Budget Resolutions
Tuesday 14th March 2017
(7 years, 1 month ago)
Commons ChamberRead Full debate Finance Act 2017 Read Hansard Text Read Debate Ministerial Extracts
18:59 - The House divided: - Ayes: 319 / Noes: 275 - Question accordingly agreed to.
19:14 - The House divided: - Ayes: 309 / Noes: 286 - Question accordingly agreed to.
19:29 - The House divided: - Ayes: 313 / Noes: 276 - Question accordingly agreed to.
The Secretary of State for Education (Justine Greening)
This Government are about delivering opportunity—the opportunities that matter to ordinary working people up and down this country: the opportunity to work in a skilled, well-paying career; the opportunity to send their children to a good school; and the opportunity to contribute to a shared, fairer society, where everyone is empowered to do their best for their community.
Those ambitions are not too much for us to ask—they are not unreasonable—but the truth is that, for too long, too many people in our country have felt cut off from opportunity. They see doors open for others, but stay closed for them. What they want is the chance to show their worth and reach their potential. This Government want them to reach their potential, too, so we will work with the grain of human nature to spread opportunity to every village, town, city and region in our country and to give everyone a chance to succeed and to contribute to a strong, united nation.
A strong economy is a vital part of that mission. A strong economy provides the careers and jobs that equip people with financial independence, protect them by providing financial security over the course of their life, and fill them with a sense of self-worth—the knowledge that we all have a role and a valued place at the heart of our society. A strong economy is at the heart of how people can contribute to our country as a whole.
This Government are in the business of building a strong economy and creating great careers and jobs—over two million jobs since 2010. This year, there are more people working than ever before. The employment rate for women is at its highest level since records began, with 70% of 16 to 64-year-olds now in work. That represents more than 1 million more women in employment since 2010.
Mrs Maria Miller (Basingstoke) (Con)
Does my right hon. Friend agree that one of the most important things the Government can do is support women returners to work, particularly when we have record numbers of women in the workplace?
Justine Greening
My right hon. Friend is absolutely right. I hope she will welcome the element of the Budget that saw £5 million invested in returnships, specifically looking at how we can help women who have been out of the workplace—often starting and having a family—to go back into it and rebuild their careers. I will come on to that later in my speech.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I believe absolutely that wealth creation is important to give us the resources we need to provide a good education, but is the Secretary of State aware that so many schools have seen cutbacks? We in Huddersfield are the 64th worst-hit area out of 650. We do not feel the affluence she is talking about.
Justine Greening
We have record investment coming into our schools now.
To secure and build a strong economy, we need sustained investment in human capital—the skills, knowledge and technical excellence that drive productivity and growth. It is people who will lift our country, and we are investing in people. We need to do that now more than ever, because we know there is a productivity gap between the UK and other advanced economies, and we know that part of that gap is caused by skills shortages.
Nick Thomas-Symonds (Torfaen) (Lab)
On the issue of human capital, does the Secretary of State agree that it is a mistake by the Government to cut the work allowance under universal credit, which will particularly affect women and deny them work opportunities?
Justine Greening
We cut the taper rate on universal credit at the last autumn statement. As I said, the strong economy that this Government’s policies have helped to create means that more women are now in work than ever before. I was talking about how skills and plugging skills shortages for employers is so important. Top employers and businesses are telling us that the skills they need, particularly in science, technology, engineering and maths, are in too short supply.
Mrs Flick Drummond (Portsmouth South) (Con)
On the point made earlier about women returners, is my right hon. Friend aware that just 5% of women returning to work would generate an extra £750 million in the economy—a very good return?
Justine Greening
Absolutely. Women’s economic empowerment is one of the most powerful levers we have to help drive growth in our economy and, more broadly, around the world over the years ahead.
Looking at how we are going to plug the skills gap, only 10% of adults in our country hold a technical qualification as their highest educational achievement. Germany currently produces twice as many science, engineering and technology technicians. Driving these skills will power innovation and growth and, in turn, our economy. That benefits everyone, so we cannot afford to wait. Other economies have been ahead of us in developing the skills of the future, and this Government are clear that we will not fall further behind. We should recognise that globalisation and automation are changing the modern workplace. Thirty-five per cent. of our existing jobs are at a high risk of being replaced in the next 10 to 20 years, not through competition but by technology.
George Kerevan (East Lothian) (SNP)
The Secretary of State mentions Germany’s lead in training in technical positions. Does she link that in any way with the fact that Germany consistently has a much higher level of corporation tax in order to fund that?
Justine Greening
Germany has its own approach to corporation tax. Ours has been steadily, and dramatically, to reduce it in order to make sure that companies can retain the profits they are making to be able to reinvest in growing their companies. The proof of the pudding is in the substantial and significant job creation that we have seen in our economy, by comparison with many other countries, over recent years. That is why we are able to put money into our public services.
As we prepare to leave the European Union, we will need to be more self-sufficient in our workforces, in our skills and in the training of our young people to set ourselves up for success. We will need new ideas, new jobs and new investment to confidently meet every challenge and grasp the opportunities ahead of us. We want a global Britain strong at home and strong abroad. It is now time for Britain to step up a gear to begin the shift up to the high-skill, high-productivity economy that we can be. This Government are ready to act.
John Mann (Bassetlaw) (Lab)
Is it not a fact that under this Government, while the Secretary of State has been in office, we have fallen two places in the research and development international league tables, behind Slovenia and the Czech Republic?
Justine Greening
The autumn statement saw us provide further investment for R and D. Indeed, the national productivity fund has been set up to make sure that we can fund infrastructure, including R and D, more broadly. However, it is not just through physical infrastructure that our country will be successful—we need to invest in our people and in human capital as well. Through this Budget we are investing in human capital in skills, education and training to create a strong economy that works for everyone.
Justine Greening
If I can make a bit more progress, I will give way.
This Government are rightly focused on apprenticeships because of the huge difference that they can make to individuals, boosting a person’s lifetime earnings by 11% on average. Eighty-three per cent. of apprentices tell us that they believe it is improving their career prospects. This is already making a big difference to individuals. Last year 900,000 people were enrolled in an apprenticeship, which means that more than 3 million people have started an apprenticeship since 2010. They include apprentices such as Adam Sharp, last year’s advanced apprentice of the year, who moved 150 miles to take up a mechanical design apprenticeship in Sellafield and dreams of becoming that nuclear power plant’s chief mechanical engineer; and Becky King, who went to train at the National Physical Laboratory in London straight after college in order to develop her passion for science.
Last week I kicked off National Apprenticeships Week with Barclays in the City. I met young people on apprenticeships at Barclays who were inspiring because they were finding out just how well they could do. Apprenticeships are bringing out the underlying talent of our young people. It is cathartic for them to be able to discover their potential.
Mims Davies (Eastleigh) (Con)
Earlier I met Nationwide representatives from my area keen to support women in getting more maths skills to lead businesses. Recently apprentices from Lloyds met the all-party women in Parliament group. One area where we really need to keep up momentum is with the maths skills that will make sure that our women can lead companies as well. The apprenticeship work at Eastleigh College is doing exactly that in building the basic skills for the gas fitters and plumbers we need—
Madam Deputy Speaker (Natascha Engel)
Order. We are already going to have to impose a time limit of eight minutes on Back Benchers right from the beginning. This debate is very heavily subscribed. If people are going to intervene, they must keep it very brief.
Justine Greening
I pay tribute to the work that my hon. Friend’s local college is doing. She is absolutely right. In order to see a change in the workplace and in careers, we have to start in early education to build the pipeline to make sure that girls, and subsequently women, are going into these careers, which have traditionally often been more male dominated.
This is not just making a difference to the people who are doing apprenticeships; apprenticeships are making a difference to our country. Employers tell us that apprenticeships increase quality and increase productivity, so investing in an apprenticeship pays out for them and their business, and it is paying out for our wider economy. This is only the beginning of our apprenticeship reforms. Next month, we are introducing the apprenticeship levy, which will ensure that by 2020 over £2.5 billion is available to support apprenticeships. Contributing to the levy will mean that employers are, for the very first time, truly fully invested in apprenticeships. This keeps us on track to meet our manifesto commitment of delivering 3 million apprenticeships by 2020.
Apprenticeships will play a key role in delivering the skills that our modern economy needs to level up, but we need to do more to meet the broader challenges that our economy faces. The most successful countries do not just rely on apprenticeships—work-based routes—to get skilled professionals. They also depend on more college-based routes—on technical courses with workplace experience and training as a crucial element. So we will up our game, looking at reforming our technical education system to make it a central plank of how to sustain a growing economy. For decades, our country has neglected technical education, despite the fact that a substantial proportion—over half—of our young people who choose not to go to university take this path. We have never achieved a sustainable strategy because it has never been truly led by employers. We need a strategy that asks businesses what a world-class technical curriculum should look like—that invests in the tools, the teaching and the skills expertise that help young people to navigate the complex web of choices on careers to find the skills and the career that is right for them.
Over many years, we have allowed the technical curriculum to emphasise quantity rather than quality. There are currently around 13,000 separate technical qualifications. In plumbing alone, a young person has the choice of 33 different courses. How on earth are they supposed to know which course is the highest quality, which one is valued by businesses, and which option is the right fit for them? This cannot be right. In recent years, we have made some important steps forward in tightening the requirements for qualifications included in school and college performance tables, but we need to go much further to ensure that technical education is high quality and meets employers’ needs. In place of complexity, this Government are following the advice of Lord Sainsbury and replacing the current system with a streamlined set of just 15 technical skills routes. Each route will be a pathway to skilled employment—from construction to digital, whether bricks and mortar or lines of code—and our standards for each route will be designed and agreed by our best businesses to make sure there is a direct flow through to the skills that our economy needs.
We know that we need investment as well as reform. At the moment, a young person working towards a technical qualification receives a programme of about 600 hours a year, but in countries with the best technical education—Germany, Denmark, the Netherlands, Norway —students train for far more hours per year. If we really are serious about becoming world-class on skills, we need to rival the commitment and investment of the world’s leading countries.
That is why my right hon. Friend the Chancellor announced last Wednesday over half a billion pounds a year of new funding for technical education. It will be used to increase the number of teaching hours for students. As the Sainsbury panel recommended, it will also fund institutions to organise a substantial, high-quality work placement for every technical education student, helping them to apply their skills in the workplace and to prepare for a successful move into employment. In total, this will mean that a student’s programme hours will increase by more than 50%, from 600 hours per year to more than 900. It is no surprise that the CBI has called this Budget a “breakthrough Budget for skills”.
The funding for extra hours will be rolled out alongside the new technical routes, beginning with the first programmes in autumn 2019. Each of the routes will lead to a new certificate, the T-level, which will be a gold standard for technical and professional excellence. The name will remind Members of another prominent qualification, and that is very deliberate. I want there to be no ambiguity whatsoever: this is the most ambitious reform of post-16 education since the introduction of A-levels 70 years ago. The investment announced by my right hon. Friend the Chancellor shows that the Government are committed to making it a success.
Graham Evans (Weaver Vale) (Con)
I am very privileged to have my constituency office based at Sci-Tech Daresbury, which is all about technology, innovation and skills. Will the T-level be significantly stronger than existing technical qualifications?
Justine Greening
The qualification will be stronger on a number of fronts. First, it will have the commitment of, and its design will be led by, employers. Secondly, it will have more hours, so the student will simply have had a more comprehensive programme of education in achieving the T-level. Thirdly, its quality will be much higher, with more time spent in the classroom and, critically, more time spent on a quality work placement with an employer. Once the person finishes the T-level, they will come out of it ready to work and to begin their career with a high-quality qualification that employers truly value. That I why we feel this is such a significant step forward.
Building such a world-class technical education system will not just generate the skills and productivity that are the foundations of a strong economy; it will also spread opportunity and increase social mobility, helping to break the link between a person’s background and where they get to in life. It will be no surprise to the House that many young people from disadvantaged backgrounds are more likely to be on technical courses than their peers, yet such an education has not been at the level that they deserve or that our economy deserves. A report by the Boston Consulting Group and the Sutton Trust suggests that greater social mobility could boost our economy by a staggering £140 billion every year. Different young people have different talents, and if we can successfully put technical education on a par with academic routes, it will not just be good for those young people, but it will be exactly what our economy needs.
Improving the quality of technical education will boost the life chances and future earnings of those young people. This is not about designing a second chance system for the disadvantaged. I do not want technical education to be seen as a back-up to the academic path; I want parity of esteem. I want technical education to take its rightful place alongside the academic track as a totally credible path to a professional career, but we are not there yet.
Madam Deputy Speaker (Natascha Engel)
I call Lucy Allan to make an intervention.
Lucy Powell
Did you call me Lucy Allan, Madam Deputy Speaker? I am very much a Powell.
Labour Members very much welcome any attempt to raise the status of technical and vocational education and the esteem in which it is held, something we began during our time in government. Does the Secretary of State agree that it is often a mix or blend of the technical and the academic—in engineering, digital opportunities, the creative industries or even health and social care—that will be important in the global world of the future, and will she assure the House that people will not be separated at the age of 16?
Justine Greening
The key to success is strengthening the technical education routes, as I have said. Having longevity in the strategy, as was done in Lord Sainsbury’s work, is absolutely critical in giving us an architecture around which we can now build a strategy and, as we saw in the Budget, in which we can now invest. As the hon. Lady says, it is important to ensure that the whole education system fits together. That is why it is so important, as we create more national colleges and institutes of technology, that we talk with further education colleges—they will be at the centre of all this—and also with universities. Universities of course already offer degrees in areas such as engineering, but they can clearly offer more applied learning and more technical education routes for many young people. As she says, we have to make sure that that fits together.
Indeed, we want to increase the quality and availability of higher-level technical education, so that technically gifted students can continue their studies beyond the age of 19. One of our challenges is that not only are the lower rungs of the technical education ladder not as high quality as on the academic route, but there are not really the higher rungs for young people to aim for and to climb successfully. The Government’s new national colleges and institutes of technology will make sure that there are world-class institutions at which to study higher level technical qualifications.
From September 2019, we will introduce maintenance loans for students studying level 4 or higher qualifications at these institutions. This will mean that for them, just as for university students, our best technical minds will not be limited by financial circumstances or place. This approach is just as much about parity between places as it is about parity between people. Nearly three quarters of young people in Barnsley follow a technical path, while less than one quarter do so in Kensington and Chelsea. By levelling up technical education—putting it on a par with academic routes, with reform, investment and focus—we can steadily erase regional inequalities and make sure that the door of opportunity for young people in all parts of the country, whatever education route they choose that fits them, is firmly kept open.
Building opportunity and a strong economy is about having good school places as well as skills. Good schools are the foundation of economic success and social mobility. This Government are resolute in our pursuit of more good school places in every part of the country, especially where they are most needed, to power higher educational attainment. That is why almost 1.8 million more children are in good or outstanding schools compared with 2010. That means, critically, that 1.8 million more young people are getting a better start in attempting to reach their potential. However, 1 million pupils are still in schools judged by Ofsted to be inadequate or to require improvement, so there is more work to do.
Alongside the £5 million a year of investment in skills, the Budget delivers £320 million of investment to fund over 70,000 places in up to 110 new free schools, on top of the 500 free schools we have committed to deliver by 2020. That includes funding for specialist maths schools, building on the successes of the outstanding Exeter Mathematics School, which I had the privilege of being able to visit recently, and King’s College London Mathematics School, which the Prime Minister has visited. Every child in every part of the country needs access to a fantastic school place, so we have to plan ahead and leave no stone unturned in pursuit of those places.
Mrs Miller
My right hon. Friend is making a powerful case for the importance of education, but does she not share my concern about the current funding system in this country, which is based more on a postcode lottery than on the needs of schools in a particular location?
Justine Greening
Absolutely. Our current approach is not just outdated but, in places, extremely unfair. We want our schools to be able to achieve the same outcomes, but we are funding them fundamentally differently in different places. There are differences for children often for no other reason than where they are growing up. No one who wants social mobility to get better should accept that, so we have to move to a more equitable funding approach. That is what we are consulting on right now.
We have to make sure that school places are there for children as they move through the system, but this is not just about the extra school places and new schools that we need; it is also about investing in the schools and school places that we already have. My right hon. Friend the Chancellor has therefore put forward an additional £216 million to help to refurbish existing schools and make them fit for the 21st century. Of course, that is on top of our existing plans to invest more than £10 billion improving the condition of the school estate by 2021.
Maria Eagle (Garston and Halewood) (Lab)
Does the right hon. Lady accept that academic A-levels are one way in which young people can ensure that they get a good start in life, from which they can perhaps go on to great success through our university system? What will the proposals that she is outlining do for young people in Halewood and Knowsley, who have no option in the entire borough for doing academic A-levels and must leave the borough in order to study?
Justine Greening
The hon. Lady raises a profound and important point. There are parts of the country where, for far too long, young people’s educational attainment has simply not been good enough. I know that the situation she highlights is part of the much broader challenge that her local community faces in seeking to raise educational attainment steadily. It is important that alongside the investment in technical education that we have set out in the Budget, we make sure through approaches such as opportunity areas that we zone in on the places that most need additional support so that we can shift outcomes there.
The Government’s focus on opportunity does not end when someone leaves full-time education. In a dynamic, modern economy we need to foster a culture of lifelong learning, in which all of us—adults from every walk of life—are passionate about continuing to upskill ourselves.
John Pugh (Southport) (LD)
Before the Secretary of State moves off the issue of the fabric of schools, may I say that although the money from the Chancellor for school repairs is welcome, there is a £6.7 billion backlog of repairs to bring schools up to satisfactory condition? What does she think that backlog will be by the end of this Parliament?
Justine Greening
The investment that we have brought forward in the Budget will enable us to go further and faster on that backlog, but as I said earlier, it is also important that we plan ahead. We need to make sure that the demographic bulge of people who have been in our primary schools and are moving through to our secondary schools have school places and classrooms to go to when they need them. That is why balanced investment was announced in the Budget, not just in refurbishing existing schools and school places, with a particular focus on those that need it the most, but in ensuring that we have the extra good school places that our country will need in the future.
I touched briefly on why lifelong learning and the investment in it in the Budget are so important. Lifelong learning needs to become the norm in our country, and I want to ensure that people have the tools to do it. The reality is that many of us will never study again after leaving school, yet we know that in the economy of the future, readapting to new skills and continuing to learn will be vital. That is why we are making available up to £40 million over the next two years to fund lifetime learning trials. That will help us to ensure that we know what works, where it is needed and how we can change our country so that we have a culture in which more adults seize opportunities to upskill and take control of their lives.
As I said earlier, we have the highest level of female employment on record, which is a fantastic achievement, and the gender pay gap is at a record low of 18.1%, but there is still a gap. The Government are implacable in our commitment to close that gap to zero within a generation, and we know that some women find it hard to return to work after taking time out to care for young children. Many feel that they come back to work at a lower level or have to expect less progression in their work and pay. That is not good enough, and our economy cannot afford to miss out on that talent. Some employers are already running schemes to help women return to work, and we want to learn from those businesses and work with them to support more women to be able to do so. We also want to apply the same lessons in the public sector, together with improving people’s ability to take up lifelong learning.
I want to see people coming back to work better skilled than when they left to take a career break, rather than somehow having to struggle to get their career back on track. That is why I have announced that my Department will work with business groups.
Mr Iain Wright (Hartlepool) (Lab)
On labour market participation, the Red Book shows that funding for returnships will be £5 million, as opposed to £655 million for extending the free schools programme. Does the Secretary of State think that is an appropriate balance?
Justine Greening
Returnships are not widely used at the moment—in fact, they are used by just a few companies—but we know that where they have been invested in, they have made a real difference. We are at the beginning of bringing forward some pilots so that we can better understand what works and get a clearer sense of the broader strategy that we should have for the long term. That comes alongside the investment in lifelong learning, which ties into that work. Critically, we will consider how we can ensure that, as we develop those policies and ideas, they are informed by evidence. That was the reason for the investment that we announced in the Budget.
Mims Davies
On returners, will the Secretary of State also consider people who have stepped out of the workplace because of caring responsibilities? They are not necessarily youngsters, but include people who have given up a career thinking that it would be for the long term, but have found that it is for a shorter time.
Justine Greening
My hon. Friend raises an important point. We need to understand that flexible working must be able to adapt to the different lives that people lead today, not just at one point in their life but as it changes, which happens to all of us through our working lives and careers.
Of course, International Women’s Day was last week, and I thought it was a sign of how important that day has become in our calendar that the Chancellor chose to mark it by making it Budget day. We have our second woman in No. 10 Downing Street, and I am proud that both female Prime Ministers have been Conservative Prime Ministers. There is a long way still to go, but we should celebrate the important progress that has been made. Nearly 100 years after women were first given the vote, the Chancellor has set aside £5 million to celebrate that historic event.
This Budget continues the Government’s mission to spread opportunity to every part of the country. That mission rests on a strong, stable economy that provides the careers and jobs that will lead to financial independence and success for a new generation, and a sense of place and meaning in people’s lives. We cannot be complacent. There will be more challenges to come, but by investing in a world-class system of technical education, alongside schools, lifelong learning and returnships, the Government have taken a crucial step in underwriting the flow of skills that our country and our businesses need. We will level up opportunity. We will lift our country by lifting up our young people, and this breakthrough Budget on skills and schools merits the support of this House.
Angela Rayner (Ashton-under-Lyne) (Lab)
It is a pleasure to respond to the Secretary of State, and it is quite right that we have a day in this year’s Budget debate dedicated to education and skills. This Budget comes at a time when Britain has a deep social mobility problem that is getting worse, not better. That problem is the result of an unfair education system, a two-tier labour market, an unbalanced economy and an unaffordable housing market. That is not my accusation, but the conclusion of the Government’s own Social Mobility Commission.
The commission made a number of policy recommendations, most of which seem to have been ignored. It also made a recommendation against a policy: the Government’s proposals for new grammar schools. Sadly, that recommendation has also been ignored. Instead, the Chancellor used the Budget to announce plans to spend another £320 million on the next tranche of new free schools. The Prime Minister wrote in The Daily Telegraph that that money would provide 70,000 new places, as the Secretary of State reiterated today. That would be the equivalent of £4,571 per pupil, but the Secretary of State will know that her Department’s most recent figures showed that the cash cost of a primary free school place was £21,100 and the cash cost of creating a secondary free school place was £24,600.
That huge underfunding is coupled with a slightly curious detail hidden in the back of the Red Book: a further £715 million of capital funding for free schools in the next Parliament. Perhaps the Secretary of State can answer this maths question. If Philip gives Justine £320 million for new free school places, and each school place costs at least £21,000, how many school places will Theresa end up with? I look forward to marking the Government’s homework later.
Justin Tomlinson (North Swindon) (Con)
Will the hon. Lady join me and local parents in Swindon in congratulating the Government on providing the funding for two free schools and helping us to tackle the lack of school places after the last Labour Government reduced the number of school places in the noughties?
Angela Rayner
I will come to the hon. Gentleman’s points about the cost-efficiency of free schools later in my speech.
Either the Prime Minister has made an announcement without the Chancellor actually funding it, or they are simply disguising yet another eye-watering overspend on their staggeringly inefficient free schools programme and pretending that it is new money for new places. That would not be much of a surprise. The National Audit Office has helpfully reminded the Chancellor and the Secretary of State:
“In 2010 the Department estimated that it would cost £900 million by March 2015 to open 315 schools.”
By March 2015, the Department had spent double that initial budget and not even managed to hit its target for new schools. The NAO found that the Department had already spent around £3.4 billion on the land alone for free schools and it was on course to be Britain’s largest land purchaser, even before this Budget sank yet more money in. The NAO also showed that new places in free schools were far more expensive than those in conventional schools. Will the Minister tell the House and the British people how much money her Department will actually spend on delivering these new free schools, and will she guarantee that they will open in places where there is a clear need for spaces?
The Chancellor pledged £216 million for every other school over a three-year period, as the Secretary of State mentioned in her speech, but the NAO has found that, as the hon. Member for Southport (John Pugh) said, £6.7 billion is necessary just to return all existing schools to a satisfactory condition. The NAO also found that 85% of schools that applied to the priority schools building programme were rejected in the last round, and that that investment was cheaper than the free schools programme.
Of course, we know why the Chancellor focused on free schools despite the cost—because it
“will enable the creation of new selective free schools.”
It was the former Education Secretary who said that he had “had enough of experts”, but not even he tried to bring back grammar schools, let alone pretend that it was a policy for social mobility.
Angela Rayner
I am not giving way. Only one in every 25 pupils at a grammar school is eligible for free school meals, while one in every eight pupils at grammar schools previously attended an independent school. Even among the highest-achieving 20% of pupils, those from the most affluent backgrounds are 45% more likely to get into a grammar school than those from the most disadvantaged. Of course, the Government have suggested —again, not to this House, but in leaks to the press—that they intend to take action to change that in existing grammar schools; that has not gone down very well on the Conservative Back Benches. Given that the Government have been happy to jump the gun on the rest of their consultation, perhaps the Secretary of State could be as forthcoming to the House about those plans as she was to the press?
Angela Rayner
The Secretary of State has spent a huge amount of time speaking and I have a lot of Back Benchers who want to speak, so I am going to carry on.
The Chancellor announced one other measure in the Budget to address the issue: £5 million a year for the Government’s cash-for-cabs scheme, bussing children to grammar schools. Of course, the Chancellor forgot to mention that the Government had just cut £6 million out of the schools transport budget for every other child. Those cuts left no statutory provision for disabled 16 to 18-year-olds and others, who were forced to change school. They are paying the taxi tax so that a handful of pupils can be ferried up to 15 miles to the nearest grammar school by cab, at a cost of thousands of pounds each. Apparently, the comprehensive school bus is out, and the grammar school Uber is in. That is all to give the Government a fig leaf of social mobility. The Chancellor said:
“We are committed to that programme because we understand that choice is the key to excellence in education”.—[Official Report, 8 March 2017; Vol. 622, c. 818.]
I remind the Government that good teaching, school leadership, proper funding, the right curriculum and many other things are also key to that excellence.
It is also a rather obvious point that the Government’s proposed system is not one in which parents or pupils choose the school; instead, the schools choose the pupils. Parents are unlikely to have the choice they have been promised on childcare either. The Chancellor told the House that
“from September, working parents with three and four-year-olds will get their free childcare entitlement doubled to 30 hours a week.”—[Official Report, 8 March 2017; Vol. 622, c. 816.]
But the Secretary of State has already admitted in written answers that only a small minority of the parents receiving 15 hours will be eligible for the 30 hours. Fewer than 400,000 families will qualify, despite the Government’s promise at the last election that more than 600,000 would benefit.
The Chancellor’s plans for adult education are no closer to reality. He announced £40 million to trial new ways of delivering adult education and lifelong learning, but his own Government have cut the adult skills budget by 32% since 2010, taking out more than £1 billion. I know that the Chancellor’s aides have referred to their neighbours in No. 10 as “economically illiterate”, but surely even they realise the absurdity of trying to reverse the damage caused by £1 billion of cuts with £40 million in trials.
It is a similar story with the £500 million a year to deliver the new T-levels. That amount of new investment would be welcome—after all, further education budgets were cut by 7% in the last Parliament, and the Institute for Fiscal Studies found that between 2010 and 2020, funding per pupil in further education would be cut by 13%—but the briefing lines do not quite match the Budget lines. The Red Book shows that in 2018-19 the new funding will be only £60 million. Even by 2021-22, the new funding will not have risen to the promised half a billion a year.
John Mann
Is my hon. Friend aware of the consequences for the productivity gap? Since the Tories came in, and even under the coalition Government, the productivity gap between this country and the rest of the world has worsened in every single year. It is now at its worst since 1991.
Several hon. Members rose—
Angela Rayner
I make that one-all from each side of the House, so I will move on.
That brings us back to the context for the other announcements, which is the funding crisis facing our schools. We learn from The Times today that the Government are now in retreat over the new funding formula. Perhaps the Secretary of State will use this opportunity to clarify the Government’s position to the House, rather than to Conservative Members in private meetings. They might say that they are still consulting and have not seen the results, but we still have not yet had the results of the “Schools that work for everyone” consultation and that did not stop the Prime Minister using the Budget to announce most of the forthcoming schools Bill to the press.
It was the same story with the initial plans for new grammar schools, the new school improvement funding, the new capital spending on free schools and every other education announcement made in last week’s Budget. Announcements are being made behind closed doors or behind the paywalls of the Prime Minister’s favoured newspapers, rather than to this House. It is no wonder they would rather avoid our scrutiny, because the Budget failed to mention the pledge the Conservative party made in its manifesto:
“Under a future Conservative government, the amount of money following your child into school will be protected…there will be a real-terms increase in the schools budget in the next Parliament.”
The last Prime Minister made it clear what he meant:
“the amount of money following your child into the school will not be cut. In Treasury-speak, flat cash per pupil.”
The Conservatives were clear: not a single pupil in the country would see their funding cut by a single penny. That was their promise. Yet the National Audit Office has found that there will be an 8% drop in per pupil funding this Parliament, leaving schools forced to make cuts worth £3 billion. Up and down the country, we hear that schools are seeing less money in their budgets. They are being forced to cut hours or subjects, or to ask parents to chip in. Yesterday, on Europe, the Government were clear that their justification was the mandate of the British people, yet they had a mandate when it came to funding our schools too. I know the Tories would like to airbrush the last Prime Minister from history, but will they tell us today whether that pledge still stands, and, if so, when the Treasury intends to meet it?
The Government had much to say about education in this Budget, but when it came to meeting their own promises they were selective with their facts and comprehensive in their failure. They must do better.
Chris Philp (Croydon South) (Con)
It gives me some pleasure to follow the shadow Secretary of State for Education, the hon. Member for Ashton-under-Lyne (Angela Rayner).
Let me start by welcoming the Budget and congratulating the Secretary of State on her speech. I am delighted that she has managed to secure protection for the schools budget, which will continue to grow in real terms, and I congratulate the Chief Secretary on facilitating that. I also welcome the national funding formula, which the Secretary of State for Education has been working on with a forensic attention to detail. It will ensure that funding follows need, rather than being an accident of postcode. Croydon, the borough I represent, has historically been underfunded. We will now see that injustice corrected, so I congratulate the Secretary of State on her work and welcome the national funding formula.
The shadow Secretary of State for Education gave us a blizzard of statistics. I wanted to intervene on her to say that the most important statistic on education is this: 1.8 million more children are being educated in good or outstanding schools than in 2010. The hon. Lady can quote all the sums she likes, but the fact remains that the Government are delivering a better education for more children than ever before. Conservative Members are proud of our Government, and our free school and academy programme, and I am delighted that the Government are expanding it.
I was pleased that the Chief Secretary, the Chancellor and the Education Secretary found an additional £1.035 billion over the next five years—up until 2021-22—to fund further new schools. New schools give choice to parents and, as the statistics I quoted show, they encourage higher standards. Some of those schools might well be new grammar schools, which the hon. Member for Ashton-under-Lyne criticised. I should declare to the House that I am a grammar school boy. I know from my experience in a south London grammar school that such schools help children from ordinary backgrounds to fulfil their potential. All the studies show that children from ordinary backgrounds who go to grammar schools do a great deal better than those who go to other schools.
Sir Edward Leigh (Gainsborough) (Con)
I am sorry that the hon. Member for Ashton-under-Lyne (Angela Rayner) did not give way to my hon. Friend, although she did give way to the hon. Member for Bassetlaw (John Mann), many of whose constituents attend a grammar school in my constituency. The question she failed to answer was this: why, since the abolition of grammar schools, has there been a catastrophic fall in social mobility in the most deprived areas?
Chris Philp
My hon. Friend raises an important point. Grammar schools can and should be an engine for social mobility. The Government’s White Paper and the Education Secretary’s proposals include new measures to ensure that grammar schools take on a higher proportion of pupils on free school meals. There is a very successful case study: the King Edward VI grammar schools in Birmingham. They have taken a number of steps, including offering outreach to local primary schools in deprived areas, free tuition for their tests, and bursaries to fund school uniforms and travel. Together, they have increased the grammar schools’ free school meal intake from 3%, which is a very low figure, to about 22%. This shows that the Education Secretary’s proposals work in practice, and I strongly welcome them.
George Kerevan
In the interests of joined-up thinking, may I ask what proportion of qualifications the new grammar schools will give over to T-levels?
Chris Philp
It is up to individual schools to set their own individual curriculums, and to offer their pupils and parents a choice. That is what localism means. Of course grammar schools, by their nature, tend to be more academic in flavour—[Hon. Members: “Ah!”] Well, that is what a grammar school is—that should hardly be a surprise to Opposition Members. Other kinds of school have a more technical specialisation. Diversity of provision, choice for parents and variety in our system are signs of success, which Conservative Members celebrate.
Let me turn to other measures in the Budget, starting with business rates. Like several hon. Members, I was concerned about the effect of the business rates revaluation on smaller businesses. The town of Purley in my constituency was particularly affected by some quite significant upward revaluations. In that context, it is welcome that the Budget announced £435 million of discretionary relief to help small businesses in towns such as Purley. I would suggest, particularly to the Chief Secretary to the Treasury, that it might be worth reconsidering the profiling of that £435 million over time. The lion’s share of that money comes in the first two years: £180 million in 2017-18; and £85 million in 2018-19. That is welcome, but the transitional relief—the upward caps on rates increases—for small businesses is 5% in 2017-18, and 7.5% in 2018-19, so most small businesses will not feel too much of an effect in the next two years. It is really in three, four and five years’ time that increases will be most powerfully felt. Would the Chief Secretary consider changing the profile of that money so that, instead of being front-loaded in the next one or two years, it can be back-loaded into years 3 and 4, when the effects of the business rate increases will be felt most heavily? The total amount of money would remain the same—£435 million—but the profile would be shifted over time better to match the effect of the business rates increases.
I offer a second thought on transitional relief for the future, which again relates to the upward and downward caps. Bills have been sent out for 2017-18. There is an upward cap of 5% for small businesses, so no small business will face an increase of more than 5%, and there is a downward cap for large businesses of 4.1%, so no large business gets a decrease greater than 4.1%. I accept that that is now fixed.
Looking into the future, however, and particularly to 2019-20 and 2020-21, I wonder whether the autumn statement might consider fine tuning those upward and downward caps so that the largest businesses, such as the big four supermarkets, have a lower or even a zero further downward cap, so that they get no further decreases beyond next year’s decrease. That could fund a more generous upward cap for the smallest businesses, meaning that the upward cap of 10% to 15% in 2019-20 and 2020-21 could be reduced. This approach would be fiscally neutral. It would not affect arrangements for the coming financial year, which I accept are fully set in stone, but it would help small businesses in three or four years’ time, including businesses in Purley. I have noticed that the cumulative upward cap for such small businesses over the five-year period accumulates to 64.2%, which represents quite a high cap. If we could find a way of softening the blow, it would be very welcome indeed.
The Chancellor’s Budget statement also touched on pollution, particularly due to diesel cars. My constituency, like all London constituencies, is profoundly affected by this problem. The Chancellor mentioned that a plan would be delivered over the summer, in response to the European Union court case, and that fiscal measures would be introduced in the autumn Budget.
I have significant reservations about Sadiq Khan’s proposed diesel scrappage scheme, which would cost £515 million over two years in London. The cost of such a scheme nationally would be £3.5 billion a year over two years, which would be unaffordable and would, in fact, simply cause one set of diesel cars to be replaced by another. I do not support the diesel scrappage scheme proposed by the Mayor of London, but one fiscal measure that the Government might consider, bearing in mind that diesel cars now burn 10 million tonnes of fuel a year—a three times increase over the last 10 years —is introducing a significantly increased registration tax for new diesel cars. I am talking about cars, not vans and lorries, because I accept that including them would have an impact on business. That approach would help to deter people from buying new diesel cars, which now make up about half of all new car purchases in this country. Such a measure would have no retrospective effect on people who have already bought a diesel car, but it would encourage people to switch away from diesel cars, which would do a great deal to help to ease pollution problems in cities such as London in the months and years ahead.
I see that I am rapidly approaching the time limit, so let me conclude—[Interruption.] I am glad I have said something that is popular among Opposition Members. I welcome the Budget, which continues the Government’s record of job creation and growth. I congratulate the Education Secretary and the Chief Secretary again on protecting and growing education funding, and on committing to fund more excellent schools in our country.
George Kerevan (East Lothian) (SNP)
This was a dull Budget, although I do not necessarily say that as a criticism, because it was meant to be dull. The Chancellor did most of his heavy lifting in the autumn statement, in which he amassed a war chest by borrowing more than £120 billion. The criticism of the Budget is that rather than using that war chest now to raise productivity and improve education, he has put it aside because he does not know what will happen after the Brexit deal is done.
The Secretary of State for Education made a reasonable fist of trying to explain the new T-levels. If her explanation had lasted for two or three minutes, I would have believed her, but after half an hour, I began to think that she was arguing a little bit too hard, as if she did not really believe it herself. The T-levels were one of the more innovative parts of the Budget—I do not demur from that—but if we want a technical education of the standard that exists in Germany or the Netherlands, we must have the schools, and the workshops, computers and machinery in those schools, to do the teaching. In fact, the equipment in the schools has to be better than what people will find in the factory after they have graduated. The way to raise productivity is by training in schools at the highest and most advanced technological level.
If the money that the Budget gave to increasing selective education had been put into technical schools in line with the investment that takes place in Germany and the Netherlands, I might just have believed what the Government said. However, the T-levels are yet another blind by a Government who want to pursue selective academic education for a very narrow stream of people, which will not solve the problem of productivity.
The one significant change in the Budget that had the biggest impact was the rise in national insurance for the self-employed, so let us try to connect that to the whole question of educational productivity. Rather than Members listening to me, let us take the evidence of two companies: a construction and investment company called Chiswell; and a building company called Castlemead. Does anyone know who these companies are? They are both owned by the Chancellor of the Exchequer. To give him his due, he put those companies into a blind trust in 2010. He is an honourable man, so there is no question of him influencing these companies at the moment, unlike certain Presidents of the United States who we might mention.
It is interesting to see what these companies are thinking about the economy, productivity and skills. The 2016 accounts of Castlemead say that the building industry is
“suffering from supply bottlenecks, particularly of skilled tradespeople, driving up costs.”
What does the building company Chiswell say? It states:
“The scarcity of good quality and committed subcontractors is still an issue”.
The company is considering going back into house building. Of course, this skills and supply bottleneck is largely seen among the self-employed. To sum up, the Federation of Master Builders says that 60% of SME construction firms are struggling to hire bricklayers and carpenters.
The Secretary of State claims that the increase in technical training will help to supply some of this much-needed skill demanded by Chiswell and Castlemead. At the same time, however, the Chancellor is removing the incentive to work and to take up training because he is raising the taxes of the very workers whom his companies say they need. In other words, the Chancellor is so short-sighted that he is hurting not only his own businesses but, sadly, everybody else’s.
This is not just a dull Budget because, at its heart, there is a ticking timebomb. The OBR forecast about what happens next is interesting, as it relates to whether the money will be there to provide the training about which the Secretary of State has spoken. The Chancellor was concerned to tell us that, under his chancellorship, growth has been very strong in the past 12 months. Growth in this country has been powered by consumer borrowing. If we drill into this, we find that the OBR says that in 2016 the savings ratio in the UK hit a historical low—it has gone to zero and below. People are dissaving. If people are not saving, ultimately the funds are not there to finance the investment that will raise productivity. Moreover, because saving has collapsed, the OBR does not think that there is a potential for consumer borrowing and consumer expenditure to continue to carry the economy. The OBR predicts a downturn in the availability of consumer funds over the next 12 months, so the dissaving cannot continue.
Most of the boost to consumer spending last year was a hangover from 2015, when inflation was fairly low. As real incomes were rising—a rare occurrence in the previous 10 years—people felt that they were a bit better off. However, now that inflation is rising, because the pound has tanked, we can expect consumer borrowing to disappear, so how will the economy meet its growth targets? The OBR says that the borrowing will be replaced by a rise in business investment. When I asked the OBR officials who appeared before the Treasury Committee yesterday why they thought that—where was the evidence that business investment would rise?—they had a wonderful answer, which quite took my breath away: “Business investment has been so low for so long that it is bound to go up some time.” [Laughter.] That was what they said; Members can go and read the transcript.
George Kerevan
Indeed, but I will believe that when I see it, and I will believe that pigs can fly.
Ian Blackford
May I amplify the point that my hon. Friend is making? On page 7 of its book, the OBR states that investment intentions have been put on hold, but when we turn the page, we find that business investment is forecast to grow by between 3.7% and 4.2% between 2018 and 2021. It simply does not add up, does it?
George Kerevan
Not only does it not add up, but it means that we will not have the investment in plant and machinery that will raise productivity. We will miss our productivity targets yet again. Since the Chancellor has amassed his war chest, he should be using it. He should not wait for two or three years to see what happens after Brexit—no general does that. What is needed is investment now. Let us get on with the T-levels. Let us invest in English schools. I think that that would be a good thing to do, but it is not what the Budget says.
Richard Drax (South Dorset) (Con)
I am listening carefully to the hon. Gentleman’s speech. As I understand it—a Minister may be able to confirm this—the Government have invested £300 million. Colleges can apply for technical status, and the money will help to provide all the equipment, which I entirely agree is needed.
George Kerevan
I accept that proposition but, having spent 25 years of my life teaching in further education, I know that £300 million for the whole of England and Wales becomes a tiny amount when we drill down to all the individual institutions. Can the Government not confront reality? If we want the productivity levels of Germany, we should not be talking about £300 million; we should be talking about £30 billion. If the Government do not want to spend £30 billion, that is fine, but they should not pretend that small amounts of money somehow solve the problem.
Ian Blackford
I learned a lot from my hon. Friend because about 35 years ago he was my economics lecturer.
We have delegated responsibility to the Bank of England through the quantitative easing programme, and that has led to a lack of balance. We have seen £435 billion of QE that simply has not worked, but we have not seen enough fiscal responsibility from the Government to create the circumstances that will deliver sustainable growth.
George Kerevan
My hon. Friend is right. However, it is important to pin the blame where it is deserved, because perhaps the Chancellor gets too much of it. The blame actually lies in Downing Street with the Prime Minister. When she launched her bid for leadership of the Conservative party on 30 June 2016, she said:
“If before 2020 there is a choice between further spending cuts, more borrowing and tax rises, the priority must be to avoid tax increases since they would disrupt consumption, employment and investment.”
Yet now we have a Budget that will raise the taxes of the self-employed and entrepreneurs—the people whose motivation is required for growth in the economy and an increase in productivity. It is the Prime Minister who has reneged on her leadership promise; the Chancellor is only doing her bidding.
This Budget claims to address the questions of education and productivity, but it is actually about selectivity and privilege for the narrow few. Let me tell the House what it has not done. For the first time in 100 years, the millennial generation is earning less than its parents. The Budget does not deal with that, because the Chancellor has sat on his war chest. Home ownership among middle earners is falling for the first time in 50 years. Mrs Thatcher would be turning in her grave if she heard that that was happening under a Conservative Government. By 2020-21—the end of the forecast period—average incomes will be a fifth less than they would have been if growth had continued at pre-crisis levels. There will be £5,000 less for every household.
The Conservative Government have not delivered a return to wealth for the ordinary person. The Chancellor’s freeze on universal credit and housing benefits means that one person in seven will have a lower real income in five years’ time. This is a Budget that does not address the real issues of inequality in this country. It is a Budget for inertia and complacency, and I will vote against it.
Sir Edward Leigh (Gainsborough) (Con)
It is a pleasure to follow the hon. Member for East Lothian (George Kerevan). He rightly had a lot to say about education in England, but we might have liked to hear more from him about education or health outcomes in Scotland.
Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)
Will the hon. Gentleman give way?
Roger Mullin
I can tell the hon. Gentleman that the outcomes of Scottish education, in terms of the number of people entering work and higher education, are significantly higher than they are in this part of the United Kingdom.
Sir Edward Leigh
I am very grateful for being informed. Before the hon. Gentleman stood up, I did want to say to him and his colleague the hon. Member for East Lothian that the events of the last 24 hours had convinced me more than ever that I was right to table an amendment, at the beginning of the present Parliament, to give full fiscal autonomy to Scotland, with a modern equalisation formula which would ensure prosperity throughout the nations of the United Kingdom and replace the outdated Barnett formula. Perhaps SNP Members should not intervene on me too often, because basically I am on their side when it comes to these matters.
I want to say a few words in defence of the Government. I am aware that that is sometimes an unpopular thing to do, but I feel that the Chancellor was courageous. I know that that is what Ministers are sometimes told by their civil servants when they are doing radical things—“It is a very courageous thing that you are doing, Minister”—but I think that this was the right thing to do. A storm has broken about the Chancellor’s head over the last few days. Why was it the right thing to do to try to plug the funding gap and to increase national insurance contributions? It was the right thing to do because this is, I think, about honesty in politics. Too often in Budgets we have seen gimmicks and little giveaways. We have only learnt the full story the next day, and we have realised that successive Chancellors have pretty well taken back from us what they have given to us. The Chancellor was trying to say, “We have to have a mature, grown-up debate in this country about how we are going to meet the funding gap in adult care.” That debate will run and run. We have a few months to think about it and to come up with a solution.
People say to me, “You made a manifesto commitment.” Sometimes, circumstances change, and one has to do what is right for the country. It is a difficult thing to do. Manifesto commitments are not written in stone—[Interruption.] I did not mean that to be a joke. We all know the history of that particular Labour party manifesto commitment and what might have happened to those words written in stone if the Labour party had won the election.
We have to have a mature debate about how we are going to pay for the NHS. Why do I say that? I am going to be completely honest about it. A lot more needs to be done for our NHS. I rely, as do my family, entirely on the NHS. We have no other providers. People of my age are deeply worried about the funding crisis. We have seen what has happened on A&E—targets have been missed. We have seen the report that puts the UK just ahead of Slovenia, Croatia and Estonia. As a country, we should be doing better than that. What is worse, England was ranked 30th for accessibility because of our exceptionally long waiting times for treatment. The 2013 figures from the OECD show the Netherlands, Sweden, Germany and France at the top, with their spending hovering at around 11% of GDP, while the UK’s stands at just 8.5%. Therefore, we need to have a mature debate about how we are going to meet the funding gap for all our people.
The King’s Fund estimates that, if we wanted to close that gap solely by increasing NHS funding from central Government, by 2021 we would need to increase our spending by 30%—a whopping £43 billion increase in real terms. That would push NHS spending to £185 billion overall.
Are there any alternatives to those scenarios? I pose that question. I know that that is unpopular. I know that people do not necessarily want to debate this, but we cannot raise this money from general taxation—there is not the political will and we cannot afford to do it—not if we want to maintain the NHS as universal, non-contributory and entirely free at the point of use. Something has to give.
The 2015 Euro health consumer index points out a contrast between two styles of health care: the “Bismarck” systems and the “Beveridge” systems. Bismarck systems are based on citizens taking out insurance available from a range of providers, whereas Beveridge systems such as ours have one body that provides all the care. The ECHI says that the largest Beveridge countries—the UK, Spain and Italy—
“keep clinging together in the middle of the index.”
The ECHI rated the Dutch health system as the best performing in Europe. The Netherlands happens to have a contributory Bismarck-style system. I believe—I know that it is controversial and that colleagues do not necessarily want to debate it because it is politically very sensitive—that, without appointing a royal commission and wasting years, Ministers, and the Opposition, have to have an open mind about how we are going to raise money for people not from general taxation, but by moving gradually, for parts of our healthcare, to a social insurance-based system.
We also have to have the courage to think radically about following the German and French example and indeed the Australian example. If you go to see a GP in Australia, you have to pay some money; if you do not turn up, you lose the money. In France, if you go to see a doctor or go to A&E, you have to pay a “facture”. If you cannot afford to pay, all that will be returned to you; if you can afford to pay, you have to make a contribution.
I know that these are radical ideas. However, if people are going to dismiss them, and dismiss the need for an open debate about how we are going to fund our healthcare system, they have to explain to us how they will raise the money from general taxation. There is no point simply attacking for Government for increasing national insurance contributions without proposing how they are going to tax to have a world-beating healthcare system, which is in all our interests. We want an open debate on that.
We need to have a realistic debate about education, too, on both sides of the Chamber. I do not think the way to approach the debate is to say, “I believe in grammar schools,” or “I oppose selective education in any shape or form.” The Opposition have to ask themselves a serious question: why has social mobility declined so catastrophically in our most deprived areas? The solution may not be to have grammar schools in our deprived areas. It may be to have more academic streams in our comprehensive schools. It may be to set up some selective schools only in deprived areas. It may be to provide places only for academically gifted children who come from deprived backgrounds. If politically and ideologically one says that we are not going to go down that route at all and believes in neighbourhood comprehensives in deprived areas, one has to ask oneself why social mobility is declining, has declined and will go on declining.
The Prime Minister is trying to open up a serious and interesting debate, and the Health Secretary is starting to open up a serious and interesting debate about how we are going to fund the NHS, and the Chancellor is opening up a serious and interesting debate about how we are going to find the money to meet all our future needs. In those terms and on that basis, I welcome the Budget speech.
Mr Iain Wright (Hartlepool) (Lab)
It is a pleasure to follow the hon. Member for Gainsborough (Sir Edward Leigh); he made a thoughtful and forward-looking speech, although I have to say that I could not disagree with him more on the matters of insurance-based payments to fund our NHS and selective education; those are the wrong approaches for this country to take.
I want to mention three key points. The first is the position of the national debt. This year’s “Economic and fiscal outlook” document from the Office for Budget Responsibility states that
“the fiscal mandate has targeted different measures of the deficit at different horizons”,
which is a beautifully diplomatic way of saying that the Government keep moving the goalposts and still fail to score the goal. The OBR goes on to state that
“the Government does not appear to be on track to meet its stated fiscal objective to ‘return the public finances to balance at the earliest possible date in the next Parliament’.”
