amount of R and D spend that is occurring, but the one does not solely cause the other. Many externalities impinge upon why companies may or may not invest in research and development, the most obvious being the general state of the economy and business confidence. That should not take away from the fact that it is demonstrably the case and will continue to be the case that if we provide attractive taxation reliefs aimed at encouraging companies to invest in research and development, we will see a displacement of activity towards those activities, which is what we so strongly want to see in our country.
I shall leave it there and say that we have had an extremely wide-ranging and interesting debate. I hope that we can move on to put the question.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Clause 20
Intangible fixed assets: realisation involving non-monetary receipt
Question proposed, That the clause stand part of the Bill.
Finance (No. 2) Bill (First sitting)
Peter Dowd Excerpts(8 years, 1 month ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Kirsty Blackman
I would go so far as to bet that all Committee members have not read all the written evidence that has been provided. I bet that they have not had time, given that the customs Bill is running at the same time, and the majority of us who are Front-Benching for that Bill are also Front-Benching for today’s Bill.
The timescale is not working. If we were to allow evidence sessions this Thursday, and then allowed the Public Bill Committee stage to stretch slightly—I am not sure it would even end up stretching as far as 18 January, because we could have a number of sittings before then—that would be a really positive change for the Committee. We would all be better informed, and it would be a good step for scrutiny and transparency, which the Government and the ministerial code suggest that we should have.
Peter Dowd (Bootle) (Lab)
It is a pleasure, as ever, to serve under your chairmanship, Mr Owen. I have sympathy with the Scottish National party on their amendment to the programme motion, which would require the Government to ensure that there was an evidence sitting this week. This is my third Finance Bill since becoming shadow Chief Secretary to the Treasury, and I have made the point on each one that we should have evidence sittings. The argument might be made, “We have had three Bills; what’s the point?” However, there is a pretty compelling argument that having had three Finance Bills is all the more reason to not just pause for breath but catch up, and get some people in to give evidence. The point is well made, and it was also part of the context for the debate in the House yesterday.
This is not simply an event; it is part of a process. Most of the traditions or protocols that we follow in the House have a perfectly rational basis, but there are occasions—I think this is one, in the light of the three Finance Bills this year—when we might want at the very least to step back from them. Every other piece of legislation that passes through the House gets its day in court, so to speak, as regards giving evidence, and of course the complex changes made to UK tax laws and systems have far-reaching consequences for everyone and for the economy.
It is important that when matters are incredibly complex—and, let us be frank, many of the matters in question are complex—we should be able to tease out issues with experts. It is not that I do not believe the Financial Secretary to the Treasury and everything that he tells us; I do, implicitly. However, I am sure that he would like us to test his assertions, and we might want to do that with other people—and with other experts.
Several provisions in the Bill, and in previous Finance Bills, rewrite earlier measures and close loopholes. It is important for us to tease out those things, too. Why are we where we are, and what could we have done differently? Possibly we could not have done anything differently, but I am sure that if there had been evidence sittings for previous Finance Bills, the experts offering testimony might have pointed out to the Government technical pitfalls in some of the measures they wanted to introduce.
The amendment is in the spirit of attempting to move things on; it is not a wrecking proposal. I acknowledge that we will not win the debate, but it is important to state the need to push for evidence sittings. I do not think that I am alone in that view. Not only does the SNP take it, but so do many outside the House: the Institute for Fiscal Studies, the Institute for Government and the Chartered Institute of Taxation made a similar case in the report “Better Budgets: making tax policy better”, published in April 2016. Its authors pointed out that Finance Bills could be improved by oral evidence sittings, with little disturbance to the parliamentary timetable. I am sure that the Opposition would be more than happy to discuss parliamentary timetable issues with the Government.
Dan Carden (Liverpool, Walton) (Lab)
Andrew Tyrie, the former Chair of the Treasury Committee, also supports the idea of oral evidence sittings for the Finance Bill. Does my hon. Friend agree that there is widespread support for that across the House of Commons?
Peter Dowd
I think there is. I suspect that there are Members who would like to listen to the views of others besides parliamentarians on occasion. My hon. Friend makes an important point.
The authors of “Better Budgets” comment:
“This could be enhanced by ensuring effective liaison between the experts working to support the three committees that have a role in tax scrutiny—the Treasury Select Committee, which has hearings on the Budget and Autumn Statement”—
as was—
“the House of Lords Economic Affairs Committee and the Finance Bill Committee—to make sure that the results of pre-legislative work inform legislative scrutiny.”
That is not an unreasonable position to take.
As my hon. Friend said, the former Chair of the Treasury Committee made the same point, and the Committee’s current Chair, the right hon. Member for Loughborough (Nicky Morgan), followed it up in a letter to the Minister on 7 November, in which she wrote that she was not convinced by the point made—namely, that we should not have evidence sessions. She rightly pointed out that the consultation was limited, and that it is important to try to tease some of these issues out separately. She also added that she sees no reason at all why a Finance Bill Committee cannot hear oral evidence, even on clauses that have already been debated in Committee of the whole House. I would appreciate it if the Minister commented on that—I know he will.
There seems to be developing consensus across the House that oral evidence sessions on the Finance Bill would greatly improve the quality of parliamentary scrutiny of it. I think they would do good, but frankly even if they did not, they would certainly do no harm. It is time to move away from outdated and arcane parliamentary measures, especially in this area.
I am not in any way suggesting that the Government have anything to hide. I do not think it is a question of hiding; it is often a case of, “We have always done it this way; let’s carry on doing it this way.” Maybe it is time for a rethink on this matter. I exhort the Minister to give careful consideration to this. I suspect that we will not get much movement on the issue, because we would be breaking a relatively long-held tradition by having evidence sessions on the Finance Bill, but we have to start pushing the matter at some point, and this is as good a time as any.
The Financial Secretary to the Treasury (Mel Stride)
It is a pleasure to serve under your chairmanship, Mr Owen. I look forward to vigorous debate on the Bill, today and in the sittings that will follow, as we take the Bill through the normal process.
The amendments from the hon. Member for Aberdeen South—
Kirsty Blackman
In a number of places in the written evidence, various organisations said, “This was not consulted on in draft; we would have suggested these changes, if it had been.” The Committee is losing out because it does not take evidence. It would be better if it did. I do not understand why the Government are scared to take evidence.
Peter Dowd
Does the hon. Lady agree that it is important to understand the position that Parliament is in? The Government do not have an overall majority, notwithstanding the arrangement with the Democratic Unionist party. Their position has changed. Given that, and given that the Government have taken control of the Committees, again notwithstanding the fact that they do not have the majority as a party, the question of scrutiny has changed a little.
Kirsty Blackman
Absolutely. An added dimension is that because the Government do not have a majority, and because all the Brexit legislation is going through, there is an incredibly heavy legislative timetable with an incredible number of incredibly technical pieces of legislation. Therefore, it would be better for Members to have the opportunity to inform themselves. I do not think this is about increasing external organisations’ scrutiny, because, as the Minister said, there are a number of opportunities to do that. This is about giving Members the opportunity better to inform themselves and ask questions of those incredibly knowledgeable organisations so that we can make better decisions about tax law, and so that the Treasury does not create tax law that is not good and that it has to go back and fix a couple of years later. It would be better for everybody if members of the Committee were more informed and therefore able to take better decisions and make better laws.
Question put, That the amendment be made.
Peter Dowd
I welcome the opportunity that my hon. Friend’s new clause presents to discuss the rate of income tax set by the Government, and its effect on the wider economy and on families.
At the general election, we clearly outlined our position: as a Government, we would not ask ordinary households to pay more. We would guarantee that there would be no rises in income tax for those earning less than £80,000 a year and no increase in personal national insurance contributions or the rate of VAT. Under our plans, 95% of taxpayers would be guaranteed to face no increase in their income tax contributions and everyone would be protected from any increase in personal national insurance contributions. Only the top 5% of earners would be asked to contribute more in tax to help fund our public services. That is in contrast to the Government, who have spent the last seven years offering tax breaks to the wealthy and large multinational corporations, and who continue to do so. That goes to the heart of the difference between the two parties.
In 2012, the former Chancellor declared—I have to say, with a certain amount of alacrity—that he was cutting the 50p rate by 5p. He claimed at the time that it would not cost the Exchequer a penny. In fact, analysis carried out by Unison shows that between 2013-14 and 2017-18, income tax cuts for those earning more than £1 million have saved the nation’s super-wealthy on average £554,000 each. Those tax cuts have cost the British taxpayer £8.6 billion over the last five years, in stark contrast to the concerns raised by my hon. Friend the Member for High Peak. The Government have not tackled that.
The money that has been lost could have paid for an extra 20,000 nurses—topical in the current climate, and crucial given the stresses and strains on the NHS; the lack of those 20,000 nurses is a proxy for the state of the NHS—as well as 10,000 extra police community support officers, 10,000 extra police officers and 20,000 newly qualified teachers for each of those five years. That money could have paid for 60,000 bursaries for nurses, midwives, other health professionals and so on. Instead, it was used to give a tax cut to the richest 15,000 taxpayers in the country—those who are least in need. In 2013, the cut to the top rate of income tax was the largest tax cut in the world, and as a result the level of income tax in the UK dropped from the fifth highest in the world to the 13th.
As if that cut was not enough, it was paired with cuts to corporation tax, the bank levy, inheritance tax and capital gains tax. Together, they amount to about £70 billion by 2022. In the meantime, public services are beginning to decay and atrophy. As I alluded to earlier, the NHS is in a bit of a state, and the police are in chaos and crisis. That is the context for our debate. Instead of the swashbuckling we see in the Chamber, we must deal with very precise issues.
It is fair to say that since 2010, the Government have made a political choice to pursue austerity at all costs. The hon. Member for Cheltenham may shake his head, but that is the reality. Let us go back to the phrase, “We’re all in it together”. It is demonstrably clear, and history will show, that we have not all been in it together. It does not matter how much hon. Members shake their heads or roll their eyes; that is the reality, and it is coming home to roost—not on me, but on our public services. We have a social contract with our people across the country to the effect that we will take care of everybody, not just those who have the most.
I will give the Government credit for the fact that they have pursued their policies persistently and doggedly. These policies and choices are the Government’s, not mine. The Government have persisted with them, and I think they have to fess up to that. The national debt has ballooned. The cost of household essentials is spiralling, with inflation at 3.1%; I think it is now 4.6% on food. Services across the country are being slashed and the OBR predicts a 17-year period of wage stagnation. That is the high cost of austerity, which is a political choice made without any economic basis.
My hon. Friend the Member for High Peak seeks to highlight the fact that the Government could have made different political choices, and I agree with her on that one. It is a fact that increases to the lower threshold of income tax are no longer targeted towards the poorest in our society, whose earnings have long since been below that threshold. That is the reality. Had the Government changed tack sooner, there would have been little need for the self-defeating cuts to the work allowances of universal credit—those allowances are by far the best way of improving work incentives for the poorest in our society and driving positive employment outcomes, as the new clause alludes to. That is why Labour set aside £10 billion to improve the Government’s failing universal credit system at the last election. We have also repeatedly called for change from all four Secretaries of State who have occupied the office in the past two years—there have been four so far and there might be another one; I think that includes the one yesterday, but it might not, as I do not keep up with the machinations that go on in Downing Street. The right hon. Member for Chingford and Woodford Green (Mr Duncan Smith) resigned over the variation, and he was the architect of the plan.
It is clear that, while the Government talk the talk on tackling inequality, they are not capable of matching those words with action. Time and again, the Chancellor has failed to improve work incentives under the programme by investing in the work allowances, and I have no doubt that our demands will continue to go unheard. All that is an opportunity for the Government to change tack, and they will not.
Dan Carden
My hon. Friend is my constituency neighbour in Bootle. He will know that while the tax threshold may have been raised under this Government, an alternative economy has been created in which people have insecure employment, precarious work—sometimes two, three or four jobs on the lowest pay—and no guarantee of a weekly or monthly income to pay the bills or raise a family. While we talk about figures, facts and economic outcomes in this place, the reality of people’s lives in north Liverpool, which I represent, and in Bootle, which he represents, is very different. Those words and numbers mean little to them.
Peter Dowd
My hon. Friend makes an important point. The whole point of a social security system in tandem with a tax system is to ensure that those who can afford to pay do so, and those who cannot afford to pay do not. We are now in a topsy-turvy world, where things are being twisted around and the people who can least afford it pay and the people who can most afford it do not pay. That is the direction of travel, and it is affecting people day in, day out. I agree with my hon. Friend.
Ms Karen Lee (Lincoln) (Lab)
We hear a lot about the NHS; my hon. Friend has referred to it. I am a nurse, and I did a shift in my local hospital on Saturday. Last Wednesday, I went out for most of the day with the local ambulance service. The NHS is indeed in crisis, and until people pay a proper rate of tax and it is properly funded, that will remain the same. As a new Member, I am a little taken aback at the number of people who are simply not listening to this debate. They are on their iPads and phones. It would be good if people paid attention—
Peter Dowd
My hon. Friend the Member for Lincoln makes an important point. Her passion and concern, which many of us share, sometimes stray beyond the remit of our debates, but the point is well made. The bottom line is that my hon. Friend the Member for High Peak makes an important point in her new clause, and no doubt that is something we will come back to in due course.
Mel Stride
I thank the hon. Member for High Peak for speaking so thoroughly to her new clause. While I recognise many of the challenges she has rightly raised, which families up and down the country are facing— nobody belittles those—I do not recognise the picture she paints of eternal gloom and night of what this Government have achieved with our economy and for hard-working families. We have done a great deal to help those who are less well off. The hon. Lady herself raised the issue of the increase in the personal allowance, which has rocketed since 2010 to over £11,000 today. Indeed, that has taken 3 million low-paid workers out of tax altogether. They pay no income tax at all. Those are 3 million low-paid workers who paid income tax under the last Labour Government and are no longer paying that tax under this Government.
We have just had a Budget in which we took a number of specific measures to help those who are less well off. We froze fuel duty for the eighth year in a row. We increased the personal allowance for the seventh year, as the hon. Member for High Peak pointed out, taking even more people out of tax. We will increase the national living wage, a measure that this Government have brought in, by over 4% in the coming April.
