Finance (No. 2) Bill

Priti Patel Excerpts

2nd reading
Wednesday 29th March 2023 Commons Chamber

[Priti Patel (Witham) (Con)]

It is an honour to follow the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), because I wholeheartedly support the principle of getting more parents into work and, importantly, we both became Members of Parliament at a similar time, when we both had small children. There is a clear understanding that the childcare system in this country has been dysfunctional and unaffordable for too long. I was a Minister in a Government who developed the policy of tax-free childcare, and we wanted to simplify it. I think she made some important references to simplification and making childcare much more accessible to and practical for parents—we need that.

I say that because our country and our economic prosperity are built not on the foundations of government, high taxes and regulations, but on the ingenuity of the human spirit and the British public going out to work and contributing. That is effectively what we need to be doing. Our economic strength comes from the entrepreneurial spirit of businesses—obviously, I say that as an Essex MP—and from the nation’s wealth creators: our army of hard-working businesses. I come from a small business background myself—people know that I have worked overseas and all the rest of it. That is what builds economic foundations and protects us, allowing us to weather economic hard times.

We must recognise, of course, that we have seen economic hard times—certainly in my decade in this place—and we are not out of the woods; we have high levels of inflation. We also have challenges in the banking system, which could have long-term repercussions. We want to get the economy growing, and for the Government to meet their pledge to grow the economy, create more better-paid jobs—we all believe in better-paid jobs—halve inflation and reduce the national debt, we need businesses such as those in Essex. My hon. Friend the Exchequer Secretary to the Treasury is a Suffolk MP, and I am adding the entrepreneurial eastern region. We have to give people the bandwidth to invest. We need them to feel confident about the strength of our economy and that businesses will do a great deal to invest.

Of course, Governments do not create jobs—we need to recognise that—but they can help to generate growth. That is why we need the right economic foundations, fiscal framework and supply-side reforms—about which we do not talk enough—to encourage free enterprise. So many of us in this place are old enough to remember that that was the approach that lifted our country out of the economic doldrums in the 1980s. As I said in the Budget debate, there are many positives in the Budget, but there is a strong sense among the business community that the Budget and the Bill could have gone further, and that we need to think about future-proofing where we as a country go on the economy and, as many of my hon. Friends have said, about addressing the high tax burden, which curtails our economic freedoms.

I could make many references to one great Conservative, the late Baroness Thatcher, who said:

“Our challenge is to create the kind of economic background which enables private initiative and private enterprise to flourish for the benefit of the consumer, employee, the pensioner, and society as a whole.”

For me, those are the basic tests by which we should judge a Budget and a Finance Bill. Do they support private investment and enterprise? Do they ensure that we are internationally competitive? Do they help households and businesses by giving them economic freedoms?

I will touch on some measures that have already been mentioned. On the rise in corporation tax, there are measures to provide more relief, which can be welcomed, but I do not believe in increasing taxes and then providing relief to compensate for them. Too many risks come with relief. It can create complexities in the tax system, and small businesses in Essex will have to employ armies of lawyers, tax accountants and specialists. I just disagree with that; I do not think it is right, as I said in the Budget debate. I believe that we need a simplified tax code underpinned by lower taxes. We have been talking about that for years in this House but we struggle to deliver it. Of course, businesses are frustrated by that because they are the ones that have to pay the costs of it. Entrepreneurs and small businesses are subject to more regulatory costs and more restrictions, which stifles innovation. We need to do much more in that space.

The OECD minimum rate of corporation tax is a hugely complex change to our tax system that has so far progressed with very limited scrutiny, I am afraid. Given the extent of the 159 clauses, that scrutiny may happen in Committee, as colleagues have said. I hope the Minister can assure me that the time allocated to those clauses in Committee will reflect their complexity, and that key sections will be considered by the whole House, because we are deeply concerned about the impact of the change on the UK’s economic future. I have concerns about the administrative costs of those measures for businesses. We need to look at the change in more detail, given that businesses are already paying above the 15% tax rate. That is of great concern.

[Bob Stewart]

Small businesses in my constituency are complaining hugely about the fact that they will have to employ more and more accountancy hours in order to do their work. It is a real problem because it costs them more and more money.

