Finance Bill

Philip Boswell Excerpts

Tuesday 6th September 2016 Commons Chamber

[Jane Ellison]

Treasury Ministers and the Chancellor take points made by my right hon. Friend and his Committee members very seriously. As I said earlier and as has been confirmed in an exchange of letters between my right hon. Friend and the Chancellor, we will consider the issue at future fiscal events closer to the date of the autumn statement. I may be able to write to my right hon. Friend with further information, but that is what I am able to say at the moment.

[Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)]

I thank the Minister for giving way. She is being most generous.

Yesterday, in an intervention on the speech of one of the Minister’s colleagues, I asked when we were likely to expect the very important autumn statement. The response was “some time in November, maybe December.” Can the Minister confirm that that is indeed the case?

[Jane Ellison]

As I have said, the date will be confirmed in due course, but I think it reasonable to assume that the window of opportunity to which the hon. Gentleman has referred is broadly correct.

I shall speak briefly—as, again, there is no Liberal Democrat presence in the Chamber—about amendment 179, which deals with the apprenticeship levy. This would exclude qualifying bonus payments to employees of employee-owned businesses from being considered as part of the employer’s pay bill when calculating the levy. To ensure the levy is as simple and fair as possible, the Government have decided to use the existing definition of earnings—those used for employers national insurance contributions. This avoids unnecessary complication. This point about avoiding complication was made repeatedly to us during the consultation. We feel the amendment would add complication and therefore we urge the House to reject it.

Lastly, Labour amendment 141 on employee share schemes proposes a tax exemption for residual cash amounts remaining in share incentive plans when they are donated to charity. While we appreciate the proposal is made with the best of intentions, we are concerned the change would, again, add complexity and the amendment lacks details. We would need further development and evidence of this idea before giving it further consideration.

I will end there, but I may look to respond briefly at the end if there are any further points I can add that would assist the House. I look forward to the debate.

--- Later in debate ---

[Mr Burrowes]

The hon. Lady tempts me into a wider debate. If the Minister were to respond on this, she would certainly point to the measures on childcare. When one looks at supporting couples with young children, there are other things the Government have been very much involved in to improve the offer. There is work to do on access and affordability, not least, in my constituency, in relation to poor households accessing childcare.

I appreciate the fact that the hon. Lady talked about choice. There is also an issue about choice in that the Government are rightly encouraging as many people as possible to work and to exercise that choice, but it is sometimes an invidious choice for those who would want to stay at home, and the fiscal incentive to do that is not currently there.

There is a huge impact generally across the tax system on single-earner couples, which is not getting sufficient attention, and this proposal for the transferable allowance addresses that. There are lots of other measures across the tax and benefits system that seek to focus support on children, but we must particularly support the benefits of this allowance, which is around couples, marriage and the commitment to marriage and civil partnership.

In conclusion, following the cause of new clause 3 can be a win-win situation for the Government. It not only, obviously, recognises what we do already on marriage in the tax system, but it allows us to get the maximum effect from the Government’s original commitment, which I believe was welcome, but which was somewhat partial in terms of its original intentions. Recognising the financial challenges, I think new clause 3 would ensure that we can seek to remove some of the disincentives to marriage for those who wish to marry; it would help us to support social resilience and help with transferability; and it is also fiscally conservative. In short, new clause 3 is about getting more bang for our buck in supporting marriage and social justice.

[Philip Boswell]

There are several new clauses on which I intend to speak—most of them briefly—and the first is new clause 18.

New clause 18 calls for a review of the impact of section 24 of the Finance Act 2015. I and my SNP colleagues have concerns that the changes made in section 24 may have adverse consequences on the availability of affordable housing in Scotland and beyond. That legislation seems to be yet another London-centric policy that fails to take account of the diversity of the housing market throughout the UK.

Unlike other parts of the UK, where large rental agencies dominate, Scotland has a disproportionate number of landlords who own a small number of properties. That is hugely beneficial to tenants—particularly those on low incomes—as those small-scale landlords are often more willing to rent properties at an affordable price and to those relying on social security as a safety net. Owing to the changes introduced in section 24, we are concerned that those small-scale landlords may be forced drastically to increase rental costs, causing houses to be less affordable, or to sell their properties, potentially resulting in their being purchased by less sympathetic landlords or agencies. Given the UK-wide housing crisis that we are suffering and the rising cost of rented accommodation, it is incredibly important to ensure that landlords who rent at affordable prices and to those who depend on social security as a safety net are not pushed out of the market. New clause 18 therefore calls for a review of the impact of these changes on the availability of affordable housing so that those on lower incomes are not adversely affected.