Finance (No. 2) Bill (Second sitting)
Peter Dowd Excerpts(8 years, 1 month ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mel Stride)
May I start by saying what a pleasure it is once again to serve under your chairmanship, Sir Roger? Clause 13 makes changes to extend Her Majesty’s Revenue and Customs’ powers to refuse to register and deregister pension schemes. The changes will enable HMRC to restrict tax registration to those pension schemes providing legitimate pension benefits and support the Pensions Regulator in its new authorisation and supervision regime for master trust schemes. The measure supports the Government’s objective of fairness in the tax system by maintaining the integrity of pensions tax relief.
Over the past few years, there have been growing threats to individuals’ pension savings, and they come in many forms. Many start with the setting up of a scheme, into which individuals are persuaded to pay their hard-earned savings, with a promise of various benefits. Sometimes these apparent pension schemes are no more than a scam, designed to extract money from unsuspecting individuals who end up with little or no retirement savings as a consequence. The Government are committed to tackling that threat, to ensure that individuals who save in a pension scheme have those funds available to them when they retire.
A master trust scheme is an occupational pension scheme for multiple employers, and clause 13 will extend HMRC’s powers to refuse to register and to deregister master trust pension schemes that are not authorised under the Pensions Regulator’s new authorisation and supervision regime. Aligning HMRC’s registration and the Pensions Regulator’s authorisation processes for master trust schemes will provide more effective protection for individuals.
The proposed amendments to schedule 3 would require pension schemes to provide additional information about the investment strategy of the scheme before HMRC decides to register the scheme and require the scheme to publish an annual report of costs in connection with the investments of the scheme to maintain its registration. The Government agree that transparency is integral to good governance and delivering improved member outcomes. However, the amendments would add little and largely duplicate existing requirements. The additional information required would not help HMRC to perform its role in collecting tax and ensuring that pension schemes are adhering to the tax rules. It would duplicate existing requirements by other regulatory bodies and add burdens and costs to pension schemes.
The amendments also propose that an annual report of costs in connection with the investments of the scheme be published. The Government consulted last year on legislation requiring transaction costs and other charges to be published for every investment option offered by defined contribution schemes, not just master trust schemes, and given to members. We plan to bring regulations for that into force in April this year.
The clause will ensure that HMRC can prevent scam pension schemes from being established and that it has the powers to take action where an existing scheme is discovered. That enables HMRC to protect people who have saved money for their retirement from the threat of pension scams. It supports the Government’s efforts to tackle abuse across the tax system, and I therefore commend the clause to the Committee.
Peter Dowd (Bootle) (Lab)
It is a pleasure to see you in the Chair, Sir Roger. The Minister referred to scams. To some extent, I am glad that he used the word “scam”, because I suspect that if I had used it, people would have said it was Labour again attacking companies, pension companies and investments. It is not the word I would have used, but I understand the point he makes, and it goes to the heart of what we want to discuss today, which is transparency.
Amendment 41 seeks to improve the transparency of master trust pension schemes, to ensure that they are at the forefront of changes taking place across the defined contribution sector. There is an argument to say that one cannot be transparent enough in these sorts of situations. We have had all sorts of institutional dodginess—let us put it no stronger than that—in the past, and whether through endowment schemes, personal protection plans, or the stuff now going on with leaseholds and property, people’s faith in some institutions is, I suspect, being challenged a little. That is why we want to push the envelope, so to speak.
The changes proposed in the amendment are twofold: first, it would ensure that a clear and coherent investment strategy is presented to HMRC before registration, which would go beyond the Government’s proposal; secondly, a clear annual report on the costs and charges being applied to saver pots must be presented to the trustees and, we hope, be made available to savers. We think that that will modernise the approach towards the fiduciary management of savers’ assets, updating the statement of investment principles approach that is currently required by master trusts. It will also bring master trusts in line with wider Government policy on reporting costs and charges—we are finally beginning to see some progress on that, following many years of campaigning by various bodies and organisations, as well as by many Members on both sides of the Committee and by other organisations.
Subsection (2) of amendment 41 requires a master trust to include an investment strategy in its application for registration to HMRC. Until now, every occupational pension scheme has been legally required to prepare and maintain a statement of investment principles, and that is expected to cover the trustees’ plans for securing compliance with their statutory duties, and their policies on investments, risks, returns and how they will exercise their voting rights. The amendment would ensure that such practice is embedded in the master trust sector, and enhanced to encourage trustees to strategically consider—a split infinitive there—factors that they believe will influence the financial performance of their investments, as well as, importantly, looking more closely at socially responsible investment.
We know that companies with strong environmental and social governance credentials have better long-term performance—that goes without saying. A company that is committed to environmental sustainability, and which cares about its staff and is well run and managed should, in the long term, always profit over a company that does none of those things. We have only to look at the Sports Direct share price over the past two years, or at Volkswagen following the 2015 emissions scandal. People react to what they perceive as non-environmentally friendly, or non-socially friendly approaches to their staff or product. Of course, Her Majesty’s Revenue and Customs has an interest in ensuring that the schemes that register with it for taxation purposes have a clear and transparent strategy for guaranteeing pension scheme members a secure retirement. That is a big responsibility for HMRC, and we should support it with the appropriate resources.
As long as pension funds can show that any investment or policy decision was made on a fiduciary basis and consulted on with members, they can avoid the charge that they have not considered their members’ best interests. The amendment will help HMRC to feel confident that the scheme being registered is legitimate, and it will also have secondary effects. Public opinion tends to position the average citizen as a helpless bystander in this drama, when in fact public money underpins the entire system. Anyone with a pension is indirectly an owner of Britain’s biggest companies, and the amendment envisions a world in which people feel that their savings give them a positive stake in the economy, and a voice in how the companies that they invest in are run.
The rise of private pension savings has led to a democratisation of company ownership, but when it comes to control of ownership rights the reverse is true. Power has become increasingly concentrated in the hands of a relatively small number of opaque and unaccountable financial institutions. As the Kay report showed, these institutions often face systematic pressures to act in ways that may not serve savers’ best interests. Direct accountability to savers is therefore a vital component of a healthy economic and financial system. As millions of savers have entered the capital markets through pension auto-enrolment, now is the right time, in our opinion, to build a more accountable system. We are talking 10, 20, 30 or 40 years ahead—let us start now.
In June 2011 the Government invited Professor John Kay to conduct a review into equity markets and long-term decision making. As I recall, the final report was published in July 2012. His review considered how well equity markets were achieving their core purposes: to enhance the performance of UK companies and to enable savers to benefit from the activity of these businesses through returns to direct and indirect ownership of shares in UK companies. The review identified the fact that short-termism is a problem in UK equity markets. Professor Kay also recommended that company directors, asset managers and asset holders adopt measures to promote both stewardship and long-term decision making. In particular, he stressed:
“Asset managers can contribute more to the performance of British business (and in consequence to overall returns to their savers) through greater involvement with the companies in which they invest.”
He concluded that adopting such responsible investment practices would prove beneficial for investors and markets alike. When it is put in those simple terms, who could argue? It seems to me axiomatic.
In practice, responsible investment could involve making investment decisions based on the long term, as well as playing an active role in corporate governance by exercising shareholder voting rights. Master trusts will want to consider the Kay review’s findings when developing their proposals, including what governance procedures and mechanisms would be needed to facilitate long-term responsible investing and stewardship through the funds they choose for members to save in.
The UK stewardship code, published by the Financial Reporting Council, has seven principles and also provides master trusts with guidance on good practice when monitoring and engaging with the companies in which they invest. Amendment 41 seeks to make sure that the trustees are cognisant of these issues, and we hope that where possible they will engage with their scheme members during the decision-making process.
In recent decades, efforts to improve the way in which companies are run have focused heavily on making directors more accountable to their shareholders—for example, the recent introduction of a binding say on pay—but this job is only half done. Ownership rights are exercised largely by institutions that are themselves intermediaries and accountability to the underlying savers who provide the capital remains weak. The logical next step must be for institutional investors to extend the same accountability that they expect from companies to the savers whom they represent. Indeed, such accountability is essential to the success of recent measures to encourage more engaged and responsible shareowners.
The UK stewardship code was introduced in the aftermath of the financial crisis to address concerns that shareholders were behaving as—I think this was the quote—“absentee landlords”. Rather than being enforced by regulators, it is a voluntary code that relies on scrutiny from below to promote compliance, mirroring the corporate governance code for companies. Yet while shareholders are given extensive rights to hold companies to account for their governance practices, savers are not equipped to play the same role in relation to institutional investors. The investment regulations currently require master trusts to set up, within the statement of investment principles, the extent to which social, environmental or corporate governance considerations are taken into account in the selection, retention and realisation of investments, and these policies should be developed in the context of consultation with the scheme members and should enhance the engagement with them over these crucial issues.
Ruth George (High Peak) (Lab)
Does my hon. Friend agree that this helps to encourage workers to engage with pension investment, in particular those on low pay for whom auto-enrolment and pension contributions can require a substantial portion of the earnings that they have left over after essential bills? Before coming here, I was engaged in setting up a pension scheme for low-paid nursery workers. It was important to them that they could see how their money was being invested, because they did not have very much of it. The more transparency we have, the more it will encourage such low-paid workers to feel secure that their money is safe and to make the investments that they need to make for their retirement.
Peter Dowd
My hon. Friend makes an important point. We want to move away from the passivity and disempowerment that people in that situation feel and towards their having the confidence to engage, if they so choose. We have to ensure that the mechanisms are there for them to choose. It is a little bit like democracy at the end of the day: we have elections, and if someone does not want to participate in them, that is a matter for them, but at least we have them. People are given the capacity to participate, which is no different, in principle, from the point my hon. Friend was making.
As well as better protecting savers’ long-term financial interests, this will be good news for those who believe that part of the current system of capitalism has lost a little bit of its moral compass in certain situations; I alluded to that a little earlier with some of the scams that the Minister referred to. It is a bit like this House, where we have to feel accountable to the people who send us here. Whatever the system is—politics, business or pensions—we have to feel accountable, and more importantly, we have to be accountable.
In addition, savers who feel connected to their money are more likely to see it as a medium for the expression of their values. That goes to the heart of what my hon. Friend touched on, and indeed to the point I made earlier about how transparency and accountability should matter to those whose only concern is making markets work more efficiently. It has to go beyond that. Efficient market theory presumes that consumers act in their own interests. However, in the capital markets, decisions are being made not by consumers but by intermediaries acting on their behalf, so there is a disconnect to some degree there as well.
Moreover, consumers themselves are deeply disconnected from their money, and the opt-out mechanism of pensions auto-enrolment is predicated on that fact. That means that intermediaries themselves are subject to limited market discipline. The pensions market may never be dominated by active and engaged consumers, which comes back to the point I made before, but the more consumers are active and engaged, the better the market will work. I do not think there is any question about that.
In addition, accountability should build trust in the system, even among those who choose not to engage, thus encouraging people to keep saving in effect. This is an important consideration in a market in which just 70% of retail investors trust investment firms to “do the right thing” and consumers cite lack of trust as the No. 1 reason for opting out of private pension saving, which is a real shame.
Ruth George
My hon. Friend makes excellent points that are absolutely true while auto-enrolment contributions are 1%, and will be even more true when they rise to 3% and then 5%. We are looking to individuals, often on low pay and often at quite an early stage in their working life, to contribute a substantial sum towards their pension, which is for a time they cannot see, so it is vital that these are transparent decisions for them.
Peter Dowd
My hon. Friend again makes an important point, and that arrow goes to the heart of things.
There are practical objections on the grounds that savers are not interested in, or capable of, engaging with their money, which simply perpetuates a vicious circle of disengagement. That is the passivity I talked about earlier—almost an institutional passivity on the part of savers. Savers may be put off by the language of investment, but that does not mean that they are not interested in where their money goes; they are.
Likewise, savers may lack understanding of the technicalities of investment, but there are many matters on which they are qualified to comment, including the way the scheme behaves as an owner of major companies, or its policies on social, environmental and governance issues. We see that to an extent, in an institutional way, in the Church of England, among other organisations; it puts those things at the heart of its approach. Savers should be allowed to do that as well. Indeed, emphasising the positive contribution that schemes are making to a better economy, through their exercise of ownership rights, could be a way to engage people with saving money more widely.
The onus must be on the master trusts and the wider investment sector to take the lead in developing a clear and engaging investment strategy. Making such a strategy a requirement of registration with HMRC will ensure that no master trust will slip through the net. The recent local government pension scheme regulations follow a similar path and require the administration authorities to create investment statement strategies. There is no reason why that good practice cannot be extended to defined contribution schemes.
I turn to the reporting of costs and charges—a subject that my hon. Friend the Member for High Peak touched on, and which is addressed in proposed new subsection (3) in amendment 41. For far too long, the pensions market has had a single glaring dysfunction: no one knows how much a pension pot costs. Members of this House would not go into a marketplace to buy anything without understanding the basic information relating to a product: its price, its essential properties, and the promises made about it. Strangely, this information, which is so fundamental to consumer choice and the operation of any market, remains largely absent in the pension market. Master trusts must establish what each investment choice costs and what their drawn-down product costs. Anything short of that is not helpful for millions of citizens.
We have a duty to ensure that a reporting line is open between a master trust, HMRC regarding a trust’s tax affairs, and the trust’s members on the costs they incur while saving for retirement. Again, Labour Members have campaigned for many years on this issue and it seems that the Government are beginning to catch up, not simply because of what we have been doing but also because of what Government Members and other organisations have been doing. We are not trying to claim all the credit; to some extent, this has been a team effort, right across the piece.
In the consultation on defined contribution pension schemes, under which master trusts operate, the Government requested evidence on how they might improve transparency in reporting information on the transaction costs and charges for members of workplace pension schemes. Amendment 41 would be a clear step forward, in line with the calls that we have been making alongside the industry, trustees, savers and Government Members, for transparency of costs and charges when it comes to pension savings. This issue affects us all.
