Finance (No. 2) Bill

Rebecca Long Bailey Excerpts

Committee stage & Committee of the Whole House (Day 1)
Monday 19th April 2021 Commons Chamber

[Seema Malhotra [V]]

In my limited remarks, I want to support the arguments made by my hon. Friend the Member for Ealing North (James Murray), and to speak in support of Labour’s new clause 23, to which I have added my name, seeking an equality impact assessment of the measures in the Bill that affect family incomes. This includes the impact of specified sections of the legislation on households at different levels of income, on people with protected characteristics, and across the regions and nations of the UK.

About 700,000 people have lost their jobs since February last year, and many more families have seen a drop in their household income. Over 39,000 are now on universal credit in Hounslow alone, and we have seen a huge rise in the use of food banks. There is no doubt about the importance of financial inclusion at this time. The Financial Inclusion Commission, on which I sit, has highlighted how there are now millions more people facing economic hardship as a result of the covid-19 pandemic. However, the UK entered the crisis with half its population financially vulnerable: 12 million categorised as financially struggling or generally on low incomes, and 13 million as financially squeezed. Covid has laid bare existing weaknesses, vulnerabilities and structural inequalities, and StepChange research shows that 10% of people say they will certainly or probably be unable to pay for essentials in the next 12 months.

We know child poverty, already extremely high, is rising, so it is inexplicable, when the Government themselves have said in the Budget report that the

“economic impact of restrictions has not been felt equally”,

that they have not themselves published an impact assessment. It should not be for the Opposition to table this vital amendment. It seems that instead of taking action to boost our community recoveries, the Conservatives are choosing to reward families up and down the country for their sacrifices with council tax hikes, the freeze to the personal allowance from next April a whole year before corporation tax rises kick in, a real-terms pay cut for key workers and cuts to universal credit later this year, a move now even opposed 100 Tory MPs.

Even when the Chancellor has done the right thing, such as extending furlough, as Labour called for, these moves need to be underpinned by a strong social security system that provides support when people need it. People need to be protected from financial exclusion and families need a clear route out of financial difficulty when they are struggling. The Chancellor could also look at how Sadiq Khan is working to promote financial inclusion through partnership with the financial sector, social enterprises and credit unions, and at his plans for a new team dedicated to economic fairness.

But instead of economic fairness, what we know is coming is the £20-a-week cut to universal credit for millions of families within six months, just when the OBR predicts that unemployment will peak. It is a cut that takes out-of-work support to its lowest levels since the 1990s. That is why Labour has also called for urgent social security measures, including converting universal credit advances to grants instead of loans, ending the five-week wait, suspending the benefits cap and uprating legacy benefits to match the increase in universal credit. About 2.2 million people on legacy benefits have been deprived of the uplift, and given that three quarters of those claimants are disabled and on employment and support allowance, this has created a two-tier social security system that has left many struggling to cope. Evidence from the Disability Benefits Consortium found that 67% of disabled claimants have had to go without some essential items at points during the pandemic.

Minority ethnic communities have been hardest hit by both the health and economic crisis. The Resolution Foundation found that, at the end of last year, unemployment among young black graduates had risen to 34%, up from 22% before the pandemic, and almost three times that of young white graduates during the same period. StepChange research also shows that those from an ethnic minority are twice as likely, compared with the GB average, to say that they have experienced hardship, borrowed to make ends meet or have run down savings.

In conclusion, the Chancellor is hitting families up and down the country, with a quadruple hammer blow of council tax rises, cuts to universal credit, real pay cuts for key workers and the freeze to the personal allowance. If the Chancellor wants to work for a fairer Britain and build a more inclusive and financially inclusive economy, he needs to know who his policies are helping and who they are not. That is why we need an impact assessment, as called for in new clause 23, and the Government should support it today.

[Rebecca Long Bailey (Salford and Eccles) (Lab) [V]]

I speak to oppose clause 5 stand part, and in support of amendments 2, 3 and 4 in the name of my right hon. Friend the Member for Hayes and Harlington (John McDonnell) and others, as well as amendments in the name of my hon. Friend the Member for Streatham (Bell Ribeiro-Addy) and amendments from the Labour Front Bench.

The Chancellor committed to doing whatever is necessary to support people and businesses through the coronavirus pandemic. I want to believe him, but the £20 a week covid uplift to universal credit will be cut just at the time when the OBR has predicted that unemployment will peak. There has been no uplift at all, as we have heard, in covid support for those on legacy benefits or affected by the benefit cap. At the same time, an equivalent cut in working tax credit for households that have not yet made the move to universal credit will be imposed.

