Finance (No. 2) Bill

Richard Thomson Excerpts

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

[Felicity Buchan]

I completely agree with the right hon. Gentleman that all the forecasts show a very substantial increase in the tax take by virtue of this move in corporation tax.

I believe that we have the right balance. We are increasing corporation tax, but only for 10% of our businesses and only in two years’ time. Importantly, we are also accelerating and incentivising investment in businesses, which will be critical to our economic recovery.

[Richard Thomson (Gordon) (SNP)]

I want to speak to the amendments and, in particular, the new clauses that have been tabled in my name and those of my colleagues.

First, I will start with the positives. We very much welcome the planned increase in corporation tax rates. For a number of years, there has been an orthodoxy that lower corporation tax rates are one way to economic growth. There was a period in the 1980s through to about the 2000s when it was possible to make the argument, as many did, that lower taxes could be a route to securing an increased level of foreign and direct investment, and that the resulting increase in economic activity could result in higher tax revenues than might otherwise have been the case. I would like to think that we are all just a bit wiser and more savvy now, given that, in the growth of that period, it is impossible to properly separate out the increase in corporation tax take and the general growth in activity that took place independently.

Given that we did not see conspicuously high levels of investment or wage growth over that period, except perhaps in boardrooms, and given the condition of our public finances and the importance of public goods as a driver of wellbeing and sustainable growth and prosperity, we consider that this increase, which will apply a new 25% rate on the top 10% of firms, is fully justified. We are relieved that firms will have until 2023 to plan for this move. We believe it was misguided for the Chancellor to try to increase it from 19% to 20% in September, ahead of any recovery starting, beyond the anticipated return-to-trend growth that we are seeing anyway.

The SNP firmly believes that it is important that our corporate citizens pay their share towards the maintenance and good functioning of the market and the public goods that allow them to flourish. However, domestic corporation tax is only part of that story. If re-elected—obviously, we have elections coming up in Scotland, which I am sure hon. Members are focused on avidly—the SNP Government will be looking to explore the possibility of levying a higher poundage on properties where the owner is registered in a tax haven. That is part and parcel of the package of measures that is needed to ensure that everyone who benefits from participation in the market is making a suitable contribution towards it.

Further, we believe that the UK must seize the opportunity that this moment presents to work closely with the Biden Administration in the USA. We must heed the call of that Administration’s Treasury Secretary, Janet Yellen, to set a global minimum tax take for companies to ensure the global economy can thrive, based on a more level playing field and the taxation of multinational corporations, and help spur innovation, growth and prosperity.

New clause 13 would oblige the Government to review the impact of the changes made by clauses 6 to 14 in all parts of the UK, particularly in respect of business investment, employment, productivity, GDP growth and poverty, and to compare the difference in actual and forecast outcomes between having a deal in place with other OECD countries on a minimum level of corporation tax and not.

Similarly, new clause 19 asks the Government to review these changes but in a way that looks both forwards and backwards. As I said earlier, orthodoxies may change in economics, and the Chancellor’s commitment to increasing the headline rate seems to mark the end of a protracted period of a race to the bottom on corporation tax rates. The Chancellor himself said on 3 March that cuts

“might not be the most effective way to drive capital investment up”.

On that basis, it is very important that the Government should compare the estimated impact of corporation tax changes in the Bill with the impact of the changes in corporation tax rates that we have seen in each of the past 12 years.

New clause 20 seeks a review of corporation tax provisions on the link between corporate profit rates and ownership, and the cost of reintroducing a small profits rate. We believe that the lower small profits rate introduces an unnecessary degree of complexity into the tax system. We were unable to find specific costings for the reintroduction of the small profits rate in the OBR policy costings. Instead, they appear to have been rolled into the costings for the overall rate increase. The Treasury should publish details of the revenue forgone through this measure for the purposes of proper scrutiny.

New clause 21 seeks a report on the impact of the super deduction on progress towards the Government’s climate emissions targets and capital investment in each of the next five years. It is important that we understand properly not just the impact that the super deduction is expected to have but the impact it actually has, because it is one of the most significant spending measures in the Budget and a very significant giveaway to big business.

The super deduction is poorly targeted, since it applies to physical assets rather than investments in software, for example, and seems to mostly benefit larger companies. Smaller investments are already tax-deductible under the annual investment allowance. OBR analysis suggests that some £5 billion of the super deduction will, in any event, be spent on previously planned investments. It is hard to avoid the conclusion that this measure will benefit larger companies in a way that does not necessarily drive growth in the way that the Chancellor would hope and certainly does not target the small and medium-sized enterprises that benefited from those deductions anyway and are the engine of growth in most parts of these islands.

When setting policy, it is always a good idea to know what we are doing and why and to have the most solid evidential base for doing so. The fact that we will not put these measures to a vote does not diminish the significance and importance of what we propose. I can assure the Minister that we will return to these matters and will look to the Government to act, even if these matters are not addressed in the final version of the Bill.