I am afraid to say that the Government have seen fit to replace action with rhetoric here—a pattern that we see a little bit too often. However, I do not want to push that argument too much. We have to encourage and prod. The architecture to get the data, analyse it and present it is being discussed, with a view to its being built. It can be a platform from which other projects, including the value-for-money analysis needed for all workplace pensions, can be developed—and it can be delivered.
Amendment 41 helps to embed a process that is already under way, thanks in no small way to years of campaigning by many organisations and political parties. There is no reason why the Government should not take this opportunity to do something that is in line with their stated objectives. We must ensure that every person auto-enrolled into a master trust is given the opportunity to understand what pension system they are going into, how much it will cost and how much they will get. To do otherwise would be a clear breach of the fiduciary duty owed to scheme members.
The Financial Conduct Authority’s asset management market review said that evidence suggests that
“there is weak price competition in a number of areas of the asset management industry”,
which has a material impact on investors’ returns through their payment for asset management services. One of the FCA’s conclusions was that there should be a requirement for increased transparency, and standardisation of costs and charges information for institutional investors. That word “transparency” crops up time after time, for good reason.
The Government have agreed to implement the FCA’s recommendations in full. We can enshrine that guarantee in the Bill. Quite frankly, it is a fundamental market failure that no pension fund can understand its cost basis. If one does not understand costs, the investment strategy set out in proposed subsection (2) of amendment 41 cannot be evaluated.
It is also a sensible proposition that a scheme’s outgoings on costs and charges be evaluated during the process of tax registration by HMRC. The risk and responsibility will continue to rest with the pension saver; charges for ongoing administration and investment management will be deducted from their account—another reason why transparency and low charges are important.
If a scheme member loses money in retirement, it is extremely difficult—if not impossible—to get it back again, as their sources of income may be limited and a return to work might not be an option. Ultimately, members could run out of money. That has happened before with some of these schemes. The member is responsible for their decisions and the outcome the scheme generates. It is therefore essential that the member can see the cost of their pension pot. The efficient management of pension funds is critical to ensuring that we stave off a pensions crisis.
Dan Carden (Liverpool, Walton) (Lab)
My hon. Friend is making an excellent contribution. Pensions are incredibly complex; I am sure that most of us would be happy to admit that we do not have any great understanding of their workings. When we speak to our constituents, we hear that this is about confidence. Many people choosing between taking money home and investing money for the future—we look at this money as deferred wages—do not have confidence in the system because it is not transparent. Anything that we can do, through the amendment, to make the Government act sooner and not engage in more consultations on what is a rather obvious solution, which is to open up the industry to scrutiny and to give greater understanding to our constituents of how their pensions are invested, is a good thing. We ask the Government to agree to this amendment, so that we can get there quicker.
Peter Dowd
My hon. Friend makes a very important point.
To draw to a conclusion, I reiterate the point that I was making when my hon. Friend intervened. The efficient management of funds is critical to ensuring that we stave off a pensions crisis that citizens will be forced to endure in their retirement if we are not careful. The Government will fail in their duty of care if we do not get cost reporting on to the statute book. Transparency —there is that word again—is now an objective of all parties across the House. In our view, the Government must back this amendment and replace a little bit of rhetoric with action to protect pension savers.
Mel Stride
The hon. Gentleman has set out a comprehensive set of reasons for supporting his amendment. He will be pleased to know that I whole- heartedly agree with many elements of what he shared with us. Both sides of the Committee agree on our enduring belief that we should ensure that sufficient transparency is available and that we should do all we can to protect the life savings—in many cases—of those who invest in any form of pension, let alone master trust schemes, some of which have fallen foul of the kind of issues that we have been debating.
Unfortunately, I cannot agree with all the hon. Gentleman’s assertions. He spoke about the importance of transparency—I have said that I agree with that—but he also said that we cannot be transparent enough. That is an important maxim to operate by, but that cannot allow us to be led into a situation where we have overly burdensome additional costs as a consequence. That is the nub of our objection to his amendment.
The amendment would bring in a duplication of the regulatory body’s function of reviewing investment plans at the time that schemes are set up. The kinds of issues that the hon. Gentleman wants to be addressed are being addressed; I would be happy to share that information with him at a future date. The Financial Conduct Authority is consulting at the moment; the consultation closes on the 12th of this month—a few short days away. We have regulations planned for April that will ensure that we look into these issues and move into the area of the publication of costs and the way these schemes are run.
Returning to the clause, I hope we are united in believing that HMRC should be given additional powers to refuse the registration of schemes where it feels that they are deficient, and to withdraw registration where that is appropriate. I ask the hon. Gentleman to consider not pressing his amendments, and commend clause 13 to the Committee.
Peter Dowd
We have taken considerable time in outlining our proposal, which the Minister was gracious enough to say was comprehensive. The onus is on us to push the matter to the vote. We want to put down a marker. I am sure the Minister and his colleagues will appreciate that there are no traps here, or attempts to force the Government down paths that they do not want to go down; I suspect that they would in due course like to go down these paths. Like John the Baptist, we are laying out that path before them. [Interruption.] Yes, and look what happened to the guy who followed him. I will push the matter to a vote in due course, Sir Roger. I hope that the information I have provided will resonate with hon. Members.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Amendment proposed: 39, in schedule 3, page 65, line 28, at end insert
“or
(j) the pension scheme is a Master Trust scheme which has not complied with the relevant requirements of section 159E(2).”
This amendment paves the way for Amendment 41.—(Peter Dowd.)
Question put, That the amendment be made.
Mel Stride
Clauses 14 to 17 and schedules 4 and 5 make changes to the tax-advantaged venture capital schemes as part of the Government’s response to the patient capital review. They also correct minor technical flaws in the legislation, to ensure that the legislation works as intended. The changes aim to drive more than £7 billion in new and redirected investment into high-growth companies over the next 10 years.
Responses to the patient capital review consultation pointed to the continuing importance of these schemes in incentivising investment in early-stage companies that would otherwise struggle to receive investment to help them grow and develop. However, evidence provided during the consultation, backed up by Sir Damon Buffini’s industry panel, suggested that knowledge-intensive companies, which are particularly research and development-intensive, still struggle with some of the most acute funding gaps, despite their growth potential. This is because they often require a large amount of capital up front to fund their growth, and it can be many years before their products can be brought to market. Evidence provided through the consultation also highlighted a large subset of low-risk capital preservation investments structured around the tax reliefs. One response showed that £467 million of funds raised by enterprise investment scheme funds in 2016-17 were aimed at schemes that could be described as capital preservation.
Clause 14 introduces a new “risk to capital” condition for the enterprise investment scheme, the seed enterprise investment scheme and venture capital trusts, in response to evidence of continuing capital preservation investments using the venture capital schemes. The condition takes a principles-based approach to deny tax relief to these investments. Investments will be excluded where it is reasonable to conclude that the company does not have the objective of growing and developing its trade in the long term and there is no significant risk that any loss of capital will be greater than the net return on the investment. The measure would take effect from Royal Assent.
Clause 15 makes technical changes to ensure that the rules on determining the amount of funding a company may receive in its lifetime, under the EIS, VCTs or social investment tax relief, work as intended. The clause ends certain transitional provisions introduced in 2007 and 2012, which excluded certain investments from counting towards the lifetime limit, and ensures all risk finance investments are counted towards the lifetime funding limits for the EIS, VCT and SITR schemes. This will apply to new investments on or after 1 December 2017.
Clause 16 and schedule 4 make three changes in response to the patient capital review. The changes will significantly expand the support offered to knowledge-intensive companies through the EIS and VCTs. The annual limit on how much an investor can invest through the enterprise investment scheme will be raised from £1 million to £2 million. Any investment over £1 million must be invested in knowledge-intensive companies.
Knowledge-intensive companies often need large funding rounds as they are highly capital-intensive. With this in mind, we are doubling the annual investment limit for knowledge-intensive companies using the EIS and VCT schemes to £10 million. Under the current EIS and VCT rules, knowledge-intensive companies must be broadly under 10 years of age when receiving their first qualifying investment. The clock starts when the company makes its first commercial sale. Knowledge-intensive companies sometimes find this point difficult to identify. Clause 16 introduces flexibility to this rule by allowing knowledge-intensive companies to choose to start the clock at the point they reach an annual turnover of £200,000.
Before I turn to Government amendment 1 to schedule 5, I will give some background, if I may, to introduce clause 17 and the schedule. Clause 17 and schedule 5 make changes to the VCT rules. Schedule 5 corrects a technical flaw and changes some of the rules to encourage VCTs to invest more of their funds in qualifying growth companies and to invest those funds more quickly. Government amendment 1 introduces new rules on qualifying loans to encourage VCTs to make longer-term investments in higher-risk companies. Some VCTs have used loan structures as a method of capital preservation, charging prohibitively high interest rates and including other conditions in the terms of the loan. The effect is to secure a return of capital well before the end of the five-year minimum period. Amendment 1 is intended to prevent the use of low-risk loans to minimise risk to the VCT and to its investors, including where the terms involve very high interest rates, redemption premiums and other charges. I commend Government amendment 1 to the Committee.
I turn to the rest of the provisions in schedule 5. The schedule corrects a flaw in an anti-abuse rule introduced in 2014 to prevent investors from being punished for mergers they did not know were about to occur. The changes will apply retrospectively, from the introduction of the anti-abuse rules in April 2014. The proportion of VCT funds that must be invested in qualifying companies will be raised from 70% to 80%. This will ensure that a greater proportion of VCT funds reaches the target companies. Once a VCT realises a gain by disposing of an investment, it must reinvest that gain within six months. Many VCTs currently pay out the proceeds as a dividend instead. To encourage more reinvestment by VCTs, schedule 5 raises the reinvestment period to 12 months. These last two changes take effect from April 2019 to allow VCTs time to adjust their investment portfolio.
VCTs currently have up to three years to invest funds after those funds are raised. A new rule will require them to invest at least 30% of funds in qualifying companies within one year of the end of the accounting period in which they were raised. This will accelerate investment of money raised from investors and will apply to funds raised from 6 April 2018.
Many previous changes to the VCT rules have been grandfathered. This means new investments can still be made under the old rules that applied when the money was originally raised. These transitional provisions enable some VCTs and their investors to access a range of generous tax reliefs on low-risk investments. The schedule will ensure that all VCT investments meet the current rules, regardless of when the original money was secured. These changes will take effect for investments from 6 April 2018.
New clauses 6 to 8 call for reviews into some of the changes made in this legislation, as well as a review of the efficacy of the venture capital schemes as a whole, but the changes made in the legislation are the result of a thorough review of all the venture capital schemes as part of the patient capital review. The review concluded that the schemes did vital work in providing capital for high-growth companies but that certain changes would make the schemes more effective and fairer for the taxpayer. Because we are committed to making the schemes work better, the Government have already committed to a report on the changes. An initial report to the Chancellor of the Exchequer for Budget 2018 will set out how the different measures in the Government response are being implemented. Then, in autumn 2020, a report will assess the impact of the policies set out in the Government response, including the clauses in this Finance Bill.
A review of this condition any earlier than 2020 would not be able to make any reasonable assessment of the effect of the changes on the scheme. It would be working from a single year’s data on the impact on Government revenue and would be unable to assess the impact on the long-term growth and development of businesses. In the meantime, HMRC publishes statistics on the use of venture capital schemes every year. The information includes details of amounts invested and company activities. The first figures reflecting the effect of the new changes for the tax year 2018-19 will be available in April 2020. These will be closely monitored. I therefore urge the Committee to reject the new clauses.
Sir Roger, these changes significantly expand the venture capital scheme’s innovative, knowledge-intensive companies while reducing the scope for low-risk investment within them. They will drive more than £7 billion of investment towards high-growth companies over the next 10 years and ensure the smooth operation of these important schemes. I therefore commend clauses 14 to 17 and schedules 4 and 5 to the Committee.
Peter Dowd
I will speak to our amendments to schedule 4, which also affect clauses 14, 15, 16 and 17.
May I start by telling the hon. Member for Middlesbrough South and East Cleveland, who was slightly confused as to which way he should vote, I am not sure whether if I had a spoken a little less he might have come our way, or perhaps he would have done so if I had spoken a little longer. We will never know, alas.
Clause 14 seeks to amend the requirements for investment to qualify for relief under the enterprise investment scheme, seed enterprise investment scheme or the venture capital trust scheme. As indicated, it also introduces an overarching risk-to-capital condition to deter investment companies whose activities are mostly geared towards protecting capital through minimising risk rather than supporting long-term growth and development of UK enterprise. It is important to start with that proposition.
Clause 14 also introduces a new principle-based risk-to-capital test that would change the current regime in which HMRC provides assurances for investments in advance. In the not too distant future, I am also going to introduce the T word—the transparency factor— I am giving notice of that.
Under this measure, HMRC would no longer provide advance assurance for investments that would appear not to meet the terms of the new rule. The Treasury has stated that if the new test proves effective in simplifying the conditions, this approach may be used to simplify further aspects of venture capital schemes legislation. It is clear that the current legislation is a maze of complexity that makes it difficult for businesses and advisers to establish that qualifying conditions are met with certainty, and also for HMRC to ensure that the reliefs are being used correctly and are not subject to abuse.
Taxation (Cross-border Trade) Bill
Peter Dowd ExcerptsMonday 8th January 2018
(8 years, 1 month ago)
Commons ChamberRead Full debate Taxation (Cross-border Trade) Act 2018 View all Taxation (Cross-border Trade) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts
Peter Dowd (Bootle) (Lab)
I beg to move an amendment, to leave out from “That” to the end of the Question and add:
“That this House recognises that the UK will need considered and effective arrangements to ensure a customs and tariff regime, including the potential of a customs union with the European Union, is in place before the UK’s exit, in order to guarantee frictionless movement of goods at UK ports and the ability to levy customs duty and VAT and to protect manufacturing and other key industries through the power to enact protective tariffs, but declines to give a Second Reading to the Taxation (Cross-border Trade) Bill because the Government has failed to provide a coherent plan for the operation of the customs and tariff regime after the UK’s exit from the European Union or for the maintenance of frictionless movement of goods at UK ports, because the Bill is not accompanied by proposals to ensure that Her Majesty’s Revenue and Customs are properly resourced and organised to implement a new customs and VAT regime, because the needs of UK manufacturers and producers have not been properly reflected in the design of the proposals and because the Bill proposes to give excessive powers to Ministers without appropriate procedures for parliamentary consultation and scrutiny.”