Further councils, whose budgets have been decimated over recent years, will be forced to increase council tax by up to 5%, pressuring household budgets even further, so the Bill is already sorely deficient in honouring the Chancellor’s original promise. However, in clause 5—the proposal to freeze the personal tax allowance—the promise is sadly contradicted entirely. The reality of the clause is that, if there is wage inflation over the next five years, someone earning just under the threshold now, for example, who then receives an inflationary pay increase for 2022-23 will start to pay tax.

As the Resolution Foundation has found, the poorest fifth of households are twice as likely to have seen their debts rise rather than fall during the crisis, so taking some of those lowest earners beyond the personal allowance threshold as their wages might slightly increase with inflation could result in their financial devastation. I therefore supported calls to remove clause 5, or at the very least for the Government to compromise and delay the changes.

I will also briefly mention clause 32 on self-employment income support. I do not disagree with the sentiment of the clause but, as the Government know, the support still does not go far enough. More than 2 million remain excluded from any Government support at all and, as I have repeatedly told this House, some have sadly taken their own lives as a result. I once again urge the Government to provide an immediate emergency grant to those affected, install new monthly arrangements while restrictions remain in place in complete parity with the extension of the coronavirus job retention scheme and the self-employment income support scheme, and remove the hard edges to eligibility criteria. Finally, they should backdate payments for a full and final settlement to deliver parity and fairness for those excluded from meaningful support.

[Jim Shannon]

It is a pleasure to serve under your chairmanship, Ms McDonagh. I very much welcomed the Minister’s response when I asked him about the Low Incomes Tax Reform Group. I will send him all the information that I am concerned about, which I hope he will be able to answer.

Clause 31 ensures that the one-off £500 payment for certain working households receiving tax credit is not taxable, which is welcome. The problem arises when a person receives a payment that they were not entitled to under the rules. As the payment is made automatically by HMRC without requiring a claim from the individual, if HMRC mistakenly makes a payment to someone who is not entitled to one under the direction and it is not subsequently repaid, it appears that the tax credit claimant will automatically be subject to a tax charge under the Finance Act 2020. That triggers notification requirements for the individual, assessing powers for HMRC and potential penalties.

I would like to understand whether consideration has been, or will be, given to ensuring that HMRC will set the bar high in terms of what constitutes fraud, and whether it will be limited to those people who fall under section 35 of the Tax Credits Act 2002, in relation to their underlying tax credit award. Over the last period, you, Ms McDonagh, I and everyone in this House has seen young families on the brink of financial collapse—in particular, in my office, due to the inconsistencies of the working tax credit as between those who are self-employed and those whose annual pay packs are constant.

Briefly on clause 32, I highlight the fact that taxpayers who have made amendments to their self-assessment tax returns on or after 3 March 2021 may have to pay back some or all of the grants that they have claimed. There is a real concern, which I share, that unrepresented taxpayers may not be aware of their obligations to notify HMRC and, accordingly, may face penalties, inadvertently and perhaps without right. Minister, how will we ensure that HMRC will take steps to ensure that taxpayers become aware of any obligation to repay in time to avoid such penalties? In particular, it is unsatisfactory that taxpayers who have made amendments on or after 3 March 2021 but prior to the date of the claim appear to be obliged to pay back some or all of the grant immediately upon receipt. Some may be unaware that they have to do so, but they face harsh penalties, which were originally aimed at fraudulent claims or for failing to do this on a timely basis. So I am concerned that innocent participants in this process may find themselves in difficult times.

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[Antony Higginbotham (Burnley) (Con)]

I agree with almost everything my hon. Friend the Member for North East Bedfordshire (Richard Fuller) said about corporation tax. It is a tax on success, and on this side of the House we are all naturally low-tax Conservatives—we believe fundamentally that businesses are most successful when they are left to innovate and grow, and can keep more of the money they earn. However, we also have to accept that that is not the only thing that drives businesses. Globally adaptable businesses that look around the world at where they are going to locate their next manufacturing plant or innovation look at myriad factors: the support available; the skills of the local population; and the infrastructure in place. All of those things cost money. As we have seen during the past 12 months, the Government have gone to great lengths to support businesses. In my constituency, 11,000 jobs have been supported by the furlough scheme. That is money that has helped businesses across Burnley and Padiham prepare and stay ready for when the economy reopens. We are also talking about £20 million in grants so that those same businesses can restart as soon as the economy opens up. All businesses understand that; they understand that responsibility comes with this and the taxation they pay enables them to take part in society in a meaningful way.

