Roger Mullin
Main Page: Roger Mullin (Scottish National Party - Kirkcaldy and Cowdenbeath)Department Debates - View all Roger Mullin's debates with the HM Treasury
(8 years, 8 months ago)
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Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
There have been several very fine speeches in this debate so far. In particular I pay tribute to the hon. Member for Brighton, Pavilion (Caroline Lucas) who made some very telling arguments, but I also pay tribute to two Conservative Members: the hon. Members for Selby and Ainsty (Nigel Adams) and for Brigg and Goole (Andrew Percy). They made very important contributions which I hope the Government will reflect on, and I hope the Minister will show that in his concluding remarks to this debate. I also, however, hope the hon. Member for Brigg and Goole will forgive me if I do not take up his kind offer to visit his bedroom. [Interruption.] I may say I can quite believe that—this is getting rather off-piste.
I want to take up some of the points made by the Minister and the right hon. Member for Wokingham (John Redwood), in particular about the purpose of taxes in this area and about innovation, a word that the Minister mentioned. The right hon. Gentleman also discussed some of the effects this would have on business and I want to talk about that, too. I will come to those matters a little later, and, if I remember, I will also revisit the classic analysis by the famed Professor Porter of Harvard—the Porter hypothesis on environmental regulation and taxes and their impact on innovation.
In my maiden speech I referenced that great son of Kirkcaldy, Adam Smith. The father of economics said there were four requirements for effective taxation: equity, certainty, convenience and economy. This Government proposal fails to meet at least two of those; it fails on the ground of equity and completely fails on the ground of certainty, particularly certainty for businesses. I grant, however, that it meets one of Adam Smith’s criterion: that of convenience. It is perhaps too easy a convenience for the Government to raise further taxes.
However, perhaps the greatest criticism of the Government proposals is that they are fundamentally changing the nature and purpose of taxation, particularly environmental taxation. Indeed, in many respects this is an abandonment of environmental taxation as a principle.
Environmental taxation is aimed at changing behaviour, but this has, by eliminating the climate change levy for renewable energy, simply become just another tax for raising money. The Chartered Institute of Taxation has stated:
“Put simply, green taxes should ideally be easy to avoid (by a change in behaviour) but hard to evade.”
By removing the exemption for renewable sources of electricity, the incentive for sustainable and environmental choices by business is diminished considerably. Thus the removal of the CCL exemption for renewables serves to tax good behaviour and change what was an environmental tax into just another revenue-raising tax. It confirms, if confirmation was needed, this Government’s attack on the renewables sector.
There is also a Scottish dimension to this, as those speaking from the Front Benches have said. As the Chartered Institute of Taxation says, this measure potentially affects Scotland more than it affects most of the rest of the UK because of the high degree of development of renewable energy in Scotland. Indeed, the UK Government’s own figures show that 11,000 people are currently employed in the renewable energy sector in Scotland, with another 5,000 in the pipeline. Those jobs are put at hazard by these proposals.
The Scottish Government have set some of the most ambitious environmental objectives and targets in the world, unlike the UK Government. Scotland has become a leading figure in research into, and encouragement of, good environmental practice and behaviour. Removing the climate change levy from renewables is not only anti-environmental but anti those areas such as Scotland that want to practise good environmental behaviour.
It is therefore appropriate to ask the Minister some questions, which I hope he will address in his summing up. Given the importance of the renewables sector to Scotland, have the Government undertaken an impact assessment of the proposed changes in relation to the Scottish economy in general and to the renewables sector in particular? Given the Prime Minister’s famed Respect agenda, which he is fond of quoting in Scotland, I assume that the Government have respected the different objectives being pursued in Scotland. Will the Minister tell me whether he has been engaged in—or will engage in—discussions with the Scottish Government on the impact of this change on the Scottish economy and the Scottish environmental strategy?
These Government proposals have given a new meaning to the term “stealth tax”. At a stroke they are changing a green tax into a simple revenue-raising measure. They are not using taxation to encourage good behaviour, despite the wealth of evidence that taxation can have a positive effect in changing behaviour for the better. I mentioned the Porter hypothesis earlier. Professor Porter hypothesised that, in this area of the environment, good regulation and appropriate taxation encouraged innovation by encouraging businesses to invest in new and better ways of delivering energy.
Another aspect deserving of comment is the fact that this change is being introduced with just 28 days’ notice. If ever a measure went completely against the good practice that Adam Smith called for of providing certainty in a marketplace, this one certainly does. It will create uncertainty for every business connected with the renewable energy sector, and it flies in the face of every form of good practice.
Sammy Wilson
Much has been made of the sudden nature of the change in taxation, and the impact that that will have on the renewables industry. Would the hon. Gentleman accept, however, that many tax changes are made in a Budget and that they sometimes come into effect within a day or perhaps a month without having a disruptive effect? Is he not over-egging the destructive effect of this sudden change?
Roger Mullin
In relation to business investment, it would be normal practice to undertake considerable consultations. If big changes are proposed to the taxation affecting businesses, there would normally be a process of easing those changes in, to allow the businesses time to do the appropriate planning. There is no possibility of businesses in the renewables sector being able suddenly to change their financial plans for the next five or 10 years following the ridiculously fast introduction of this measure by the Government.
Roger Mullin
It is also anti-consumer and anti-environmental. The Government have managed to accomplish a whole series of negatives in one simple move, and it will give me the greatest of pleasure to vote against this proposal.
Damian Hinds
The exemption from the climate change levy has been one part of the support the taxpayer provides to renewable energy; the total package of that support amounts to some £5.1 billon this financial year. The climate change levy exemption was an indirect incentive for renewable energy. There is no denying it has had some success in the past, but by the early 2020s the total amount of renewable energy supplied will be greater than the total demand for electricity from all climate change levy-eligible businesses. The value of the exemption for generators would therefore be negligible by the early 2020s. For that reason, it would not have been a major factor in the long-term decision making of generators.
