Finance Bill (Third sitting)

Stephen Flynn Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

[Bridget Phillipson]

I begin by acknowledging that the action on the relief is welcome, even if we believe it is overdue and could go further. The Minister might be familiar with the Resolution Foundation’s description of the entrepreneurs’ relief as “the worst tax break” that is, “expensive, ineffective, and regressive”. According to HMRC, it cost an estimated £2.1 billion in 2019-20 alone. Before responsibility is laid at the door of the previous Labour Government for introducing the measure, I should argue that many of the undesirable effects have followed changes made post-2010. I thank the House of Commons Library for providing me with a timeline of the changes made to entrepreneurs’ relief since its introduction in 2008, which has allowed me to illustrate that point.

The relief was introduced by the then Chancellor, Alistair Darling, in 2008 with the goal of promoting entrepreneurship in the UK and making us a world leader in the field by encouraging business owners selling up to reinvest the money into new businesses. The 2008 Budget established that the relief would set an effective tax rate of 10% for up to the first £1 million of gains made over a lifetime, which was increased to £2 million from April 2010.

In the coalition Government’s first Budget on 22 June, the then Chancellor, George Osborne, announced that the lifetime limit for entrepreneurs’ relief would be set at £5 million, while the single flat rate of capital gains tax would be replaced with the higher 28% rate paid by higher rate taxpayers. As part of the Government’s second Budget in March 2011, it was announced that the lifetime limit for entrepreneurs’ relief would be increased to £10 million from 6 April 2011.

When the relief was introduced by the Labour Government, the estimated cost was £200 million a year: the generous uprating of the lifetime limit under the coalition Government has undoubtedly contributed to its ballooning cost. Perhaps the cost would be justifiable if it had been shown to have a positive impact in boosting investment in jobs across our country, but there is no evidence to suggest that that has been the case.

The Institute for Fiscal Studies has calculated that, in 2017-18, three quarters of the £2.3 billion cost of entrepreneurs’ relief benefited only 5,000 individuals, with an average tax saving among that group of £350,000. The Resolution Foundation highlights HMRC data that shows that 82% of those who benefited have been male and in their late 50s, and that the majority of capital gains tax revenue is concentrated in London and the south-east. The 2017 HMRC evaluation found that only 8% of people claiming entrepreneurs’ relief in the previous five years had said that it influenced their investment decision making. That demonstrates the extent to which the relief was not working as intended, and the necessity of Government action.

Putting aside whether the approach taken by the Government is the right one, there are some technical issues that I hope the Minister can clarify. The Chartered Institute of Taxation has expressed a degree of surprise at the lack of transitional provisions, given that the capital gains tax changes are retroactive, affecting gains that have already accrued but not yet been realised and investment decisions that have already been made. The institute has also expressed concerns about the strength of the anti-forestalling measures for what is a change of policy rather than anti-avoidance legislation, saying it regards one aspect of the measures as open to challenge as retrospective taxation because the Government are changing the tax effect of an action after the right to take that action has arisen. Having sought legal consultation, it fears that may even be a breach of human rights. It has suggested changing the clause to allow a shareholder whose shareholding no longer qualified for entrepreneurs’ relief immediately after an exchange of shares to elect to retain the £10 million limit. Will the Minister tell us what consideration the Treasury has given to the issue?

What consideration have the Government given to going further than the measures contained in this clause? As I have sought to set out to the Committee, entrepreneurs’ relief is costly and is failing to achieve its objective. The Minister is aware, no doubt, that any number of organisations are critical of maintaining it in any form, although the criticism is not unanimous. The Federation of Small Businesses has voiced its concerns and believes that removing entrepreneurs’ relief would disincentivise employee ownership by reducing the value of businesses as they are handed over. Can the Minister say anything by way of reassurance to the Federation of Small Businesses, and does he agree with its assessment?

Many others remain critical and that is where the majority of opinion rests. The Institute for Fiscal Studies has stated that the £1 million relief in the clause is still too generous. The Association of Accounting Technicians says it is disappointing that the Government have failed to scrap it altogether, highlighting an overwhelming body of evidence from focus groups, HMRC-commissioned research, the Office of Tax Simplification, the National Audit Office and others,

“which indicates that the relief does not achieve its policy objectives, that it’s extremely expensive, poorly targeted and ultimately ineffective.”

In the light of that, will the Minister set out for the Committee why the Government have not gone further in this area?

On the new clause, which was tabled by the Scottish National party, we understand the rationale for a review of the measure’s impact on business and on different parts of the UK, but as I have sought to set out to the Committee, there is a strong body of evidence of the entrepreneurs’ relief not working effectively. I would appreciate a better understanding of the impact the amendment seeks to achieve. We do not oppose the new clause; we just think it could go further.

Let me make it clear that a more progressive approach to entrepreneurs’ relief should not be confused with being anti-business. As my hon. Friend the Member for Ilford North set out last week in Committee, Labour Members support measures to promote investment and entrepreneurialism and to support the small businesses that are the backbone of our community and that are doing so much at a difficult time to try and keep people in work, to support our communities and to contribute to our country. The Government need to bring forward measures to ensure that tax reliefs work effectively. The evidence suggests that the entrepreneurs’ relief, as conceived and delivered over the past decade, does not work.

There is a wider issue here that I hope we can revisit in later stages of the debate regarding the Government’s efforts to monitor the effect of tax reliefs such as entrepreneurs’ relief. The National Audit Office’s excellent recent report on tax reliefs shows that the Government are not reporting costs on over two thirds of them and that HMRC did not know whether most tax reliefs offered value for money. I believe the Public Accounts Committee will be taking evidence on this very shortly and publishing its report on the work of the National Audit Office in considering this important issue. We on the Opposition Benches will be following that discussion carefully, because it seems incredible that the Government do not have a proper grip on that area, where there is a real problem around value for money and whether the information provided to Parliament is sufficient, so we can understand whether tax reliefs are having the outcome intended by Government and whether fairness is built into the system.

We will continue to argue for a broad review of tax reliefs and continue to encourage Ministers to adopt the policy to determine exactly who is benefiting from the hundreds of tax reliefs that exist, whether they are fair, whether they represent good value for money, whether we can be confident that they are securing the policy outcomes as originally intended, and that the Government should legislate to make the system fairer as a whole.

[Stephen Flynn (Aberdeen South) (SNP)]

This is my first experience of a Finance Bill Committee—indeed, I think it is the first time we have met, Mr Rosindell, and I look forward to serving under your chairmanship. Dare I say that our new clause is constructive? That is the manner I am starting in. I would like the Government to change their stance a bit and look at the wider picture.

Before the Budget, it was well known to all of us in the public sphere that the Government were considering entirely scrapping entrepreneurs’ relief. We read a number of comments in the press and the public domain about Conservative Back Benchers being unhappy with that move because they felt it would stifle investment. Ultimately, the Chancellor did not scrap entrepreneurs’ relief but simply took it back to the level it was at when the Labour party introduced it in 2008, reducing it from £10 million to £1 million. We need to know what the Government’s long-term direction of travel is. We cannot be driven by a rebellion on the Government Back Benches. If the Government do not feel that entrepreneurs’ relief is beneficial, they should make that clear.

The Minister said that the Government have conducted a review, and indeed they have, but it was an internal review; as far as I am aware, it is not in the public domain. They are more than welcome to put it into the public domain, or they could agree to our new clause. The hon. Member for Houghton and Sunderland South talked about what we are could achieve. It is important that we have that review so that we all know where entrepreneurs’ relief is going to be in the coming years.

As I say, this is a constructive suggestion. It is based not just on our interpretation of the situation, but on the evidence. The IFS believes that entrepreneurs’ relief is poorly targeted; the FSB, on the other hand, is broadly supportive; and the Chartered Institute of Taxation believes that a public consultation on objectives and efficacy is necessary. There is a broad range of views about this policy, so the time has come for the Government to undertake a review in the public domain so that we all understand the direction of travel and know where they seek to go. Hopefully, that will inform us all a bit more about the position. As I say, this is a constructive suggestion, and I hope the Government will change their stance.

[Jesse Norman]

I thank the hon. Members for Houghton and Sunderland South and for Aberdeen South very much for their comments. They raise a number of important points.

It is certainly true that this relief has attracted widespread criticism from different interested and expert bodies; the hon. Lady is absolutely right to point that out. It is important to note that the Government have tried to strike a balance. An outright abolition might have had the effect of penalising a lot of entrepreneurial activity, undertaken in good faith up to the level that has been determined. That would have been, in the Government’s view, an overreaction to the situation. Therefore, we have tried to strike a balance by trying to keep the vast majority of entrepreneurial activity that is protected in place while cutting back on aspects that are ineffective or regressive.

It is interesting, as has been noted by Opposition Members, that alongside widespread concern there has also been notable recognition of the importance of that aspect of the relief that I have highlighted from the Federation of Small Businesses. I note that the national chairman described this as a

“sensible compromise on Entrepreneurs’ Relief”,

in which

“everyday entrepreneurs will be pleased to hear the Chancellor say that he has listened to FSB”.

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Given that we are likely to have another Finance Bill sooner rather than later—probably sooner than we would all wish, and certainly sooner than we will all wish after debating some of these clauses today—I hope the Government will revisit this issue. This point was made by the previous shadow Treasury team, and it is one that we share. I hope the Minister will respond to some of the points I have raised.

[Stephen Flynn]

Dare I say that I think I am potentially being constructive again in the new clause that the SNP have tabled? We are seeking to allow the Government to open their eyes to what is coming down the track and to look at the impact on business, investment, employment and productivity of a number of different scenarios, be they a comprehensive free trade agreement, remaining in the single market and customs union, not remaining in the single market and customs union, and/or a free trade agreement with the United States.

Ultimately, however, this is not just about helping the Government to see the error of their ways, should they follow the path they are on, but also about reinforcing to hon. Members the huge detrimental impact that leaving the European Union will have on Scotland. Lest we forget, the people of Scotland voted overwhelmingly to remain in the European Union. We are being forced to put forward amendments such as this because the democratic views of the people of Scotland have been disregarded once again by this Parliament.

I will touch briefly on the reality of the situation facing Scotland, because it is incredibly important to the debate we are now having. A new study from the Scottish Government says that, if an extension is not agreed, Scottish GDP could be up to 1.1% lower after two years. That is just in relation to an extension. The cumulative loss of economic activity from leaving the EU would be up to £3 billion over those two years. That is on top of the devastating impact of the current pandemic on the Scottish economy. We will potentially have billions wiped from our economy at a time when we are reeling from the impact of this public health tragedy. That is simply not good enough.

The very notion that a US trade deal will save the day is complete and utter rubbish. Analysis from the Scottish Government highlights that the loss of friction-free trade with the EU would lower GDP by 6.1% by 2030. Analysis by the UK Government shows that a free trade agreement with the US would increase UK GDP only by up to 0.16%. Those are remarkable figures, which we all need to consider in full. The reality is that the reckless approach of the UK Government in potentially losing full access to the European single market will have a devastating impact on Scotland’s economic growth and prosperity. It also puts in jeopardy many of our key priorities: the NHS, upholding food standards and tackling the climate emergency.

Lowering standards is perhaps a topical subject to touch on, because we have all read with interest comments in the press over recent weeks about the impact of lowering food standards on imports of food into the United Kingdom. We are proud of Scotland’s agricultural sector and the produce we create, which is world renowned for its class. We cannot under any circumstances have a situation where the quality of that produce is impacted by the decisions of the UK Government, particularly when those decisions will be made on the back of something we did not vote for. I cannot emphasise that enough to Members. Whether it is chlorinated chicken, selling off the NHS to Donald Trump or simply trying to bring down the tariffs on Scotch whisky, the UK Government have shown they are incapable of meeting the needs of the people of Scotland, and I have grave concerns about what is coming down the line.

As I say, the new clause we have tabled today is constructive, because it would allow the UK Government’s eyes to be opened to the reality of the situation facing Scotland. If they are true in their comments about believing that Scotland is a key part of the United Kingdom, and Scotland should lead and not be led, they will hopefully bear the new clause in mind.

I will finish by touching on the comments of the hon. Member for Ilford North, who rightly said that, for many, Brexit has been forgotten about. Well, for people in Scotland it has not been forgotten about, because we overwhelmingly do not support it. Rightly, the pandemic—overcoming it and ensuring that lives are saved—is the focus of all our priorities at this moment, but we know what is coming down the line and we are fearful. Up until now, none of the mood music coming from the UK Government has offered any reassurance whatever. Hopefully, the figures I have highlighted in relation to a United States trade deal will re-emphasise the reality of the situation to the Government.

I said I would finish, but that was perhaps a fib, because there is one further comment I wish to touch on. I apologise if I get a word or two wrong, but the Minister said that the new clause would not provide “any useful information”, and I am astounded at that. I thought that a UK Government Minister would want to know about the impact on productivity of the decisions that the UK Government may take. I thought a UK Government Minister would want to know about the impact on employment of the decisions taken on business productivity, but it appears not. It appears that wilful ignorance is the story of the day, which is not a good thing. The people of Scotland will pay close attention to the actions of the UK Government moving forward, as they have up until now.

[The Chair]

I call the Minister to respond.

Finance Bill (Fourth sitting)

Stephen Flynn Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

[Wes Streeting]

In the case of clauses 28 and 29, I think we have to ask some questions about what the Government are trying to achieve, and some questions about the frequency with which they change the rules.

As the Chartered Institute of Taxation has said, taxpayers generally welcome any increase in a rate of relief, but as the institute has noted on many previous occasions, regular tinkering with rules and rates of capital allowances brings additional complexity and uncertainty; it also undermines investor understanding of and confidence in what is on offer at any one time. Most businesses cite certainty as one of the most important factors in their business planning, and as the institute has also said, it is perhaps more important than the precise amount of relief available.

When the SBA was introduced in 2018, it took an approach of introducing another type of asset classification required only for tax purposes—something that was previously identified by the Office of Tax Simplification in its review of capital allowances as a source of compliance costs. For most property investors, as there is a clawback on disposal of a structural building, the main benefit of the SBA is one of cash flow. As financial accounts will have to provide for a deferred tax liability, it is questionable how much this tax measure will act as a significant incentive to invest or will result in a significant impact on the UK’s competitive advantage. The Financial Secretary ought to address that criticism.

