(7 years, 11 months ago)
Commons ChamberI will speak briefly in favour of amendment 151 on carried interest. In my time as a Member of Parliament, I have sometimes been critical of elements of the tax regime that applies in the private equity and venture capital world. It seems to me that the generous tax regime, although it has been justified to support entrepreneurs, has often been misused by those in the industry—inadvertently; I am not suggesting that anything untoward or nefarious has taken place. I believe that many in the private equity field have, particularly in good times, in effect been financiers rather than risk takers. As such, it would surely be more equitable for their rewards to be treated more like income than capital gains. That has been at the heart of the whole debate about carried interest.
The Government have been aware of this issue. Let us give them some credit for that. To some extent, we are trying to play catch-up on it. Inevitably, there has been controversy about the treatment of private equity firms’ carried interest, which is levied as a capital gain, rather than as income. There was a time—pre-2010—when the difference between those two things was rather greater than it is today. That may be because capital gains tax has been raised, but the starkness of the problem is to some extent less pronounced now than it was during the time of the last Labour Administration in the noughties.
It is clear that the Treasury is doing the right thing in trying to provide a more favourable regime that is intended to reward genuine entrepreneurs. In principle, that must mean that where carried interest looks like income, it should be treated as such for taxation purposes. That is what we are slowly doing with amendment 151.
Has the OECD not recommended that all carried interest should be treated as income?
It has, but there is a distinction between different elements of carried interest, and we are trying to get to the bottom of that. To be brutally honest, in the longer term I would be much happier to have a regime in which we treated capital gains and income identically. There would not then be any sense in trying to arbitrage one way or the other. In many ways, perhaps inadvertently, the coalition began to move in that direction.
I am sorry that I was not in the Chamber to hear the whole speech of my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), but he is absolutely right. Private equity has had a bad rap because of certain high-profile concerns—partly because of the misuse of tax to allow huge amounts of debt on to balance sheets—but a large number of businesses in each and every one of our 650 constituencies in the UK benefit from having private equity investors. Many jobs now exist because of the private equity investment that has come into play, particularly in growing businesses that will make a real difference in the future. The Government have broadly got this right, although I am sure we will have to come back and look at it again.
I would make one point to the hon. Member for Aberdeen North (Kirsty Blackman). It is not about inheritance tax—we have had our joust on that—but on a more fundamental point, on which I think she is absolutely right: the more complicated a tax code, the more the door is open to tax avoidance of all descriptions. We very urgently need to begin to simplify our tax code. We will add yet more pages to it today. A lot of them are to apply Elastoplast in ways that we can all support for individual reasons, but we need to get back to the principles of a much simpler tax system.
I believe that one of the impacts of leaving the European Union will be not a race to the bottom in lowering tax, but a much simpler tax system. This is a wake-up call for all of us in the House—obviously, particularly for those in the Treasury—to have a much simpler tax code. Such a code will be readily understandable and supported by all our constituents, which is one of the issues we face. It will also say to those bringing in much of the inward investment that will come to the UK from across the globe that we have a simple tax code, which will not be tinkered with in successive Finance Bills because it is very straightforward, and they will be able to work on that basis. I know that may be wishful thinking—going back many years, most Chancellors have talked about having a simpler tax code—but this now needs to be looked at urgently. Urgent attention must be paid to getting simplicity. If we do not do so, we will all very much pay the price.
I entirely echo the right hon. Gentleman’s comments about simplification. I may attempt to catch your eye, Madam Deputy Speaker, to address the House on that issue later. However, I caution him against linking that to Brexit, because almost all the complications, of which there are many in what we now call the tax code, are due to domestic legislation and are nothing to do with the European Union. Brexit may afford us an opportunity to start at the bottom on various areas of Government policy and endeavour, but leaving the EU will not provide such an opportunity in this case.
(7 years, 11 months ago)
Commons ChamberThank you for your indulgence, Madam Deputy Speaker. I will seek to be brief. On new clause 10, I am in favour of evidence-based policy making. The right hon. Member for Cities of London and Westminster (Mark Field) says that the patent box legislation and tax break have been helpful. That may be true, but we do not know. What we do know is that the National Audit Office looked at something like 1,200 tax reliefs and found that the Treasury was only monitoring the efficaciousness of fewer than 300 of them. I do not think that the patent box was part of that, so I support new clause 10 because it might tease out the evidence.
I think there has been some misunderstanding about exactly what the patent box was designed to do. It was not designed solely to promote research and development, as many similar incentives that come through, year on year, in Budgets are designed to do. It was very much an attempt to incentivise companies at the second stage—in other words, companies that already had some intellectual property that was difficult to quantify—as opposed to directly at the research and development side. I think it is slightly unfair to suggest that there is no evidence that that has worked, and I think that the patent box is being looked at in a different light to that which was intended by those who put it into play.
I agree that it is designed to help some companies in their early stages, but with the effluxion of time, those companies should pass through the pipeline and we should see the fruit of their endeavours, helped indirectly by taxpayer support. The evidence should be coming through now. We could not have looked after one year to see whether it had been effective, but now that it has been around for a few years, we can.
I move on to amendment 177. I was amazed to hear the right hon. Gentleman say that he would be prepared to examine the question of having a turnover tax instead of corporation tax. The hon. Member for Leeds North West (Greg Mulholland) said the same thing. I absolutely agree, and I have long advocated looking at that, precisely because of tax avoidance. If it turns out to be the case that Apple has been avoiding tax in the United Kingdom, it would not have been able to do that so successfully if we had had a turnover tax rather than a corporation tax.
I have to say to the hon. Member for Leeds North West that I am a bit bemused. He said tonight that the leader of his party had set up a review of corporation tax, but the leader of his party has also tabled amendment 177 —supported, as far as I can tell, by the hon. Gentleman—which would abolish corporation tax completely for the financial year 2017, without bringing in a turnover tax instead. It seems a very strange amendment to table.
(8 years, 10 months ago)
General CommitteesI wish to make a brief contribution. I will leave it to the Minister, of course, to answer the issues raised by the hon. Member for Wolverhampton South West, but in part it is an EU convention to use this particular template, rather than an exercise of British fiscal power. One could almost ask—from my slightly different political standpoint—a somewhat different question, as I am someone who favours the idea of tax competition. I can see the advantage of having double taxation treaties, particularly given the importance of the UK as a global capital. There are a significant number of entertainers, artistes, sportsmen and others from Sweden, Croatia, Algeria and elsewhere, many of whom are constituents of mine but some may, of course, be constituents of the hon. Gentleman.
I should perhaps say that, in my latest role as vice-chairman of the party, I spent this weekend in a place I suspect I will never go to again, Karlstad in the middle of Sweden, attending our sister party’s party conference. I can assure the hon. Gentleman that the exports of Sweden are not limited to Abba and it has to be said that the Swedes have a great love for our country. Something that I know will impress the hon. Gentleman is that there is a great passion from the Swedes that we should stay in the European Union—