So the Government have failed on the deficit, but they are failing catastrophically on the debt.
In 2010, the Government expected public sector net debt to be falling as a share of GDP; it was forecast to reach a high of 70.3% in 2013-14, falling to 67.4% by 2015-16. However, in every single year that the Tories have been in No. 11 net debt has risen in actual and relative terms, reaching 83.7% of GDP last year, and it is going to rise through this Parliament, with the Red Book forecasting that it will reach 88.9% this year.
When the coalition took office, public sector net debt was £771 billion. This year it reached £1.6 trillion, and the Red Book forecasts it is to rise again throughout this Parliament to £1.9 trillion. This is my first key point: in little over a decade, the Tories will have increased public sector debt by 146%, with it rising by over £1 trillion.
In his statement, the Chancellor said that they
“will not saddle our children with ever-increasing debts.”—[Official Report, 8 March 2017; Vol. 622, c. 811.]
However, when Tory Chancellors have increased the public debt by almost 150% in a decade, saddling our children with ever-increasing debts seems to be precisely what this Government are doing.
Chris Philp
Will the hon. Gentleman join me in welcoming the fact that the deficit has gone down from 11% of GDP when Labour left office to 3% of GDP today?
Mr Wright
But the public sector debt is almost touching £2 trillion. The hon. Gentleman cannot be satisfied with that situation when the whole nature of Tory Governments since 2010 has been not only to reduce the deficit, but also to get the debt down to manageable proportions.
On that point, having debt on a low and falling proportion of GDP provides some scope to absorb the impact of any future economic shock. That was the case with the Labour Government in the run-up to 2008, and in many respects it was the case with the Thatcher Government in 1988, ’89 and ’90, to hit the recession of the early 1990s. But this Government are failing to do the same thing: we will hit any economic turbulence or downturn with public sector debt being about 80% to 85% of GDP. That does not give us the flexibility to be able to respond and help firms and families in a robust and strong way.
The second point I want to make is about the nature of the economic recovery. Seven years ago a Tory Chancellor’s first Budget for 13 years stated that the British economy had become unbalanced, too reliant on growth and, as the 2010 Red Book said,
“driven by the accumulation of unsustainable levels of private sector debt and rising public sector debt.”
Growth was confined to a limited number of sectors and regions. I have mentioned public sector debt, and it is true to say that the British economy has performed well; the UK was the fastest-growing G7 economy last year. However, if we scratch beneath the surface, it is questionable precisely who is benefiting from that growth and what sort of growth we are having. Of course, growth is growth, and it has to be welcomed, but the British economy seems to be reverting to type, which could leave us vulnerable to long-term challenges and mean that we fail to take advantage of great opportunities.
Who is benefiting from the growth? The UK has been the only big advanced economy in which wages have contracted while the economy has expanded. Households are facing a period of 15 years in which average real wage growth simply does not happen. Average earnings in real terms are expected to be the same in 2022 as they were in 2007. Such a long period of wage stagnation is unprecedented since before the industrial revolution. Yet despite the lack of wage growth, household consumption is powering the economy, as the hon. Member for East Lothian (George Kerevan) mentioned in his powerful contribution. This has led to an expansion in the dominant services sector, but if consumption growth is running faster than wage growth, it must mean that people are either reducing their savings or increasing their borrowing.
The Governor of the Bank of England said in a speech in January that
“the UK expansion is increasingly consumption-led. Evidence from the past quarter century across a range of countries suggests episodes of consumption-led growth tends to be both slower and less durable.”
The household debt-to-income ratio has increased from 140.8% to 143.9% this year alone. These are worrying trends, and we are not seeing an increase in investment or an export-led recovery. Business investment has constantly undershot expectations, and there was a year-on-year fall in business investment of 1.5% last year. Despite the drop in sterling’s value against the dollar by about a fifth since 23 June, we have not seen the boom in exports that we might have expected. In fact, the trade deficit widened to £13.6 billion in the third quarter of 2016. That was due predominantly to a trade in goods deficit getting larger by £8.5 billion.
My third point is that we need a new model for the economy. To be fair to the Prime Minister, she said when she first came into No. 10 that she wanted to see an economy that worked for everyone, and that she wanted to see private sector reform to ensure that growth was rebalanced and reached all parts of the UK. However, that is not what we saw in last week’s Budget. The Government have referred to an industrial strategy as the path by which such growth could be achieved, yet the Chancellor failed to mention the term “industrial strategy” once in his financial statement, which demonstrates the buy-in from the Treasury to the concept. We talk about rebalancing across the regions, but as a north-eastern MP, I could find no reference whatever to the north in the Budget statement, let alone an assurance that we could have an economy that worked for everyone.
In our recent Select Committee report following our inquiry into the industrial strategy, we noted that the Government tend to operate in silos, and this Budget sadly reveals business as usual and more of the same. The Government intervene in the economy every single day, through taxes and regulations, as the Red Book shows. They can do that in an ad hoc, piecemeal way, or they can do it as part of a co-ordinated, strategic purpose. Sadly, the Budget seems to stress the former. It is true that the industrial strategy talks about skills as being essential, and the Chancellor’s announcement on technical education is welcome, but we will not see the fruits of those proposals until 2020-21. The industrial strategy also talks about ensuring that we are one of the most competitive places in the world to start and grow a business, yet the national insurance contributions debacle will result in a tax on enterprise, on ambition and on personal risk-taking by entrepreneurs.
The Committee would have liked to see a more ambitious, mission-based approach in which the Government, working with business, set a long-term direction for the economy in the pursuit of tackling global and national challenges. Where in the Budget was the vision on decarbonisation? Where in the Budget was the ambition to be the leading economy to exploit the fourth industrial revolution? Sadly, we got the same short-term tinkering, which will not address issues such as low productivity, skills deficiencies and massive regional imbalances. If the Prime Minister is serious about an economy that works for everyone, we need to see a step change in the way the economy works. An industrial strategy could be the means by which we achieve that but, sadly, in this Budget we saw business as usual.
Lucy Allan (Telford) (Con)
Thank you for calling me to speak in this important debate, Madam Deputy Speaker. It is a pleasure to follow the considered speech of the hon. Member for Hartlepool (Mr Wright). I congratulate the Secretary of State for Education on her passion and commitment to social mobility. We saw that today and we see similar themes in the Budget. I am so pleased that she is doing everything possible to ensure that my constituents have the opportunity to realise their potential. I particularly welcome the Government’s commitment to technical education, the introduction of the T-levels and the fundamental reform of education for 16 to 19-year-olds. It is truly a Budget for skills. I care so much about that because it represents an important investment in the future of my constituency. Telford has a proud industrial past as the birthplace of the industrial revolution.
Lucy Allan
I know that the hon. Gentleman disagrees with me, but I will continue to say that Telford is indeed the birthplace of the industrial revolution. We have our foundries, ironmasters such as Abraham Darby, the invention of the inclined plane, the Ironbridge—I could go on, but we are here to talk about skills. Over the years, through innovation and the indomitable Telford spirit, we have been able to overcome obstacles and find solutions to many problems. As a result of that innovation and spirit, Telford has become a dynamic, vibrant centre of the modern industrial revolution. From polymers and plastics to the high-tech automotive supply chain and advanced manufacturing, high-skilled, high-paid jobs are on offer to Telford’s young people.
Some years ago, I addressed sixth-form students at Abraham Darby Academy, which is in Madeley in my constituency, and said that university is not for everyone, that many graduates feel ill-equipped for the world of work on graduation and that some find themselves highly in debt in low-paid jobs. There was a bit of shuffling and an awkward silence and the teachers looked at each other and at the floor, and it became clear that almost all the students were being actively encouraged to go to university, which is what they planned to do. At that stage, however, they did not have the choice that is now being offered to students. We now have a clear-cut quality alternative for students who want to spend their post-16 years preparing for the world of work, which has to be a good thing. We have to ensure that the young people of Telford have the right skills and the work-readiness abilities to take full advantage of the opportunities presented by the high-skilled, high-tech jobs that are now coming to Telford.
Employers in Telford frequently talk to me about the skills gap being a major challenge, and the Budget’s measures on technical training will address that. Telford already has some fantastic organisations that are working hard to upskill our young people. Juniper Training and the Telford College of Arts and Technology do fantastic things on work readiness and skilling young people up with technical skills. Equally important, however, is the skills training offered by primary schools in Telford. We may be doing something unique, so I want to tell the House about it because it is a model that other primary schools should look to follow.
At Dawley C of E Primary Academy, which I visited recently, every single child uses technology in the classroom in amazingly innovative and advanced ways. Children are acquiring skills that will equip them for the jobs of the future. I got to see 7-year-olds using 3D printing and computer-aided design to make flowerpots and benches for an outdoor area as if it were second nature. The school is giving children the skills to thrive in the Britain of tomorrow—skills for success in a modern economy. Pupils from Newdale Primary and Nursery School visited me in Parliament today, and one young boy told me all about how they are learning to code. Many schools do that, but we need to build on the technical skills that children learn at a young age. It is fantastic that we can build on that with a complete overhaul of 16-to-19 provision to create a workforce of tomorrow for jobs that have not even been created yet, which is vital for a vibrant economy and for our global competitiveness.
I say “Well done” to Dawley C of E Primary Academy and to Richard Smith from Amazing ICT, who goes around all the primary schools in Telford helping pupils to discover technology at the youngest possible age. They are giving students the skills they need to thrive in the modern economy and equipping them for the jobs of tomorrow. A particular “well done” goes to the Secretary of State for Education for introducing that transformative approach to skills. As with the new T-levels and the technical education routes, we are helping children to do what they wish to do, and we are boosting UK productivity and UK competitiveness in a post-Brexit world.
I welcome many of the Budget’s other measures, too. I particularly want to mention the measures for women, including the £5 million for the centenary of votes for women in 1918, as it is important that we mark that incredible milestone. I welcome the £5 million for returners and the £20 million for the victims of domestic violence, and I am glad to see those important measures.
Hannah Bardell (Livingston) (SNP)
I also welcome that funding, but does the hon. Lady share my dismay that, on the same page as her Government talk about giving support to victims of domestic violence, they refuse to get rid of the repugnant rape clause?
Lucy Allan
I am glad that the hon. Lady, like me, welcomes the money for victims of domestic violence. It is extremely important that the Government continue to recognise those victims, and I believe our Prime Minister is 100% behind doing exactly that.
I welcome the Budget, and I specifically welcome the Secretary of State’s commitment to social mobility. I know that my constituents in Telford will benefit from the measures that she has set out.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I have heard a few Budgets in my time. The first was delivered by Sir Geoffrey Howe, who was a thoroughly decent man. Denis Healey unkindly said that Sir Geoffrey had been round the country stirring up apathy, but he was a decent man and I remember his Budget.
This Budget is deeply, deeply disappointing. In the context of the miserable votes last night, with this country heading headlong into a hard Brexit, I expected an imaginative Budget that prepares the country for what Harold Macmillan called, “Events, dear boy, events.” Well, we have already seen one such event from the First Minister of Scotland, and there will be many more from left field and right field. This country is going to be rocked by events over the coming years, and this Budget does not help anyone—nationally or regionally.
I represent Huddersfield, which is almost the average town in Britain, and it is in a dreadful state. They are going to close the accident and emergency services at our local hospital, and they are going to close the whole hospital. There is chaos across our country, not just in Huddersfield. Two thirds of the health services in our country are in dreadful trouble.
Most of the local authorities I know, especially the ones with indecent levels of deprivation and poverty—the ones in the average, real parts of our urban communities in Britain, not the ones in the leafy suburbs that some Conservative Members represent—are in deep trouble and are unable to bear the cost of social care and health. I was expecting something imaginative from the Budget, and we did not get it.
We also got very little indeed on education. Some earlier speakers asked where we could get alternative funding. The hon. Member for Gainsborough (Sir Edward Leigh) and I used to sit together on the Liaison Committee, and I used to call him, very unkindly, a member of the “barmy army,” but he actually thinks a lot. He has always been quite provocative, and he always has something to say. The fact of the matter is that we need imagination and passion to solve our country’s problems, but I heard little passion from the Government Front Bench today. I feel passion because I believe that every little child in this country has a spark of potential. If we, as politicians, cannot create a system that liberates that spark, we are not doing our job.
As Sir Michael Wilshaw said, the disaster of our education system is that we find bright little kids in our primary schools and we lose them after the age of 11. What sort of country and what sort of school system is that? All parties have underachieved, but we have seen some real change. There are signs of improvement, and I shall briefly give the test that most primary school teachers use to assess a young person’s work. They use “two stars and a wish,” and these are my two stars. First, I give a star for the good fundamental policy approach to skills in this Budget. We have been languishing on skills policy for so long, but there is now some imagination there. Who would have thought it? They used to say that John Prescott was a crazy man of the left who wanted a levy for training. Conservative Members used to say that was an absolutely disgraceful left-wing horror. Well, we now have an apprenticeship levy, as we should. It comes in in April and I hope it will succeed.
The Government actually went about policy making in a sensible way. They took evidence and consulted. They put Lord Sainsbury in charge, along with the former Minister the hon. Member for Grantham and Stamford (Nick Boles), who actually got to know something about skills and training. He has gone now, but some of us will miss him, because he listened. He introduced Lord Sainsbury to the skills commission that I chair, and I gave evidence to them both about what I wanted to see in skills policy. Some of that stuff is in the policy that came through in the Budget. I welcome such evidence-based policy. When I was Chair of the Education Committee, we used to applaud evidence-based policies, along with policies that seemed to work in countries like ours. So, there is something in the Budget in terms of skills, Alison Wolf’s recommendations to the Select Committee, and the work done by the Sainsbury review to talk to businesses, employers and practitioners on a cross-party basis. That is the way to make policy.
Sir Edward Leigh
The hon. Gentleman is speaking with great passion and is doing his best to provide some solutions. May I give him another one? Perhaps we should end the fiction that national insurance contributions can pay for all social care. We should merge national insurance and taxation, simplify things, and try to raise more money that way.
Mr Sheerman
I have already complimented the hon. Gentleman on being a good, out-of-the-box thinker, and that is another interesting suggestion to debate.
My second star is for productivity. Actually, it is only half a star, because we cannot really check. The Budget includes additional high-value investment, the national productivity investment fund and world-class infrastructure investment. I like most of that, except I am one of those quirky people who still cannot believe in High Speed 2 and in the fact that all that national treasure is being put into a railway that will be out of date by the time it opens in 2033. I think the money should be spent on the national health service, but I know I am in a minority on that.
The Budget also includes £300 million for the future development of the UK’s research talent and to attract talent from the research powerhouses of China, Brazil and Mexico. I like all that—it is all quite good stuff, so it gets half a star. All the stuff about disruptive technology investment to transform the UK economy, electric vehicles, artificial intelligence and robots is good stuff, but there has not been enough private sector research and development for a number of years. Co-operation between business and universities has not been good enough. We will never get the levels of productivity we want until we have the right kind relationships.
Finally, I come to my wish: for goodness’ sake, where is the evidence that grammar schools and free schools do anything to find the spark in children that we want to release? There is no evidence and no research. Not one reputable research institute or organisation in this country believes that a return to selective education will help anyone—quite the reverse. Look at all the research and the experience in other countries. Just look at Kent, for God’s sake! It is the most selective place in the country and it has the worst performance across all schools in the country. That is selective education. It has no research base and no experience base, and there is no global comparison of which we can say, “Isn’t it wonderful?” They do not have it in Denmark, Sweden or Finland. I doubt it is even the latest fashion in Shanghai.
I like policy that is based on good research and good evaluation, and yes, sometimes we should work across the party divide—that is the way to make policy. This Budget has not delivered it. We want that spark to be found and promoted—we want the country to be rich and successful in the challenging disaster of Brexit—but it is not in this Budget.
Chris White (Warwick and Leamington) (Con)
I am delighted to follow the hon. Member for Huddersfield (Mr Sheerman). We work together in many areas, including as co-chairs of the all-party group on manufacturing. He displayed his typical passion in his speech this afternoon. My view is that we must be forward looking in our approach and embrace an increasingly dynamic economy. If we tie that in with our industrial strategy, we have much to be optimistic about.
I start by acknowledging the positive news on employment. A record 31.8 million people are in work, which is reflected in the figures in my constituency. Businesses can be particularly proud of the fact that there has been a 74% fall in unemployment since 2010. Naturally, as the unemployment figure falls, it becomes increasingly difficult to reduce that figure further. For that reason, we must think differently about developing a skills base and investing in research and development. Industry 4.0 is a prime example of an idea that must be integrated into Government policy and that must span a range of Departments.
I also welcome the introduction of T-levels. Technical education has the potential to boost productivity. The new system, which will be introduced in 2019, increases the number of hours on such courses and includes good, strong work placements. I spoke in a recent debate on the productivity plan. If we are to improve productivity in the UK, we must first improve our domestic skills base. The £500 million per year in extra funding for technical education is a boost. Warwickshire college, which is in my constituency, is an example of what can be achieved.
Giving parity of respect to technical education in relation to A-levels has been something in which I have long believed. I am pleased that the Government have recognised the significance of this standard. More generally, strengthening ties between our education system and business should be a priority, particularly as the demands on businesses will continue to shift with the changing landscape of the economy.
I welcome the national productivity investment fund, which was announced in the autumn statement, and the funding that will be provided through the spring Budget to upgrade transport infrastructure. In the midlands, some £23 million will be directed towards improving the transport network. Wider spending on infrastructure with a focus on providing the very best framework for business is vital. The launch of the industrial strategy challenge fund is also very welcome, particularly with its focus on investing in innovation. It is absolutely the right approach to take and I hope that it can be built on as the strategy develops.
During the Queen’s speech debate last year, I spoke about the importance of shaping an industrial strategy to give certainty and confidence to British business. Despite being a little alone with that opinion on the Government Benches, I welcomed the industrial strategy Green Paper and the development of the Department. With this new funding, projects that further the capabilities of the automotive sector and that increase the longevity of batteries in electric vehicles can go a long way in securing a prosperous and sustainable future. Investment in infrastructure in tandem with investment in R and D is vital if our potential is to be realised.
The midlands is well placed to be at the forefront of such technologies, and it is in that context that I welcome the launch on Thursday of the midlands engine strategy, which specifically mentions the automotive industry and the fact that 39% of UK employment in the sector is in our region. With a strong science and research base, providing additional support to the midlands is the most effective way of enabling the UK to take a greater share of the international market. Regional empowerment should be a key consideration of Government policy. Sustained support for the midlands engine is, therefore, vital.
My final point is about the concern of a number of businesses in my constituency about business rates. In recent weeks, I have canvassed opinion locally on the upcoming changes to rateable values. By way of an example, a pub in my constituency is seeing a rise from £18,000 to £68,000. Another is seeing an increase from £33,000 to £94,000. Elsewhere, a business is seeing its rateable value rise to £12,500; being £500 above the rates relief threshold will mean a further tax bill of £6,000. Even for successful enterprises, these significant hikes in business rates risk jobs losses and closures of businesses altogether. The £1,000 business rates discount for one year for pubs with a rateable value of up to £100,000 is put into context with the rises I have just mentioned. Allocating £435 million towards supporting those that will be particularly impacted is welcome, but I urge the Chancellor to review the issue urgently.
Mr Speaker
I call Gareth Snell for his maiden speech. [Hon. Members: “Hear, hear.”]
Gareth Snell (Stoke-on-Trent Central) (Lab/Co-op)
Thank you very much, Mr Speaker, for the opportunity to make my maiden speech during an important debate on education and skills. Both are vital to the future success of my constituency, albeit a greater challenge following the sustained underfunding of Stoke schools.
It is a privilege to have been elected as the Labour and Co-operative Member of Parliament for Stoke-on-Trent Central in an election that was not planned and following a campaign that, all too often, did not do justice to the wonderful city that I now represent. Many of my colleagues on these Benches—and, I would wager, on the Government Benches—who came to Stoke-on-Trent during the by- election would struggle to reconcile the vibrant, welcoming and proud city they visited with the portrait painted by the national media. All too often, cameras lingered over disused bottle kilns, while our resurgence in hi-tech ceramics went unmentioned. Journalists posed by abandoned shop fronts, just yards away from the city’s thriving cultural quarter, and rarely did our world-class university feature in reports. Commentators talked down my city in order to play up their narrative. They dismissed a capital of culture as little more than the capital of Brexit, pigeonholing my constituents into a box that does not reflect their true character.
While that narrative suited those seeking to win the election on a platform of hatred, division and nationalism dressed up as patriotism, it did a grave disservice to my city, whose motto is “United strength is stronger.” My city demonstrated that nationalism of any sort has no place in our politics. My challenge, for however long I am blessed to represent Stoke-on-Trent in this place, is to champion everything that is great and good about our city; to recognise our problems, but to highlight our many achievements; and to shout loud and often about why the Potteries, above all else, is the best place in the UK, if not the world.
In the Potteries, we are innovators and educators, artists and entrepreneurs. We pioneered the first industrial revolution—something that has been discussed quite a lot this afternoon—and we have the potential to lead the next. We are the home of Reginald Mitchell, Josiah Wedgwood, Clarice Cliff and, more recently, Robbie Williams. But, most importantly, we are home to the Staffordshire oatcake—a delicacy seldom found outside of the ST postcode but which, once savoured, is never forgotten.
Gareth Snell
Yes; I’ll bring some.
We were the beating heart of a ceramic empire that stretched to the four corners of the world and, today, proud members of the “turnover club” can be seen inspecting their tableware for that all important back stamp, hoping to find neatly inscribed on the back of their plate or cup the five greatest words in the English language: “Made in Stoke-on-Trent.” It is a ceremony my own daughter Hannah has taken up with vigour. Indeed, so enthusiastically does she wish to discover the origins of a dinner plate, she has on occasion forgotten to finish its contents before turning it over and depositing her lunch in her lap.
It was with utter joy, when I arrived in this place, that I discovered that my first cup of tea was from a wonderfully crafted cup produced, upon further inspection, by Dudson, from my city, which, although technically in Stoke-on-Trent North, I am sure my hon. Friend the Member for Stoke-on-Trent North (Ruth Smeeth) will not mind sharing for the purposes of this speech—I hope, anyway. But ceramics is not just our history and our heritage; it is our present, and with the right help from this Government, it can be our future, too.
Mr Speaker, in the middle of my constituency, on an otherwise unassuming window in the city centre, you will see a life-sized picture of TV’s Eric Knowles, best known as the ceramics expert on the “Antiques Roadshow”. He proudly proclaims that the Potteries Museum and Art Gallery boasts a greater collection of ceramics than even the Victoria and Albert Museum—a discussion I shall no doubt have with the V&A’s new director.
That allows me to segue neatly to pay tribute to my predecessor, Tristram Hunt. Although he was, like me, not a native son of Stoke-on-Trent, anyone who met Tristram knew that the Potteries had found its way into his heart. He was a fervent champion for Stoke-on-Trent, and never was an opportunity missed to extol the virtues of our six towns. His ability to bring people together and ignite in them a passion for the Potteries will be sorely missed.
But it was our city’s children who most preoccupied Tristram’s efforts. He knew that the best hope for our city’s continuing resurgence was to ensure that every young person had a good education and the best possible start to life. He was a champion of Sure Start—one of Labour’s greatest achievements and, for the doubters on the Conservative Benches, something we will rescue in the next Labour Government. He was a frequent visitor to the many wonderful schools across the constituency. He delivered the maths excellence partnership to improve standards in our local schools and give young people the skills they need to prosper.
Tristram used his talents to promote literacy, because he knew the value of inspiring children to read and to foster a love of books. His enduring legacy in Stoke-on-Trent Central will be a generation of children who, through his work on the now acclaimed Hot Air literary festival, have been able to expand their reading, take up creative writing and explore a world of literature that otherwise would have passed them by. As we speak today of the importance of education and training for post-Brexit Britain, these achievements, and the ongoing challenges, are as important as ever.
Tristram was a thoughtful and forceful voice in this House and beyond, and I know that his contributions will be missed, but he is one of a long line of distinguished parliamentarians to have represented Stoke-on-Trent Central. Whether it was Mark Fisher and his campaigns on local health services and to ensure the sovereignty of Parliament, or Bob Cant as a keen advocate for local government, my constituency has been ably served by dedicated public servants, and I will do my utmost to continue in that tradition. [Hon. Members: “Hear, hear!”]
My predecessor was a man who loved our movement’s history, but I am a man who has lived it. Growing up with my grandfather, a union rep for the old Transport and General Workers Union, I was taught from a young age that the greatest strength that working people have is our solidarity. It was a lesson that he embodied in his own life, representing his colleagues at the chicken factory where he worked, and representing his friends and neighbours as a Labour councillor.
My childhood taught me always to stand up for what I believe and always to speak my mind. The latter, it must be said, has sometimes brought mixed results. [Interruption.] Yes, 140 characters are coming out later. Nevertheless, that advice has served me well, and my wife Sophia and I will be proud to pass it on to our daughter, Hannah.
I would also like to put on record my thanks to the Labour movement, including friends in the Labour party, the Co-operative party and the trade unions, for their assistance in my election. Particular thanks must go to my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) and to my new neighbours, my hon. Friends the Members for Stoke-on-Trent North and for Stoke-on-Trent South (Robert Flello).
Ours is a politics based on comradeship in which the strength of our common endeavour means that we really do achieve more together than we achieve alone. Those same values of fairness, co-operation and social justice run through the history of Stoke-on-Trent and its people. They were on display in 1942 when the north Staffordshire mining community helped rebuild the village of Lidice in the Czech Republic after it was razed by the Nazis. The driving force behind that crusade was another of my predecessors, Sir Barnett Stross, who said at the time:
“The miner’s lamp dispels the shadows on the coal face. It can also send a ray of light across the sea to those who struggle in darkness.”
At its best, that is what the Labour movement has always been—a ray of light for those who struggle in darkness. It is my immense privilege to be part of that movement here in Parliament, and to try in my own small way to help to hold that lamp aloft. It is a responsibility that I will do my best to meet as I strive to give a voice to the people I represent and showcase all that is great about Stoke-on-Trent.
Richard Drax (South Dorset) (Con)
It is a great pleasure to follow the maiden speech given by the hon. Member for Stoke-on-Trent Central (Gareth Snell). We all remember our maiden speeches. I personally thought the hon. Gentleman made an excellent speech full of passion and conviction. Perhaps a little shiver went through those on these Benches at hearing a man of conviction, which is what this House needs, in my humble opinion, on many occasions. From Staffordshire oatcakes to the ceramic empire, we heard it all. The hon. Gentleman represents an honourable seat and I am sure he will do an honourable job.
I congratulate the Government on doing an excellent job so far, bearing in mind the appalling inheritance that we had back in 2010, along with the banking crisis and many other factors that led to the massive cash crisis that we face. The UK economy is forecast to grow by 2%, real wages are forecast to rise every year to 2021, the deficit is due to fall, and the debt in proportion to national income is also due to fall. All this, and more, is most welcome, and I congratulate the Government of whom I am proud to be a member.
I am also glad that the Government are not ashamed, as they should not be, to mention the dire financial circumstances that our country still faces. Wherever I go in my constituency—I am sure that most Members are the same—we cannot brush over the fact that we are still on a knife edge. We are told—the figures are there—that there is debt of £1.7 trillion, or £62,000 per household; that private debt, which is not often mentioned, is a similar figure; and that there is £50 billion a year of debt interest, which is more than we spend on defence and policing put together. These are horrifying figures that Government Front Benchers are desperately trying to deal with.
I would not be doing my duty as a Member of Parliament if I did not raise a few of my concerns about the Budget, although overall I support it. The word “fairness” is used a lot by the Chancellor of the Exchequer, for reasons I quite understand, but I am not sure that it entirely resounds with those who are going to be affected by one or two tax rises. As a Conservative, I long to hear from a Conservative Chancellor a vision for this country that involves a massive reform of our tax system, which today is one of the most complicated in the world. For example, why cannot we have a flat-rate income tax of, say, 30%? KISS—keep it simple, stupid—is what we were told in the Army, and I think that there is a lot of room for that in the tax system of this country.
Sir Edward Leigh
My hon. Friend is making an interesting speech. The reason why we cannot have a flat-rate tax—this is not often mentioned by Labour Members—is that the top 2% pay a quarter of all income tax. It would therefore be impossible to move to a true flat-rate tax, but we could completely simplify the tax system, perhaps by having two rates. We could also try to merge capital taxes, and their terms and rates, much more into income tax. We could therefore start to get rid of the poverty and unemployment trap.
Richard Drax
I entirely concur with my hon. Friend. As always, his intervention was absolutely spot on.
Another point I have noticed during the six or seven years I have been in the House is that everything is ring-fenced—every Department is ring-fenced. The Chancellor says, as we have heard previous Chancellors say, that there is so little room for manoeuvre. May I suggest that we take away the ring fence, think radically about areas such as the national health service—my hon. Friend mentioned it—and try to look at things far more in the round for the future of our country? I would have liked to have heard a lot more about Brexit, and the future—where we are going—in the vision from the Chancellor, as I do not believe that we heard about that.
I want to touch on one or two other issues, the first of which is the national insurance hike. I must say that I am concerned about that because many people who will be affected work and live in my constituency of South Dorset. The money raised will be relatively pitiful, but 2.5 million people are facing an average rise of £240. We have heard about a manifesto pledge being broken, and I believe it has been broken. I am not saying that manifesto pledges cannot be broken, because circumstances may change, meaning that they have to be broken.
I have consistently argued that if we are to look for more money, the overseas aid budget is the area that we should consider. Many of my constituents certainly believe that we should help the less well-off—of course we should. However, setting an arbitrary figure for such aid of 0.7% of GDP—interestingly, the average figure for the EU is 0.4%—is a pledge too far. It is also a pledge that this country clearly cannot afford, because many areas of our national life are now calling for more money.
Self-employed people take risks that the employed do not, as we all know. They risks their homes, livelihoods and families. That is one reason why they have, or did have, such a tax advantage. I know that there has been equality as far as pensions are concerned, but I still believe that the risk takers, the entrepreneurs and the aspirational —the people we need to create wealth, prosperity and jobs for our future, especially as we move to leaving the EU—should not be penalised.
I am not happy about quarterly reporting. The self-employed and small businesses will be required to fill in four income tax returns a year instead of one. They will need to do so digitally, but if hon. Members speak to farmers about applying for grants digitally, they will find that that is not always easy. Such people will require an accountant and there will be extra costs. Income tax will have to be paid at the end of each quarter, rather than in one or two instalments each year, and that will inevitably affect cash flow. It is important—in the good times or the bad times that we know businesses experience—to have an annual look at a business, rather than for it to be affected during a poor period by a cash payment that has an impact on its cash flow.
Another area that I am concerned about is probate fees. At the moment, probate costs are capped at £215. It is worth noting that the costs on estates of over £50,000 could now range from £300 to £20,000. The press have dubbed this a “death tax”, and I think that that is a fair comment.
On death taxes, I want to mention inheritance tax—I declare an interest. I think that inheritance tax is completely immoral. We pay a lot of tax all our lives, and when we die, as we cannot avoid doing, 40% is charged by the state. In my view, that is completely immoral. Let me quote the previous Prime Minister, David Cameron, who said at the last election:
“We will take the family home out of inheritance tax. That home that you have worked and saved for belongs to you and your family—you should be able to pass it onto your children”.
I entirely concur.
In my remaining minute, let me say that I want the abolition of inheritance tax, a review of capital gains tax and the simplification of the whole tax system. I also want much more investment in technology colleges— I entirely agree with the hon. Member for East Lothian (George Kerevan)—where I think the future lies for all the jobs that we will need to fill. If money is needed, I want the overseas aid budget to be targeted, rather than any other ring-fenced area.
The situation regarding business rates concerns me. In the view of Tim Martin, the very able founding chairman of Wetherspoons, who came to address my apprenticeship fair last week, supermarkets will get away with it and his pubs will get hammered. Finally, may I gently ask Ministers that we stop using the terms “tax avoidance” and “tax evasion” in the same sentence? Tax evasion is illegal; tax avoidance is something we all do for our families’ sake. I would be grateful if we could stop using the two terms together.
Mr Jim Cunningham (Coventry South) (Lab)
I start by congratulating my new hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell). His speech was interesting and very hopeful, given the economic situation that the people of Stoke-on-Trent, like the rest of the country, are suffering from. I am sure their new Member will do his adopted city proud, as I try to do for Coventry.
Let us look at the Budget in the context of the austerity measures that the Government have pursued. They will have lasted far longer than the time from the start of the second world war to the end of rationing, and we wonder why people like Donald Trump get elected—it is because austerity has gone on far too long in America, like in this country and in Europe. I would have expected the Budget to have offered at least some sort of hope to the British people, but all we had was a further dose of austerity.
The Government told us that the deficit would be eliminated by the end of the last Parliament—another promise that they have broken. In fact, the Chancellor is now extending the deficit. Taxes are increasing while real wages are falling. The TUC’s analysis has found that the UK ranks 103rd out of 112 countries for pay growth. Some 6 million people earn less than the living wage and 4 million children are in poverty. The Government have not really addressed those issues.
When Labour left office, Britain retained its triple A rating, we had low interest rates to help poorer families, and 85,000 more nurses and 32,000 more doctors had been trained. The current Government, and the coalition before them, have been living off the benefits of that.
Another broken manifesto promise by the Government is on national insurance contributions. That was touched on earlier, so I will not elaborate too much on it, but it will affect self-employed people, particularly those in lower pay brackets such as taxi drivers and people working in pubs. The rich will not necessarily be better off as a result, but the change will hit hard-working people.
In the case of welfare, there has been no reversal of the personal independence payment cuts and the changes to employment and support allowance, which will hit disabled people hard. There have been demonstrations about that, and I am sure that my colleagues will have been lobbied about it at their surgeries. Yet the Government have started a process that will allow some people to pass on property free from inheritance tax.
Stephen Pound (Ealing North) (Lab)
Not only do we get lobbied in our surgeries but we get lobbied at home—my son, a self-employed electrician, was speaking to me about this the other day. Not only is he being hammered for NICs, but he is having to do quarterly tax returns—he is tempted to vote Labour! That is the unfortunate side effect, from the Government’s point of view. Does my hon. Friend accept that the Conservatives are no longer the party of the self-employed—the party of white van man and woman? They are the party of themselves, and of the wealthy, the rich and those who are not bothered by what have been described as “pitiful” sums of money.
Mr Cunningham
Simply put, the Conservative party was never on the side of the working man, so nothing has changed there. I am quite surprised at times that some people vote for the Conservatives.
Healthcare has been touched on in today’s debate. The funding for social care is welcome, but it is too little, too late. It is putting a plaster over a big wound, and it will not solve the long-term issues. Funding for the national health service is needed, but the funding that has been announced will not help in the longer term; more investment is needed. Council tax increases will raise money in the short term, but they will not solve the problem in the longer term. In Coventry, the increase in council tax will generate about £443 million, but the national living wage increases will cost about £600 million. The Government have abdicated their responsibility for social care and they are shifting the burden on to local authorities and local people, rather than paying for it from general taxation.
Turning to pensions, we were lobbied last week by what we call the WASPI women, but there is nothing in the Budget to address the problems that they face. Women’s issues have certainly been mentioned in this debate, and in many debates in this House over a long period of time. Yet again, however, the Government have done nothing to address the issues that really affect the WASPI women. I will not go into the detail of the hardship that they experience, because it is well known to the House, but the Government have done nothing to address it. The Government boast that there are more women in work. That might be true, but they forget to mention that a lot of women—many of them in lower-paid, manual jobs—will have to work for longer.
The business rate changes will hit small businesses on the high street the hardest. The £1,000 relief for pubs is not a lot in the great scheme of things. It is only a gesture, and it will not help in a meaningful way.
Let us look at education. Instead of funding free schools, money should be invested in our existing schools. Schools are being asked to find £3 billion of cuts, and resources are already stretched to breaking point. Local authorities in Coventry have always taken the decision to fund schools well, but the national funding formula will leave pupils with less funding, even though the Government say that no pupil will be worse off. Will they guarantee money to ensure that the national funding formula does not leave Coventry schools with a shortfall?
The Institute for Fiscal Studies warns that, by 2020, school funding per pupil will have been cut, in real terms, by 6.5%. Funding for 16-to-18 education will be on a level similar, in real terms, to that of 30 years ago. The Chancellor has ignored the funding crisis in the Budget. The cost of employing staff is growing because of increases in employers’ contributions to national insurance and pensions, plus pay increases, but there has been no additional funding for that from the Government.
Women will still have to prove that their third or subsequent child was the product of rape to get child benefit. Once again, we see women being discriminated against by the Government. Women are still disproportionally affected by austerity, and the £20 million fund for violence against women is not enough to offset the cuts that they have faced since 2010. That fund is likely to be a repeat of the £20 million announced last November; it may well not be new money.
In the midlands, although the £392 million of funding through the local growth fund is welcome, it is not sufficient if we have any real intention of developing the west midlands economy. Listen to this: Coventry and Warwickshire will get only £42.4 million, which is not a lot when we consider the area. There will be £20 million for the midlands skills challenge to improve employment prospects for people in the area, £4 million to support the midlands engine partnership, £12 million for commercial and housing developments and broadband infrastructure, and £11 million to support skills and apprenticeships in Coventry and Warwickshire. That will not solve the problems that the country faces.
Although investment is welcome, there is also a housing crisis that needs tackling. London has been awarded nearly 10 times as much for housing. Since 2010, there has been a 40% cut in Government funding to local councils, and small businesses and high streets will be hit hard by business rates rises, but that has not been addressed in the midlands engine strategy. By 2020, the Conservative Government will have cut £655 million from Coventry City Council’s budget, and the midlands engine strategy will not cover that shortfall. Social care and our NHS desperately need funding, and Coventry and Warwickshire local authorities expect a deficit of £33 million by 2020-21 in social care. The midlands engine proposal is superficially attractive, but it will not address the long-term issues in the west midlands.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
I congratulate my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell) on his excellent maiden speech, which I enjoyed very much. It moved many of us to laughter and tears. I gently correct him on one point: Stoke is not the centre of the known universe. That would be another place in the west midlands called Birmingham, but I will let him off on this occasion because that was a first-rate start to his parliamentary career and I wish him all the very best.
I want to focus my remarks on the Government’s record and their failure on their own terms. I note with interest that the Government Benches are all but empty. That may be because Government Back Benchers are not exactly lining up to defend the increase in national insurance, given the row that has erupted between No. 10 and No. 11 Downing Street, but the reason may go back further than that. Long before the Government’s broken manifesto commitment on national insurance, the Government failed the test they set for themselves: their central mission when they came into government in 2010, and the one promise they made to this country, was that they would eliminate the deficit in five years and that the age of austerity was the only way to achieve it.
The Budget documents are clear. In 2016-17—I am glad more Government Members are coming into the Chamber, so they can hear about their Government’s failure on the deficit in person—the deficit will be £51.7 billion. In 2017-18, it will be £58.3 billion. Even in 2021-22, it will still be £16.8 billion. On this trajectory, the deficit will not be eliminated until 2025-26: a full 15 years after their famous promise, made in 2010, to eliminate the deficit in five years.
That is the true shameful record of this Government, but it sits alongside a much starker and more catastrophic reality on living standards for ordinary working people. [Interruption.] Government Members should stop chuntering and listen to what they have done to ordinary working people. On current forecasts, average earnings will be no higher in 2022 than they were in 2007. That amounts to 15 years without a pay rise for ordinary working people. According to the Resolution Foundation, by 2020 families will have missed out on pay growth of £12,000: the worst decade in 210 years. That is what the Government have delivered for ordinary working people country. They used to taunt Labour Members with a slogan about us not fixing the roof while the sun was shining. For people going 15 years without a pay rise, it is as if the sun never shone at all.
On pay, wages, jobs and growth, I was particularly disappointed that the Government failed to take action to offset the planned cuts to universal credit later in this Parliament. I say to Conservative Members, who rightly kicked up such a fuss on the changes to tax credits planned by the former Chancellor of the Exchequer, that the U-turn was not truly a U-turn. The cuts are still coming down the tracks. Many of the same people will be affected when those currently on tax credits are moved on to universal credit towards the end of this Parliament. At the moment, only 170,000 or so people are in receipt of universal credit, but, by the end of this Parliament, millions of families will be on universal credit.
The Secretary of State’s warm words on opportunity mean nothing given what the Government are doing to the working poor. The cuts to work allowances will total £6.4 billion by the end of this Parliament. Only a tiny concession was given at the autumn statement by the Chancellor when he reduced the taper rate from 65% to 63%. It remains the case that lone parents on the national living wage with one child in 2021 earning £16,000 will lose £2,800. The measures in the autumn statement will give them back only £200 of that money, so they will be £2,600 a year worse off. Those are not small sums. They are the difference between keeping a roof over your head and being homeless. They are the difference between putting food on the table or watching the children go hungry. That record of delivery that the Government are putting on the people of our country in the 21st century is unacceptable.
In the end, politics is always about choices and priorities. This Government have made the choice to cut corporation taxes, totalling £11.2 billion by 2021-22. They could make a different choice. They could choose to spend that money elsewhere, perhaps on universal credit or social care or to alleviate the crisis in the national health service. This is a choice that they are making. Cuts to corporation tax are not necessary to ensure that we have job growth in our country. We have seen what has happened to wages, and we know that business investment is nowhere near where it should be. The cuts to corporation tax are therefore being pocketed as profit more than they are delivering for the rest of the economy. They should be reconsidered. The Government’s choices thus far have made ordinary people pay the price, which is unacceptable.
Several hon. Members rose—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. As the hon. Member for Birmingham, Ladywood (Shabana Mahmood) cleverly and rightly anticipated, I am afraid that the time limit for speeches has to be reduced to six minutes.
Ruth Smeeth (Stoke-on-Trent North) (Lab)
Before I start, may I say how proud and delighted I am to be joined on these green Benches by my new hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell) who made a wonderful maiden speech? I am now grateful for every door I knocked on in the rain. [Interruption.] We can send him back now.
What we heard last week was a Budget bereft of ideas from a Government in want of a plan. It offered no solution to the crisis in our NHS, no vision for our country’s future outside the EU and no offer of hope for the Potteries, which I am so proud to represent. Its alleged support for health and social care amounted to little more than an empty gesture in the face of crippling financial crisis within our NHS.
The Budget prioritised the vanity projects of an out-of-touch Prime Minister over fixing our struggling education system. It is timid in the face of unprecedented challenges; indeed, it is bold in only one respect—in its choice of victims. The Chancellor will no doubt have been counting his blessings that he had a ministerial car in which to flee the scene last week, because I am sure that the cabbies of central London would have painted him a clear and somewhat colourful picture of what his announcement on national insurance is set to do to their take-home pay.
Wes Streeting (Ilford North) (Lab)
As chair of the all-party parliamentary group on taxis, I can tell my hon. Friend that taxi drivers as well as other self-employed workers cannot understand why their burden as relatively low-paid workers should increase while there are tax cuts for the very richest. Is this not one of the many reasons why there are so few Conservative Members on the Government Benches to defend this terrible Budget?
Ruth Smeeth
I could not agree more with my hon. Friend. As the niece of a black cab driver, I should really declare an interest.
It seems that, as far as the Chancellor is concerned, the “strivers” that his party claims to stand up for are not striving quite hard enough. It is beyond belief that at a time when Britain needs to rebuild and rejuvenate its economy, this Government have chosen to impose a tax on hard work and entrepreneurship. It is also a tax on aspiration, something that we should promote, not attack. I remind hon. Members that this was billed by many as the last pre-Brexit Budget, yet the glaring omission in the Chancellor’s plans was any clear vision of what Britain might look like after Brexit and what sort of investment and Government support might be needed to get us there.
As for constituencies such mine, which voted overwhelmingly to leave, there seemed to be no consideration of the investment and support needed to make sure that places like Stoke-on-Trent can benefit and thrive from our new relationship with the world. There is no clearer example of this than the Government’s approach to education and skills, which is the single biggest issue raised by all the employers and educators in my constituency when we discuss industrial strategy—another phrase sorely missed from the Budget.
Schools in my constituency are losing an average of £400 per pupil, and our city is crying out for proper investment in skills and education. Instead, the Chancellor is choking the life out of our public education system, while pouring millions into a doomed experiment in selective education. That lack of commitment to our wider education system is deeply concerning, because the single most important thing that we can do to improve the economy of my great city and others is to improve the skills of the people who live and work there.
It is not a lack of will that is holding my young people back: they are enthusiastic and keen to work. What is missing is the support and investment to ensure that they are fulfilling their potential, learning the skills that they need in order to succeed and gaining the qualifications to prove it. Last week I visited a wonderful primary school in my constituency—the best primary school in the city, even—which is already having to choose between teachers and computers. It is not two to one for books; it is two to one for computers. That is why it is so wrong —at a time when we should be upskilling our communities for the challenges of the future so that they can embrace the fourth industrial revolution—for the Government to focus on a grammar school system that will benefit only a select few and overwhelmingly favour those from more privileged backgrounds, rather than providing the basics for every child in every school.
We need to ensure that all our schools are properly funded, and that we have a robust system of early intervention to support the most vulnerable families right from the start. That is why our children’s centres, our primary and secondary schools and our further education system need investment, not vanity projects. If we are to make the best out of Brexit, which we now desperately need to do, we must ensure that our communities are ready to seize those opportunities. We need a workforce that is ready for the jobs of the future, we need a universal and properly funded education system, and we need to ensure that all our young people are supported so that they can realise their potential. We need a better deal for the next generation, not this ideologically driven waste of public funds.
Lucy Powell (Manchester Central) (Lab/Co-op)
I echo what has already been said about the fantastic maiden speech of my new hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell). I went with him to visit a maintained nursery school in Stoke, and I know how committed he is to education and skills in the area. That brings me to the main thrust of my own speech.
After nearly seven years, the cumulative effect of Government policy on education and skills is now being felt by pupils, parents and teachers, and has given rise to a number of serious issues, each of which should demand the full attention of Ministers. School budgets are falling for the first time in 20 years. There is a teacher shortage crisis. There has been a huge rise in pupil numbers, requiring about 400,000 new school places. We are seeing the biggest changes in GCSEs and the curriculum for a generation, of which many people are unaware. Primary assessment is in absolute chaos: the pass rate in last year’s standard assessment tests fell from more than 80% to an appalling 53%. We have seen the introduction of more free childcare with insufficient funding, and serious failings in capacity and oversight in the schools system. Many of the Government’s previous “pet projects” have failed and closed. All that has come on top of what the Secretary of State described today as the biggest revolution for a decade in technical education.
Any one of those issues should command the undivided attention of Ministers, but they want to impose two huge further changes on the schools system: a new funding formula which seems to have left all sides unhappy, and the reintroduction of grammar schools without a shred of evidence, which has shone a light on the woeful record of existing grammar schools in supporting children from poorer backgrounds. The Budget had nothing to say about social mobility, closing the productivity gap, or creating the high-wage, high-skills economy that we need. Perhaps the Government would have done better to spend more of their time sorting out the last set of experiments that they said would create “more choice”. What has happened to them? Let us take a look.
Since 2010, when the Government introduced their previous gimmicks—university technical colleges, studio schools and free schools—there have been huge problems and a massive waste of resources. More than 1 in 10 UTCs has closed, and many more are now on the brink. While there are a few excellent UTCs, even the right hon. Member for Surrey Heath (Michael Gove)—who had introduced them—admitted that the experiment had failed, saying:
“the evidence has accumulated and the verdict is clear”.
Three in 10 studio schools have closed or are due to close, as Schools Week analysis has found, and many more are on the brink of closure. Only one has reached the 300-pupil mark that was set. The future is therefore looking bleak for those experimental institutions, yet the Government are hellbent on creating more. One in five free schools are in places where they are not needed. With the starving of capital funds to existing schools, and the failure to meet the places crisis by continuing to throw good money after bad, this Budget does nothing to deal with the real issues facing our schools.
Even though we are awaiting the outcome of the Government’s consultation, we heard this week that the Government are hellbent on going ahead with their grammar schools programme, which they are now calling “selective free schools.” I note that the Secretary of State is so ashamed of that policy that she did not even mention it in her speech today. I reiterate that there are very few Conservative Members in the Chamber to defend that policy.
Maria Eagle
Does my hon. Friend agree that the Secretary of State probably did not mention the policy because she does not agree with it?
Lucy Powell
Yes. We can infer that. The evidence is clear on selective education. Those systems do not boost social mobility. In fact, in many cases they widen the gap. As we all know in the House, the big challenge facing our education system is the long tail of under- achievement. It is not about how we can better support the already high-achieving. The only argument advanced by Conservative Members is that the tiny number of children on free school meals who get into grammar schools, who by definition are already high-achieving, do better than all the other children on free school meals. What a joke of an argument that is to base the entire policy on. There is a huge amount of evidence going the other way.
Perhaps that is why, when the Secretary of State addressed the usually mild-mannered and pragmatic Association of School and College Leaders at the weekend, she got booed, which has never happened at that conference before. It may also be why the Sutton Trust, the Government’s own Social Mobility Commission, the Education Policy Institute, the former chief inspector of schools, all the secondary heads in Surrey and many, many others and many Conservative Members have come out against those proposals.
There are plenty of things that the Government should be doing, and we have mentioned a few of them. Perhaps they should get to those core issues, rather than creating yet more uncertainty and instability in the system. They should get on with doing something about the major funding challenge. This is not about fair funding—it is about funding levels being maintained at the levels they are now. The belts are being tightened even more for some schools, but all schools are losing out from those funding measures.
