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 (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.

--- Later in debate ---

[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.

--- Later in debate ---

[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 (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”.

--- Later in debate ---

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.

Beer and Pub Taxation

Stephen Flynn Excerpts

Wednesday 5th February 2020 Westminster Hall

[Stephen Flynn (Aberdeen South) (SNP)]

I thank the hon. Member for Dudley South (Mike Wood) for securing the debate. This is my first experience of a Westminster Hall debate, and it is fantastic that so many hon. Members are interested in beer—more than are interesting in sitting in the main Chamber most of the time. That is the state of play in politics.

We have heard some interesting contributions, not least from the hon. Member for Clacton (Giles Watling), who highlighted the fact that he is well kent in many pubs. I invite him to come to Aberdeen South any time he wants to go for a beer, but the pint is on him.

I actually have shares in a brewery company, but I do not need to declare them because I have only two. I am sure that many hon. Members are aware of the company, BrewDog, which is one of the huge success stories of north-east Scotland. We have many brilliant local craft breweries in north-east Scotland that must be celebrated, such as Park Brew in Angus and Eden Mill in the constituency of the hon. Member for North East Fife (Wendy Chamberlain), who I saw earlier. We have to celebrate the number of breweries in Scotland and across the UK.

[Joanna Cherry (Edinburgh South West) (SNP)]

The brewing industry is important to the Scottish economy across the nation. In my constituency alone there is the Caledonian Brewery, the headquarters of Heineken UK, the award-winning Edinburgh Beer Factory and the International Centre for Brewing and Distilling at Heriot-Watt University. Does my hon. Friend agree that if the Chancellor wants to help the Scottish economy, he will cut beer duty?

[Stephen Flynn]

It is an important discussion and I will come on to that point. I have been an elected Member in Scotland for a considerable period of time, and what I hear from Conservatives there is that the business rates in Scotland are a complete and utter mess. Having listened to this debate, it appears that they are an even bigger mess in England, if the contributions from Conservative Members are anything to go by.

The important point in the Scottish context, as my hon. Friend the Member for Angus (Dave Doogan) noted, is that Scotland has the most competitive business rates in the entire Isles. Indeed, more than 100,000 businesses, many of them local pubs, are in receipt of the small business bonus, without which they would not survive. In the Scottish Parliament the Conservatives have put that at risk in the last few days. It was only after a dramatic U-turn that they decided to side with the Scottish Government to ensure that the small business bonus was kept in place. That was right, but it should never have been in doubt. With regard to business rates, we in Scotland are well placed to say that we support local pubs and local industry, but there is certainly more that can be done.

One aspect that has not been touched on in enough detail when it comes to taxation is the public health impact.

[Jim Shannon (Strangford) (DUP)]

The cost to the NHS of excessive drinking is clear. Does the hon. Member agree with the sentiments put forward by me and other hon. Members that pubs offer a secure method of drinking? The key is moderation. A landlord can give drivers free soft drinks all night or remove keys from someone who is still standing and talking yet unable to drive. When it comes to the message of drinking sensibly, that is the way to do it.

[Stephen Flynn]

The hon. Member makes an important point, which many hon. Members have also made. That is why we have to take a holistic view. We cannot simply say that taxes need to be cut without looking at the public health impact. Notwithstanding that, a pub is a much safer place to drink than the pre-loading we heard about earlier.

It is important to note that about 22 individuals die every week in Scotland due to alcohol abuse. That is a shocking figure that none of us can be happy about. There has been action on that in Scotland, through the introduction of minimum unit pricing, which is expected to save 392 lives over just five years. We certainly support the reform of beer excise duty, but we need to look at taxation holistically and in terms of public health.

The elephant in the room is the fact that great swathes of our hospitality sector rely primarily on the work of EU nationals. In Scotland, roughly 11% of EU nationals work in the hospitality sector. They are crucial to the success of our pubs, hotels and the entire hospitality industry. That is why Scotland needs freedom of movement, and why it is incumbent on Conservative Members to ensure that when the Brexit deal goes through, free movement of people from the European nations to Scotland continues.

[James Gray (in the Chair)]

The hon. Member for Norwich South (Clive Lewis), who was supposed to wind up for Her Majesty’s loyal Opposition, apologises for being unavoidably detained elsewhere. I am grateful to Stephanie Peacock for standing in.