One of the other issues I wanted to raise is something that the Chartered Institute of Taxation has mentioned. Broadly, the changes—particularly in clause 29 and schedule 4—can be described as making the SBA work as it was intended to. It is a relatively new relief, having been introduced in October 2018, and the need for these corrections may reflect the fact that the relief was introduced as a done deal for immediate implementation, with no prior consultation. I am sure the Financial Secretary will say in defence—he can correct me if I am wrong—that the Treasury considers this important to deter businesses that were planning expenditure immediately after the 2018 Budget from deferring it until a later date of introduction, to avoid people taking full advantage too soon. It prompts the questions of why we have a system that apparently requires constant fine tuning, and of whether this is really working to the extent that Ministers intend and to the advantage of the businesses that are supposed to benefit from the relief, if they face additional compliance costs as a result.

I move on to new clause 10. I am in danger of repetition, which I appreciate is not a novelty in this place, but it is repetition that could easily have been avoided, were it not for the same issues that I raised this morning in relation to the “amendments to the law resolution” that successful Governments of different political stripes would have tabled to enable a more wide-ranging political debate in the interests of Parliament and, most importantly, of the wider public.

Ms McDonagh, as you were not chairing this morning’s proceedings, I think it is fair to say that the debate surrounding this Finance Bill, and the clauses that we are considering this afternoon and will consider into next week, is a little more dry and technical than perhaps any of us would have liked. There is a reason for that: it comes down to the fact that the Government are trying to restrict the ability of the Opposition, minor parties and dissenting Back Benchers to cause trouble. That would have been a little more understandable, if not noble, in previous Parliaments, when Governments operated under much tighter majorities or with no working majority at all. That is not to say that it was justified—the Opposition strongly argued against it in the past and would argue against Governments behaving in such a way in the future—but this Government have a significant majority. They do not need to worry about Back-Bench rebellions to the same extent as they once did, and none of us is well served by the Government failing to table the “amendments to the law resolution” alongside the Finance Bill, in order to allow the more wide-ranging political debate that our constituents would expect us to have.

Here we are with new clause 10, just as we were this morning, with an SNP amendment using the structures and buildings allowances review—I hope the hon. Member for Aberdeen South will not resent my characterising the new clause in this way—to shoehorn in some important wider considerations around what is happening to the UK economy on business investment, employment, productivity and energy efficiency, as outlined in the new clause, in a way that would not be necessary if Opposition parties or any hon. Members of the House were able to table amendments in the way we would have liked and our constituents would have expected. The Government would be richer for the scrutiny and would be forced to raise their game, and the Opposition parties would be encouraged to think more carefully about the changes that we propose to Government policy and would be under greater scrutiny to ensure that, where we oppose Government, we also suggest alternatives. Previously, we would have been able to demonstrate those alternatives more plainly by tabling amendments, but we are curtailed by the way the Government have gone about the process and procedure for amending this Bill. As a result, here we are, locked in Committee Room 14 on a moderately sunny afternoon, debating rather dry and technical details of the Bill, when our constituents, the Government and the process of government would have been better served by a more wide-ranging debate.

[Stephen Flynn (Aberdeen South) (SNP)]

I look forward to serving under your chairmanship, Ms McDonagh. Before I start, I want to touch quickly on the remarks that the hon. Member for Ilford North made about why the new clause was tabled. This is the only opportunity available to us to highlight the issues that we seek to promote. Of course, that is not a criticism, and I would certainly welcome seeing a few more new clauses from Labour Members. Indeed, there is opportunity for all of us to discuss what we seek to discuss, but the key thing is that we need to move something first.

On the matter at hand, amending the tax system in order to incentivise capital investment is a good thing—it is something that we should all want—but when we take such actions we also need to ensure that good governance is put in place. We must also look at the effectiveness of those actions, particularly when we are dealing with the potential impact on business investment, employment, productivity and energy efficiency.

I want to focus on energy efficiency, because it is so important in combatting the climate crisis that we all face. Words mean only so much, so we need action too. We all want to understand how Government measures incentivise energy efficiency, and we want to see further detail behind that, but we also want to see how the Government could go further. For instance, I wrote to the Government—I am not sure whether I got a response—about VAT on building repairs. I appreciate that in the south-east of England, the need for energy efficiency in properties is perhaps not as urgent as it is in the Baltic north-east of Scotland, where I hail from, but that is not to say that it is not a hugely significant issue.

Although we would like VAT to be reduced to encourage home owners, property developers and the like to improve the energy efficiency of older properties, that is not something that the Scottish Parliament can legislate on; the Scottish Government’s hands are tied by the UK Government in that regard. I hope the Minister will take the opportunity to clarify why there has been no move on that issue. We want properties to be more energy-efficient, and reducing VAT on the essential repairs that they require would be a logical, practical and easy step. It is deeply frustrating that such matters are not within the Scottish Parliament’s competence, and that we need to rely on a UK Government we did not vote for and do not support. So much good is happening in Scotland at the moment and the Scottish Government are doing incredible work, but their hands are tied. For instance, in December 2019, the Scottish Government’s Housing Minister, Kevin Stewart, highlighted that, by the end of 2021, we will have allocated more than £1 billion since 2009 to tackle fuel poverty and improve energy efficiency to make homes warmer and cheaper to heat.

In my former life as an elected councillor in Aberdeen, I saw at first hand the good work that housing associations and local authorities have done to improve insulation, use newer windows to stop energy leakage and put better heating systems into homes. Moves are afoot to increase our energy efficiency, and they are all positive.

In Scotland, we are blessed that we will have legally binding standards for home energy efficiency from 2024 onwards, which will make things even better. However, we should not have to rely on the UK Government’s approval to put in further measures. I again ask the Minister to clarify why the Government have been unable or unwilling to reduce VAT to date.

As I say, so much good is being done in Scotland to improve energy efficiency. It is only right that the UK Government agree to the new clause, in order to then assess their own actions and determine what more can be done to improve the situation, not only for those in Scotland but for those across the United Kingdom.

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[Stephen Flynn]

I beg to move amendment 4, in clause 35, page 34, line 3, at end insert—

“(13) The Chancellor of the Exchequer must, no later than 5 April 2021, lay before the House of Commons a report—

(a) analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme, and the changes in those effects which it estimates will occur as a result of the provisions of this Section, in respect of;

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland;

(b) assessing how the Enterprise Investment Scheme is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland; and

(c) evaluating the lessons that can be drawn from the effects of the Enterprise Investment Scheme with respect to the encouragement of both private and UK Government-backed venture capital funds in the devolved nations of the UK.”.

This clause would require the Chancellor of the Exchequer to analyse the impact of the existing EIS and the changes proposed in Clause 35 in terms of impact on the economy and geographical reach; to assess the EIS’s support for efforts to mitigate climate change; and to evaluate the Scheme’s lessons for the encouragement of UK Government-backed venture capital funds in the devolved nations.

The amendment is, hopefully, straightforward and one on which Members can agree. As things stand, as we all know, the enterprise investment scheme facilitates investment firms by offering a tax relief to individual investors of up to £5 million a year, and £12 million over a company’s lifetime. Scotland has an extremely strong financial services sector: a recent EY survey showed that we attract more foreign direct investment than any part of the UK outside London. Indeed, my own city of Aberdeen is well known for securing investment, and regularly battles ahead of cities of a far greater scale.

However, with little financial services power, we are unable to fulfil Scotland’s potential in respect of domestic venture capital. Venture capital in the UK is highly concentrated in the golden triangle—London, the south-east of England and the east of England—which received 73% of all venture capital between 2016 and 2018, according to the British Venture Capital Association. That disparity is also reflected in the EIS. Between 2015 and 2018, only 210 Welsh firms benefited from the EIS, receiving only 1.3% of the total investment. In contrast, the golden triangle received 67% of all investment, with the average UK angel investment per firm being 40% higher than in Wales.

We support Plaid Cymru’s attempts to get Westminster to own up to its failure to get investment into Wales. The amendment would force the UK Government to officially consider the unsustainable concentration of private investment in one region of the UK at the expense of all devolved nations. As the UK Government narrow the applicability of the EIS, they need to consider how that will affect the ability of firms in other areas of the UK economy; how EIS—a tax really funded by taxpayers—could benefit us all by addressing climate change; and how they can encourage the establishment of venture capital funds, and therefore private investment, in the devolved nations.

I will focus briefly on climate change once again. As I said, we cannot escape the climate crisis in front of us. If we have the opportunity to do more, and if we have the ability to leverage investment in a way that allows us to combat the climate crisis, that is surely something that we should all seek to achieve. With that, I bring my remarks to a close. I hope that Members will be minded to support the amendment.

[Bridget Phillipson]

We welcome the Government’s attempt to draw from their capital review with industry lenders on the enterprise investment scheme. I will come on to our response to amendment 4.

The Government have listened and are not offering further tax relief, instead providing additional flexibility for fund managers to make subscriptions in shares for investors over the years in which the relief is given. However, the difference between adding further tax relief and additional flexibility in this policy is not clear.

We are sympathetic to the position that the hon. Member for Aberdeen South has outlined. We know that there is a big imbalance across the nations and regions of the United Kingdom. The Government talk a lot about the need to level up; we hear about it all the time. It has not always been entirely clear to me what that means—not least because, over the past 10 years, what we have seen has involved precisely the opposite.

I look forward to the days when the Government will provide investment in parts of the country such as the north-east of England, which will enable us to contribute our fair share and play our full role in economic recovery more broadly. We are therefore sympathetic to the amendment proposed by the hon. Member for Aberdeen South.

The requirement to release a report on the effects of the enterprise investment scheme will enhance scrutiny of this policy and ensure that its results are fruitful and target the right causes. It is important to ensure that it starts benefiting regions that need it the most. I am sure the Minister will understand why I put in a particular plug for the north east of England, but we want to see this right across the country and the nations of the UK as well.

The amendment also raises the important issue of the climate emergency, which has not simply vanished because we are currently focused on the pandemic. The climate emergency is still with us and the longer we take to tackle it, the faster we will start to feel the effects of global warming. Research and investment must go towards tackling the climate emergency and we need to encourage the responsible and relevant use of Government funds for knowledge-intensive companies to benefit from them.

In the broader sense of the clause, it is not quite clear to the Opposition what the outcome of adjustments to the enterprise investment scheme detailed in the clause would be. The clause lacks some detail and clarity. We worry that it may be open and liable to exploitation, so I would like the Minister to say a little more when he responds. We have seen problems in recent years in this area and we do not want to see them repeated here.

Research conducted by Ipsos MORI for HMRC in 2016 showed that income tax relief was the main driver for investors to use the enterprise investment scheme: eight in 10 considered the income tax relief element of the scheme to be very important, and 32% essential, to their decision to invest; more than half also considered capital gains tax exemption to be either very important or essential. While many investors decide to invest in the enterprise investment scheme for philanthropic reasons, the financial incentive remains important none the less. The concern is reflected in the scepticism of some universities reported in the Government’s consultation back in March 2018. It is in all of our interests that academic institutions, entrepreneurs and fund managers are aligned, but it is clear there are some issues around greater cohesion between them as part of this scheme.

The hon. Member for Aberdeen South referred to the disparity. The Government’s own figures show that London and the south-east accounted for the largest proportion of investment, with companies registered in those regions receiving 65% of all enterprise investment scheme investment in 2018-19. London and the south-east of England does not have a monopoly on talent, innovation or research. If the Government’s levelling-up agenda is to mean anything in practice, we have to see much more support targeted to those regions so they are able to take part in the wealth of our nation and they can contribute more. We have wonderful universities, pioneering companies both large and small, and a wonderful and flourishing supply chain.

I put it to the Minister that the hon. Gentleman is quite right. We require greater scrutiny to be confident that we are pushing in the right direction and that the Government are making sure that where measures are introduced, they are targeted on the areas of the country where additional Government support could lead to much better outcomes for residents of those communities, who want the opportunity to contribute more broadly to the economic health of our nation. Especially as we start to emerge from this crisis, we will need targeted support that allows every nation and region to contribute to our economy, both in terms of skills and broader investment. For that reason, we are sympathetic to the amendment.

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[Stephen Flynn]

There are a few points that I think are incredibly important to pick up on. The first relates to the Minister’s remark that the EIS is and needs to be a neutral fund. It does not need to be a neutral fund; that is a choice. If we seek to combat climate change and put our words into action, we can make those decisions and make them now—the gift to do that is in the Minister’s hands. It is incredibly important that we focus on that point: that it does not have to be how it is at the moment.

I respect the commitment to review before 2024, but that is a significant time away. I am not overly comfortable with the idea that we can allow that time to pass before we assess whether the scheme is working as we feel it should.

[Jesse Norman]

May I say what a joy it is to have the boot on the other foot and to be able to intervene on another member of the Committee? Of course the hon. Gentleman is right that legislation can be changed, subject to the will of Parliament, but this measure cannot be changed without distorting its essential character. Its purpose is to implement a reform that addresses, and hopefully cures, a market anomaly.

To address the real and important wider concern that the hon. Gentleman raises, the real question is therefore whether there are other measures outside the EIS that could achieve some of the aims he describes. The EIS cures the anomaly, which is about investment—as we know, we cannot deduce effectively where the investment goes from where the head offices are—but there may be other measures that the Government can take, and that the Scottish Government may want to take, to address more widely the concerns that he describes.

[Stephen Flynn]

I look forward to the UK Government coming forward with such proposals; that would certainly be of much interest to me and to colleagues across the UK.

I want to home in on the climate situation in Aberdeen. It would be remiss of me not to highlight the fact that Aberdeen is the oil and gas capital of these islands, and indeed of Europe, and has been so for a significant time. However, we are extremely conscious of the situation in Aberdeen due to the oil and gas sector downturn—we heard earlier about the support that the UK Government put in place during the downturn, although I was not quite sure which downturn was being referred to since we are currently in the midst of perhaps the sharpest downturn of the North sea basin—but we are very cognisant that we need to make a sustainable transition to a net zero future.

If we look to the possibilities of the north-east of Scotland—hydrogen technologies, carbon storage, alternative fuel gas turbines, subsea and offshore energy—there is a wealth of opportunity. We are blessed with unbelievable natural resources in Scotland. If we can have a fund that channels money into exploiting such research and talent, we should be willing to do so.

Ultimately, amendment 4 is very clear: it is about

“analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme”.

We are talking about analysing the scheme and whether it is doing the job it should be doing. As I have said on a number of occasions, the Government should not be afraid of looking at whether their schemes are effective. We should all retain a firm commitment not just through our words but—I repeat—through our actions to combat the climate emergency and the amendment is one way in which we could do that.

[The Chair]

Mr Flynn, do you wish to press your amendment to a vote or to withdraw it?

[Stephen Flynn]

I will press the amendment.

Question put, That the amendment be made.