Here we are at the start of another year, and it feels much the same as the last one—the same old empty Bills, long on rhetoric and short on detail. Yet always the Government’s default position is a fresh set of powers for Ministers, which is the one fixed point in a changing world. This Government seem to be taking back more control from Parliament as each day passes.
The Bill ostensibly sets out to create a functioning customs framework for the United Kingdom once we leave the European Union—hope springs eternal. We accept that such an arrangement is necessary, regardless of the UK’s future relationship with the EU or, indeed, the nature of its wider trading relationship, yet once again we have been denied any detail in the Bill itself, as hon. Members have identified. There is nothing to guarantee frictionless trade through the UK’s ports from the moment of exit, no measures properly to resource Her Majesty’s Revenue and Customs for the task and nowhere near sufficient detail on the powers and provisions of the Trade Remedies Authority that will be charged with ensuring that our vital British industries are protected. Only yesterday we saw the potentially disastrous consequences of that lack of detail, with reports on the likely result of the Government’s failure to address the EU VAT area for thousands of businesses.
In short, instead of setting up a stable customs framework, this Bill provides few of the policy or, indeed, practical considerations required for the task of leaving the European Union.
Richard Graham
It seems rather curious to criticise the Government for denying any detail while we are in the middle of a negotiation. How could the hon. Gentleman expect any Government to guarantee anything until that negotiation is complete?
Peter Dowd
This Government have guaranteed absolutely nothing whatsoever. Time after time, they hide behind the veil of negotiation.
Before addressing the Bill’s specific failures in meeting the Government’s objectives, I will raise the issue of the powers created by this Bill that enable Ministers to do whatever they want. The leave campaign’s central message, the one repeated time and again and printed across its campaign literature, was that leaving the European Union would allow the Parliaments and Assemblies of the UK to “take back control” of our law making. And yet again, every piece of legislation published by the Government relating to our exit creates more powers for Ministers, while ignoring Parliament completely. Parliament is in a persistent state of having its head patted—that is as much as Parliament is getting at the moment.
Sammy Wilson
Given where we are in the negotiations, does the hon. Gentleman accept that a Bill that allows either for no deal or for complete mirroring of the current arrangements and all possibilities in between is the best Bill we could possibly have?
Peter Dowd
The hon. Gentleman would have a point, but the Government’s record so far is to try to duck every question we ask of them. They constantly hide behind the negotiations.
Several hon. Members rose—
Peter Dowd
Lots of people want to speak, so I will move on and come back in a minute.
We now have a Government who are prepared to change the law to give themselves a majority on Public Bill Committees—that is where we are. They are prepared to ignore votes of the House on Opposition day motions, and they are now prepared to undertake the greatest centralisation of powers that Parliament has seen since the war.
Angela Smith (Penistone and Stocksbridge) (Lab)
Does my hon. Friend agree with me and many Labour Members that the programme motion needs to be more detailed and needs to make it clear that we will have proper scrutiny in Committee, with more sittings than currently appear to be on offer from the Government?
Peter Dowd
We will get as much scrutiny as possible on this Bill.
Having completely failed to create a strong and stable Government at the last election, the Prime Minister seems to be ignoring the will of the electorate and grabbing power by any means necessary. That is particularly the case with this Bill, where Ministers are being handed powers to set import and export duties, preferential rates and quotas across any good or service sector in our economy. This Bill will give the Government the power fundamentally to reshape the environment in which our economy operates with a few strokes of a pen.
Alex Cunningham
As my hon. Friend says, it is critical that Parliament has a say. CF Fertilisers on Teesside is worried about the dumping of cheap goods, particularly from Russia, if we do not get the anti-dumping legislation right. The Minister says that will be addressed by this Bill and by the Trade Bill, which will have its Second Reading tomorrow, but I cannot see anything that says so. Does my hon. Friend agree that that is all the more reason why we need much more time in Committee to ensure that such guards are put in place?
Peter Dowd
My hon. Friend makes a good point that we need to have absolute scrutiny of the Government’s proposals.
We know what the Government would do with the powers contained in this Bill. They would tear up protections for British producers and consumers, throw workers’ rights on to the bonfire and create a free-market offshore tax haven—a miserable pound-shop economy. The Government know the price of everything and the value of nothing.
The Government do not have the authority to act in that way. The referendum and the recent election show a country divided, and it is Parliament’s job to reflect the country’s will and to develop a workable consensus. This Government, much like the disastrous Major Administration, have no mandate to implement such far-reaching changes, which is why the Labour party’s reasoned amendment would deny the Bill a Second Reading. We demand that the Government return with a Bill that sets out a clear path to our mutual objective of creating a functioning institutional framework for the handling of customs once we leave the European Union, one that provides the proper powers of scrutiny to Parliament, as promised by the leave campaign and as determined by the citizens of the UK in the recent election. Anything less is an affront to our democratic process and will only spell disaster for our country as this weak Prime Minister becomes prey to the worst instincts of many Conservative Members.
Peter Dowd
I am happy to have a conversation with my hon. Friend outside the Chamber, but this is about the Government’s policy, not ours.
HMRC resourcing is another issue that we have to address. Everyone in this House agrees that we must avoid the nightmare scenario of gridlock at UK ports, with lorry queues stretching as far as the eye can see, yet the Government continue to do Brexit on the cheap with their refusal to fully fund and resource HMRC. Its staffing levels have been cut by 17% since 2010, and they are set to be cut further this year as it plans to close 137 offices across the country. The Minister must recognise the urgent need to hire and train more customs officers and HMRC staff, particularly if the Government are to meet their over-ambitious target of a fully operational customs system by 2019.
Although the Treasury is keen to tout technology as its magic solution to customs post Brexit, Ministers have failed to offer specifics on what a new customs system will look like and on whether it will even be ready in time. At the same time, there remains huge underlying questions about whether the current customs declaration service programme can deal with the sheer workload and pressure post Brexit.
A new IT system is no substitute for a fully resourced and staffed HMRC. Even with a transitional arrangement with the EU, the Treasury must recognise the urgent need to increase HMRC’s budget and staff, which is why the Opposition will attempt to amend the Bill to require Ministers to report back to Parliament on HMRC staffing levels and on the progress on testing and implementing these new systems.
Rachel Maclean (Redditch) (Con)
Does the hon. Gentleman recognise that HMRC has been given all the funding it has asked for to be ready for Brexit? Doe he recognise that the Treasury has set aside a total of £3 billion, that £400 million has gone to HMRC, that the negotiations are under way and that it will be given what it asks for to be ready on Brexit day?
Peter Dowd
There is no one in training and the staff on the ground take a completely different view from the hon. Lady.
The Bill outlines the trade remedies the Government will enforce against the dumping of unfairly priced goods. At the moment, these remedies are provided by the EU, but on leaving, the UK will have to enact and manage its own trade remedies. These measures are spread across this Bill and the Trade Bill and are of great importance to UK manufacturers. As I have said at this Dispatch Box on previous occasions, the Opposition will oppose any attempt by this Government to undermine UK manufacturing and jobs by the weakening of trade remedies, as well as any attempt to dismantle unilaterally the external tariff and open up UK markets to unfairly priced goods. This is a question not of protectionism, but of fairness and the rule of law, as countries that allow or encourage state dumping are not playing by international rules.
The manufacturing industry remains an indispensable part of the UK economy. According to the Office for National Statistics, manufacturing accounted for 2.3 million jobs in 2016 and 10% of the UK’s total economic output. These jobs are shared out across the minerals and ceramics, paper, steel, glass, chemical and fertiliser sectors. They are also spread across communities across the country, where manufacturing remains one of the largest employers. In my constituency alone, more than 2,500 people are employed in manufacturing, and the same will be true of the constituencies of many Members here today.
The trade remedies proposed in this Bill are pitiful to say the least. They are far weaker than the remedies currently in place in the EU and are weaker than those in most developed trading nations, and if they remain unchanged, they will put manufacturing jobs at risk.
Stephen Doughty
I agree very much with the point my hon. Friend is making about the pitiful nature of the trade remedies in the Bill. Indeed, I think that it poses much greater risks for industries such as the steel industry in my constituency. Does he agree that it is necessary to put paid to the myth that existed that we could not take trade remedies when we were part of the EU? Indeed, the former Steel Minister who is sitting opposite, the right hon. Member for Broxtowe (Anna Soubry), took a good decision, for which I praised her at the time, to introduce remedies on certain steel products that affected steel in my constituency. Whether these decisions are taken or not is a political choice; it is not about whether we can do this or not under the EU.
Peter Dowd
My hon. Friend is absolutely right on that point.
What is concerning is the fact that UK manufacturers and key industries have not been consulted on the trade remedies in the Bill. Perhaps the Minister can explain why, if the Prime Minister is happy to meet representatives from Toyota to agree a deal and the Environment Secretary is in regular contact with the National Farmers Union on future agricultural subsidies, he has failed to consult an industry that represents nearly 10% of the economy and employs millions on the trade remedies it needs to protect UK jobs.
Stephen Kinnock
I am sure my hon. Friend will have seen the letter in the Financial Times from the chief executive officers of the British steel, paper, ceramics, minerals and chemicals associations, along with their trade union counterparts, which puts this very well: they are deeply critical of the Bill, saying it does not do anything like what is required on trade defence and making it absolutely clear that the UK’s manufacturing base and tens of thousands of jobs around the country will be at risk if Parliament gets this Bill wrong.
Peter Dowd
My hon. Friend is absolutely right on that point, and on that issue the Government just are not listening—it is as simple as that.
As I was saying, I have no doubt that if the Minister had consulted, he would have been told by industry professionals in no uncertain terms to tear up this Bill and start again. It offers no legal certainty for UK manufacturers. Schedule 4, in particular, has little detail on how investigations will be conducted or on how calculations and remedies will be applied. In addition, a mandatory lesser duty rule is completely out of step with the direction the EU is heading in and with the majority of countries in the World Trade Organisation.
The economic interest test outlined in the Bill is of particular concern, as not only is it unique to most WTO countries, but it appears to be tipped towards the consumer and against the producer; it is absolutely out of balance. It is far too wide and gives unprecedented powers to a Secretary of State for International Trade who has already advocated lowering food standards and weakening workers’ rights. The Bill does not state the duration of the remedies that would be in place, whereas the EU currently stipulates five years. Nor is the Bill clear about the rolling over of specific EU trade remedies that are set to expire and that must be replaced by the Secretary of State or whole sectors would be left vulnerable. Those are just a few of the concerns that the Opposition have with the trade remedies outlined in the Bill, and we will raise them further and seek to amend them in Committee.
As I mentioned, the Opposition recognise the need for effective customs and tariff arrangements, which will guarantee the frictionless movement of goods at UK ports. The ability to levy customs duty and VAT as well as to protect manufacturing and key industries when the UK leaves the EU is also important—
Angela Smith
I feel that it is very necessary to ask this question, given that a majority of Labour Members are in favour of staying in the customs union: can our Front-Bench team confirm whether or not they are in favour of staying in the customs union?
Peter Dowd
My hon. Friend knows that that matter has been debated on many occasions, and I am not going to go there.
The trade remedies outlined in the Bill are woeful and will not protect UK manufacturing and jobs. Similarly, the Government have failed to provide any clear indication alongside the Bill that they will properly fund and staff HMRC to make sure it can effectively manage our customs and tariff regime post Brexit. This is yet another poorly drafted Bill from an increasingly chaotic and divided Government, who seek to award themselves unprecedented power and shield themselves from any parliamentary scrutiny. That is why I urge colleagues from across the House to support our reasoned amendment.
Finance (No. 2) Bill
Peter Dowd ExcerptsMonday 18th December 2017
(8 years, 1 month ago)
Commons ChamberRead Full debate Finance Act 2018 View all Finance Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 18 December 2017 - (18 Dec 2017)
Mel Stride
I would maintain that the banks are indeed being treated rather differently from other sectors of the economy, not least—as I have been at great pains to point out this evening—because they are being taxed far more heavily than other types of business. On a fundamental issue of principle relating to tax confidentiality, it would not be right to single out any particular bank, whatever its history, to make an example of it and treat it differently from other financial institutions.
The changes in this schedule are part of a package of measures that provide a sustainable basis for raising revenue from the banking sector in the long term. These measures continue to apply additional taxes to banks, to reflect the special risk that they pose to the UK economy. They put the taxation of banks on a more certain and sustainable footing to ensure that the banks will continue to pay additional tax, and they reduce the impact of the bank levy on UK banks’ international operations. In doing this, we will ensure their continued health and competitiveness, which are essential for us if we are to go on raising yet more tax from our banking sector. I commend the clause to the Committee.
Peter Dowd (Bootle) (Lab)
I rise to speak to the amendment and new clauses in the name of my right hon. Friend the Leader of the Opposition and others. Banks have a crucial role to play in the proper and smooth functioning of our nation’s economic wellbeing. In addition, it is important to ensure that the banks are not all lumped together with a one-size-fits-all approach for the purpose of a bank-bashing session, as was suggested by Conservative Members. Further, it is neither reasonable, fair nor sensible to homogenise the people who work in the banking sector as either saints or demons. Neither beatification nor demonisation of the banks is appropriate; it does no credit to the complexity of the landscape facing us. It is important when dealing with fiscal issues relating to banks that we keep a sense of proportion during the process. That is why it is important to ensure that, in an objective sense, we examine the context in which the Government have decided to cut the take from the bank levy. So, what is that context?
Alberto Costa
Will the hon. Gentleman be fair enough to confirm at the Dispatch Box that since the Conservative party came into government in 2010, the tax take from the banking sector has increased, especially since 2015?
Peter Dowd
I will come to that in the course of my speech.
