Finance Bill

Thérèse Coffey Excerpts

Wednesday 2nd July 2014 Commons Chamber

[Cathy Jamieson]

If I did not know better, I would suspect my hon. Friend of having read my speech. I was just about to come to that very point. The infamous Lamborghini comment might have been made in jest, but that sort of joke is entirely lost on those who have already lost their savings because of poor or insufficient advice. My hon. Friend makes a very valid point indeed about people’s confidence in what they can do with their own resources. To an extent, the Government may have begun to acknowledge the need to expand the range of choices available and ensure that consumers have help to navigate those choices—I think that was the phrase used. That sounds pretty sensible and commendable, but we need to make sure that it actually happens.

The second test we have set is the fairness test—the new system has to be fair to those on low and middle incomes, which means they still should be able to access products that give them the certainty in retirement they want, and the billions we spend in pensions tax relief must not benefit only those at the very top. That is why we have called for restrictions on pensions tax relief for those earning more than £150,000 a year. The third test is the cost test: the Government have to ensure that the policy does not result in extra cost to the state. That point was made earlier, and I think the Minister, to his credit, understands that there is an issue with social care and pensioners having to fall back on means-tested benefits—housing benefit, for example—later in their life if they do not properly or sensibly manage their resources. As yet, however, the Government have not explained how all that will be joined up in policy terms. In our view, if the Government’s pensions reforms fail any of those tests, the negative impact on savers could be considerable.

In Committee, my hon. Friend the Member for Islwyn (Chris Evans) talked about protecting people from the “sharks in the market”. That brings us to the vexed question of guidance. Going back to the Chancellor’s no doubt innocent slip, there is a serious point to be made about definitions. When pressed subsequently, the Chancellor said:

“There is a technical distinction between advice and guidance. The budget document exists, I don’t get up and read it out because it contains all the technical details of the Budget and we publish it at the same moment. The speech needs to also communicate in English so people watching it can understand what is meant.”

I understand that, but as I emphasised strongly in Committee, there is a world of difference between advice and guidance in technical terms and in terms of legality. The Government need to deal with that.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

I am listening carefully and trying to understand. Is the hon. Lady suggesting that the Government should be people’s financial adviser? I am not sure that is what the role of Government should be. I thought the reform was about opening up choices and making sure that people realise what steps they can take, not telling them what direction they should go in.

[Cathy Jamieson]

It is important that Government use language consistently and do not inadvertently mislead people about what they are going to get, whether it is guidance, advice or information, given face-to-face, over a telephone or through the internet.

The Red Book states:

“from April 2015, all individuals with defined contribution pension pots are offered free and impartial face-to-face guidance at the point of retirement”.

One might consider that a good and positive measure, but it raises some questions—questions that largely accord with the three tests we have set. First, there is a question about cost: the budget for guidance of just £20 million—£10 million each for 2015-16 and 2016-17—gives rise to some concern, as does its including no provision for this year. According to the tax impact and information note, the measures in the Bill will enable up to 400,000 people to draw down their pensions. I note that the Minister referred earlier to an updated tax impact and information note. Perhaps he can tell us whether he has revised any of those sets of numbers. We need to understand why nothing has been put aside for that free and impartial guidance in this financial year.

--- Later in debate ---

[Catherine McKinnell]

Well, it simply reinforces the impression—in fact, the reality—that the Government are perfectly well disposed to chopping and changing their policy and approach to the annual investment allowance. That is the point we are trying to make, and the point behind the new clause. The Government should stop and take a look. I have heard from businesses that they would rather have no investment allowance than have chopping and changing of the AIA, because that can be destabilising for investment decisions. They would rather have a more stable approach to policy making than that being displayed by the Government.

Returning to the history of the investment allowance, the previous Labour Government doubled it, recognising its importance to giving businesses confidence to invest for the future, and to be supported within the tax system to make such decisions. What happened after it was doubled? We know that, in his infinite wisdom, the Chancellor decided as part of his emergency Budget—or so he called it—in June 2010, to announce to great fanfare that the annual investment allowance would be cut. However, it would not just be cut. At a time when the economy was growing after the financial crisis, the Chancellor decided that the best way to secure the recovery and back British businesses and jobs was to slash the annual investment allowance to just £25,000 from April 2012, as in the Finance Act 2011. He sought to reassure us that the impact of that reduction from £100,000 to £25,000 would be limited because:

“Over 95% of businesses will continue to have all their qualifying plant and machinery expenditure fully covered by this relief.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]

In other words, the Chancellor believed in June 2010 that only 5% of firms were receiving any benefit from the annual investment allowance. HMRC’s tax information note at the time stated:

“Over 95 per cent of businesses are expected to be unaffected as any qualifying capital expenditure will be fully covered by the new level of AIA (£25,000).”