The Government should do something about teacher shortages. For five years in a row, they have missed their retention and recruitment challenges. They should do something about the school places crisis and work with local authorities, rather than plonking free schools where they are not needed. And get a grip on what is happening with the new GCSEs and curriculum. There is absolute chaos there.
If the Government really want to do something about social mobility, they could do a lot worse than look at investing properly in quality provision in the early years, rather than trying to deliver child care on the cheap. There is plenty of evidence to support it, and I am happy to discuss that with Ministers if they want to have a real agenda for social mobility.
Yasmin Qureshi (Bolton South East) (Lab)
Sometimes we hear Government Members and the Prime Minister herself talk as though when Labour was in power, we did nothing for health, education, children, the homeless, older people and other vulnerable groups, but let me take the six Conservative Members who are sitting in the Chamber on a trip down memory lane. In 1997, when hospital waiting lists were more than three years, people were lying on hospital trolleys, and hospital staff and others were completely demoralised, we spent millions and millions of pounds on repairing hospitals and investing in people—in nurses and in doctors—and in hospital services, so that when we left office in 2010 our NHS was a brilliant service. The Tories inherited that and they are now destroying it.
We had the mantra “education, education, education,” and we followed it with real funding in our education system. I am sure people will remember that there were run-down schools, some with leaking roofs, and demoralised teachers, and all the extra funding that we put in. This Government now take credit for our education doing so well, but that is because of the investment we put in from 1997. We also took half a million children out of poverty and began the Sure Start programme, which helps young people; if we really want to help young people from poorer backgrounds to succeed, we need to ensure that early years education is good, and Sure Start helped many families.
We also introduced the education maintenance allowance for 16 to 18-year-olds, which helped many young people from poorer families to stay on at school or college. That was abolished by the Conservative-Liberal Democrat Government, and now many young people, instead of being able to stay on and study at school or college, are having to go to the jobcentre to sign on, and are not getting any extra training or learning. That is one of this Government’s most counterproductive actions, and it is driven purely by ideological considerations.
Yes, we did create academies, but only when schools were failing, and often in poorer parts of the country, to improve educational levels. Since 2010 this Government have been forcing many outstanding schools to become academies by offering them extra money. Hundreds and hundreds of millions of pounds have been spent on forced academisation and on free schools when many ordinary schools are suffering, and the funding formula has now been changed, affecting many ordinary schools in my constituency. It would have been far better to spend money on most schools than on the ideologically driven academisation of even very, very good schools. I was very disappointed that the Chancellor did not bother to reintroduce something like the education maintenance allowance or redress the funding formula so that all schools can benefit.
Everybody accepts that early years education is very important for children. The Bolton alliance of nursery providers has come to see me on a number of occasions and talked about the fact that although the Government have promised 30 nursery hours, the funding formula that goes with it is just not enough for providers to be able to offer proper provision in nurseries. These providers are not big businesses: for example, one nursery owner says that they will go out of business because they just cannot afford to offer a decent level of nursery provision. I raised this point at last week’s Prime Minister’s questions when I asked, “Can we please reconsider the funding for nursery education?”
I am afraid that, again, this Budget does not address anything. We are told, of course, that a lot of the cuts and the austerity are all to do with balancing the books, but this Conservative Government have borrowed £1 trillion in the last seven years, so our debt is higher than it has ever been. Let us not have lectures from the Government who say that the Conservative party is the party of economic prudence or the party of getting the country going; it is not.
The national debt to GDP ratio is now over 80%, yet when the Labour Government came into office in 1997 it was only about 40%, and after a few years of that Labour Government being in power it was 34% of GDP. Again, no lessons are required from the Conservative party about who is economically prudent and who is not.
We on the Opposition Benches propose a different future, because this Budget has done nothing for jobs, nothing to increase people’s pay, nothing for people on lower incomes, and nothing for many, many people who are worse off and have been the subject of the austerity cuts. We need a Government who will not abdicate their responsibility, nor sit on the sidelines. We need a serious approach to the economy. We do not need a laughing, complacent Chancellor; we need one who protects our living standards and jobs and the environment.
Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)
I proudly share the mining heritage of the hon. Member for Stoke-on-Trent Central (Gareth Snell), who is no longer in his place. Although I might not agree with quite everything he says, I commend him for his passionate and quite excellent speech, and for his extremely kind and honest words about his predecessor. Stoke-on-Trent certainly has a new champion, and we on these Benches wish him all the very best for his future in this place.
My hon. Friends on these Benches have made numerous salient points about the shortfalls of this Budget, which is noticeably a much thinner document than last year’s pre-EU referendum spring Budget. A thinner document, and yet thinner gruel within. I would like to focus on the glaring issue of the extraordinarily misleading employment statistics used as a foundation for many of the new proposals in this Budget. The Chancellor has claimed that 2.7 million more people are
“enjoying the security and dignity of work than in 2010”.—[Official Report, 8 March 2017; Vol. 622, c. 809.]
I cannot fathom how he can describe as dignified the gig economy that has emerged since 2010, which is filled with zero-hours contracts and insecure temporary work, or the huge growth in the number of individuals who are self-employed through necessity rather than choice. In fact, the working conditions faced by many today are far less dignified than those faced by people a decade ago. Also, many of those workers now face the loss of the minimal remaining employment rights that have been secured by the EU due to the coming hard Tory Brexit.
The Chancellor has stated that he does not want to saddle the next generation with ever increasing debts. I would suggest that he consider addressing that problem by taking a closer look at the funding allocated to the Department for Work and Pensions Work programme. Since 2011, more than £1 billion has been spent on attachment fees, job outcome payments and sustainment payments, all of which are rather nice-sounding euphemisms for what the Government have really been doing: paying off employers—often large chain retailers—to hire Work programme participants to stack shelves or work on shop tills. Not only does this grossly skew the Government’s employment statistics; it also sheds light on the issue of stagnating productivity. It hardly seems a stretch to suggest that if that £1 billion had been used to invest, rather than to aid the UK Government in fudging their employment statistics, productivity might be just a little higher.
I would like briefly to address the Chancellor’s claim that individuals elect to be self-employed, rather than a regular employee of a business, due to the marginally lower rate of national insurance they are required to pay. This point was made very articulately by my hon. Friend the Member for East Lothian (George Kerevan). That might be the case for wealthy consultants in the City of London, but it is certainly not the case for the numerous builders, joiners, electricians and other tradesmen I have spoken to in my constituency, and others all over Scotland.
Martin Docherty-Hughes (West Dunbartonshire) (SNP)
On 27 October 2015, when the right hon. Member for South West Hertfordshire (Mr Gauke)—then Financial Secretary to the Treasury—gave evidence to the Public Bill Committee on the National Insurance Contributions (Rate Ceilings) Bill, he stated:
“I remind the Committee of the purpose here. It is to emphasise and underline our commitment not to increase national insurance contribution rates in the course of this Parliament.”––[Official Report, National Insurance Contributions (Rate Ceilings) Public Bill Committee, 27 October 2015; c. 9.]
What does my hon. Friend think went wrong?
Philip Boswell
Alas and alack, it appears that word is seldom kept in this place.
The people I was describing often do jobs for the same companies for years on end, but the companies will not hire them as regular employees due to the cost of providing them with basic employee benefits. This means that they do not have maternity or paternity leave, sick leave or paid holidays; nor do they have the security of knowing whether they will be employed in a month’s time. The insinuation by the Chancellor that these individuals elect to give up all those benefits for the sake of saving a small percentage of their income on national insurance payments is absurd and hugely offensive. If the Chancellor would like to address the gap in revenue due to the growing trend of self-employment, I suggest that a fairer and more effective way would be to tackle those companies that hire workers only as self-employed contractors, in order to avoid paying employee benefits, rather than blaming those who are subjected to these unfair employment practices.
The Chancellor has presented yet another Tory Budget that blames working people for the economic problems created by the London-centric elite. It offers nothing new to address the existing economic problems faced by so many; nor will it protect working people from the fallout from this hard Tory Brexit. So much for caring Conservatism!
Anna Turley (Redcar) (Lab/Co-op)
After seven years of economic failure, missed deficit reduction targets, deteriorating public services, increasingly insecure employment, and an explosion in the number of food banks supporting working people, my expectations for this Conservative Budget were already low, but have we ever had a Budget so lacking in substance? With breathtaking complacency, it made no mention of the greatest economic challenge facing this country: Brexit. It is clear from the debate this afternoon that the Government have no clue about what they want from Brexit or how much it is going to cost.
Eliminating the UK’s deficit by 2015 used to be the Government’s overriding goal. That target has now been dumped and public debt is climbing to almost £2 trillion. Is this the long-term economic plan so often wildly cheered from the Government Benches? Our public services have paid the price of failure. NHS waiting lists are rising, and our social care system faces a huge funding black hole. In Redcar and Cleveland, the amount spent on social care has gone down in real terms by a fifth under this Government despite rising demand, and there are 400 fewer police officers keeping our streets safe in Cleveland.
Our schools are losing funding, too. In Redcar and Cleveland, schools will lose a whopping £7.8 million by 2020—£422 per pupil in one of the most deprived areas in the country. As my hon. Friend the Member for Huddersfield (Mr Sheerman) said, while our primary schools are in the top 10 in the country, our secondary schools desperately need more support, and the newly departed Lord Heseltine highlighted our poor secondary education in his report on the Tees valley. When the Government close our steelworks and batter our local economy, leading to the loss of over 3,000 jobs and a youth unemployment rate two and a half times the national average, the Secretary of State for Education owes it to our region to invest in the future of our young people, not to snuff out their potential before they have begun.
Teesside has suffered from the loss of well-paid industrial jobs and from falling living standards. Unemployment in the Tees valley has been above 10% for most of the time that the Conservatives have been in office. Austerity has hit many families in my constituency. Over 2,000 people were affected by the bedroom tax and others by unfair benefit sanctions and cuts to tax credits. Living standards are falling, with average annual wages forecast to rise much more slowly than expected over the next four years. At the same time, families are turning to credit to make ends meet. The household debt forecast has been revised up to £189 billion by 2021.
What Teessiders really needed from this Budget was support on the big challenges we face: infrastructure, industry, and skills to give our local economy the boost it needs. Despite the difficulties of the past few years, I strongly believe that our region is on the cusp of a new industrial renaissance. A high degree of investment and development is coming to the region, including the petrochemicals site at Wilton and the former SSI site. Sirius Minerals and MGT Power are both investing in Redcar and Cleveland. However, that investment, and the opportunities that come with it, will not benefit local people unless there is a skills revolution and we get the necessary technical education to capitalise on future industrial opportunities.
The Chancellor did not face up to the challenges facing our country or our workforce. He did not take action to address the unfairness that is holding back areas such as mine. The north-east continues to lose out on regional investment, funding for infrastructure, and investment in education and skills to develop the industries of the future. The Budget made no mention of the north of England, of the so-called northern powerhouse or, indeed, of the industrial strategy, as pointed out by my hon. Friend and neighbour the Member for Hartlepool (Mr Wright).
What is more, the future of Teesside’s economic resilience will depend upon the success of our small and medium-sized businesses. Many small local businesses have been in touch with me about the huge impact of the Government’s business rates revaluation. The Chancellor’s measures to soften the burden are welcome, but there will still be a rise for most. Moreover, the area’s self-employed workers will not have been happy to learn that their national insurance contributions will rise, despite a manifesto promise by the Tories not to increase them. Many ex-steelworkers went self-employed after the closures, with Government funding actively encouraging them, and now many will be hit by the rise. The wrong priorities were at the heart of this Budget. It was a paper-thin, miserable, brittle Budget that came after seven years of crippling economic failure and austerity. I heard no vision in it for a post-Brexit Britain or for the Tees valley.
Susan Elan Jones (Clwyd South) (Lab)
It is a privilege to follow my hon. Friend the Member for Redcar (Anna Turley) and to hear a terrific maiden speech from our new colleague, my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell), who will be a great asset to the Labour movement, the Opposition and this House.
It was interesting to hear the Secretary of State for Education begin her speech by saying that the Budget was delivered on International Women’s Day, as indeed it was. That makes the insult all the greater that the Government chose not to mention the WASPI women who have been campaigning for fairness. Those women were born in the 1950s and often left school at 15. They are women who have dedicated their life to their job and their family, yet they got not one word from the Chancellor.
Like many Members, last week in Parliament I met a delegation of local women who have been affected by the changes to the state pension law. Women came down from Chirk, Rhostyllen and Llangollen in my constituency. Those women, of whom there are more than 3 million across our country, are not political militants. They do not oppose the equalisation of the pension age, and they certainly do not want the state pension age to go down to 60. All they are asking for is a bit of fairness—a bridging pension to provide for them. It is downright shameful that the Government chose not to listen to them.
Budgets are about choices, and I cannot accept that the Government have put agreeing to £17 billion-worth of corporation tax cuts, £2.8 billion-worth of inheritance tax cuts and many other items above modest bridging support for these women. I am interested in the figures on inheritance tax—my hon. Friend the Member for Leeds West (Rachel Reeves) recently wrote an excellent article on the subject—because I have read that only 15 houses sold for £650,000 or more in my constituency in 2015-16, which is 0.9% of the 1,700 houses sold during that period. The average sale price in June 2016 was £140,000. I wish those 15 people well, but they do not deserve a special tax cut to enjoy their new property.
Rather than that extravagant change to inheritance tax and the cuts to corporation tax, the Government should have been on the side of the small businessperson and the self-employed. How extraordinary it is that the Conservative party has broken its promise to the plumber in Penley, the cabbie in Cardiff and the grocer from Grantham. Could one believe that a Conservative Government are charging grocers from Grantham more? How extraordinary! We all know it is a trade-off. Being self-employed means no parental leave, no sick pay, no holiday pay and difficulty getting a mortgage, among other things. The hike in class 4 national insurance contributions has broken the consensus that we in this country have believed in for years. It is a £2 billion tax rise.
I also hope that the Government will consider what the Farmers Union of Wales has to say, because the Budget has a particular consequence for our rural communities. The union’s managing director, Alan Davies, rightly asked this question last week:
“Why is it that tax is being increased for those hard working individuals, some of whom only make a profit just over £8,000, whilst at the same time corporation tax is falling?”
The Under-Secretary of State for Wales, the hon. Member for Aberconwy (Guto Bebb), has already said that he thinks the Government should apologise to everyone in Wales who read the 2015 Conservative party manifesto, and I thank him for his apology to me and others. However, I would rather that the Government reversed their tax hike and scrapped the tax.
We all remember the Tories’ 2012 “omnishambles” Budget—remember the one?—when the Government decided to declare war on caravanners, churches, stately homes and even the humble Cornish pasty. Well, that will seem like a picnic compared with the consequences for the country now. It is high time that the Government listened to the voice of the ordinary self-employed workers, strivers and entrepreneurs in our community. It is high time that the Government listened to those women who have worked so hard right through their life and have contributed so much to society. And it is time that this Government acted in the interest of fairness, listened to our communities—rural, suburban and urban—and recognised that they must now restore fairness by doing a U-turn on this ridiculous tax hike for self-employed people and by giving some decency to the people in this country.
Graham Evans (Weaver Vale) (Con)
It is a pleasure to speak in this important debate and to follow the hon. Member for Clwyd South (Susan Elan Jones). Hers is a fine constituency in north Wales, an area I know particularly well because it abuts my own county of Cheshire. She will know how closely Cheshire MPs work with her and her colleagues in north Wales to benefit the wider economic zone. MPs in Cheshire and north Wales should work together for the betterment of all our constituents. I would like to think that the Budget goes some way towards enabling us to raise tax to invest in infrastructure that benefits our cross-border constituents.
Against a backdrop of global uncertainty, and as we start our negotiations to exit the European Union, the Budget takes forward our plan to prepare Britain for a brighter future. Nine years ago, the UK was one of the economies worst prepared to face the financial crisis; today, it is one of the best prepared. The OBR forecasts that the UK economy will grow by 2% in 2017. That figure has been revised up from the 1.4% forecast in November. The economy will be growing faster than every major economy in Europe, except Germany’s.
Any family could sit around the kitchen table and tell us that we cannot keep on spending more than we bring in; the same holds true for the Government. There is no magic money tree. Britain has debt of nearly £1.7 trillion —almost £62,000 for every household in the country—and we must never forget that, under Labour, £1 in every £4 that was spent by the Government was borrowed.
Mr Stewart Jackson (Peterborough) (Con)
Does my hon. Friend agree that it ill behoves the Opposition to oppose every spending reduction over the past 10 years, including every reduction in welfare spending, yet also to make completely uncosted promises that amount to £63 billion?
Graham Evans
My hon. Friend is absolutely right. In the previous Parliament, the Opposition opposed every single reform made by the then Government, and they have also opposed all the reforms of the current Government. They call our approach austerity; I call it living within one’s means. We have to take the difficult decisions. Judging by the £30 billion black hole in the Opposition’s counter-proposals, however, they have forgotten the mistakes of the past.
Callum McCaig (Aberdeen South) (SNP)
While talking about the need to balance the books, the hon. Gentleman made a bizarre analogy comparing the country with a family. When he is sitting at the dinner table, can he raise interest rates, print money and quantitatively ease? His analogy is completely and utterly defunct.
Graham Evans
I did not catch the hon. Gentleman’s final word, but I use that analogy because when I was at school we used to have home economics, and we have to make difficult decisions at home. I was merely making the point that we all have difficult decisions to make. That analogy applies not only to families throughout the country, but to the Government. I am sorry that the hon. Gentleman does not feel it is a good analogy. Perhaps I shall wait to hear his speech and comment on it.
I welcome the Chancellor’s steps to return balance to the country’s finances and to continue the Government’s commitment to take the lowest earners out of tax altogether by raising the personal allowance to £11,500. I sat on the Work and Pensions Committee in the previous Parliament, when the Government’s mantra was helping to make work pay. That is the right course of action to take.
I come to a subject that is very close to my heart, and I declare an interest as the chairman of the all-party group on beer. I welcome the relief of £1,000 for pubs with a rateable value of less than £100,000, which will benefit 90% of pubs. I also welcome the discretionary fund, which enables local authorities to make awards to businesses in their areas on a case-by-case basis. However, I am somewhat disappointed about the inflationary rise in beer duty, which is now 43% higher than it was a decade ago, 13 times higher than the rate in Germany, and significantly higher than those of our major brewing neighbours in Europe. None the less, the Government do have a proud track record of three reductions in beer duty, a beer duty freeze and the removal of the hated beer duty escalator. Although I welcome the introduction of duty bands to target high alcohol-by-volume white ciders to encourage responsible drinking, it is important to remember that 70% of the drinks bought in pubs are beer.
The current bracket for reduced-rate beer sits at 1.2% to 2.8% ABV. However, current HMRC duty receipts demonstrate that, in the six years since the policy was introduced, such beer represents just 0.15% of the market. I know that the Minister will be aware of the cross-industry campaign to split general beer duty rate into two tiers— 2.8% to 3.5%, and 3.5% to 7.5%—and to reduce the duty rate for 3.5% ABV beers, which have much less alcohol in them than the UK average and are highly drinkable for UK consumers. I hope that we can work together on this matter over the coming month to encourage a broader selection of lower strength beers to become part of the norm in UK drinking culture. I will be encouraging the industry to step up to the plate with lower strength beers that can be drunk and enjoyed in the great British pub.
This Government have a plan to build an economy that works for everyone, and the Budget continues with that plan by building on the foundation of our fundamental economic strength. It makes sure that our economy remains strong so that we can properly fund our public services, it helps ordinary working families to make ends meet, and it makes it clear that Britain is open for business.
Nick Thomas-Symonds (Torfaen) (Lab)
It is a pleasure to follow the hon. Member for Weaver Vale (Graham Evans), who highlighted the importance of our community pubs very well. It is also a pleasure to speak in the debate in which my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell) has made his quite superb maiden speech.
Aneurin Bevan once said of the then Prime Minister, Harold Macmillan—the late Lord Stockton—that he had an
“absolute genius for putting flamboyant labels on empty luggage.”
I am afraid that, with this Budget, we have plenty of empty luggage and no flamboyant labels—even those have now gone.
There was certainly no vision in the Budget for what post-Brexit Britain should look like, and neither was there anything about tackling some of the very fundamental problems that our economy will face over the next few years. Nowhere is that better illustrated than in the approach that was taken to the self-employed in this country. There are 4.6 million self-employed people in the UK today. Of course I am completely opposed to those unscrupulous employers who push people into self-employed status to avoid the duties involved in employing them. However, the reality is that there are millions of people who are self-employed by choice. They have the flexibility that self-employment brings, but there has always been a trade-off. Self-employed people do not have the same access as employed people to pensions and our social security system. Having been self-employed for many years, I also know that they do not have absolute certainty over their income—they do not know how much money will come in from week to week.
The Tory answer to that, it appears, is to hammer the self-employed through national insurance contributions—I am talking about the rise in class 4 contributions. That is a breach of a manifesto pledge. I am not a regular visitor to conservatives.com, but I can tell Members that if they get the pdf version of the 2015 manifesto from that website, they will find on page 3, under the headline “While you grow older”, a promise that the Conservatives
“will not raise VAT, National Insurance contributions or Income Tax”.
This policy is a flagrant breach of that manifesto promise. It is also incredibly short-sighted, because we should be looking at long-term policy solutions to ensure that we can help these 4.6 million people, who take great risks and are great entrepreneurs, to access our social security system and appropriate pensions. How must the self-employed feel about their treatment under this Tory Government? We all know that the Prime Minister likes to read the brief first. She likes to consider her position and then come out with her opinion, as she duly did on the self-employed. And what did she say? That they are “eroding” our tax base. What kind of comment is that towards the millions of self-employed people in this country?
I certainly agreed with the Chancellor’s words about parity of esteem between vocational and academic qualifications, and with the idea of T-levels. The problem was that as I listened to him speaking, I was reminded of somebody else—someone who promised new university technical colleges and vocational training right across the board. I was struck to go and look up who that person was. What did I discover? It was actually the former Chancellor, the right hon. Member for Tatton (Mr Osborne), speaking on “The Andrew Marr Show” in March 2011. I think we can be sceptical about the ability of Tory Chancellors to deliver on vocational training, given that almost the same thing was said six years ago.
We have to look at the overall impact of the Budget. I commend to Ministers a document produced by the Resolution Foundation, appropriately called “Back to the ’80s”. It is a study of what will happen to working age incomes over the next four years as a consequence of Conservative policies. It tells us that those whose incomes are in the lowest quartile will be 5% to 15% worse off in the next four years. But what happens to people in the top quartile? They will be 4% to 5% better off over the next four years.
Although we live in an age of great political uncertainty, some things are still absolutely certain: water still flows downhill by the easiest route; the sun will rise tomorrow; and Tory Governments always make the rich richer and the poor poorer. That is precisely what this Budget does.
Maria Eagle (Garston and Halewood) (Lab)
The Budget was more about what the Chancellor did not say than what he did. It is incredible that the consequences of us leaving the EU—the biggest cause of uncertainty and the biggest threat to our economic wellbeing in a generation—got no significant mention at all in the Budget. That fact alone is enough to render the Budget a failure, but it was not the only failure. Most Chancellors at least get to see good headlines the next morning, but not so “Spreadsheet Phil”, as the right hon. Gentleman likes to be known. However, the way in which the Prime Minister, her Chancellor, their close allies, ministerial aides and senior sources have been denouncing each other over the weekend—in the most vituperative terms—show just what his own colleagues think of him breaching a manifesto promise in his Budget.
Apart from the considerable entertainment value of all this briefing and counter-briefing, which shows the dysfunction at the heart of this blundering, fractious and divided Government, I find it astonishing that no one in the entire Cabinet spotted the howling, broken election promise at the heart of the Budget when the Chancellor briefed them on his plans. They have all been whinging to the newspapers that the Chancellor did not flag it up, but they all stood on a manifesto that promised no increase in income tax, national insurance contributions or VAT for the entire five years of this Parliament. They all repeated that ad nauseam during the election campaign, yet none of them noticed. I would not have expected that they had all forgotten about it, but apparently they all managed to put it right out of their minds. It shows just how cynical this Tory Government really are that the entire Cabinet failed to remember their main election tax promise within two years of winning that election. Some 5,400 people in my constituency, some of whom earn less than £17,000, will now have to pay more, and not all of them are self-employed by choice.
I will say a little bit about education because there are real challenges in my constituency. Schools are facing a real squeeze. There are some figures that the Secretary of State did not give us in her opening remarks. According to the Institute for Fiscal Studies, thanks to the Lib Dem-Tory coalition Government and the current Tory Government, spending per pupil fell by 14% in real terms between 2010-11 and 2015-16, and is due to fall by a further 6.5% between 2015-16 and 2019-20. That is before the new schools funding formula hits many schools with more cuts. In the Liverpool part of my constituency, another £3.6 million will be lost as a result. According to the National Union of Teachers, there will, on average, be a further 10% funding cut by 2020 for schools in my constituency. That is threatening the future of many schools.
A letter I have received from the head and governing body of St Francis Xavier’s College in my constituency spells out the reality of the financial pressures it is under. It cites increases in the salary bill because of unfunded public sector pay awards; higher pensions and higher national insurance contributions; the removal of the education support grant in September this year; the apprenticeship levy, which is payable from April; and losses in per capita sixth-form funding. As a consequence, the college has reduced its leadership team and their salaries and lost 13 staff to voluntary severance, and it has six teaching posts unfilled. It says:
“We are extremely concerned about the potential impact of the forthcoming national funding formula. The impact of this is likely to make it impossible that the college can remain financially stable and this will have a detrimental effect upon the educational provision for pupils in a city which has amongst the highest levels of deprivation in the UK”.
This is a popular, over-subscribed school. I have written to the Secretary of State about the issue, but I have yet to receive a reply. I can assure her that SFX is not the only school in my constituency with these problems.
This situation is a disaster for our schools, but the Budget has made it worse, when it could have made it better. In divisive and unfair measures, the Government have set aside £1 billion to fund new free schools and the Prime Minister’s back-to-the-1950s grammar schools vanity project. They have also agreed to pay school transport costs for poorer pupils, but only those who attend selective schools. Young people who live in Halewood, in my constituency, who can no longer study for academic A-levels without leaving the borough are to get no such help, even though they are from some of the most deprived families in the country, and even though education could help to give them better life chances.
When I asked the Minister responsible for the school system, Lord Nash, what assistance the Government could offer to ensure that Halewood kids can get transport to study A-levels, he said in a recent letter:
“It would be unfair to offer free transport to young people in one area of the Country and not to others.”
Quite, but that is precisely what the Chancellor has just done in his Budget—although only if pupils are attending a divisive selective grammar school. How typically Tory. The Chancellor has offered Halewood kids who want to study A-levels precisely nothing, because he is spending all the money on recreating the Prime Minister’s 1950s grammar school myth.
That is why Labour, in office, banned grammars, put money into rebuilding all our schools, doubled funding per pupil, and employed 36,000 more teachers and 250,000 teaching assistants. After seven years of the Lib Dem-Tories and the Tories, our schools are in crisis again, with class sizes going up, GCSE pass rates going down and teachers fleeing the profession. This Budget has done nothing to stop the rot; instead, it has set about doing even more damage and causing even more division.
Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)
I want to focus on the need to boost skills and jobs in our country, especially in manufacturing, following last week’s Budget. That is especially pertinent as we begin the process of leaving the EU.
It is unsurprising that, in a constituency-wide Brexit listening exercise I conducted, Nissan, which is based in my constituency, dominated, especially in terms of trade, investment, jobs and skills. Last week’s Budget was the perfect opportunity for the Chancellor to lay the foundations for strong economic growth that is resilient to any storms we may weather during the EU negotiations, but, sadly, we were left wanting. The announcements we did get on skills did not go far enough, and they must be placed in the context of the Government’s wider approach to education and skills.
Since 2010, we have seen the further education budget cut by 14% in real terms. That is a cash reduction from £3.18 billion in 2010-11 to £2.94 billion in 2015-16. That is compounded by the fact that the non-apprenticeship adult skills budget has been depleted by 54%. However, that negligent approach by the Government has not scuppered the innovative work by great employers in my constituency. Only last Friday, I was honoured to open Unipres’s new training academy, which will help to boost the skills of our local workforce by offering much-needed apprenticeship opportunities in engineering and manufacturing. It goes without saying that manufacturing is symbiotic with the north-east. We are the country’s makers and builders—I am pleased that Stoke colleagues are not here to shout me down—due in part to the innate talents of the people in our region and the skills we inherently have within us to manufacture with high quality and high productivity.
I like to call my constituency the manufacturing hub of our region, perhaps the country, with the likes of Nissan, BAE Systems, Rolls-Royce, Unipres, Rayovac and Gestamp, to name but a few, all based there. The manufacturing presence in our region will only be strengthened with the creation of the IAMP—International Advanced Manufacturing Park—which will be based not only in my constituency but that of my neighbour, my hon. Friend the Member for Jarrow (Mr Hepburn). However, the success of the IAMP and manufacturers in my constituency—from the large, some of which I have mentioned, right down to small and medium-sized enterprises such as AdFab Ltd, Washington Components, and PFF Packaging—depend on the Government strengthening their approach to skills and jobs. This is especially important with Brexit on the horizon.
There is one way in which Ministers could easily help to bolster our manufacturing, not only in the north-east, but across the country—through catapults. I am not talking about the ancient war machines but instead
“a network of world-leading centres designed to transform the UK’s capability for innovation in specific areas and help drive future economic growth.”
A number of catapults have been started across the country, yet there seem to be none for materials. This means there is no support for the innovation and development of materials such as steel, ceramics, glass and plastics, all of which are crucial to the dominant industry in Sunderland—the automotive sector. If we were to see a catapult for materials like the industry-supported proposal by the Materials Processing Institute in Redcar that received cross-party endorsement in January from the all-party parliamentary group on steel, this could have a positive impact on the whole of the manufacturing industry. However, it would especially help the Nissan supply chain, which Nissan has said needs re-powering.
Anna Turley
I appreciate my hon. Friend mentioning the fantastic institute in my constituency. Does she share my concern at a story on WalesOnline last week saying that Swansea is predicted to receive £80 million for a steel science centre that would almost directly duplicate the work that is happening at the MPI in Redcar and could then impact on the Nissan supply chain that she mentions?
Mrs Hodgson
I do not want to take anything away from Wales, especially with colleagues from Wales in the Chamber, but duplication does not make any sense, especially when there is so little funding around, and we definitely do not want to take any support away from Nissan. I am pleased that my hon. Friend made that point.
Currently, only a minority of parts used to build a Nissan car are made here in the UK, through a 38,000-strong supply chain workforce across the UK, with 27,000 of those jobs based in the north-east.
Graham Evans
What an exciting constituency the hon. Lady represents! My understanding is that one of the reasons Nissan decided to stay in her constituency is the cluster of battery technology companies. Is that true?
Mrs Hodgson
Yes—I am pleased that the hon. Gentleman makes that point. Electric battery technology is going from strength to strength. I was very pleased to see that there was an announcement on electric vehicles and battery technology in the Budget.
However, we see a predicament looming on the horizon as we begin to leave the EU—WTO tariffs. Ministers have given countless reassurances that we will strike a deal with the EU that does not mean we have to fall back on the 10% WTO tariffs. Yet only this weekend this was blown out of the water when a leaked document showed the Prime Minister’s willingness to fall back on those terms, regardless of the economic impact they may have. That was then reiterated by the Foreign Secretary on TV, also over the weekend. This would be catastrophic not only for the country but for my constituency and the businesses there. In the case of Nissan, falling back on to WTO tariffs and crashing out of the customs union would cause significant delays on products coming into the country that they rely on.
Another issue is that overseas parts currently used to build Nissan cars would have to be reduced significantly to meet the WTO rules of origin. The Society of Motor Manufacturers and Traders has said that cars need to have 50% local content to meet the rules of origin and be classed as British-made, and that could prove a major problem for Nissan. This is where the materials catapult comes into play. Not only would it reinvigorate the supply chain with innovation, especially in skills and jobs, but it could act as a way to mitigate the issues arising from the potential impact of WTO tariffs on manufacturing. I cannot make this point strongly enough the House: this catapult could also mean potential jobs growth. If we take the case of reducing overseas content in Nissan cars, it could significantly boost the UK supply chain and create tens of thousands of new UK jobs, which could seriously transform the manufacturing sector in the UK. Catapults could help in part to achieve the resilience I have talked about, and I hope the Government will listen and look again at the potential of a materials catapult.
Julie Cooper (Burnley) (Lab)
I want to put this Budget into context for my constituents. We have a Government who have borrowed more in seven years than the last Labour Government did in 13 years. The deficit that we were told would be gone is still there. The country is just about to embark on the most important negotiations since the end of the second world war, but the Chancellor barely mentioned Brexit. The disabled who are desperately trying to gain employment are to have their incomes cut by close to a third next month. Children who are unlucky enough to be the third child in a struggling family will suffer as the withdrawal of child tax credit pushes another 600,000 children into poverty. The truth is that many families are just not managing, and all they have to look forward to is years of austerity stretching far into the 2020s.
But it is all okay: we do not need to worry—because inheritance tax is to be reduced. I wonder whether the Chancellor knows how many people in my constituency are likely to benefit from a cut in inheritance tax. I have checked: last year it would have been six people, while this year it is eight—not even into double figures. It is obscene to take from the disabled and from those struggling to make ends meet to give to the richest households in the land.
I will turn to some of the announcements made on Budget day. The first concerns the increase in national insurance for the self-employed. The changes to national insurance contributions for the self-employed, taken alongside the cut in corporation tax, tell my constituents all they need to know about this Government: increased costs for small business, and reduced costs for big business. There are over 4,000 self-employed people in my constituency, and they will all be worse off despite the fact that the 2015 Conservative manifesto promised that national insurance contributions would not be increased. There can be no justification for any of this. If the Government are serious about tackling the deficit, why are they cutting taxes for the richest? By 2022, cuts to the banking levy, capital gains tax, inheritance tax and corporation tax will have cost the taxpayer another £70 billion. I repeat: it is obscene.
The second point relates to the whole issue of social care. In light of the cost of tax cuts, no wonder there is no money for adequate social care. Depriving old people of the care they need is causing widespread misery and placing additional pressure on an already overstretched NHS. The Chancellor could have announced measures to fully fund social care and help to restore funding for local government; instead, he offered only £2 billion over the next three years. The Government are giving the care sector only half of what it actually needs, and of course we must all remember that the Government have cut £4.2 billion from social care budgets since 2010. My constituents might not have been aware of the figures, but they know what they see with their own eyes. They understand that the Government take with two hands and give back with one, and quite frankly, they are not impressed.
My third and final point is in connection with the Government’s proposal to spend millions of pounds creating new grammar schools to the detriment of the schools that already exist. Under the new school funding formula, funding is set to be cut in Burnley and Padiham by over £400 per pupil. So much for a Government who say they want all children to have a good education. In Burnley, we are already seeing increased class sizes, subjects being dropped from the curriculum, pupils with special educational needs and disabilities losing vital support and teacher and school staff vacancies being left unfilled or the posts cut altogether. The introduction of grammar schools will not help existing schools in Burnley, nor will it do anything for social mobility. In spite of the Prime Minister’s grand promises, this Budget and this Government have once again failed to deliver for my constituents.
Heidi Alexander (Lewisham East) (Lab)
There is much that I could say about last week’s Budget, but given the time constraints I will limit my remarks to the specific topic of today’s debate, education and skills.
In recent weeks there have been protests in my constituency, as there have been across the country, against cuts to school budgets. Parents have taken to the streets, concerned about fewer teachers and support staff, reduced curriculums and fewer opportunities for their children. So what good news did last week’s Budget contain for those concerned mums and dads? The answer is, very little. Ministers ramped up their grammar school rhetoric and made a lot of noise about being on the side of aspiration, and they hoped no one would notice that they have no real solutions for the schools that are struggling most.
The Government’s education policy is nothing more than an aspirational mirage, with £320 million allocated for up to 140 new free schools, 30 of which will be open by September 2020, some of which could be grammars. That sum of £320 million may sound like a lot of money, but in the grand scheme of things it is not. In Lewisham, Building Schools for the Future, under which nine secondary schools and two special schools were rebuilt, was a £285 million programme. That was in just one borough in one city.
Richard Graham (Gloucester) (Con)
Is the hon. Lady aware that there are possibilities for university technical colleges within the budget allocation for free schools? That will enable a constituency such as mine to go ahead with a proposed new health UTC, which will help a huge number of young people to work in the NHS in future. Does she think that is constructive?
Heidi Alexander
I am grateful to the hon. Gentleman, but I am not sure whether he was in the Chamber earlier for the speech by the former shadow Education Secretary, my hon. Friend the Member for Manchester Central (Lucy Powell). She pointed out that some of the evidence on UTCs is dubious at best.
As I pointed out, the Building Schools for the Future budget in Lewisham was £285 million to rebuild 11 schools. The budget for grammar schools for the whole country is £320 million. The revolution in education that the Government speak about is a chimera. They want to build the wrong schools in the wrong places, and they have the wrong priorities.
I do not think a penny of extra money should be spent on new grammar schools. I have read the research showing that there is no aggregate improvement in outcomes in areas that operate selection, and I have seen the impact of selection in my own family. My own mum, as bright and capable as anyone in this Chamber, was told when she was 11 that she was not good enough, that she was a slow learner and that she was not academic. She believes that to this day.
I strongly and fundamentally believe in our comprehensive system. We should teach children of different backgrounds and different faiths, with different abilities, in the same schools—we can stream in secondaries, yes, but we must ensure that young people get to mix with others who are not exactly the same as them. The truth is that the Government are not interested in that. They want to play politics instead of addressing real problems. It does not matter what they say about paying for transport to grammars or fiddling with entrance exams, their proposals will cream off the lucky few at the expense of the majority.
To rub salt into the wound, the Government are simply failing to address the problems in some of the country’s worst schools, and they will exacerbate them with their new funding formula. They are still pursuing an academy strategy that is slowly falling apart. Lewisham has the worst-performing secondary schools of any borough in London, and the academies in my constituency are struggling. They have not delivered the soaring GCSE results that were promised, and they have a mixed record on discipline. That is not the worst of it, though. At Sedgehill school, staff and pupils have been left in a permanent state of limbo. An academy order has been issued following the imposition of an interim executive board, but no academy sponsor seems interested in taking the school on. This has been dragging on for more than two years.
What is the Government’s answer for schools like Sedgehill? What is their answer to the parents who ask me whether their school is one of the many so-called orphaned or untouchable schools they read about in the papers, for which academy sponsors cannot be found? It is an absolute disgrace. If an academy sponsor cannot be identified, revoke the academy order and put in place a tailored package of support for the school. Focus on what is going on inside the classroom, not on the sign outside the school gate. Do not blame the local authorities, either. Councils have been emasculated by central Government in recent years and stripped of resources, leading to the loss of school improvement services. They have been stripped of the ability to open new schools of their choosing and stripped of any real power to sort things out when they go wrong.
I am fed up with listening to Ministers talk about grammar schools when they have no answer for schools like Sedgehill. I do not want teachers to be asking me why the parent teacher association is raising money for photocopier paper rather than for the luxuries it used to raise money for. I do not see how anything in the Budget, or anything that the Government are doing in education, will equip all children with the skills, knowledge and confidence that they need to succeed in the increasingly competitive, complex and fast-moving world we now live in.
Martin Docherty-Hughes (West Dunbartonshire) (SNP)
First, Mr Speaker, let me give you an apology for missing Business, Energy and Industrial Strategy questions earlier today. I was suitably admonished by you and by people at home.
I want to focus on a couple of issues: the Chancellor’s assault on the Scottish whisky industry and the ill thought out increases in national insurance contributions for the self-employed. Let me declare an interest as the treasurer for the all-party group on Scotch whisky—a position that has offered me the opportunity to establish a close working relationship with this vital industry, which is very local to West Dunbartonshire.
As I am the Member for West Dunbartonshire—a constituency that is home to two well-known distilleries, Auchentoshan and Loch Lomond, and that has seen massive investment over recent months in a new bottling plant by Chivas Regal—the House will understand why I have strong reservations about the impact of the Government’s decision to increase excise duty on spirits by 3.9%. That money grab has been described by Loch Lomond distillery as a
“spectacularly poor decision by the chancellor”
and by the Scotch Whisky Association as a “major blow” to the industry which will undermine the progress that the industry has made in recent years. I therefore urge the Chancellor to use the opportunity to carry out an urgent review of the UK’s alcohol taxation system to give the industry—described by the Prime Minister only a week and a half ago as
“a truly great Scottish and British industry”
producing “the world’s pre-eminent spirit”—the support it requires to remain competitive in this vital global market.
I turn from the ill thought out increase in excise duty to the potentially disastrous impact on the self-employed of the increase in class 4 national insurance contributions by nearly 11% over the next two years. In my constituency, the local community and economy are built on a strong foundation of small businesses, and I have serious concerns—similar concerns have been expressed by many Members in the House—about the long-term impact and pressure of these increases on small businesses.
In a briefing that it sent to my office, the Federation of Small Businesses Scotland voiced its concerns about the proposed policy and stated:
“The risk that the self-employed face makes them fundamentally different to employees. This is why the proposed National Insurance tax grab on this group is an absolute kick in the teeth, just at a time when we need to create more entrepreneurs, not fewer.”
The fact that Members on the Chancellor of the Exchequer’s own Benches do not support this policy—we hear them in the Lobby all the time—sends a strong message to the Chancellor and the Treasury that the business community must be understood and consulted before any drastic changes are made. There is still time for the Chancellor to see sense and give small businesses the respect and support they deserve. To fail to do so would be a dereliction of duty and a show of no confidence in those who ensure that the economy is built on a strong base.
Finally, the utter failure in the Budget to even mention the WASPI women shows that the Treasury has failed to grasp the reality facing women born in the 1950s: poverty, destitution and a political state unwilling—not unable, but unwilling—to offer them equality in the 21st century.
Callum McCaig (Aberdeen South) (SNP)
As the Scottish National party’s spokesperson on business, energy and industrial strategy, may I too admonish my hon. Friend the Member for West Dunbartonshire (Martin Docherty-Hughes) for missing Business questions this morning? Nevertheless, I agree wholeheartedly with what he says on whisky duty, national insurance and WASPI women. I will come on to talk about national insurance contributions in a moment.
The Budget was dressed up as something a little bit different and a little bit bland. It really was bland, but parts of it did not ring true. The Chancellor seemed to think he could demonstrate that Tory austerity has not been felt most keenly by those who do not have the means to bear it. That may be true if we look at it in a very narrow sense—the top 10% of earners, when all things are taken into consideration, have borne a slightly greater share—but the lowest three deciles have borne a similar percentage decline in their income as a result of the Government’s policies. It may be easy to say that those in the top decile have taken the greatest hit, but the reality is that a 1% or 2% fall in income will mean considerably more to those in the bottom three deciles than it will for those in the top 10%.
The Chancellor said in his Budget speech:
“As a result of the changes we have made since 2010, the top 1% of income tax payers now pay 27% of all income tax”.—[Official Report, 8 March 2017; Vol. 622, c. 813.]
He wears that as a badge of pride, but that is not an indication of a fair society. It is the very opposite and it demonstrates that we live in an incredibly unfair society where 27% of income tax is being paid by 1% of the population. That is because they earn, unjustifiably, more than the rest of the population. That is not a badge of honour; that should be a badge of shame for this Government.
We have heard talk about how the Government want to use technical education and reforms in the Budget to put entrepreneurship and technical skills at the heart of the British economy, yet the single key announcement in the Budget was the change to national insurance contributions for the self-employed. They are the entrepreneurs. They are the folks with the technical skills we need in our economy. As we have heard from Member after Member today, those people do not enjoy the same benefits and protections enjoyed by those of us who are employed. That is why they deserve a differential in terms of their national insurance contributions. To dress this up as anything other than a naked tax grab is entirely disingenuous. This will not help our economy and it is coming at precisely the worst time. It must not just be stopped, but cancelled entirely.
The most disappointing aspect of the Budget for me was the utter silence on the energy challenges we as a country face. Next to nothing was said on renewables. There was nothing on how we decarbonise our economy. There was nothing on how we tap the massive potential in Scotland, particularly in our rural communities. There was nothing on how we can get contracts for difference for our island communities or how we tap the massive potential of our tidal streams. We heard nothing on the implementation of carbon capture and storage, which we will need if we are going to be able to afford, in both a financial and technical sense, to meet the carbon budgets we as a Parliament agreed.
Callum McCaig
I will not give way, as others still wish to speak.
The privatisation of the Green Investment Bank is pushing ahead at precisely the wrong time. As part of this, I hope that the Government will reflect on the challenges they face and cancel that sale.
Oil and gas has raised its head as an issue, given the changing dynamic in Scottish political debate. In 2014, the then Prime Minister promised Scotland a £200 billion oil bonanza if we voted no. He told us that the industry relied on the broad shoulders of this United Kingdom. Well, those shoulders have barely shrugged in defence of the 65,000 people, many of them in my constituency, who have lost their jobs while the Government have been asleep at the wheel.
I and my party will take no lectures from folks over there on the oil and gas industry. We have seen an absolute dereliction of duty; the Government have been asleep at the wheel. This Budget provided an opportunity to right that wrong, but what did the Government do? Did they come forward with the exploration incentives that the industry needs? No, they did not. They simply reheated a previous commitment from the last Budget and said that they would set up a discussion group. Frankly, that is not good enough. When people are losing their jobs, it is not enough to sit down and have a chat over a cup of tea. An independent Scotland would undoubtedly have acted; it would have acted swiftly and decisively to save these people’s jobs.
Vernon Coaker (Gedling) (Lab)
At the heart of all the great Budgets and all the great policy statements is a vision backed by policy. The theme of today’s Budget debate is education. We heard the Secretary of State speak at great length about one of the main problems that has beset every education system in our country for decades: the link between social background and educational attainment. It is one thing to talk about it, but another to address it with policies that will work. For most of us, seeing the Government return to the failed policies of the past to try to address that is a great mistake.
The idea that the issue of social background and educational attainment can be solved by the return of grammar schools—they might have benefited a few, but did so at the vast expense of the majority of young people in an area—is totally and utterly unacceptable. Indeed, the Government have had problems with their own Back Benchers in putting forward that policy. I say to the Government that, yes, we all agree with tackling the link between educational attainment and social background, but not by returning to selective education—essentially to the 11-plus.
It is clear that Education Ministers went to the Treasury —I see on the Government Front Bench the Chief Secretary to the Treasury—and said that the National Audit Office was predicting a £3 billion or 8% real-terms cut in the Department’s budget by 2020. That is not defensible. Conservative Members will not have on their leaflets all the cuts that will be made to the schools in their constituencies; they will say, “Don’t worry, I will write to the Minister about this”, as though it somehow happens without the Government’s decision. The Department for Education has failed in its attempt to get the Treasury to stump up more money to pay for our schools. As a consequence, there will be a reduction in funding for virtually every school in the country, and large numbers of teachers will be made redundant or not employed in future. That is the reality of the Government’s policy on education.
My own Gedling constituency will see cuts of £5.6 million in real terms by 2020—the equivalent of 139 teachers. In Nottinghamshire, it amounts to nearly £40 million-worth of cuts. Local Conservative candidates at elections somehow pretend that it has nothing to do with them and object when we point out that it is their own Government who are doing it.
We face a crisis in teacher recruitment and retention, too. At the heart of any policy whose aim is to raise attainment in some of our most difficult schools are good teaching and good head teachers: they are absolutely fundamental. Over the last few years, until fairly recently, every policy has recognised the need for such provision and has tried to ensure that it happens. However, teacher recruitment and retention are now under threat. Some schools are unable to recruit staff to teach certain specialist subjects, and some are even reflecting on whether they have enough staff to enable them to deliver a full curriculum over a full number of school days.
Let me say something to the Minister about T-levels. Every Government for decades have called for parity of esteem between academic and vocational education. The question that the present Government need to answer is this: how will the T-level policy initiative differ from all the other policy initiatives that have gone before? There has been talk about quality work experience and parity of esteem, but there is a problem that the Government have not addressed and we all need to address. It is a cultural problem: vocational education is not seen as having parity with academic education. When the Government decide what constitutes a good school, they do not say, “This is a good school because of the number of people it gets into high-quality vocational education post-16.” They judge that school on the basis of academic results. If we are judging our schools purely on the basis of academic achievement, is it any wonder that vocational education is sometimes regarded as second rate when it should not be?
I believe that there should be a national crusade. We need to make clear that there is a cultural problem with vocational education, and that we must change attitudes to it if we are ever to deliver the high quality that we need. There are skills shortages in various industries throughout the country—in Scotland, in Northern Ireland, in Wales and in England. The Government must explain how what they are proposing will differ from many of the sound and well-meaning policy objectives that we have seen before.
Helen Whately (Faversham and Mid Kent) (Con)
A few weeks ago I joined a Faversham care worker, Kim, on her rounds. When I joined her at 7.30 in the morning, she had already started washing her first client. That lovely lady needed Kim’s help to get up, get washed and dressed, and have breakfast. So many of us take such things for granted, but there is a time in life when people need help, especially if they suffer from disabilities, as she did.
I spent that morning with Kim because I wanted to see for myself the challenges presented by social care. In my constituency, we have an acute shortage of domiciliary care. Care agencies tell me that they simply cannot recruit enough staff to meet the demand—at least, not at the rates that they can pay. Age UK Faversham tells me that people are going without care who desperately need it, and the local hospitals tell me that at any time about a third of their patients would be better cared for somewhere else.