Finance Bill (Sixth sitting)

Stephen Flynn Excerpts

Committee stage & Committee Debate: 6th sitting: House of Commons
Thursday 11th June 2020 Public Bill Committees

[Stephen Flynn (Aberdeen South) (SNP)]

Thank you, Ms McDonagh, and I thank the Minister for allowing me the opportunity to speak to new clause 11, of which there are two parts. The first relates directly to the digital services tax and the second relates to Scottish limited partnerships in relation to the DST. I shall come to that in due course, to address, I hope, the concerns of the hon. Member for Houghton and Sunderland South.

With direct reference to the new clause and DST, the Minister has taken great pains to stress that this is a new tax, and because of that we need to take things slowly. However, I feel there will still be a strong element of cynicism in the public domain about how effective the tax will be, which his why we have tabled new clause 11. Such cynicism would certainly be justified. Earlier we heard about Amazon as an example of a large multinational corporation that benefited from the lack of direct taxation. For instance, last year I believe it paid £220 million in direct taxation in the United Kingdom, despite revenues in excess of about £11 billion. That is neither sustainable nor fair.

As to fairness, we heard at great length earlier about online retail’s impact on high streets across the United Kingdom. We need not go far to see that many shop fronts are now derelict because of the change in consumer habits. I suggest that those habits are unlikely to change, particularly for people in the younger generations who have become accustomed to sitting in the comfort of their home ordering what they want, and getting it delivered in a day or two.

That being the case, we need to create an element of fairness, which will allow revenue to be gained and income put back into the system. I imagine Members can think of many avenues for spending that revenue, but perhaps it could be spent to provide local authorities with the finance they require to invest in city centres and transform them into something better. The issues relating to DST have perhaps never been as relevant as they are now, given the prevalence of online retailing.

We also need to be mindful during the pandemic of the fact that many companies in Scotland and the United Kingdom face an extremely bleak future, and will still have to pay their fair share, as they have always done. It is unacceptable for us to be in such a situation. That is why I welcome the measure, although it could perhaps have been dealt with in a way that sought to bring in more revenue. Many companies will be in extremely challenging circumstances, through no fault of their own, and we must have a system that provides fairness, as they would expect.

Netflix was discussed earlier. I understand, as do Members on both sides of the Committee, that it might not have the same financial burden of payment as Amazon. I did not ever think I would use this phrase in the Houses of Parliament, but rather than “Netflix and chill” the expression should surely be “Netflix pay your bill.” The reality is that it has coined it and has not had to pay back. No fair-minded person can support that.

I appreciate the Minister’s comments and understand his position: we need to see where the OECD is coming from in its approach. Ultimately we need a global, sustainable position on online taxation; everyone recognises that, but the Government have been slow in getting to the point where they are now, and they could have gone further. The new clause allows them to reflect on where they will be. As I have said, public cynicism will continue to be rife.

That brings me to the second element of the new clause, which relates to Scottish limited partnerships. As all those present are aware, the future of SLPs has been contentious. My colleagues in the Scottish National party have on numerous occasions suggested to the UK Government that changes need to be made, and that SLPs need to be brought under control. After all, they are not taxable in the UK if none of their members is resident there. There is a concern—a justifiable concern—that SLPs may be used to avoid DST. That is the crux of where we are coming from and it is an extremely reasonable concern, given the propensity of SLPs to be used for tax evasion in the past.

I do not wish to suggest that Amazon or the like will follow the pathways that many of the organised crime groups have in trying to funnel money through SLPs, because that is obviously not the same argument to be having, but the reality is that SLPs and the framework that they provide would allow for avoidance to take place, and we should all want to do everything that we possibly can to limit that.

Up to now, I think it was reasonable to say that the Government’s record on SLPs has not been good enough, to put it mildly and candidly. I hope that a recognition of our proposal in new clause 11 with regard to SLPs will be taken on board, out of a commitment to end the sorry practice of those partnerships.

[Jesse Norman]

I thank the hon. Gentleman for his contribution to the debate on this clause and for the points he has made.

It is worth pointing out a couple of things. First, I have talked a little about the Government’s record on issues of avoidance. The hon. Gentleman talked about cynicism. What is interesting is that the public are perhaps more discerning than he thinks, and I do not think that there is cynicism about this issue. In fact, although I have not looked at any polling on this issue, I think the public are generally highly supportive of this measure. It is not a tax on retail; it is a tax on user-generated content. However, the understanding that there was a problem in the application of international tax rules and that it needed to be addressed is widespread, and I think there is a recognition—for those who would get their heads around this tax—that this measure is part of a response to that problem, as indeed is the wider OECD programme.

[Stephen Flynn]

I perhaps did not convey it correctly, but I think the cynicism will derive from the fact that the public will not regard the levels that are being put in place as sufficient to bring in the revenue that they should. These companies have benefited exponentially in recent years, and the figures that the Government expect in terms of revenue pale into insignificance compared with the revenue that these companies ultimately bring in. I think that is where the cynicism will arise.

[Jesse Norman]

There are two points here. One is the question of what the right level is. As we have discussed, this tax is designed to raise what by any other standard would be a pretty substantial amount of revenue— £2 billion over five years—and at the same time to establish a category of taxation that, in and of itself, is an important category. We have talked about some of the wider philosophical implications of that with my hon. Friend the Member for Aberconwy as well, so I think there is recognition of it.

Of course, it is also worth saying that, in relation to Scottish limited partnerships, the Government have recognised the problem, we have consulted and considered, and we are framing a legislative response to it. So there is also recognition of that problem.

The effect of the new clause would be to require the Government to report to the House, within six months of the Bill’s passing into law, the effect of the DST on tax revenues, and in particular the effect on the tax payable by the owners and employees of Scottish limited partnerships. Of course, this is a tax on groups, not a tax on individuals, whether those individuals are employees or owners; therefore, that is where the tax will fall.

In addition, DST payments will not be required until after the end of the relevant accounting period for each liable group, and thus payments will not be required until 2021. So the report that the hon. Gentleman describes would not contain any useful information. The DST’s reporting deadlines mean that very few groups would have needed to register and no groups would have been required to send in their return by that point. The report would not provide useful information about DST receipts.

We have talked about the importance of reporting and reviewing, but the effect of the new clause would be to pass a requirement to report with very little information and with very little purpose to it. I therefore commend clause 70 to the Committee and urge it to reject amendment 7 and new clause 11.

Finance Bill (Seventh sitting)

Stephen Flynn Excerpts

Committee stage & Committee Debate: 7th sitting: House of Commons
Tuesday 16th June 2020 Public Bill Committees

[Jesse Norman]

I certainly do not know the number of companies operating under the previous rules, but I would be happy to drop the hon. Lady a letter with any number that HMRC may have that can be publicly disclosed. The point is that there is a relatively small number of companies; they have seen this coming and it is an optional advantage for them. In reply to the point raised by the hon. Member for Ilford North, it applies only during the transition period, which will end at the end of this year.

We will be leaving the transition period on 1 January, which is not only stated by Government but is commonly understood. That goes to the question of divergence, which was raised by the hon. Member for Ilford North. We are bound by EU law while we are in the transition period. The Government certainly do not have any interest in divergence for the sake of divergence; the Government have an interest in the ability to set our own law, including our own tax law, as we as a sovereign nation see fit. That might or might not involve divergence, but this measure will not apply after the transition period.

The hon. Member for Ilford North also raises an important question about whether there is enough time for business to accommodate rules. I cannot comment on behalf of other Departments, but it certainly is a concern that has been raised in relation to the creation of tax law. Wherever possible, the Government try to abide by rules that we introduced after 2010 in order to have a more effective tax process. As he knows, it involves several stages and periods of consultation. We are coming up to an L day for legislation to be considered for the 2020 Budget, for the autumn Budget—if there is one—and for a Finance Bill next year. There is an orderly process, but I take his point about the importance of ensuring that it is as orderly and well structured as possible.

Question put and agreed to.

Clause 78 accordingly ordered to stand part of the Bill.

Clause 79

Post-duty point dilution of wine or made-wine

[Stephen Flynn (Aberdeen South) (SNP)]

I beg to move amendment 10, in clause 79, page 67, line 25, at end insert—

‘(3) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 1979 by this Section and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Government to review the impact of the proposed changes to alcohol liquor duties on public health.

It is a pleasure to serve under your chairmanship, Mr Rosindell. The amendment is quite simple and would require the Government to review the impact of alcohol duties on public health. It should come as no surprise, given that the SNP has long called for duty to reflect content, but we do not have the powers in Scotland to do that. Instead, we have to rely once again on the Westminster system in that regard. That is a real pity, because where we have powers in Scotland in relation to public health and alcohol, we have made great strides. For instance, we have seen the banning of irresponsible promotions and the lowering of the drink-drive limit. We ended multi-buy discounts, something that was certainly contentious at the time. As a young student, I was not overjoyed about the fact that I could not buy three crates of Tennent’s for £20. None the less, it was an important measure that no doubt changed the behaviour of many people, including myself at that time.

Of course, we have seen the overwhelming success of minimum unit pricing in Scotland. That was, again, an extremely contentious measure at the time, whereby we placed a 50p-per-unit charge on units of alcohol. The cumulative effect of all those measures has seen something that we all wanted to see in Scotland, where we have a difficult relationship with alcohol—one that was challenging to confirm but that we needed to confirm. We saw off-duty sales fall by 3.6% in the first year since minimum unit pricing was introduced. In England and Wales during the same period, off-duty sales increased by 3.2%. That is a very telling figure.

When I first came to Parliament, one of the very first debates that I took part in was in Westminster Hall. I cannot remember which hon. Member secured the debate, but it was about alcohol duty. I think the purpose of the debate was to galvanise hon. Members to stop the Government increasing alcohol duty and, hopefully, to reduce it. There was extreme passion in that Chamber and there were a lot of hon. Members present—more than are often seen debating any given matter in the main Chamber. There was a lot of passion about pints, but we cannot be passionate about pints without also having passion for public health and the consequences of the decisions being made. The stark reality is that the two are inextricably linked, and the UK Government need to be mindful of that fact. Supporting the amendment would be a good, positive first step on that journey to a more sensible approach that takes into account public health.

--- Later in debate ---

[Alison Thewliss]

Does my hon. Friend agree that the minimum unit pricing introduced in Scotland had the effect of removing from our shelves some of the most harmful drinks, including the high-strength industrial ciders that cause so much harm to so many people in our communities?

[Stephen Flynn]

Absolutely. My hon. Friend makes an excellent point. We did not have to walk far to find a shop in Scotland that sold ciders. White Lightning is incredibly strong. Often, individuals would buy it early in the morning, and by the afternoon the remnants were across our city. We were able to stop that, and that was important because it was having an impact on every single person who lived and worked there. This amendment gives the Government the opportunity to make sensible strides in recognition of the fact that public health and alcohol are inextricably linked.

[Wes Streeting]

I shall begin by addressing the SNP’s amendment 10. It is important to look carefully at the relationship between alcohol taxation and public health. We have seen in other areas of taxation, notably the sugar tax, the huge impact that decisions taken by the Treasury can have on public health and public health outcomes. It is long past time for us to look seriously and sensibly at whether more can be done to reduce the impact of alcohol and alcoholism on people’s lives and communities.

Turning to clause 79, I have had the opportunity to do a much deeper dive into some of the issues, not least because of the determined efforts of my hon. Friend the Member for Chesterfield (Mr Perkins). Anyone who has ever been lobbied by him will know that when it comes to standing up for his constituents and for businesses in his constituency, there is no more determined, stubborn and irrefutable representation than that which he provides. He has raised serious concerns about the impact of the clause on businesses in his constituency. I shall outline some of those concerns, in the hope that Ministers will consider their bearing on Government policy.

We understand perfectly what the Government are trying to achieve with clause 79. The clause amends the Alcoholic Liquor Duties Act 1979, to introduce sanctions for post duty point dilution of wine or made-wine, which, if carried out before the duty point, would have resulted in a higher amount of duty being payable. That change has, in effect, already come into force and we are legislating for it this morning. The change is perfectly understandable. It is designed to bring more revenue into the Treasury that would otherwise be, and is being, lost. I understand the Government’s position that post duty point dilution carries significant legal and revenue risk for the Exchequer.

The Wine and Spirit Trade Association is against the legislation, claiming it would put hundreds of jobs at risk and place more pressure on the industry. Recently, thanks to the initiative of my hon. Friend the Member for Chesterfield, I had the opportunity to speak to Global Brands, a business based in his constituency that makes VK and Hooch, among other products. We know that covid-19 is having a huge impact on the licensed trade industry and on alcohol sales in particular, affecting not only pubs but the producers of wines, spirits and other beverages. Global Brands is concerned that, because of the financial burden placed on its business by the clause, combined with the impact of covid-19, it expects to make 50% of its workforce redundant, putting 200 jobs at risk as a result of this change. If I can characterise our discussions in this way, it would be accurate to say that Global Brands accepts that this change is inevitable, and that the Treasury has a settled view on it, but it hopes that the Treasury might consider a 12-month delay in implementation—from April 2020 to April 2021—arguing that this would give it time to recover from the covid-19 shock, leaving it better able to absorb the change.

Global Brands makes other arguments that the Treasury may want to take into account. In particular, Global Brands sells what were commonly known as alcopops, a low alcohol by volume product—typically around 4% ABV. It is concerned that the impact of the change will be that, ironically, its low alcohol product would be taxed higher per unit of alcohol than much higher strength products, which flies in the face of the Government’s stated policy of discouraging high-strength alcohol and its impact on public health.

It is also worth highlighting that the Government have already announced their intention to conduct a wider review of alcohol taxation. I wonder whether it makes sense, from the point of view of business resilience and of giving companies such as Global Brands more time to cope with the covid-19 shock before absorbing this change, for the Treasury to consider this delay alongside the range of other issues that it will consider as part of its wider review of alcohol taxation. We might have been minded to table an amendment to probe the 12-month delay, but we were advised that such an amendment would not be in scope because the foundation resolution is clear about the date on which this change takes effect.

That is another reason why—I gently make this point again to Ministers—we feel strongly about the way in which the Treasury has restricted the scope of amendments and the debate by not introducing an amendment of the law resolution, as has been the case historically. As well as denying Opposition Members the opportunity to table broad, sweeping, political amendments to the Finance Bill, that also has practical implications. I impress on Ministers and the usual channels the need to reconsider that for future Finance Bills.

Finally, when my hon. Friend the Member for Chesterfield and I spoke to Global Brands just the other week, I was particularly impressed not just by the jobs and economic activity it provides in Chesterfield, but at the fact that its wider supply chain is virtually entirely British. Its ingredients, packaging and labelling are all derived from a British supply chain. I do wonder whether the Treasury has really thought through the timing of the change, the impact that it will have on businesses such as Global Brands, and where it might position such businesses in relation to their international competitors that are not providing jobs in this country and do not have a supply chain rooted here.