With all that in mind, I agree with the measures my right hon. Friend the Chancellor set out on corporation tax, as a low-tax Conservative. I do so because the Chancellor has struck exactly the right balance in making sure we secure the economic recovery first: we do not look at businesses now as they are just starting to reopen and get trading again and say, “Just because you are profitable, we are going to increase your tax rate immediately”; we look ahead and say, “When the economy has recovered and you are trading as you were pre-pandemic, that is when we will look for you to make a fair contribution to repay some of the support we have been able to put in place.”

In Burnley and Padiham, we are heavily reliant on small and medium-sized enterprises—those small innovators. As we recover from the pandemic, we often see the most SMEs and new businesses start up; people who used to work for one company and who may have been made redundant—something may have happened—then start their own businesses. That is why the small profits rate of corporation tax is so important, because it is the incentive those innovators and entrepreneurs need to start their business, to grow, to employ someone else.

We also have to recognise that one thing we have suffered from historically in the UK, for many, many years, is low productivity, and that has come from a huge lack of investment from businesses. If we are really going to level up across the country, we need to drive investment in growth and utilise the power the private sector has through whatever means are available to us. We know that since 2007-08 there has been a systemic lack of investment, driven by the uncertainty we have had, so that there is a pot of money that so many businesses are sitting on, waiting to be unlocked. That is where the super deduction will prove so important, because it encourages those businesses that have had a stockpile—that have lived with uncertainty for the best part of a decade and so have not been able to invest, as they have not had that confidence. As we emerge from the pandemic, the super deduction gives them the confidence to invest.

In Burnley, we are talking about aerospace manufacturers, automotive manufacturers and textile makers. The super deduction will help businesses transition to green technology, as we have spoken about. It will help aerospace businesses to move into HS2 and textile companies to move into weaving—we do still make textiles here in the UK.

All of these things will result in a high-skill, high-wage manufacturing economy here in the UK. So, yes, we need to keep the UK attractive to investment, job creation and new businesses, but we do that through a fair corporation tax system, lower rates for new businesses and using schemes such as the super deduction to drive investment into manufacturing jobs, which are going to be so vital for our future.

[Rebecca Long Bailey [V]]

I will limit my comments to the super deduction which, as we have already heard today, will be one of the largest single-year tax giveaways ever enacted in the UK. Arguably, some companies’ corporation tax bills will be wiped out entirely for a couple of years.

My right hon. Friend the Member for Hayes and Harlington (John McDonnell) has already said that the Public Accounts Committee found that tax reliefs cost more than £100 billion a year in forgone tax, but HMRC does not know how many reliefs exist; nor does it monitor the efficacy of such reliefs. That is staggering. Can we be confident that HMRC will know what effect the super deduction will have, and who will actually benefit from it? Many of my small and medium-sized enterprises in Salford would love a super deduction, but sadly it will not benefit them. The Financial Secretary to the Treasury told the House last year that the enhanced annual investment allowance of £1 million already covers the capital expenses of 99% of businesses in the UK, so it seems that this super-relief will overwhelmingly benefit only 1% of extremely large businesses.

I would have no problem if such businesses desperately required the relief in order to protect jobs or to invest in our local economies, but let us look at some of the potential beneficiaries. Amazon has benefited from the pandemic, seeing its sales jump by 50%. According to TaxWatch, the company’s latest accounts show that they spent £66.8 million on plant and machinery, £80.4 million on office equipment and £15.3 million on computer equipment in the same year, so the 130% super deduction could entirely account for the pre-tax profits of the company even before any deductions of staff pay awards.

Similarly, many energy and water companies find themselves also able to wipe out their tax bill. United Utilities spent £1.275 billion on property, plant and equipment in the past two years, compared with a current tax liability of just under £89 million. Electricity North West stated that covid has had a limited impact, and it had a tax bill of £45 million for 2019-20 while investing £449 million in property, plant and equipment. For both companies, it would only take a small proportion of the capital investment to be spent on plant and equipment to use the super deduction to eradicate their tax bill, too.

Do these buoyant companies really need a super deduction? The answer is no. In the absence of any clear conditions specifying the use of such savings or providing a wider social benefit, such as increasing salaries for workers, investing in decarbonisation or reducing costs for end consumers, I struggle to see the benefits being passed on to anyone other than shareholders.