Kent County Council has made huge efforts to protect frontline care while efficiencies have been achieved, but in my part of Kent it seems that the care system is only just managing, and there are similar stories across the country. That is why, before the Budget, I asked the Chancellor if he could find extra money for social care. I know that I was one of many, and I am grateful that we have been heard. The Budget will give social care £2 billion more over the next three years, of which £l billion will be available in 2017-18. For Kent that means an extra £26 million this year, more than double what it is expecting to raise through the social care precept. That will make a real difference. Also welcome are the £100 million to fund more GPs at A&E departments—which, as we know, are a hospital pressure point—and the £300 million of extra capital funding for sustainability and transformation plans.
There is no escaping the fact—about which the OBR is very clear—that the need for health and social care will rise, and costs will rise with it. The number of over-85s is set to double in the next 15 years, and there are some worrying trends among much younger people—for instance, people in their 60s—who are living with complex life- limiting conditions. The money to care for those people has to come from somewhere, but it should not come from adding to the debt to be paid off by future generations, or from the tax changes that have been proposed by some Opposition Members, which have not been thought through and could result in reduced tax revenue to pay for the costs of care.
The best way to pay for the increasing costs of care is to have a strong and growing economy. I welcome the fact that, with its proposals for investment in infrastructure, skills and education, the Budget has boosting productivity at its core. However, we also need to adapt to changes in the nature of work that are already happening. As the Secretary of State said earlier, jobs are changing fast. About 60% of the jobs that today’s schoolchildren will do have not even been invented yet. More people are choosing to be self-employed or finding work in the gig economy. More businesses are moving online. The tax system needs to respond.
I fully recognise the extra risks and insecurities for the self-employed and entrepreneurs—I am married to one—and I hope that the Taylor report that is due in the autumn will address some of the insecurities of modern work, but there is an enormous imbalance between the contributions made by people in employment and those made by the self-employed, particularly when one adds in national insurance contributions paid by employers. Many business models have developed simply to take advantage of that tax differential and, in the process, the rapid rise in self-employment is eroding the tax base. That simply has to be addressed. We will all get old and may need care one day, so we all need to contribute to paying for that.
I look forward to the planned Green Paper on future social care funding. We need a funding system that means providers of care will invest in facilities and especially in the workforce, because the people who provide care are at the heart of this. It was such a privilege to spend time with Kim in Faversham and to see what she did for the people she cares for. We must ensure that no one has to worry whether they will get the care that they need, when they need it.
Hannah Bardell (Livingston) (SNP)
Last week, the Chancellor delivered his Budget on International Women’s Day, a day when women, and men, across the world celebrated women and their contribution to society, and highlighted how important it is to have an inclusive, gender-balanced workplace. I cannot think of a better day for the Chancellor to show how much we value the contribution that women make to the economy. Instead, he used his Budget to continue the hard Tory austerity policies that disproportionately affect women, men and their families across the country.
We know that women are affected twice as hard by this Government’s dangerous obsession with austerity. It is clear that Tory austerity is gendered because cuts to public sector jobs and an increase in temporary and zero-hours contracts affect women the most. Women make up the majority of workers living in poverty, with many juggling two or three low-paid, part-time jobs as they try to make ends meet. Where is the help that they so desperately need to scramble from just about managing to being able to provide for their families without the fear and stress of ever-shrinking household budgets?
The Chancellor started his speech by talking about preparing for a “brighter future”, but I have to ask him and his colleagues: in what parallel universe is the future bright for the 300,000 children who will be forced into poverty as a result of his refusal and that of his colleagues to stop the cuts to the work allowance? That is despite a report from the Resolution Foundation only this month warning that the Tory Government’s tax and social security policies would
“drive the biggest rise in inequality”
since Thatcher. I grew up in a single-mother family under Thatcher and it strikes me that, sadly, not much has changed.
It is both sad and ironic that, on the same page of the Budget document, the Government give money to tackle domestic abuse—a welcome move—yet refuse to take action on the punitive two-child limit and to scrap the repugnant rape clause. As the Chancellor spoke about this “brighter future”, hundreds of WASPI campaigners, including women from my Livingston constituency, protested outside Parliament—and still he failed resolutely to outline a single measure to tackle state pension inequality. Those women worked hard for their bright future, and this Tory Government are extinguishing it.
The cuts that have been announced will mean that Scotland’s day-to-day budget will be a massive £1 billion worse off. By 2020, Scotland will be £2.5 billion worse off in real terms. The IFS forecasts that austerity could last until the middle of the next decade, meaning that Scottish households and public services could ultimately face 15 years of UK Government austerity.
A separate report from the IFS this month projected that child poverty would increase to 30% by 2021-22, and said that this is
“entirely explained by the direct impact of tax and benefit reforms”.
Let us not forget that only a few months after the Tory Government came to power, they scrapped child poverty targets, and that came just before child tax credit cuts. What a shameful way to start their time in government. This Government and this Chancellor had a chance to reverse that, and he did nothing.
I ask the Government to tell us why they brought forward nothing to reverse the punitive cuts that will hit mid-low income families? Why has the Chancellor done literally nothing to protect millions of children from the prospect of poverty? The Resolution Foundation found that the poorest quarter of working-age households will be between about 5% and 15% worse off, and says that this
“is the worst period of household income growth for the poorest half of households since records began in the mid-1960s”—
and that is before the swingeing cuts that are due to hit, and before Brexit.
The Chancellor told us that his Budget
“continues the task of getting Britain back to living within its means.”—[Official Report, 8 March 2017; Vol. 622, c. 809.]
I am sure that there are thousands of families across the country who would love to have the means within which to live, but they do not, and they are simply struggling, every day, because of the punitive measures of this Government.
What would the Chancellor tell lone parents on universal credit, who will on average lose £2,380 a year? The End Child Poverty coalition has said:
“The impact of the benefit freeze, in the context of rapid price rises, has a dramatic effect on family incomes. Families on a low income simply cannot afford to pay the increased prices”
that will result from this Government’s policies.
A hard Tory Brexit remains the major threat to Scotland and our economy. Brexiteers will claim that revised figures on debt, GDP and borrowing show that the negative effect of Brexit has been exaggerated, but it has not happened yet. The Office for Budget Responsibility has said that there has been no structural improvement in the public finances and forecasts for the next five years remain virtually unchanged. The impact of a hard Brexit is yet to be felt.
Amidst the utter chaos of a hard Tory Brexit, the change for entrepreneurs and the self-employed is going to be devastating. The SNP wholeheartedly believes in flexible labour markets, but that flexibility must be guarded against vulnerability. Some self-employed workers in the UK, particularly those on low incomes, do not enjoy the same guarantees as other people, as we have heard.
This Budget was an opportunity to do the right thing to support women and low- income families, to boost business and to put an end to austerity, yet it is nothing more than an opportunity lost by this Government. This Government might see a “bright future”, but it looks more to me like the dark clouds of a perfect storm for the rest of us. Winter is coming, and Scotland is headed in a different direction—it will, I think, be a new dawn for us.
Margaret Greenwood (Wirral West) (Lab)
Education has a key role to play in breaking cycles of poverty, but we know, too, that poverty has a profound impact on a child’s ability to make the most of any educational opportunity available. Yet this Budget did nothing to tackle child poverty, which stands at about 4 million in this country—that is a shameful figure, and it is set to rise.
According to the Child Poverty Action Group, by the age of three, poorer children are estimated to be on average nine months behind children from wealthier backgrounds. Department for Education statistics show that by the end of primary school, pupils receiving free school meals are almost three terms behind children from more affluent families. By 14, the gap grows to over five terms, and by 16, children receiving free school meals achieve on average 1.7 grades lower at GCSE.
We know, too, that the early years are crucial for child development. Maintained nursery schools do an important job for children in their early years and many are struggling financially, yet the Chancellor chose to find £320 million for 140 new free schools. I strongly question his sense of priorities. Some 65% of maintained nursery schools are in the most deprived areas in the UK, and 97% of them are rated as good or outstanding by Ofsted. No other part of the education sector can match that, so their value cannot be in doubt.
Ganneys Meadow nursery school in my constituency has received outstanding judgments in its last three Ofsted reports, and it provides a vital service to families in the local community. Around 20% of the children there have special educational needs or a disability, including autism, epilepsy or mobility problems. The families of a number of the children are on low incomes, and some of the children might be quite vulnerable. The school gives those children the very best start in life, yet despite that service, based on the specialist expertise of highly qualified, trained teaching staff, it is funded at the same rate as all childcare providers. Local authorities can top up that funding, but we all know that they have had their budgets severely cut by central Government.
The Government have announced extra funding for nursery schools but, in practice, schools such as Ganneys Meadow will see their overall income rise by only a very small amount, and they will remain financially squeezed. If the Government are really serious about improving the life chances of the most disadvantaged children in our society, they should back the maintained nursery schools and ensure that they get the funding that they need to secure their future. At secondary school level, funding per pupil in my constituency is expected to fall by 10% between 2013 and 2019, which will mean a loss of £309 per pupil in cash terms between 2015 and 2019. That will inevitably be to the detriment of pupils’ education and staff morale, and it is wholly unacceptable.
The arts in education are particularly at risk at the moment. Uptake of creative subjects at secondary level fell by 14% overall between 2010 and 2015, and the Government have so far failed to respond to the consultation on the future of the English baccalaureate, which included a consideration of the place of arts subjects in the core curriculum. A survey of teachers by The Guardian in January found that 9% of respondents reported that either art, music or drama was no longer offered at their school. About 20% said that one or more of those subjects had been given reduced timetable space. Yet studies here and in the United States have shown that students from low-income families who have the opportunity to engage in the arts at school are significantly more likely to go on to get a degree and are also more employable overall, so these cuts to school funding really are damaging the prospects of our young people.
There are also real issues around adult literacy and numeracy. The latest Government studies, published in 2011, found that nearly 15% of 16 to 65-year-olds were functionally illiterate and that 23% of the people surveyed lacked basic numeracy skills. This is a real crisis, and the Government should tackle it as a matter of urgency, for the sake of not only the individuals involved but their families. When we educate the mother or the father, we educate the child. We need real investment in adult education and lifelong learning. The Chancellor announced £40 million in funding for 2018-19 to test different approaches to helping people to retrain and upskill throughout their working lives, but there have been cuts of more than £1 billion in the sector since 2010. I also question the need for pilots. As a former teacher in adult education schools and someone who has close knowledge of the work of the British Education Research Association, I can assure the Government that there is plenty of expertise out there that they could tap into to put together a really robust programme of adult education and lifelong learning.
I also urge the Government to think beyond retraining and upskilling. Those are important in providing vital training opportunities to help people to move on in their employment, but it is important to provide education for education’s sake. On TV, we see the huge popularity of programmes such as “The Great British Bake Off”, “The Great Pottery Throw Down” and “The Big Painting Challenge”. It is clear that there is a real interest in discovering arts and skills areas that might have nothing to do with employability, but everything to do with creativity and learning. I join my right hon. Friend the Member for Tottenham (Mr Lammy) in his call for the reintroduction of night schools. They are inexpensive places where people can learn and socialise, and they can help people to grow in confidence and make friends. They also provide an effective way of tackling social isolation. They can be quite transforming for individuals and communities, and I believe that they have a particularly important offer in our ageing society.
In the Prime Minister’s Lancaster House speech, when setting out the Government’s negotiation objectives for exiting the European Union, she said that the Government would aim
“to build a stronger economy and a fairer society”
in which
“every child has the knowledge and the skills they need to thrive”.
If the Government are sincere in that, they should make it a priority to fund early years education. They should also be ambitious in their plans for lifelong learning and make a real priority of tackling child poverty so that children are healthy and able to make the most of the educational opportunities on offer.
Several hon. Members rose—
Mr Speaker
Order. As I call the hon. Member for Sheffield, Brightside and Hillsborough (Gill Furniss), I am sure that Members on both sides of the House will join me in wishing her a happy birthday.
Gill Furniss (Sheffield, Brightside and Hillsborough) (Lab)
Thank you, Mr Speaker. This Budget is, at its heart, deeply unfair. It is full of broken promises and missed opportunities. I am a Sheffield MP. I love Sheffield. I grew up in Sheffield. I am extremely proud to represent its people in this place and that means standing up for them. Sheffield City Council has faced cuts every year for seven years, now totalling £352 million, and it will have to find another £40 million next year to balance its budget. Sheffield is a fantastic city with a strong industrial base. It is where stainless steel was invented, and I must put it on the record that Sheffield definitely drove the industrial revolution, no matter what others have said today. However, wages have fallen dramatically. In fact, shamefully, it was recently found that Sheffield is the low-pay capital of the UK. There is little in this Budget to help that.
The self-employed are the engine drivers of entrepreneurship, with many working at the cutting edge of technology. Self-employment in Sheffield has increased by 10% in recent years, showing our city’s entrepreneurial character. However, real wages among the self-employed have fallen faster than those of employees. For my constituents, the Chancellor’s £2 billion broken promise on NICs will have a serious effect on their livelihood. As I said, unfairness is at the heart of the Budget, which hits low and middle earners hardest, hurting working people in Sheffield, Brightside and Hillsborough. While increasing taxes for the most vulnerable in our society, and simultaneously choosing to do nothing about working standards for the self-employed, the Chancellor decided to cut taxes for the richest. Policy measures introduced by this Government since 2010 will result in over £70 billion in tax giveaways to big businesses and the super-rich over the next five years. Much has already been said about the contentious business rates revaluation, and pubs in my constituency will feel the pain of increased rates despite the headline-grabbing one-year-only discount. The British Beer and Pub Association forecasts that increases on beer duty will result in 4,000 job losses and more pub closures.
We know what to expect from this Government by now—they kick the can down the road—so the Chancellor’s speech naturally contained no mention of the industrial strategy, nothing for the struggling steel sector, and no mention of climate change. Social care is in a state of emergency due to cuts to local council budgets, with over 1 million vulnerable elderly people not receiving the care they need. The extra £2 billion for adult social care does not make up for the £4.6 billion in cuts over the last Parliament and, believe me, councils in the north are not getting the same Surrey sweetheart deal on social care. The Chancellor had the opportunity last Wednesday to properly address the funding crisis, but he did not take it. He announced no money to deal with hospitals despite the £5 billion black hole in NHS maintenance. There are not enough GPs in the NHS, and cuts to nurses’ bursaries have led to a reduction in applications for nursing courses. A&Es are in crisis, and waiting lists are soaring. Mr Speaker, forgive me if I feel that this is all too little, too late.
Ensuring a decent education for our children should be an absolute priority, not an afterthought. This Government promised to protect pupil spending but it has fallen in real terms after inflation—another broken promise. According to the National Union of Teachers, Fox Hill primary school in my constituency will be £1,003 worse off per pupil than in 2013, and Wisewood Community primary school will be £1,586 worse off per pupil over the same period. By 2019, per pupil funding will have fallen by an average of 11% from 2013 levels.
There are 1.5 million fewer adult learners than there were under the previous Labour Government, and adult skills training has been cut by 54% since 2010. Furthermore, the beleaguered further education sector has fared little better. According to the IFS, by 2020 per student spending will be only just above the level seen 30 years ago at the end of the 1980s.
It is ironic that the Budget fell on International Women’s Day. Tory cuts have disproportionately affected women and, sadly, the Budget does nothing to change that. The Budget hurts the self-employed, low earners and those on benefits while letting the richest off the hook. It is a divisive and unfair Budget, and the Conservatives are clearly not the party of the working people of Britain.
This Budget is, at its heart, deeply unfair. It is also a Budget full of broken promises and missed opportunities, and it will hurt my constituents of Sheffield, Brightside and Hillsborough.
Mr Speaker
The hon. Member for Wirral West (Margaret Greenwood) has subsequently advised me that it is her birthday, too. So again, on both sides of the House, we wish her a very happy birthday.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
This Budget was a missed opportunity to help deliver confidence and growth. The OBR has stated that the future is uncertain and that any central forecast is most unlikely to be fulfilled, which is a damning statement as it is ultimately the Government’s responsibility to create certainty.
Brexit approaches us like an enormous black cloud threatening stormy weather, which is perhaps not all the Chancellor’s fault. After all, the Prime Minister sets the direction. As the storm approaches, in the modern parlance of giving names to impending storms, we should call it Storm Theresa. This Budget was another missed opportunity to deal with the unfairness of the steep rise in women’s pensionable age over too short a timeframe. That from a Budget delivered on International Women’s Day. The irony is not lost on the WASPI women.
As thousands of WASPI women demonstrated outside Parliament, making such a tremendous noise that we could hear them clearly in this building, the only man who apparently could not hear was the Chancellor—deaf to the legitimate demands of the WASPI women and desperately hoping that their calls for fairness and equality would go away. Well their calls will not go away. Like the message communicated last week, the volume is going to be turned up. The campaign is gathering momentum and the Government will have to listen.
Some 245 Members of Parliament have lodged petitions asking for action on the WASPI women. There was a debate in Westminster Hall on 9 February, and the Chair accepted the challenge that the House had not considered the effect of state pension changes on working class women after a woeful and disrespectful response from the Under-Secretary of State for Welfare Delivery, the hon. Member for Romsey and Southampton North (Caroline Nokes). The fact that, following the challenge to the determination of the motion, the matter has not come back to the Chamber for determination is disgraceful. We will continue to pursue the matter.
Of course, the debate followed a Division in this Chamber on 1 December 2016 in which the House divided by 106 votes to two against the motion that this House had considered the acceleration of the state pension age for women born in the 1950s. There has been no Government response to that vote. The Government are choosing to ignore the message that this House delivered.
In all our discussions on the Women Against State Pension Inequality Campaign, the focus has been on the 2.6 million women who are supposedly affected—the Government have continually referred to that number—but a freedom of information request that came to light last Friday now alleges that the actual number is not 2.6 million but 3.48 million women. If those reports are accurate, nearly 1 million more women than originally thought are set to miss out on their pension entitlement. It is absolutely outrageous if that is the case, and I ask the Minister to give us clarity on that matter in his summing up.
What is the figure, and why the discrepancy? Why at this stage do the Government not appear to know the exact number of women affected by the changes? We have had the farce of it taking successive Governments 14 years to communicate formally with any of the women affected, and this latest twist adds insult to injury. If the reports are true, how did the Government get the figures wrong? We need answers from them today.
The UK Government must recognise that pensions ought to be a contract, not a benefit. The Budget presented an opportunity for them to live up to that contract. It is clear that delivering fair pensions is not a high priority for the Government. With inflation spikes forecast, the Budget was completely devoid of any mitigating measures to future-proof pensioner incomes. We need a clear commitment that the triple lock will remain in place beyond 2020 and that mitigation will be put in place for the WASPI women. The SNP has already published a paper that explains how the Government can push back the timescales for increasing the pensionable age for women, at a cost of £8 billion in this Parliament. That is affordable, given the £30 billion surplus in the national insurance fund. Why did the Government not take that opportunity in the Budget? What is it going to take for them to act?
There is talk of another referendum on Scottish independence; I wish to make it clear that pensioners in Scotland would get justice and fair pensions from an SNP Government—things that are sadly lacking from the UK Tory Government. The OBR’s economic and fiscal outlook is a damning indictment of Government policy over the past few years and demonstrates the lack of vision from the Government on our economic future.
Sarah Olney (Richmond Park) (LD)
Every school in my constituency is facing cuts to its funding and rising costs. I speak to headteachers, all the time, some of whom have been in teaching for many years, and they tell me that they are extremely concerned about the funding situation. In the past, they have cut non-essential activities and support services, but they now feel they have no choice but to cut classroom teachers and whole subjects out of the curriculum. For the first time, they think that funding cuts will actually affect the quality of the teaching they provide.
Last night, I went to an event in my constituency for the concerned parents of children in local schools, and well over 200 were present. There was real anger among the parents about the prospects of further cuts. They feel a real sense of betrayal that their children are not going to receive the quality of education that their parents feel they deserve. There are excellent, dedicated teachers in our schools who are ready and willing to do the very best they can for our children, but they will not be able to if the resources available to them are not increased.
There are many different causes of the current crisis, and not all are related to the proposed changes to the funding formula. Costs are increasing because of unavoidable increases in pension and national insurance contributions; the Government are stopping the education services grant, which will end in September; and, absurdly, many schools find themselves having to pay the apprenticeship levy. The funding formula will also decrease the money available to many schools in my constituency.
Parents and teachers in my constituency are not uninformed. They know that there is a squeeze on public spending, that belts have to be tightened and that borrowing has to be cut. But they question some of the decisions that are being made. For example, a National Audit Office report in February this year found that the free schools programme, which was originally budgeted to cost £90 million, is now likely to cost in the region of £9 billion. The cost of procuring land for new school buildings is a large component of that cost, at around £2.5 billion, but the NAO estimates that the Education Funding Agency is paying, on average, almost 20% more than market value for land for new schools. The NAO also found that some sites are being purchased for schools in areas where there is no demand for extra school places.
Nobody is arguing that there is not an urgent need for new school places—not least in my constituency, which badly needs a new secondary school—but the free schools programme is not providing a cost-effective or efficient solution to that need. It urgently needs to be reviewed. Tougher negotiations on land purchases and the targeting of resources to areas of greatest need would provide better value for money for new schools and free up resources to direct towards existing schools.
The Budget statement included money put aside for a new generation of grammar schools, to be introduced as part of the free schools programme. I have searched the Conservative party manifesto from 2015 and can find no reference to this spending commitment. If the Prime Minister declines the necessity to seek a mandate of her own, she has a moral obligation to deliver the manifesto on which the Conservative party was elected. She has no mandate to introduce grammar schools; it was not a spending choice on which the public were asked to vote. There is no evidence that grammar schools deliver better educational outcomes for all children, which is surely the only goal of any Government’s educational policy.
I visited a girls’ comprehensive school in my constituency yesterday—a school that is rated outstanding in all areas. I was impressed by the quality of teaching on display as I watched a year 11 history lesson and a year 7 French lesson. The head told me that they had recently introduced a classical civilisation A-level, in response to demand from pupils, and that one of their alumni was now studying classics at Oxford. This headteacher is worried—as are all the headteachers in my constituency—that the cut in funding means that she will not be able to deliver all the subjects at A-level that she used to. There is nothing that the Prime Minister’s beloved grammars can deliver that this excellent comprehensive school cannot already deliver to the children of my constituency, and deliver without divisive selection. I call on the Prime Minister to cancel her plans for these expensive, unnecessary grammars and make the most of the excellent educational provision that is already available and continue to ensure its excellence.
The Chancellor and the Prime Minister have both stated their commitment to increasing choice in education. Choice is no good to parents who already have children in schools that are facing funding cuts. Choice implies that there are places in a range of schools for each child, and that parents merely need to make a decision on which one they want. The reality is that this would be an extraordinarily wasteful way to fund school places and that most parents take the place in the school that they are offered. Rather than choice, all most parents want is to know that the school place they are offered is capable of offering their child the very best education possible.
I call on the Government to look again at their spending plans for education and to take heed of the rising chorus of protest against the cuts in school budgets—in my constituency and elsewhere. Investing in education is essential to securing a prosperous future for this country, and skills training—not grammar schools—should be the priority if we are to thrive outside the European Union. I welcome the announcement of further investment in skills training but ask what analysis has been done of how the proposed new T-levels will align with existing vocational qualifications such as NVQs. How much of the proposed new spending will be taken up with establishing new awarding bodies and structures that could have been spent directly on teaching existing qualifications?
Anna Soubry (Broxtowe) (Con)
Will the hon. Lady agree to work with me and other colleagues in examining whether it is either right or lawful for local authorities to impose the apprenticeship levy on all the schools in our constituencies?
Sarah Olney
I quite agree that including schools in the apprenticeship levy is utterly absurd. The apprenticeship levy is supposed to raise money for training in employment. To levy it on schools, which are already providing excellent learning opportunities, is outrageous. I certainly agree to work with the right hon. Lady to investigate that further.
In conclusion, this Budget does not provide the best possible provision for education in this country and I urge the Prime Minister and the Chancellor to look again at their spending plans.
Peter Dowd (Bootle) (Lab)
I thank colleagues who have spoken in this debate today. They have torn this Budget apart. I am talking about my hon. Friends the Members for Washington and Sunderland West (Mrs Hodgson), for Lewisham East (Heidi Alexander), for Burnley (Julie Cooper), for Garston and Halewood (Maria Eagle), for Cardiff South and Penarth (Stephen Doughty), for Redcar (Anna Turley), for Gedling (Vernon Coaker), for Wirral West (Margaret Greenwood) and for Sheffield, Brightside and Hillsborough (Gill Furniss), my new hon. Friend, the hon. Member for Stoke-on-Trent Central (Gareth Snell) and many other people.
Last week, the Chancellor painted a rosy picture of the nation’s finances. He claimed that the Conservative party’s stewardship had been nothing short of miraculous. He was relaxed and attempted jokes throughout his speech. The Prime Minister’s shoulders shook with amusement, and many Government Members chuckled away. Some of the more experienced Government Members were watching cautiously, as the nosedive gained velocity. The Chancellor had got it wrong—big time. Within hours, he was attacked by many of his own Back Benchers. He was left hung out to dry by the Prime Minister, and, unsurprisingly, he has faced universal criticism over his plans to raise national insurance to 11% for millions of self-employed people. As Sir Michael Caine in the iconic film “The Italian Job” said, “You were only supposed to blow the doors off.” [Interruption.] It would have been unparliamentary to throw in that word. Well, the debris from the explosion is still descending. To put it purely and simply, the manifesto pledge was broken.
Since last Wednesday, Nos. 10 and 11 have been in a briefing war, with each trying to blame the other for the fine mess. Ostensibly, No.10 suggested that the Chancellor sneaked the national insurance rise into the Budget. Apparently, other shocked Cabinet colleagues have indicated that he failed to mention that it would break their manifesto pledge. As my hon. Friend the Member for Garston and Halewood said, it is worrying that Cabinet members do not know their own manifesto commitments. Perhaps they do not care. Then again, the Government have an insouciant attitude towards their manifesto commitment—[Hon. Members: “Give way!”]. I will come back to that in a minute. The insouciant attitude goes on. First the Government committed to getting rid of the deficit by 2015—a broken promise. Secondly, they said that it would be pushed back to 2019-20—another broken promise. Thirdly, they vowed that the debt would start to come down after 2015—another broken promise.
The Government will have virtually doubled the debt and doubled the time they have taken to get it down, and this is what they call success and fiscal credibility. They seem to think that they can simply press the reset button when it comes to meeting their own fiscal rules, and that no one will notice. It is the flipside of John Maynard Keynes’ approach—namely, “When I change my mind, the facts change with it.”
Sir Oliver Letwin (West Dorset) (Con)
Now that the hon. Gentleman has had his bit of fun, would he possibly explain how he proposes that the Labour party would find the money required for social care?
Peter Dowd
By fiscal rectitude. When the Government miss a deadline, their modus operandi is to set a new one and brazenly move on. It is the immutable law of Tory economics—make it up as you go along. What happened to the long-term economic plan? Well, it did not last very long. The Prime Minister and the Chancellor have their fingerprints all over every single financial decision that has been made during the past seven years. It is no surprise that they have come under criticism from many in their own party, including the former Member for Witney, and the former Chancellor Lord Lamont who called the national insurance debacle a “rookie error”—otherwise known, in the real world, as gross incompetence. But, regrettably, other people will pay the price for that incompetence.
Turning to Brexit—I will mention it even if the Chancellor does not want to—it is the 10th anniversary of the production of “Freeing Britain to Compete: Equipping the UK for Globalisation”. The publication was a wide-ranging policy document authored by the right hon. Member for Wokingham (John Redwood) and friends. It was endorsed by the then shadow Cabinet, which included the current incumbents of No. 10 and No. 11 Downing Street. The publication was hard to track down as it has been removed from the Conservative party website for good reason, but I found a copy. Its contents were toxic—all the more so in the wake of the subsequent global financial crisis—and remain so. But in the light of Brexit, and the resurgence of the right hon. Member for Wokingham’s influence, it will soon get a second run out.
It is worth apprising the House of a few nuggets in the document’s pages. It includes policies such as the abolition of inheritance tax; charging foreign lorries to use British roads; the potential abolition of the BBC licence fee, which it refers to as a “poll tax”; the watering down of money laundering regulations; and the deregulation of mortgage finance because
“it is the lending institutions rather than the client taking the risk.”
Try telling that to someone whose home has been repossessed.
The publication goes on to say:
“We need to make it more difficult for ministers to regulate”.
Remember that this document was dated August 2007, and was rubber-stamped by the current Prime Minister and the Chancellor at the time that Northern Rock was about to go under. The document continues—listen to this one—to say that the Labour Government
“claims that this regulation is all necessary. They seem to believe that without it banks could steal our money”.
Well, that might not be the case, but, at the peak of the banking crisis, we had liabilities of £1.2 trillion. Many people did believe that the banks were stealing money and queued up outside banks accordingly. The document refers to wanting
“reliably low inflation, taking no risks by turning fiscal rules into flexible friends”—
not that the Chancellor has many of those nowadays. As for Europe, in search of jobs and prosperity the document says:
“An incoming Conservative government should go to Brussels with proposals to deregulate the whole EU”.
No wonder they wanted to bury the evidence—it is the autobiography of the hard-line Brexiteers, and the Tory blueprint for a post-Brexit, deregulated Britain. It is a race to the bottom.
These policies are a telling narrative of the views of the fundamentalist wing of the Conservative party. The Prime Minister is hostage to that right wing, and she is on the hook. The stage directions are coming from Wokingham, Haltemprice and Howden, North Somerset, and Chingford and Woodford Green, with occasional guest appearances by the Foreign Secretary. The forlorn, melancholic Chancellor is briefed against—he is not laughing now—because he may just have a less hard-line approach to Brexit than his colleagues.
These are the dusted-off policies of hard Brexiteers, who will stop at nothing until Britain becomes a low-wage, low-tax, low-regulation economy. They want to turn our country—not their country—into the bargain basement of the western world, and they have the Prime Minister in tow. Parliamentary scrutiny is a hindrance.
Meanwhile, the Prime Minister has put kamikaze pilots in the cockpit. The Chancellor knows this too well, and that is why there is a reported £60 billion set aside as a trauma fund—a failure fund. It is not Brexit-proofing the economy, but proofing the economy from the toxic ideology of the hard Brexiteers.
The Government’s proposal to increase insurance premium tax from 10% to 12% is a regressive measure and a charge on households, and we will not support it. It was a surprise to see it in the autumn statement, coming as it did from a Government who use the high cost of insurance premiums as an excuse for curbs on victims’ rights to claim compensation, and we will oppose that rise. While the Government drive up the price of insurance for millions of families, through other policies they will forgo £73 billion of revenue.
The Budget claims it is for lower and middle earners, the NHS, social care agencies, the self-employed, schools, businesses, pubs, the strivers and the entrepreneurs. It wants to give them the thumbs-up, but, in practice, it is not doing that; on the contrary, it is putting two fingers up to them, and that is something Labour will never do.
The Chief Secretary to the Treasury (Mr David Gauke)
This is a Budget that demonstrates the Government’s determination to face up to our long-term challenges. This is a Budget that recognises that the only sustainable way to improve living standards is to improve our productivity. This is a Budget that recognises that sustainable public finances are not an impediment to prosperity but a necessary precondition.
I would like to thank my hon. Friends who participated in the debate: my hon. Friends the Members for Croydon South (Chris Philp), for Gainsborough (Sir Edward Leigh), for Telford (Lucy Allan), for Warwick and Leamington (Chris White), for South Dorset (Richard Drax), for Weaver Vale (Graham Evans) and for Faversham and Mid Kent (Helen Whately).
May I say a particular word of congratulation to the hon. Member for Stoke-on-Trent Central (Gareth Snell)? I apologise for having missed his speech, but I have heard from a number of people that it was excellent, and it proves that, in terms of his attributes as a Member of Parliament, it is not only because he is not Paul Nuttall that he will be welcome in this place.
I could probably summarise the other contributions from the Opposition Benches as saying that we are not spending enough, we are taxing too much and we are borrowing too much. Thankfully, it is not my job to reconcile all of that, and I wish the hon. Member for Bootle (Peter Dowd) the best of luck—he can say it is fiscal rectitude if he likes.
An important part of this Budget has been ensuring that this country has the skills we need to grow in the 21st century. We have to face up to the fact that tomorrow’s labour market is going to look very different from today’s. One study, for example, estimates that over a third of all jobs in the UK are at high risk of replacement in the next one to two decades, as technology and society advance. Economic, social and technological change can make certain jobs or institutions obsolete: lamplighters, handloom weavers and the Hansom Cab Company—I suppose we could add the Labour party to that list.
The job of the Government is not to stand in the way of those changes, preserving the old by stifling the new; instead, our role is to prepare the country and its people to adapt to the changes ahead, and that is what this Budget was all about: giving young people the skills they will need to get ahead in tomorrow’s world. That includes expanding the programme of free schools, investing more in schools maintenance, reforming technical education, and increasing teaching hours for further education students.
Alongside that, we also took steps to help people with the opportunities to upskill and reskill throughout their working lives, as well as to help our top researchers to develop so that our brightest can become the world’s best. We are taking forward an ambitious plan to improve education across the board for people of all backgrounds and of all ages, because that, alongside our investment in the country’s underlying infrastructure, is what will count in turning the tide on Britain’s long-standing productivity problem. Only by doing that can we increase living standards and fund world-class public services.
But as we prepare a bright future for the 21st century, we do so responsibly. This was a Budget that protected and improved our health and social services, and a Budget that invested in reform for the benefit of the next generation of workers and businesses alike, but a Budget that did so by funding all the new spending commitments it made, because, unlike Labour, we do not believe in spending and promising what we cannot deliver. That means having a tax base that is capable of funding the public services we provide, and doing so in a way that is fair.
We have heard a lot about the change we made to national insurance for the self-employed, and we are listening to hon. Members’ concerns. I think we all have to recognise that the difference between the benefits received by the employed and the self-employed have narrowed but the gap in contributions has not. This means that the employed pay a lot more for the same benefits. As self-employment grows in our economy—a welcome trend—that should not place a pressure on funding public services and deficit reduction. A Government addressing long-term challenges have to address this point, not ignore it.
This is a Budget that keeps Britain working—one that invests in our people, infrastructure and public services but does so responsibly, continuing to steer the country’s course away from Labour’s “spend what you can borrow” approach to our “spend what you can afford”. In doing so, we are once again demonstrating that we are the party that is delivering for this generation but not at the expense of the next generation. That is why the House should support the Budget in the Lobby tonight.
Question put and agreed to.
Resolved,
(1) That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.
(2) This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—
(a) for zero-rating or exempting a supply, acquisition or importation;
(b) for refunding an amount of tax;
(c) for any relief, other than a relief that—
(i) so far as it is applicable to goods, applies to goods of every description, and
(ii) so far as it is applicable to services, applies to services of every description.
Mr Deputy Speaker (Mr Lindsay Hoyle)
I am now required under Standing Order No. 51(3) to put successively, without further debate, the Question on each of the Ways and Means motions numbered 2 to 46, and on the motions on procedure numbered 47 to 51, on all of which a Bill is to be brought in. These motions are set out in a separate paper distributed with today’s Order Paper. Column 1 Column 2 Section Section 81(1) 87(1) 94(1) 102(1A) 120(1) 149(1) 154(1) 160(1) 175(1) 203(1) 81(1A)(b) 87A(1)(a) 94A(1)(a) 102(1B)(b) 120A(1)(a) 149A(2)(a) 154A(1)(a) 160A(2)(a) 175(1A)(b) 203A(1)(a) “amount foregone (in relation to a benefit) (in the benefits code) Section 69B” “optional remuneration arrangements (in the benefits code) Section 69A” “3A Income tax Amount payable under regulations under section 244L(2)(a) of FA 2004 The date falling 30 days after the due date determined by or under the regulations” “Charge under section 244A (overseas transfer charge). 1. The name, date of birth and national insurance number of each individual in whose case a transfer results in the scheme administrator becoming liable to the overseas transfer charge. 2. The date, and transferred value, of each transfer. 3. The reference number of the qualifying recognised overseas pension scheme to which each transfer is made. 4. The amount of tax due in respect of each transfer.”
I must inform the House that for the purposes of Standing Order No. 83U and on the basis of material put before him, Mr Speaker has certified that in his opinion the following founding motions published on 8 March 2017 and to be moved by the Chancellor of the Exchequer relate exclusively to England, Wales and Northern Ireland and are within devolved legislative competence: 3, Income Tax (main rates); and 36, Landfill tax.
The Deputy Speaker put forthwith the Questions necessary to dispose of the motions made in the name of the Chancellor of the Exchequer (Standing Order No. 51(3)).
2. Income tax (charge)
Resolved,
That income tax is charged for the tax year 2017-18.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
3. Income tax (main rates)
Resolved,
That for the tax year 2017-18 the main rates of income tax are as follows—
(a) the basic rate is 20%,
(b) the higher rate is 40%, and
(c) the additional rate is 45%.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
4. Income tax (default and savings rates)
Resolved,
That—
(1) For the tax year 2017-18 the default rates of income tax are as follows—
(a) the default basic rate is 20%,
(b) the default higher rate is 40%, and
(c) the default additional rate is 45%.
(2) For the tax year 2017-18 the savings rates of income tax are as follows—
(a) the savings basic rate is 20%,
(b) the savings higher rate is 40%, and
(c) the savings additional rate is 45%.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
5. Income tax (savings rate limit)
Resolved,
That—
(1) For the amount specified in section 12(3) of the Income Tax Act 2007 (starting rate for savings) substitute “£5000”.
(2) The amendment made by this Resolution has effect for the tax year 2017-18 and subsequent tax years. (3) Section 21 of the Income Tax Act 2007 (indexation), so far as relating to the starting rate limit for savings, does not apply in relation to the tax year 2017-18 (but this Resolution does not override that section for subsequent tax years).
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968
6. Corporation tax (charge for financial year 2018)
Resolved,
That corporation tax is charged for the financial year 2018.
7. PUBLIC SECTOR OFF-PAYROLL WORKERS
Resolved,
That—
(1) The Income Tax (Earnings and Pensions) Act 2003 is amended as follows.
(2) In section 7(5)(a) (amounts treated as earnings by Chapters 7 to 9 of Part 2 are “employment income” and “general earnings”), for “9” substitute “10”.
(3) In section 48 (scope of Chapter 8 of Part 2: workers’ services provided through intermediaries)—
(a) In subsection (1), after “through an intermediary” insert “, but not where the services are provided to a public authority”, and
(b) after subsection (2) insert—
“(3) In this Chapter “public authority” has the same meaning as in Chapter 10 of this Part (see section 61L).”
(4) In section 49 (engagements to which Chapter 8 of Part 2 applies)—
(a) in subsection (1), after paragraph (a) insert—
“(aa) the client is not a public authority,”, and
(b) after subsection (4) insert—
“(4A) Holding office as statutory auditor of the client does not count as holding office under the client for the purposes of subsection (1)(c), and here “statutory auditor” means a statutory auditor within the meaning of Part 42 of the Companies Act 2006 (see section 1210 of that Act).”
(5) In section 52(2)(b) and (c) (conditions of liability under Chapter 8 where intermediary is a partnership), for “this Chapter” substitute “one or other of this Chapter and Chapter 10”.
(6) In section 61(1) (interpretation of Chapter 8), before the definition of “engagement to which this Chapter applies” insert—
““engagement to which Chapter 10 applies” has the meaning given by section 61M(5);”.
(7) In section 61A (scope of Chapter 9 of Part 2: workers’ services provided by managed service companies), after subsection (2) insert—
“(3) See also section 61D(4A) (disapplication of this Chapter if Chapter 10 applies).”
(8) In section 61D (deemed earnings where worker’s services provided by managed service company), after subsection (4) insert—
“(4A) This section does not apply where the provision of the relevant services gives rise (directly or indirectly) to an engagement to which Chapter 10 applies, and for this purpose it does not matter whether the client is also “the client” for the purposes of section 61M(1).”
(9) In section 61J(1) (interpretation of Chapter 9), before the definition of “managed service company” insert—
““engagement to which Chapter 10 applies” has the meaning given by section 61M(5),”.
(10) In Part 2 (employment income: charge to tax), after Chapter 9 insert—
“Chapter 10
workers’ services provided to public sector through intermediaries
61K Scope of this Chapter
(1) This Chapter has effect with respect to the provision of services to a public authority through an intermediary.
(2) Nothing in this Chapter—
(a) affects the operation of Chapter 7 of this Part (agency workers), or
(b) applies to payments or transfers to which section 966(3) or (4) of ITA 2007 applies (visiting performers: duty to deduct and account for sums representing income tax).
61L Meaning of “public authority”
(1) In this Chapter “public authority” means—.
(a) a public authority as defined by the Freedom of Information Act 2000,
(b) a Scottish public authority as defined by the Freedom of Information (Scotland) Act 2002 (asp 13),
(c) the Corporate Officer of the House of Commons,
(d) the Corporate Officer of the House of Lords,
(e) the National Assembly for Wales Commission, or
(f) the Northern Ireland Assembly Commission.
(2) An authority within paragraph (a) or (b) of subsection (1) is a public authority for the purposes of this Chapter in relation to all its activities even if provisions of the Act mentioned in that paragraph do not apply to all information held by the authority.
61M Engagements to which Chapter applies
(1) Sections 61N to 61R apply where—
(a) an individual (“the worker”) personally performs, or is under an obligation personally to perform, services for another person (“the client”),
(b) the client is a public authority,
(c) the services are provided not under a contract directly between the client and the worker but under arrangements involving a third party (“the intermediary”), and
(d) the circumstances are such that—
(i) if the services were provided under a contract directly between the client and the worker, the worker would be regarded for income tax purposes as an employee of the client or the holder of an office under the client, or
(ii) the worker is an office-holder who holds that office under the client and the services relate to the office.
(2) The reference in subsection (1)(c) to a “third party” includes a partnership or unincorporated association of which the worker is a member.
(3) The circumstances referred to in subsection (1)(d) include the terms on which the services are provided, having regard to the terms of the contracts forming part of the arrangements under which the services are provided.
(4) Holding office as statutory auditor of the client does not count as holding office under the client for the purposes of subsection (1)(d), and here “statutory auditor” means a statutory auditor within the meaning of Part 42 of the Companies Act 2006 (see section 1210 of that Act).
(5) In this Chapter “engagement to which this Chapter applies” means any such provision of services as is mentioned in subsection (1).
61N Worker treated as receiving earnings from employment
(1) If one of Conditions A to C is met, identify the chain of two or more persons where—
(a) the highest person in the chain is the client,
(b) the lowest person in the chain is the intermediary, and
(c) each person in the chain above the lowest makes a chain payment to the person immediately below them in the chain.
(See section 61U for cases where one of Conditions A to C is treated as being met.).
(2) In this section and sections 61O to 61S—
“chain payment” means a payment, or money’s worth or any other benefit, that can reasonably be taken to be for the worker’s services to the client,
“make”—
(a) in relation to a chain payment that is money’s worth, means transfer, and
(b) in relation to a chain payment that is a benefit other than a payment or money’s worth, means provide, and”
“the fee-payer” means the person in the chain immediately above the lowest.
(3) The fee-payer is treated as making to the worker, and the worker is treated as receiving, a payment which is to be treated as earnings from an employment (“the deemed direct payment”), but this is subject to subsections (5) to (7) and sections 61T and 61V.
(4) The deemed direct payment is treated as made at the same time as the chain payment made by the fee-payer.
(5) Subsections (6) and (7) apply, subject to sections 61T and 61V, if the fee-payer—
(a) is not the client, and
(b) is not a qualifying person
(6) If there is no person in the chain below the highest and above the lowest who is a qualifying person, subsections (3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the client.
(7) Otherwise, subsections (3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the person in the chain who—
(a) is above the lowest,
(b) is a qualifying person, and
(c) is lower in the chain than any other person in the chain who—
(i) is above the lowest, and
(ii) is a qualifying person.
(8) In subsections (5) to (7) a “qualifying person” is a person who—
(a) is resident in the United Kingdom or has a place of business in the United Kingdom,
(b) is not a person who is controlled by—
(i) the worker, alone or with one or more associates of the worker, or
(ii) an associate of the worker, with or without other associates of the worker, and
(c) if a company, is not one in which—
(i) the worker, alone or with one or more associates of the worker, or
(ii) an associate of the worker, with or without other associates of the worker,
has a material interest (within the meaning given by section 51(4) and (5)).
(9) Condition A is that—
(a) the intermediary is a company, and
(b) the conditions in section 61O are met in relation to the intermediary.
(10) Condition B is that—
(a) the intermediary is a partnership,
(b) the worker is a member of the partnership,
(c) the provision of the services is by the worker as a member of the partnership, and
(d) the condition in section 61P is met in relation to the intermediary.
(11) Condition C is that the intermediary is an individual.
(12) Where a payment, money’s worth or any other benefit can reasonably be taken to be for both—
(a) the worker’s services to the client, and
(b) anything else,
then, for the purposes of this Chapter, so much of it as can, on a just and reasonable apportionment, be taken to be for the worker’s services is to be treated as (and the rest is to be treated as not being) a payment, or money’s worth or another benefit, that can reasonably be taken to be for the worker’s services.
61O Conditions where intermediary is a company
(1) The conditions mentioned in section 61N(9)(b) are that—
(a) the intermediary is not an associated company of the client that falls within subsection (2), and
(b) the worker has a material interest in the intermediary.
(2) An associated company of the client falls within this subsection if it is such a company by reason of the intermediary and the client being under the control—
(a) of the worker, or
(b) of the worker and other persons.
(3) The worker is treated as having a material interest in the intermediary if—
(a) the worker, alone or with one or more associates of the worker, or
(b) an associate of the worker, with or without other associates of the worker,
has a material interest in the intermediary.
(4) For this purpose “material interest” has the meaning given by section 51(4) and (5).
(5) In this section “associated company” has the meaning given by section 449 of CTA 2010.
61P Conditions where intermediary is a partnership
(1) The condition mentioned in section 61N(10)(d) is—
(a) that the worker, alone or with one or more relatives, is entitled to 60% or more of the profits of the partnership, or
(b) that most of the profits of the partnership derive from the provision of services under engagements to which one or other of this Chapter and Chapter 8 applies—
(i) to a single client, or
(ii) to a single client together with associates of that client, or
(c) that under the profit sharing arrangements the income of any of the partners is based on the amount of income generated by that partner by the provision of services under engagements to which one or other of this Chapter and Chapter 8 applies.
(2) In subsection (1)(a) “relative” means spouse or civil partner, parent or child or remoter relation in the direct line, or brother or sister.
(3) Section 61(4) and (5) apply for the purposes of this section as they apply for the purposes of Chapter 8.
61Q Calculation of deemed direct payment
(1) The amount of the deemed direct payment is the amount resulting from the following steps—
Step 1
Identify the amount or value of the chain payment made by the person who is treated as making the deemed direct payment, and deduct from that amount so much of it (if any) as is in respect of value added tax.
Step 2
Deduct, from the amount resulting from Step 1, so much of that amount as represents the direct cost to the intermediary of materials used, or to be used, in the performance of the services.
Step 3
Deduct, at the option of the person treated as making the deemed direct payment, from the amount resulting from Step 2, so much of that amount as represents expenses met by the intermediary that would have been deductible from the taxable earnings from the employment if—
(a) the worker had been employed by the client, and
(b) the expenses had been met by the worker out of those earnings.
Step 4
If the amount resulting from the preceding Steps is nil or negative, there is no deemed direct payment. Otherwise, that amount is the amount of the deemed direct payment.
(2) For the purposes of Step 1 of subsection (1), any part of the amount or value of the chain payment which is employment income of the worker by virtue of section 863G(4) of ITTOIA 2005 (salaried members of limited liability partnerships: anti-avoidance) is to be ignored.
(3) In subsection (1), the reference to the amount or value of the chain payment means the amount or value of that payment before the deduction (if any) permitted under section 61S.
(4) If the actual amount or value of the chain payment mentioned in Step 1 of subsection (1) is such that its recipient bears the cost of amounts due under PAYE regulations or contributions regulations in respect of the deemed direct payment, that Step applies as if the amount or value of that chain payment were what it would be if the burden of that cost were not being passed on through the setting of the level of the payment.
(5) In Step 3 of subsection (1), the reference to expenses met by the intermediary includes—
(a) expenses met by the worker and reimbursed by the intermediary, and
(b) where the intermediary is a partnership and the worker is a member of the partnership, expenses met by the worker for and on behalf of the partnership.
(6) In subsection (4) “contributions regulations” means regulations under the Contributions and Benefits Act providing for primary Class 1 contributions to be paid in a similar manner to income tax in relation to which PAYE regulations have effect (see, in particular, paragraph 6(1) of Schedule 1 to the Act); and here “primary Class 1 contribution” means a primary Class 1 contribution within the meaning of Part 1 of the Contributions and Benefits Act.
61R Application of Income Tax Acts in relation to deemed employment
(1) The Income Tax Acts (in particular, Part 11 and PAYE regulations) apply in relation to the deemed direct payment as follows.
(2) They apply as if—
(a) the worker were employed by the person treated as making the deemed direct payment, and
(b) the services were performed, or to be performed, by the worker in the course of performing the duties of that employment.
(3) The deemed direct payment is treated in particular—
(a) as taxable earnings from the employment for the purpose of securing that any deductions under Chapters 2 to 6 of Part 5 do not exceed the deemed direct payment, and
(b) as taxable earnings from the employment for the purposes of section 232.
(4) The worker is not chargeable to tax in respect of the deemed direct payment if, or to the extent that, by reason of any combination of the factors mentioned in subsection (5), the worker would not be chargeable to tax if—
(a) the client employed the worker,
(b) the worker performed the services in the course of that employment, and
(c) the deemed direct payment were a payment by the client of earnings from that employment.