New clause 6 calls for a review of the VAT treatment of the Scottish Police Authority and the Scottish fire and rescue service. I thank the Minister for her comments and consideration in her introductory remarks. Many in this Chamber may be familiar with the matter of VAT in relation to the Scottish police and fire rescue services, which my colleagues have raised in this House on a number of occasions. This remains an incredibly important matter that this Government have failed properly to address. Since the incorporation of police and fire authorities in 2013, the Scottish Police Authority and the Scottish fire and rescue services have been charged VAT by the UK Treasury. This UK Government have refused to grant an exemption to these vital services in Scotland, despite the fact that since the time of incorporation the HMRC has handed out exemptions to the new transport agency Highways England, and Olympic legacy organisation the London Legacy Development Corporation.

This Tory-backed charge on essential Scottish public services is costing emergency services tens of millions every year that could and should be spent on frontline services. Only in June, it was reported that Scotland’s police force has paid £76.5 million in VAT since it was formed three years ago and remains unable to claim this money. It is worth noting that only the Scottish police and fire services have been expected to pay VAT to Her Majesty’s Revenue and Customs and not English, Welsh or Northern Irish services. This is a disgrace. It seems absurd and unfair for this Tory UK Government to continually expect the Scottish Government to rectify the matter and cover the difference, especially given the consistent cuts to the pocket money they grant Scotland to run devolved matters. New clause 6 therefore seeks a review of the impacts of the VAT treatment on the Scottish police and Scottish fire and rescue services, including analysis of the impact of the financial position of these services arising from their VAT treatment.

I turn briefly to new clause 15, which seeks to prevent VAT from being increased on the installation of energy-saving materials. I agree with the intent of the right hon. Member for Wokingham (John Redwood) to prevent these VAT increases, if not his methods. This Tory Government have consistently instituted regressive policies in relation to clean energy and energy-efficiency measures, from cuts to the solar subsidies—

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

Does the hon. Gentleman agree that this would be a relatively cheap way of incentivising householders and energy-saving products in addressing some of the damage that the Government and the previous coalition Government did by, in effect, dismantling the green energy policy they claimed to support at the outset?

[Philip Boswell]

I thank the hon. Gentleman and agree wholeheartedly with his comments.

From cuts to solar subsidies, to the scrapping of onshore wind, to the scrapping of the green deal for energy for energy-efficient homes that the hon. Gentleman mentioned, to the selling of the UK Green Investment Bank—there are numerous other examples—this austerity-obsessed Government are taking the UK backwards with regard to renewable energy. I fear that with Brexit looming on the horizon this trajectory is set to continue. Given this environment of cuts, it seems logical for the installation of energy-saving materials to be exempt from a hike in VAT, as a bare minimum.

I will now speak to new clause 8 on dividend income. In Committee, my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) tabled an amendment regarding the proposed changes to the treatment of dividend income by HMRC. My colleagues and I feel that this issue has not yet been sufficiently addressed by the Government. We did not press the new clause to a vote at that time so that we could address the matter at a later date, and we do so now. I do not wish to rehash previous points made, but this is a matter of great importance and, as such, we have tabled the new clause. Numerous stakeholder groups raised concerns with the Committee regarding the regressive impact of the changes to dividend income proposed in this Bill, particularly the effect on small and microbusinesses, which employ between one and nine people. Those raising concerns have highlighted that the changes will have a disproportionate effect on microbusinesses run by owner-operators on modest incomes, given that there are already numerous disincentives to running microbusinesses—as opposed to traditional salaried employment—including, but not limited to, a lower level of job security and a lack of employer pension contributions.

[Kirsty Blackman]

The Finance Bill was devised prior to the vote to leave the European Union. The measure under discussion will have a disproportionate effect on microbusinesses, so does my hon. Friend agree that the Government should accept our new clause and review the measure in the light of Brexit?

[Philip Boswell]

I must admit that I have sympathy with all who have reservations about any position taken in this Bill, given that, as my hon. Friend has said, it seeks to implement measures devised prior to the EU vote and therefore fails to provide for an economy that faces the harsh reality of Brexit. I am sure that we all look forward to the autumn or winter statement—whenever it will be—and the redress it will contain, imaginary or otherwise. We will then see, I presume, whether the new Chancellor is as good with imaginary numbers as the previous one was not.

The Federation of Small Businesses has raised serious concerns. It has highlighted that the changes are particularly acute for members of organisations who are on modest incomes. It has further submitted extensive evidence regarding member feedback on the proposed changes. A number of responses have highlighted concerns from the owners of small and microbusinesses that the changes may mean that they will not be able to continue to employ their small workforces.