There were four reasons for removing the exemption.
Roger Mullin
I wish to speak to SNP amendments 3 and 4, and let me say three things at the outset. First, I am seeking to curry favour by making my remarks fairly short, as we have had a long two days; I hope that is appreciated. Secondly, our amendment gives the Government the opportunity to change their approach to setting the 8% surcharge by introducing it in a tiered manner. This would have the benefit of removing a cliff-edge and replacing it with a more manageable approach. However, and thirdly, we do recognise that our amendment may not be the only way of achieving a more sensible introduction of the surcharge, and therefore we are keen to hear the Minister’s response.
What is the fundamental issue? A number of fine comments have already been made about building societies, the problems of retained profits and the like, so I shall mention some other matters. Our concern is primarily centred on the impact this Bill will have on challenger banks and the adverse consequences it will have on competition and diversity and in respect of entry barriers for prospective new challengers.
As Carlos Suarez Duarte, vice-president at rating agency Moody’s, said,
“profitable challenger banks will be the most affected by the new charge on profits,”
while changes to the bank levy
“will be positive for UK banks with large overseas operations such as HSBC and Standard Chartered.”
About 30 banks are subject to the current levy, but the new 8% additional tax on profits will affect any challenger bank with profits of more than £25 million, expanding the scope of bank taxes to potentially around 200 institutions, The Daily Telegraph estimates.
I and my colleagues have little issue with the surcharge applying to institutions that have posed a systemic risk to the sector, but the smaller banks have not posed such a danger. Indeed, the coming of the era of the challenger banks is seen by many as part of the solution to the problems posed by having too few, too powerful institutions. Challengers are not part of the problem in this regard; they could be part of the solution.
Indeed, the surcharge as currently proposed will have perverse effects on the Government’s own banking strategy. The Chancellor vowed only a couple of months ago to boost retail banking competition by proposing at least 15 new licences over the next few years, but as Nigel Terrington, chief executive of Paragon Group, which recently launched its own bank, said:
“This surcharge took everyone by surprise and does seem to be contrary to the stated government policy of wanting to increase competition.”
Indeed, as he has also commented:
“It feels like they’ve replaced a punishment tax on the larger banks with a charge on all of us. What did we do wrong—I thought we were part of the solution, not the problem?”
In effect, this surcharge will prove a barrier to encouraging new entrants. Indeed, the tax will hit small profitable domestic banks particularly hard, which completely goes against previous Government efforts to lower the barriers to entry for new lenders, which we welcomed. Anne Boden, the founder of Starling, has previously praised the Government strongly on more than one occasion, but she has recently been quoted as saying in relation to the new surcharge:
“It is not just a constraint on the development of smaller banks, but, more importantly, not in the best interests of consumers.”
Many of the challenger banks’ consumers and customers will be small and medium-sized enterprises. As a former owner and director of a number of SMEs myself, I know from bitter experience how difficult it can be, particularly in the early years of trading, to access banking support. That is why, in my life before entering this place, I was supportive of the move to enable the establishment of more challenger banks willing to deal more effectively with the needs of the SME sector. That is particularly important in the Scottish economy, which is heavily reliant on SMEs.
Analysts, including Gary Greenwood of Shore capital, have been highly critical. He, like others, has argued that the surcharge as currently planned will be counterproductive, and that it will inhibit the ability of smaller banks to grow and compete as effective challengers. He states:
“Banks can lever up their equity by 10 to 20 times, so for every £1 of tax you take off them, you rip £10 to £20 of lending capacity out of the market. It is crazy.”
Crazy indeed. By harming lending and therefore investment, particularly by SMEs, this will also have the effect of creating a further problem for achieving higher levels of productivity in the economy. We need more investment, not less; more lending, not less.
The Government’s explanations of why this burden should be placed so heavily on small profitable domestic banks are unconvincing. It is hard to find any analyst who sees this as helpful for competition, diversity or entry. I hope the Minister will reflect on these arguments, and perhaps address the following questions. Have the Government undertaken a detailed analysis of the likely effect on SME lending in the four countries of the UK, and if so will they publish it? Have the Government changed their policy on the need for effective banking competition? I look forward to hearing their response, and hope that it is strong and purposeful enough to satisfy our concerns.
Huw Merriman
I very much support the Government’s proposals, and I particularly welcome the balance that they intend to strike between ensuring that banks make a fair contribution and giving greater recognition to the role that they play in providing jobs and powering growth. I also welcome the fantastic critique given by my hon. Friend the Member for Wyre Forest (Mark Garnier), which has resulted in my putting half my speech into the bin. It would not have been half as eloquent as his.
The hon. Member for Wirral South (Alison McGovern) mentioned the behavioural implications of the proposed change. Scottish National party Members have also touched on that subject and asked whether challenger banks were being punished via their profits. I do not believe that tax itself, either on profits or on the balance sheet, will stop risky transactions. Indeed, the European Union transaction tax would mean that a bank would pay tax at the outset and would then be free to enter into a potentially catastrophic transaction at a flat fee. In comparison, the UK’s approach has been to require banks to set aside capital, with a requirement for more to be set aside against riskier transactions. That is not a tax; it is capital being set aside. By separating the balance sheet of retail banks from the riskier investment banks, the investment bank does not have the capital to enter into that potentially catastrophic transaction in the first place. Measures taken by this Government—and, to be fair, by the prior Government, too—have helped the UK buffer itself well following the crisis of 2008.