(5) The factors are—
(a) the worker being resident or domiciled outside the United Kingdom or meeting the requirement of section 26A,
(b) the client being resident outside, or not resident in, the United Kingdom, and
(c) the services being provided outside the United Kingdom.
(6) Where the intermediary is a partnership or unincorporated association, the deemed direct payment is treated as received by the worker in the worker’s personal capacity and not as income of the partnership or association.
(7) Where—.
(a) the client is the person treated as making the deemed direct payment,
(b) the worker is resident in the United Kingdom,
(c) the services are provided in the United Kingdom,
(d) the client is not resident in the United Kingdom, and
(e) the client does not have a place of business in the United Kingdom,
the client is treated as resident in the United Kingdom.
61S Deductions from chain payments
(1) This section applies if, as a result of section 61R, a person who is treated as making a deemed direct payment is required under PAYE Regulations to pay an amount to the Commissioners for Her Majesty’s Revenue and Customs (the Commissioners) in respect of the payment.
(But see subsection (4)).
(2) The person may deduct from the underlying chain payment an amount which is equal to the amount payable to the Commissioners, but where the amount or value of the underlying chain payment is treated by section 61Q(4) as increased by the cost of any amount due under PAYE Regulations, the amount that may be deducted is limited to the difference (if any) between the amount payable to the Commissioners and the amount of that increase.
(3) Where a person in the chain other than the intermediary receives a chain payment from which an amount has been deducted in reliance on subsection (2) or this subsection, that person may deduct the same amount from the chain payment made by them.
(4) This section does not apply in a case to which 61V(2) applies (services-provider treated as making deemed direct payment).
(5) In subsection (2) “the underlying chain payment” means the chain payment whose amount is used at Step 1 of section 61Q(1) as the starting point for calculating the amount of the deemed direct payment.
61T Information to be provided by clients and consequences of failure
(1) If the conditions in section 61M(1)(a) to (1)(c) are met in any case, and a person as part of the arrangements mentioned in section 61M(1)(c) enters into a contract with the client, the client must inform that person (in the contract or otherwise) of which one of the following is applicable—
(a) the client has concluded that the condition in section 61M(1)(d) is met in the case;
(b) the client has concluded that the condition in section 61M(1)(d) is not met in the case.
(2) If the contract is entered into on or after 6 April 2017, the duty under subsection (1) must be complied with—
(a) on or before the time of entry into the contract, or
(b) if the services begin to be performed at a later time, before that later time.
(3) If the contract is entered into before 6 April 2017, the duty under subsection (1) must be complied with on or before the date of the first payment made under the contract on or after 6 April 2017.
(4) If the information which subsection (1) requires the client to give to a person has been given (whether in the contract, as required by subsection (2) or (3) or otherwise), the client must, on a written request by the person, provide the person with a written response to any questions raised by the person about the client’s reasons for reaching the conclusion identified in the information.
(5) A response required by subsection (4) must be provided before the end of 31 days beginning with the day the request for it is received by the client.
(6) If—
(a) the client fails to comply with the duty under subsection (1) within the time allowed by subsection (2) or (3),
(b) the client fails to provide a response required by subsection (4) within the time allowed by subsection (5), or
(c) the client complies with the duty under subsection (1) but fails to take reasonable care in coming to its conclusion as to whether the condition in section 61M(1)(d) is met in the case,
section 61N(3) and (4) have effect in the case as if for any reference to the fee-payer there were substituted a reference to the client, but this is subject to section 61V.
61U Information to be provided by worker and consequences of failure
(1) In the case of an engagement to which this Chapter applies, the worker must inform the potential deemed employer of which one of the following is applicable—
(a) that one of conditions A to C in section 61N is met in the case,
(b) that none of conditions A to C in section 61N is met in the case
(2) If the worker has not complied with subsection (1), then for the purposes of section 61N(1), one of conditions A to C in section 61N is to be treated as met.
(3) In this section, “the potential deemed employer” is the person who, if one of conditions A to C in section 61N were met, would be treated as making a deemed direct payment to the worker under section 61N(3).
61V Consequences of providing fraudulent information
(1) Subsection (2) applies if in any case—
(a) a person (“the deemed employer”) would, but for this section, be treated by section 61N(3) as making a payment to another person (“the services-provider”), and
(b) the fraudulent documentation condition is met.
(2) Section 61N(3) has effect in the case as if the reference to the fee-payer were a reference to the services-provider, but—
(a) section 61N(4) continues to have effect as if the reference to the fee-payer were a reference to the deemed employer, and
(b) Step 1 of section 61Q(1) continues to have effect as referring to the chain payment made by the deemed employer.
(3) Subsection (2) has effect even though that involves the services-provider being treated as both employer and employee in relation to the deemed employment under section 61N(3).
(4) “The fraudulent documentation condition” is that a relevant person provided any person with a fraudulent document intended to constitute evidence—
(a) that the case is not an engagement to which this Chapter applies, or
(b) that none of conditions A to C in section 61N is met in the case.
(5) A “relevant person” is—
(a) the services-provider;
(b) a person connected with the services-provider;
(c) if the intermediary in the case is a company, an office-holder in that company.
61W Prevention of double charge to tax and allowance of certain deductions
(1) Subsection (2) applies where—
(a) a person (“the payee”) receives a payment or benefit (“the end-of-line remuneration”) from another person (“the paying intermediary”),
(b) the end-of-line remuneration can reasonably be taken to represent remuneration for services of the payee to a public authority,
(c) a payment (“the deemed payment”) has been treated by section 61N(3) as made to the payee,
(d) the underlying chain payment can reasonably be taken to be for the same services of the payee to that public authority, and
(e) the recipient of the underlying chain payment has (whether by deduction from that payment or otherwise) borne the cost of any amounts due, under PAYE regulations and contributions regulations in respect of the deemed payment, from the person treated by section 61N(3) as making the deemed payment.
(2) For income tax purposes, the paying intermediary and the payee may treat the amount of the end-of-line remuneration as reduced (but not below nil) by any one or more of the following—
(a) the amount (see section 61Q) of the deemed payment;
(b) the amount of any capital allowances in respect of expenditure incurred by the paying intermediary that could have been deducted from employment income under section 262 of CAA 2001 if the payee had been employed by the public authority and had incurred the expenditure;
(c) the amount of any contributions made, in the same tax year as the end-of-line payment, for the benefit of the payee by the paying intermediary to a registered pension scheme that if made by an employer for the benefit of an employee would not be chargeable to income tax as income of the employee.
(3) Subsection (2)(c) does not apply to—
(a) excess contributions paid and later repaid,
(b) contributions set under subsection (2) against another payment by the paying intermediary, or
(c) contributions deductible at Step 5 of section 54(1) in calculating the amount of the payment (if any) treated by section 50 as made in the tax year concerned by the paying intermediary to the payee.
(4) For the purposes of subsection (3)(c), the contributions to which Step 5 of section 54(1) applies in the case of the particular calculation are “deductible” at that Step so far as their amount does not exceed the result after Step 4 in that calculation.
(5) In subsection (1)(d) “the underlying chain payment” means the chain payment whose amount is used at Step 1 of section 61Q(1) as the starting point for calculating the amount of the deemed payment.
(6) Subsection (2) applies whether the end-of-line remuneration—
(a) is earnings of the payee,
(b) is a distribution of the paying intermediary, or
(c) takes some other form.
61X Interpretation
In this Chapter—
“associate” has the meaning given by section 60;
“company” means a body corporate or unincorporated association, and does not include a partnership;
“engagement to which Chapter 8 applies” has the meaning given by section 49(5).”
(11) In section 339A (travel for employment involving intermediaries), after subsection (6) insert—
“(6A) Subsection (3) does not apply in relation to an engagement if—
(a) sections 61N to 61R in Chapter 10 of Part 2 apply in relation to the engagement,
(b) one of Conditions A to C in section 61N is met in relation to the employment intermediary, and
(c) the employment intermediary is not a managed service company.
(6B)This section does not apply in relation to an engagement if—
(a) sections 61N to 61R in Chapter 10 of Part 2 do not apply in relation to the engagement because the circumstances in section 61M(l)(d) are not met,
(b) assuming those circumstances were met, one of Conditions A to C in section 61N would be met in relation to the employment intermediary, and
(c) the employment intermediary is not a managed service company.
(6C) In determining for the purposes of subsection (6A) or (6B) whether one of Conditions A to C in section 61N is or would be met in relation to the employment intermediary, read references to the intermediary as references to the employment intermediary.”
(12) The amendments made by paragraphs 2 to 9 and 11 of this Resolution have effect for the tax year 2017-18 and subsequent tax years.
(13) The amendment made by paragraph 10 of this Resolution has effect in relation to deemed direct payments treated as made on or after 6 April 2017, and does so even if relating to services provided before that date.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
8. Optional remuneration arrangements
Resolved,
That—
(1) In Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (employment income: earnings and benefits etc treated as earnings), in Chapter 2 (taxable benefits: the benefits code), after section 69 insert—
“69A Optional remuneration arrangements
(1) Subsections (2) to (7) have effect for the purposes of the benefits code.
(2) A benefit provided for an employee is provided under “optional remuneration arrangements” so far as it is provided under arrangements of type A or B (regardless of whether those arrangements are made before or after the beginning of the person’s employment).
(3) “Type A arrangements” are arrangements under which, in return for the benefit, the employee gives up the right (or a future right) to receive an amount of earnings within Chapter 1 of Part 3.
(4) “Type B arrangements” are arrangements (other than type A arrangements) under which the employee agrees to be provided with the benefit rather than an amount of earnings within Chapter 1 of Part 3.
(5) A benefit provided for an employee is to be regarded as provided under optional remuneration arrangements (whether of type A or type B) so far as it is just and reasonable to attribute the provision of the benefit to the arrangements in question.
(6) Where a benefit is provided for an employee under any arrangements, the mere fact that under the arrangements the employee makes good, or is required to make good, any part of the cost of provision is not to be taken to show that the benefit is (to any extent) provided otherwise than under optional remuneration arrangements.
(7) Where a benefit is provided for an employee partly under optional remuneration arrangements and partly otherwise than under such arrangements, the benefits code is to apply with any modifications (including provision for just and reasonable apportionments) that may be required for ensuring that the benefit is treated—
(a) in accordance with the relevant provision in the column 2 of the table so far as it is provided under optional remuneration arrangements, and
(b) in accordance with the relevant provision in column 1 of the table so far as it is provided otherwise than under such arrangements.
69B Optional remuneration arrangements: supplementary
(1) For the purposes of the benefits code “the amount foregone”—
(a) in relation to a benefit provided for an employee under type A arrangements means the amount of earnings mentioned in section 69A(3);
(b) in relation to a benefit provided for an employee under type B arrangements means the amount of earnings mentioned in section 69A(4);
(c) in relation to a benefit provided for an employee partly under type A arrangements and partly under type B arrangements, means the sum of the amounts foregone under the arrangements of each type.
(2) Subsection (3) applies where, in order to determine the amount foregone with respect to a particular benefit mentioned in section 69A(3) or (4), it is necessary to apportion an amount of earnings to the benefit.
(3) The apportionment is to be made on a just and reasonable basis.
(4) In this section and section 69A references to a benefit provided for an employee include a benefit provided for a member of an employee’s family or household.
(5) In this section and section 69A—
“benefit” includes any benefit or facility, regardless of its form and the manner of providing it;
“earnings” means earnings within Chapter 1 of Part 3 (and includes a reference to amounts which would have been such earnings if the employee had received them).”
(2) Part 3 of the Income Tax (Earnings and Pensions) Act 2003 (employment income: earnings and benefits in kind etc treated as earnings) is amended as follows.
(3) Section 81 (benefit of cash voucher treated as earnings) is amended as follows.
(4) After subsection (1) insert—
“(1A) Where a cash voucher to which this Chapter applies is provided pursuant to optional remuneration arrangements—
(a) subsection (1) does not apply, and
(b) the relevant amount is to be treated as earnings from the employment for the tax year in which the voucher is received by the employee.
(1B) In this section “the relevant amount” means—
(a) the cash equivalent, or
(b) if greater, the amount foregone with respect to the benefit of the voucher (see section 69B).”
(5) At the end insert—
“(3) For the purposes of subsection (1B), assume that the cash equivalent is zero if the condition in subsection (4) is met.
(4) The condition is that the benefit of the voucher would be exempt from income tax but for section 228A (exclusion of certain exemptions).”
(6) After section 87 insert—
“87A Benefit of non-cash voucher treated as earnings: optional remuneration arrangements
(1) Where a non-cash voucher to which this Chapter applies is provided pursuant to optional remuneration arrangements—
(a) the relevant amount is to be treated as earnings from the employment for the tax year in which the voucher is received by the employee, and
(b) section 87(1) does not apply.
(2) To find the relevant amount, first determine which (if any) is the greater of—
(a) the cost of provision (see section 87(3)), and
(b) the amount foregone with respect to the benefit of the voucher (see section 69B).
(3) If the cost of provision is greater than or equal to the amount foregone, the “relevant amount”
is the cash equivalent of the benefit of the non-cash voucher (see section 87(2)).
(4) Otherwise, the “relevant amount” is the difference between—
(a) the amount foregone, and
(b) any part of the cost of provision that is made good by the employee, to the person incurring it, on or before 6 July following the relevant tax year.
(5) If the voucher is a non-cash voucher other than a cheque voucher, the relevant tax year is—
(a) the tax year in which the cost of provision is incurred, or
(b) if later, the tax year in which the employee receives the voucher.
(6) If the voucher is a cheque voucher, the relevant tax year is the tax year in which the voucher is handed over in exchange for money, goods or services.
(7) For the purposes of subsections (2) and (3), assume that the cost of provision is zero if the condition in subsection (8) is met.
(8) The condition is that the non-cash voucher would be exempt from income tax but for section 228A (exclusion of certain exemptions).”
(7) In section 88 (year in which earnings treated as received)—
(a) in subsection (1), after “87” insert “or 87A”;
(b) in subsection (2), after “87” insert “or 87A.”
(8) After section 94 insert—
“94A Benefit of credit-token treated as earnings: optional remuneration arrangements
(1) If the conditions in subsections (2) and (3) are met in relation to any occasions on which a credit-token to which this Chapter applies is used by the employee in a tax year to obtain money, goods or services—
(a) the relevant amount is to be treated as earnings from the employment for that year, and
(b) section 94(1) does not apply in relation to the use of the credit-token on those occasions.
(2) The condition in this subsection is that the credit-token is used pursuant to optional remuneration arrangements.
(3) The condition in this subsection is that AF is greater than the relevant cost of provision for the tax year.
In this section “AF” means so much of the amount foregone (see section 69B) as is attributable on a just and reasonable basis to the use of the credit-token by the employee in the tax year pursuant to the optional remuneration arrangements to obtain money, goods or services.
(4) The “relevant amount” is the difference between—
(a) AF, and
(b) any part of the relevant cost of provision for the tax year that is made good by the employee, to the person incurring it, on or before 6 July following the tax year which contains the occasion of use of the credit-token to which the making good relates.
(5) But the relevant amount is taken to be zero if the amount given by paragraph (b) of subsection (4) exceeds AF.
(6) For the purposes of this section the “relevant cost of provision for the tax year” is determined as follows—
Step 1
Find the cost of provision with respect to each occasion of use of the credit-token by the employee in the tax year pursuant to the optional remuneration arrangements to obtain money, goods or services.
Step 2
The total of those amounts is the relevant cost of provision for the tax year.
(7) But the relevant cost of provision for the tax year is to be taken to be zero if the condition in subsection (8) is met.
(8) The condition is that use of the credit token by the employee in the tax year pursuant to the optional remuneration arrangements to obtain money, goods or services would be exempt from income tax but for section 228A (exclusion of certain exemptions).
(9) In this section “cost of provision” has the same meaning as in section 94.”
(9) In section 97 (living accommodation to which Chapter 5 applies), in subsection (1A)(b), for “the cash equivalent of” substitute “an amount in respect of”.
(10) In section 98 (accommodation provided by local authority), in the words before paragraph (a), for “This Chapter” substitute “In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements)”.
(11) Section 99 (accommodation provided for performance of duties) is amended as follows.
(12) In subsection (1), for “This Chapter” substitute “In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements)”.
(13) In subsection (2), for “This Chapter” substitute “In section 102 (benefit of accommodation treated as earnings) subsection (1A)”.
(14) In section 100 (accommodation provided as result of security threat), in the words before paragraph (a), for “This Chapter” substitute “In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements)”.
(15) In section 100A (homes outside UK owned by company etc), in subsection (1), for “This Chapter” substitute “In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements)”.
(16) In section 101 (Chevening House), in the words before paragraph (a), for “This Chapter” substitute “In section 102 (benefit of accommodation treated as earnings) subsection (1A) (accommodation provided otherwise than pursuant to optional remuneration arrangements)”.
(17) Section 102 (benefit of living accommodation treated as earnings) is amended as follows.
(18) In subsection (1), for the words before paragraph (a) substitute “This section applies if living accommodation to which this Chapter applies is provided in any period (“the taxable period”)—”.
(19) The words in subsection (1) from “the cash equivalent” to the end become subsection (1A).
(20) After subsection (1A) insert—
“(1B) If the benefit of the accommodation is provided pursuant to optional remuneration arrangements—
(a) subsection (1A) does not apply, and
(b) the relevant amount is to be treated as earnings from the employment for that tax year.”
(21) Omit subsection (2).
(22) At the end insert—
“(4) Section 103A indicates how the relevant amount is determined.”
(23) In section 103 (method of calculating cash equivalent), in subsection (3), for “102(2)” substitute “102(1)”.
(24) After section 103 insert—
“103A Accommodation provided pursuant to optional remuneration arrangements: relevant amount
(1) To find the relevant amount, first determine which (if any) is the greater of—
(a) the modified cash equivalent of the benefit of the accommodation (see sections 105(2A) and 106(2A)), and
(b) the amount foregone with respect to the benefit of the accommodation (see section 69B).
(2) If the amount mentioned in subsection (1)(a) is greater than or equal to the amount mentioned in subsection (1)(b), the “relevant amount” is the cash equivalent of the benefit of the accommodation (see section 103).
(3) Otherwise, the “relevant amount” is the difference between—
(a) the amount foregone with respect to the benefit of the accommodation, and
(b) the deductible amount (see subsections (7) and (8)).
(4) If the amount foregone with respect to the benefit of the accommodation does not exceed the deductible amount, the relevant amount is taken to be zero.
(5) For the purposes of subsections (1) and (2), assume that the modified cash equivalent of the benefit of the accommodation is zero if the condition in subsection (6) is met.
(6) The condition is that the benefit of the accommodation would be exempt from income tax but for section 228A (exclusion of certain exemptions).
(7) If the cost of providing the living accommodation does not exceed £75,000, the “deductible amount” means any sum made good, on or before 6 July following the tax year which contains the taxable period, by the employee to the person at whose cost the accommodation is provided that is properly attributable to its provision.
(8) If the cost of providing the living accommodation exceeds £75,000, the “deductible amount” means the total of amounts A and B where—
A is equal to so much of MG as does not exceed RV;
B is the amount of any excess rent paid by the employee in respect of the taxable period;
MG is the total of any sums made good, on or before 6 July following the tax year which contains the taxable period, by the employee to the person at whose cost the accommodation is provided that are properly attributable to its provision (in the taxable period);
RV is the rental value of the accommodation for the taxable period as set out in section 105(3) or (4A)(b) (as applicable).
(9) In subsection (8) “excess rent” means so much of the rent in respect of the taxable period paid—
(a) by the employee,
(b) in respect of the accommodation,
(c) to the person providing it, and
(d) on or before 6 July following the tax year which contains the taxable period, as exceeds the rental value of the accommodation.
(10) Where it is necessary for the purposes of subsection (1)(b) and (3)(a) to apportion an amount of earnings to the benefit of the accommodation in the taxable period, the apportionment is to be made on a just and reasonable basis.
In this subsection “earnings” is to be interpreted in accordance with section 69B(5).”
(25) Section 105 (cash equivalent: cost of accommodation not over £75,000) is amended as follows.
(26) In subsection (1), after “equivalent” insert “or modified cash equivalent”.
(27) After subsection (2) insert—
“(2A) The modified cash equivalent is equal to the rental value of the accommodation for the taxable period.”
(28) Section 106 (cash equivalent: cost of accommodation over £75,000) is amended as follows.
(29) In subsection (1), after “equivalent” insert “or modified cash equivalent”.
(30) After subsection (2) insert—
“(2A) to calculate the modified cash equivalent—
(a) apply steps 1 to 3 in subsection (2), as if the words “cash equivalent” in step 1 were “modified cash equivalent (for the purposes of section 105)”;
(b) calculate the modified cash equivalent by adding together the amounts calculated under steps 1 and 3 as applied by paragraph (a).”
(31) Section 109 (priority of Chapter 5 over Chapter 1 of Part 3 of the Act) is amended as follows.
(32) In subsection (1)(a), for “the cash equivalent of the benefit of living accommodation” substitute “an amount”.
(33) In subsection (2), for “of the cash equivalent” substitute “mentioned in subsection (1)(a)”.
(34) In subsection (4), in the words before paragraph (a), for “cash equivalent of the benefit of the living accommodation” substitute “amount mentioned in subsection (1)(a)”.
(35) In section 114 (cars, vans and related benefits), in subsection (2)—
(a) in paragraph (a), for “the cash equivalent of” substitute “an amount in respect of”;
(b) in paragraph (b), for “the cash equivalent of” substitute “an amount in respect of”;
(c) in paragraph (c), for “the cash equivalent of” substitute “an amount in respect of”;
(d) in paragraph (d), for “the cash equivalent of” substitute “an amount in respect of”.
(36) Section 119 (where alternative to benefit of car or van offered) is amended as follows.
(37) For subsection (1) substitute—
“(1) This section applies where in a tax year—
(a) a car is made available as mentioned in section 114(1),
(b) the car’s CO2 emissions figure (see sections 133 to 138) does not exceed 75 grams per kilometre, and
(c) an alternative to the benefit of the car is offered.”
(38) In the heading, before “car” insert “low emission”.
(39) In section 120 (benefit of car treated as earnings), after subsection (3) insert—
“(4) This section is subject to section 120A.”
(40) After section 120 insert—
“120A Benefit of car treated as earnings: optional remuneration arrangements
(1) Where this Chapter applies to a car in relation to a particular tax year and the conditions in subsection (3) are met—
(a) the relevant amount (see section 121A) is to be treated as earnings from the employment for that tax year, and
(b) section 120(1) does not apply.
(2) In such a case (including a case where the relevant amount is nil) the employee is referred to in this Chapter as being chargeable to tax in respect of the car in the tax year.
(3) The conditions are that—
(a) the car is made available to the employee or member of the employee’s household pursuant to optional remuneration arrangements,
(b) the amount foregone (see section 69B) with respect to the benefit of the car for the tax year is greater than the modified cash equivalent of the benefit of the car for the tax year (see section 121B), and
(c) the car’s CO2 emissions figure (see sections 133 to 138) exceeds 75 grams per kilometre.”
(41) After section 121 insert—
“121A Optional remuneration arrangements: method of calculating relevant amount
(1) To find the relevant amount for the purposes of section 120A, take the following steps—
Step 1
Take the amount foregone with respect to the benefit of the car for the tax year.
Step 2
Make any deduction under section 132A in respect of capital contributions made by the employee to the cost of the car or accessories.
The resulting amount is the provisional sum.
Step 3
Make any deduction from the provisional sum under section 144 in respect of payments by the employee for the private use of the car.
The result is the “relevant amount” for the purposes of section 120A.
(2) Where it is necessary, for the purpose of determining the “amount foregone” under step 1 of subsection (1), to apportion an amount of earnings to the benefit of the car for the tax year, the apportionment is to be made on a just and reasonable basis.
In this subsection “earnings” is to be interpreted in accordance with section 69B(5).
“121B Meaning of “modified cash equivalent”
(1) The “modified cash equivalent” of the benefit of a car for a tax year is calculated in accordance with the following steps (which must be read with subsections (2) to (4))—
Step 1
Find the price of the car in accordance with sections 122 to 124A.
Step 2
Add the price of any accessories which fall to be taken into account in accordance with sections 125 to 131.
The resulting amount is the interim sum.
Step 3
Find the appropriate percentage for the car for the year in accordance with sections 133 to 142.
Step 4
Multiply the interim sum by the appropriate percentage for the car for the year.
The resulting amount is the interim sum.
Step 5
Make any deduction under section 143 for any periods when the car was unavailable.
The resulting amount is the modified cash equivalent of the benefit of the car for the year.
(2) Where the car is shared the modified cash equivalent is calculated under this section in accordance with section 148.
(3) The modified cash equivalent of the benefit of a car for a tax year is to be taken to be zero if the condition in subsection (4) is met.
(4) The condition is that the benefit of car for the tax year would be exempt from income tax but for section 228A (exclusion of certain exemptions).
(5) The method of calculation set out in subsection (1) is modified in the special cases dealt with in—
(a) section 146 (cars that run on road fuel gas), and
(b) section 147A (classic cars: optional remuneration arrangements).”
(42) In section 126 (amounts taken into account in respect of accessories), in subsection (1), in the words before paragraph (a), after “121(1)” insert “and step 2 of section 121B(1)”.
(43) Section 131 (replacement accessories) is amended as follows.
(44) In subsection (1), in the words before paragraph (a), after “applies” insert “for the purposes of sections 121(1) and 121B(1)”.
(45) After subsection (1) insert—
“(1A) In the application of this section for the purposes of section 121B(1)—
(a) references to the cash equivalent of the benefit of the car for the tax year are to be read as references to the modified cash equivalent of the benefit of the car for the tax year, and
(b) references to step 2 of section 121(1) are to be read as references to step 2 of section 121B(1).”
(46) In section 132 (capital contributions by employee), in subsection (1), in the words before paragraph (a), after “applies” insert “for the purposes of section 121(1)”.
(47) After section 132 insert—
“132A Capital contributions by employee: optional remuneration arrangements
(1) This section applies for the purposes of section 121A(1) if the employee contributes a capital sum to expenditure on the provision of—
(a) the car, or
(b) any qualifying accessory which is taken into account in calculating under section 121B the modified cash equivalent of the benefit of the car.
(2) A deduction is to be made from the amount carried forward from step 1 of section 121A(1)—
(a) for the tax year in which the contribution is made, and
(b) for all subsequent tax years in which the employee is chargeable to tax in respect of the car by virtue of section 120A.
(3) The amount of the deduction allowed in any tax year is found by multiplying the capped amount by the appropriate percentage.
(4) In subsection (3) the reference to “the appropriate percentage” is to the appropriate percentage for the car for the tax year (determined in accordance with sections 133 to 142).
(5) In this section “the capped amount” means the lesser of—
(a) the total of the capital sums contributed by the employee in that year and any earlier years to expenditure on the provision of—
(i) the car, or
(ii) any qualifying accessory which is taken into account in calculating under section 121B the modified cash equivalent of the benefit of the car for the tax year in question, and
(b) £5,000.
(6) This section is modified by section 147A (optional remuneration arrangements: classic cars).”
(48) Section 143 (deduction for periods when car unavailable) is amended as follows.
(49) Before subsection (1) insert—
“(A1) This section has effect for the purposes of—
(a) section 121(1) (method of calculating the cash equivalent of the benefit of a car), and
(b) section 121B(1) (optional remuneration arrangements: meaning of “modified cash equivalent”).”
(50) In subsection (1), after “121(1)” insert “or (as the case may be) step 4 of section 121B(1)”.
(51) In subsection (3), in the definition of “A”, at the end insert “of section 121(1) or (as the case may be) step 4 of section 121B(1)”.
(52) Section 144 (deduction for payments for private use) is amended as follows.
(53) In subsection (1), for “calculated under step 7 of section 121(1)” substitute “(see subsection (1A))”.
(54) After subsection (1) insert
“(1A) In this section “the provisional sum” means the provisional sum calculated under—
(a) step 7 of section 121(1) (method of calculating the cash equivalent of the benefit of a car), or
(b) step 2 of section 121A(1) (optional remuneration arrangements: method of calculating relevant amount”).”
(55) In subsection (2), for the words from “so that” to the end substitute “so that—
(a) in a case within subsection (1A)(a), the cash equivalent of the benefit of the car for the year is nil, or
(b) in a case within subsection (1A)(b), the relevant amount for the purposes of section 120A is nil.”
(56) In subsection (3)—
(a) for “In any other case” substitute “Where subsection (2) does not apply,” and
(b) for the words from “give” to the end substitute “give—
(a) in a case within subsection (1A)(a), the cash equivalent of the benefit of the car for the year, or
(b) in a case within subsection (1A)(b), the relevant amount for the purposes of section 120A.”
(57) Section 145 (modification of provisions where car temporarily replaced) is amended as follows.
(58) In subsection (1), for paragraph (c) substitute—
“(c) the employee is chargeable to tax—
(i) in respect of both the normal car and the replacement car by virtue of section 120, or
(ii) in respect of both the normal car and the replacement car by virtue of section 120A, and”.
(59) After subsection (5) insert—
“(6) Where this section applies by virtue of subsection (1)(c)(ii), the condition in subsection (5)(b) is to be taken to be met if it would be met on the assumption that the cash equivalent of the benefit of the cars in question is to be calculated under section 121 (1).”
(60) Section 146 (cars that run on road fuel gas) is amended as follows.
(61) In subsection (1), in the words before paragraph (a), after “applies” insert “for the purposes of sections 121 and 121B”.
(62) In subsection (2), after “121(1)” insert “or (as the case may be) step 1 of section 121B(1)”.
(63) After subsection 147 insert—
“147A Classic cars: optional remuneration arrangements
(1) This section applies in calculating the relevant amount in respect of a car for a tax year for the purposes of section 120A (benefit of car treated as earnings: optional remuneration arrangements) if—
(a) the age of the car at the end of the year is 15 years or more,
(b) the market value of the car for the year is £15,000 or more, and
(c) that market value exceeds the specified amount (see subsection (4)).
(2) In calculating the modified cash equivalent of the benefit of the car, for the interim sum calculated under step 2 of section 121B(1) substitute the market value of the car for the tax year in question.
(3) Section 132A (capital contributions by employee: optional remuneration arrangements) has effect as if—
(a) in subsection (1)(b) the reference to calculating under section 121B the modified cash equivalent of the benefit of the car were to determining the market value of the car, and
(b) in subsection (5)(a)(ii) the reference to calculating under section 121B the modified cash equivalent of the benefit of the car for the tax year in question were to determining the market value of the car for the tax year in question.
(4) The “specified amount” is found as follows.
Step 1
Find what would be the interim sum under step 2 of section 121B(1) (if subsection (2) of this section did not have effect).
Step 2
(Assuming for this purpose that the reference in section 132(2) to step 2 of section 121(1) includes a reference to step 1 of this subsection) make any deduction under section 132 for capital contributions made by the employee to the cost of the car or accessories.
The resulting amount is the specified amount.
(5) The market value of a car for a tax year is to be determined in accordance with section 147(3) and (4).”
(64) Section 148 (reduction of cash equivalent where car is shared) is amended as follows.
(65) In subsection (1)—
(a) in the words before paragraph (a), after “applies” insert “for the purposes of sections 121 and 121B”;
(b) in the words after paragraph (c), for “section 120” substitute “sections 120 and 120A”.
(66) For subsection (2) substitute—
“(2) The amount to be treated as earnings in respect of the benefit of the car is to be calculated separately for each of those employees for that tax year (whether under section 120 or section 120A).”
(67) In subsection (2A), at the beginning insert “In the case of an employee chargeable to tax in respect of the car by virtue of section 120”.
(68) After subsection (2A) insert—
“(2B) In the case of an employee chargeable to tax in respect of the car by virtue of section 120A, the modified cash equivalent (as determined under section 121B(1)) is to be reduced on a just and reasonable basis.”
(69) In section 149 (benefit of car fuel treated as earnings), in subsection (1)(b), at the end insert “or 120A”.
(70) After section 149 insert—
“149A Benefit of car fuel treated as earnings: optional remuneration arrangements
(1) This section applies if—
(a) fuel is provided for a car in a tax year by reason of an employee’s employment,
(b) the employee is chargeable to tax in respect of the car in the tax year by virtue of section 120 or 120A, and
(c) the fuel is provided pursuant to optional remuneration arrangements.
(2) If the condition in subsection (3) is met—
(a) the amount foregone with respect to the benefit of the fuel (see section 69B) is to be treated as earnings from the employment for the tax year, and
(b) section 149(1) does not apply.
(3) The condition mentioned in subsection (2) is that the amount foregone with respect to the benefit of the fuel is greater than the cash equivalent of the benefit of the fuel.
(4) For the purposes of subsection (3), assume that the cash equivalent of the benefit of the fuel is zero if the condition in subsection (5) is met.
(5) The condition mentioned in subsection (4) is that the benefit of the fuel would be exempt from income tax but for section 228A (exclusion of certain exemptions).
(6) References in this section to fuel do not include any facility or means for supplying electrical energy or any energy for a car which cannot in any circumstances emit CO2 by being driven.
(7) Where it is necessary for the purposes of subsections (2)(a) and (3) to apportion an amount of earnings to the benefit of the fuel in the tax year, the apportionment is to be made on a just and reasonable basis. In this subsection “earnings” is to be interpreted in accordance with section 69B(5).”
(71) In section 154 (benefit of van treated as earnings), after subsection (3) insert—
“(4) This section is subject to section 154A.”
(72) After section 154 insert—
“154A Benefit of van treated as earnings: optional remuneration arrangements
(1) Where this Chapter applies to a van in relation to a particular tax year and the conditions in subsection (2) are met—
(a) the relevant amount is to be treated as earnings from the employment for that tax year, and
(b) section 154(1) does not apply.
In such a case (including a case where the relevant amount is nil) the employee is referred to in this Chapter as being chargeable to tax in respect of the van in the tax year.
(2) The conditions are that—
(a) the van is made available to the employee or member of the employee’s household pursuant to optional remuneration arrangements, and
(b) the amount foregone with respect to the benefit of the van (see section 69B) is greater than the modified cash equivalent of the benefit of the van.
(3) To find the relevant amount for the purposes of this section take the following steps—
Step 1
Take the amount foregone with respect to the benefit of the van for the tax year.
Step 2
Make any deduction under section 158A in respect of payments by the employee for the private use of the van.
The result is “relevant amount”.
(4) In subsection (2) the reference to the “modified cash equivalent” is to the amount which would be the cash equivalent of the benefit of the van (after any reductions under section 156 or 157) if this Chapter had effect the following modifications—
(a) omit paragraph (c) of section 155(8);
(b) omit section 158;
(c) in section 159(2)(b), for “155, 157 and 158” substitute “155 and 157”.
(5) For the purposes of subsection (2) assume that the modified cash equivalent of the benefit of the van is zero if the condition in subsection (6) is met.
(6) The condition is that the benefit of the van would be exempt from income tax but for section 228A (exclusion of certain exemptions).
(7) Where it is necessary for the purposes of subsection (2)(b) and step 1 of subsection (3) to apportion an amount of earnings to the benefit of the van in the tax year, the apportionment is to be made on a just and reasonable basis.
In this subsection “earnings” is to be interpreted in accordance with section 69B(5).”
(73) After section 158 insert—
“158A Van provided pursuant to optional remuneration arrangements: private use
(1) In calculating the relevant amount under section 154A in relation to a van and a tax year, a deduction is to be made under step 2 of subsection (3) of that section if, as a condition of the van being available for the employee’s private use, the employee—
(a) is required in that year to pay (whether by way of deduction from earnings or otherwise) an amount of money for that use, and
(b) pays that amount on or before 6 July following that year.
(2) The amount of the deduction is—
(a) the amount paid as mentioned in subsection (1)(b) by the employee in respect of the year, or
(b) if less, the amount that would reduce the relevant amount to nil.
(3) In this section the reference to the van being available for the employee’s private use includes a reference to the van being available for the private use of a member of the employee’s family or household.”
(74) Section 160 (benefit of van fuel treated as earnings) is amended as follows.
(75) In subsection (1)(b), after “154” insert “or 154A”.
(76) At the end insert—
“(5) This section is subject to section 160A.”
(77) After section 160 insert—
“160A Benefit of van fuel treated as earnings: optional remuneration arrangements
(1) This section applies if—
(a) fuel is provided for a van in a tax year by reason of an employee’s employment,
(b) the benefit of the fuel is provided pursuant to optional remuneration arrangements, and
(c) the employee is chargeable to tax in respect of the van in the tax year by virtue of section 154 or 154A.
(2) If the condition in subsection (3) is met—
(a) the amount foregone with respect to the benefit of the fuel (see section 69B) is to be treated as earnings from the employment for that year, and
(b) section 160(1) does not apply.
(3) The condition mentioned in subsection (2) is that the amount foregone with respect to the benefit of the fuel is greater than the cash equivalent of the benefit of the fuel.
(4) For the purposes of subsection (3), assume that the cash equivalent of the benefit of the fuel is zero if the condition mentioned in subsection (5) is met.
(5) The condition mentioned in subsection (4) is that the benefit of the fuel would be exempt from income tax but for section 228A (exclusion of certain exemptions).
(6) Where it is necessary for the purposes of subsections (2)(a) and (3) to apportion an amount of earnings to the benefit of the fuel in the tax year, the apportionment is to be made on a just and reasonable basis. In this subsection “earnings” is to be interpreted in accordance with section 69B(5).”
(78) In section 170 (orders etc relating to Chapter 6 of Part 3), in subsection (1)—
(a) after paragraph (c) insert—
“(ca) section 132A(5)(b) (corresponding provision with respect to optional remuneration arrangements),”;
(b) omit “or” at the end of paragraph (d);
(c) after paragraph (e) insert—
“(f) section 147A(1)(b) (classic car: minimum value: optional remuneration arrangements).”
(79) In section 173 (loans to which Chapter 7 applies), in subsection (1A)(b), for the words from “provide” to the end substitute “make provision about amounts which, in the case of a taxable cheap loan, are to be treated as earnings in certain circumstances”.
(80) In section 175 (benefit of taxable cheap loan treated as earnings), for subsection (1) substitute—
“(A1) This section applies where an employment-related loan is a taxable cheap loan in relation to a tax year.
(1) The cash equivalent of the benefit of the loan is to be treated as earnings from the employee’s employment for the tax year.
(1A) If the benefit of the loan is provided pursuant to optional remuneration arrangements and the condition in subsection (1B) is met—
(a) subsection (1) does not apply, and
(b) the relevant amount (see section 175A) is to be treated as earnings from the employee’s employment for the tax year.
(1B) The condition is that the amount foregone with respect to the benefit of the loan for the tax year (see section 69B) is greater than the modified cash equivalent of the benefit of the loan for the tax year (see section 175A).”
(81) After section 175 insert—
“175A Optional remuneration arrangements: “relevant amount” and “modified cash equivalent”
(1) In section 175(1A) “the relevant amount”, in relation to a loan the benefit of which is provided pursuant to optional remuneration arrangements, means the difference between—
(a) the amount foregone (see section 69B) with respect to the benefit of the loan, and
(b) the amount of interest (if any) actually paid on the loan for the tax year.
(2) For the purposes of section 175 the “modified cash equivalent” of the benefit of an employment-related loan for a tax year is the amount which would be the cash equivalent if section 175(3) had effect with the following modifications—
(a) in the opening words, omit “the difference between”;
(b) omit paragraph (b) and the “and” before it.”
(3) But the modified cash equivalent of the benefit of the loan is to be taken to be zero if the condition in subsection (4) is met.
(4) The condition is that the benefit of the loan for the tax year would be exempt from income tax but for section 228A (exclusion of certain exemptions).
(5) For the purpose of calculating the modified cash equivalent of the benefit of an employment-related loan, assume that section 186(2) (replacement loans: aggregation) and section 187(3) (aggregation of loans by close company to a director) do not have effect.
(6) Where it is necessary for the purposes of section 175(1B) and subsection (1) of this section to apportion an amount of earnings to the benefit of the loan for the tax year, the apportionment is to be made on a just and reasonable basis.
In this subsection “earnings” is to be interpreted in accordance with section 69B(5).”
(82) In section 180 (threshold for benefit of loan to be treated as earnings), in subsection (1), for the words before paragraph (a) substitute “Section 175 does not have effect in relation to an employee and a tax year—”.
(83) In section 184 (interest treated as paid), in subsection (1), for the words from “the cash equivalent” to the end substitute “—
(a) the cash equivalent of the benefit of a taxable cheap loan is treated as earnings from an employee’s employment for a tax year under section 175(1), or
(b) the relevant amount in respect of the benefit of a taxable cheap loan is treated as earnings from an employee’s employment for a tax year under section 175(1A).”
(84) In section 202 (excluded benefits), after subsection (1) insert—
“(1A) But a benefit provided to an employee or member of an employee’s family or household is to be taken not to be an excluded benefit by virtue of subsection (1)(c) so far as it is provided under optional remuneration arrangements.”
(85) After section 203 insert—
“203A Employment-related benefit provided under optional remuneration arrangements
(1) Where an employment-related benefit is provided pursuant to optional remuneration arrangements—
(a) the relevant amount is to be treated as earnings from the employment for the tax year in which the benefit is provided, and
(b) section 203(1) does not apply.
(2) To find the relevant amount, first determine which (if any) is the greater of—
(a) the cost of the employment-related benefit, and
(b) the amount foregone with respect to the benefit (see section 69B).
(3) If the cost of the employment-related benefit is greater than or equal to the amount foregone, the “relevant amount” is the cash equivalent (see section 203(2)).
(4) Otherwise, the “relevant amount” is—
(a) the amount foregone with respect to the employment-related benefit, less
(b) any part of the cost of the benefit made good by the employee, to the persons providing the benefit, on or before 6 July following the tax year in which it is provided.
(5) For the purposes of subsections (2) and (3), assume that the cost of the employment-related benefit is zero if the condition in subsection (6) is met.
(6) The condition is that the employment-related benefit would be exempt from income tax but for section 228A (exclusion of certain exemptions).
(7) Where it is necessary for the purposes of subsections (2)(b) and (4) to apportion an amount of earnings to the benefit provided in the tax year, the apportionment is to be made on a just and reasonable basis.
In this subsection “earnings” is to be interpreted in accordance with section 69B(5).”
(86) In Part 4 of the Income Tax (Earnings and Pensions) Act 2003 (employment income: exemptions), after section 228 insert—
“228A General exclusion from exemptions: optional remuneration arrangements
(1) A relevant exemption does not apply (whether to prevent liability to income tax from arising or to reduce liability to income tax) in respect of a benefit or facility so far as the benefit or facility is provided pursuant to optional remuneration arrangements.
(2) For the purposes of subsection (1) it does not matter whether the relevant exemption would (apart from that subsection) have effect as an employment income exemption or an earnings-only exemption.
(3) For the purposes of this section an exemption conferred by this Part is a “relevant exemption” unless it is—
(a) a special case exemption (see subsection (4)), or
(b) an excluded exemption (see subsection (5)).
(4) “Special case exemption” means an exemption conferred by any of the following provisions—
(a) section 289A (exemption for paid or reimbursed expenses);
(b) section 289D (exemption for other benefits);
(c) section 308B (independent advice in respect of conversions and transfers of pension scheme benefits);
(d) section 312A (limited exemption for qualifying bonus payments);
(e) section 317 (subsidised meals);
(f) section 320C (recommended medical treatment);
(g) section 323A (trivial benefits provided by employers).
(5) “Excluded exemption” means an exemption conferred by any of the following provisions—
(a) section 239 (payments and benefits connected with taxable cars and vans and exempt heavy goods vehicles);
(b) section 244 (cycles and cyclist’s safety equipment);
(c) section 266(2)(c) (non-cash voucher regarding entitlement to exemption within section 244);
(d) section 270A (limited exemption for qualifying childcare vouchers);
(e) section 308 (exemption of contribution to registered pension scheme);
(f) section 308A (exemption of contributions to overseas pension scheme);
(g) section 308C (provision of pensions advice);
(h) section 309 (limited exemptions for statutory redundancy payments);
(i) section 310 (counselling and other outplacement services);
(j) section 311 (retraining courses);
(k) section 318 (childcare: exemption for employer-provided care);
(l) section 318A (childcare: limited exemption for other care).
(6) In this section “benefit or facility” includes anything which constitutes employment income or in respect of which employment income is treated as arising to the employee (regardless of its form and the manner of providing it).
(7) In this section “optional remuneration arrangements” has the same meaning as in the benefits code (see section 69A).
(8) The Treasury may by order amend subsections (4) and (5) by adding or removing an exemption conferred by Part 4.”
(87) Section 19 of the Income Tax (Earnings and Pensions) Act 2003 (receipt of non-money earnings) is amended as follows.
(88) In subsection (2), after “94” insert “or 94A”.
(89) In subsection (3), after “87” insert “or 87A”.
(90) In section 95 of the Income Tax (Earnings and Pensions) Act 2003 (disregard for money, goods or services obtained), in subsection (1), in the words before paragraph (a), after “credit-token” insert “or the relevant amount in respect of a cash voucher, a non-cash voucher or a credit-token”.
(91) In section 236 of the Income Tax (Earnings and Pensions) Act 2003 (interpretation of Chapter 2 of Part 4: exemptions for mileage allowance relief etc), in subsection (2)(b)—
(a) in the words before sub-paragraph (i), for “the cash equivalent of” substitute “an amount in respect of”;
(b) in sub-paragraph (i), after “120” insert “or 120A”;
(c) in sub-paragraph (ii), after “154” insert “or 154A”;
(d) in sub-paragraph (iii), after “203” insert “or 203A”.
(92) In section 236 of the Income Tax (Earnings and Pensions) Act 2003 (interpretation of Chapter 2 of Part 4), in subsection (2)(c), for “the cash equivalent of” substitute “an amount in respect of”.
(93) Section 239 of the Income Tax (Earnings and Pensions) Act 2003 (payments and benefits connected with taxable cars and vans etc) is amended as follows.
(94) In subsection (3)—
(a) after “149” insert “or 149A”;
(b) after “160” insert “or 160A”.
(95) In subsection (6), for “the cash equivalent of” substitute “an amount (whether the cash equivalent or the relevant amount) in respect of”.
(96) In section 362 of the Income Tax (Earnings and Pensions) Act 2003 (deductions where non-cash voucher provided), in subsection (1)(a), for “87(1) (cash equivalent” substitute “87(1) or 87A(1) (amount in respect”.
(97) In section 318A of the Income Tax (Earnings and Pensions) Act 2003 (childcare: limited exemption for other care), in subsection (1)(b), for “cash equivalent of the benefit” substitute “amount treated as earnings in respect of the benefit by virtue of section 203(1) or 203A(1) (as the case may be)”.
(98) In section 363 of the Income Tax (Earnings and Pensions) Act 2003 (deductions where credit-token provided), in subsection (1)(a), for “94(1) (cash equivalent” substitute “94(1) or 94A(1) (amount in respect”.
(99) In section 693 of the Income Tax (Earnings and Pensions) Act 2003 (cash vouchers), in subsection (1), for “section 81(2)” substitute “subsection (2) of, or (as the case may be) referred to in subsection (1A)(b) of, section 81”.
(100) In section 694 of the Income Tax (Earnings and Pensions) Act 2003 (non-cash vouchers), in subsection (1), after “87(2)” insert “or 87A(4)”.
(101) In section 695 of the Income Tax (Earnings and Pensions) Act 2003 (benefit of credit-token treated as earnings), after subsection (1) insert—
“(1A) If the credit-token is provided pursuant to optional remuneration arrangements, the reference in subsection (1) to the amount ascertained under section 94(2) is to be read as a reference to what that amount would be were the credit-token provided otherwise than pursuant to optional remuneration arrangements.
In this subsection “optional remuneration arrangements” is to be interpreted in accordance with section 69A.”
(102) In Part 2 of Schedule 1 to the Income Tax (Earnings and Pensions) Act 2003 (index of defined expressions), at the appropriate places insert—
(103) In Part 2 of Schedule 1 to the Income Tax (Earnings and Pensions) Act 2003 (index of defined expressions), in the entry relating to “the taxable period”, for “102(2)” substitute “102(1)”.
(104) The amendments made by paragraphs (1), (91)(a), (92) and (102) of this Resolution have effect for the tax year 2017-18 and subsequent tax years.
(105) The amendments made by paragraphs (2) to (90), (91)(b) to (d), (93) to (101) and (103) of this Resolution have effect for the tax year 2017-18 and subsequent tax years.
(106) But paragraph (105) does not apply in relation to benefits provided pursuant to pre-6 April 2017 arrangements.
(107) In relation to a benefit provided pursuant to pre-6 April 2017 arrangements, the amendment made by paragraph (86) has effect for the tax year 2018-19 and subsequent tax years.
(108) In relation to a benefit provided pursuant to pre-6 April 2017 arrangements, the amendments made by paragraphs (9) to (78), (91)(b) and (c), (93) to (95) and (103) (and paragraph (2), so far as relating to those paragraphs) have effect for the tax year 2021-22 and subsequent tax years.
(109) In relation to a benefit provided pursuant to pre-6 April 2017 arrangements, the amendments made by paragraphs (3) to (8), (79) to (85), (87) to (90), (91)(d) and (96) to (101) (and paragraph (2), so far as relating to those paragraphs) have effect for the tax year 2018-19 and subsequent tax years (but see paragraph (115)).
(110) If any terms of a pre-6 April 2017 arrangement which relate to the provision of a particular benefit are varied on or after 6 April 2017, that benefit is treated, with effect from the beginning of the day on which the variation takes effect, as not being provided pursuant to pre-6 April 2017 arrangements for the purposes of this Resolution.