In addition, evidence was submitted to the Committee by Jason Kitcat of Crunch Accounting, who has produced excellent work on the matter. I acknowledge that Mr Kitcat has been referenced several times in discussions about the proposed changes, but his analysis is significant and, as such, ought to be raised again. Crunch Accounting has highlighted how the changes as proposed hit lower-earning microbusinesses the hardest. The Government have stated that the changes in dividend income will be offset by planned future changes both to the way in which Her Majesty’s Revenue and Customs treats corporations and to personal allowances. However, Crunch has highlighted how those anticipated changes will not fully offset the impact of changes to HMRC’s treatment of dividend income for microbusinesses, as proposed by the Bill. In addition, Crunch has highlighted how measures cited by Ministers, such as changes to employment allowances and the annual investment allowance, are rarely available to microbusinesses, as they have little capital investment requirements.

I stress that the importance of small and medium-sized enterprises to the Scottish and UK economy cannot be overstated. There are few things on which I agree with the Prime Minister, but I do agree with her statement last month that

“small and medium sized businesses are the backbone of our country.”

I further welcome her indication in the same speech that she intends to listen to smaller firms. However, I am concerned that, despite that profession from the Prime Minister, the regressive changes to dividend income will not only disincentivise new SMEs from forming, but have the potential to cause existing microbusinesses to fail.

It is essential to note the number of SMEs that are categorised as microbusinesses. The UK is home to 5.2 million microbusinesses, which employ 8.4 million people. In Scotland, microbusinesses play an essential role in the economy. According to recent Scottish Government statistics, 99% of businesses in Scotland are categorised as SMEs, the vast majority of which are microbusinesses. Overall, microbusinesses comprise 81.5% of the businesses in Scotland. The figures are similar for the UK as a whole. According to House of Commons Library research in late 2015, 99% of businesses UK-wide are categorised as SMEs, 95% of which are microbusinesses.

Microbusinesses are essential and central to the functioning of both local and national economies. Given that microbusinesses make up the vast majority of businesses in Scotland and UK-wide, I find it absolutely staggering that HMRC does not make an assessment of microbusinesses as a separate group. Given the prevalence of microbusinesses throughout the economy, it does not seem on this matter as though the Government have listened to the concerns of smaller firms, despite last month’s proclamations from the Prime Minister.

When my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Roger Mullin) introduced the original SNP amendment regarding the proposed changes to the way in which HMRC treats dividend income, the response he received to his concerns about microbusinesses was that

“the Government have considered the general economic impact of the changes…the measure is not expected to have any significant macroeconomic impacts.”––[Official Report, Finance Bill Public Bill Committee, 30 June 2016; c. 18.]

This statement taken alone is staggering, given that, as I have stated, 94% of businesses in the UK are categorised as microbusinesses. I fail to see how introducing a change that principally impacts microbusinesses would not be expected to have any significant macroeconomic impact.

The Minister stated in her introductory remarks that we do not yet know the impact of such legislation. I would like to highlight oral evidence given to a Committee of the other place on 8 February 2016 by Cerys MacDonald, the deputy director of personal tax at HMRC. When asked by the Chairman about the impact of these changes on microbusinesses, Ms MacDonald stated:

“I can assure the Committee that we recognise that the dividend tax changes will mean that a lot of people in owner-managed businesses are now paying a higher level of tax than previously, despite the benefit that they will see in the reduction of the corporate tax rate.”

Those two statements seem to me to be at variance with each other. Do the Government believe, as indicated by the Chief Secretary to the Treasury that the proposed changes to dividend income will not significantly impact on microbusinesses? Or do they believe, as indicated by Ms MacDonald of HMRC, that the changes will impact on owner-managed businesses, despite the planned future change to the corporate rate?

Given the uncertainty surrounding the inconsistent responses from Government, coupled with substantial evidence from the Federation of Small Businesses, Crunch Accounting and others, it seems as though the Government have not fully and comprehensively considered the impact of the proposed changes on small and microbusinesses—the backbone of our economy, as I am sure we all agree.

New clause 8 would require the Government to conduct a review of the impact of the changes on microbusinesses, including the impact on the failure rate of microbusinesses and the options for minimising the impact of the changes on directors who are on low incomes. I therefore advise hon. Members that we will press new clause 8 to a Division.

[Fiona Bruce (Congleton) (Con)]

I rise to support new clauses 2 and 3, the social justice arguments for which, in support of some of the most vulnerable individuals and families in our society, have been so eloquently and comprehensively set out by my hon. Friend the Member for Enfield, Southgate (Mr Burrowes) that, although I had prepared speeches on both new clauses, there is no need for me to take up the House’s time to echo what he has already said. I therefore simply put on record my full support for what he said, and I ask to be identified with his remarks.