Given the unemployment statistics out today, we know that structural unemployment will become one of the biggest political issues and economic challenges in our country. Structural unemployment in Britain will become a feature of our life in a way that, frankly, it was not 10 years ago, in the wake of the financial crisis, and has not been for decades. The Government must do everything they can to protect jobs, which is why we have called today for them to come forward not just with fiscal measures in July, but a full-on, jobs-first Budget—because we are worried about the impact of covid-19 on unemployment.

The representations on clause 79 from Global Brands and from my hon. Friend the Member for Chesterfield remind us of the risk of the unintended consequences of Government policy. Given the impact on jobs and the supply chain and the fact that the Treasury is in any case preparing to undertake a review of alcohol taxation, I wonder whether the call for the Government to delay the measure by 12 months is not eminently reasonable—and whether they might come forward with their own change to the Bill on Report.

--- Later in debate ---

Rates of tobacco products duty

[Stephen Flynn]

I beg to move amendment 11, in clause 80, page 68, line 5, at end insert—

“(3) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the TPDA 1979 by this Section and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Government to review the expected impact of the revised rates of duty on tobacco products on public health.

This amendment is in part very similar to the previous amendment, but it addresses tobacco duty, not alcohol duty. We want to review the impact of tobacco rates on public health. I take exception to the suggestions made in the previous debate that taxation and public health are not inextricably linked. The hon. Member for Ilford North said that we need a joined-up approach in the Treasury and across all sectors so that we can see the impact of taxation on other aspects of life. That certainly applies to tobacco as much as it does to alcohol duty.

Much like alcohol duty, tobacco duty is reserved to the UK Government. Again, that is deeply frustrating to those of us in Scotland, because it is the desire of the Scottish Government and the SNP to have a tobacco-free generation in Scotland by 2034. Obviously, tobacco rates will play a role in that, but that is not necessarily stopping us entirely and we are still making positive efforts to get there. The raft of different measures put in place by the Scottish Government include the 2020 ban on smoking near hospitals. There is also the regulation of electronic cigarettes and MVP devices, which will be an interesting and hot topic of debate in the coming years. A new national brand, Quit Your Way, was launched in 2018 and is being promoted on behalf of the stop smoking service. A Scottish ministerial working group on tobacco control is helping develop policy to reduce the impact of tobacco on Scotland’s health and to manage the register of tobacco and nicotine vapour product retailers.

That is all in addition to the Scottish Government’s previous efforts, including making prisons smoke free in November 2018, banning tobacco advertising in 2002, and banning smoking in enclosed public spaces in 2006, which is something that we all remember only too well. There are certainly many establishments in Scotland—I am sure the same is true in England—where one can still get the waft of the cigarettes that used to be smoked on those premises. A great deal of good has been and will be done, but ultimately the key lever of power lies, again, with the UK Government. That being the case, it is vital that consideration is once again given to public health and to the impact on it of decisions taken by the UK Government. I therefore suggest that the Government agree to the amendment, because it will be in their interests and in the interests of people across the United Kingdom.

[Wes Streeting]

If the hon. Member for Kensington does not think that there should be a relationship between public health and taxation, I am afraid she is really going to hate what I have to say on clause 80 and the Scottish National party amendment. For the same reason as before, I think there is a real case for looking at these issues in a joined-up way, and ensuring that our public health objectives are reinforced by the Treasury.

In its January 2020 Budget submission, the UK Centre for Tobacco and Alcohol Studies, in partnership with Action on Smoking and Health, recommended that the minimum excise tax should be updated annually to ensure that the minimum tax for tobacco products is the rate due for products sold at the weighted average price. In the light of those representations, I wonder whether the Government will consider the advice of public health experts, and what consideration they have given to committing to updating the MET on an annual basis from the date of the passing of this legislation.

As the all-party parliamentary group on smoking and health has noted, the covid-19 crisis means that reducing tobacco-related health inequalities should be a priority, now and in the longer term, to improve population health and resilience to any future disease outbreaks. Differences in smoking prevalence and smoking-related diseases are an important factor in the differences in morbidity and mortality from covid-19. If we are not going to think seriously about some of these public health challenges in the middle of a public health crisis, when will we, frankly?

There has also been a rise during lockdown in people’s exposure to second-hand smoke in the home. Households with children are twice as likely to report second-hand smoke in the home. We have already heard about the Scottish Government’s determination in that respect, but the Government’s prevention Green Paper set the target of the UK being smoke-free by 2030, which is defined as a prevalence of 5% or less. If we are going to do that, we really have to commit to doing it and make changes across the board to support that important goal, which we across the House share.

The argument that public health and taxation are not intertwined does not hold water. It is not fashionable to be nice about George Osborne in today’s Conservative party—it is even less fashionable in the Labour party, but I already have a cross to bear in my own party—and his sugar tax was hugely controversial when it was introduced. I do not mind saying that as I sat watching the announcement in the Budget I was a big cynic, not least because I am generally in favour, as a point of principle, of progressive taxation. I worry about any new charges or levies that have flat implications for people and households with different levels of income.

Taxation by its nature ought to be progressive wherever possible, but the sugar tax has been shown, over the fullness of time, to have had a really positive impact on sugar consumption in this country. The evidence shows that a public health epidemic, which I think is what obesity is, particularly affects those from the poorest backgrounds. The same is probably true of smoking and its health consequences not just for smokers, but for the people—particularly children—who breathe the smoke around them.

The all-party parliamentary group on smoking and health, ASH, the British Heart Foundation, Cancer Research UK, the Royal College of Physicians and many others are calling on the Government to adopt their road map to a smoke-free 2030. That would include the creation of a smoke-free 2030 fund, into which tobacco manufacturers would be legally required to give funds to finance the action needed to achieve the smoke-free 2030 goal.

What consideration have the Government given to the road map to a smoke-free 2030 and, in particular, the proposal that there should be some kind of levy on tobacco manufacturers? In the same way as the sugar tax was hypothecated to tackle obesity, what consideration have the Government given to introducing a hypothecated levy to take action to eliminate smoking?

Finance Bill (Ninth sitting)

Stephen Flynn Excerpts

Committee stage & Committee Debate: 9th sitting: House of Commons
Thursday 18th June 2020 Public Bill Committees

[Wes Streeting]

Clause 103 gives me an opportunity to speak to some of the challenges facing local authorities and the role that the Public Works Loan Board can play. I also want to knock on the head some of the assertions that have been made about local government finances and the sensible use of borrowing by local authorities across the country to invest in local infrastructure and works that benefit their residents. I speak not just as my party’s shadow Treasury spokesperson, but as a former deputy leader of the London Borough of Redbridge and a current vice-president of the Local Government Association.

Local authorities have done a remarkable job managing their finances sensibly and effectively during a very difficult decade. Not only was the public sector broadly hit by cuts, but local authorities felt the brunt because those cuts were both deep and front-loaded. The local authority response to those challenges over the course of the past decade has, to be frank, been remarkable. The same can be said for the ingenuity of many local authorities in making sensible and wise investments that not only improve the lives of their residents but generate income that can then be ploughed back into frontline services and mitigate the impact of central Government cuts. I think I speak for people right across the Local Government Association, regardless of their party, in saying that, as well as devolving power without resources, the Government have too often devolved blame. I hope that Ministers will consider that. I will address the issue this afternoon, when debate the new clauses.

There have been some rather unhelpful and misleading headlines about local authorities borrowing to invest in local projects. Of course, as with central Government, we will always be able to point to decisions that, though made with the best of intentions, do not work and incur a liability for the public purse. If public funds are not used widely, it is absolutely right that there should be scrutiny, lessons learned and accountability. It is fair to say, however, that in the vast majority of cases where local authorities have drawn on the Public Works Loan Board, their approach has been sensible, effective and well deployed. It is important that the facility continues to be made available to local authorities in the same way.

When Ministers consider not just this Bill but impending decisions by the Treasury, I urge them to recognise the awful impact of covid-19 on local authorities. In responding to the Secretary of State’s plea to do whatever it takes to get their communities through the crisis, not only have their costs risen; their income has also fallen significantly. I urge Ministers to think carefully about the demands they place on local authorities, particularly in terms of loan repayments during this period, and to consider whether more could be done.

[Stephen Flynn (Aberdeen South) (SNP)]

I have had a look at the figures. Scottish local authorities are due to repay £793 million of PWLB interest and principal debt over the financial year 2020-21. Given the extreme challenges facing local authorities, does the hon. Gentleman agree that it would be sensible if the Treasury considered mitigating those debt repayments?

[Wes Streeting]

I am grateful to the hon. Gentleman for his intervention. The Government have to look very carefully at the liabilities facing local authorities and how they are having to balance them against other demands and challenges. As I have said, in addition to creating cost pressures, the pandemic has had an impact on local authority income, too. In that respect, local authorities really are all in this together, whether they are Labour, Conservative or SNP. There are challenges for local authorities right across the United Kingdom. As we will discuss when we come to the new clauses, some communities have been affected more than others. None the less, the challenges are universal.

I hope that Ministers will take that on board and that they will listen very carefully to the representations from the Local Government Association, which is cross-party but Conservative controlled. We will do our best to remedy that in next May’s local elections. I hope that the representations Ministers receive from Conservative LGA leaders—and not just Opposition party representatives —will help them understand the challenges that local authorities are facing, particularly as they have been unable to collect around £1 billion in combined business rates and council tax income during the crisis so far.

I also impress upon Ministers the importance of Government keeping their word to local government. When local authorities were asked to do whatever it takes—and whatever it took—to get communities through the covid-19 pandemic, they took the Secretary of State for Housing, Communities and Local Government at his word and they delivered. Now, they expect to be reimbursed, as was promised. The Government have given some additional funding to local authorities, but it is a drop in the ocean when compared with the cost pressures they face and the fall in income.

With that, I am content to support the clause, and I hope that the wider points that it has enabled me to make have been heard and well understood by the Treasury, and not just the Ministry of Housing, Communities and Local Government.

--- Later in debate ---

[Wes Streeting]

Our position on IR35 has been well rehearsed in previous and recent debates on the Floor of the House, but let me revisit some of those points, because this debate is closely followed outside Parliament and matters to people across the country. Self-employment is a vital part of the UK economy. People who are genuinely self-employed deserve to be properly supported while also ensuring that everyone pays the right amount of tax. Historically, the tax arrangements for self-employed people have differed from those for people on payroll, reflecting the fact that self-employed people have lower levels of protection in areas such as holiday pay, sick pay and other rights and benefits that people would enjoy if they were employed on payroll. Clearly the system has also been subject to abuse, and it is right that we tackle that abuse.

Some of the anxiety arises from concerns that the Treasury, and the Government more broadly, sometimes have a tendency to think of the self-employed as if they fell into only two categories of people. The first is the very wealthy, who use self-employment status to avoid paying their fair share of tax, which should obviously be clamped down on. The second is the very low paid, who work in parts of the economy that are deemed unproductive—even to the extent that some people would think it desirable that such workers were not engaged in those forms of employment, as if that were the best way to tackle the UK’s poor productivity statistics. The true picture of self-employment in the country is a lot more complicated than that, and huge numbers of self-employed people make an enormous contribution to the economy and who provide a whole range of services that benefit citizens across the country and businesses more generally.

It is right that the Government have taken the decision to delay the implementation of the roll-out until April 2021 due to coronavirus. The Opposition would again impress on the Government the need to use the additional time ahead of implementation to provide an additional review and to learn from the mistakes of the public sector roll-out and the continuing anxieties about the planned private sector roll-out. Those concerns were expressed in the House of Lords report entitled, “Off-payroll working: treating people fairly”, which concluded that the Government must address IR35’s inherent flaws and unfairness, a point that was supported by the ICAEW.

The Opposition urge the Government to use this time wisely. We believe it is necessary for the Government to take a broader approach in order to modernise the law on employment status and to look at how it interrelates with tax status, so that we have a genuinely joined-up approach that brings together the issues of tax and employment law. Notwithstanding the planned roll-out of IR35, the Chancellor made it very clear, when he announced the self-employment income support scheme, that there will be consequences for future Treasury policy and future tax arrangements for Britain’s self-employed. That message was heard loud and clear by the self-employed, but if we are asking them to pay a greater contribution, we also have to address the inherent challenge and, in many cases, the injustice around their employment protections and the levels of social protection and social insurance that people enjoy if they are employed, as opposed to self-employed.

As the shadow Chancellor has said, having addressed this issue many times both in her current role and in her previous role:

“We really need a joined-up approach to the issues that brings together the consideration of tax and employment law and levels up protections for the self-employed, as well as dealing with the current implications of the tax system that boost bogus self-employment.”—[Official Report, 4 April 2019; Vol. 657, c. 489WH.]

She made those remarks back in April 2019; it is now June 2020. I am not sure that, in the year that has passed since she made those comments, the situation has changed particularly and that things have improved. The delayed roll-out is something that has been widely welcomed, but it is crucial that the Government use this time wisely. It is not clear from the year that has just passed that the Government will use the next year any better.

[Stephen Flynn]

Before I get into the substantive detail of this issue, I want to touch on the process and where we find ourselves at this moment in time with the new clause that has been tabled by the Minister. It is simply not acceptable that such a contentious tax matter was first introduced through a 45-minute money resolution debate in the House, instead of being subject to the full scrutiny of the Budget process.

The money resolution debate took place after the Finance Bill was published, meaning that the Government were able to introduce the detailed IR35 tax law as a Finance Bill amendment. The result of what can only be described as a procedural whizz is that Opposition parties cannot do what they were elected to do and amend the proposals as the Bill goes through its line-by-line scrutiny. Frankly, that is not good enough. I certainly thought better—perhaps wrongly—of the Government in that regard. Of course, that entire process missed out those MPs who have been disenfranchised from taking part in the House as a result of the Government’s shocking processes in recent weeks.

        On the substantive issue at the heart of this, let us be clear that IR35 is creating a new group of zero-hours employees paying full taxation but without receiving the associated employment rights. What is just and fair about that? Speaking as a Member with a constituency that is dominated by the oil and gas sector, I have been inundated—inundated—with correspondence from contractors outraged by the decisions that the Government are seeking to take, particularly so given that we are in the middle of a global pandemic. I hope that the huge concern that I and others have about the long and, frankly, short-term sustainability of the oil and gas sector, and the impact that that has on employees, has not escaped the Government’s notice. To then add a further layer of complexity into their employment status is simply unforgivable.