(111) If pre-6 April 2017 arrangements are renewed on or after 6 April 2017, this Resolution has effect as if those arrangements were entered into at the beginning of the day on which the renewal takes effect (and are distinct from the arrangements existing immediately before that day).
(112) In paragraph (111) the reference to renewal includes a renewal which takes effect automatically.
(113) In paragraph (110) the reference to variation does not include any variation which is required in connection with accidental damage to a benefit provided under the arrangements, or otherwise for reasons beyond the control of the parties to the arrangements.
(114) In paragraph (110) the reference to variation does not include any variation which occurs in connection with a person’s entitlement to statutory sick pay, statutory maternity pay, statutory adoption pay, statutory paternity pay or statutory shared parental pay.
(115) In relation to relevant school fee arrangements which were entered into before 6 April 2017—
(a) paragraph (109) is to be read as if it did not include a reference to paragraph (85);
(b) the amendment made by paragraph (85) has effect for the tax year 2021-22 and subsequent tax years.
(116) Relevant school fee arrangements to which an employee is a party (“the continuing arrangements”) are to be regarded for the purposes of this Resolution as the same arrangements as any relevant school fee arrangements to which the employee was previously a party (“the previous arrangements”) if the continuing arrangements and the previous arrangements relate—
(a) to employment with the same employer,
(b) to the same school, and
(c) to school fees in respect of the same child.
(117) Paragraphs (110) and (111) do not have effect in relation to relevant school fee arrangements.
(118) If a non-cash voucher is provided under pre-6 April 2017 arrangements and is used to obtain anything (whether money, goods or services) that is provided on or after 6 April 2018 (“delayed benefits”), so much of the benefit of the voucher as it is reasonable to regard as being applied to obtain the delayed benefits is to be treated for the purposes of this Resolution as not having been provided pursuant to pre-6 April 2017 arrangements.
(119) For the purposes of this Resolution arrangements are “relevant school fee arrangements” if the benefit mentioned in section 69A(1) of the Income Tax (Earnings and Pensions) Act 2003 consists in the payment or reimbursement (in whole or in part) of, or a waiver or reduction of, school fees.
(120) In this Resolution—
(a) “arrangements” means optional remuneration arrangements (as defined in section 69A of the Income Tax (Earnings and Pensions) Act 2003);
(b) “benefit” includes any benefit or facility, regardless of the manner of providing it;
(c) “non-cash voucher” has the same meaning as in Chapter 4 of Part 3 of the Income Tax (Earnings and Pensions) Act 2003;
(d) “pre-6 April 2017 arrangements” means arrangements which are entered into before 6 April 2017.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
9. TAXABLE BENEFITS (MAKING GOOD)
Resolved,
That provision may be made about making good the cost of taxable benefits.
10. Taxable Benefits (Assets made available without transfer)
Resolved,
That—
(1) The Income Tax (Earnings and Pensions) Act 2003 is amended as follows.
(2) In section 205 (cost of taxable benefit subject to the residual charge: asset made available without transfer)—
(a) in subsection (1), for paragraph (a) substitute—
“(a) the benefit consists in an asset being made available for private use, and”,
(b) after subsection (1) insert—
“(1A) In this section and section 205A, “private use” means private use by the employee or a member of the employee’s family or household.
(1B) ) For the purposes of subsection (1) and sections 205A and 205B, an asset made available in a tax year for use by the employee or a member of the employee’s family or household is to be treated as made available throughout the year for private use unless—
(a) at all times in the year when it is available for use by the employee or a member of the employee’s family or household, the terms under which it is made available prohibit private use, and
(b) no private use is made of it in the year.
(1C) The cost of the taxable benefit is—
(a) the annual cost of the benefit determined in accordance with subsection (2), less
(b) any amount required to be deducted by section 205A (deduction for periods when asset unavailable for private use).
(1D) In certain cases, the cost of the taxable benefit is calculated under this section in accordance with section 205B (reduction of cost of taxable benefit where asset is shared).”, and
(c) in subsection (2), in the words before paragraph (a), for “cost of the taxable” substitute “annual cost of the”.
(3) After section 205 insert—
“Deduction for periods when asset unavailable for private use
(1) A deduction is to be made under section 205(1C)(b) if the asset mentioned in section 205(1) has been unavailable for private use on any day during the tax year concerned.
(2) For the purposes of this section an asset is “unavailable” for private use on any day if—
(a) that day falls before the day on which the asset is first available to the employee,
(b) that day falls after the day on which the asset is last available to the employee,
(c) for more than 12 hours during that day the asset—
(i) is not in a condition fit for use,
(ii) is undergoing repair or maintenance,
(iii) could not lawfully be used,
(iv) is in the possession of a person who has a lien over it and who is not the employer, not a person connected with the employer, not the employee, not a member of the employee’s family and not a member of the employee’s household, or
(v) is used in a way that is neither use by, nor use at the direction of, the employee or a member of the employee’s family or household, or
(d) on that day the employee—
(i) uses the asset in the performance of the duties of the employment, and
(ii) does not use the asset otherwise than in the performance of the duties of the employment.
(3) The amount of the deduction is given by—
Where—
U is the number of days, in the tax year concerned, on which the asset is unavailable for private use,
Y is the number of days in that year, and
A is the annual cost of the benefit of the asset determined under section 205(2).
(4) The reference in subsection (2)(a) to the time when the asset is first available to the employee is to the earliest time when the asset is made available, by reason of the employment and without any transfer of the property in it, for private use.
(5) The reference in subsection (2)(b) to the time when the asset is last available to the employee is to the last time when the asset is made available, by reason of the employment and without any transfer of the property in it, for private use.
205B Reduction of cost of taxable benefit where asset is shared
(1) This section applies where the cost of an employment-related benefit (“the taxable benefit”) is to be determined under section 205.
(2) If, for the whole or part of the tax year concerned, the same asset is available for more than one employee’s private use at the same time, the total of the amounts which are the cost of the taxable benefit for each of those employees is to be limited to the annual cost of the benefit of the asset determined in accordance with section 205(2).
(3) The cost of the taxable benefit for each employee is determined by taking the amount given by section 205(1C) and then reducing that amount on a just and reasonable basis.
(4) For the purposes of this section, an asset is available for an employee’s private use if it is available for private use by the employee or a member of the employee’s family or household.”
(4) In section 365 (deductions where employment-related benefit provided)—
(a) in subsection (1)—
(i) omit the “and” at the end of paragraph (a), and
(ii) after that paragraph insert—
“(aa) the cost of the benefit was determined under section 204 or 206, and”,
(b) in subsection (3), for “sections 204 to 206” substitute “section 204 or 206”, and
(c) in the heading, for “employment-related benefit” substitute “certain employment-related benefits”.
(5) The amendments made by this Resolution have effect for the tax year 2017-18 and subsequent tax years.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
11. Pensions
Resolved,
That provision may be made about the taxation of pensions.
12. Pensions (Offshore Transfers)
Resolved,
That—
(1) Schedule 34 to the Finance Act 2004 (non-UK pension schemes: application of certain charges) is amended as follows.
(2) Paragraph 1 (application of member payment charges to relevant non-UK schemes) is amended as follows.
(3) After sub-paragraph (6) insert—
“(6A) There are three types of relevant transfer—
(a) an original relevant transfer,
(b) a subsequent relevant transfer, and
(c) any other (including, in particular, all relevant transfers before 9 March 2017).
(6B) “An original relevant transfer” is—
(a) a relevant transfer within sub-paragraph (6)(a) made on or after 9 March 2017,
(b) a relevant transfer within sub-paragraph (6)(b), made on or after 9 March 2017, of the whole or part of the UK tax-relieved fund of a relieved member of a qualifying recognised overseas pension scheme, or
(c) a relevant transfer within sub-paragraph (6)(b), made on or after 6 April 2017, of the whole or part of the UK tax-relieved fund of a relieved member of a relevant non-UK scheme that is not a qualifying recognised overseas pension scheme.
(6C) The sums or assets transferred as a result of an original relevant transfer constitute a ring-fenced transfer fund, and the key date for that fund is the date of the transfer.
(6D) Where in the case of a ring-fenced transfer fund (“the source fund”) there is a relevant transfer of the whole or part of the fund—
(a) the sums or assets transferred as a result of the transfer constitute a ring-fenced transfer fund,
(b) that fund has the same key date as the source fund, and
(c) the transfer is “a subsequent relevant transfer”, and is not an original relevant transfer.
(6E) Sub-paragraph (6D) applies whether the source fund is a ring-fenced transfer fund as a result of sub-paragraph (6C) or as a result of sub-paragraph (6D).
(6F) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sums or assets identified in accordance with the regulations are not included in a ring-fenced transfer fund as a result of sub-paragraph (6D)(a).”
(4) Paragraph 2 (member payment provisions apply to payments out of non-UK schemes if member is UK resident or has been UK resident in any of the preceding 5 tax years) is amended as follows.
(5) The existing text becomes sub-paragraph (1).
(6) In that sub-paragraph, after “scheme” insert “so far as it is referable to 5-year-rule funds”.
(7) After that sub-paragraph insert—
“(2) The member payment provisions do not apply in relation to a payment made (or treated by this Part as made) to or in respect of a relieved member of a relevant non-UK scheme so far as it is referable to 10-year rule funds unless the member—
(a) is resident in the United Kingdom when the payment is made (or treated as made), or
(b) although not resident in the United Kingdom at that time, has been resident in the United Kingdom earlier in the tax year in which the payment is made (or treated as made) or in any of the 10 tax years immediately preceding that year.
(3) The member payment provisions do not apply in relation to a payment made (or treated by this Part as made) to or in respect of a transfer member of a relevant non-UK scheme, so far as it is referable to any particular ring-fenced transfer fund of the member’s under the scheme which has a key date of 6 April 2017 or later, unless—
(a) the member is resident in the United Kingdom when the payment is made (or treated as made), or
(b) although the member is not resident in the United Kingdom at that time—
(i) the member has been resident in the United Kingdom earlier in the tax year containing that time, or
(ii) the member has been resident in the United Kingdom in any of the 10 tax years immediately preceding the tax year containing that time, or
(iii) that time is no later than the end of 5 years beginning with the key date for the particular fund.
(4) In this paragraph—
“5-year rule funds”, in relation to a payment to or in respect of a relieved member of a relevant non-UK scheme, means so much of the member’s UK tax-relieved fund under the scheme as represents tax-relieved contributions, or tax-exempt provision, made under the scheme before 6 April 2017;
“5-year rule funds”, in relation to a payment to or in respect of a transfer member of a relevant non-UK scheme, means—
(a) the member’s relevant transfer fund under the scheme, and
(b) any of the member’s ring-fenced transfer funds under the scheme that has a key date earlier than 6 April 2017;
“10-year rule funds”, in relation to a payment to or in respect of a relieved member of a relevant non-UK scheme, means so much of the member’s UK tax-relieved fund under the scheme as represents tax-relieved contributions, or tax-exempt provision, made under the scheme on or after 6 April 2017.
(5) See also—
paragraph 1(6C), (6D) and (6F) (meaning of “ring-fenced transfer fund”),
paragraph 3 (meaning of “UK tax-relieved fund”, “tax-relieved contributions” and “tax-exempt provision” etc), and
paragraph 4 (meaning of “relevant transfer fund” etc).”
(8) Paragraph 3 (payments to or in respect of relieved members of schemes) is amended as follows.
(9) After sub-paragraph (5) insert—
“(5A) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that, in circumstances specified in the regulations, something specified in the regulations is to be treated as done by, to in respect of or in the case of a relieved member of a relevant non-UK scheme.”
(10) In sub-paragraph (6) (power to specify whether payments by scheme are referable to UK tax-relieved fund) after “payments made (or treated as made) by” insert “, or other things done by or to or under or in respect of or in the case of,”.
(11) After sub-paragraph (7) insert—
“(8) Where regulations under sub-paragraph (6) make provision for a payment or something else to be treated as referable to a member’s UK tax-relieved fund under a scheme, regulations under that sub-paragraph may make provision for the payment or thing, or any part or aspect of the payment or thing, also to be treated as referable to a particular part of that fund.”
(12) Paragraph 4 (payments to or in respect of transfer members of schemes) is amended as follows.
(13) In sub-paragraph (1), after “relevant transfer fund” insert “, or ring-fenced transfer funds,”.
(14) In sub-paragraph (2) (meaning of “relevant transfer fund”), before “so much of” insert “, subject to sub-paragraph (3A),”.
(15) After sub-paragraph (3) insert—
“(3A) The member’s relevant transfer fund under the scheme does not include sums or assets that are in any of the member’s ring-fenced transfer funds under the scheme.”
(16) After sub-paragraph (4) insert—
“(5) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that, in circumstances specified in the regulations, something specified in the regulations is to be treated as done by, to, in respect of or in the case of a transfer member of a relevant non-UK scheme.
(6) Regulations made by the Commissioners for Her Majesty’s Revenue and Customs may make provision for determining whether payments or transfers made (or treated as made) by, or other things done by or to or under or in respect of or in the case of, a relevant non-UK scheme are to be treated as referable to a member’s ring-fenced transfer funds under the scheme (and so whether or not they reduce the funds or any of them).
(7) Where regulations under sub-paragraph (6) make provision for a payment or transfer or something else to be treated as referable to a member’s ring-fenced transfer funds under a scheme, regulations under that sub-paragraph may make provision for the payment or transfer or other thing, or any part or aspect of the payment or transfer or thing, also to be treated as referable to a particular one of those funds.
(17) In paragraph 7(2)(c) (regulations about application of member payment provisions), after “relevant transfer fund” insert “or ring-fenced transfer funds”.
(18) Paragraph 9ZB (application of section 227G) is amended as follows.
(19) In sub-paragraph (2), after “relevant transfer fund” insert “or ring-fenced transfer funds”.
(20) After sub-paragraph (3) insert—
“(4) The reference in sub-paragraph (2) to the individual’s ring-fenced transfer funds under the relevant non-UK scheme is to be read in accordance with paragraph 1.”
(21) The amendments made by paragraphs (4) to (7) of this Resolution apply in relation to payments made (or treated as made) on or after 6 April 2017, and the amendments made by paragraphs (3) and (8) to (20) of this Resolution come into force on 9 March 2017.
(22) Section 576A of the Income Tax (Earnings and Pensions) Act 2003 (as it applies where the year of departure is the tax year 2013-14 or a later tax year) is amended as follows.
(23) In subsection (6)(b) (pension income: temporary non-residents: non-application where payment not referable to relevant transfer fund)—
(c) for “not referable” substitute “referable neither”, and
(d) after “relevant transfer fund” insert “, nor to the member’s ring-fenced transfer funds,”.
(24) In subsection (10) (interpretation), at the end insert—
““member’s ring-fenced transfer fund” (see paragraph 1(6C) and (6D).”
(25) Section 576A of the Income Tax (Earnings and Pensions) Act 2003, as it applies where the year of departure is the tax year 2012-13 or an earlier tax year, is amended as follows.
(26) In subsection (6) (pension income: temporary non-residents: non-application unless payment referable to relevant transfer fund), after “member’s relevant transfer fund” insert “, or the member’s ring-fenced transfer funds,”.
(27) In subsection (8) (interpretation), before the definition of “scheme pension” insert—
““member’s ring-fenced transfer funds” has the same meaning as in that Schedule (see paragraph 1(6C) and (6D));”.
(28) The amendments made by paragraphs (22) to (27) of this Resolution apply in relation to relevant withdrawals on or after 6 April 2017.
(29) In Part 4 of the Finance Act 2004 (pension schemes etc), after section 244 insert—
“Non-UK schemes: the overseas transfer charge
244A Overseas transfer charge
(1) A charge to income tax, to be known as the overseas transfer charge, arises where—
(a) a recognised transfer is made to a QROPS, or
(b) an onward transfer is made during the relevant period for the original transfer, and
and the transfer is not excluded from the charge by or under any of sections 244B to 244H.
(2) Sections 244B to 244H are subject to section 244I (circumstances in which exclusions do not apply).
(3) In this group of sections, an “onward transfer” is a transfer of sums or assets held for the purposes of, or representing accrued rights under, an arrangement under a QROPS or former QROPS in relation to a member so as to become held for the purposes of, or to represent rights under, an arrangement under another QROPS in relation to that person as a member of that other QROPS.
(4) In this group of sections “relevant period” means—
(a) in the case of a recognised transfer made on 6 April in any year, the 5 years beginning with the date of the transfer,
(b) in the case of any other recognised transfer, the period consisting of the combination of—
(i) the period beginning with the date of the transfer and ending with the next 5 April, and
(ii) the 5 years beginning at the end of that initial period,
(c) in the case of an onward transfer, the period—
(i) beginning with the date of the transfer, and
(ii) ending at the end of the relevant period for the original transfer (see paragraphs (a) and (b) or, as the case may be, paragraphs (d) and (e)),
(d) in the case of a relevant transfer that—
(i) is made on 6 April in any year, and
(ii) is the original transfer for an onward transfer,
the 5 years beginning with the date of the relevant transfer, and
(e) in the case of a relevant transfer that—
(i) is made otherwise than on 6 April in any year, and
(ii) is the original transfer for an onward transfer,
the period consisting of the combination of: the period beginning with the date of the relevant transfer and ending with the next 5 April; and the 5 years beginning at the end of that initial period.
(5) In this group of sections “the original transfer”, in relation to an onward transfer, means (subject to subsection (6))—
(a) the recognised transfer in respect of which the following conditions are met—
(i) it is from a registered pension scheme to a QROPS,
(ii) the sums and assets transferred by the onward transfer directly or indirectly derive from those transferred by it, and
(iii) it is more recent than any other recognised transfer in respect of which the conditions in sub-paragraphs (i) and (ii) are met, or
(b) where there is no such recognised transfer, the relevant transfer (see paragraph 1(6) of Schedule 34) in respect of which the following conditions are met—
(i) it is from a relevant non-UK scheme (see paragraph 1(5) of Schedule 34),
(ii) it is a transfer of the whole or part of the UK-tax relieved fund (see paragraph 3 of Schedule 34) of a member of the scheme,
(iii) it is to a QROPS, and
(iv) the sums and assets transferred by the onward transfer directly or indirectly derive from those transferred by it.
(6) Where apart from this subsection there would be different original transfers for different parts of an onward transfer, each such part of the onward transfer is to be treated as a separate onward transfer for the purposes of this group of sections.
(7) In this section and sections 244B to 244N—
“QROPS” means a qualifying recognised overseas pension scheme, and “former QROPS” means a scheme that has at any time been a QROPS;
“ring-fenced transfer fund”, in relation to a QROPS or former QROPS, has the meaning given by paragraph 1 of Schedule 34;
“this group of sections” means this section and sections 244B to 244N.
244B Exclusion: member and receiving scheme in same country
(1) A recognised transfer to a QROPS is excluded from the overseas transfer charge if during the relevant period—
(a) the member is resident in the country or territory in which the QROPS is established, and
(b) there is no onward transfer—
(i) for which the recognised transfer is the original transfer, and
(ii) which is not excluded from the charge.
(2) If the member is resident in that country or territory at the time of the transfer mentioned in subsection (1), it is to be assumed for the purposes of subsection (1) that the member will be resident in that country or territory during the relevant period; but if, at a time before the end of the relevant period, the transfer ceases to be excluded by subsection (1) otherwise than by reason of the member’s death—
(a) that assumption is from that time no longer to be made, and
(b) the charge on the transfer is treated for the purposes of sections 244L and 254 as charged at that time.
(3) An onward transfer to a QROPS (“transfer A”) is excluded from the overseas transfer charge if during so much of the relevant period as is after the time of the transfer A—
(a) the member is resident in the country or territory in which the QROPS is established, and
(b) there is no subsequent onward transfer that—
(i) is of sums and assets which, in whole or part, directly or indirectly derive from those transferred by transfer A, and
(ii) is not excluded from the charge.
(4) If the member is resident in that country or territory at the time of transfer A, it is to be assumed for the purposes of subsection (3) that the member will be resident in that country or territory during so much of the relevant period as is after the time of transfer A; but if, at a time before the end of the relevant period, the transfer ceases to be excluded by subsection (3) otherwise than by reason of the member’s death—
(a) that assumption is from that time no longer to be made, and
(b) the charge on transfer A is treated for the purposes of sections 244L and 254 as charged at that time.
244C Exclusion: member and receiving scheme in EEA states
(1) This section applies to a transfer to a QROPS established in an EEA state.
(2) If the transfer is a recognised transfer, the transfer is excluded from the overseas transfer charge if during the relevant period—
(a) the member is resident in an EEA state (whether or not the same EEA state throughout that period), and
(b) there is no onward transfer—
(i) for which the recognised transfer is the original transfer, and
(ii) which is not excluded from the charge.
(3) If the member is resident in an EEA state at the time of the recognised transfer mentioned in subsection (2), it is to be assumed for the purposes of this section that the member will be resident in an EEA state during the relevant period; but if, at a time before the end of the relevant period, the transfer ceases be excluded by subsection (2) otherwise than by reason of the member’s death—
(a) that assumption is from that time no longer to be made, and
(b) the charge on the transfer is treated for the purposes of sections 244L and 254 as charged at that time.
(4) If the transfer is an onward transfer (“transfer B”), the transfer is excluded from the overseas transfer charge if during so much of the relevant period as is after the time of the onward transfer—
(a) the member is resident in an EEA state (whether or not the same EEA state at all of those times), and
(b) there is no subsequent onward transfer that—
(i) is of sums and assets which, in whole or part, directly or indirectly derive from those transferred by transfer B, and
(ii) is not excluded from the charge.
(5) If the member is resident in an EEA state at the time of transfer B, it is to be assumed for the purposes of subsection (4) that the member will be resident in an EEA state during so much of the relevant period as is after the time of transfer B; but if, at a time before the end of the relevant period, the transfer ceases to be excluded by subsection (4) otherwise than by reason of the member’s death—
(a) that assumption is from that time no longer to be made, and
(b) the charge on transfer B is treated for the purposes of sections 244L and 254 as charged at that time.
244D Exclusion: receiving scheme is an occupational pension scheme
A transfer to a QROPS is excluded from the overseas transfer charge if—
(a) the QROPS is an occupational pension scheme, and
(b) when the transfer is made, the member is an employee of a sponsoring employer of the QROPS.
244E Exclusion: receiving scheme set up by international organisation
(1) A transfer to a QROPS is excluded from the overseas transfer charge if—
(a) the QROPS is established by an international organisation and has effect so as to provide benefits for, or in respect of, past service as an employee of the organisation, and
(b) when the transfer is made, the member is an employee of the organisation.
(2) In this section “international organisation” means an organisation to which section 1 of the International Organisations Act 1968 applies by virtue of an Order in Council under subsection (1) of that section.
244F Exclusion: receiving scheme is an overseas public service scheme
(1) A transfer to a QROPS is excluded from the overseas transfer charge if—
(a) the QROPS is an overseas public service pension scheme, and
(b) when the transfer is made, the member is an employee of an employer that participates in the scheme.
(2) A QROPS is an “overseas public service pension scheme” for the purposes of this section if—
(a) either—
(i) it is established by or under the law of the country or territory in which it is established, or
(ii) it is approved by the government of that country or territory, and
(b) it is established solely for the purpose of providing benefits to individuals for or in respect of services rendered to—
(i) that country or territory, or
(ii) any political subdivision or local authority of that country or territory.
(3) For the purposes of this section, an employer participates in a QROPS that is an overseas public service pension scheme if the scheme has effect so as to provide benefits to or in respect of any or all of the employees of the employer in respect of their employment by the employer.
244G Exclusions: avoidance of double charge, and transitional protections
(1) A recognised transfer to a QROPS is excluded from the overseas transfer charge if it is made in execution of a request made before 9 March 2017.
(2) An onward transfer (“the current onward transfer”) is excluded from the overseas transfer charge if—
(a) the charge was paid on the original transfer and the amount paid is not repayable, or
(b) the charge was paid on an onward transfer (“the earlier onward transfer”) in respect of which the conditions in subsection (4) are met and the amount paid is not repayable, or
(c) the original transfer was made before 9 March 2017, or
(d) the original transfer was made on or after 9 March 2017 in execution of a request made before 9 March 2017.
(3) An onward transfer is excluded from the overseas transfer charge so far as the transfer is made otherwise than out of the member’s ring-fenced transfer funds under the scheme from which the onward transfer is made.
(4) The conditions mentioned in subsection (2)(b) are—
(a) that the earlier onward transfer was made before the current onward transfer,
(b) that the earlier onward transfer was made after the original transfer, and
(c) that all the sums and assets transferred by the current onward transfer directly or indirectly derive from those transferred by the earlier onward transfer.
244H Power to provide for further exclusions
The Commissioners for Her Majesty’s Revenue and Customs may by regulations make provision for a recognised transfer to a QROPS, or an onward transfer, to be excluded from the overseas transfer charge if the transfer is of a description specified in the regulations.
244I Circumstances in which exclusions do not apply
(1) Subsection (2) applies if a recognised transfer to a QROPS, or an onward transfer, would (but for this section) be excluded from the overseas transfer charge by any of sections 244B to 244F.
(2) The transfer is not excluded from the charge if the member has, in connection with the transfer, failed to comply with the relevant information regulation.
(3) In subsection (2) “the relevant information regulation” means whichever of the following is applicable—
(a) regulation 11BA of the Registered Pension Schemes (Provision of Information) Regulations 2006 (S.I. 2006/567), or any regulation having effect in place of any of that regulation, as (in either case) from time to time amended, and
(b) regulation 3AE of the Pension Schemes (Information Requirements for Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 (S.I. 2006/208), or any regulation having effect in place of any of that regulation, as (in either case) from time to time amended.
244J Persons liable to charge
(1) In the case of a recognised transfer to a QROPS, the persons liable to the overseas transfer charge are—
(a) the scheme administrator of the registered pension scheme from which the transfer is made, and
(b) the member
and their liability is joint and several.
(2) In the case of an onward transfer, the persons liable to the overseas transfer charge are—
(a) the scheme manager of the QROPS, or former QROPS, from which the transfer is made, and
(b) the member
and their liability is joint and several.
(3) Subsections (1) and (2) are subject to subsection (4), and subsections (2) and (4) are subject to subsection (5).
(4) If a transfer is one required by section 244B or 244C to be initially assumed to be excluded by that section but an event occurring before the end of the relevant period means that the transfer is not so excluded, the persons liable to the overseas transfer charge in the case of the transfer are—
(a) the scheme manager of any QROPS, or former QROPS, under which the member has, at the time of the event, ring-fenced transfer funds in which any of the sums and assets referred to in section 244K(6) in the case of the transfer are represented, and
(b) the member,
and their liability is joint and several.
(5) The scheme manager of a former QROPS is liable to the overseas transfer charge in the case of a transfer (“the transfer concerned”) only if the former QROPS—
(a) was a QROPS when a relevant inward transfer was made, and
(b) where a relevant inward transfer was made before 9 March 2017, was a QROPS at the start of 9 March 2017;
and here “relevant inward transfer” means a recognised or onwards transfer to the former QROPS (at a time when it was a QROPS) of sums and assets which, to any extent, are represented by sums or assets transferred by the transfer concerned.
(6) A person is liable to the overseas transfer charge whether or not—
(a) that person, and
(b) any other person who is liable to the charge,
are resident or domiciled in the United Kingdom.
244K Amount of charge
(1) Where the overseas transfer charge arises in the case of a transfer, the charge is 25% of the transferred value.
(2) If the transfer is from a registered pension scheme established in the United Kingdom, the transferred value is the total of—
(a) the amount of any sums transferred, and
(b) the value of any assets transferred,
but this is subject to subsections (5) to (9).
(3) If the transfer is from a registered pension scheme established in a country or territory outside the United Kingdom, the transferred value is the total of—
(a) the amount of any sums transferred that are attributable to UK-relieved funds of the scheme, and
(b) the value of any assets transferred that are attributable to UK-relieved funds of the scheme,
but this is subject to subsections (5) to (9).
(4) If the transfer is from a QROPS or former QROPS, the transferred value is the total of—
(a) the amount of any sums transferred that are attributable to the member’s ring-fenced transfer funds under the scheme, and
(b) the value of any assets transferred that are attributable to the member’s ring-fenced transfer funds under the scheme,
but this is subject to subsections (5) to (9).
(5) If the lifetime allowance charge arises in the case of the transfer and is to be deducted from the transfer, paragraphs (a) and (b) of subsections (2) to (4) are to be read as referring to what is to be transferred after deduction of the lifetime allowance charge.
(6) If the transfer is one initially assumed to be excluded by section 244B or 244C but an event occurring before the end of the relevant period means that the transfer is not so excluded, the sums and assets mentioned in whichever of subsections (2) to (4) is applicable include only those that at the time of the event are represented in any of the member’s ring-fenced transfer funds under any QROPS or former QROPS.
(7) If the operator pays the charge on the transfer and does so—
(a) otherwise than by deduction from the transfer, and
(b) out of sums and assets held for the purposes of, or representing accrued rights under, the scheme from which the transfer is made,
the transferred value is the amount given by subsections (2) to (6) grossed up by reference to the rate specified in subsection (1).
(8) If the operator pays the charge on the transfer and does so by deduction from the transfer, the transferred value is the amount given by subsections (2) to (6) before the deduction.
(9) If the member pays the charge on the transfer, the transferred value is the amount given by subsections (2) to (6) without any deduction for the charge.
(10) If the lifetime allowance charge arises in the case of the transfer, the provisions of this Part relating to the lifetime allowance charge apply (whether or not in relation to the transfer) as if the overseas transfer charge did not arise in the case of the transfer.
(11) In this section—
“the operator” means—
(a) the scheme administrator of the scheme from which the transfer is to be made if that scheme is a registered pension scheme, or
(b) the scheme manager of the scheme from which the transfer is to be made if that scheme is a QROPS or former QROPS;
“UK-relieved funds”, in relation to a registered pension scheme established in a country or territory outside the United Kingdom, has the meaning given by section 242B.
244L Accounting for overseas transfer charge by scheme managers
(1) In this section “charge” means overseas transfer charge for which the scheme manager of a QROPS or former QROPS is liable.
(2) The Commissioners for Her Majesty’s Revenue and Customs may by regulations make provision for or in connection with—
(a) the payment of charge, including due dates for payment,
(b) the charging of interest on charge not paid on or before its due date,
(c) notification by the scheme manager of errors in information provided by the scheme manager to the Commissioners in connection with charge or the scheme manager’s liability for overseas transfer charge,
(d) repayments to scheme managers under section 244M of amounts paid by way of charge, and
(e) the making of assessments, repayments or adjustments in cases where the correct amount of charge has not been paid by the due date for payment of the charge.
(3) The regulations may, in particular—
(a) modify the operation of any provision of the Tax Acts, or
(b) provide for the application of any provision of the Tax Acts (with or without modification).
244M Repayments of charge on subsequent excluding events
(1) This section applies if—
(a) overseas transfer charge arose on a transfer at the time the transfer was made, and
(b) at a time during the relevant period for the transfer, circumstances arise such that, had those circumstances existed at the time the transfer was made, the transfer would at the time it was made have been excluded from the charge by sections 244B to 244F or under section 244H.
(2) Any amount paid in respect of charge on the transfer is to be repaid by the Commissioners for Her Majesty’s Revenue and Customs so far as not already repaid.
(3) Subsection (2) does not give rise to entitlement to repayment of, or cancellation of liabilities to, interest or penalties in respect of late payment of charge on the transfer.
(4) Repayment under this section to the scheme administrator of a registered pension scheme, or the scheme manager of a QROPS or former QROPS, is conditional on prior compliance with any requirements to give information to the Commissioners, about the circumstances in which the right to the repayment arises, that are imposed on the prospective recipient under section 169 or 251 (but repayment is not conditional on compliance with any time limits so imposed for compliance with any such requirements).
(5) Repayment under this section is not a relievable pension contribution.
(6) Where—
(a) an amount is repaid under this section to the scheme administrator of a registered pension scheme, and
(b) there is a recognised transfer from that scheme to a QROPS of some or all of that amount,
that transfer is not benefit crystallisation event 8 in relation to the member (but this does not affect the amount crystallised by the benefit crystallisation event consisting of the making of the transfer mentioned in subsection (1)).
(7) Repayment under this section to the member is conditional on making a claim, and such a claim must be made no later than one year after the end of the relevant period for the transfer concerned.
(8) The Commissioners for Her Majesty’s Revenue and Customs may by regulations make provision for or in connection with claims or repayments under this section, including provision—
(a) requiring claims,
(b) about who may claim,
(c) imposing conditions for making claims, including conditions about time limits,
(d) as to additional circumstances in which repayments may be made,
(e) modifying the operation of any provision of the Tax Acts, or
(f) applying any provision of the Tax Acts (with or without modifications).
244N Discharge of liability of scheme administrator or manager
(1) In this section “operator” means—
(a) the scheme administrator of a registered pension scheme, or
(b) the scheme manager of a QROPS or former QROPS.
(2) If an operator is liable under section 244J, the operator may apply to an officer of Revenue and Customs for the discharge of the operator’s liability on the following ground.
(3) The ground is that—
(a) the operator reasonably believed that there was no liability to the offshore transfer charge on the transfer concerned, and
(b) in all the circumstances of the case, it would not be just and reasonable for the operator to the charge on the transfer.
(4) On receiving an application under subsection (2), an officer of Revenue and Customs must decide whether to discharge the operator’s liability.
(5) An officer of Revenue and Customs must notify the operator of the decision on the application.
(6) The discharge of the operator’s liability does not affect the liability of any other person to overseas transfer charge on the transfer concerned.
(7) The Commissioners for Her Majesty’s Revenue and Customs may by regulations make provision supplementing this section, including provision for time limits for making an application under this section.”
(30) Part 4 of the Finance Act 2004 is further amended as follows.
(31) Section 169 (recognised transfers, and definition and obligations of a QROPS) is amended as follows.
(32) In subsection (2) (what makes a recognised overseas pension scheme a QROPS), after paragraph (b) insert—
“(ba) the scheme manager has confirmed to an officer of Revenue and Customs that the scheme manager understands the scheme manager’s potential liability to overseas transfer charge and has undertaken to such an officer to operate the charge including by meeting the scheme manager’s liabilities to the charge,”.
(33) After subsection (2) insert—
“(2A) Regulations may make provision as to—
(a) information that is to be included in, or is to accompany, a notification under subsection (2)(a);
(b) the way and form in which such a notification, or any required information or evidence, is to be given or provided.”
(34) After subsection (4) insert—
“(4ZA) Regulations may require a member, or former member, of a QROPS or former QROPS to give information of a prescribed description to the scheme manager of a QROPS or former QROPS.”
(35) In subsection (4A) (inclusion of supplementary provision in regulations under subsection (4)), after “(4)” insert “or (4ZA)”.
(36) After subsection (4B) insert—
“(4C) Provision under subsection (2A)(b) or (4A)(a) may, in particular, provide for use of a way or form specified by the Commissioners.”
(37) After subsection (7) insert—
“(7A) Regulations may, in a case where—
(a) any of the sums and assets transferred by a relevant overseas transfer represent rights in respect of a pension to which a person has become entitled under the transferring scheme (“the original pension”), and
(b) those sums and assets are, after the transfer, applied towards the provision of a pension under the other scheme (“the new pension”),
provide that the new pension is to be treated, to such extent as is prescribed and for such of the purposes of this Part as are prescribed, as if it were the original pension.
(7B) For the purposes of subsection (7A), a “relevant overseas transfer” is a transfer of sums or assets held for the purposes of, or representing accrued rights under, a relevant overseas scheme (“the transferring scheme”) so as to become held for the purposes of, or to represent rights under—
(a) another relevant overseas scheme, or
(b) a registered pension scheme,
in connection with a member of that pension scheme.
(7C) In subsection (7B) “relevant overseas scheme” means—
(a) a QROPS, or
(b) a relevant non-UK scheme (see paragraph 1(5) of Schedule 34).
(7D) Regulations under subsection (7A) may—
(a) apply generally or only in specified cases, and
(b) make different provision for different cases.”
(38) In subsection (8) (interpretation)—
(e) in the opening words, after “subsections (4) to (6)” insert “, (7A) to (7D)”, and
(f) in the definition of “relevant requirement”, at the end insert “, or
(c) a requirement to pay overseas transfer charge, or interest on overseas transfer charge, imposed by regulations under section 244L(2) or by an assessment under such regulations.”
(39) After Chapter 5 insert—
“Chapter 5A
Registered pension schemes established outside the United Kingdom
242A Meaning of “non-UK registered scheme”
In this Chapter “non-UK registered scheme” means a registered pension scheme established in a country or territory outside the United Kingdom.
242B Meaning of “UK-relieved funds”
(1) For the purposes of this Chapter, the “UK-relieved funds” of a non-UK registered scheme are sums or assets held for the purposes of, or representing accrued rights under, the scheme—
(a) that (directly or indirectly) represent sums or assets that at any time were held for the purposes of, or represented accrued rights under, a registered pension scheme established in the United Kingdom,
(b) that (directly or indirectly) represent sums or assets that at any time formed the UK tax-relieved fund under a relevant non-UK scheme of a relieved member of that scheme, or
(c) that—
(i) are held for the purposes of, or represent accrued rights under, an arrangement under the scheme relating to a member of the scheme who on any day has been an accruing member of the scheme, and
(ii) in accordance with regulations made by the Commissioners for Her Majesty’s Revenue and Customs, are to be taken to have benefited from relief from tax.
(2) In section 242B “relevant contribution” has the meaning given by regulation 14ZB(8) of the Information Regulations.
(3) Paragraphs (7) and (8) of regulation 14ZB of the Information Regulations (meaning of “accruing member”) apply for the purposes of this section as for those of that regulation.
(4) “The Information Regulations” means the Registered Pension Schemes (Provision of Information) Regulations 2006 (S.I. 2006/567).”
(40) In section 254(6) (regulations about accounting for tax by scheme administrators), after paragraph (b) insert—
“(ba) repayments under section 244M to scheme administrators,”.
(41) In section 255(1) (power to make provision for assessments), after paragraph (d) insert—
“(da) liability of the scheme administrator of a registered pension scheme, or the scheme manager of a qualifying recognised overseas pension scheme or of a former such scheme, to the overseas transfer charge,”.
(42) In section 269(1)(a) (appeal against decision on discharge of liability), before “section 267(2)” insert “section 244N (discharge of liability to overseas transfer charge),”.
(43) In section 9(1A) of the Taxes Management Act 1970 (tax not within the scope of self-assessment), after paragraph (a) insert—
“(aa) is chargeable, on the scheme manager of a qualifying recognised overseas pension scheme or a former such scheme, under Part 4 of the Finance Act 2004,”.
(44) In Schedule 56 to the Finance Act 2009 (penalty for failure to make payments on time), in the Table in paragraph 1, after the entry for item 3 insert—
(45) In regulation 3(1) of the Registered Pension Schemes (Accounting and Assessment) Regulations 2005 (S.I. 2005/3454), in Table 1, at the end insert—
(46) The amendment made by paragraph (45) of this Resolution is to be treated as having been made by the Commissioners for Her Majesty’s Revenue and Customs under the applicable powers to make regulations conferred by section 254 of the Finance Act 2004.
(47) The Pension Schemes (Information Requirements for Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 (S.I. 2006/208) are amended as follows.
(48) In regulation 1(2) (interpretation), after the definition of “HMRC” insert—
“onward transfer” has the meaning given by section 244A;”.
(49) In regulation 3(2) (duty to provide information to HMRC)—
(a) in sub-paragraph (c), after “no relevant transfer fund remains” insert “and no ring-fenced transfer funds remain”, and
(b) after sub-paragraph (d) insert—
“(da) if the payment is made to a QROPS—
(i) whether the overseas transfer charge arises on the payment,
(ii) if the charge does arise, the transferred value and the amount of charge the scheme manager deducted from the payment before making it,
(iii) if the charge does not arise, why it does not, and
(iv) the total amount or value of the member’s relevant transfer fund, and ring-fenced transfer funds, remaining immediately after the payment;”.
(50) In regulation 3, after paragraph (2) insert—
“(2A) Paragraphs (2B) and (2C) apply where—
(a) a recognised transfer is made to a QROPS, or
(b) an onward transfer is made by a QROPS or former QROPS.
“(2B) Where an event occurring before the end of the relevant period for the transfer (see section 244A(4)) means that the transfer no longer counts as excluded from the overseas transfer charge or that entitlement to repayment under section 244M arises, the scheme manager of the QROPS or former QROPS must, within 90 days after the date the scheme manager is notified of the event, provide to HMRC notification of—
(a) the occurrence, nature and date of the event,
(b) the transferred value of the transfer,
(c) the amount of overseas transfer charge on the transfer,
(d) whether, and to what extent, the scheme manager has accounted, or intends to account, for the charge, and
(e) the total amount or value of the member’s relevant transfer fund, and ring-fenced transfer funds, remaining immediately after the event.
This paragraph is subject to the qualification in paragraph (3A).
(2C) Where the scheme manager of the QROPS or former QROPS becomes aware that the member has at any time in the relevant period for the transfer acquired a new residential address that is neither—
(a) in the country or territory in which the QROPS or former QROPS is established, nor
(b) in an EEA state,
the scheme manager is to notify that address to HMRC within 3 months after the date on which the scheme manager becomes aware of it.”
(51) In regulation 3, after paragraph (3) insert—
“(3A) No obligation arises under paragraph (2B) in relation to a transfer if the following conditions are met—
(a) at the date of the transfer more than 10 years has elapsed since the key date for the ring-fenced transfer fund arising from the transfer (see paragraph 1 of Schedule 34); and
(b) the relevant member to whom the transfer is made is a person to whom the member payment provisions do not apply.”
(52) In regulation 3(6), in the definition of “relevant member”, after “relevant transfer fund” insert “or any ring-fenced transfer fund”.
(53) In regulation 3AB(4), for the words from “as a result” to the end substitute “as a result of—
(a) a transfer of the member’s relevant transfer fund,
(b) a transfer of any of the member’s ring-fenced transfer funds, or
(c) a recognised transfer,
after the date of the relevant event concerned.”
(54) In regulation 3AC—
(a) in paragraph (1)(a), before the “or” at the end of paragraph (i) insert—
“(ia) any of the member’s ring-fenced transfer funds;”, and
(b) in the title omit “relevant”.
(55) In regulation 3AD—
(a) in paragraph (1)(a), before the “or” at the end of paragraph (i) insert—
“(ia) any of the member’s ring-fenced transfer funds;”,
(b) in paragraph (2), after sub-paragraph (a) insert—
“(aa) where any of the transferred sums or assets are referable to the member’s UK-tax relieved fund, the value of so many of them as are referable to tax-relieved contributions, or tax-exempt provision, made under the scheme before 9 March 2017;
(ab) the value of so many of the transferred sums or assets as are referable to any of the member’s ring-fenced transfer funds (if any);”,
(c) in paragraph (2)(b) omit the “and” at the end,
(d) in paragraph (2)(c)(i), after “fund” insert “or any of the member’s ring-fenced transfer funds”,
(e) in paragraph (2)(c), in the words after paragraph (ii)—
(i) omit “it is”, and
(ii) after “the date of that transfer” insert “and the date it was requested”,
(f) in paragraph (2), after sub-paragraph (c) insert—
“(d) whether the overseas transfer charge arises on the transfer;
(e) if the charge does arise on the transfer—
(i) the transferred value of the transfer, and
(ii) the amount in respect of the charge deducted by the scheme manager from the transfer;
(f) if the transfer is excluded from the charge—
(i) the reason for its exclusion, and
(ii) where section 244G(2)(a) or (b) (charge paid on earlier transfer) is the reason for its exclusion, the date of the earlier transfer on which the charge was paid and the amount of charge paid on that earlier transfer; and.”, and
(g) the relevant period for the transfer (see section 244A(4)).”, and
(g) in the title omit “relevant”.
(56) After regulation 3AD insert—
“3AE Information provided by member to QROPS: onward transfers
(1) Paragraph (4) applies where a member of a QROPS or former QROPS makes a request to the scheme manager to make an onward transfer to a QROPS.
(2) But paragraph (4) does not apply if—
(a) the transfer will be excluded from the overseas transfer charge by section 244G, or
(b) the transfer will take after the end of the relevant period (see section 244A(4)) for what would be the original transfer in relation to the requested onward transfer.
(3) In this regulation “original transfer”, in relation to an onward transfer, has the meaning given by section 244A(5).
(4) The member must provide to the scheme manager—
(a) the member’s name, date of birth and principal residential address,
(b) if the member is not UK resident for income tax purposes, the date when the member last ceased to be UK resident for those purposes,
(c) the member’s national insurance number or, where applicable, confirmation that the member does not qualify for a national insurance number,
(d) the name and address of the QROPS to which the transfer is to be made,
(e) the country or territory under the law of which that QROPS is established and regulated,
(f) the reference number, if any, given by the Commissioners for that QROPS,
(g) whether the member knows for certain that the transfer would be excluded from the overseas transfer charge by one of sections 244D, 244E and 244F, and if the member does know that for certain—
(i) the section concerned (if known),
(ii) the name and address of the member’s employer whose connection with the QROPS gives rise to exclusion of the transfer from the charge,
(iii) the member’s job title as an employee of that employer,
(iv) the date the member’s employment with that employer began, and
(v) if known, that employer’s tax reference for that employment, and
(h) the member’s acknowledgement in writing that the member—
(i) is aware that an onward transfer to a qualifying recognised overseas pension scheme may give rise to a liability to overseas transfer charge, and
(ii) is aware of the circumstances in which liability arises, in which liability is excluded from the outset and in which liability is excluded only if conditions continue to be met over a period of time.
(5) The information specified in paragraph (4) must be provided within 60 days beginning with the day the transfer request is made.
(6) The scheme manager must send the member notification of the requirements specified in this regulation within 30 days beginning with that day.
3AF Provision of information about liability for overseas transfer charge
(1) If an onward transfer is made from a QROPS or former QROPS and the overseas transfer charge arises on the transfer, the scheme manager of the QROPS or former QROPS must within 90 days after the date of the transfer provide the member with a notice stating—
(a) the date of the transfer,
(b) that overseas transfer charge arises on the transfer,
(c) the transferred value of the transfer,
(d) amount of the charge on the transfer,
(e) whether, and to what extent, the scheme manager has accounted, or intends to account, for the charge, and
(f) where the scheme manager has accounted for the charge, the date the scheme manager did so.
(2) If an onward transfer is made from a QROPS or former QROPS and the transfer is excluded from the overseas transfer charge by or under sections 244B to 244H, the scheme manager of the QROPS or former QROPS must within 90 days after the date of the transfer provide the member with a notice stating—
(a) the date of the transfer,
(b) that the transfer is excluded from the overseas transfer charge,
(c) the provision by reason of which the transfer is excluded, and
(d) where that provision is section 244B or 244C—
(i) when the relevant period for the transfer ends, and
(ii) how the transfer may turn out not to be excluded as a result of the member changing country or territory of residence within the relevant period for the transfer.
(3) Paragraph (4) applies if—
(a) a recognised transfer is made to a QROPS, or
(b) an onward transfer is made by a QROPS or former QROPS.
(4) Where an event occurring before the end of the relevant period for the transfer (see section 244A(4)) means that the transfer no longer counts as excluded from the overseas transfer charge or that entitlement to repayment under section 244M arises, the scheme manager of the QROPS or former QROPS must, within 90 days after the date the scheme manager is notified of the event, provide the member with a notice stating—
(a) the amount of overseas transfer charge on the transfer,
(b) whether, and to what extent, the scheme manager has accounted, or intends to account, for the charge, and
(c) where the scheme manager has accounted for the charge, the date the scheme manager did so.
3AG Accounting for overseas transfer charge on onward transfers
(1) Paragraph (2) applies where—
(a) overseas transfer charge arises on an onward transfer from a QROPS or former QROPS,
(b) the scheme manager has notified HMRC of the transfer or, where applicable, of the event triggering payability of the charge on the transfer, and
(c) HMRC have provided the scheme manager with an accounting reference for paying the charge on the transfer.
(2) The scheme manager must pay the charge to HMRC using the accounting reference.
(3) Payment of the charge is due at the end of the 91 days beginning with the date of issue of the accounting reference.
3AH Assessments of unpaid overseas transfer charge on onward transfers
(1) Where the correct amount of overseas transfer charge due from a scheme manager under regulation 3AG on an onward transfer has not been paid by the time it is due, an officer of Revenue and Customs must issue an assessment to tax to the scheme manager.
(2) Tax assessed under this regulation is payable within 30 days after the issue of the notice of assessment.
3AI Interest on overdue overseas transfer charge
(1) Tax which—
(a) becomes due and payable in accordance with regulation 3AG, or
(b) is assessed under regulation 3AH,
carries interest at the prescribed rate from the due date under regulation 3AG until payment (“the interest period”).
(2) Paragraph (1) applies even if the due date is a non-business day as defined by section 92 of the Bills of Exchange Act 1882.
(3) The “prescribed rate” means the rate applicable under section 178 of the Finance Act 1989 for the purposes of section 86 of TMA.
(4) Any change made to the prescribed rate during the interest period applies to the unpaid amount from the date of the change.
3AJ Adjustments, repayments and interest on overpaid charge
(1) If the correct tax due under regulation 3AG has not been paid on or before the due date, an officer of Revenue and Customs may make such adjustments or repayments as may be required for securing that the resulting liabilities to tax (including interest on unpaid or overpaid tax) whether of the scheme manager or of any other person are the same as they would have been if the correct tax had been paid.
(2)Tax overpaid which is repaid to the scheme manager or any other person carries interest at the prescribed rate from the later of the due date and the date on which the tax was paid until the date of repayment (“the interest period”).
