Finance (No. 2) Bill

Debate between Richard Thomson and Felicity Buchan

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.