I was asking about the context for these measures. First, there is the political context; then there is the ideological context. Politically, we saw a new low for the Government last week. We witnessed an increasingly weak and ineffectual Prime Minister being pulled between the troika of the Democratic Unionist party, her hard-line Front-Bench Brexiteers and, latterly, rebels on her own Back Benches.
Leo Docherty (Aldershot) (Con)
The hon. Gentleman mentioned ideology. The shadow Chancellor is on record from 2013 as being a self-declared Marxist. Does the hon. Gentleman share that ideology? Is he a Marxist, too?
Peter Dowd
The hon. Gentleman is nothing if not persistent in asking that question. We are dealing with the bank levy, not the political opinions of the shadow Chancellor. I will be happy in due course to pitch our policies against those of the Conservatives.
Alex Burghart
Does the hon. Gentleman regret the fact that his party opposed the bank levy when this Government introduced it in 2011?
Peter Dowd
I will come to that in due course as well, if I may. I am beginning to think that my staff have been leaking my notes. I shall have to have words with them.
Last week, in true one nation mode, the right hon. and learned Member for Beaconsfield (Mr Grieve), among others, gave the Brexit Front Benchers every opportunity to acquiesce to his reasonable requests. In effect, he tried to give them a “get out of jail” card, but they could not take yes for an answer, and the remnants of the Government’s credibility went down the pan. There is a civil war going on within the Government, and this goes to the heart of the matter. The Government are throwing everything into the mix to try to distract us from the civil war that is going on in the Tory party.
Alex Chalk
I am grateful to the hon. Gentleman for talking about civil war. By contrast, in the interest of showing the solidarity among Labour Members, does he agree with the shadow Chancellor’s listing of his hobby in “Who’s Who?” as
“generally fermenting the overthrow of capitalism”?
Peter Dowd
I know that the hon. Gentleman was disappointed when he was unable to ask that question last week because the Whips wound up his ability to do so. The reality is that that is of absolutely no relevance to the matter in hand. It does not matter; it is a complete irrelevance. We are in danger of getting swamped by red herrings.
Dan Carden
On the topic of the shadow Chancellor, it was he who called for an independent assessment of the bank levy, the balance between fairness and competitiveness, and how the Government’s calculation was arrived at. Does my hon. Friend support the shadow Chancellor in that call?
Peter Dowd
Of course I am more than happy to support the shadow Chancellor, because that is the very point that we are trying to make—[Interruption.] I referred to red herrings a moment ago, and I hear Conservative Members mentioning Marxist herrings. That is very witty; it is nice to hear a witty comment from the Conservative side on occasions.
Rachel Maclean
The hon. Gentleman refers to red herrings, but surely the views and political ideology of his shadow Chancellor are relevant. I will therefore give him another opportunity to answer the question: is he a Marxist, like his fellow shadow Treasury spokesman? Does he agree with that ideology, or is there civil war in the Labour party as well?
Peter Dowd
I think that the shadow Chancellor is more interested in Groucho Marx than Karl Marx, quite frankly.
James Cartlidge
It is very kind of the hon. Gentleman to take so many interventions on the trot. [Laughter.] This is not a minor issue. Let us not forget that Marxism destroyed the economy of half our continent. I very much admire the hon. Gentleman, but he did mention ideology in the first place. It is therefore not only in order for me to raise the question in his terms, but pertinent. Is he a Marxist—or is he perhaps a Leninist, a Bolshevist, or an adherent of one of the various other isms?
The Temporary Chair (Sir Roger Gale)
Order. It may be in order in the hon. Gentleman’s terms, but it is not in order in my terms. I should like to return to the bank levy.
Peter Dowd
Thank you for bringing us back to the land of reality, Sir Roger. I very much appreciate it.
Mr Jim Cunningham
Let us get real and say to the Government that at the end of the day, when we are in government, our Chancellor will carry out the policies of that Labour Government, whatever his personal views are. More importantly, many comments have been made about the previous Labour Government tonight, but the previous Chancellor said that it was not the Labour Government who created the financial crisis. If we had not capitalised the banks, many of those on the Conservative Benches would be in the poorhouse today.
Peter Dowd
As ever, my hon. Friend makes a reasonable point. The Government are so lacking in confidence that they are gerrymandering Public Bill Committees to reflect their control-freakery. We have to ask ourselves how long the Government can treat the House with such disdain. It is the kind of disdain that saw the Government ensure that there was no amendment of the law resolution, which has deliberately restricted the scope of the Bill and effectively limited parliamentary scrutiny and debate. [Interruption.] A Whip says from a sedentary position that that has happened before, but the procedure is used rarely and not in these circumstances. It is the Government’s control-freakery and fear of scrutiny that makes them do such outrageous and virtually unprecedented things.
Perhaps if the Bill set out a bold plan—let us call it a long-term economic plan—to get the economy back on track, we could all put up with the Government’s guileful procedural gymnastics. However, as I said on Second Reading, there is little in the Bill to solve the growing problems facing our economy—from sluggish growth and slow productivity to a lack of investment in our infrastructure and our people. The Government have instead decided to dedicate their efforts to offering the banks another tax break by further limiting the scope of the bank levy, ensuring that from 2020 UK banks will pay the levy only on their UK balance sheets, not their overseas activities. It is the same old Tories looking after the same old interests.
Alex Burghart
I am very grateful. I want to give the shadow Minister another opportunity to answer the question. Does he regret his party’s decision to vote against the bank levy in 2011?
Peter Dowd
I will come to that in a moment. In future, if two hon. Members want to make an intervention at the same time, they should perhaps have a ballot.
Leo Docherty
The hon. Gentleman mentioned tax. If we had a Labour Government, by how much would corporation tax rise?
Peter Dowd
We discussed this issue last week, but the bottom line is that we are here to talk about the tax policies of the Government, not the Labour party. I suggest that the hon. Gentleman reads “Funding Britain’s Future”, which we call the grey book. As I said to one of his colleagues last week, I am not his research assistant. The Independent Parliamentary Standards Authority provides the hon. Gentleman with enough money to employ his own research assistant, so he should not need a shadow Minister to do his research for him.
Labour’s position on the bank levy has been clear. We have consistently argued for a higher bank levy and pointed out that the levy, introduced in 2011, would raise substantially less then Labour’s bankers’ bonus tax. In short, we have always stood against the Government’s divisive austerity agenda. That was why we voted against the 2011 Finance Bill, which introduced the bank levy along with cuts to corporation tax and tax giveaways for the most well-off. That was also why we voiced our concern in 2015 over the Government’s cuts to the bank levy and the introduction of a corporation tax surcharge. It is why we will vote against the measures in the Bill.
Alex Burghart
Given the hon. Gentleman’s love of punishingly high corporation tax, does he not regret supporting the corporation tax surcharge on banks in 2015, when he was in the House?
Peter Dowd
No matter how many times Government Members ask rather tangential questions, I will not be drawn down that particular avenue, much as I would love to have that debate with the hon. Gentleman. The bottom line is that we have always stood against this Government introducing austerity measures at the same time as giving banks a tax cut. That is what it comes down to.
Peter Dowd
No, I will push on for a moment.
It is worth pointing out that the bank levy was not the brainchild of a Conservative Government. It was not introduced by the previous Chancellor after he had listened to the clear public outrage aimed at the reckless decisions made by some in the banking sector, who plunged the world into one of the greatest economic crises in modern times. As much as Government Members would like to blame the Labour Government for a world financial crisis, that is stretching credibility a little too far. [Interruption.] It is nice to see that the Chief Secretary to the Treasury is shouting across the Chamber, but I cannot quite hear her, so if she wants to intervene—or shout a little louder—so that I can actually hear her question, I will be more than happy to answer. It is nice to see her in the Chamber.
Mr Jim Cunningham
It is probably right to look at the history, rather than listening to the made-up stuff coming from Conservative Members. Let us be clear that the financial crisis started with Lehman Brothers in America. We recapitalised the banks, and we kept our triple A rating so that we could borrow to bail out the banks in the first place. The Government are trying to take the credit for something that they did not do.
Peter Dowd
My hon. Friend is right. Conservatives always try to take the credit. They take responsibility for the good things and no responsibility for the bad things—it is the way they are made.
The banking levy was not designed to ensure that the banks received enormous and unprecedented bail-outs from the taxpayer, such as the £76 billion of shares the Government purchased in RBS and Lloyds. It was designed to make them pay their fair share. In fact, the very concept of a levy was developed at the G20 summit in Pittsburgh in 2009. It was championed by the previous Labour Government, who subsequently introduced the bankers’ bonus tax. In the coalition’s 2011 austerity Budget, the Government decided to dump the bankers’ bonus tax and adopted the bank levy. At the time, Labour made it clear that the levy threshold was far too low in comparison with the money that would be raised if the Government stuck with Labour’s bonus tax. Instead, Ministers wilted under pressure from the banks and set the levy at a puny £2.6 billion.
James Cartlidge
The hon. Gentleman is talking about where the bank levy came from. I remind the Committee that it was actually Geoffrey Howe who introduced a deposit levy in a Budget in the early ’80s as part of his stabilisation of the financial system inherited from a previous Labour Government.
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
If we are talking about the 1980s, let us remember that corporation tax spiked to over 50% in 1983 under a Conservative Government. Government Members are giving us lectures, but they should perhaps look at their own history rather than judging ours.
Peter Dowd
That is a fair comment.
The threshold was established despite Treasury officials considering it to be far too low. Under the original plans, the levy would have raised £3.9 billion a year—nearly £1.5 billion more than £2.6 billion—but the Government of the few ensured that the threshold remains low.
At 0.078% for short-term liabilities and 0.039% for long-term liabilities, the level set was—not to put too fine a point on it—an embarrassment when compared with that in other countries that introduced a similar levy. It was less than a third of France’s level, substantially smaller than Hungary’s, which was set at 0.53%, and even lower than that of the USA. They are all well-known Marxist countries.
In 2015, under pressure from the Minister’s and the Government’s chums, once more the then Chancellor cut the bank levy rate, and the current occupant of No. 11 has continued on that sojourn. In so doing, he has ensured that, by 2020, the UK’s biggest banks will have received a tax giveaway worth a whopping £4.7 billion. That is £4.7 billion that could have been spent on our public services—notably on children’s services, for example.
Stephen Kerr
It is all well and good for the hon. Gentleman to say what he is saying, but he is neglecting a simple fact. The financial sector is paying 35% more in tax today than it did in 2010 under a Labour Government.
Peter Dowd
Yes, because the sector returned to profitability after a Labour Government supported it throughout. That is why the sector has returned to profitability. Ultimately, if a Labour Government had not gone in and supported the sector, there would have been no banks, no profits and no tax whatsoever. I remind the hon. Gentleman of that one.
Alex Burghart
I am enjoying the hon. Gentleman’s potted Marxist history of the past 10 years. There seems to be a little bit of history that he has forgotten, which is of course the lax and inappropriate regulatory regime that the Labour party introduced under Ed Balls. That regime contributed to the terrible state in which our banking sector was left after 2008. Perhaps the hon. Gentleman would like to remind the Committee and his party of that.
Peter Dowd
First, we did not regulate the banks in the United States, where it all started. I ask the hon. Gentleman—I have said this a number of times—to go and look at “Freeing Britain to Compete,” the document produced by the right hon. Member for Wokingham (John Redwood) for the shadow Cabinet in, surprisingly, August 2007.
The Chief Secretary to the Treasury (Elizabeth Truss)
They were not the Government.
Peter Dowd
“They were not the Government” is shouted across the Dispatch Box, but that brings me to the point I am making. The bottom line is that chapter 6 of “Freeing Britain to Compete” called for significantly less regulation of the banks. As I have said before, the right hon. Member for Wokingham effectively said in that document that the Labour Government at the time believed that, if we did not regulate the banks, they would steal all our money. Many people out there believe that that is, in effect, what happened. The taxpayer had to bail out the banks. Why did the taxpayer have to bail them out? Because of the lack of regulation. The shadow Cabinet at the time ratified a policy of less regulation. If we had followed the right hon. Gentleman’s exhortations, as ratified by the shadow Cabinet, we would be in an even worse state. I ask the hon. Member for Brentwood and Ongar (Alex Burghart) to go and have a look at that one.
Rachel Maclean
The hon. Gentleman is discussing the strictures and exhortations of my right hon. Friend the Member for Wokingham (John Redwood), who was then an Opposition Back Bencher. Surely the hon. Gentleman must recognise that it was the Labour party, in government, that deregulated the banks and took power away from the Bank of England. Whatever my right hon. Friend may or may not have said—he is an incredibly intelligent and learned person—he was not in government and was not making policy. It was the Labour Government who made the policy to deregulate and allow the financial crisis by taking away strength from the Bank of England at a time when it should have been strengthened.
Peter Dowd
If the hon. Lady wants to take back to the Conservative party the independence of the Bank of England, she should feel free. We will not support it— [Interruption.] That is what I heard her say. She was complaining about the independence of the Bank of England. So a new policy has been introduced by the Conservatives to take away the independence of the Bank of England.
To offset the cuts to the bank levy, the Government introduced the 8% corporation tax surcharge, which they falsely claimed would offset the reduction. If we look at their Red Book and the forecasts from the Office for Budget Responsibility, however, we can clearly see that the surcharge will not make up the fall in the bank levy. Under the forecasts, the surcharge is set to increase by £0.3 billion a year, while the receipts the Exchequer receives from the levy will fall by £1.7 billion a year, which is a £1.4 billion gap. That is a fact. That is in the Government’s own Red Book.
Dan Carden
I am grateful to my hon. Friend and constituency neighbour for giving way. There is a lot of displacement activity coming from Conservative Members in the form of interventions. This is the second debate I have attended on the Finance Bill in which not one Conservative Member has mentioned living standards, wages, public sector pay or any real life conditions.
I encourage my hon. Friend to carry on with his speech and to talk about the review that should take place into the bank levy and the real life consequences of this Tory Government’s policies.
Peter Dowd
I thank my hon. Friend for his advice, which I will take.