[Priti Patel]

My right hon. Friend is absolutely right, and that brings me to a point that I hope the Minister will seek to address. The Government’s impact assessment suggests that the costs could be around £13 million initially, and then an additional £8 million annually to maintain. This is a total underestimation. When the lawyers, tax accountants and everything else—the layer cake—is included, the cost will be phenomenal. For example, the insurance sector believes that its compliance costs will increase by a minimum of 20% to 25%. Others say the increase could be as high as 40%. These are business costs—I do not need to spell them out any further.

To quote the Government, the effectiveness of the policy

“depends on a high degree of consistency of the implementation in different jurisdictions”.

It has already been said this afternoon that although we are pressing on with implementation, other countries are not. As my hon. Friend the Member for South Dorset (Richard Drax) said, the EU has granted many member states the right to delay for up to six years. The US is not going to implement it at all. We know exactly what the White House and the US House Committee on Ways and Means have said. If the UK progresses ahead, how high a degree of consistency can we expect elsewhere? In America, the House Committee on Ways and Means is threatening retaliatory measures against any countries that attempt to collect additional taxes from US corporates. We need to understand the implications across Government, because this is about not just the Treasury but the Department for Business and Trade. What impact will the Bill have on the prospects of a UK-US trade deal?

Finally, we are legislating before a final international agreement has been reached. As we know, negotiations are ongoing in respect of several measures, not least the infamous international dispute resolution, which seems to have plagued most Government policy in many other areas. We are signing up to a deal when we do not know whether it will be so loosely policed that China and other countries can game it without thinking about the wider implications. I know that the Minister will pick up these points, and I thank the Front-Bench team and the Chancellor for their strong engagement on all these issues.

I wish briefly to touch on the point that has been made about the Office of Tax Simplification. Much more work needs to be done in this policy area. At the end of the day, it applies to issues such as personal taxation rates. We on this side of the House are Conservatives and believe in allowing people to keep more of what they earn, and we trust them to make more informed choices about how they spend their money. Notwithstanding not just this Finance Bill but previous ones, it is fair to say that since 2010 we have lifted many of the lowest-paid out of income tax by increasing the tax-free allowance to £12,570. We should be proud of that. It has doubled under us and, along with the introduction of the national living wage, we have helped those on low incomes, which is absolutely the right thing to do.

The previous Finance Act that we passed froze the tax-free allowances and respective tax bands until 2028. I want to see so much more done in this policy area to give people more freedoms and to let them keep more of the income they earn, rather than having the state continuously robbing Peter to pay Paul and then reallocating so much public money in difference schemes.

We now face a real problem with fiscal drag that we have to address. Middle-income earners have already faced the impact of fiscal drag, with little change in the 40% higher-rate threshold in recent years. We also know that in 1990-91 there were 1.7 million higher-rate income tax payers out of 26.1 million, which was less than 7% of all earners. Now there are 5.5 million higher-rate income tax payers out of 34 million, which is 16% of all earners. As Members can work out, over the past 30 years we have gone from one in every 14 income tax payers paying the higher rate to one in every six. That is very significant, so this is one area that I would say to the Government, to Treasury Ministers and to the Prime Minister has to be kept under review.

To conclude, I encourage Government Front Benchers to drive forward everything that will promote free enterprise and to look at good tax cuts that will really help people, including those who, quite frankly, are struggling: low-income earners in particular, but also small businesses around the country. This is not just about the large corporates, but those that employ people in our communities. Those businesses are the backbone of our communities and our societies, and if we do more of that, we will have stronger economic freedoms to grow our economy and make our country more prosperous again.

Finance (No. 2) Bill

Priti Patel Excerpts

Committee of the whole House
Tuesday 18th April 2023 Commons Chamber

[James Murray]

I am going to make some progress.

Finally, our new clause 2 would require the Government to set out their approach to pillar one of the OECD agreement and the digital services tax. We know that, unlike pillar two, the implementation of which is proceeding both here in the UK and in many countries overseas, the prospects of pillar one being implemented in the near future look less positive. That is likely to have an impact on the Government’s approach to the digital services tax, so I urge the Government to support our new clause, which requires the Chancellor to make a statement to the House on the matter. While new clause 2 has not been selected today, I none the less encourage the Minister to set out the Government’s approach to pillar one and the digital services tax in her closing remarks.