I hope that the Government support amendment 11 and new clauses 1, 2 and 6 in the name of my right hon. Friend the Member for Hayes and Harlington and others, as well as the Labour Front-Bench amendments, because there are companies that do need support to help them recover from the pandemic. There is a real need to support long-term, patient investment by industry, but the untargeted nature of this relief, without conditions, is not the best use of public money. In fact, it borders on the obscene.

[Rachel Hopkins (Luton South) (Lab) [V]]

I shall speak in support of the amendments in the name of the Leader of the Opposition and those in the name of my right hon. Friend the Member for Hayes and Harlington (John McDonnell). The Budget and Finance Bill represent the Government taking steps towards further structuring our economy on insecure, precarious work and deregulation, which will widen income and wealth inequality.

The Government’s unambitious plan provides neither a foundation for rebuilding our economy nor a plan to tackle the climate emergency that my constituents have called for. They have announced a future cut to social security and a real-terms pay cut for public sector workers at the same time as introducing a super deduction tax cut for big businesses, allowing firms to write off 130% of the value of qualifying capital investment against their taxes.

When we look across the Atlantic to the US, we see a stark contrast. The Biden Administration have committed to fast-tracking a $1.9 trillion Government-led stimulus package, which is about 10% of the annual output of the US economy and which contained no promises of future deficit reduction. That is alongside a forward-looking plan to spend a further $2 trillion on infrastructure. Biden’s spending plan, in proportion to GDP, is three times the size of the UK’s.

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[Sir Bernard Jenkin]

I am very pleased, Dame Eleanor—if I may address you correctly—to make common cause with the hon. Member for Richmond Park (Sarah Olney) at the outset. We can agree that freeports are necessary but not sufficient to deal with regional disparities and levelling up.

I am none the wiser from the contribution by the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) whether the Labour party is in favour of freeports or against them. I would just point out to her that I spent a certain amount of my period in opposition, which was a miserable 13 years, as shadow Secretary of State for the regions, and though the Labour party was elected in 1997 with a very sincere determination to reduce economic disparities between London and the other regions of England and the other parts of the United Kingdom, it failed, and those disparities got wider.

This is a very difficult thing to address, and the answer is that we should use every tool in the box. We should use every tool we possibly can. It is also perfectly clear that all the tools are not available if a country stays in the European Union. Some of the tools were taken away from the Republic of Ireland at its Shannon freeport when it joined the European Economic Community, and it got worse; the notion that tax advantages or tax incentives were artificial tax subsidies was extended.

Of course, we want to see other tax advantages extended to other parts of the United Kingdom, such as differential rates of corporation tax, which we have extended to Northern Ireland, but only with the permission of the European Union to treat Ireland as a separate entity—which has a double edge to it that we perhaps do not want to pursue. We should be able to do that on a sovereign basis and to bring Ireland into the sovereignty of the rest of the United Kingdom in the longer term.

I wish to emphasise that the freeport east was very much driven by the need for levelling up. I see my hon. Friend the Member for Thurrock (Jackie Doyle-Price) nodding in sympathy, because she shares this problem. The perception is, “Oh, you’re in the rich south-east. You don’t need any help. It all needs to be directed to other parts of the United Kingdom.” Well, I can tell the House that I have red wall voters in my own constituency. Places like Clacton, Jaywick and Harwich are hard bitten by economic decline. Average weekly earnings in Tendring district, which is Clacton and Harwich, are £556, compared with a GB average of £587, and incidentally below the rate in Liverpool, which is historically regarded as deprived. We have a project that could generate, we hope, 13,500 jobs. The hon. Member for Richmond Park and others are right: we have to make sure that the minimum is substitution and the maximum is additionality. That is the challenge of making sure this works.

I will concentrate on what is in the Bill. I very much welcome the tax provisions in clauses 109 to 111, but there are bits missing from the Government’s additional proposals. Not mentioned in the Bill are the enhanced structures and buildings allowances, or the lower national insurance contributions, or the business rate reliefs proposed in freeport sites, or the local retention of business rates, so I remain concerned that we are offering only what is allowed under EU state aid rules. I will be grateful if the Minister, when he replies to the debate, addresses those points and says how those other tax reliefs will be provided.

It is worth mentioning that the Shannon freeport zone was regarded as such a success that it was imitated and adopted by China, which now has a freeport zone programme that it regards as an important enhancement of its economic competitiveness. I ask those who are cynical about freeports to open their minds, to look at the successful freeports and free trade zones around the world, and to learn from them, as well as listening to what one might call the “economic statics”—the people who think everything is about substitution and nothing is about releasing additional creativity.