[Andrew Jones]

One of the biggest challenges that the UK economy has faced for many years is its productivity. The UK has some of the highest-calibre companies in the world, among the smartest and most productive on the planet, but outside the south-east, there are areas of the UK where productivity matches parts of southern Europe. For many years there has been a long tail of companies whose productivity is very poor. There are many causal factors in that, including skills—particularly digital—and infrastructure challenges, which I have focused a fair amount of my time on. One of the key issues is a lack of business investment, and one element of the Bill, which I shall focus upon in my few words, goes right to the heart of tackling that: the super deduction.

Until March 2023, companies can claim 130% capital allowances, which basically means that for every £1 a company invests, its taxes are cut by up to 25p. I have no doubt that this will prompt investment. Investment is a driver of economic growth. While the UK has performed well on growth over the last decade, it has lagged on investment, so if investment rates can be improved, the UK will do even better.

The Office for Budget Responsibility estimates that the UK will rise from 30th to first in the OECD world rankings for business investment. That is a very positive thing. Being a beacon for investment is a positive, not a negative; we should not listen to Opposition Members on this. However, such a rise in the world rankings will not be achieved unless there is real scale to this measure. For the two years that it is in place, it is estimated to amount to £25 billion. It would therefore be the largest business tax cut in modern British history, so there is indeed real scale to it.

When we talk about productivity in this place, there is a danger of speaking in jargon. What people could take away is the message that they will have to work harder, do 40 hours per week instead of 38, or work in a team of six rather than eight but still do the same work. What I know we mean, and what I am talking about, is working smarter, so that there is more economic output for the same input. Investment in new machinery and the latest technology is one way to increase productivity, and the super deduction will increase investment.

There are amendments ahead of us this evening about measuring the impact of those policies. Those amendments are not necessary as the Treasury always reviews the impact of its policies, but as the Treasury does its work it will be interesting to see the impact of the super deduction on different parts of the country. It will simply reflect the different economic mix that we have in different areas, and some will benefit more significantly than others. I think the policy will be very helpful in the levelling-up agenda.

--- Later in debate ---

[Abena Oppong-Asare]

I thank the Minister. I will approach that later in my speech, so I thank him for already guessing what I was going to say.

We really need some honesty and transparency from the Government on this. The estimates of the job creation benefits of freeports made by their advocates so far have been flimsy to say the least. We also need a proper assessment of the risk of job displacement. If freeports simply move existing economic activity around, they risk doing harm to the economic fortunes of neighbouring areas, with no net benefit to the country as a whole. Indeed, a 2019 report by the UK Trade Policy Observatory found that the main effect of freeports was to divert businesses into a port from a surrounding area, rather than creating new jobs, so it is not just Labour saying this; it is the experts saying it too. That may be especially problematic in areas where freeports are situated near a local authority, or regional or even national borders.

Our new clause would require the Government to report on tax avoidance and evasion and criminal activity in freeports and to set out the level of additional staffing and resources required by HMRC and other Government bodies. There are long-standing concerns that freeports allow or encourage tax avoidance and evasion, and there is international evidence that freeports have been used for criminal activity. For example, the OECD has stated that there is

“clear evidence that free trade zones are being used by criminals to traffic fake goods”.

The Financial Action Task Force has said that the lack of scrutiny can facilitate trade-based money laundering through relaxed oversight and a lack of transparency. The TUC and others have warned of the dangers to workers’ rights from deregulation in freeports. We need to take these concerns seriously. As a minimum, the Government should commit to trade union representation in the governance of freeports at local and national levels.

I will now make a few points about the clauses we are considering. First, on the cost of the tax reliefs being introduced, the Government have provided some information on the expected operational costs of HMRC but, as recently as last month, they were unable to estimate the reduced revenue that the Exchequer will receive as a result of these reliefs. I hope the Minister can address that. Clause 110 includes the enhanced capital allowance for plant and machinery spending at 100%, but that is less generous than the 130% super deduction. Presumably, for the period that they overlap, companies will need to consider whether they can claim the super deduction rather than this allowance.

The Chartered Institute of Taxation has raised a number of concerns about the operation of the stamp duty relief in clause 111. One issue is how exactly freeport tax sites will be designated and whether particular buildings can be identified as either in or out the boundary of the tax site. Can the Minister provide some clarity on joint ventures where there is both commercial and residential development? The Chartered Institute of Taxation points out that the clause, as currently drafted, excludes a common commercial arrangement from that relief. Finally, there is the issue of withdrawal of relief for subsequent non-qualifying activity. A small amount of non-qualifying use can potentially lead to withdrawal of all the relief. Is the Minister concerned that the risk of loss of the full relief in such circumstances could discourage investment?