Through today’s debate on the Bill’s clauses and our amendments, we have seen the state that the Government are in. We have seen how they are failing to provide our economy with the stability and certainty that is needed for growth—growth that we need in every part of the country to make everyone, rather than just a few, better off. We have seen how the Government’s Back Benchers risk putting their party before our country at every turn, and how they are unable to provide the long-term plan that people and businesses need. We have seen clearly how this Government are refusing to take fair decisions on taxes—putting up council tax for families across the country, rather than strengthening the windfall tax on oil and gas giants.

When we come to vote at the end of this debate, I urge all hon. Members to support Labour’s new clauses and expose the unfair choices that this Prime Minister and this Conservative Government are making, which are leaving our economy on a path of managed decline.

[Priti Patel (Witham) (Con)]

I rise to speak to the topic at hand, but I want to begin by thanking the Minister for the way in which she has tackled this Committee sitting and her familiarisation with the points made on Second Reading.

I am on the record as having concerns about not just the implementation but the purpose of all this. No one would disagree that multinational companies need to pay their fair share of tax, but I question the way we are going about achieving that. I put it on the record that I was semi-humoured by the comments of the Opposition spokesperson just now. Even when the Labour party is taking a break from its efforts to heap extra burdens on businesses, which is obviously what it stands for, it is raising concerns about implementation timetables.

Labour has missed the opportunity to speak up for British businesses, so it falls to those on the Conservative side of the House to do that. We believe in competition, business growth and business investment. My right hon. Friend the Member for Chelmsford (Vicky Ford) is not in her place right now, but sectors such as insurance employ my constituents, probably the constituents of the hon. Member for Ealing North (James Murray) and hundreds of thousands of constituents up and down the country. Those are the types of jobs we should try to safeguard in the United Kingdom.

The hon. Gentleman was partisan, so I will make a point now as well: the response of the Labour party is always to build up even more red tape, regulations and reporting. I think we all know how we adopt regulations in this country. My own personal view, which I attested to on Second Reading, is that I would like to have a delay to implementation until we see a critical mass of other countries, including very significant competitors, moving some way towards implementing the tax, as has been said by colleagues this afternoon.

As my hon. Friend the Minister already knows from interventions today and from Second Reading, I feel that this new tax risks placing significant compliance costs on British businesses, which are already paying well above the minimum 15% tax rate. We must recognise that there are current pressures and that these inevitable costs will be fed on to consumers. I have touched on the insurance sector, but at the end of the day it is consumers who will end up picking up the costs through higher premiums and other impacts on them. On top of consumer prices, which bear the brunt of that and are also inflationary, there is no way, given the delays that we are seeing elsewhere, that implementing this tax will not have an impact on our competitiveness. By pressing ahead, we risk capital flight and jeopardising future investment income.

Finance (No. 2) Bill

Priti Patel Excerpts

Report stage
Tuesday 20th June 2023 Commons Chamber

[Priti Patel (Witham) (Con)]

I am grateful for the opportunity to speak to amendment 20, tabled in my name, which has the support of more than 25 right hon. and hon. Members.

It is not breaking news that I remain concerned about the introduction of a global minimum corporation tax. We have debated the issue in the House, in Committee— Ministers, the Chancellor and colleagues, including the hon. Member for Ealing North (James Murray), the Opposition spokesperson, are aware of my views—but I think it is right that we have the right level of scrutiny of the policy because I have concerns about the implementation, which I have raised consistently.

Before I come to the range of concerns about the policy, I will touch on the remarks made by the Chair of the Treasury Committee, my hon. Friend the Member for West Worcestershire (Harriett Baldwin). She spoke about the need for business certainty, which is crucial, as did the hon. Member for Ealing North. I believe that the implementation of this tax policy creates challenges for businesses and for business certainty. As she highlighted, it also exacerbates the complexities that businesses face when it comes to administering these policies. There are also implications for capital allowances.

[Richard Drax]

I congratulate my right hon. Friend on amendment 20. The only certainty that the Opposition can offer to businesses is that taxes will be so high that businesses will fail—that is about the only thing the Opposition can do. So far as this measure is concerned, can she tell the House what the Americans think of the idea? Where are they in their thinking?