I take seriously the points raised by the hon. Member for Erith and Thamesmead about compliance with the necessary conventions, such as authorised economic operator certification, World Free Zones Organisation safe zones rules and the OECD code of conduct for clean free trade zones. Those are all important, but let us recognise that, unless we avail ourselves of all the freedoms available to freeports, they will not deliver the benefits we want. I am reminded that when he was a Back-Bench Member of Parliament, the current Chancellor produced a very interesting report, “The Free Ports Opportunity”, which was published by the Centre for Policy Studies, price £10, which was rather more radical than the Treasury’s current offering. Some of us are a little worried that we will not see that enthusiasm and radicalism. Let us go step by step, let us work incrementally —that is not a criticism, but this is something to build on for the future.

Let us also recognise that the real benefit of freeports is not the tax incentives, but the customs facilitation. We must have really modern electronic customs systems to make the customs advantages of being in what is called a customs inversion zone real. Otherwise, it becomes a bureaucratic nightmare and we will not get the advantages we should get from it. Also, if it is a bureaucratic nightmare, it is the less savoury elements who benefit, not the legitimate businesses.

That is the challenge. We have a great opportunity, for which I really thank the Government in respect of my constituency and others. Incidentally, I think the freeports around the United Kingdom—this is a United Kingdom policy—should be working together. I wonder whether the MPs who represent the freeports that have been designated should get together, stop this mutual suspicion—which is understandable, as we have been competing for designation—and start working together to press the Government for the positive changes that will benefit all our freeports in the future.

[Rebecca Long Bailey [V]]

I will limit my brief comments to freeports. Detailed Government assessments on the operation and impact of freeports are sadly not yet available. As we have heard tonight, the OBR has stated that the announcements made in the Budget came too late to be incorporated into its forecast. If the Government recognise this, they must understand that they have a duty to provide such evidence and legislative reassurance in response to legitimate and wide-ranging concerns on the operation and impact of freeports.

There are concerns that, rather than complementing a local economy by stimulating the growth of new business, existing businesses may simply opt to relocate to freeports. Certainly, the Government have not made it clear how they will mitigate against the significant geographic movement of jobs away from one area and into a freeport—how they will avoid a wild-west scenario of pitting regions against each other, nor the prospect of lost revenue for local authorities from business rates, for example, if businesses opt to relocate to such a zone.

The job creation numbers are equally sketchy. The Chancellor argued back in 2016 that if the UK’s approach performs as well as that in the USA, freeports would create more than 86,000 jobs, but as the Centre for Progressive Policy found, this figure was a cut-and-paste job, being simply the number of people employed in the US free zones adjusted for the relative size of the UK population. There was no data on the labour market impact on specific regional economies or industries, nor any mention of the need for bespoke local skill strategies to feed into this.

On workers’ rights, the TUC has repeatedly warned about the gradual erosion of workers’ protections in these zones. It stated:

“Free ports are a Trojan Horse to water down employment protections”—

in a “race to the bottom”.

Finally, as we have heard tonight, there are real concerns that freeports could create a bonanza for money launderers and tax evaders. Indeed, the EU reported in 2018 that freeports were

“conducive to secrecy. With their preferential treatment, they resemble offshore financial centres, offering both high security and discretion and allowing transactions to be made without attracting the attention of regulators or direct tax authorities.”

The Government must address these concerns before pressing ahead. To that end, new clauses 5 and 25 would allow the Government to create an evidence base for freeports, which the House can then examine, and new clause 4 would impose standards and protections. If the Government are serious about addressing these concerns and building in clear legal protections, they will support these new clauses tonight.

[Jackie Doyle-Price (Thurrock) (Con)]

I commend the Government on the ambitious agenda running through this Finance Bill. It needs to be ambitious because the last year has been a very painful one for us economically. We must do everything we can to foster renewed growth, renewed job creation and, indeed, renewed wealth creation.

I have listened to the speeches from Labour Members. They raise some important things, but if I seriously believed that this freeport policy was going to undermine workers’ rights and lead to massive non-compliance with health and safety and tax legislation, I would not support it. I am supporting it because I have real ambition for my local community and my area, and I am very proud and pleased that the Thames freeport has been chosen as one of the eight. I assure the House that this is going to be the transformation of Thurrock after a very long time.

My hon. Friend the Member for Harwich and North Essex (Sir Bernard Jenkin) referred to the fact that people often see levelling up in terms of north versus south and we have heard that a lot, but nothing could be further from the truth; in fact some of the most deprived areas in our nation are our coastal communities, so it is absolutely right that freeports should be one of the headline levelling-up policies.