(3) The “prescribed rate” means the rate applicable under section 178 of the Finance Act 1989 for the purposes of section 824 of the Income and Corporation Taxes Act 1988.
(4) Any change to the prescribed rate during the interest period applies to the overpaid amount from the date of the change.”
(57) In regulation 3B (information on cessation of a QROPS), after “relevant transfer fund”, in both places, insert “, or ring-fenced transfer fund,”.
(58) In regulation 3C (correction of information)—
(a) in paragraph (3)(a)(i), after “existence” insert “or, where the information relates to a ring-fenced transfer fund in respect of the relevant member, more than 10 years has elapsed beginning with the date on which that ring-fenced transfer fund came into existence”, and
(b) in paragraph (3)(b), at the end insert “and there are no ring-fenced transfer funds”.
(59) In regulation 5(1) (application of provisions providing for penalties)—
(a) after “3(2),” insert “(2B) or (2C),”, and
(b) before “or 3C(1)” insert “, 3AE(6), 3AF”.
(60) The amendments made by paragraphs (47) to (59) of this Resolution—
(a) are, so far as they insert new regulation 3AE(1) to (5), to be treated as having been made by the Commissioners for Her Majesty’s Revenue and Customs under the powers to make regulations conferred by section 169(4ZA) of the Finance Act 2004,
(b) are, so far as they insert new regulations 3AE(6) and 3AF and amend regulations 3 to 3AD and 3B to 5, to be treated as having been made by the Commissioners under the powers to make regulations under section 169(4) of the Finance Act 2004 (see section 169(4), (4A), (4B) and (4C) of that Act), and
(c) are, so far as they insert new regulations 3AG to 3AJ, to be treated as having been made by the Commissioners under the applicable powers to make regulations conferred by section 244L of the Finance Act 2004.
(61) The Registered Pension Schemes (Transfers of Sums and Assets) Regulations 2006 (S.I. 2006/499) are amended as follows.
(62) In regulation 5, the existing text becomes paragraph (1), and after that paragraph insert—
“(2)In paragraph (1)(a) “administration costs” includes, in particular, payments of overseas transfer charge.”
(63) The amendments made by paragraph (62) of this Resolution are to be treated as made by the Commissioners for Her Majesty’s Customs and Revenue under the powers to make regulations conferred by paragraph 2(4)(h) of Schedule 28 to the Finance Act 2004.
(64) The Registered Pension Schemes (Provision of Information) Regulations 2006 (S.I. 2006/567) are amended as follows
(65) In regulation 3(1) (provision of information by scheme administrators to HMRC), in column 2 of the entry in the Table for reportable event 9—
(a) after paragraph (g) insert—
“(ga) whether or not overseas transfer charge arises on the transfer;
(gb) if the transfer is excluded from the charge, the reason why it is excluded;
(gc) if the charge arises on the transfer—
(i) the transferred value, and
(ii) the amount in respect of the charge deducted from the transfer;”, and
(b) after paragraph (h) insert—
“(ha) the reference number, if any, given by the Commissioners for the QROPS;”.
(66) In regulation 3(7) (deadline for event report for reportable event 9), at the end insert “but, if the scheme administrator applies before the end of those 60 days for a repayment of overseas transfer charge on the transfer, the report must be delivered before the administrator applies for the repayment.”
(67) In regulation 11BA(2) (information about transfer to be provided by member to scheme administrator)—
(a) in sub-paragraph (a), omit paragraphs (vi) and (vii), including the “and” at the end,
(b) after sub-paragraph (a) insert—
“(aa) the name and address of, and (if known) the reference number given by the Commissioners for, the qualifying recognised overseas pension scheme (“the QROPS”);
(ab) the country or territory under the law of which the QROPS is established and regulated;
(ac) whether the member knows for certain that the transfer would be excluded from the overseas transfer charge by one of sections 244D, 244E and 244F, and if the member does know that for certain—
(i) the section concerned (if known),
(ii) the name and address of the member’s employer whose connection with the QROPS gives rise to exclusion of the transfer from the charge,
(iii) the member’s job title as an employee of that employer,
(iv) the date the member’s employment with that employer began, and
(v) if known, that employer’s tax reference for that employment;”, and
(c) after sub-paragraph (b) insert “; and
(c) the member’s acknowledgement in writing that the member—
(i) is aware that a recognised transfer to a qualifying recognised overseas pension scheme may give rise to a liability to overseas transfer charge, and
(ii) is aware of the circumstances in which liability arises, in which liability is excluded from the outset and in which liability is excluded only if conditions continue to be met over a period of time.”
(68) After regulation 11BA insert—
“11BB Information provided by members to scheme administrators: potentially excluded transfers
(1) Paragraph (2) applies where—
(a) a recognised transfer is made by a registered pension scheme to a qualifying recognised overseas pension scheme, and
(b) the transfer is required by section 244B or 244C to be initially assumed to be excluded from the overseas transfer charge by that section
(2) Each time during the relevant period for the transfer that the member—
(a) becomes resident in a country or territory, or
(b) ceases to be resident in a country or territory,
the member must, within 60 days after the date that happens, inform the scheme administrator of the registered pension scheme that it has happened.”
(69) After regulation 12 insert—
“12A Provision of information about liability for overseas transfer charge
(1) If a recognised transfer is made by a registered pension scheme to a qualifying recognised overseas pension scheme and the overseas transfer charge arises on the transfer, the scheme administrator of the registered pension scheme must within 90 days after the date of the transfer provide the member with a notice stating—
(a) the date of the transfer,
(b) that overseas transfer charge arises on the transfer,
(c) the transferred value of the transfer,
(d) the amount of the charge on the transfer,
(e) whether, and to what extent, the scheme administrator has accounted, or intends to account, for the charge, and
(f) where the scheme administrator has accounted for the charge, the date the scheme administrator did so.
(2) If a recognised transfer is made by a registered pension scheme to a qualifying recognised overseas pension scheme and the transfer is excluded from the overseas transfer charge by or under sections 244B to 244H, the scheme administrator of the registered pension scheme must within 90 days after the date of the transfer provide the member with a notice stating—
(a) the date of the transfer,
(b) that the transfer is excluded from the overseas transfer charge,
(c) the provision by reason of which the transfer is excluded, and
(d) where that provision is section 244B or 244C, how the transfer may turn out not to be excluded as a result of the member changing country or territory of residence within the relevant period for the transfer.
(3) If overseas transfer charge on a transfer is repaid to the scheme administrator of a registered pension scheme, the scheme administrator must within 90 days after the date of the repayment provide the member with a notice stating—
(a) the date of the repayment,
(b) the amount of the repayment, and
(c) the reason for the repayment.”
(70) After regulation 14ZC insert—
“14ZCA Further information provided by scheme administrators on recognised transfers to overseas schemes
(1) This regulation applies if there is a recognised transfer from a registered pension scheme to a qualifying recognised overseas pensions scheme.
(2)The scheme administrator of the registered pension scheme must provide the scheme manager of the qualifying recognised overseas pension scheme with a statement—
(a) stating whether or not the overseas transfer charge arose on the transfer, and
(b) stating—
(i) if the charge arose, the amount of the charge, and
(ii) if the transfer is excluded from the charge, the reason why it is excluded.
(3) The requirement under paragraph (2) is to be complied with before the end of the 31 days beginning with the date of the transfer.
(4) Paragraph (5) applies if overseas transfer charge on the transfer is repaid to the scheme administrator of the registered pension scheme.
(5) The scheme administrator of the registered pension scheme must provide the scheme manager of the qualifying recognised overseas pension scheme with—
(a) a copy of the statement under paragraph (2),
(b) a statement that the original statement is inaccurate and that the overseas transfer charge on the transfer has been repaid to the scheme administrator, and
(c) the reason why the transfer is excluded from the charge.
(6) The requirement under paragraph (5) is to be complied with before the end of the 31 days beginning with the date of the repayment.”
(71) The amendments made by paragraphs (64) to (70) of this Resolution are to be treated as made by the Commissioners for Her Majesty’s Revenue and Customs under the applicable powers to make regulations conferred by section 251 of the Finance Act 2004.
(72) Subject to paragraphs (73) to (75) of this Resolution, the amendments made by paragraphs (29) to (70) of this Resolution have effect in relation to transfers made on or after 9 March 2017.
(73) The new section 169(2)(ba) of the Finance Act 2004—
(a) has effect on and after 9 March 2017 in the case of a recognised overseas pension scheme where—
(i) the notification mentioned in section 169(2)(a) of the Finance Act 2004 (notification that scheme is a recognised overseas pension scheme) is given on or after 9 March 2017, or
(ii) although that notification is given before 9 March 2017, the letter from the Commissioners for Her Majesty’s Revenue and Customs advising the scheme of the reference number allocated to the scheme is dated on or after 9 March 2017, and
(b) has effect on and after 14 April 2017 in the case of a recognised overseas pension scheme where that letter is dated before 9 March 2017.
(74) The other amendments in section 169 of the Finance Act 2004, and the amendment in section 255 of that Act, come into force on 9 March 2017.
(75) The amendments in regulation 3(2) of the Pension Schemes (Information Requirements for Qualifying Overseas Pension Schemes, Qualifying Recognised Overseas Pension Schemes and Corresponding Relief) Regulations 2006 have effect in relation to payments made on or after 9 March 2017; and the new regulation 3AE inserted into those Regulations, and the reference to the new regulation 3AE(6) inserted into regulation 5(1) of those Regulations, have effect in relation to requests made on or after 9 March 2017.
(76) Overseas transfer charge on transfers made in the period beginning with 9 March 2017 and ending with 30 June 2017 is, for the purposes of section 254 of the Finance Act 2004, to be treated as charged in the 3 months ending with 30 September 2017.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
13. Trade and property business profits
Resolved,
That provision may be made about the calculation of profits of trades, professions, vocations and property businesses for the purposes of income tax.
14. Deduction of income tax at source
Resolved,
That—
(1) In Chapter 3 of Part 15 of the Income Tax Act 2007 (deduction of tax from certain payments of yearly interest), after section 888A insert—
“888B Designated dividends of investment trusts
The duty to deduct a sum representing income tax under section 874 does not apply to a dividend so far as it is treated as a payment of yearly interest by regulations under section 45 of FA 2009 (dividends designated by investment trust or prospective investment trust).
888C Interest distributions of certain open-ended investment companies
The duty to deduct a sum representing income tax under section 874 does not apply to a payment of yearly interest under section 373 of ITTOIA 2005 (in the case of certain open-ended investment companies, payments of yearly interest treated as made where distributable amount shown in accounts as yearly interest).
888D Interest distribution of certain authorised unit trusts
The duty to deduct a sum representing income tax under section 874 does not apply to a payment of yearly interest under section 376 of ITTOIA 2005 (in the case of certain authorised unit trusts, payments of yearly interest treated as made where distributable amount shown in accounts as yearly interest).”
(2) In section 45(2) of the Finance Act 2009 (provision that regulations may make about dividends of investment trusts) omit paragraph (c) (power to disapply duty to deduct tax under section 874 of the Income Tax Act 2007).
(3) In Chapter 3 of Part 15 of the Income Tax Act 2007 (deduction of tax from certain payments of yearly interest), after section 888D (inserted by this Resolution) insert—
“888E Interest on certain peer-to-peer lending
(1) The duty to deduct a sum representing income tax under section 874 does not apply to a payment of interest on an amount of peer-to-peer lending.
(2) In subsection (1) “peer-to-peer lending” means credit in relation to which the condition in subsection (4) is met.
(3) In this section—
“original borrower”, in relation to any credit, means the person to whom the credit is originally provided,
“credit” includes a cash loan and any other form of financial accommodation, and
“original lender”, in relation to any credit, means the person who originally provides the credit.
(4) The condition is that—
(a) the original borrower and the original lender enter the agreement under which the credit is provided at the invitation of a person (“the operator”),
(b) the operator makes the invitation in the course of, or in connection with, operating an electronic system,
(c) the operator’s operation of the electronic system is an activity specified in article 36H(1) or (2D) of the Order (operating an electronic system in relation to lending), and
(d) the operator has permission under Part 4A of FISMA 2000 to carry on that activity.
(5) For the purposes of subsection (4), it does not matter if the agreement mentioned in subsection (4)(a) is not an article 36H agreement (as defined in article 36H of the Order).
(6) The Commissioners for Her Majesty’s Revenue and Customs may by regulations make such amendments of the preceding provisions of this section as they consider appropriate in consequence of—
(a) the Order, or any part of it, being replaced (or further replaced) by provision in another instrument, or
(b) any amendment of the Order or any such other instrument.
(7) In this section “the Order” means the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544).”
(4) The new sections 888B to 888D of the Income Tax Act 2007, and the repeal of section 45(2)(c) of the Finance Act 2009, have effect in relation to amounts treated as payments of yearly interest made on or after 6 April 2017.
(5) The new section 888E of the Income Tax Act 2007 has effect in relation to payments of interest made on or after 6 April 2017.
And it is declared that it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
15. Gains from contracts for life insurance etc
Resolved,
That provision may be made amending Chapter 9 of Part 4 of the Income Tax (Trading and Other Income) Act 2005.
16. Venture capital trusts (exchange of non-qualifying shares and securities)
Resolved,
That provision may be made amending section 330 of the Income Tax Act 2007.
17. Social investment tax relief
Resolved,
That provision may be made about social investment tax relief.
18. The “no disqualifying arrangements requirement”
Resolved,
That provision may be made about the “no disqualifying arrangements requirement” for the purposes of the enterprise investment scheme, the seed enterprise investment scheme and venture capital trusts.
19. Business investment relief
Question put.
That provision may be made about business investment relief in Chapter A1 of Part 14 of the Income Tax Act 2007.
(1) | (2) | (3) | (4) |
|---|---|---|---|
Exceeding | Not Exceeding | Reduced Rate | Standard Rate |
g/km | g/km | £ | £ |
100 | 110 | 10 | 20 |
110 | 120 | 20 | 30 |
120 | 130 | 105 | 115 |
130 | 140 | 125 | 135 |
140 | 150 | 140 | 150 |
150 | 165 | 180 | 190 |
165 | 175 | 210 | 220 |
175 | 185 | 230 | 240 |
185 | 200 | 270 | 280 |
200 | 225 | 295 | 305 |
225 | 255 | 510 | 520 |
255 | — | 525 | 515” , and |
Description of wine or made-wine | Rates of duty per hectolitre £ |
Wine or made-wine of a strength not exceeding 4% | 88.93 |
Wine or made-wine of a strength exceeding 4% but not exceeding 5.5% | 122.30 |
Wine or made-wine of a strength exceeding 5.5% but not exceeding 15% and not being sparkling | 288.65 |
Sparkling wine or sparkling made-wine of a strength exceeding 5.5% but less than 8.5% | 279.46 |
Sparkling wine or sparkling made-wine of a strength of 8.5% but not exceeding 15% | 369.72 |
Wine or made-wine of a strength exceeding 15% but not exceeding 22% | 384.82 |
Description of wine or made-wine | Rates of duty per hectolitre £ |
Wine or made-wine of a strength exceeding 22% | 28.74”. |
1. Cigarettes | An amount equal to 16.5 per cent of the retail price plus £207.99 per thousand cigarettes |
2. Cigars | £259.44 per kilogram |
3. Hand-rolling tobacco | £209.77 per kilogram |
4. Other smoking tobacco and chewing tobacco | £114.06 per kilogram”. |
“1. Cigarettes | An amount equal to the higher of— |
(a) 16.5% of the retail price plus £207.99 per thousand cigarettes, or | |
(b) £268.63 per thousand cigarettes.” |
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
On a point of order, Mr Deputy Speaker. Early this afternoon, the Government published a letter from the Social Security Advisory Committee regarding the Government’s emergency legislation to cut personal independence payment support for more than 160,000 chronically ill and disabled people. You will recall that the Government did not consult the Social Security Advisory Committee before introducing these regulations on 23 February, and they are due to come into force in just two days’ time. The Committee subsequently examined the regulations, and in its damning finding, it highlights the need for the Government to consult more widely on these PIP changes and to test the proposed changes. Crucially, it also warns that they could have an impact on existing PIP awards, in direct contradiction to Ministers, who have repeatedly claimed that no current recipient of PIP would lose out.
Mr Deputy Speaker, could you tell me whether you have received any indication from Ministers as to when they plan to make a statement on this issue and on how, in two days’ time, they intend to action the Committee’s recommendations? I also seek guidance on how I can ensure that this policy is effectively scrutinised and that the Government are properly held to account on this issue.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Two things: I thank the hon. Lady for giving me notice of her point of order; and we actually have the relevant Minister, who wants to respond now, which may be helpful.
The Minister for Disabled People, Health and Work (Penny Mordaunt)
The Social Security Advisory Committee decided not to take the regulations on formal reference or to consult further. It made two recommendations, which we are considering and will respond to in due course. As the Secretary of State for Work and Pensions has said from the Dispatch Box, there is no change to our policy, our budget or the award amounts. We can be confident that no one’s award will be altered, all things being equal, if and when they are reassessed, because prior to the relevant case, the case law was conflated and confused, and therefore no assessment providers changed their scoring and no DWP decision makers altered or increased the award amounts. It is very important that we reassure people on that benefit that there is no change to the policy, to the budget or to the award amounts, and that if their condition is the same, they will continue to receive the award.
Debbie Abrahams
Further to that point of order, Mr Deputy Speaker. The Minister’s statement is in direct contradiction to the letter that she has received, and I seek further—[Interruption.]
Mr Deputy Speaker
Order. We cannot have the debate now, but if the hon. Lady is unsatisfied with that response, she knows how to use the usual channels and that would be the best way forward.
Finance (No. 2) Bill
Tuesday 18th April 2017
(7 years ago)
Commons ChamberRead Full debate Finance Act 2017 Read Hansard Text Read Debate Ministerial Extracts
21:33 - The House divided: - Ayes: 54 / Noes: 314 - Question accordingly negatived.
21:47 - The House divided: - Ayes: 313 / Noes: 236 - Question accordingly agreed to.
The Financial Secretary to the Treasury (Jane Ellison)
I beg to move, That the Bill be now read a Second time.
This Government have long demonstrated that they can deliver a stronger, more secure economy. The economy is demonstrating robust growth, the employment rate is at a record high and the deficit has been brought down by almost two thirds since its pre-financial crisis peak.
We are in a much stronger position now than we were in 2010, but there is no room for complacency. Indeed, as we begin the formal process of exiting the European Union, we have an even greater incentive to provide a strong and stable platform for the future. Both the debt and the deficit are still too high, so we remain focused on getting the public finances in order, not continuing to endlessly borrow and jeopardise future generations, as some would have us do.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Will the Financial Secretary give way?
Jane Ellison
I will make a little more progress and then I will happily give way.
Before setting out the Bill’s contents in more detail, I should of course refer to the fact that the Prime Minister has today announced her intention to lay before this House a motion calling for an early general election.
Jane Ellison
Members should be paying more attention. Earlier today the Leader of the House updated right hon. and hon. Members on how that motion, if it is passed, will impact on the business of the House. We hope to hold constructive discussions with the Opposition, through the usual channels, on how this Bill will proceed.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
We are always here to help.
Jane Ellison
It is good to hear that Opposition Front Benchers are here to help.
To return to the matter under discussion, I will lay out the themes of the Bill and then I will allow the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) to intervene. We are very clear that our taxes and the system underpinning them need to be fair and competitive and, critically, they must be paid. This Bill will take the next steps in helping to deliver a fairer and more sustainable tax system, one that can support our critical public services and get the country back to living within its means.
The Bill implements changes that respond to the challenges that our tax system and, indeed, our society face. It delivers on intergenerational fairness by tackling inequality of health outcomes across and within age groups, and it delivers changes that better reflect the different ways in which individuals choose to work, enabling people to earn money and create wealth, whatever their chosen business structure, but at the same time ensuring that those choices are not distorted. The Bill also delivers vital revenues to put our public finances on a sustainable footing, secure the future of public services that we all value and help to further bring down the deficit.
Jonathan Edwards
Will the Financial Secretary confirm that the Office for Budget Responsibility report that accompanied the most recent Budget downgrades growth forecasts for each year in the forecasting period, by comparison with that which accompanied last year’s Budget?
Jane Ellison
I do not know whether the hon. Gentleman was in the House earlier, but the International Monetary Fund has today upgraded its growth forecast. All the economic indicators are pointing to robust growth, despite the acknowledged challenges of the negotiating period ahead.
George Kerevan (East Lothian) (SNP)
In the interests of this potentially more consensual period in the run-up to Prorogation, as we try to work out what will remain in the Bill, could the Financial Secretary tell the House where the £2 billion per annum to replace the non-raising of the national insurance contribution is going to come from, if she is so wedded to balancing the books?
Jane Ellison
The Chancellor was clear at the time and in our statements about the Budget and subsequent decisions that we are looking to balance the budget across the period. Clearly, if we are going into a general election campaign, we will have more to say about that in the manifesto. We will lay that out there; this is not the place for that.
Jane Ellison
Well, there are measures in the Bill that are immediately and openly about revenue raising, and we will come to some of those. The Chancellor was very direct about that when he made his Budget statement and, indeed, at the time of the autumn statement.
Let me say a bit about what the Government have done to support fairness between the generations. An essential priority for this Government is that everyone should have access to our NHS when they need it, and that everyone should enjoy security and dignity in old age. That is why we announced in the spring Budget an additional £2 billion—that has just been referred to—in funding for adult social care. This means that councils in England will have access to, in total, £9.25 billion more dedicated funding for social care over the next three years as a result of changes introduced by this Government since 2015.
On top of that, in the last two fiscal events we have done much to help to build a better future for our younger generation by helping people to save more of the money they earn; by investing in education and skills, which was a key theme of the autumn statement and of the Budget; and by building more affordable homes. The Finance Bill will build on this work, particularly by helping to tackle childhood obesity and to deliver a healthier future for our children.
Kirsty Blackman (Aberdeen North) (SNP)
Recent studies have shown that the youngest people in our society who are working, those aged 22 to 29, are earning less than previous 22 to 29-year-olds have ever earned, or certainly less than they have earned in recent times. They are also less likely to own a home and are more likely to rent, and they are disadvantaged by comparison with previous generations. What is the Minister doing to ensure that that stops and is reversed now?
Jane Ellison
I have just talked about some of the things we are doing. Some of these long-term trends need to be addressed through things such as investing in people’s skill levels. Ultimately, if we want to have a low welfare, high wage, high skill economy, we need to invest in people right from the earliest days. The package on skills in particular, which was unveiled recently, is intended to make the generational step change to ensure that people can get high skill, well paid jobs. That is exactly what we are talking about in relation to things such as affordable housing: we acknowledge that there are challenges for younger people and, indeed, we are looking to address them.
Let me talk about the issue of childhood obesity—an issue close to my heart, as a former Minister for Public Health. The UK has one of the highest obesity rates among developed countries, with soft drinks still one of the biggest sources of sugar in children’s diets. That is a cost not only to the productivity of our economy but to the public purse; indeed, there is also a great cost to individuals. The direct cost to the NHS of treating ill health due to people being overweight and to obesity totals over £6 billion a year.
The Bill will legislate for a new soft drinks industry levy to encourage producers to reduce added sugar in their drinks. The levy is working already: there have been reformulation announcements by Tesco, by the makers of Lucozade and Ribena, and of course by A. G. Barr relatively recently. I have had discussions with several companies during recent months, and I understand the effort and investment they are putting into changing their product and portfolio mix.
Even though revenues from the levy will be lower as a result of the earlier than expected reformulations—unusually, we in that sense welcome the fact that predicted revenues will be lower, because the policy is working early—we will maintain the full £1 billion funding for the Department for Education during this Parliament that we pledged to make. That is further evidence that the Government are committed to tackling childhood obesity. It is part of a programme of work being carried on across Departments to deliver fairer outcomes for future generations.
Joanna Cherry (Edinburgh South West) (SNP)
Cancer Research UK ambassadors like my constituent Sue Spencer have helped to highlight the fact that obesity is the second highest risk factor for cancer after smoking, so I welcome what the Minister has said about the provisions in the Bill for a soft drinks levy. May I ask her to confirm that the provisions will be part of a package of measures to tackle childhood obesity, including help for parents to protect their children from junk food advertising and steps to tackle high-sugar milk-based drinks, which are at present excluded from the Bill?
Jane Ellison
The hon. and learned Lady tempts me to talk about a subject from a previous portfolio that is very close to my heart, but it is clearly a matter on which, for the most part, the Department of Health leads. We are committed to tackling this right across the Government. To take one aspect—she mentioned products that are not within the scope of the levy—Public Health England, working very closely with manufacturers, is leading a very ambitious programme of work, which is well under way, to set ambitious targets. When we look at the progress this country has made in our world-leading salt reduction programme, we can see that it was all done through such close working, as well as by being ambitious and by pushing the industry. Alongside the levy, which has turbo-charged that work, that is a very substantial element of the plans. The Department of Health is doing other things, in particular working with schools, and with the money from the levy more can be done.
Let me turn to another theme of the Finance Bill, which we have talked about as a strategic challenge not just for this country but for many developed countries: the different ways in which people are now working. The Bill takes important steps within the tax system to adjust to and reflect the changing ways in which people are choosing to work. For example, individuals who work through a company currently pay significantly less tax than individuals who are self-employed or work as employees. This is true even in many cases where individuals are doing very similar work. Indeed, the Office for Budget Responsibility estimates that the faster growth of new incorporations compared with the growth of employment would reduce tax receipts by an additional £3.5 billion in 2021-22. The Government are committed to helping all businesses, large and small, in all parts of the UK to succeed, but we are clear that the tax system must ensure fair treatment between individuals working in different ways, and of course it must be sustainable.
The Bill will take some initial steps to help to address this issue and deliver a tax system that is fair and works for everyone. First, the off-payroll working rules will be amended for public sector engagements, with responsibility for administering the relevant tax rules moving to the body for whom the individual is working. This change will help to tackle widespread non-compliance with the current rules, which costs more than £700 million each year across the economy. Secondly, from April 2018 the Bill will reduce the dividend allowance from £5,000 to £2,000. This change will help to reduce the tax differential between individuals working for their own company and those working as employees or self-employed. Crucially, it will raise much needed revenue to invest in our public services, including adult social care, as the Chancellor explained at the Budget.
I want to assure right hon. and hon. Members that there will still be a healthy environment for investors. The allowances that the Government have introduced or raised mean that a general investor will still be able to invest about £50,000 without paying any tax on the resulting dividend income. For example, we have increased the amount that individuals can save or invest tax-free through an ISA by the largest ever amount: up to £20,000 this tax year. This and other allowances mean that 80% of all general investors will still pay no dividend tax on their investments. As I have set out, this change will help to address the rising cost to the public finances of the growth in incorporation. It is in that context that the change to the dividend allowance should be considered.
The Bill will further modernise the tax system by legislating for making tax digital. Just as taxation must adjust to the world around it, so must the administration of the tax system. With millions of businesses already banking, paying bills and buying services online, making tax digital is a natural extension of this reality. The Government have brought large swathes of government services into the digital age, including within the tax system, and we need to go on to complete that journey. Businesses will feel the benefit too, being helped to get their tax right first time and cutting down on excessive administrative burdens over the long term. Simultaneously, making tax digital will help to tackle the tax gap, as error alone cost the Exchequer £8.7 billion in 2014-15.
Sammy Wilson (East Antrim) (DUP)
Does the Minister not accept that all the studies conducted so far indicate that this will present an additional cost burden to small businesses, which will have to give returns four times a year? In many parts of the country, small businesses do not even have good access to the digital economy to make those returns.
Jane Ellison
On the latter point, I looked at this matter in detail recently. On what would be required of people in terms of the digital uploading of data, the vast majority of people in the country—in percentage terms, in the high 90s—have access to the right broadband speed.
As for what the change will mean for the smallest businesses, we do not recognise some of the figures that have been put in the public domain by some representative bodies. The Treasury has conducted its own analysis and published it, including the methodology behind it. We acknowledge that this will be a big change for the smallest businesses, particularly for those below the VAT threshold, which is why the Chancellor announced plans to defer for an additional year those businesses coming into the system. Given that the pilot has now started, that means that the system will be piloted for two years before some of the smaller businesses enter it.
However, we cannot sustain the current level of error and the size of the SME tax gap in the long term; we must begin to tackle those problems. A number of developed countries are increasingly digitising their tax systems, and that will have long-term benefits for business. I accept that the transition may involve challenges, but we shall try to provide support during that period.
Nigel Mills (Amber Valley) (Con)
I fully accept the need to tackle the tax gap, but if the advantages for the very smallest businesses are as my hon. Friend has described them, would she be willing to consider allowing such businesses to opt into the system, rather than making it compulsory for those with very low levels of turnover? Might they be allowed to see how the system works over a period of, perhaps, five years?
Jane Ellison
My right hon. Friend the Chancellor has already announced that businesses with a turnover below the VAT registration threshold will have an additional year, until April 2019, before digital record-keeping quarterly updates are made mandatory. I am sure that we shall debate the issue in more detail later, so I will not be drawn into it too much now. Suffice it to say that some of the alternative proposals do not tackle the level of error and the tax gap. We need to address that, because it is part of the general challenge relating to the sustainability of the tax base.
We believe that this change will benefit more than 3 million small businesses in the United Kingdom, the vast majority of which are banking online. We are going with the flow and following the direction in which society is moving. As I have said, however, a package of support will be available to the smallest businesses. We may have a chance to explore that a little further, but it will depend on how much time we have to debate the Bill over the coming days. HMRC will ensure that the needs of businesses are best met by enabling them to learn from the ongoing pilot phase, which, as I said earlier, will now be longer for the smaller businesses. We want to make sure that these much needed reforms are implemented smoothly at the operational level.
I have talked about the way in which the Bill can support the health of the next generation and about how it can help us to adapt our tax system to the modern realities of working life, but I also want to talk about how we can create a fairer, more sustainable tax base and raise much-needed revenue in the process. As I have said, the Government remain committed to their fiscal mandate of reducing the deficit. That is why, for instance, they made the difficult decision to increase the standard rate of insurance premium tax from 10% to 12% in the autumn statement, thus raising vital revenues that were required to support public services. The Chancellor set out very directly the need to raise additional revenue.
As I have made clear, the Government recognise that taxes must be fair. They should also be competitive, which is particularly important as we enter the critical next phase of the negotiations on our exit from the European Union. We need to ensure that our economy retains its competitive edge, and remains an attractive place for both business start-ups and ongoing inward investment. Some excellent decisions in that regard have been made in recent months. However, taxes need to be paid. That should go without saying, but, although ours is one of the narrowest tax gaps in the developed world, and although we are, in my view, one of the most transparent countries when it comes to the way in which we measure and report on it, we need to tackle tax avoidance at all levels to ensure that everyone—big business, small business and individuals—pays the right amount at the right time.
The Bill provides for further action to ensure that we receive the tax revenues that are due by continuing our work to tackle tax avoidance and evasion. We already have a strong track record. Since 2010, HMRC has secured about £140 billion in additional tax revenue as a result of tackling avoidance, evasion and non-compliance. The UK has also shown international leadership: it is at the forefront of many of the international discussions about tackling those issues. Indeed, some of the thorniest avoidance and evasion issues that we face, particularly where they involve complex multinational structures and businesses, can be tackled only in international forums. We have worked closely through the OECD and other international bodies and we will continue to do so and to lead the discussions to tackle those issues. This Bill will build on that work by introducing more than 10 policies that are forecast to raise over £5.5 billion by 2021-22.
First, the Government will update the rules on how companies claim tax deductions for interest expenses and losses. From this month, large businesses will no longer be able to reduce their UK taxable profits by deducting a disproportionate amount of interest expense in the UK. Nor will they be able to offset all their tax liability with past losses in years when they make substantial profits. Taken together, those measures will raise nearly £7 billion from large companies over the next five years.
Secondly, the Bill will continue the Government’s crackdown on the use of artificial disguised remuneration schemes by putting beyond doubt the existing rules and by introducing a new charge on outstanding loans from 5 April 2019. Those changes will ensure that scheme users pay their fair share of tax and will bring in £2.5 billion by 2020-21.
Thirdly, to deter those who gain financially from enabling tax avoiders, the Government will introduce a new penalty for those who enable the use of tax avoidance schemes that are later defeated by HMRC. That is an area on which we have worked closely and where policy development has benefited from a focus on quality tax policy making. We have worked closely with representative bodies to ensure that all people working within the spirit of their professional guidelines have nothing to fear from the new rules. However, it is important that we tackle the enablers.
I think we have all as constituency Members of Parliament heard from people who feel that they were given advice that was later revealed to have been poor advice. However, we have not had a system whereby we were able to pursue in the way we wanted those people who enabled the tax avoidance. That cannot be right. Therefore, the Bill will mean that enablers of abusive arrangements can be held accountable for their activities, while ensuring, as I say, that the vast majority of professionals who provide advice on genuine commercial arrangements will not be impacted. The Bill will also bring an end to a long-standing imbalance in the tax system by abolishing permanent non-dom status. That will raise £400 million each year by the end of this Parliament.
As a package, those measures will ensure that our tax system remains fundamentally fair and that people and businesses pay the taxes they owe. We have introduced them not only because it is important to sustain the tax base—that is important for the revenue we need for vital public services—but because it is important that people feel that everyone is contributing as they should be and that we are asking everyone to work within the rules. The quid pro quo for having a competitive and fair tax system is that taxes should be paid.
The Bill will help to deliver a fairer and more sustainable tax system, one fit for the digital age and responsive to the different ways in which people choose to work. It will continue our work to tackle tax avoidance and evasion. It will help to deliver improvements to the nation’s finances, to pay for critical public services and, by taking a significant step to address the issue of child obesity, to deliver a better future for our younger generation. The Bill delivers on the Government’s plan for Britain, a stronger economy and a fairer society. I commend it to the House.
Peter Dowd (Bootle) (Lab)
Plausibility ran through every sentence in the Minister’s speech. Plausibility ran riot, but plausibility I do not accept.
Who would have thought that a general election would be called on the day we were in this Chamber, which is packed-out, for this scintillating debate? I do not think anyone would have thought that. Only a few weeks have passed since the Chancellor’s shambolic Budget U-turn, yet today the Prime Minister has announced a U-turn in relation to the general election. We all thought the lady was not for turning, as she has led us to believe on at least seven occasions, and of course we were wrong. [Interruption.] Apparently the Prime Minister did not want an election, and clearly in the last few days she has had some sort of damascene conversion—a damascene conversion to democracy, apparently. We had the Brexit referendum last year which gave authority to push on with Brexit, but we now find that the Prime Minister says she wants even more authority. I thought we had been getting the Brexit vote pushed on us time after time, but clearly that has not been enough. The Prime Minister might possibly be feeling slightly insecure; I really do not know, but we are where we are.
As the Finance Bill is a product of the Budget, it is only right that we start this debate by offering a reminder of its contents. Notwithstanding what the Minister has just said, the Budget continued the Government’s programme of tax cuts for multinational corporations and the super rich: by the end of 2021 they would have received £70 billion-worth of tax breaks, paid for by those on middle and low incomes and of course the self-employed. [Interruption.] That is a fact; it is clear from the Office for Budget Responsibility’s figures and the Government figures.
The Budget failed, however, to address adequately the social care crisis, and we are now seeing 900 adult social workers in England leaving the profession every day—and goodness knows how many GPs getting their pension statements are ready for moving on as well. It also did little to support small and medium-sized business owners, who are the lifeblood of the economy and increasingly feeling the pressure as the economy slows and inflation rises.
More importantly, the Budget demonstrates that this Government are willing to break their manifesto commitments at the drop of a hat. Despite the Chancellor’s bravado, the Government’s economic ineptitude after seven years is clear for all to see. His Government have presided over the slowest recovery since the 1920s, with growth and average earnings downgraded yet again. The Chief Secretary said in his Budget speech that the Government do not believe in “spending and promising” what they “cannot deliver” and agreed that that is an important barometer by which to judge the Government’s record. Let us look, therefore, at what the Government have promised over the past seven years and what they have actually delivered.
On coming to power, the Conservatives committed to balancing the books by 2015—a Conservative broken promise. They said that would be pushed back to 2019-20—another Conservative broken promise. Instead, by 2020 they plan to be borrowing an eye-watering £21.4 billion. Some 10 of the Government’s 14 Budget and autumn statements since 2010 have seen an increase in forecasted borrowing. This Government’s record on borrowing has been missed target after missed target, with constant upward revision. The Government pledged that debt as a percentage of GDP would start to fall in 2015; instead it continues to grow—another Conservative broken promise.
The Government’s record on growth has been one of epic failure. The OBR has now revised down economic growth for 2018 and for every remaining year of the Parliament, notwithstanding the comments made before about the OECD. The British people wait to see any benefits of growth, but the only growth they can expect to see is in the size of the Government’s Finance Bills; this one is a whopper, coming in at 762 pages, longer than any previous Finance Bill and one of the largest pieces of proposed legislation ever presented to this House. Those 762 pages are hardly riveting reading, I have to say. [Interruption.] I have read every single syllable of it, several times.
We would need to search long and hard through those hundreds of pages for anything that helps ordinary taxpayers. Instead it is replete with ever-more complex giveaways to corporations and the super-rich. But even those hundreds of pages are not enough to contain the Government’s giveaways to the rich. This mammoth Bill will be supplemented by an unprecedented number of statutory instruments, on the back of the Treasury’s already unheard of use of SIs. There were 90 in the last Session, and there have already been 88 in this one. We have heard about Henry VIII edicts, but this makes the Chancellor look like a committed parliamentarian.
The growth in the size of the legislation is matched only by the growth in the number of broken Conservative promises. Are this Government doing anything to deliver growth that benefits the average household? The Chancellor has consistently pledged action to tackle the UK’s productivity gap, but under this Government, this country’s productivity gap with the G7 has grown by a fifth, and we now have the largest gap since 1991. The Conservatives were in government at that time as well.
This Government have done little to tackle the scandal of chronic low pay and insecure work. Despite falling unemployment, workers are currently suffering their worst decade for pay in 70 years. Rising inflation is now outstripping wage growth and, according to the Resolution Foundation, real-terms pay is now falling for around 40% of the UK workforce. The Government’s promise of a £9 national living wage has been consistently revised downwards—first to £8.80 and now to £8.75—while rising inflation results in the cost of living going up for everyone. It is clear that when it comes to introducing a wage that working people can live on, only a Labour Government will deliver. This Finance Bill does little to address the crisis in living standards that many of our constituents are currently feeling. Nor does it offer support for small and medium-sized businesses, which are facing rising costs and a lack of investment due to the Government’s hard Brexit strategy—if you can call it a strategy.
Tom Tugendhat (Tonbridge and Malling) (Con)
The hon. Gentleman is making some interesting points, but I hope he will forgive me for saying that they seem to run contrary to the facts as I see them. I see businesses coming to Britain, I see investment moving to Britain, and I see opportunity starting in Britain. This all seems to run contrary to his argument, and I wonder whether he can explain why businesses see Britain as a land of opportunity and growth when he clearly does not do so.
Peter Dowd
If that is what the hon. Gentleman sees, I suggest that he needs to take off his rose-tinted spectacles.
We are all aware that the only Conservative idea for the shape of a post-Brexit economy is to turn our once pride-worthy economy into a bargain basement tax haven. That is what the Conservatives want. We have had seven years of slogans from this Government, but we still have no evidence that their negotiations on Europe amount to anything more than something written on the back of a fag packet. They are non-existent, and they have been non-existent for the two or three years since the announcement of the referendum, other than their preparation to sell us down the river to tax avoiders and dodgy dealers across the globe.
The Government make great claims on tackling tax avoidance in the Bill—we heard the Minister talk about this earlier—but it is a charter for tax avoiders, and no amount of smokescreens and bluffing can hide that fact. The Chancellor wants us to believe that measures to bring some non-doms into tax will really tackle the problem, but throughout the Bill we see measures to preserve the special status of non-doms and to privilege that group over domiciled taxpayers. Even the Government’s headline “deeming” measure is undermined because they have chosen to preserve the non-dom status of offshore trusts. How on earth is this going to get more taxes paid if non-doms are being forewarned that they can simply hide their money away in a trust and still keep it beyond the Revenue’s grasp? When is closing a loophole not closing a loophole? When it is hidden in a magic spreadsheet.
The Bill fails to introduce any meaningful measures to tackle tax avoidance and evasion, which even this Government admit are costing at least £36 billion a year. In short, this Finance Bill continues to push our country towards a low-tax and low-pay economy in which a small minority of the rich can get wealthier at the expense of everybody else.
Mr Jacob Rees-Mogg (North East Somerset) (Con)
I would love this to be a low-tax economy, but is the hon. Gentleman aware that tax as a percentage of GDP is going to be at its highest level since Harold Wilson was Prime Minister?
Peter Dowd
I am grateful to the hon. Gentleman for bringing that to my attention. Let me put it like this: if we had a Labour Government, the percentage would be even higher.
The Finance Bill does nothing to fund the NHS, which is facing its worst ever crisis. As the former Secretary of State for Health, Lord Lansley, has said, the Government planned for five years of austerity, but having 10 years of it was neither planned for nor expected. That came from a man who wasted £3 billion on a top-down reorganisation of the NHS. By underfunding and overstretching the NHS, the Tories have pushed health services to the brink; that must be in everybody’s postbag.
Tom Tugendhat
It is very kind of the hon. Gentleman to give way again. As he has brought up the NHS, I feel that it is only right for us to ask how Labour is doing on the NHS. We have to look to Wales to see how Labour is doing—not well, is the answer. The statistics from the NHS in Wales indicate that treatment is poorer, waiting lists are longer and people are less satisfied than they are in England or, indeed, in Scotland, where the SNP has, sadly, also delivered worse results.
Peter Dowd
I draw the hon. Gentleman’s attention to waiting lists in England, where an estimated 3.8 million people are waiting for treatment. I suggest that he should be more concerned about those 3.8 million people in England than he is about Wales.
Steve McCabe (Birmingham, Selly Oak) (Lab)
Does my hon. Friend think it is remotely credible for a Tory MP on the eve of a general election to boast about the NHS? If one thing is certain as we go into this election, it is that people know who they can trust on the NHS.
Peter Dowd
My hon. Friend is completely right about that. If Conservative Members want to send me their manifestos on the NHS, I will be happy to look them through. As a matter fact, I might get even more votes if I put those manifestos through the doors in my constituency.
The Finance Bill does nothing to help to fund the NHS. It is as simple as that. By underfunding and overstretching the NHS, the Tories have pushed health services to the brink. The number of NHS beds has been cut by 10% since the Tories came into government; that issue has been raised. GP recruitment is at an all-time low, and more GPs are moving out of practice. Community pharmacy funding has been savagely cut back, in some instances by as much as 20%. As a result, as many as 3,000 pharmacies, in rural and urban communities alike, face closure. That is not the best record on the NHS; it is as simple as that.
Sammy Wilson
I accept what the hon. Gentleman has said about the difficulties that the NHS is facing. However, earlier in his speech he described borrowing as eye-wateringly high, so how does he propose to fill the gap in funding to increase standards in the NHS?
Peter Dowd
I referred earlier to the money—£70 billion, I believe—that the Government have given away to corporations. That would be a start, and I would welcome the hon. Gentleman’s support for my proposal in the next Parliament.
We have seen £4.6 billion cut from the budget for social care, which is linked to, and on a continuum with, the NHS. The Chancellor has pledged to return only £2 billion over the next three years—£1 billion for the year 2017-18 and £500 million a year for the two following years—which is half what the King’s Fund has estimated that the social care sector needs not for next year, but today. That is another Conservative broken promise. Missed targets are pushing the NHS and social care into further crisis. The Government are behaving like an ostrich in that regard, and the situation is coming back to bite them.
I turn to small and medium-sized businesses, which contribute more to the British economy than they have ever done. SMEs are forecast to contribute £217 billion to the UK economy by 2020, but the Finance Bill does little to address the concerns of many business owners. The business rate system continues to be rigged in favour of giveaways for big corporations at the expense of SMEs. How can it be right for the business rates bills of a leading supermarket’s biggest stores to fall by £105 million, while independent shopkeepers struggle with a cliff-edge hike in their rates? That is a fact today. The system needs to be fairer and weighted more in favour of SMEs, which is why a Labour Government would bring in a package of reforms to ease the burden of business rates. Rising business rates and rising inflation are creating a perfect storm for SMEs. Small business inflation has risen to its highest point in eight years, with basic costs soaring by 3.2% last year. SMEs’ costs are predicted to go up by £6.8 billion by the end of this year. All that is happening while the Conservatives continue to look the other way in complete denial.
Victoria Atkins (Louth and Horncastle) (Con)
In that spirit, does the hon. Gentleman welcome the additional £20 million to £25 million a year to support some businesses that will no longer receive small business rate relief after the revaluation?
Peter Dowd
Of course I welcome that figure, but the hon. Lady has to ask herself whether businesses should have been put in that position in the first place. That is the fact of the matter. It is too little, too late. I accept the £20 million figure, which is fine. Small businesses need all the support that they can get, because we are talking about people’s jobs and about businesses that people have worked hard to grow and nurture, and there is a danger that they will go out of business as a result of Government policies.
Sammy Wilson
Given that larger stores weathered the recession much better than many small businesses, would the hon. Gentleman consider the policy that has been introduced in Northern Ireland whereby larger stores pay a 15% premium on their rates to finance some relief for smaller businesses in town centres?
Peter Dowd
If that suggestion came from the Government side, I would say that I would listen to the representations, and we would listen to any representations, so to speak, that would help small businesses.
Moving on to alcohol duty, the Finance Bill will only further undermine our local pubs, which are already under threat, with 29 pubs closing every week. While we welcome plans to make tax digital, the Government’s plan will shift huge administrative burdens on to small businesses and the self-employed, who are just trying to pay the taxes they owe—so much for the Conservatives being the party of small business. There is no reason businesses should have to submit quarterly digital tax returns, particularly when they lack the time, resources and capacity to convert records into digital standards on a frequent basis. All that comes when they are under stress from business rates. That is why we support the view of the Treasury Committee and of small business owners and the self-employed that it is better to exempt the smallest taxpayers from quarterly reporting and to phase in making tax digital to ensure that implementation is right for all, rather than the Conservative party wasting taxpayers’ money and time by correcting mistakes further down the line.
Making tax digital will also place new burdens on HMRC, which is already teetering on the edge after the constant slashing of its resources over the past few years. Thousands of hard-working staff have already been dismissed, and taxpayers are waiting on the phone for hours, which costs far more than the cuts have saved. The closure of dozens of tax offices across the country is still to come, putting thousands of jobs at risk in my constituency alone. How will HMRC cope with the ever-increasing complexity of its responsibilities with just a skeleton staff? How will any of the “reduction in errors” expected from making tax digital actually come about? How will we ever close the tax gap when there are no tax inspectors left to help taxpayers get their returns right and when HMRC has been filched of the resources it needs to run a service? It is a total false economy.
Jane Ellison
I am sorry, but I rise to defend HMRC. What the shadow Minister just said is the most outrageous attack on the hard-working men and women of HMRC. Far from people hanging on the phone for hours and the various other exaggerations that we just heard, I suggest that he look at the publicly available figures for HMRC performance in a range of areas, where he will see that what he said is far from the truth. HMRC’s performance has been excellent in recent years in many areas, as shown not least by the £140 billion extra raised since 2010 from avoidance and evasion.
Peter Dowd
That attempt at plausibility has gone amiss yet again. The reality is that we are constantly contacted by people about HMRC. Those on the frontline, such as the thousands in my constituency, are doing a damn fine job. The idea that I would attack thousands of people from my constituency is complete nonsense. They are struggling against the odds, which have been stacked against them by this Government. That is the reality. The Finance Bill was a failure before it was even started. It is a busted flush.
The Minister referred earlier to helping homeowners. If the Government are setting aside resources to help homeowners, such as through lifetime ISAs, they should also tackle the threat to the stability of the housing market from organisations such as Bellway, which is tying people to their homes through its leaseholds. That is a scandal and an outrage. The housing market is in danger if such scams are allowed to continue. The Government are quite rightly putting in resources to fund the housing market, so if we are to deal with the issues in it, they should be calling those organisations in, getting a grip on them and telling them to stop ripping off the people who bought homes from them.
The Bill is making income tax payers, small and medium-sized businesses, and the self-employed pay the bill for the endless stream of tax cuts for corporations and the super-rich. It takes no serious action to tackle tax avoidance, putting in place get-outs and workarounds that mean it is just another smokescreen.
Lucy Frazer (South East Cambridgeshire) (Con)
Does the hon. Gentleman accept that the Bill comes from a Government who have significantly increased the number of people in employment? Earlier this year, only 370 people were unemployed in my constituency.
Peter Dowd
A million people in employment are on zero-hours contracts. Millions of people are in insecure work. Of course I welcome employment, but it has to be secure, well-paid, reasonable, sensible employment that allows people to sustain their families. Under this Government, millions of people are unable to sustain an ordinary life with the wages they receive. That is the reality.
Tom Tugendhat
The hon. Gentleman is being generous in giving way. Does he understand that his pledge further to increase taxes runs directly contrary to his hope for better employment? Increasing taxes and increasing the burden of the state on companies around our country would lead to employment falling, not rising. Welfare cases would rise, not fall. It would be generally bad for our entire economy.
Peter Dowd
I do not know which speech the hon. Gentleman has been listening to, but I did not refer to raising taxes.
Peter Dowd
No, I did not. I was asked earlier how I would pay for the changes, and I indicated that I would start with corporations. In effect, corporations receive £70 billion in relief over a five-year to six-year period through banking levy reductions and so on. That is the starting point for us. As far as I am concerned, the Bill takes us no closer to knowing when the Conservatives will finally meet their target of closing the deficit. A series of failures has led them to borrow more than any other Government in history, and far more than every Labour Government combined. That is the fact of the matter.