[Priti Patel]

I thank my hon. Friend for his support for the amendment and for his comments. As we have discussed previously—I was going to touch on this—the United States is not in a position to introduce the policy. It is a fact—politics in the US is like politics here or anywhere in the world—that the Republican party has made it abundantly clear that it will not allow this policy to go through. It wants to go further and to bring in legislation that will put retaliatory measures in place against countries that impose the new tax and burdens on US businesses and multinationals.

Returning to the amendment, I will come on to some specifics with regard to the dialogue I have been having with the Minister and the Chancellor on this subject. It is right that we scrutinise the policy, which the amendment seeks to do. It is right for the Government to pursue international agreement to address the complex tax arrangements, which hon. Members have referred to, that exist with multinational corporations and businesses operating in multiple jurisdictions. That is vital and makes sense.

[Richard Foord (Tiverton and Honiton) (LD)]

On the point about multinational corporations, does the right hon. Member think that it is right that we treat multinational corporations that produce oil and gas in a different way from the way we treat renewable energy companies, including companies that produce renewable energy and invest in renewable energy projects? At the moment, it seems that the energy profits levy treats those things in different ways. Will she be supporting Liberal Democrat amendments to the Bill to encourage investment in renewable energy projects?

[Priti Patel]

I thank the hon. Gentleman for his comments. I would rather businesses had zero taxation policies. I should declare an interest: when I was a Treasury Minister many years ago, I undertook the fiscal review of oil and gas. Frankly, we need to do everything to stimulate investment in both oil and gas and renewables. I would like to see consistency in policies on that.

Specifically to my point about multinationals and how they are taxed in jurisdictions, I support the Government in the sense that it is right to look to close tax loopholes where we see companies operating in multiple jurisdictions, but the plans for a global minimum tax are wrong, as I have raised in the House before. They are wrong and flawed for a number of reasons.

No one would deny that the introduction of such a measure is complex—it is not straightforward. I paid attention to the comments made by the hon. Member for Ealing North. There is no point just saying that we need to crack on and implement this; we have to do it in the right way, which is why I put forward the amendment. It even gives the Government scope for more time to look at the complexities around its implementation and to look at what our competitors are doing. We should not rush headlong into this. These are complex changes that will be challenging to enforce; I will speak about that, too.

I believe the measure is anti-competitive. It undermines our fiscal sovereignty. Without labouring the point too much, we have left the EU. The Government have the ability to make their own tax laws and fiscal sovereignty is crucial to this, too. Why are we are now going to surrender tax powers to the will of the OECD?

Economic growth has already been mentioned by my hon. Friend the Chair of the Treasury Committee. We do not want to undermine our ability to be a low-tax global beacon of free trade. The Government are pursuing policies such as freeports. We all welcome that when it comes to competition, but we do not want to encourage a culture of subsidies, which this policy will do.

I believe that Governments and Parliaments must have flexibility to set their own fiscal policies and tax rates, striking a balance across all sectors, including multinational companies and small and medium-sized enterprises. Speaking as an MP for Essex, which is known to be an entrepreneurial county, SMEs are the backbone of our economy. We have to strike a balance between being competitive and having low tax rates to attract investment, and generating revenue to support public services—I agree with the hon. Member for Ealing North about that. If we are not competitive, we will not have the tax revenues to support public services. However, a minimum corporate tax would prevent us from doing that.

There are problems with the OECD’s plan, which is why I want to have greater scrutiny on implementation. The enforcement and implementation mechanisms are unclear and countries could find ways around them, which should concern us. They could find loopholes to circumvent the policy. The UK looks set to gold plate measures. We follow rules and standards when we sign up to them, which is the right thing to do when it comes to our Government policies. The same cannot be said for more than 130 countries that have taken an interest in the matter. For many, agreeing to the OECD framework appears to be more about rhetoric and the ability to take action on taxing multinationals, than making the changes necessary and following the committed approach that this Government plan to take. I have no doubt that the Minister will want to speak about that, because the Government are being diligent in their approach and more scrutiny is required.

Moreover, limiting fiscal freedoms opens the door for countries to entice investment from big businesses with big subsidies, which distorts the market. All hon. and right hon. Members will understand that in a subsidy race we simply cannot compete with the United States or even China. Some countries can pump millions of dollars into supporting investment from multinationals. That is not what we do in this country.