In 2017, we are still feeling the effects and economic consequences of the actions of the banks. Every day we are told by the Government that there is no money to invest and that austerity must continue, yet the Government have gone out of their way to undermine any remuneration from the banks that caused this sorry state of affairs in the first place.
Once again, the Opposition’s ability to amend this Bill is hamstrung and limited by the Government’s continued use of arcane and outdated parliamentary procedure. In football parlance, not only have they moved the goalposts but they have put boards across the goalmouths so that the Opposition cannot score any goals—a recreant act, if ever there was one, from a pusillanimous Government frightened of their own shadow.
By tabling new clause 1, we seek, first, to require the Government to carry out a review of the bank levy, including its effectiveness in relation to its stated aims—Sir Roger, you will be glad that we are back on the bank levy. Secondly, we seek to establish the extent of the revenue effects of the cuts made in 2015. Thirdly, we seek to calculate how much would have been raised if the Government had stuck with Labour’s bankers bonus tax. Let us have the comparisons.
Such a report would shine a light on the Government’s malpractice in cutting frontline services while offering tax giveaways to the banks. It would require the Minister to reassure the House directly that certain banking practices are not simply in hibernation. “Once bitten, twice shy” is a fair assessment of most people’s views, including many in the sector itself. A by-product of the process would be to show that far more would have been raised under Labour’s bankroll tax.
We are also calling for a separate review of the changes introduced by clause 33 and schedule 9 and their overall impact on revenue and risky behaviour. That review would make the Treasury explain the rationale for further limiting the scope of the bank levy and forgoing billions of pounds while, at the same time, pushing for more cuts to departmental budgets and frontline services.
It is, of course, unsurprising and indicative of the Government that they have failed to keep track of the banks that regularly pay the levy and a full list of what they have paid. That is why, in the name of transparency—a very novel concept for the Government—we would ensure fiscal accountability. The Opposition have tabled an amendment that seeks to create a public register for the bank levy.
The Minister talks about commercial sensitivity. Well, that old chestnut is brought out time after time. When we supported the banks with billions upon billions of pounds, nobody talked about commercial sensitivity then. In this particular case, I am sure many in the banking sector would be happy to have such transparency. It is shocking that the Government consider this tax cut for the wealthy few to be a good use of nearly £5 billion.
Alongside demanding that the Government change course, we must also understand the impact of the lower levy rate introduced in 2011, as well as the revenue effects of lowering the levy in 2015. That, among other things, is what our amendment seeks to tease out.
Robert Jenrick
I am confused by the hon. Gentleman’s position on the bank levy. He says that he voted against it in 2011 because it was set at too low a threshold, but between 2011 and 2015 the then Chancellor raised the bank levy seven times and, on each occasion, the Labour party voted against it. Why did it do that?
Peter Dowd
I suggest that the hon. Gentleman goes back and reads Hansard when it is printed to see exactly what I said.
Once we can see the true costs of the Government’s policies, we can grasp the extent of the choices they have been making and how they have favoured a small, wealthy group over the many citizens of this country time and again. Let us look at the example of children’s services. Only a week before the Budget, the chief executive of Action for Children, Sir Tony Hawkhead, described the “devastating cost” of cuts to children’s services, which he said have been left on a “dangerous and unstable” footing. These prevention and protection services are vital to provide proper care for our nation’s children, and the banking levy could help with that, yet we have seen deep cuts of 55% of funding for local government and a gap of £2 billion in funding by 2020.
There is widespread talk and reports of local councils having to seek permission from the Government to raise council tax to cover the costs, in effect, of cuts to the bank levy—this money may have been available for children. So cuts to bankers and council tax up seems to be what we are being told today. As these services have been decimated over the past seven years, we have seen a doubling of serious child protection cases and twice the number of children put into care protection plans. Last year, 70,000 children were placed into care. The support for foster care, adoption and Sure Start children’s centres has all been reduced. Youth centres are closing and parenting classes are being axed. Short breaks for disabled children, provided by local councils to give their parents a little respite from full-time care, are being taken away and are under strain.
Taken together, those cuts mean that some of the most vulnerable children in our country are paying the price for seven years of failing economic strategy. When are the Government going to change their strategy? It is still shocking to see the Government put the needs of others ahead of those of our youngest citizens, who are picking up the bill for austerity
Alex Burghart
Will the hon. Gentleman not acknowledge that, as we have reduced the rate of corporation tax, so revenues have increased and there is now more money to spend on public services than there would otherwise have been? Does he not acknowledge that there is a real risk that, if his party were to increase corporation tax rates, there would be less money coming in, and cuts to public services and so on would be on his party’s head?
Peter Dowd
In short, no. The Institute for Fiscal Studies has made no link whatsoever between the rate of corporation tax and tax take. This is one of these myths that have been presented to the House time after time, which in the main we have tried to ignore, but at some point we have say that it is complete and utter claptrap, not to put too fine a point on it.
The banking surcharge, supposedly introduced to compensate the taxpayer for this levy loss, will not come close to making good the difference. The Chancellor still has a choice though: he could reverse the cut to the bank levy and end the crisis in our children’s services instead.
It is increasingly clear that the oldest political party has run out of steam.
Lucy Frazer (South East Cambridgeshire) (Con)
Does the hon. Gentleman therefore think that France’s recent proposal to cut taxes for higher earners in order to woo bankers over to France is an incorrect policy, and that France has got it wrong because low taxes do not encourage investment and growth in a country?
Peter Dowd
The only thing that is going to attract people over to France is the shambles that the Government have made of their Brexit negotiations. That is a significantly bigger factor than, for example, the banking levy.
Gareth Snell
France has a corporation tax rate of 33%, so I am not entirely sure the point the hon. and learned Lady was making is valid. Would my hon. Friend care to comment on that?
Peter Dowd
My hon. Friend is right on that. Other countries, including the United States, have a corporation tax of 36% and the German rate is higher than ours, so even if we went back to the 2010 level of 26% that we had under a Labour Government, we would still have the lowest rate of all our competitors. That is the reality. Interestingly, they are doing much better than we are, notwithstanding that higher level of corporation tax.
Stephen Lloyd
Does the hon. Gentleman agree that the Conservative party continues to cut corporation tax aggressively, but that perhaps next year rather than cutting it still further it might take that money to ensure that the WASPI women—the Women Against State Pension Inequality Campaign—get a fair transition payment?
Peter Dowd
There are many, many calls on the taxpayer, and that is one of them. The Government would do well to pay attention to the exhortations of the hon. Gentleman.
Peter Dowd
I am more than happy to give way in relation to corporation tax, but it is important that I maintain the theme of the austerity project. It has not led us to prosperity. It has delivered misery for this country, yet the Government stick to the same old rules: tax breaks for wealthy bankers and cuts for the rest of us. It is like a stuck record.
James Cartlidge
I am sure that, coming from where he does, the hon. Gentleman takes a close interest in the Republic of Ireland, a country he has not mentioned. Is he aware that, by keeping its corporation tax rate low, it has revolutionised its economy and become an export tiger, and that that has been a key factor in helping it to recover from the crash?
Peter Dowd
Huge amounts of support from the European Union have revolutionised the Irish economy. My forebears came from Ireland, but I do not think even the Irish would compare themselves as a small country of 3.5 million people or thereabouts with the United Kingdom with its 60 million—this is chalk and cheese. The hon. Gentleman will appreciate that that is a ridiculous comparison to make in the debate.
Our amendment will finally help to demonstrate the true cost to the public purse of the Government’s favourable approach to some. In that way, we can understand exactly what the cost in revenue is. This should be all the evidence the Government need to change course—things simply are not working. Productivity is low, inflation is up, wages are stagnating, public services are in absolute decline and the NHS is under strain, as is social care, yet the Government just do not get it. They seem to think that we live in Shangri-la, but, unfortunately, we do not. We know that the Conservative party relies on support from vested interests for its own survival, but the question we must ask ourselves is: should the survival of a clapped out, atrophying, self-centred, out-of-touch, diminished Tory party take precedence over the needs of children? I know the answer, so I will simply leave Conservative Members to answer it in the silence and solitude of their own consciences.
Stephen Kerr
It is my great privilege to follow the hon. Member for Bootle (Peter Dowd), whose speech was greatly entertaining, if a little devoid of something approaching accurate history. We were treated to a festival of revisionism on this country’s economic history over the past 10 years. I did agree with one thing he said—it was almost the first thing he said—which was that it is wrong to create a single category to describe bankers. He alluded to the fact that some may be called saints and others may be called sinners—he may have said that, but I cannot recall exactly the term he used—and that is undoubtedly the case, so to generalise about banking and bankers, as we often hear Opposition Members do, is extremely rash.
As for culpability for the events from the end of 2007 to 2009, the hon. Gentleman may wriggle on the issue, but the fact is that the Labour Government were indeed culpable, as were other politicians of that time who were holding senior office in this country, including the then First Minister of Scotland, Alex Salmond, who positively encouraged the Royal Bank of Scotland to engage in some of the more reckless initiatives that the leadership of that bank were engaged in. The result was that not only did they upend a great Scottish institution, but they nearly upended the whole United Kingdom economy.
Stephen Kerr
I thank the hon. Gentleman for his comment. In fact, I have made representations to Ministers—as have my colleagues on the Government Benches—because of the impact that the closure of the bank branches, particularly the recent announced closures of the Royal Bank of Scotland branches, will have on communities such as the one from which I come in Bridge of Allan. I do have concerns about the capabilities of the Post Office branches to be able to deal with the kinds of cash amounts that they will now have to handle. It is a different scale of operations that they will have to be prepared to lift themselves to. Yes, I have made representations, and I will continue to do so. In fact, there is an Adjournment debate on the subject following these debates.
Peter Dowd
Does the hon. Gentleman agree that using state money to keep banks open in local communities amounts to Marxism?
Stephen Kerr
Well, I have mentioned what I did in my earlier years. In all those years, I was never accused of being a Marxist. I am concerned when communities become devoid of a basic service, such as a bank branch of any description. Frankly, I consider it to be unacceptable. These banks have had so much money from the British people and have been bailed out by them. I have already mentioned the recklessness of the banks, particularly of the Royal Bank of Scotland, for which I do not apologise.
I should say that I did actually work for the Royal Bank of Scotland when I left school. Perhaps I should have mentioned that earlier. [Hon. Members: “Yes, you should.”] I was 16 at the time. I was a junior bank officer for RBS at the East High Street branch in Forfar. The Royal Bank of Scotland is a great institution. I just pause to pay tribute to its staff because they do a great job, and they have done a great job over these past 10 years in particular in very great difficulties. I pay them my compliments for that. Nevertheless, it does not excuse the Royal Bank of Scotland. In addressing the bank levy, it is important to remember that the greed and the calumny that they were guilty of means that they owe the British people something more. I fully acknowledge that that something more has been extracted and is being extracted, but I also think that there is a case for them having the social responsibility to maintain a presence in the communities of my constituency, such as in Bannockburn, Dunblane, Bridge of Allan and the rural parts of the constituency. I am afraid that a mobile bank does not quite meet the need.
The other consequence is that many more empty units are appearing on our high streets. That is on top of the units that have been left empty by the Scottish Government and their inaction on business rates. I was about to say, Sir Roger, that I wish that I could show you the picture of King Street in Stirling, but, in retrospect, I am glad that I cannot, because there are so many empty units and so many “to let” and “for sale” boards. That is a situation that leaves someone such as me, who loves Stirling and the great history of my constituency and everything that it stands for, more than a little concerned. There is a feeling that we need to see a change in this respect. Certainly, when the banks, which are 72% owned by the taxpayer, decide to vacate these prime sites, it leaves a big hole at the heart of these shopping centres and communities.
James Cartlidge
I never talked about fecklessness or being immoral. I was talking about the economic fact that the savings ratio was dangerously low throughout much of the Labour Government’s time in office, and they were warned about it. Labour Members are saying that we never said anything, and that simply is not true.
The hon. Lady seems to think that Labour had good policies on debt. I remember when someone could get a self-certified mortgage, with no proof of income, on an annual percentage rate relating to bad credit, so they could have a history of failing to pay debt. Not only that, but it was interest-only, so they were not even repaying the capital. There was a whole menu of different types of sub-prime such as light-adverse, medium-adverse or heavy-adverse. As I have said before, basically the question was, “Do you have a pulse?”, and then one got a mortgage.
Peter Dowd
Will the hon. Gentleman simply acknowledge that in August 2007 the Conservatives had a policy of significantly more deregulation, including of the banks, and that was ratified by the Tory shadow Cabinet at the time?
James Cartlidge
I do not accept that. Those mortgages were being advanced. The FSA knew about them and the Government knew about them. The fact is that when you are in charge of the financial system, you have a responsibility to act in a prudent manner. The Governor of the Bank of England always says, “Your duty is to take the punchbowl away when the party gets started.” The problem was that when the party got started under the new Labour Government in terms of debt and borrowing too much, they did not take the punchbowl away—they came out with a new round of tequila slammers, and when that was not enough, they brought out the Jägerbombs, until in 2008 we had the biggest hangover in our history, with the crashing of our economy on the back of the most reckless oversight of financial regulation that this country has ever seen.
James Cartlidge
I did say that I would come to the current position on credit. I want to finish on the analysis of the three tenets in new clause 22 under which Labour says that we should consider how the bank levy has worked. According to subsection (2)(c), we should look at it in terms of
“encouraging banks to move away from riskier funding models.”
It is quite amusing to see a Labour new clause that contains the phrase
“encouraging banks to move away”.
My colleagues will appreciate that the whole point of reforming the bank levy is not to encourage banks to move away, but to encourage them to stay here and create wealth and jobs. Let us not forget that in all the figures we have heard about, we have not heard the key one. Banks contribute £116 billion of value added to our economy, not including any of the tax take.
Peter Dowd
We have talked about the rewriting of history. The Shadow Cabinet at the time—we are talking about what happened at the time—said:
“We need to make it more difficult for ministers to regulate, and we need to give the critics of regulation more opportunity to make their case against specific new proposals.”
The Conservatives’ direction of travel at that time was towards not more regulation, but less. Does the hon. Gentleman acknowledge that at all?