It went on to clarify that

“between 100,000 and 200,000 businesses will have annual capital expenditure of over £25,000”.

Therefore, in the Chancellor’s terms, only 5% of businesses would have been affected by his decision to slash the allowance. In anyone else’s terms, however, that is somewhere between 100,000 and 200,000 firms. That is a significant number of businesses that are employing—or potentially employing—a significant number of people, while also indirectly supporting employment through their supply chains. That seems to ring true of the Government’s approach because when they speak about being pro-business, they seem to forget the many businesses out there that do not fit the Tory vision of what businesses are, and it seems that those 100,000 or 200,000 firms did not feature on the Chancellor’s radar.

Let us remind ourselves briefly of some of the views expressed at the time about the decision the Chancellor took. The independent Institute for Fiscal Studies commented that losers from the cut

“would be those firms with capital intensive operations—with long lasting equipment and machinery—that currently benefit most from the capital allowances. While this is likely to apply to more firms in the manufacturing and transport sectors, it may also be true for some capital intensive service sector firms.”

A senior economist at the manufacturers association, the Engineering Employers Federation, said that financing cuts to corporation tax by

“cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”

In evidence to the Treasury Committee on the June 2010 Budget, John Whiting, then tax policy director at the Chartered Institute of Taxation and now director of the Office of Tax Simplification, expressed his concern that the measure would particularly hit medium-sized firms.

The June 2010 Budget cut the annual investment allowance to £25,000 from April 2012 on the grounds that, in the Chancellor’s view, only 5% of firms would be affected. We then had two autumn statements and two Budgets, at which we put these arguments to the Government, before the Chancellor announced in the autumn statement 2012, again to great fanfare, that he would “temporarily” increase the AIA—the one he had just cut to £25,000—to £250,000 from January 2013.

What happened to business investment between the June 2010 Budget and the 2012 autumn statement that drove the Chancellor to move from feeling perfectly comfortable in slashing the annual investment allowance, because more than 95% of businesses would be unaffected, to announcing in 2012 a significant increase in the AIA to £250,000? Let us cast our minds back to what the Chancellor said when he announced that decision in autumn 2012. He said he was increasing the annual investment allowance because:

“It is a huge boost to all those who run a business and who aspire to grow, expand and create jobs.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]

What exactly does that say about the Chancellor’s cavalier approach back in 2010? Surely the complete opposite—[Interruption.] I see Government Members rolling their eyes, but unfortunately they need to face the truth.

[Dr Thérèse Coffey]

The hon. Lady is right—I should not roll my eyes; I should get up and engage in debate. We know about the note left by the right hon. Member for Birmingham, Hodge Hill (Mr Byrne): “There is no money left”. Since then, the Office for National Statistics has confirmed that the recession was even deeper than expected. The Government made choices at the time, and there was a clear intention to start to reduce the rate of corporation tax in the grand fiscal regime. Nevertheless, there has certainly been a successful demonstration of industrial strategy, and many more millions of jobs are now being created. It is right that we put our backing behind reinvestment in capital allowances.

[Catherine McKinnell]

It is a little desperate to try to justify what is proven to have been a flawed decision-making process back in 2010. By the Chancellor’s own accounts, the measure was a huge blow to all those businesses that aspire to grow, invest for the long term and create jobs.

--- Later in debate ---

[Chris Leslie]

Government Members and Ministers do not understand how important it is that we ensure that the recovery is sustained and sustainable. A premature rise in interest rates has considerable risks. Three quarters of credit and debt is floating, so if interest rates do rise prematurely, significant harm will come to many householders. Even a quarter point rise in interest rates will cost the typical householder £240 per year. [Interruption.] The hon. Member for Suffolk Coastal (Dr Coffey) may be relaxed, as the Chancellor is relaxed, about interest rates. The Chancellor says that he is not bothered—that he is relaxed about rising interest rates. Is the hon. Lady relaxed about rising interest rates? I will give way to her if she is.

[Dr Thérèse Coffey]

All I will say is thank God we have not had a Labour Government for the past four years, because I expect that interest rates would now be at 10% and people would be handing back their keys and hoping that the hon. Gentleman does not get into power next year.

[Chris Leslie]

I do not know what evidence the hon. Lady has for that spurious assertion.

We will see what happens in the coming months. We will make sure that mortgage customers in the hon. Lady’s constituency know that the increases in interest rates are partly related to the condition of the housing market, which is causing significant risk. The Governor of the Bank of England is trying to deal with this very lopsided situation. Of course, it is a matter for him to decide on. Government Members need to speak to the Chancellor to get him to pull his finger out on the housing market and make sure that this is pursued correctly. They do not understand why it is important for the recovery to be fair for all—to be something that everybody in every part of the country benefits from. The richest 1% having been doing especially well in the past year.