We are more competitive as a country in being able to deploy a full range of fiscal and tax-cutting powers, than we are in a race to the bottom with subsidies. There are serious concerns about how these plans will be enforced and, importantly, how disputes between countries will be resolved. I understand that negotiations with the OECD are taking longer than expected, which is not a surprise, and I think it will be some time before an agreement is reached, but by baking into primary legislation a requirement for us to implement without any further flexibility, we risk blindly signing up to a package where foreign officials could overrule decisions and interpretations in our own jurisdiction and in on our own Government.

The peer review panels, being set up to review implementation, could be made up of representatives from China or other hostile states—for example, Russia—all countries which are involved in the process and states that have concerning records on human rights, war crimes and other conflicts, which we debate in this House day in, day out. Frankly, they do not meet our standards and we should be cognisant of that. Our tax affairs could be judged by representatives from states that many in this House are concerned about.

There is then the issue of the date of implementation, which I have referred to in my amendment. The Government have been clear that they will implement the policy by the end of this year— as clause 264 states, from 31 December 2023. This measure, despite the concerns I am raising, can only have a chance of succeeding in the way the Government hope if it is implemented in a constituent manner by all states—or, if not that, by a critical mass—at the same time. This is where we have concerns. We are just not seeing this right now in other countries and among our competitors, because they are not as wedded to the date as we are. I understand why we have to put down the date to enshrine it in law.

The United States, as my hon. Friend the Member for South Dorset (Richard Drax) has mentioned, will not be able to take this through to implementation by 2024. The Republicans in the House of Representatives are opposing those plans. But as well as opposing and preventing the US—our largest trading power—from introducing them, they are threatening retaliatory measures on countries that implement the policy, and in doing so will penalise US-based companies. So we could have a situation where this Government introduce a tax measure that adversely impacts on our trade and investment with the US. Of course, that could have an impact on trade negotiations and some of the work that other Departments are doing—such as Business and Trade, for example.

It would be interesting to know from the Minister whether this issue was discussed by the Prime Minister and the President in their recent bilateral talks. The US is crucial in this, but it is not just the US that will not implement the policy. The EU members are not going to implement the policy fully on day one. They have been given six years to implement tit. In Asia, major economies and competitors are setting dates behind the UK: Japan, Singapore, Thailand and Hong Kong. Although that the Government have been clear about their intent, we need to know what they intend to do on implementation. I have put my own concerns about this tax on the record. I think the date is wrong.

[Sir Iain Duncan Smith (Chingford and Woodford Green) (Con)]

My right hon. Friend knows that I have signed her amendment. It is a good amendment because the compromise, as it stands, gives the Government more time to think carefully about what we are doing here. As she said, the Americans are almost certainly not going to implement this measure. That means that the single largest trading nation in the world will not play a part in this. What assurances has she secured from the Government? Will she press her amendment tonight? If she does so, I will support her. If she does not press it, I will understand that she has some assurances. Can she spell out what the assurances from the Government are?

[Priti Patel]

This is important. The purpose of scrutinising the Bill and discussing the amendment is about the implementation and how the Government will pursue that. We have big concerns. Other countries are not moving forward, so we will be the first. We need a sensible and practical course of action. My amendment is reasonable.

I have had discussions with the Chancellor in particular. He has given some very clear assurances that, in the light of the points that I have raised, not just today but previously, and the conversations that I and all colleagues who have signed the amendment have had, in respect of the implementation of the tax, the Government have committed to bring to this House regular updates on what the OECD is proposing with regards to policing pillar 2. That speaks to my point about how all the enforcement mechanisms will work and about whether countries will be circumventing the rules and the structures of pillar 2. Also, before the summer recess, they will bring forward some detailed assumptions and modelling. The Treasury has forecast and scored, as I understand it, the expected tax revenues from pillar 2. That is something that I have been pursuing and asking specific questions about. It is important that we understand not only what revenues are gained, but the costs that will be incurred, particularly by businesses.

I have received clear assurances that the Government will publish, ahead of the autumn statement, details on the compatibility—or even the lack of compatibility—and interoperability of the US’s global minimum tax legislation and that proposed by the OECD. That, of course, has an impact of double taxation for companies.