James Cartlidge
All the financial plans of that shadow Government would have been about fiscal prudence, and the context would have been completely different. The Labour Government crashed the economy on every single front, which is why we are where we are today.
There is one final point I want to make. We had a wide-ranging discussion earlier about Marxism, which I thought particularly intriguing. We have to decide, as a country, whether we want to be a flourishing free enterprise economy or a centrally commanded one in which everything remains in, or is taken into, the public sector. When the banks were nationalised, they were bailed out on the basis of rescuing the economy from an extreme threat that could have left us resorting to barter. The point is that we have put the banks on a stable footing so that they can flourish again and become competitive businesses. The bank levy, to me, is about striking a balance but having a competitive financial services sector to drive our exports and growth, and that is why I will be voting to support it.
Robert Courts
It is a great honour to speak in the debate on this very important matter, and particularly to follow the hon. Member for Bristol South (Karin Smyth). She made some very interesting points, and I am glad that she supports many of the technical education measures that the Government are bringing in. I entirely agree with her that this is one of the great challenges the country faces, and I applaud the Government’s work in setting out a framework for technical education in the future.
I want to talk directly about the bank levy. All hon. Members on both sides of the House probably accept that it is very important for the banks to pay a fair contribution towards public services and the tax yield in this country. They are significant employers with significant operations and they are wealthy and profitable enterprises, but it is very important to have a balance. Such a balance throws into relief the fact that banks are responsible not just for being profitable and therefore for paying tax, but for introducing liquidity into the system and enabling us to borrow.
If any hon. Member has ever borrowed to buy a car or a house or to invest in a business—many of their constituents will of course have done so—the money will have come from a bank in most cases. It is very important that banks are enabled to provide precisely that service, so there has to be a balance. Yes, they must pay a fair share towards the economy and society in which we all live, but that share should not be so large that their ability to lend is decreased. I suggest that this Government have got the balance right. In 2010, the Conservative coalition Government increased regulation, and in 2011 they introduced the bank levy, which reflected the risk inherent in the banking sector. It is an inherently risky sector because of the very nature of the way in which it operates, and the bank levy was introduced precisely to recognise that risk. It was introduced to incentivise the banking sector as it then was to invest in a way that was less risky than the ways in which it had operated up until that time.
That spirit of balance, which is the keynote point of my few remarks this evening, is why we need reform now. There is a gradual shift from the levy to taxing profit, recognising that the regulatory regime globally, as well as in this country, has moved on considerably since it was introduced. Since 2016, we have had an 8% tax on bank profits—the corporation tax surcharge—which will raise £9 billion between 2017 and 2022. The bank levy rate will be reduced to 0.1% over the same period. Of course, there is the additional fairness brought by ensuring that the levy affects only UK balance sheets. UK-based banks must never be disincentivised from being based here, rather than being based abroad and operating here. We can make those changes now because of the improvements in global regulation.
Members from all parts of the House should recognise that it is important that we, as politicians, do not become too fixated on the rate of taxation, but rather look at the revenue that is earned. I suggest that this Government have got that balance—that key focus—correct. That is the economic paradox of taxation rates. We heard about the Laffer curve from my hon. Friend the Member for Stirling (Stephen Kerr). If there is 0% tax, 0% taxation is received. If there is 100% tax, 0% taxation is received. The point is where precisely the balance is struck. I suggest that the Government have got it correct.
The measures that we have brought in since 2015 have introduced an additional £7 billion through to 2023, bringing in a total of £30 billion over and above what would have been brought in through corporation tax in any event.
Peter Dowd
I am not quite sure that the hon. Gentleman is correct about that, because the Institute for Fiscal Studies states:
“Cuts to corporation tax rates announced between 2010 and 2016 are estimated to reduce revenues by at least £16.5 billion a year in the short to medium run.”
Even the Treasury’s own figures show that the cost has been significant.
Robert Courts
I simply do not accept that point, with the greatest of respect to the hon. Gentleman. It is quite clear that the reduction in corporation tax, which I am glad he has mentioned, has led to an increase in revenues over that period. It is accepted that GDP is expected to increase by 1.3% in the long run. The receipts have increased by 50% since the Government have been reducing the corporation tax rate, from £36 billion to £55 billion between 2010 and 2016. That is an increase to £55 billion going to the Exchequer over that period.
Robert Courts
It is exactly the same principle with personal taxation. My hon. Friend makes an absolutely outstanding point. He is quite right and we must not forget that the principle is the same for personal taxation as it is for corporation taxation. Not only is the tax yield increasing, it is also borne by those who earn the most. It is indeed progressive and, I would hope, something all Members could support.
I know other Members wish to speak, so I will conclude with this point. An Opposition Member suggested that no one on the Government Benches has spoken about wages, public services and so on. I would very much like to concentrate on them in these last few seconds of my speech. It is through our tax regime, the sensible taxation policies that this Government have put in place since 2010, that we are now able to see an increase in—
Peter Dowd
Given those sensible taxation levels and rates, will the hon. Gentleman explain why productivity is the lowest of all our competitors, inflation is higher than our competitors, wage stagnation is almost becoming endemic, investment is slower, and economic growth is on the floor? If having these so-called lower rates of tax is such a fantastic opportunity for businesses, how come we are still in this particular situation?
Robert Courts
I am grateful, as ever, to the hon. Gentleman for making his points. He makes a number of them and it will not surprise him that I do not agree with him. We have record investment, an extraordinary economic miracle and a jobs miracle. We are still having to recover from the economic mess the Labour party left us in. There is absolutely no two ways about it: the Labour party left us with record levels of national debt.
Our economy is seeing an increasingly benign environment. That has been made possible by the sensible taxation measures the Government have allowed to take place and have sponsored. It is through that tax regime that there is more to spend on public services: companies can look to increase wages, hire more staff, pay more tax and thereby fund the public services we all need.
Draft Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2017
Peter Dowd Excerpts(8 years, 1 month ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Peter Dowd (Bootle) (Lab)
It is a pleasure to serve under your chairmanship, Mr Paisley, and to speak this afternoon. As the Exchequer Secretary said, this measure tidies up the process of public audit for a number of public bodies that no longer exist and brings new bodies into purview. I understand that the Potato Council is one of the victims that has been peeled off to form part of the Agriculture and Horticulture Development Board.
Graham Stuart (Beverley and Holderness) (Con)
You’ve got a chip on your shoulder.
Peter Dowd
I did keep my eyes peeled for this particular issue. I notice there is also one spec-tater in the Gallery.
The Opposition support the order and measures of this nature, but I want to reiterate the importance of transparency and value for money in all our public bodies. The National Audit Office says that its work led to audited savings of £1.21 billion in 2015, which it estimated was its highest level of financial savings to the taxpayer to date, equivalent to £19 saved for every £1 spent. We have to ensure that public auditors have the independence and resources to carry out their job effectively, therefore guaranteeing strong governance.
However, the NAO’s own statement of accounts says that in real terms its net resources are expected to decline by 15% between 2012-13 and 2019-20. While the NAO has made impressive progress in becoming cost-efficient, can the Minister confirm that in future it will receive the level of resources it needs to continue with its high standards of public audit? I hope that was crisp enough for you, Mr Paisley.
Finance (No. 2) Bill
Peter Dowd ExcerptsMonday 11th December 2017
(8 years, 1 month ago)
Commons ChamberRead Full debate Finance Act 2018 View all Finance Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts
Peter Dowd (Bootle) (Lab)
It is a shame that the Chief Secretary to the Treasury is not in her place at the Dispatch Box. Notwithstanding the fact that the Financial Secretary is fantastic at doing his job, we should have the Chief Secretary here today. In my opinion, it is disrespectful to the House that she is not here. I think she is most probably looking for Shergar, frankly.
I wish to use my remarks to convey a message from the British public to this increasingly divided and out-of-touch Tory Government. It is a message that comes from all corners of the UK—from my home town of Bootle, from the city region of Liverpool, from Manchester, Leeds and Newcastle. It is a message from Edinburgh, from Cardiff, and from Kent; from Birmingham, from Oxford, and from Nottingham: from every region. It is a message from people who live in rural communities and urban centres alike. It is a message from public sector workers, private sector workers and those on zero-hours contracts; from the young and the old, as well as all those in between, all of whom have been let down by this Government. [Interruption.] They have been let down by them—private sector workers and public sector workers believe that, and that is why they are turning to Labour. [Interruption.] Conservative Members can laugh until the cows come home, but that is the reality.
It is a crystal clear message to the Tories: enough is enough. People across the country are fed up with this Government’s inaction and economic incompetence—and incompetence is the word. With this shambolic Government, every day—every single day—feels like groundhog day. Day after day, we are told that there are fresh cuts to Departments and that our overstretched public services face even more austerity, while we receive the same empty pledges—we have heard more of them today from the Minister—that at some point in the ever-distant future, the deficit will be eliminated.
Kelly Tolhurst (Rochester and Strood) (Con)
The hon. Gentleman speaks about incompetence from the Government. Does he not recognise, when he is speaking about people travelling towards Labour, that perhaps the Opposition’s incompetence is in making promises that they cannot deliver on?
Peter Dowd
Let us have a general election and we will deliver on those promises.
On Brexit, there is no abating the deep divisions between warring Cabinet Ministers. Within a few hours of the ink drying on the joint statement between the Prime Minister and the European Commission and the agreement to move on to trade talks, we had the Environment Secretary contradicting the Prime Minister and briefing the press that unhappy leave voters can tear up any Brexit deal that is negotiated, while on the Sunday talk shows the Brexit Secretary undermined the Prime Minister further by downgrading the agreement reached to merely a “statement of intent”. Given that there is much talk of a divorce bill, perhaps I can take the matrimonial analogy a little further. Do people make proposals of marriage or simply statements of intent? Did the Brexit Secretary propose to his wife or make a statement of intent?
Charlie Elphicke
The hon. Gentleman’s talk of bills reminds me that the Labour party has made a massive number of pledges and wants to go on a borrowing binge, but 22 times it has failed to explain how it will fund those pledges. It has gone from “You don’t need a number” to “You can’t put a figure on it at the moment” to “It’s not difficult.” May I ask the question for the 23rd time and invite him to tell the House how Labour would pay for its plans?
Peter Dowd
With the greatest respect, I am not the hon. Gentleman’s research assistant. I refer him to Labour’s proposals in “Funding Britain’s Future”. I know that he can read, so I suggest that he should go and have a look at that document.
The Brexiteers in the Cabinet continue to undermine any attempts to progress the talks and compromise with our European partners. We had a bizarre scenario today—everyone telling the Prime Minister how wonderful she was. Last week she was a basket case, as far as I could tell, but this week she is a wonderful woman. The Brexiteers are happy to continue to create economic uncertainty to the detriment of businesses and workers alike.
Dan Carden (Liverpool, Walton) (Lab)
Was my hon. Friend surprised, as I was, that the Financial Secretary did not mention wages once? He did not mention that real wages will not return to pre-crash levels for almost a decade. Do this Government care about people’s wages?
Peter Dowd
The answer to the last question is no, they do not. The Budget proved yet again that the Government are completely unable and unwilling to recognise the challenges that the country faces. The Chancellor and the Prime Minister are instead more concerned about sorting out the Democratic Unionist party and the fringes of the Tory party.
Leo Docherty (Aldershot) (Con)
The hon. Gentleman is presuming to tell us about the opinion of the electorate, but I appeal to him to bear in mind my constituents’ opinion during the rest of his remarks. They fear the unleashing of Marxist mayhem by the shadow Chancellor. Can the hon. Gentleman confirm that in 2013, the shadow Chancellor said that
“I’m straight, I’m honest with people: I’m a Marxist”?
Peter Dowd
The hon. Gentleman can ask as many questions as he likes—[Interruption.] And the hon. Member for Croydon South (Chris Philp) can say “Yes or no?” But the Conservative party is in a state of chaos, it is as simple as that. After seven years, the verdict on Tory austerity is clear for all to see. Economic growth stands at its lowest point since the Conservatives came to power, and it has been revised down by the Office for Budget Responsibility for every year of the forecast. The UK has the slowest growth in the G7, and the Institute for Fiscal Studies has warned of two decades of lost earnings growth. That relates to what my hon. Friend the Member for Liverpool, Walton (Dan Carden) said.
Steve McCabe
I agree with my hon. Friend that the predictions suggest that the economy is not in good shape. Was it not extremely sad and disappointing that we did not hear from the Financial Secretary a word of acknowledgement of the pressures that are being inflicted on public services, such as children’s services? They have been damaged not only by cuts but by Government errors. The Minister did not say a word to suggest that the Government would make reasonable adjustments, even in cases in which they have acknowledged that errors have been made. Birmingham, for example, has lost £100 million as a result of mistakes that the Government now acknowledge, and that is money that could be spent on children’s services and social care.
Peter Dowd
My hon. Friend is prescient, and I will come to the point that he makes in a minute. Let us continue with a few more statistics, because it is worth our while to look at them. The Minister referred to productivity rates, and UK productivity rates have fallen far behind those of the French, the Americans and the Germans. The OBR’s decision to revise down UK productivity rates for every year of the forecast is seismic, and it reflects years of inaction from a Government who have refused to invest in our infrastructure and skills or in the UK workforce.
Rachel Maclean (Redditch) (Con)
The hon. Gentleman is coming out with some excellent statistics, but I hope that he will not forget to mention the jobs miracle that has occurred under this Government. Unemployment is at a 43-year low, which means more people earning money rather than being unemployed under a Labour Government.
Peter Dowd
The Chancellor did not know what the unemployment figure was the other day. Let us put it like this: no matter how many people are in work, the bottom line is that it is not right that they should have low and stagnant wages, poor terms and conditions, zero-hours contracts or insecure work. The Government should be dealing not just with the employment rate, but with terms, conditions and wages.
Grahame Morris
Does my hon. Friend agree that the WASPI women, who had expected to retire at age 60 and who are being compelled to work for another six years, are also furious and feel terribly let down by the Government?