        In the north-east of Scotland, we are witnessing job losses hand over fist. Barely a day goes by when companies are not shedding staff. That is applicable to most sectors at the moment, be it hospitality, tourism or aviation, but it is very rare for a sector of such scale to be so dominant in one city, as is the case in Aberdeen. What the Government are seeking to do in relation to IR35 is a slap in the face to those workers who are having to deal with the most difficult of challenges.

Not only are the Government hitting those contractors—many of whom went down that path in good faith—with IR35, but they are failing to deliver any sectoral support to the oil and gas industry. Not a single penny of sector-specific support has been provided by the UK Government for the oil and gas sector, irrespective of the fact that the Treasury has lined its pockets with North sea oil and gas revenue for decades. It is time to give back, not time to double down on the damage, so I urge the Government to reconsider what they are putting forward.

[Alison Thewliss]

My hon. Friend makes an excellent point about contractors in the north-east of Scotland. In my constituency of Glasgow Central, it is IT contractors, many of whom came to live in Glasgow from India. They work in the IT sector and have found that their contracts have not been renewed with companies that they have been working for, and they are now really struggling to find employment, causing them a huge deal of uncertainty at this time, particularly with the coronavirus crisis.

[Stephen Flynn]

I welcome the intervention from my hon. Friend, which goes to the nub of the issue that we are discussing. The Government’s policy is, frankly, to turn their back on those people who need support at this time.

        If the Minister is not willing to take my word for that, perhaps they will listen to the salient words of one of their own. The hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) said late last year in a letter to the then Chancellor:

If the proposed changes—making every medium and large sector private business responsible for setting the tax status of any contractor they use—were to come into effect, I would worry for the industry”—

the oil and gas industry—

“and its ability to attract the highly skilled workers they need. It is also predicted that changes could see a worker’s income reduced by up to 25 per cent. Many of these workers are my constituents.”

Many of those workers are also my constituents, and it is simply not good enough. I am glad that there is cross-party support in north-east Scotland for opposing what the Government are seeking to do, and I sincerely hope that that cross-party ethos will be found in this room today, before the Government do more damage.

        I just want to pick up on one final point. I think the Minister said in his opening remarks that he listened carefully—that the Government have listened carefully. They have not listened to the House of Lords—I do not say that with any joy, being a member of the Scottish National party—which has been clear that they need to pause this policy and go back to the drawing board. I urge them to do just that.

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[Jesse Norman]

I will respond to the many important points raised by hon. Members, who I thank for raising them.

My hon. Friend the Member for Penistone and Stocksbridge is absolutely right to highlight the importance of making employment attractive. It is vital that best practice be spread throughout the economy as rapidly as possible and if the effect of that is to create a more level playing field between two sides of a particular divide, that would be a very valuable thing. The Government’s concern is that there is an unfairness in that someone can be, as it were, latently employed, although working for a personal service company, and that is the concern that the Government seek to address.

My hon. Friend the Member for Harrogate and Knaresborough is absolutely right to emphasise the importance of having a flexible and nimble economy. He is right, and the hon. Member for Ilford North is right, to focus on the effect of the self-employment and self-employed contractors in making this happen. For reasons I will come on to, this reform does not tax the self-employed. It does not tax anyone. What it does is to change the determination for people who are not self-employed but who are in fact employed, and to determine whether they are or not.

The hon. Member for Aberdeen South made a series of comments that I am afraid are simply not true. He was very rude about the Government’s decision to introduce this via a separate resolution, but the details of the change were announced as part of the Budget resolutions. They were not moved. They could and may well have been discussed—I do not recall the details—during the Budget debates. Therefore, it was perfectly open to the House to scrutinise those details, although the resolution was not itself moved. If the resolution had been moved, it would not have been possible for us to legislate with anything like the same straightforwardness for the move to an April 2021 deadline. That was the purpose of delaying moving the resolution. The effect was that the resolution was debated on the Floor of the House of Commons in and of itself—given a separate debate to that resolution in order to discuss that. Therefore, the idea that there has been any short-circuiting of due process is entirely wrong.

Of course amendments can still be tabled on Report, and the hon. Gentleman may seek to do that. He was very rude about the reform, saying it would lead to zero-hours contractors, and calling it shocking, but is he planning to support it? Will he vote in favour of it or against it? That will be the true measure of his and the SNP’s position on this important reform.

Finally, the hon. Gentleman talks about the Lords Economic Affairs Committee, but of course he is entirely wrong about that. We have yet to respond to the Lords Committee—we will do so in due course—but we have engaged very closely with it on a whole variety of different areas. If he speaks to Lord Forsyth, he will know that I approached Lord Forsyth personally, having just become Financial Secretary, to reopen the relationship and make it flourish. Indeed, I volunteered to appear in front of the Lords Economic Affairs Committee last year precisely to hold myself and the Treasury accountable in this area.

[Stephen Flynn]

The Minister has gone through a number of the points I made, but one that he did not touch upon was the impact that the proposal will have upon contractors working in the oil and gas sector, given the huge challenges facing those workers at the moment. What message would he give those contractors, whose future is uncertain in any case, but who are facing this change on top of an already devastating situation?

[Jesse Norman]

We are obviously very concerned about the effects of coronavirus, which is precisely why we have delayed the implementation of the reform by a year. The message I would give is that we absolutely respect and support the work that those individuals are doing and understand the position they are in. The Government have rapidly made available very important sources of support for the economy across a whole range of different areas and sectors of work and, indeed, in the benefits system, both for businesses and families and the sustaining of jobs. Therefore, there is no absence of respect or support for the people the hon. Gentleman describes.

The hon. Member for Ilford North mentioned the diverse nature of these different forms of employment. He referred to the self-employed, but actually the self-employed are not taxed by this. The genuinely self-employed are not affected by the reform. The reform is designed merely to change the way in which the status of someone who is latently employed—actually employed, but perhaps unaware of it or not behaving on that basis—is determined. The hon. Member asks us to use the additional time appropriately. We have got before April 2021. I have said already, but let me say again that we are in the process of commissioning external research into the effect of the public sector reform. As he will be aware, the early research immediately after the public sector reform did not bear out the dire predictions regarding flexibility or reduction of income, but we will make sure that external research into the longer-term effects of the public sector reform is completed and placed in front of the House before April next year.

Finance Bill (Tenth sitting)

Stephen Flynn Excerpts

Committee stage & Committee Debate: 10th sitting: House of Commons
Thursday 18th June 2020 Public Bill Committees

[Wes Streeting]

It is a pleasure to move new clause 3, in my name and those of my hon. Friends, and to speak to new clauses 18 and 21, which will be put forward by the hon. Member for Glasgow Central.

As this is likely to be the last sitting for line-by-line scrutiny, I would like to take the opportunity to thank you, Mr Rosindell, and Ms McDonagh for so effectively chairing our proceedings in the course of that scrutiny. I thank the staff in the Public Bill Office for all their assistance in putting together various amendments and new clauses. I thank my own team in Westminster—in fact, not in Westminster but working from home—for the efforts that they have made in supporting me and other hon. Members throughout this process, and I thank staff working in the offices, or not in the offices, of other members of the shadow Treasury team. They have done a sterling job—it should be borne in mind that we do not have the resources of the civil service to support us through all this—and it is much appreciated.

Ours is a great country, full of promise and opportunity. One of the richest countries in the world, we are home to world-class universities, entrepreneurs, captains of industry, groundbreaking scientists and inventors, globally renowned artists and a vibrant civil society. However, as we will consider across a number of our debates this afternoon, this is also a country of staggering inequality, intolerable poverty and wasted potential—and that is before we consider the impact of coronavirus on our country’s economic prospects.

I am starting with new clause 3. The economic divisions in our country are not merely reflected through class inequality, but reflected and represented in our geography. Britain is home to nine of the 10 poorest regions in western Europe, but also the richest, in inner London. A child on free school meals in Hackney is still three times more likely to attend university than an equally poor child in Hartlepool. The gap in productivity between English regions is worth about £40 billion a year, with productivity in London and the south-east standing at 50% above the national average.

The past 40 years have seen a significant decline in our country’s manufacturing base, with serious social consequences in former industrial towns and profound consequences for people’s lives and livelihoods—and our politics. People have seen their jobs disappear as a result of one of the largest deindustrialisations of any major nation, with production exported to countries with cheaper labour costs through outsourcing, or being lost altogether to labour-saving technology.

That is why the so-called levelling-up agenda is so important, and it is made all the more pressing by the covid-19 pandemic. We know from the evidence emerging all the time that without an effective regional response from the Government, the economic crisis brought about by covid-19 risks entrenching existing inequalities in our country and creating new ones that, unchecked, might persist for decades.

According to the RSA, the Royal Society for the encouragement of Arts, Manufactures and Commerce, rural areas and coastal towns in the north and south-west of England are most at risk of covid-19’s impact on unemployment. This involves many coastal towns, national parks and tourist hotspots, with economies dependent on hospitality, retail and tourism. The RSA identified the district council of Richmondshire in North Yorkshire, which forms part of the Chancellor’s constituency, as the most at-risk area.

Meanwhile, KPMG’s chief economist in the UK believes that the west midlands could face the biggest impact. My right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne) has been banging the drum for the west midlands economy, highlighting in particular the risks to manufacturing in the region. The weighting of the average sectoral impact, measured by the Office for Budget Responsibility against the distribution of each local authority’s gross value added by sector, concluded that the decline in economic output in parts of the midlands and the north-west could be as much as 50% and that nine out of the 10 worst affected local authorities will be located in those regions.

That is not to say that we should not be concerned about our major cities either. Edinburgh, in particular, has the highest level of exposure to the reduction in international tourist spending, with consequences for the city and surrounding regions. Indeed, I hope we can move away from the narrative of London versus the rest of the country. Our capital city is a truly global city, and its success is inseparable from our national success, but London’s political leaders and our business leaders recognise the need for a more balanced regional economic settlement and the benefits that that would bring to all of us, wherever we live and work.

As we think about the crisis that we are living through and the recovery that we hope will follow, let us take heed of the warning from the New Local Government Network and so many others that recovery cannot be a synonym for the resurrection of business as usual. It cannot be a coincidence that our country has one of the most imbalanced economies in the developed world and also one of the most centralised systems of government.

As TheCityUK has argued,

“the crisis should prompt policymakers to consider anew some long-standing potential solutions to the problem of regional inequality, such as devolution of political and potentially fiscal powers.”

It is important that, at every Budget, Finance Bill and fiscal event, the Treasury looks carefully at whether we are moving the dial in the right direction when it comes to tackling the gross regional inequality in our country. I think it is fair to say that, under successive Governments, the Treasury has had a much more centralising tendency and cultural mindset than other Departments. Of course, it is easy to understand why that is and the appeal of being able to make big decisions and pull big policy levers that have an impact across Government and the country. But the way in which decisions are taken in Whitehall has a direct effect on not just town halls but communities right across our country.

[Stephen Flynn (Aberdeen South) (SNP)]

The hon. Member is making a number of excellent points. He could perhaps go further, because what he is referring to could also be an emboldened and more powerful Scottish Parliament with further devolution to Scotland.

[Wes Streeting]

I am grateful for that intervention. I was very encouraged by the recent policy position published by the leader of the Scottish Labour party and excitedly relayed to the rest of us by the shadow Secretary of State for Scotland, my hon. Friend the Member for Edinburgh South (Ian Murray). Scottish Labour has come out with some really bold proposals for how devolution could go even further, extending to home rule in Scotland. I know that that is not a position shared by the separatists in the Scottish National party. We could spend the rest of the afternoon discussing the merits or otherwise of Scottish independence, but, to allow SNP Committee members to get back home at the end of the day, perhaps we should not dwell on that this afternoon.

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In the light of the covid crisis, there has been a great deal of talk about a green recovery and a just recovery. Indeed, I have heard Ministers talk about the importance of a green recovery. I welcome the rhetoric, but it troubles me that the policies through which the Government envisage bringing about a green recovery are much less clear than the stated commitment. This crisis has exposed the weaknesses of the UK and shown our citizens what happens if we do not build resilience into public policy to prevent serious catastrophes. It is not too late for us to put a stop to destructive climate change on earth, but we will have to treat it as a genuine emergency. Although this House has declared a climate emergency, it is not clear from the Government’s policies that we have a response worthy of the urgency and seriousness of the situation.

[Stephen Flynn]

New clause 4 closely aligns with what the SNP seeks to promote in new clauses 19 and 20, and I will address each of them in turn. First, new clause 19 would require a review of the Bill’s impact on the UK meeting the UN sustainable development goals. The obvious thing that must be said to start with is, why would we not want to do that? Why would we not want to know whether our actions are complementing the UN sustainable development goals? We heard from the hon. Member for Ilford North, who helpfully stole some of my lines, about how important the UN sustainable development goals are. That perhaps suggests why the Government may be reluctant to agree to this new clause, although I hold out hope that the Financial Secretary to the Treasury will rise and show that my doubts are misplaced.

The first sustainable development goal is on ending poverty. Quite frankly, it is absurd that poverty exists in these isles. Unfortunately, the UK Government have been in charge for much of my lifetime, and during that period, poverty has been prevalent because of the actions and decisions that they have taken—we cannot escape that fact. Whether in more recent times through universal credit and the two-child cap, or regarding their inability even to provide free school meals to children in England, the consequences of their actions are great. We have heard that Marcus Rashford achieved more in a matter of days than the Government managed to achieve in a number of years, but that is not something the Government should be proud of. It should not take a footballer to change their direction; that is not how politics should work at the best of times.

The last UN sustainable development goal is on partnerships to achieve the goals. We heard from the hon. Member for Ilford North that the Department for International Development has been completely disbanded and is getting moved into the Foreign and Commonwealth Office. That is an absurd move by the Government, and it flies in the face of sustainable development goal 17, on partnerships to achieve the goals. DFID has done so much to foster good relations across the world, which has allowed us to play a leading role in trying to improve the lives of those whose life chances, quite frankly, are worse than anything we can possibly imagine.

The simple question is, why would the Government not wish to support the new clause? The answer is perhaps that their own record shames them from doing so. If they were to support it, they would be following the path of the Scottish Government, who embedded the sustainable development goals in our national performance framework—Scotland’s vision for national wellbeing—following consultation with the public, trade unions, business organisations, local government, voluntary organisations and wider civic society. It can be done, and in a positive and proactive way, with community groups from across the spectrum. Where Scotland leads, the UK Government have the opportunity to follow

--- Later in debate ---

Brought up, and read the First time.