To conclude, the Opposition have real concerns about the Government’s freeports policy. If it is going to succeed and bring the sorts of benefit that those on the Government Benches claim, we need to see more detail on the operation of freeports and how the Government plan to mitigate the risks. We need regular monitoring of the effectiveness and the impact on the country as a whole over the years to come, which is exactly what new clause 25 would require the Government to do. If the Government are confident in their policy, they should be confident in allowing scrutiny of how it works in practice. I call on them to support our new clause.

[Richard Thomson]

I would like to add my support for the Opposition amendments and to seek a commitment from the Government, while the Minister is here, to allow the Scottish Government after the Scottish elections to move ahead with their greenports adaptation of the freeports concept. Freeports do not require Brexit in order to be brought about, and legitimate questions remain about how much additional economic activity they will actually generate, rather than simply displace from other areas of the economy.

[Sir Bernard Jenkin]

Will the hon. Gentleman give way?

[Richard Thomson]

It is very early but yes, of course.

[Sir Bernard Jenkin]

I am most grateful to the hon. Gentleman for allowing me to intervene. There was a freeport in Shannon in the Republic of Ireland before the Republic of Ireland joined the European Economic Community. The tax freedoms that it was granting at the Shannon freeport were significantly curtailed as a result of joining the EEC, because the EEC prevented it from providing those freedoms. That is why we are discussing the question as to whether or not we are using the new freedoms we have, but the fact is we have much more tax freedom outside the EU for freeports than we had when we were in the EU, and hopefully Scotland will benefit from that.

[Richard Thomson]

I thank the hon. Gentleman for that intervention, but I think my point still stands. No matter what the spirit of truth might be in his remarks about how constraints were placed on the Shannon free zone, there are freeports in the European Union. Freeports are not something that intrinsically require Brexit of itself in order to be able to be pursued. But certainly I hope there are benefits for Scotland from this. I think those benefits can be manifested best perhaps through the greenports approach, which I would like to expand upon.

As I say, the Scottish Government have developed their own version, the greenports, which seeks to embrace all the potential benefits that could come through freeports, while aligning that with ensuring the principles of fair work are enshrined, ensuring that workers within the greenports are paid a real living wage and that the reduction of carbon emissions is embedded at the heart of those developments. A re-elected Scottish National party Government will seek to implement those greenports, making public sector support contingent on businesses complying with that fair work first agenda, paying that real living wage and implementing the Scottish business pledge: our values-led partnership between Government and business based on boosting productivity competitiveness through fairness, equality and sustainable employment, and on delivering on concrete plans to reduce carbon emissions in line with supporting the Scottish Government’s ambition to reach net zero by 2045.

The Scottish Government proposals for these economic development zones already have widespread buy-in from stakeholders, who are desperate to start bidding to run the greenports. It was heartening to hear from the Minister his commitment to seeing freeports in all parts of the UK. Nevertheless, if the people of Scotland choose to re-elect a Scottish National party Government, the Government need to accept the mandate that comes from that and, if there has been an element of heel dragging, to hasten the process of coming to an agreement on the rules around these proposed greenports so that the bidding can begin immediately.

Having taken positive steps to end the race to the bottom on corporate taxation, as we heard in an earlier debate, I think it is important that the UK Government do not allow those who take advantage of freeport status to neglect or otherwise elude their obligations to the workforce, to the environment and to the building of long-term, sustainable value in the regions where they are located and the wider economy.

In the year that the world is coming to Scotland to plan our future at the COP summit, I think it is absolutely fitting that we should be able to develop greenports to demonstrate our ambitions on sustainable, inclusive economic growth as we transition to a net zero economy. A fair, sustainable greenport model can be an exemplar of those values, while adding value to Scottish goods, services and the country’s brand. The UK Government, once the Scottish elections are over, need to get on board with this and back the innovative approach of the Scottish Government model so that we can get the bidding process under way.

[Ruth Edwards (Rushcliffe) (Con) [V]]

The east midlands is one of the regions that was fortunate to benefit from a new freeport in this Budget. Spread across three sites in Leicestershire, Derbyshire and my own constituency of Rushcliffe, we hope to establish a green technology park on the site of one of the UK’s last coal-fired power stations, at Ratcliffe-on-Soar.

Hearing contributions from the Labour party in recent weeks, and from the shadow Minister just now, we would be forgiven for thinking that, with the arrival of a freeport, Rushcliffe will become some sort of wild west, with disputes over stolen art, organised crime activity and tax avoidance settled with a shoot-out in the drinking establishments of Ratcliffe-on-Soar. Quite a picture, but one that ignores the extensive steps the Government have taken to prevent illicit activity, such as background checks for businesses that want to locate in a freeport, including their beneficial owners, and a register of businesses operating in each freeport site, to which HMRC, the National Crime Agency and Border Force will all have access. Successful freeport bids also had to demonstrate their approach to inventory systems, physical security, personnel security, cyber-threats and international regulations.