Peter Dowd
My hon. Friend makes an excellent point. The Government have reached the stage where they blame anyone they can. The gaffe-prone Chancellor has blamed disabled people for bringing down the productivity rate. He is so out of touch that such comments are water off a duck’s back to him.
As the Minister said, this is the third Finance Bill of the year. All three of them have failed to address the challenge that our economy faces.
Helen Whately (Faversham and Mid Kent) (Con)
The hon. Gentleman referred to low wages, but he knows that the Finance Bill contains measures to raise the national minimum wage, so we are addressing that. He seems to be reluctant to answer people’s questions, so I want to bring him back to some that he was asked a few moments ago. My hon. Friend the Member for Aldershot (Leo Docherty) asked him a simple question about the shadow Chancellor of the Exchequer, and the hon. Member for Dover (Charlie Elphicke) asked him a clear question about the cost of Labour’s proposals. The answer is not written down anywhere, so may I ask—this is the 24th time—about the amount and cost of borrowing that would result from Labour’s tax proposals?
Peter Dowd
The hon. Member for Aldershot (Leo Docherty) might not like the answer that I gave to his question, but I have referred him to the documentation. If the hon. Lady is incapable of going to the internet and looking up the facts and figures, it is not for me to do that for her. The bottom line is that there is nothing in the Bill for public sector workers, who head into the new year with their wages continuing to fall and the cap sticking.
Alex Burghart (Brentwood and Ongar) (Con)
Will the hon. Gentleman give way?
Peter Dowd
No; I am going to make some progress. Public sector wages are now at their lowest level as against private sector pay for 20 years. Nor is there anything to address the botched roll-out of universal credit, which will cause real suffering to families this Christmas. Similarly, the Bill contains no measures to redress the disproportionate effect of austerity on women, and particularly on black and minority ethnic women. Instead, the Bill proposes a stamp duty cut that will, according to OBR analysis, increase house prices; and it fails to introduce measures to encourage the building of affordable homes to address the housing crisis.
The Bill includes plans to continue with the Government’s 2015 bank levy cut. It goes further, as the Minister seemed proudly to proclaim, by exempting all foreign banks from the levy and ensuring that from 2021, all banks will only have to pay the levy based on their UK balance sheets.
Vicky Ford
Looking back in history, the Conservative-led Government introduced the bank levy in 2011, but Labour voted against it. In 2015, we introduced the 8% surcharge so that banks would pay more. Again, the Conservatives voted for that, but Labour voted against it. Why is the hon. Gentleman now rewriting history?
Peter Dowd
It is not a question of rewriting history. We do not support Bills that continue austerity year in, year out. The Government got rid of the bankers’ bonus tax, which brought in significantly more money than the bank levy. My hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) referred to the bank levy earlier. I happen to have some figures here, which I will share with him if the Minister does not want to answer his question. Taxpayers bought £76 billion of shares in the Royal Bank of Scotland and Lloyds and contributed £250 billion in guarantees, another £280 billion in insurance and a further £100 billion in annual implied subsidy, according to the Bank of England, so we are asking for the bankers to pay a little bit more, after the billions of pounds that we spent on helping to bail them out.
While we are on the subject of regulation, let me say that in August 2007 the right hon. Member for Wokingham (John Redwood) produced a report on “Freeing Britain to Compete”, which was ratified by the Conservative party in opposition. In paragraph 6.1, he said in effect that we should not be regulating the banks so much and that the Labour Government were regulating them too much. He went on to say that the Labour Government claimed that if they did not regulate the banks so much, the banks would “steal” all “our money”. Many people believe that is right, especially when they look at the figures and the facts on the bail-out of the banks.
Leo Docherty
I know Labour Members are not necessarily very good at numbers, but for the benefit of people watching, will the hon. Gentleman say very clearly how much his proposed policies will cost, including the renationalisation of our major industries? Will he give us a figure, and where does he expect the money to come from?
Peter Dowd
I am not quite sure whether the hon. Gentleman is actually listening to anything I say. I am not going to repeat what I have said. If we continue to have spurious interventions like that one, it prompts the question: what is the point? [Interruption.] It is the third or fourth such intervention.
The bottom line is simple: the bank levy will take £4.7 billion less in tax revenue, and this at a time when the crucial services on which many children and families rely are at risk of collapse.
Several hon. Members rose—
Peter Dowd
I will not give way.
In addition to the funding crisis in the NHS, social care and the police, which my hon. Friend the shadow Policing Minister has highlighted so effectively, there is a developing and significant funding crisis in children’s services, which face a £2 billion funding gap by 2020. Last year, 72,000 children were taken into care, while the number of serious child protection cases has doubled in the past seven years, with 500 new cases initiated each day. There are stresses on other parts of children services, including, among others, child and adolescent mental health services, school transport, and education, health and care plans. All are inadequately funded, with the buck passed to professionals who are already hard pressed to manage and deliver services.
Kevin Hollinrake (Thirsk and Malton) (Con)
Will the hon. Gentleman give way?
Peter Dowd
I will come back to each hon. Gentleman in a moment.
All of this is directly linked to the Government’s cuts to local authority budgets, which has meant a 40% reduction in resources for early intervention to support children and families. Central Government funding has also been cut by 55% over the past seven years, representing a cost of about £1.7 billion. The message from the Conservatives is quite clear: if you are a banker, you can expect a handout, but if you are a child at risk, do not expect a hand-up—you are on your own.
Despite the recent revelations in the Paradise papers, there are few serious avoidance measures. The UK accounts for 17% of the global market for offshore services, and the UK is at the heart of a network of offshore tax havens that aid and abet tax avoidance across the globe; yet the Government continue to ignore the Labour party’s calls for a public register of the information already provided by overseas territories or to take any meaningful action to tackle tax avoidance. Similarly, there is nothing in the Bill to address the huge resource crisis that HMRC is facing and the effect of that crisis on its ability to tackle tax avoidance and bring tax dodgers to justice.
Stephen Lloyd
I want to enhance exactly what the hon. Gentleman is saying. Does he agree it was absolutely appalling that the Chancellor of the Exchequer and the Government completely ignored the 5,000 headteachers who said their schools are desperate for more money? The Tories have ignored them.
Peter Dowd
The hon. Gentleman is right. The only people to whom the Government seem to pay attention are the DUP and right-wing Tories.
The bottom line is that, since 2010, HMRC’s staffing levels have been reduced by 17%. The Bill creates even more powers for revenue and customs officers, with even more work, but very little if any resource to go with it.
Gareth Thomas
I know that my hon. Friend is a proud Liverpudlian, but on his point about children’s services, may I tell him—Londoners will agree—that over two thirds of London councils are reporting a huge increase in demand for very expensive placements? I hope he agrees that it would be good to hear from the Exchequer Secretary, when he winds up the debate, how the Government will help local authorities—particularly those in London, but also others across the country—to deal with that huge increase in the pressure on children’s services.
Peter Dowd
I say to my hon. Friend that—to use an old phrase—he should not hold his breath.
The Government need to wake up and face the cold, hard reality that the Exchequer is losing billions every year and letting multinationals, which do not pay their fair share, off the hook because HMRC simply does not have the resources.
Kevin Hollinrake
The hon. Gentleman is very clear and honest in his plans about wanting to spend a lot more money—half a trillion pounds in manifesto commitments—but at the same time the manifesto said that Labour would reduce the national debt. How is that possible?
Peter Dowd
I have the greatest respect for the hon. Gentleman, but I refer him to the answer I gave earlier. He should have a look at and dig into the documents, which are very easy to find.
The bottom line is that, wherever they are in the country, businesses that play by the rules are disadvantaged, so it is unfair not just to individual taxpayers but to business taxpayers. Meanwhile, back in Westminster, the Government continue to have absolute contempt for parliamentary oversight.
Peter Dowd
I will give way to the Minister, who may tell me that the Government do not have such a view.
Mel Stride
The hon. Gentleman is being very generous in accepting interventions. From what I can understand, every time the shadow Chief Secretary is asked a question about what Labour promises and pledges will cost, he reverts to saying that people can go and look it up: they can dig into the documents and get on the internet. Equally, he is saying that the public are shifting his way. Is his message to the electorate to get on the internet and to look at his policies in order to understand them?
Mel Stride
I had largely made my point, but if I am to have a second bite at the cherry, let me just add a final point. Is the shadow Chief Secretary’s message to the great British electorate that when it comes to costing his own party’s plans, they should get on the internet and start googling to find out what those costs are?
Peter Dowd
My message to the great British public, who have showed their support for Labour on this, is to get out and vote Labour. That is the message. The other point is that the Minister’s hon. Friends have been waving an iPad around. I suggest they get on their parliamentary iPads and do their work.
Ruth George (High Peak) (Lab)
Does my hon. Friend agree that it is a bit ironic to be asked to take lessons in finances from a Government who have doubled the debt and doubled austerity at the same—[Interruption.]
Peter Dowd
My hon. Friend is right. Of course, as ever with the Tories, when we tell them the truth, we get shouted down, which is exactly what has just happened to her.
By refusing to base the Finance Bill on an amendment of the law resolution, the Minister has deliberately restricted the scope of amendments to this Bill, and the ability of the Opposition to scrutinise it properly and improve it. I know the Financial Secretary was president of the Oxford union and his debating skills were honed in its atmosphere, but I am sure he would never have dreamed of putting the same restrictions on the debates he chaired as his colleagues are putting on debates in this Chamber of the mother of Parliaments. What is good enough for the Oxford union should be good enough for this place. “No gagging” is the call from the Opposition; the Government instead want a muffled and restricted debate. That is why this measly Bill contains few policy and tax changes, and will have no positive or constructive impact on the majority of ordinary people’s lives.
Several hon. Members rose—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. The hon. Gentleman is not giving way.
Peter Dowd
Thank you, Madam Deputy Speaker.
Mind you, anything to avoid even more embarrassment for an enfeebled Prime Minister. Our stretched public services and crumbling infrastructure desperately need investment. We need bold, imaginative and innovative answers to tackle our slowing economic growth and falling productivity and to give workers the pay rise they deserve.
As my hon. Friend the Member for High Peak (Ruth George) said, since 2010 the Government have added more than £720 billion to the national debt, yet they have failed at every opportunity to invest. Instead, they have borrowed record amounts just to cover day-to-day spending. Labour Members are clear: it is high time the Government borrowed to invest in infrastructure, jobs and skills that will grow our economy sustainably. That is not controversial, no matter how much Conservative Members fulminate about it. [Interruption.] Well, they can simply ask the Secretary of State for Communities and Local Government, who wants to borrow £50 billion to solve the housing crisis. Where will that money come from?
If we asked any business owner, they would tell us that they borrow to grow their business and, in so doing, they reap the rewards. They do not borrow to pay the day-to-day bills, as the Government have done, year after year. They borrow to invest—an alien concept to the Government. If this clapped-out Government are unwilling to invest in our people and our nation, its talent and its entrepreneurial spirit, I assure the Minister that the next Labour Government will.
We will invest in infrastructure across every region and nation to create high-wage, high-productivity jobs and start a large-scale house building programme, backed up with controls on rent. We will tackle debt, introducing further controls on high-interest, short-term lending, and we will scrap tuition fees.
While we are at it, we will lift for the whole of the public sector the public sector pay cap that has so damaged the morale of our staff in vital services. We will fix universal credit and put the compassion that the Government have sucked out back into our social security system. We will introduce a £10-an-hour real living wage that people can live off, not get by on. In doing all that, we will ensure that people in every region and nation, in every community and age group, have a Government that listen, act and ensure well-paid jobs, roofs over their heads and an economy that works for the many, not the few.
Rachel Maclean
My hon. Friend is completely right. He reminds us of why we see so many Conservative Members representing Scotland, and I am proud to sit with them. Even though I have a Scottish surname, I am not from Scotland, but I love that part of our country. I am delighted that the Scottish people have Conservative representatives fighting for low tax.
Peter Dowd
I like the logic of the hon. Lady’s analogy about giving people a tax cut and giving them a pay rise. Does she therefore agree with me that, by her logic, giving the bankers a cut in their levy is the biggest pay rise in this Budget?
Rachel Maclean
I am glad the hon. Gentleman made his intervention, because I would like to set the record straight. The Labour party talks a lot about banks. Shall we remind ourselves that it was the Labour party and Ed Balls—its former shadow Chancellor—who created the light-touch regime that led to the crashing of our entire economy? Millions of people were thrown out of their jobs; they lost their jobs and were in poverty because of the decisions of the former Chancellor of the Exchequer.
Rachel Maclean
My hon. Friend is completely right and I fear that it may be a combination of the two issues. We know that Labour Members have been questioned on this point many times by journalists and usually their answer is, “Well, that’s not for us to say.” I do not know why it is not for them to say. Do Members not think the ordinary voter has a right to know what Labour would cut to pay for its policies? We have just heard from the hon. Member for Bootle that he is going to scrap tuition fees and renationalise all the industries, and yet he still says that all he is doing is—
Peter Dowd
I referred earlier to “Freeing Britain to Compete”, and I have the reference here on my iPad. It said that we claimed
“that this regulation is all necessary. They seem to believe that without it banks could steal our money, bakers would put nails in our bread…and builders would construct houses that fell down when the wind blew.”
Does the hon. Lady agree that they might not have blown down but they burned down because of deregulation?
Rachel Maclean
I thank the hon. Gentleman for his intervention. I fear that the combination of the Labour Front-Bench team would be a lot, lot worse for our banks and for our country. Let us just look at the record, because he has mentioned that a few times. Under this Government banks are paying 58% more tax than under Labour. In 2016-17, the banking sector paid £27.3 billion in corporation tax, which represents an increase of £2.9 billion. That is going to pay for an awful lot of hospitals and schools, for the police service, and for roads and sanitation in our constituencies. It is certainly going to pay for a lot more of those things in Redditch.
I remind the hon. Member for Bootle that the average amount paid by the banks every year under the Conservative party is 13% higher than it was under Labour. HMRC data shows that the average annual amount of tax paid by the banking sector between 2010-11 and 2016-17 was £23.2 billion.
In conclusion, this Government and Conservative Members represent the true party for the many working people up and down this country.