[Stephen Flynn]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss

New clause 15—Review of effects on migration of measures in Act—

“(1) The Chancellor of the Exchequer must review the effects on migration of the provisions of this Act in each of the scenarios in subsection (2) and lay a report of that review before the House of Commons within one month of the passing of this Act.

(2) Those scenarios are that—

(a) the UK leaves the EU withdrawal transition period without a negotiated future trade agreement

(b) the UK leaves the EU withdrawal transition period following a negotiated future trade agreement, and remains in the single market and customs union, and

(c) the UK leaves the EU withdrawal transition period following a negotiated trade agreement, and does not remain in the single market and customs union.

(3) In respect of each of those scenarios the review must consider separately the effects on—

(a) migration by EU nationals, and

(b) migration by non-EU nationals.

(4) In respect of each of those scenarios the review must consider separately the effects in each part of the United Kingdom and each region of England.

(5) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and ‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

This new clause would require a Government review of the effects of the measures in the Bill on migration levels.

[Stephen Flynn]

New clauses 14 and 15 together provide for a review of the effects of measures in the Bill on migration. Has there ever been a more apt time to assess the impact of the Finance Bill on migration, as the UK steams ahead with dragging Scotland out of the European Union against its will and, in doing so, removes the ability for us to move freely across the continent of Europe and for Europeans to move freely into Scotland to take on the jobs that we so desperately need them to take, as well as providing the cultural and economic support that our society needs and deserves?

The debate about migration has been had on many occasions in the Chamber and in many Committees in Parliament, but it is particularly important in relation to the Finance Bill, given the fact that migration is unequivocally a positive thing for our economy, in particular in Scotland. I will reflect briefly on an example from my constituency. A company called John Ross Jr makes smoked salmon so good—the kilns are good—that even the Queen enjoys it. It is a world-renowned company. When the company had sight of the UK Government’s plans for immigration, it wrote to me describing as “catastrophic” the impact of removing free movement of people into Scotland.

That company’s labour force has been heavily dominated by people from fellow European nations. They have driven that organisation forward, which is a positive thing that we should welcome and encourage. It is good for Scottish business, it is good for the Scottish economy and therefore it is good for the wider UK economy.

However, for some reason, the UK Government seem intent on dragging Scotland away from that situation, which is deeply disappointing, because Scotland faces a wider demographic challenge—a demographic time bomb, so to speak. Our working-age population continues to decrease and migration is one of the easiest solutions to that problem.

The Scottish Government have sought to be pragmatic in that regard. They came forward to the UK Government in good faith, with proposals for a Scottish visa that would not be different from what is being put in place by the UK Government, but with an additional element that which would allow us to attract the workforce that we need. It would perhaps replicate what is in place in Canada and Australia, but it was rejected out of hand— in fact, I think that it was rejected out of hand within 20 minutes—despite the fact that it is in Scotland’s best interests.

Earlier, we heard—I think it was from the Minister—how the UK Government do not have control over all aspects of life in Scotland. However, where they do have control on immigration, they are doing severe damage, which will not be forgotten by Scottish business nor by the Scottish people, and when the time comes for us to make our own decisions once again and we go to that vote on whether Scotland should be an independent nation, it is the likes of the UK Government’s immigration policies that will weigh heavily on the minds of Scottish voters.

I will just conclude, because I am conscious of time, given the desire for everyone to be able to get home, by saying that the reality—the big question, as I have said before—is: why not? Why would someone not support this proposal? Why would they not want to know what the impact of the Bill will be, because ultimately we will have a situation where UK tax policies fail to boost immigration and falling immigration hits the Treasury. This proposal is a sensible one, which would hopefully protect the interests of Scotland.

[Wes Streeting]

Based on how the pattern of voting is going this afternoon, we can guess how the discussion of this proposal will turn out, unless the Government Members have a Damascene conversion and decide to swing behind it.

I am conscious of the clock, but we have had plenty of opportunity recently to debate Government immigration policy; I think the Opposition’s views are very well known. The economic debate about immigration is an important one, and it is important to remind people not just in the House but across the country that it remains a positively good thing for this country that the UK remains a destination to attract talent from around the world to come and work and study on these shores. That is a national strength. Of course, it is also important that we have immigration rules that are widely understood and fairly applied, and enforced where necessary.

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[The Chair]

Mr Flynn, do you wish to press the new clause to a Division?

[Stephen Flynn]

Yes.

Question put, That the clause be read a Second time.

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[Wes Streeting]

Children in my constituency suffer under a Conservative Government—the hon. Lady will get no disagreement from me on that. Of course, where the Scottish Government take steps to mitigate the impact of Westminster Government decisions, I have no doubt at all that they will receive cross-party support from my Scottish Labour colleagues, but the point about the Scottish Government accepting responsibility for what happens to people in Scotland has to be a feature of the debate. One of the reasons why I admire Nicola Sturgeon as a politician and political leader is the skilful way in which she always manages so eloquently to pass the buck down to London.

[Stephen Flynn]

Does the hon. Gentleman not agree that that money, rather than having to be spent by the Scottish Government to mitigate the actions of the Conservatives, would be better spent on addressing some of his concerns? Is that not the way a Parliament should function? It should not be for a Scottish Parliament or Government to mitigate these things.

[Wes Streeting]

I am grateful for that intervention because, having had our knockabout between the Labour party and the SNP, we can now unite in common cause against this terrible Tory Government in Westminster.

Turning briefly to the facts, we know that wealth and income inequalities in the UK are stark: the richest 10% of households own 45% of the nation’s wealth, while the poorest 50% own less than 10%. The average FTSE 100 chief executive is paid 145 times more than the average worker, and Britain’s top 1% have seen their share of household income triple in the past four years, while ordinary people have struggled. Over the past decade, when Governments have been led by the Conservatives, we have seen the slowest growth in living standards since the second world war.

Shockingly, hard work does not necessarily guarantee even a basic standard of living. Wages have failed to keep up with living costs, and 14 million people live on incomes below the poverty line, including 4 million children. It should never be the case that where people are going out to work, doing the right thing and earning money for themselves and their families, they should still find themselves living in conditions of poverty, and yet that is the situation we find in our country today.

Inequality and the poverty it creates have led to an increasing number of what economist Sir Angus Deaton called “Deaths of Despair”, caused by drug and alcohol abuse due to financial hardship and hopelessness. The rate of such deaths among men has more than doubled since the early 1990s, so the human consequences of economic inequality are clear in Government statistics. People are dying needlessly as a result of the inequality that blights our nation.

Earlier this week, I was struck by the exchange at Prime Minister’s Question Time between my right hon. and learned Friend the Leader of the Opposition and the man who tries to the give the impression that he is our Prime Minister. Extraordinarily, the Prime Minister did not seem to recognise the description offered to him of child poverty in our country. I do not expect the Prime Minister of the country to have instant recall of every piece of data held by his Government, but on something as fundamental as the number of children living in poverty—or the trends of those numbers, at least—I would have expected that the Prime Minister might have some understanding of what is going on.

When my right hon. and learned Friend described poverty in Britain, he was not talking about forecasts or future expectations of growth in child poverty; he was talking about the situation today, and he was citing the Government’s own Social Mobility Commission. On page 17 of its June 2020 report “Monitoring social mobility 2013 to 2020: Is the government delivering on our recommendations?”— a question that lends itself to quoting the title of John Rentoul’s book, “Questions to which the answer is ‘No!”—it says very clearly:

“In the UK today, 8.4 million working age adults live in relative poverty; an increase of 500,000 since 2011/12. Things are no better for children. Whilst relative child poverty rates have remained stable over recent years, there are now 4.2 million children living in poverty—600,000 more than in 2011/12. Child poverty rates are projected to increase to 5.2 million by 2022. This anticipated rise is not driven by

forces beyond our control”.

That is the significant point: this is not about population changes or even, until very recently, the conditions in the economy, but is a direct result of Government policy. The commission notes on page 8 of the report:

“There is now mounting evidence that welfare changes over the past ten years have put many more children into poverty.”

Of the many great achievements of the last Labour Government, the thing I am most proud of is the number of children they lifted out of poverty. That was the result of a deliberate political choice—of public policy pulling in the right direction—and it is a stain on the conscience and character of this Government that their own Social Mobility Commission says:

“There is now mounting evidence that welfare changes over the past ten years have put many more children into poverty.”

On the same page, the commission says:

“Too often also there is little transparency concerning the impact spending decisions have on poverty. The Treasury has made some efforts in this direction, but has so far declined to give the Office for Budget Responsibility…a proper role to monitor this. There should be more independent scrutiny to help ensure policy interventions across Whitehall genuinely support the most disadvantaged groups.”

Because of the limitations on what we are able to do to amend the Finance Bill, new clause 23 does not go so far as to give the OBR formal responsibility for measuring the impact of fiscal events and policies on poverty and child poverty across the board, but at least it makes a start by asking the OBR to look at the impact of the Finance Bill. Regrettably, that is wholly necessary. When the Government’s own independent Social Mobility Commission point to the need for this, Government Members should take that seriously. When their own Prime Minister does not seem to have a clue about what is going on in terms of child poverty, it might be good to produce at least a fresh and independent set of numbers to wake him up.

Just in case Government Members are not alive to the challenges of child poverty in our country, let us look at the latest statistics from HMRC and DWP, via Stat-Xplore. In Saffron Walden, the number of children aged from zero to 15 who are in poverty is 2,261, which means the child poverty rate is 10%; in West Worcestershire, the figure is 2,176, which means a child poverty rate of 14%; in South Cambridgeshire, the figure is 2,051, which means a child poverty rate of 9%; in Kensington, the figure is 1,731, which means a child poverty rate of 9%—those children are not going to Harrods. In Penistone and Stocksbridge, 2,010 children live in poverty, which means a child poverty rate of 13%. In Harrogate and Knaresborough, 1,699 children live in poverty, which means a child poverty rate of 9%.

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[Jesse Norman]

I thank Opposition Members for their comments. This Government will always be committed to reducing poverty and child poverty. There is no difference in our view and the Opposition’s view of the importance of these issues: they are very, very important.

The hon. Member for Ilford North has been free with statistics. Let me give him a couple that he might find of interest regarding households with a below average income. The Department for Work and Pensions has shown that 200,000 fewer people were living in absolute poverty in 2018-19 than in 2009-10, including 100,000 children. The record also shows that Government policies continue to be highly redistributive. Distribution analysis of the most recent Budget shows that the poorest 60% of households receive more in public spending than they contribute in tax. In 2021, households in the lowest income decile will receive more than £4 in public spending for every £1 that they pay in tax, on average.

No one thinks that the present situation is such that a Government of any stamp could rest easy. We need to continue to press for lower poverty and greater equality in our society. That is an important theme for this Government. I remind the Committee that, in the past few months, the Government have been focusing on supporting lower income families through the pandemic outbreak—through the schemes that we have discussed and through increases to universal credit and working tax credit. Much of the information that the new clauses ask for is already in the public domain, including with regard to the distributional effects of tax, welfare and spending policy, and data on poverty rates, as the hon. Member for Ilford North highlighted.

I hope that the Committee enjoyed, as I did—how sharper than a serpent’s tooth—the moment when the hon. Member for Ilford North turned on his erstwhile partner and highlighted some of the weaknesses in the Scottish National party Government’s own activity. The hon. Member for Glasgow Central said that the Scottish Government will do everything they can to take action in this area. They now have a significant amount of devolved power, through the tax system and other means, and we will look at what impact they make on the issue. How they exercise that responsibility will be a very interesting matter for further scrutiny.

[Stephen Flynn]

The Scottish Government announced a £10 per week child benefit supplement for the poorest families in Scotland, which is expected to lift 30,000 children out of poverty by 2023-2024. Will the Minister’s Government do the same?

[Jesse Norman]

We will look at the effects of that and at whether it will be adequate to meet the challenge the Scottish Government have laid down for themselves.

We have now reached the end of this process. I have found it very exciting, and I thank all colleagues for the work that they have done. With that in mind, I reject the new clauses.

Finance Bill

Stephen Flynn Excerpts

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

[Andrew Jones (Harrogate and Knaresborough) (Con)]

One of the features of the lockdown economy has been the march of online retail, as evidenced by the prominence of delivery vehicles on all our streets, but the growth of the digital economy is actually deeper.

The Federation of Small Businesses in North Yorkshire tells me that one of the major concerns among its members is the extent of the digital skills that they have in their businesses. I have spent a significant amount of time listening to business—I know that is something we all do as Members of Parliament, but I have also done so as a Minister and as someone with specific responsibility for this for my party—and one of the messages from that engagement was to focus on digital. That means different things for different companies. It could be the new channels to market and the need to ensure that they are able to reach their customers in the most appropriate way. It could simply be the opportunities to enhance productivity by digitising processes. My point, really, is that the digital economy is the future.

From a Treasury perspective, that is quite difficult. It presents it with hard challenges. The international nature of this economy makes it hard to collect tax—a point already made by colleagues in the debate.

[Stephen Flynn (Aberdeen South) (SNP)]

I note that the hon. Member said that digital was the future. Would it not be fair to suggest that digital is not only the future but the present—the here and now—and that that is why the Government’s proposals should go further?

[Andrew Jones]

It has been the past, the present and the future. My point is about scale. I am not suggesting that the economy will be all digital in the future and that it has been all analogue in the past. That is perhaps a misunderstanding of what I have been saying.

Returning to the point that the digital economy presents challenges for the Treasury in raising taxation, I know that the Treasury is making good progress in working with other countries on developing a multinational response, but that could take a significant amount of time. It is therefore right to take appropriate action now. The direction of travel is a positive one, particularly building on the points made by my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) earlier in the debate. The evolving nature of the economy—how we work and how we consume—means that tax has to evolve too. Traditional routes for collection are becoming more difficult, and the Bill is a response to that.

I am not normally keen on finding new ways to tax people. We are already quite a highly taxed country, but we need to raise revenue to fund our vital public services. In Committee, we discussed the fact that this tax could raise up to £2 billion, but there is also something unusual about it, in that it is a tax on revenues. In this case, I think that that is a positive thing, because we are talking about very large companies. The thresholds mean that we are dealing with the largest players in the online marketplace, such as social media platforms and search engines. Basically, I am pleased to see efforts to make tax fairer between offline and online—or bricks and clicks, as it is sometimes referred to.

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[Stephen Flynn]

With your indulgence, Madam Deputy Speaker, I will speak to new clause 13 before moving on to new clause 14. New clause 13, which I and my colleagues in the Scottish National party tabled, would require the Chancellor of the Exchequer to review the impact of the Bill on the UK meeting the UN sustainable development goals. That is an incredibly important issue.

I will start by referencing someone who has been in the news quite a lot in recent days, in relation to a new deal—former President Roosevelt, who stated:

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

What sage words indeed, which chime directly with the purpose of the 17 United Nations sustainable development goals about creating a just society for all, where we all have the same opportunities and access to vital services.

If we look at some of those sustainable development goals in a bit more detail, we might see why the Government are perhaps not so keen on new clause 13. For instance, the first UN sustainable development goal is on there being no poverty. Of course, we are all well aware of the Government’s record in relation to poverty. It was discussed at great length in Committee. At the time, the Minister made some fairly strong remarks, as did the hon. Member for Ilford North (Wes Streeting), on the situation in Scotland. They were absolutely correct to highlight that Scotland is not immune to the problems of poverty, but at that Committee sitting, I challenged the Minister on whether the UK Government would follow the pathway trodden by the Scottish Government and introduce £10 a week for every child living in poverty. That commitment was not given, so I say to the Government today: will you meet that challenge? Will you follow the route laid out by the Scottish Government?

The second UN sustainable development goal relates to there being no hunger. Of course, we have seen the UK Government’s record on that, too, in an all too apparent focus in recent weeks through the ridiculous situation where we had to have a footballer—a very good footballer, but a footballer none the less—force the Government to U-turn on feeding the poorest children in England. Incidentally, that is of course being done in Scotland.

If we look further at the UN sustainable development goals, No. 10 relates to reducing inequalities. Has that ever been more timely, given the situation around us on a daily basis in relation to Black Lives Matter? I find it disturbing and deeply unfortunate that the Government do not believe that the impacts of the Bill need to be looked at in relation to such sustainable development goals, because they should be at the heart of all policy making and legislation. Again, that is very much the case in Scotland, where the United Nations sustainable development goals have been embedded in our national performance framework. What kind of nation we want to be goes hand in hand with the goals and aspirations laid out by the UN.

[Anna McMorrin]

The hon. Member is making a very strong speech about the sustainable development goals. Is he aware of the Well-being of Future Generations (Wales) Act 2015, which puts into law the sustainable development goals and links them with what public bodies have to abide by in law in Wales? Does he believe that that should happen across the UK?

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[Stephen Flynn]

I thank the hon. Member for that intervention. Surprisingly enough, I was not aware of that, but it certainly seems to reflect the situation in Scotland through the national performance framework. I encourage the UK Government to look at the example that has been set in that regard, and the one set north of the border. I will finish there in relation to the UN sustainable development goals and move on to new clause 14.

New clause 14 would require the Chancellor of the Exchequer to review the impact of the Bill on the UK meeting its Paris climate change commitments. As the hon. Member for Ilford North said, the immediate focus of all legislators has been on overcoming the coronavirus pandemic, and rightly so. Protecting public health has had to be at the forefront of everything that we do. But the climate emergency has not gone away. We need to be cognisant of that fact and make sure that policies that are put in place recognise it. The need for urgent action has not stopped. In fact, we could perhaps argue that covid-19 has shown just how fragile our society is, particularly for those who need support the most and who live in the areas of higher deprivation. Those who have been impacted the most by covid-19 are projected to be impacted the most by the climate crisis.

It might sound a little bit bizarre that an MP for Aberdeen, which is of course a city well known for its oil and gas industry, would stand here and talk about climate change, but it is for a good reason: the reality is that we do not get to net zero without taking the oil and gas industry with us. We need to invest in the support that it requires in order to meet net zero.

[Richard Thomson (Gordon) (SNP)]

As another Member of Parliament who is very proud to represent a part of the great city of Aberdeen, I very much appreciate the speech my hon. Friend is making. There is no route to net zero without investing in the oil and gas industry for things like carbon capture and storage. Does he share my concern that there is as yet no apparent sign of any sector deal, which might harness the skills and capital invested in that industry to help us to effect the transition?

[Stephen Flynn]

I thank my hon. Friend, who shares representation of the wonderful city of Aberdeen through his Gordon constituency, for his timely intervention: it is almost as though he has read my mind as to what was due to come next in my speech.

As things stand, to date the UK Government have failed to deliver on their promise of an oil and gas sector deal. An oil and gas sector deal may on the face of it, to those who look at it from the outside, appear to be a way to support the oil and gas industry to continue to take oil out of the ground. There is a certain element of that—we need to ensure that sustainability in the industry is there—but more importantly, it is about ensuring a sustainable transition that allows us to meet net zero but provides sustainable energy moving into the future. The UK Government have to date been found absolutely wanting. I have raised this on numerous occasions since the start of March. In recent weeks, Oil and Gas UK produced a report that outlined that 30,000 jobs are due to go in the oil and gas sector as a result of the current downturn in oil prices. That is on top of the huge impact of covid-19 across the tourism sector and all the other sectors that are impacted in every single constituency across Scotland and the United Kingdom. Yet this Government continue to sit silent and continue to fail to deliver.

The Scottish Government have stood up to the challenge. Only last week, they put £62 million into sustainable energy going forward, with £25 million going into a transition, and money going towards a hydrogen hub and a number of other projects put forward by the oil and gas technology sector. Yet this UK Government have failed, to date, to provide a single penny. So where is the strategy? Where is the desire to support the industry in getting to net zero? As I have said, we do not make the sustainable energy transition without that investment, be it in the aforementioned energy transition zone, in further investment in hydrogen, or, as my hon. Friend the Member for Gordon (Richard Thomson) mentioned, in carbon capture and underground storage—a pledge that was made prior to 2014 and, shamefully, taken off the table by the Conservatives following the independence referendum result. It is now on the table but has no delivery timescale whatsoever. When is the Acorn project going to be brought online so that we will see that investment in climate priorities? We have heard from the Government numerous times that they will do whatever it takes, but “whatever it takes” is not enough—we need action,

This is a Finance Bill debate, so I shall mention this important point. The Treasury has coined £350 billion from the oil and gas sector, notwithstanding the taxes being paid by those individuals whose employment has been linked to the industry. It is time to give back, and it is time to give back in spades. We cannot afford to wait. What we have had up to now from the UK Government is simply not good enough. I shall conclude where I started, with the remarks of a former President of the United States, who stated:

“No country, however rich, can afford the waste of its human resources. Demoralization caused by vast unemployment is our greatest extravagance. Morally, it is the greatest menace to our social order.”

Let us invest in those industries and the tech that can protect jobs, protect our environment and lead us into a future that protects our planet.

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[Jesse Norman]

If I may, I will speak to the clauses and then take up the points made by Members in the debate.

New clause 28 would require the Chancellor to assess the impact of the Bill on the environment, specifically considering the impact on achieving net zero emissions by 2050, on meeting carbon budgets and on air quality standards and biodiversity. The Government are committed to meeting our net zero milestone. The net zero review continues to make progress, although, let us be clear, like everything else the capacity to consult a wider group of stakeholders has been affected by covid. Many resources have been devoted to covid-related matters given the position we are in, but the review continues to make progress and we will publish a call for evidence, which will allow businesses and stakeholders the chance to engage seriously ahead of publication.

Carbon pricing has already contributed to emissions reductions in the power sector, as the share of coal-based electricity fell from 40% in 2012 to 5% in 2018, which is something everyone should be proud about. Future climate strategies will be set out in due course, including as part of the national infrastructure strategy.

The Government have also created skills advisory panels to help local areas understand their current and future skills needs, including in low carbon industries, and to tailor provision accordingly. The Government will assess the impact of potential interventions against the contribution they make to our environmental goals, including on climate change and air quality targets.

New clause 13 would require an impact assessment of how the Bill is meeting the UN sustainable development goals within six months of Royal Assent. It is important to realise that it is already a requirement for UN member states to review their progress towards meeting the global goals at least once, and we as a country have been proactive in assessing that and reporting back to the UN.

New clause 14 would require a review of the Bill’s impact on the UK meeting its UN Paris climate change agreements. Under the Paris agreement, the Government must maintain and report on their emissions reduction commitments in the form of a nationally determined contribution. The UK’s legally binding commitment to reduce emissions to net zero by 2050 is among the most stringent in the world, and the system of governance that implements that commitment under the Climate Change Act 2008 is world-leading.

New clause 34 would require the Chancellor to review the impact of the Bill’s provisions on human and ecological wellbeing, including on future generations. The Environment Bill is designed to ensure that the environment is at the heart of all environmental policy making. This Government and future Governments are held to account if they fail to uphold their environmental duties through a newly established Office of Environmental Protection, including legally binding, long-term targets on biodiversity, air quality, water, resource efficiency and waste management on top of the net zero target.

Turning to some of the comments that I thought were of great interest, my right hon. Friend the Member for South Northamptonshire was absolutely right to highlight the Government’s record in this area. The hon. Member for Aberdeen South (Stephen Flynn) raised a challenge on top-ups. My view here, as elsewhere, is that we will look with great interest to see whether the policy is effective. If it is effective, we will look even more closely at whether our policy as the UK Government needs to be changed, but it is obviously far too early to be able to say that. If he believes, as we believe, that actions matter, not just words, I am sure he will agree. If the Scottish Government want to do more in that area, they have received an additional £3.8 billion through covid funding, and they can divert some of that if they wish.

[Stephen Flynn]

Will the Minister give way?

[Jesse Norman]

I am afraid I just do not have any time. I will come back to the hon. Gentleman at the end if I do.

I want to respond to the hon. Member for Hornsey and Wood Green (Catherine West), who rightly highlighted the importance of local authorities for cycling, walking and tree planting. I agree with her about that. She asked about the replacement strategy for the emissions trading system. I think she is aware that we have framed two alternatives. The first is a UK ETS, and the second is a carbon emissions tax. We are open to a negotiated agreement, but we have the resources, through either of those options, to implement a scheme that addresses the issues that she is concerned about.

Finally, the hon. Member for Cardiff North (Anna McMorrin) called for leadership not rhetoric. I wonder whether she was referring to the Welsh Government, whose tree planting plans have been disastrous. They seem to be way behind, according to their own tree planting estimates.

The hon. Lady specifically picked out the Swansea Bay tidal lagoon. As my right hon. Friend the Member for South Northamptonshire said, that project would not provide value for money. It would be a terrible waste of public money. That money could be spent much better.

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I have already related the experience of constituents of mine who have worked as contractors—notably, but certainly not exclusively—Indians in the IT sector in Glasgow, whose skills are highly sought after and who could easily take those skills elsewhere if it became too difficult to work here. They tell me that the UK Government’s announcement has brought a chilling effect, whereby contracts are not being renewed and new contracts are harder to come by.

[Stephen Flynn]

A number of constituents in my Aberdeen South constituency have contacted me because they are facing a triple whammy of covid-19, the oil and gas sector downturn, and the impact of IR35. Should the Government not think again?

[Alison Thewliss]

I agree with my hon. Friend. I was going to mention the oil and gas sector, because it is part of the triple whammy. The situation is very difficult for people at the moment and the Government should not be in the business of trying to make it more difficult. They should be thinking again and looking at the circumstances we are in, rather than pressing ahead with something that does not suit these circumstances.

The “check employment status for tax” online tool for IR35 is also problematic. The UK Government have basically tried to replace a complex legal specialty—employment law—with an online quiz, which objectively does not give the same results as the courts in deciding whether an individual is an employee. We have asked questions about the empirical methods used to test that tool, but I have not been provided with any specifics other than it has apparently been rigorously tested. It is hardly surprising that employers feel that these are moving goalposts, and they may avoid the risk by avoiding using contractors altogether. We support new clause 35, which would provide that the IR35 provisions of the Bill would not take effect unless the Treasury had conducted and published a review of legislation on off-payroll working.

Our new clause 12 would make clear the economic hit that would follow the ending of the coronavirus support schemes. Along with many others across the country, I fear that winding up these schemes too soon will prompt companies to lay off staff. The major job losses announced in the past few days really must prompt the Treasury to reconsider this strategy. It is no coincidence that Airbus, Wigan Athletic, Harrods, John Lewis, easyJet, Upper Crust, TM Lewin, Royal Mail, Harveys and Arcadia have all laid off staff today and in the past few days. They are all looking at the scheme and thinking, “How are we going to survive in the next few months without any support for our workers?”

New clause 12 seeks assessments of the impact of the Bill within a month and various economic variables, comparing a situation where the Treasury sees sense and continues its covid support schemes for the next year with the likely reality that it discontinues them as planned, leaving the economy and people’s living standards reeling. The review set out in the new clause would consider the effects of the provisions on GDP, business investment, employment, productivity, company solvency, public revenues, poverty and public health.

The right hon. Member for Wolverhampton South East (Mr McFadden) set out quite well his experience of growing up in Glasgow. We still live today with the post-industrial legacy and generation of health harms of the ’80s—with the shutdown of heavy industry and the impact that had on people’s wellbeing. I am determined that we will not see that again from this crisis. The Chancellor must live up to his pledge to do whatever it takes to protect people’s jobs and livelihoods. The Treasury Committee report published the other week said that over 1 million people have fallen through the gaps in the UK Government’s welcome support schemes. In the report, the Committee also asked the UK Government to explore measures to help those newly in employment and self-employment, freelancers and those on short-term contracts, all of whom face barriers to accessing support schemes or have sadly been excluded from them altogether. This is now a choice. The Government cannot say that they did not know that these people were left out. They are now choosing not to support them.

With the ONS earlier revealing that the UK’s economy suffered its biggest monthly slump in GDP on record—of 20.4%—in April due to the coronavirus pandemic, we have renewed our calls on the Treasury to extend the income support schemes rather than wind them down. We need only look at Leicester, where the outbreak has meant a further shutdown, and wonder whether that will happen again. How will people be incentivised to stay at home and protect their friends, neighbours and families if they do not have an income coming in? People cannot survive on statutory sick pay and without support.

There is an effect across different sectors, such as theatre and arts productions, which may not come back until March next year. How are staff in those sectors going to pay their wages without some kind of job retention or support scheme? What about the people in hospitality—many of whom have businesses next to the very same theatres that will not open their doors until March? Where are the pre-theatre dinners if there is no theatre to go to afterwards? The tourism sector faces the prospect of three consecutive winters and cannot survive without support schemes. If we want these businesses and livelihoods to exist, the Government need to pay the money now, because if they do not, they are going to pay it out in unemployment benefits. We also need to look across the nations of the UK. Scotland’s experience is different from those of England, Northern Ireland and Wales. None of the countries of the UK should be punished for putting public health first. With businesses struggling to survive, thousands of jobs on the line, and households taking a severe hit as people’s income drops or they lose their jobs, it is vital that the Treasury strengthens and extends these schemes, and brings forward a comprehensive financial package to ensure that a strong economic recovery from this crisis happens, rather than pushing ahead with these plans.

Our new clause 18 would force the Government to come clean on the damage our economy faces from Brexit in the midst of this crisis. The new clause would require a review of the impact on investment, employment and productivity of the changes to the capital allowance over time; in the event of a free trade agreement with the USA; in the event of leaving the EU without a trade agreement; in the event of leaving with an agreement to maintain single market and customs union membership; or in the event of leaving with a trade agreement that does not include single market and customs union membership.

With our economy already struggling with coronavirus, leaving the EU single market and customs union this year would do unthinkable damage to our economy. It was a bad decision before, but it is a worse decision now. The risk of long-term scarring to the economy is significant, and investment from the UK Government could stave that off, if they choose to do this. Roosevelt’s new deal was equivalent to 40% of US GDP. Germany has invested 4% of its GDP, whereas the Prime Minister has invested 0.2%. It is not just FDR’s clothes that the Prime Minister has attempted to steal this week, because President Duterte of the Philippines, whose “build, build, build” phrase he plagiarised, invested $177 billion in the Philippines economy. The UK response is completely inadequate. It is the emperor’s new clothes, leaving Scotland bare. We call on the UK Government to take up Scottish Finance Secretary Kate Forbes’ plan , which would inject £80 billion into the UK’s economy as a whole. I commend that and our new clauses to the House.

Finance Bill

Stephen Flynn Excerpts

Report stage & Report: 2nd sitting & Report: 2nd sitting: House of Commons
Thursday 2nd July 2020 Commons Chamber

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I am keen to talk briefly about the future fund, which is dealt with in new clause 22. The new clause covers those who have benefited from tax relief under the enterprise investment scheme and the seed enterprise investment scheme, to ensure that those tax reliefs are not withdrawn. These are important tax reliefs. I have set up a number of companies—I declare my interest, Madam Deputy Speaker—and some of the capital needed to invest in them was solicited through the EIS and the SEIS. Those schemes are very effective in encouraging high net worth individuals and angel investors to invest in small start-up and scale-up businesses.

The future fund is really for bigger, high-growth businesses wanting to attract capital. It is a very effective scheme, in that the Government match the funding that is attracted from individual investors—often venture capital investors. It is incredibly important, as we start to recover from this crisis and seize the opportunities ahead, that we encourage more equity investment. The UK is particularly reliant on debt financing in how our businesses start up and scale up, whereas other countries are much more effective at delivering equity finance solutions. This is important because at the moment the Government are investing a huge amount—about £35 billion—through guaranteed loans in the bounce back loan scheme and the coronavirus business interruption loan scheme, which businesses are making decisions on in terms of debt finance.

However, on equity finance, the Government do not always have the best record on deciding which businesses to support. That is why the future fund is a good scheme, in that it fund-matches private sector investment, which is much better at determining which businesses are the right ones to support. Individual investors are much better at picking winners than are Governments. As we move forward, there are going to be some huge corrections in the private sector. Lots of businesses have borrowed money to get through this crisis and it is fair to say that many of them will not be able to pay that money back. My all-party parliamentary group on fair business banking has contributed to a report by the Recapitalisation Group, a consortium headed by Ernst & Young and TheCityUK, which states that there will be about £100 billion of unsustainable debt—not all connected to the Government schemes—by this time next year because of borrowing by businesses hit by the recession caused by the covid crisis.

To get us through that period and the subsequent period, and to prevent business failures—there is no question but that some businesses will fail and jobs will be lost as a result—we need to understand that it cannot be all about debt financing. The Government cannot be expected simply to give grants to keep businesses going. We need to find a different route to encourage private sector investment, which is good at picking winners, to invest in small and medium-sized enterprises and scale-up businesses. Equity finance will be critical to that. We need something different from the future fund, which is there to help to scale-up, high-growth businesses. Instead of the growth capital that characterises the future fund, we need equity finance for the restructuring, rescue and turnaround of good businesses that could get through this, but that are not big scale-up businesses. In the past, equity finance has been used for high-growth businesses rather than for restructuring and turnaround, and most equity finance is focused on London rather than the regions. I know, Madam Deputy Speaker, you are as keen as I am to ensure that our regions are well served by equity finance and support.

We need a discussion about the schemes that we could introduce. I am a big fan of the seed enterprise investment scheme and the enterprise investment scheme, and I think the tax incentives around them should be enhanced for a time. Clearly, the temptation for high net worth individuals will be to keep their money in the bank for 12 months rather than investing, and wait to see what happens the other side of the crisis. We have to encourage them to put money into businesses today. A doubling of the incentive for EIS relief would be very welcome, and a loosening of the restrictions on EIS investment—such as by enabling relatives to invest in businesses—would be appropriate for the next 12 months.

We need to relax some of the restrictions on venture capital. There are annual and lifetime limits on venture capital in businesses, and they should be doubled, because lots of businesses need extra support at the moment and the venture capital companies that sit behind them did not expect to have to see them through this crisis. I am keen for the Treasury to relax some of the unreasonable restrictions on the amount of money that can be invested in those businesses.

We should perhaps consider loans that are based on a contingent tax liability—a kind of student loan system, whereby the loan is repaid through future profits. I know that Lord Bilimoria is keen to see a new 3i scheme, in which the Government put a significant amount of money—in his view, it should be £5 billion—into several different private equity organisations to sit behind UK businesses.

I will touch on something that is not directly related to tax reliefs, but that is very important in relation to finance. The Minister has been very good at engaging with me on clause 95, which I think unreasonably restricts the opportunity for businesses to get finance by putting HMRC up the ladder as a preferred creditor. That may mean that some lenders are less likely to lend, and I caution the Treasury to keep a close eye on that to make sure that debt finance is still made available to SMEs. I am very supportive of what the Government are doing with the future fund, but we need to go a bit further in certain other areas.

[Stephen Flynn (Aberdeen South) (SNP)]

I rise to speak in support of the amendments tabled in my name and in those of my SNP colleagues. It is important to state from the outset that we hear regularly from across the Chamber—albeit not today, given that it is quite empty for this discussion of tax—that the UK’s tax relief system is full of inefficiencies.

Our core aim with the proposed new clauses is to be constructive and get to the root of that problem in respect of entrepreneurs’ relief by asking the Government to undertake a review of the impact on investment of the changes to the relief. As I said in Committee, that can only be a positive thing. After all, there remain varying views on the effectiveness and efficacy of entrepreneurs’ relief, and whether it delivers the necessary economic objectives or whether that could be done by other means. Those varying views are clear for all to see. For example, the IFS has been quite critical of the relief, highlighting that it is poorly targeted. On the converse, the Federation of Small Businesses has emphasised the importance of the relief for the retirement of business owners.

I have no doubt that we will hear much from the Minister about the fact that a review has already been undertaken. It has, but that was an internal review, which is not good enough. That is of particular importance when we consider that there was much talk in the public domain of entrepreneurs’ relief being scrapped entirely at the Budget. A Back-Bench revolt ensued and that position swiftly changed, so instead of the relief being scrapped, it has gone from £10 million back to the £1 million introduced by the Labour party in 2008. I am sure that even the Minister would agree that the tail should not be wagging the dog on such important matters. What we need is clarity—clarity on effectiveness, clarity of efficacy and clarity on direction. Those points have perhaps never been as important as they are now. As we rebuild our economy following covid-19, it is more important than ever that tax incentives go to those entrepreneurs who we know will rebuild the economy.

That takes me on quite neatly to the further new clauses that we have tabled in respect of tax avoidance, for as we rebuild the economy, the very last thing that we need is individuals and organisations dodging what they are due. On the Scottish National party Benches, we have been clear and consistent in highlighting our profound concerns relating to Scottish limited partnerships, yet despite the obvious manner in which these can be abused, we are yet to see any real action. I sincerely hope that in his contribution, the Minister will make a commitment to end the avoidance practices of such partnerships, but I hope he can go further, too.

For decades, we have seen consecutive UK Governments talk the talk on ending tax avoidance, but in 2017-18, HMRC still put the tax gap at £35 billion. I have some sympathy for the Government in this regard, for just as they legislate to close one gap, another one is opened by those who wish to cheat both the system and the public, but there is scope for a comprehensive anti-avoidance rule to be introduced. The Government will point to the general anti-abuse rule introduced in 2013, but this has been heavily criticised, not least by the TUC. What we need is workable general anti-avoidance rules that tackle avoidance in all its forms, including international tax abuse, and more than ever, we need real action to combat Scottish limited partnerships.

I am conscious of the fact that you wish to finish before 2 o’clock, Madam Deputy Speaker, so I intend to keep my contribution brief. I will move on to my closing remarks, in which I wish to highlight that more can be done to incentivise energy efficiency through tax reliefs and, similarly, to meet the needs and demands of the Scottish economy.

In respect of structures and buildings, it is clear that the Government are making an attempt to amend the system to incentivise capital investment, but they can and should go further. At the risk of repeating myself once again, the easiest step they could take is to scrap VAT on building repairs. In my constituency of Aberdeen South, I have been struck by just how many homeowners, who often live in some of the most beautiful granite buildings, are unable to undertake the repairs and improvements that they either want or need due to the high costs involved. As we seek to improve energy efficiency in our homes, particularly in often old and cold buildings, surely the Government should be assessing every measure to incentivise progress, not just to help rid us of fuel poverty, but to protect both the environment and the future of our planet. Cumulative action to combat climate change is needed, and I would welcome a firm commitment from the Minister in this regard.

On the issue of tax reliefs, it would be remiss of me not to highlight to the Chamber the proposals put forward in recent days by my colleagues in the Scottish Government. I think that everyone—even the most ardent of UK Government supporters—was deeply underwhelmed by the plans announced by the Prime Minister to restart the economy, and that collective sigh from across the UK was entirely justifiable, because £5 billion will likely work out to be less than the cost of renovating the very building that we are in, and it is a far cry from the £80 billion of investment called for by the Scottish Government. Importantly, however, my colleagues called not just for capital investment, but for tax relief. Indeed, they were clear that reducing VAT must be an urgent act of this Government, both in terms of reducing the general rate of VAT from 20% to 15% for six months and, importantly, reducing tourism and hospitality VAT to just 5%. On top of that, a 2p cut in employers’ national insurance contributions to reduce the cost of hiring staff was also identified.

Unfortunately, as with all too many matters, the hands of the Scottish Government are tied on such issues. The power lies with the UK Government, a Government who Scotland neither supports nor votes for. I hope that the Minister is listening and the wider Government are listening too, because now is the time for them to introduce the tax incentives that the Scottish economy needs; to deliver the investment that the Scottish economy needs; and to provide the Scottish Parliament with the borrowing powers that it so desperately needs. If they do not, they should be ever mindful that they are only doing further damage to the very Union that they claim to support.

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[Alison Thewliss]

We believe that there are still many questions to be answered on the loan charge, not least the revelations in the press during the week over the FOI request that have raised more questions. We want to see further probing on the issue and further support for those people who have ended up losing not only their livelihoods but their homes—and some have lost their lives. It is no light-hearted matter to be considered in such a flippant way.

If the Financial Secretary to the Treasury wants to prevent scarring in the economy, he must encourage his colleague the Chancellor to be bolder next week. He must keep the job retention scheme and the self-employment support scheme going, and he must fill the gaps in those schemes when he makes his announcement next week, because too many people have lost out and too many sectors are not yet back to full strength. When that change comes—when people have to pay more of the wage costs themselves—we will see more and more employers doing what many employers have done this week and simply deciding to hand back the keys, fire their staff and wind up their companies. And the unemployment figures will soar.

[Stephen Flynn]

Does my hon. Friend share my particular concern about the oil and gas sector in which we have already seen vast swathes of employees made redundant because the furlough scheme had an end date? The fact that that end date is now coming closer and has not been extended will only compound the difficulties and lead to further unemployment.

[Alison Thewliss]

The oil and gas sector is a perfect example of a sector that needs additional support right now. These are people who have a great deal of uncertainty involving many different factors, not least the oil and gas price at the moment, the need to invest in green technologies in the future and the need to transition in a just way that makes sure that jobs and livelihoods are protected. The Government need to have an oil and gas sector deal to support those jobs and those people and to protect the economy of the north-east of Scotland.

Other sectors of concern include tourism, hospitality and the arts and theatre. There is a huge campaign today for the music sector as well. I fully support those concerns because if we cannot return to these venues, the people who work in them will not get a wage and they will struggle, with many companies perhaps not coming back. They will lose their Christmas season—they will lose everything and perhaps not even be able to come back to theatres and to those kinds of sectors until March. I do not know where the Government expect those people to earn a wage or how they expect them to live, but it is clear that support needs to be in place for the sectors that are affected.

There are stark figures out today from the Scottish Chambers of Commerce. Its president, Tim Allan, has said:

“It is critical that governments in Holyrood and Westminster continue to provide business support for companies during and beyond the easing of lockdown restrictions. A sudden end to these vital financial support measures would not be welcome by anyone and a tsunami of jobs would disappear overnight.”

Commenting on the results of the Scottish Chambers of Commerce survey, Professor Graeme Roy, director at the University of Strathclyde’s Fraser of Allander Institute, said:

“What is particularly worrying is the employment outlook. The survey shows a clear warning of what is to come, with a sharp rise in unemployment now inevitable as businesses adjust to a new normal.”

Inevitable—a tsunami of jobs lost. It is not surprising that 95% of the firms in that survey reported a fall in business confidence. To boost business confidence, the Government really need to make sure that the schemes continue. The findings paint a bleak picture of the deep economic hit to key sectors across Scotland, once again highlighting the need for strengthened financial support measures to help businesses and industries survive this crisis. Rather than looking to shut down the support schemes and putting increased financial pressure on firms that are already struggling to get by, it is critical that the Treasury extend and strengthen support to protect business and countless jobs.

This Government have all the levers. I only wish that the Scottish Government had at their disposal—as the Government of an independent country—the levers to make such choices. At the very least, the Chancellor should look at the fiscal framework and allow devolution of borrowing powers to the Scottish Government as soon as possible. The Scottish Government’s powers to borrow are incredibly limited, and we do not have the flexibility to meet the economic demands of this crisis. It could not have been envisaged when the fiscal framework was agreed; nobody would have seen this coming. The Government must react and listen to the demands of the Scottish Government.

This Government have a choice. They can invest in green infrastructure and recovery and they can decide to help people, or they can decide to turn off the taps and risk recession and devastation across many sectors of the economy. All I can hope is that they choose wisely.