Lucy Frazer
Can the hon. Gentleman tell us how much Labour would borrow under his plan?
Peter Dowd
Certainly less than you. In short, this Bill is another Conservative broken promise, and I urge the House to refuse it a Second Reading.
Nigel Mills (Amber Valley) (Con)
It is a pleasure to speak on this nice, brief and moderate Bill. I suspect the Bill that finally clears the House in the next couple of weeks will be a little thinner. I am not sure that I welcome the change to printing the Finance Bill in one block, rather than two; it feels worse.
My speech will focus on the content of the Bill rather than on trying to start the general election campaign, which does not technically begin until tomorrow, but I am sure I heard the hon. Member for Bootle (Peter Dowd) say that Labour wants tax to be a higher proportion of GDP than the Government currently have it. If that is a Labour manifesto pledge, I suspect it will appear on more leaflets for Conservative candidates than for Labour candidates. The only real way of achieving it is to raise income tax, national insurance or VAT, none of which will be popular with the electorate.
For coherence, I will address the Bill’s measures in order. First, there is a moderate measure that will allow employers to offer their employees up to £500 of pensions advice, and associated advice such as the impact on tax bills, tax-free. Where there are problems with people’s understanding of how the pensions system works, of how much they will have in their retirement and of how much they need to save and how they should save it, any effort we can make to encourage them to take more advice, and get good advice—the earlier, the better—has to be right. I welcome increasing the tax relief from £150 to £500.
Clause 31 addresses interest restrictions for corporates, which will be allowed to claim tax relief on interest only up to 30% of their earnings before interest, taxes, depreciation and amortisation. Before coming to this place, I spent many years advising large corporates on their corporation tax bills. I wrestled with the many efforts that have been taken to get the allowed interest deduction down to a sensible level. There are well over half a dozen different anti-avoidance measures, such as allowable purposes, thin capitalisation rules and the worldwide debt cap. We have had all manner of attempts to get to the right answer, but successive Governments—Conservative, Labour and coalition—saw it as a competitive advantage for the UK to try to attract inward investment from holding companies by having a generous interest deduction.
It is right to recognise that, in an era when large multinational corporations have been gaming the global tax system to a ridiculous degree, we cannot allow our system to be exploited by excessive interest deductions, especially where they are not real commercial interest costs to the worldwide group. It makes sense for us to get in line with the global consensus that the interest limit should be 30% of EBITDA. The House should approve the measure to provide some scrutiny of the downside impact of how we attract international investment.
How many businesses that employ large numbers of high-skilled people are here for the interest deduction that we effectively allow on profits earned across the world? What impact will that have on where those businesses choose to locate in future? I hope the impact is zero and that, because we are such a great place to do business and employ people, businesses do not come here to chase generous tax deductions, but it will be interesting to see the impact of this policy change.
The rules are complicated, and there are some sensible exemptions for infrastructure investment. We need to encourage private companies to invest in UK infrastructure, and our regime is not all that generous—we do not give tax relief for large amounts of industrial building, which can have a large infrastructure cost. We should reform those rules, too, to make sure that we have a competitive regime so that, if a multinational company is looking to invest in infrastructure, the UK is the place to do it, not somewhere else for tax purposes.
I welcome the deemed domicile rules that the Minister outlined. People out there who try to understand tax cannot understand why rich people can avoid tax because of where their father was born. We have had that strange historical system since the colonial days. It should be absolutely clear that people who are born here should pay all their taxes here, and people who have lived here for a long time should be paying the same taxes. The idea that a person can move and live here for 40 years, or even be born here, and avoid certain taxes is a ridiculous way of exploiting our tax regime, and I welcome the steps to change that.
Clause 71 introduces the soft drinks levy, about which I have raised concerns in previous debates. I welcome taxes on unhealthy activities, and we have lots of taxes on alcohol and tobacco for sensible reasons. We have an obesity crisis, and it is perfectly right to consider taxes on unhealthy foods and drinks. A sugar tax makes sense, but when a consumer sees a product they want to buy in a supermarket they should be able to see something that says, “This product is so unhealthy for you that it is taxed, so you will pay more for it.” That is how to get behavioural change. Someone walking down the aisles of a major supermarket should think, “A can of full-sugar cola is 10p dearer than Diet Coke because it is unhealthy, so I will buy the Diet Coke.” That should also apply to ridiculously sized portions of cake, to sweets that are very bad for you and to all those other unhealthy things that we eat. We should try to structure a sales tax on unhealthy products to get the behavioural change we want.
There are many reasons why the Government have chosen to go down the route of targeting a particular product, but there is a real danger that the market for cola is so complicated that the consumer might not know that the charge even exists. I happened to be in a supermarket over the weekend looking at the varying prices of cola. I am quoting Tesco because it is my nearest supermarket—I should declare an interest because my wife works there—and I can buy a 2-litre bottle of Tesco own-brand cola for 55p, a 2-litre bottle of Pepsi for £1.25 or a 2-litre bottle of Coke for £1.66, or two for £2.50. We are adding 18p a litre, so how a consumer will know from the varying prices, never mind all the promotions, which of those colas is the bad one and which one they should be avoiding is not entirely clear. Looking at the prices for smaller quantities, a 600-mililitre bottle of Pepsi is 99p, which is about the same as a 2-litre bottle.
Michael Tomlinson (Mid Dorset and North Poole) (Con)
My hon. Friend is making a cogent argument, but does he not welcome the targeted nature of the fund? The levy will go to the Department for Education to help all our children in all our constituencies to have healthier lifestyles. Does he welcome that, even if he has concerns about other aspects?
Nigel Mills
I welcome more funding to help children to be healthy and more funding for sports. I especially welcome the fact that the largest employer in my constituency, Thorntons, as part of the Ferrero group, gives big funding to school sports. More funding for healthy activities for children has to be a good thing. I am a little nervous about hypothecating taxes for individual spending, because there is a real risk that it would lead to a complicated tax system. It is a little like giving with one hand and taking away with the other. I welcome the fact that we are raising such spending, although I would not want to link it directly to a tax.
Jane Ellison
Just to clarify, one reason why the levy is on producers is that we want to drive the reformulation of products. Drawing on my previous role as public health Minister, every study that has ever been done across the world has shown that reformulating products at source is probably the most effective way of helping people to tackle obesity. I have spoken to supermarkets and producers for many months and, in their own research, they are getting the message back from consumers that tackling the problem at source through reformulation is what people want to see.
Nigel Mills
I agree that changing what people consume without their knowing it, and without their having to change their own behaviour, will get the calorie reductions that we want. If that is the argument, I am intrigued about why we are going for the soft drinks industry, which has produced diet brands that use no sugar and contain no calories, and has innovated with things such as Coca-Cola Life that have reduced calories and reduced sugar content by using different sugars. There is a risk that industries that have spent lots of money developing popular products and marketing them will think, “We do all that investment and are still getting clobbered by a levy, whereas other industries that do not do that investment do not have a levy. Perhaps we should not invest and run the risk.”
We can debate this at length, but what we are trying to do is right. The childhood obesity crisis is such that we have to take some measures. I accept that this measure targets something that contributes to that crisis, but as we develop this policy I would like us to have a clear thing that consumers can see in the shop which says, “This is unhealthy, so it will cost you more.” That would be a better way of getting the behavioural change and the change in diets we need, and it is likely to be more effective in the long run.
Kirsty Blackman
I appreciate the point the hon. Gentleman is making and I have a lot of sympathy with his wider point about reducing the consumption of sugary food. His point about making it obvious to people what they are consuming is interesting, and that could be done more widely, in relation not just to soft drinks, but to things such as pasta sauces, which contain a huge amount of sugar but where there is a lack of awareness. One of the biggest things we can do to change behaviour is increase awareness, rather than increasing the cost on all these things.
Nigel Mills
I agree with the hon. Lady about that. The products we should probably be targeting are those people think might be healthy but are not. I may buy a smoothie thinking that it contains lots of fruit so it must be good for me, but it, too, is high in calories. It is not a bad thing to consume that fruit; I need to have it as part of a balanced diet. Certain milk drinks are incredibly bad for people and may be worse than many soft drinks, but I am not entirely clear that the levy applies to those. If we had structured a tax that went on something high in sugar or high in calories, that may have been a way of getting to the outcome we were after.
Lucy Frazer
Does my hon. Friend accept that the provisions will give rise to a public debate, and therefore to public awareness of sugar in drinks? Some people may not have been aware of that before, but they will know about it now.
Nigel Mills
Having a broader debate to raise people’s understanding that a diet cola is much healthier that a full-sugar cola for most people is helpful. I am not sure how much of an impact debates in this place or taxes on producers will have on people’s consumer decisions when they are in the supermarket, as those are probably based on price, promotion and their personal preferences or historical buying habits. However, the Government are right to tackle this issue.
Clause 108 seeks to tighten up the rules on VAT collection from fulfilment businesses. Globalisation has changed how businesses are structured so that people buy from them online. People then avoid paying VAT due in the UK, which is a big weakness. We have a generous turnover threshold. Most countries in Europe do not let people have their first £80,000 of turnover VAT-free—I believe the figure is now £83,000. It is right that we have that exemption, but we need to find ways of stopping people selling things on internet marketplaces and exploiting it, because there is a big revenue leak. This also makes it very hard for UK businesses resident here that are trying to comply with the rules to compete with those internet-based sales where people are not charging VAT on products on which they ought to be charging it. All the measures we can take to ensure that anyone trading here who turns over more than £80,000 has to charge VAT on the things they sell have to be right, and I look forward to seeing how those measures work and what more the Government can do on them.
Clause 120 deals with making tax digital, on which the Minister and I had an exchange earlier. I accept that we have to make tax more digital than it is and we have to get everybody filing returns online. I can see why the Government would want the information much earlier than they are getting it and would seek to remove the errors. Individuals and businesses do not want to make errors and they want to get their tax right. I am not sure how much we help them when we add 762 pages of Finance Bill every year and they have to try to work out how to comply with them. Making tax digital is the right thing to try to do, but I worry that if we rush the smallest businesses into it we will end up with the wrong outcome. I accept that businesses turning over more than £80,000 are probably already filing their VAT quarterly, doing monthly PAYE activities, presumably on a computer, and reporting those, and doing the same thing for auto-enrolment. Those businesses are probably already gathering, just about in the right format, all the information they need, and making these returns should not be unduly onerous for them. In that area, the advantages outweigh the downsides. However, I do worry about ending up with a perverse outcome.
Mr Rees-Mogg
My hon. Friend is slightly glossing over the problems for businesses. Many of them will be paying accountants to make the filings that they are already making and this will be a further cost to them, which will bear down particularly heavily on smaller businesses.
Nigel Mills
Yes, and I was coming to that point about the smaller businesses. I suspect that businesses that are submitting VAT returns have already gathered all their sales data and invoice data, and will have to gather all their payroll data for their PAYE reports, and so most of the stuff they need to do this reporting has already been gathered and looked at coherently. Small businesses may do that only once a year and employ an accountant to do it, so we run the real risk of going from having an annual return prepared by a qualified person who has looked through the information and made it coherent and accurate to having a quarterly statement that the individual tries to do themselves, ending up with much less accurate information being prepared than before. We need to be careful to avoid going from a relatively reliable annual return to an unreliable four-times-a-year situation and unintentionally increasing the errors that HMRC has to look at. Instead of doing this once a year and making sure they have got it right, the risk is that people may choose not to pay an accountant or be unable to afford an accountant to do this four times a year. So there is some merit in thinking about how we phase in this measure for the smallest businesses. We could make the compulsory date a few years further away and encourage people to choose to opt in if they feel they can comply. In that way they would gain advantages from knowing that their tax bill is right and will not be shocked when they get the statement back from HMRC. There are some advantages here, so if we sell this right, businesses will choose to sign up to it and the final compulsion after a few extra years will perhaps not be as big a shock.
Sammy Wilson
Does the hon. Gentleman acknowledge that this may be meant to do away with errors and give businesses an idea of what their tax payments are going to be, but there are end-of-year adjustments—those relating to stock, work in progress, depreciation and so on—which will have an impact on a firm’s tax business? If these things have to be done once a quarter, it adds significantly to the work businesses have to do and therefore to their costs.
Nigel Mills
I agree with the hon. Gentleman that we have to think about how to do the annual adjustments—they have to be made only once—if we move to a quarterly system. A lot of very small businesses are already on simplified accounting methods in any case, so perhaps those issues will not apply to that extent. The Minister reminded me that the Government have been trying to expand on those simplified accounting measures to make things easier for small businesses, and so I hope that some of those issues would not arise.
During the debate on my first Finance Bill as a Member of this House, one of my amendments sought to suggest that we move the corporation tax system much closer to the annual accounts that people submit, rather than having lots of different tax adjustments. Such an approach would be much clearer for business and would create big cost savings. With more of these things, perhaps I will eventually get to that dream I had nearly seven years ago, although I am not entirely optimistic about that. To be fair, we should welcome the fact that the Government have relaxed the timetable for businesses whose turnover is less than the VAT threshold. I welcome that and it has been largely welcomed by most small businesses in my constituency, which did have concerns about this.
As we are dealing with corporation tax and as I was talking about amendments I tabled to the first Finance Bill on which I served, let me say that one of my other amendments sought to allow groups to file one corporation tax return for their whole group, rather than having to file one for every individual entity and then making loads of complicated claims about how losses are moved around the group. This Bill contains restrictions on how many of the losses brought forward from previous years can be used, but we are allowing those losses now to be used right across the group, rather than just in the entity that originally made the loss. That is a welcome change.
As we leave the EU and can finally lay to bed all the worries we had about whether we would have to include all EU companies in a group tax return, if we had one, because it would be discriminatory under EU law to include only UK companies, perhaps now is the time to look, as many other countries have, into allowing groups of companies to file one tax return that shows the profit for the whole group and does not have to track every individual transaction between all the companies. That would help us to tackle some tax avoidance schemes that have played on the different treatment of transactions between companies. It would make it easier to comply and help to tackle avoidance so, as we move through the Brexit process, I hope we can look at those issues that we have previously found difficult.
Suella Fernandes (Fareham) (Con)
Does my hon. Friend agree that the cut in corporation tax from 19% to 17% in 2020 is only going to be good for the economy—the previous cut produced an increase in revenue from corporation tax—and will set Britain out as a favourable place for business and investment as we enter the next phase of our history through Brexit?
Nigel Mills
I absolutely agree: it is important that we continue to send the signal that Britain is a great place to do business and to invest. We want as much international investment here as we can get, so it is absolutely right to have a headline corporation tax rate that is as low as we can have it. I welcome the fact that we are going to get it down to 17%. The previous Chancellor hinted that he might have used 15% to give a sense of direction; perhaps the Government will look into using that in the manifesto we are about to produce.
George Kerevan
Can the hon. Gentleman explain why Germany, which has a much higher headline rate of corporation tax, does so much better industrially?
Nigel Mills
I think I would have had to attend several of the hon. Gentleman’s lectures to understand better how the German economy works, but that is not something I have ever studied. We could probably talk about euro rates and the history of investment in skills and so on, but I suspect it is not all down to corporation tax.
Kevin Foster (Torbay) (Con)
In his consideration, will my hon. Friend, like me, bear in mind the fact that the closest and most comparable jurisdiction in the European Union is Ireland, where the headline rate is around 12.5%?
Nigel Mills
Yes, and Ireland has found that that corporation tax rate has been successful in helping to attract investment. I noticed that throughout all Ireland’s financial crises and its desperate need for tax revenue, that rate was one thing on which it was not prepared to move, which is a sign of how successful it thinks it has been.
Mr Alan Mak (Havant) (Con)
I hope my hon. Friend will join me in sharing the sentiments of our hon. Friend the Member for Fareham (Suella Fernandes) and celebrate the fact that Britain will have the lowest rate of corporation tax in the G20. To come back to the point made by the hon. Member for East Lothian (George Kerevan) comparing Britain to the German economy, does my hon. Friend agree that although the British and German Governments spend a similar amount on research and development—around 28%—the big deficit is actually in private sector investment? If we are going to lead the fourth industrial revolution, which will be important to ensuring that our economy is strong, we need to get the private sector to invest. That is what the Bill will do.
Nigel Mills
I agree with those sentiments. If we are going to get into a debate about the German economic model, though, I should probably step out of the middle of it because it is not an area I have ever looked at.
There is a clause in the Bill on the Northern Ireland corporation tax and how we will make the lower rate there work. This is probably my chance to sneak in a remark, Mr Deputy Speaker: I hope we can get an Executive formed in Northern Ireland so that they can take the decision to have a lower rate of corporation tax. I suspect we probably do not need to rush that clause through the wrap-up, given the current situation, although I guess it is not controversial in Northern Ireland.
Sammy Wilson
Does the hon. Gentleman accept that there will be great disappointment in Northern Ireland that because of Sinn Féin’s insistence on unrealistic demands, there will not be an Executive in the near future, meaning that Northern Ireland’s ability to reduce corporation tax, which was a key part of the economic strategy, will be removed from the Executive?
Nigel Mills
I do agree: it is regrettable that the inability to form an Executive means that it looks like a power that was long campaigned for will not be used on the timetable it should be. We have seen how important it is for the Northern Ireland economy to have a rate that matches that of the Republic of Ireland so that it can compete on attracting investment. Many issues will get lost in the upcoming general election, but I hope that the need for Northern Ireland to find a way forward is not one that we take our attention off for the next six or seven weeks.
I think it was to last year’s Finance Bill that the Government accepted an amendment to introduce territory-by-territory reporting for all large corporates as part of their annual tax strategy. When the Minister sums up, will she update the House on the timetable? When might that power be turned on so that we can start to see those reports?
I welcome the measures in the Bill to encourage social investment by increasing tax relief but making sure that it is focused on the right things and is not subject to avoidance. I recently heard that a group of residents in Holbrook had managed to raise the funds to buy a local pub that faced being knocked down and turned into housing, by getting 250 or so people to buy shares in the new business. That is a real example of what a community can do to save a valued asset and I pay tribute to their success.
I wish to touch briefly on air passenger duty. I do not want to revisit the whole debate—I accept that we need it to raise revenue—but I just wonder whether, as we leave the European Union and some of the restrictions on how we can regionalise taxes drop away, the Government will be prepared to look at measures to encourage new routes into regional airports. That would help to tackle the congestion and air quality in London, and it would help the economy outside London by providing direct routes to the high-growth parts of the world. I wonder whether it is possible to produce a scheme in which we have either lower rates of APD on routes into regional airports, including East Midlands airport near my constituency, or lower APD for a new route for a certain time period—perhaps three or five years—to enable such a route to become viable. Such measures would not have the big revenue hit that they would have on all the London airports, and would target the money that we can spend on getting the vital regional growth that would help the regions of England outside London. As APD is a devolved tax, if Scotland chooses to have a lower APD rate in future, we may see some interesting tax competition if airports in the north of England feel the need to respond.
Overall, I welcome the Bill. It contains many important measures that will help to protect our tax base and tackle avoidance—which we all want—and help the economy to grow. It is an important Bill and I hope its provisions will survive the discussions over the next few days.
Sammy Wilson
The hon. Gentleman quite rightly mentions tax avoidance. Does he accept that although there are measures in the Bill on tax avoidance, given that the tax gap is nearly £40 billion but the Government’s target is to collect £5 billion more between now and 2020, the issue is not being taken seriously? There will be frustration that rich companies will still be able to walk away with very low tax bills.
Nigel Mills
I was nearly finished, but the hon. Gentleman invites me into a debate on the tax gap. I do not have the numbers to hand, but it is important to understand what makes up the tax gap. Tax avoidance by large corporates is actually a relatively small part of it. From memory, the largest part is due to people who operate in the black market and do not pay VAT or declare their tax. Another large part is down to errors or mistakes by small businesses or individuals. It is right that the Government should bear down on all those aspects, but I do not think it is possible to get the tax gap down to zero—it would involve some kind of ridiculously heavy compliance burden. We could probably get there only by having zero tax rates or zero economic activity, so there will always be some level of tax that we cannot collect, but the measures that the Government have taken progressively over the past seven years to tackle aggressive tax avoidance have been the right ones. We have the general anti-abuse rule, which we are trying to tighten up in the Bill. When that gets to its five-year anniversary, I look forward to seeing whether we can change our strategy on targeted abuse rules, whether we might not need to have quite so many individual anti-avoidance rules, and whether we can rely on the general one.
Although we have discussed Making Tax Digital, a key part of reducing the tax gap is making businesses report and be more compliant on a more regular basis. We must press on with that and make it work, but we do not want to risk going too far. There are more measures that we could try to take to encourage people not to pay cash in hand to avoid paying VAT. It is very hard for an individual to know whether the person cutting their hedge or driving their taxi is tax registered. Perhaps we should have some kind of registration process so that a person can say, “I want to engage people who are fully tax compliant. If you can show me that you are, I will happily hire you. If you can’t, perhaps I will hire someone else.”
Mr Mak
My hon. Friend is making a very good speech about the changing nature of the economy, particularly in relation to the rise of the gig economy. Will he join me in welcoming the review by Matthew Taylor about how we can tax both the individuals and the companies operating in the gig economy to make sure that we strike that fair balance between taxation and innovation in our economy and our employment market?
Nigel Mills
Yes, I happily welcome that review. That has become an emerging issue that we need to tackle. It will probably blow up in the national insurance debate. I welcome the measures in this Bill, which propose that where the public sector engages with individuals who try to incorporate themselves, those individuals will not get the tax advantages. That has to be right. We need to find a way of doing that for very high paid individuals outside the public sector who try to do that. We need to ensure that they are taxed on that income in a way that the tax system intends, and not allow them to get an advantage through the corporation tax system. I accept that the reduction in the dividend relief that was announced in the Budget was the right thing to do. As we see our employment market changing, we need to ensure that the tax system is not encouraging unscrupulous employers to try to pretend that their employees are self-employed in order to get a tax advantage for themselves, leaving those individuals in a far worse situation without the security of being employed and without the rights to welfare, holiday, sick and maternity pay to which they are entitled. That review will be very important in enabling us to strike the right balance and to encourage people who are genuinely self-employed and taking risks. I accept that we should have a lower tax rate for people who do that. How we get our tax rules to match the changing way that people work will be extremely important, and that review will have an essential role to play.
I will wrap up my contribution by saying that I welcome this Bill and that, whatever passage it has, I wish it well.
Stewart Hosie (Dundee East) (SNP)
I beg to move an amendment, to leave out from “That” to the end of the Question and add:
“this House declines to give the Finance (No. 2) Bill a Second Reading because it derives from the 2017 Budget which confirmed the continuation of austerity, it fails to provide the necessary stimulus to compensate for the economic impact of Brexit, it fails to address the inequity of VAT being charged on the Scottish Police Authority and the Scottish Fire and Rescue Service, it fails to provide concrete measures to support the oil and gas industry, it increases Insurance Premium Tax above the level of inflation, it increases duty on Scotch whisky, and it is a wholly inadequate response to the economic challenges being faced by Scotland and the UK.”
We oppose this Finance Bill—well, someone has to—not so much because of what it does but because of what it does not do. Let me take as an example the inequity of Scotland’s police and fire and rescue authorities paying VAT. It is a long-standing problem, and this Government could and should have taken the opportunity of this Finance Bill to rectify it, but they did not. In the Budget, there was at least a recognition of the problems faced by Scotland’s oil and gas sector, but no specific measures were announced—just another options paper, which was effectively announced last year. This Finance Bill should have been the opportunity to make concrete proposals for UK content and for oil exploration and decommissioning allowances to ensure that the sector continues to thrive, to flourish and to provide substantial tax yields for decades, but of course it does not. It does, however, put up the duty on Scotch whisky, and increase insurance premium tax again by 20%, which is way above the rate of inflation. Effectively, the Bill treats the Scotch whisky industry and the insurance sector as cash cows for the Treasury.
Having said that, we do welcome some of the measures in the Bill, particularly those that are intended to clamp down on tax avoidance and evasion. I welcome what the Minister said about restricting the use of past losses, disguised remuneration, the initial penalties for tax avoidance enablers, and the removal of the permanent non-dom status. However, it is hard to see how this Bill will assist in any substantial way to address the long-term UK challenge of improving productivity or even helping to make society a little less unequal, which is vital to unlocking our growth potential. That is particularly the case when one considers that alongside this Finance Bill are a set of welfare proposals that do not support inclusive growth but, rather, drive a coach and horses through it. They include the cut of £30 a week to employment and support allowance for claimants placed in the work-related activity group; a 55% cut in the rate of ESA for disabled people under the age of 25; the freezing of the lower disabled child element of universal credit; and the changes for full-time students who receive disability living allowance or personal independence payments who are now not treated as having limited capability for work and are therefore not entitled to universal credit until they have been assessed, which means that they face long delays without support.
I do not want to digress too far from the Bill, but delivering those cuts when disabled people and those on low to middle incomes are already facing a barrage of cuts from this Government is a disgrace. Moreover, those cuts not only fly in the face of the Tory party’s last manifesto commitment to help more disabled people into the workplace—something that is vital—but undermine the essential drive for real inclusive growth, which is vital if we are to grow the economy and maximise our potential.
Rebecca Pow (Taunton Deane) (Con)
I just want to point out that, under the Scotland Act 2016, we are devolving benefits worth £2.8 billion to the Scottish Parliament. That is almost a fifth of Scottish spending. It would be really interesting to hear what the hon. Gentleman thinks about that. Indeed, he could even welcome the fact that this Government have created such a strong economy that Scotland is able to have that much money gifted to it.
Stewart Hosie
I am sure that the Scottish people will be delighted to hear that the hon. Lady thinks that somehow they do not pay taxes and that they are dependent on the largesse of ladies like her to fund our welfare system. We have had a very small amount of welfare devolved. If she wants to make such a contribution, she can read out the rest of the Whips’ briefing note when she catches your eye later, Mr Deputy Speaker. [Interruption.] The Tories can groan all they like, but they have called a snap election, and on the same day we are debating the Finance Bill.
In this Bill, the Minister wishes to reduce the dividend nil rate from 2018-19 from £5,000 to £2,000. I will listen carefully in the next 10 days or so to what the Government say about that. Perhaps they can prove that only very wealthy people benefit from that allowance and that it may be a reasonable change. Equally, it may be the case that many small and start-up business owners depend on that money to tide them over and that the measure will be nothing more than a tax on enterprise—a disincentive to start a business, to create jobs and to power local economies.
I did find it slightly jarring when the Minister explained that wealthy people could put lots more money in individual savings accounts. That is fantastic news for people who are already wealthy: they can save tax free. Let us juxtapose that with a change to the dividend nil rate from a modest £5,000 down to £2,000, which might act as a disincentive to people who genuinely want to start a business, while allowing already wealthy people to save tax free. That might be the kind of error we would have seen under the old fiscal charter and its requirement to run a permanent surplus quickly, almost irrespective of the economic conditions. However, the new fiscal charter is more flexible than the last one, which should make such a measure unnecessary. The Government are still targeting a surplus early in the next Parliament. Let us see how early it is in the next, next Parliament.
Again, without digressing too far, the numbers and the timescale for even a modest surplus within four or five years look precarious. The forecasts for a current account surplus are tiny, not even reaching 1.5% of GDP. If there is any external shock or capital flight if sterling suffers further devaluation, which is quite likely if the Brexit negotiations go wrong—again, highly possible—the figures could fall apart very quickly indeed.
At its heart, this is a Finance Bill delivered with the pretence that the hard Tory Brexit is not happening. It sits in splendid isolation from reality. We cannot assess whether it will assist with the challenges that lie ahead. We cannot even assess properly what the consequences of the limited measures in it will be, because the Office for Budget Responsibility told us about Brexit at the Budget:
“There is no meaningful basis for predicting the precise end-point of the negotiations as the basis for our forecast.”
In short, this Finance Bill, like the 2017 Budget, is effectively based on a central assumption that pretends that Brexit does not exist. That is a ridiculous thing to do, given that article 50 has already been triggered.
Mr Rees-Mogg
The hon. Gentleman quotes the OBR, which was one of the few forecasters that was responsible enough a year ago not to make wild assumptions about what Brexit would mean. Most of the other forecasters thought they knew what would happen and got it comprehensively wrong. It shows prudence, caution and common sense not to try to forecast that which is essentially unknowable.
Stewart Hosie
I think the hon. Gentleman has been on record attacking the OBR for its forecasts. If he has not, I apologise, but I am sure that many of his colleagues have. No one seriously suggested that on day one or in week one, month one or even year one, even before the negotiations were complete, Brexit would result in any kind of catastrophe, reduction in GDP or other such thing. The real danger is for the medium and long term. As the hon. Gentleman brings it up, let us remember what some of the forecasts said. The Treasury itself said that we could lose up to £66 billion from a hard Brexit, and that GDP could fall by about 10% if the UK reverted to World Trade Organisation rules, which echoed the Chair of the Treasury Committee and other assessments. The London School of Economics said:
“In the long run, reduced trade lowers productivity”—
a huge problem for the UK—which
“increases the cost of Brexit to a loss of between 6.5% and 9.5% of GDP.”
It put a range of figures on those costs of between £4,500 and £6,500 per household.
There are other assessments from the Fraser of Allander Institute, from the FTSE 500 senior executives and from the British Chambers of Commerce. The hon. Member for North East Somerset (Mr Rees-Mogg) may not believe those assessments. Some of them may not come to pass, but given that the warnings are very real and credible, one would have imagined that they would instruct a far bolder Finance Bill. That is the point that I was trying to make.
Mr Rees-Mogg
The point I was trying to make was that we have had incredibly wrong forecasts from all these illustrious bodies. The hon. Gentleman was only wrong on the OBR. I criticised lots and lots of bodies; the OBR was the one I singled out for not being so foolish as to make erroneous forecasts. The Treasury, the International Monetary Fund and the Bank of England all said that the day we left there would be Armageddon and we would have a punishment Budget. This turned out to be nonsense, and it is much wiser of the current Chancellor to avoid foolish speculation.
Stewart Hosie
I do not want foolish speculation; nor do I want rose-tinted spectacles or ostrich heads in sand. There are very credible warnings of what Brexit might deliver. If the Government fail to mitigate the risks, they fail the people, and that is incredibly important.
To be fair to the Chancellor, in terms of what mitigation measures he could take and has taken, last autumn he announced additional support for capital investment and research and development; and he has since reiterated some of his R and D statements and put some more flesh on the bones of investment. However, the figures from the last autumn statement show that public sector net investment falls in 2017-18, and presumably 2018-19, depending on what happens after the 8 June election. The figures announced only a few months ago for public sector gross investment show them falling again this year, compared with the forecast made last winter, and not increasing again until 2020 or beyond. We would argue that money should have been allocated, and the Finance Bill should have reflected this, to mitigate the damage that we and many others believe is likely as a result of a hard Tory Brexit.
Of course it is not all about Brexit. Nor is it about reminding the House—I will not do it today—of the failures and broken promises on debt, deficit and borrowing. It is not even about repeating the mistakes of the past on investment. We are now in such uncertain times that in order to protect jobs, to protect yield and to protect the current account, trade should be front and centre, but little was said about that today and there was nothing in the Finance Bill that would assist in that regard.
The Budget Red Book tells us already that the current account is in negative territory for the entire forecast period. The impact of net trade will be zero or a drag on GDP growth, without the impact of Brexit, for almost every year of the forecast period in the Budget. That is after a near 15% devaluation in sterling since the referendum. More should have been done, and it should have been done in this Finance Bill.
My hon. Friend the Member for East Lothian (George Kerevan) intervened earlier on how growth will be generated. It is forecast to be based on heroic levels of business investment after the uncertainty of Brexit ends, which we do not believe will be any time soon. It will be propped up by household consumption with a commensurate rise in household indebtedness; by central Government investment, which I welcome; and by fixed investment in private dwellings, but house price rises are forecast to be two or three times the rate of already rising inflation. That is not a balanced recovery, and there is nothing in the Finance Bill that would assist in balancing it.
However, the issue of trade is most worrying. The figures are clear, notwithstanding one quarter’s blip in either direction. The last full years for which we have figures saw the current account £80 billion in the red, and a deficit in the trade in goods of over £120 billion. Nothing in the Finance Bill today would assist businesses to trade in a way that would even begin to shrink or erode those deficits.
This is a thin debate today because of other announcements, so I will conclude by saying what I said at the start. We will oppose this Bill—not so much for what it contains as for what is missing. We will do so because, like the Budget that drives this Bill, it is wilfully blind to the damage that Brexit will do, and in our view it is a completely inadequate response to the challenges that the economy will face.
Dr James Davies (Vale of Clwyd) (Con)
It is a pleasure to be called to speak in support of this Finance Bill. As a whole, it is a Bill that prioritises economic stability, and there is much to welcome in it. My constituents will be pleased at the further increase in income tax thresholds.
I want to talk about the soft drinks industry levy, which appears in part 3, clauses 71 to 107. This was announced in the Budget a year ago, and it was reconfirmed in the childhood obesity plan last summer. At this point, I should declare an interest in that I devoured a very large Easter egg in recent days, but leaving that aside, I will get back on track to welcome the levy wholeheartedly as one lever in tackling obesity.
There is no single silver bullet to tackle the obesity crisis in the UK and in the west in general, but the levy is a necessary part of a package of measures to begin to tackle it. I have reached that clear conclusion through membership of the Select Committee on Health. I admit that if I had been asked about a sugar tax a year or so ago, I might have been somewhat uncertain, and it is clear that there is some uncertainty among hon. Members here today. I hope to convince some of those with lingering doubts to ensure that the provisions pass without further amendment.
Obesity affects about a quarter of adults in the UK, and it is estimated that it may affect up to 70% of us by 2050. One startling fact is that obese children are five times more likely to become obese adults, so there is a clear need to tackle childhood obesity.
Alison Thewliss (Glasgow Central) (SNP)
I am glad to hear that the hon. Gentleman supports the sugar tax. Does he agree, though, that the obesity strategy really does not go far enough because it does not start until children are older than two? Bad habits could already have been formed by that stage. Does he support an increase in the scope of the policy?
Dr Davies
It is true that the Health Committee—myself included—has called for additional measures, but the plan as it stands is certainly a step in the right direction. I will come to further points in due course.
One in five children starting primary school is overweight. By the end of primary school, it is one in three—quite a striking figure. The inequality between communities is also striking. Some 60% of five to 11-year-olds in the poorest neighbourhoods are obese; the figure reduces to just 16% in the most affluent areas. That translates into regional variation.
Kevin Foster
My hon. Friend is making an important point about the fact that there is a higher growth in obesity rates among those from the most deprived backgrounds. People who live on one side of a particular hill in Torquay live for 13 years longer on average than those who live on the other side. Does he share my concern that those sorts of stats could get worse?
Dr Davies
Indeed. I strongly believe that the measures outlined in the Bill go some way to tackling that situation.
Perhaps the main health effect of obesity among children is tooth decay. It is the main source of hospital admissions for five to nine-year-olds, with some 26,000 admissions, probably in England alone, and 179,000 teeth—if not more—extracted among the age group each year. Some 25% of children in the age group have tooth decay, and 90% of those cases are estimated to be preventable. Of course, sugar is a key cause of the problem. As for older children, 46% of 15-year-olds have tooth decay, and £129 million was spent on the extraction of teeth in under-18s between 2012 and 2016.
The impact of obesity on adults is even more concerning with tooth decay and, in no particular order, type 2 diabetes mellitus, cardiovascular disease, gastro-oesophageal reflux disease, gallstones, osteoarthritis, sleep apnoea, infertility, pregnancy problems, mental health problems, liver and kidney disease, and—last but certainly not least—cancer. At least 13 types of cancer have been implicated with obesity. In fact, obesity is thought to be the biggest cause of preventable cancer after smoking. More than 18,100 cases of cancer in the UK per year are estimated to be thanks to obesity. Those types of cancer include some well-known ones such as breast, bowel, endometrial, oesophageal and pancreatic. There is an impact on the NHS of an estimated £5.1 billion per annum, and a cost to the economy in general—£27 billion a year down to lost productivity, unemployment, early retirement and welfare benefits.
It is vital that we recognise the extent of the problem posed to the health and wellbeing of ever-rising numbers of people by the obesity crisis. How should we target this? Well, it is believed that there is a genetic susceptibility to obesity. That is not to say that all obesity is down to genetics, but it is thought that the inheritance of several genes—polygenic susceptibility—leads some to an increased drive to eat. Much has been said over the past decades about personal responsibility, education and exercise. Education and exercise do have an important place, but the reality is that they have not succeeded as the main way to target the problem.
We have an issue with more sedentary lifestyles and an obesogenic environment, whereby unhealthy, high-calorie foods are so easily available around us. Calorie intake sadly overwhelms most people’s efforts to exercise those calories off. Personal responsibility certainly drives many—perhaps those with the intellectual and financial resources to follow the path to deal with the problems they face —but it is not easy. In any case, children cannot be expected to exercise personal responsibility, because they do not have their own freedom of choice. Various measures are important in tackling the crisis, including reformulation targets by Public Health England and others, which will reduce sugar, fat, calories and so on in the foods that children eat.
Advertising is also important. Advertising restrictions have recently been expanded from television to other media such as social media and advergames, but more could be done if necessary. Labelling is important, and Brexit offers an opportunity in more flexibility in labelling our products. Promotions and discounts in supermarkets and elsewhere are critical. The issue of local authorities’ planning powers for takeaways and so on has been mentioned on a number of occasions.
Rishi Sunak (Richmond (Yorks)) (Con)
My hon. Friend makes an excellent point about the freedom for better labelling after we leave the European Union. Does he agree that one sector that could benefit from that is the dairy sector and dairy farming? Those products could have better country of origin labelling, which would help British shoppers to choose British dairy products and support British farmers.
Dr Davies
That is a very good point. A point has also been made about the flexibility to include information on labels such as the number of teaspoons of sugar in a product, which we are currently unable to do. A wide range of benefits could arise, which is interesting.
The soft drinks industry levy has a key role. Soft drinks are the biggest source of dietary sugar for children, but they contain little, if any, dietary benefit. Five-year-olds are believed to consume their own weight in sugar per year, and four to 10-year-olds each consume half a bathtub of sugary drinks per year. That is food for thought. The Scientific Advisory Committee on Nutrition and the World Health Organisation advise that free sugars should comprise less than 5% of daily energy intake; yet the estimated intake among our children is two to three times that figure.
The proposed mechanisms of the levy relate to producers and importers of packaged soft drinks with added sugar. The levy is designed primarily to encourage reformulation, as has been mentioned. The implementation date of April next year gives manufacturers time to pursue reformulation, and many have been doing an excellent job in achieving that. The levy drives manufacturers to reduce portion sizes and to market their low-sugar alternatives. It will be tiered, whereby 18p per litre is levied when the total sugar content of the drink exceeds 5 grams per 100 ml, and 24p per litre is levied when the total sugar content exceeds 8 grams per 100 ml. According to my mathematics, that is about 6p to 8p per can of drink. The levy will apply to drinks as ready-prepared or diluted as directed on the packaging.
The hope is that the levy will be passed on to consumers in the same proportion as applied. In other words, there will be no cross-subsidy. One concern raised by the Health Committee was that low or zero-sugar drinks might end up picking up some of the extra costs levied on manufacturers by their sugary alternatives. If that were to take place, it would be a missed opportunity to maximise the positive impact of the levy.
Mr Mak
My hon. Friend is making an excellent speech based on his personal knowledge and work as a medical doctor. Will he join me in encouraging children’s charities, such as Magic Breakfast, that play an important role in educating children about health eating and the avoidance of too many sugary drinks to redouble their efforts, and to use the sugar levy as a catalyst to do more work in the area?
Dr Davies
I will indeed. I will come on to the positive impact that the potential introduction of the levy has had on the general debate on sugar and obesity.
Coming back to the idea of cross-subsidy in terms of the cost of drinks, we, as a Government, should keep an open mind as to whether that needs to be regulated. The levy excludes fruit, vegetables and milk as a form of added sugar. It also excludes baby formulas, drinks for medicinal and dietary purposes, drinks comprising 75% or more milk, and small producers of under 1 million litres of beverage per year. The revenue raised is due to double the funding for PE, sport and breakfast clubs. It is expected that £1 billion will pass to the Department for Education for this purpose, with, of course, equivalent sums being passed to the devolved nations as per the Barnett formula.
The important thing to note is that, with successful reformulation, companies will pay no additional tax. It has been a mark of the success of the progress made with this policy that reformulation is already taking place, and it is therefore expected that in fact £1 billion will not be raised. I praise the Chancellor of the Exchequer for confirming that he will nevertheless pass on the full £1 billion in this Parliament for the purposes identified. Reformulation is possible—companies are already showing that. There has been success in the past with reformulation of products as to the amount of salt they contain. I mentioned before that this whole debate is causing a discussion throughout our nation about obesity and sugar, and that has to be a good thing. I hope that even this debate will help to further that.
Will such a policy work? There is no direct comparison, but in Mexico when a tax of roughly 10% was levied, it led to a 12% reduction in sugar intake, and in Hungary a 40% tax led to manufacturers reducing sugar content. A 2016 modelling study suggested that thanks to the levy 144,000 adults and children would be saved from obesity each year; that 19,000 would be saved from diabetes mellitus; and that the number of decayed teeth—270,000—would be reduced. We have certainly seen some tentative support among the public. I truly believe that in view of the scale and consequences of the obesity crisis, we do not have the luxury of time to make excuses. We can lead the world in this area and create evidence that other countries can then use and follow.
Matt Warman (Boston and Skegness) (Con)
Does my hon. Friend agree that this is an example of measuring success in terms not of the revenue raised but the behaviour that we change, and that the evidence that he talks about will not only change behaviour but genuinely change people’s lives in all our constituencies?
Dr Davies
My hon. Friend makes a good point. This is about how people live their lives in the foods and drinks they choose to consume and the way they look at their diet in general.
I would like to address a couple of criticisms raised by some. First, is this policy an example of the nanny state? I would argue that we use the tax system to influence behaviour and always have done. The Government have a duty of care to address important public health issues, as we do with tobacco and alcohol. As I said, freedom of choice is limited with regard to children, because they are not in a position to exercise freedom of choice. We live in a world that is skewed against our health interests; choice over healthy options can be difficult to come by as we are continually surrounded by unhealthy products. I would go so far as to suggest that some reduction of choice in sugary drinks on our shelves is a price worth paying to deal with the crisis that we face. I support the use of the tax system to support public health endeavours such as this one.
The second criticism is, “Is this just an extra tax, is it an attack on jobs, and is it regressive?” The tax can be avoided if products are reformulated or if existing sugar-free options are promoted. I would therefore argue that jobs in our food and drink sector should be safe. In fact, our food and drink sector can thrive if it can show the world how to tackle this agenda successfully. It is not a regressive measure either. The health gains are the biggest for those on low incomes, and sugar-free options are available which, we hope, will cost no more than they currently cost.
I support the soft drinks industry levy as a small but necessary part of the fight against childhood obesity.
Dr Caroline Johnson (Sleaford and North Hykeham) (Con)
As a consultant paediatrician I have seen and treated a number of children with obesity and seen the health consequences of this growing problem. Does my hon. Friend agree that this tax is a useful part of the Government’s programme but only part of a much wider programme to tackle obesity, and that education will ultimately be the major part?
Dr Davies
Yes. The levy is a bold and brave move, but it is only a small part of the efforts we need to make to tackle this problem. Unless we tackle it from a multitude of directions with a number of different strategies, we will not make progress. There is no one silver bullet.
We need to monitor and evaluate the impact of a levy over the coming year and beyond. I understand that secondary legislation had been due this spring. I am not sure whether that has been slightly delayed following today’s announcement, but it will no doubt follow in time for the levy to be applied from April next year. As a GP, a member of the Health Committee and a father of two young children, I will be following this topic with great interest.
Steve McCabe (Birmingham, Selly Oak) (Lab)
I want to follow the hon. Member for Vale of Clwyd (Dr Davies) in addressing my remarks to part 3 of the Bill and the chargeable soft drinks levy.
I was struck by the Minister’s comments about the Government’s remarkable record on borrowing. I wonder whether she has had an opportunity to look at the work of Professor Richard Murphy of the University of London, who has done a rather extensive comparative study of Labour and Conservative Governments over a 70-year period, which shows quite clearly that Labour in office always, on average, borrows less than the Conservatives, and always pays back more while in office. That is not quite the impression that the Minister may have tried to convey.
Mr Rees-Mogg
That is because Labour always inherits a wonderful financial situation from the Conservatives and we always inherit a mess from it.
Steve McCabe
Yes, of course that is the hon. Gentleman’s belief. However, if we go back in history, I seem to recall Tory Chancellors singing in the bath as the pound collapsed and we were jettisoned from the ERM. I seem to recall crisis after crisis, including one Tory Chancellor who left a note saying, “I’m sorry I’ve made such a mess of it, old chap.” I do not think it is quite as the hon. Gentleman remembers. I would say that the Minister’s claims on borrowing are about as reliable as the Chancellor’s reputation for competence proved after the shambles of his Budget.
Like many others, I would like to know what bad news is coming down the line. Why is it, after five public refusals to call a general election—after assurance after assurance that there would be no election before 2020—that the Prime Minister now needs one? What does she know that the rest of us do not know? I suspect that what she knows is that the NHS is in chaos, our schools are in chaos, the Brexit talks are in chaos, and the economy is heading for the doldrums. That is what I suspect is happening. [Interruption.] I think the hon. Member for Peterborough (Mr Jackson) would like to rise and say that for the benefit of Hansard.
Mr Stewart Jackson (Peterborough) (Con)
I am inordinately fond of the hon. Gentleman, but we have heard this—“24 hours to save the NHS”—so many times for the past 20 years. It is a fact that the Conservative party spends more on the NHS, is more committed to the NHS, and delivers better patient care than Labour has ever done.
Steve McCabe
The hon. Gentleman may be reading from one of those notes that the Whips have been passing around, but I have not got around to mentioning the NHS yet. I will come to it.
I want to comment on the points made by the hon. Member for Vale of Clwyd. I agree that high-sugar diets are associated with a large number of serious conditions, including tooth decay, cardiovascular disease and type 2 diabetes. I will not repeat the figures, but I am grateful to him for giving the stats for five to nine-year-olds and for saying that such diets are the leading cause of hospital admissions for that age group. Of course, that imposes a considerable cost on our already overstretched NHS. He also rightly said that sugar is a leading cause of tooth decay for 15-year-olds, whose permanent teeth are being damaged. That is all preventable, as he said.
I think we are agreed that excessive sugar consumption is the main cause of tooth decay, so in principle I am in favour of a soft drinks levy. However, I am worried that it is an isolated policy and that it will fail to bring about the lasting change we hope for in the consumption habits of the public.
The hon. Gentleman gave the example of Mexico. If he looks carefully at what actually happened, however, he will see that, after an initial dip in sales of soft drinks, they subsequently rose and are now slightly higher than their pre-tax levels. The risk of such an isolated policy is that it may not have the long-lasting effect we seek. Indeed, it is debatable whether there is any robust evidence that an isolated levy on soft drinks will actually reduce the prevalence of any of the health conditions associated with high-sugar diets.
Jane Ellison
I am happy to comment on a couple of things. First, the provision is designed slightly differently from the Mexican initiative and others around the world. It is deliberately a producer levy, to drive reformulation of product. Secondly, to recap what I said in my opening speech, it is not happening in isolation. I entirely agree that it would not be enough in isolation, but it sits alongside a very ambitious body of work, not least in relation to reformulation across a range of different food groups, particularly those focused on children’s diets, on which Public Health England will lead over the next few years, working closely with manufacturers.
Steve McCabe
I am grateful to the Minister. Obviously, we cannot cite Mexico as evidence in favour of the policy and then dismiss it when there is contrary evidence. That was the point I was making. I do not disagree with some of the stuff for which she is arguing, but I and a lot of other people want a broader public health approach. We need to do a bit more to promote healthy eating and improve awareness of the risks associated with unhealthy diets.
I ask the Minister to think again about an industry comprehensive code, because that might be much better and enforceable. If that was to work in conjunction with a soft drinks levy, it might make a much more significant difference. The obesity strategy has been mentioned, but the truth is that most people were pretty disappointed with it when it came out. I remember her in her previous incarnation being much more optimistic about it than appears to be the case now.
With the NHS—this is for the benefit of the hon. Member for Peterborough—significantly extending waiting times for those needing operations for hip and knee replacements, and in the absence of any announcement of additional funding for the NHS, and with the Government continuing, as we have just heard, not to recognise that a funding crisis is engulfing the NHS, the need for a comprehensive set of preventive health measures to complement any soft drinks levy has become all the more pressing. I simply make the point that a tax to plug a hole in yet another failed Tory Budget simply will not be enough. We all know how we arrived at this tax, but it will not be enough by itself.
I do not know how much of this Bill will ever see the light of day, but I do know that it does not address the funding crisis in our schools and our NHS; the impact of cuts in policing, which are now resulting in predicted rises in crime; or the sense in my constituency of Selly Oak that, when it comes to fairness and those who are just about managing, this Government’s economic plans and other policies do not help them. With unemployment in Selly Oak at 4.5%, against 2.4% nationally, this Government simply are not working for Selly Oak.
Mr Jacob Rees-Mogg (North East Somerset) (Con)
It is a great pleasure to follow the hon. Member for Birmingham, Selly Oak (Steve McCabe) and to join in this discussion on the great subject of sugar. While listening to my hon. Friend the Member for Vale of Clwyd (Dr Davies), who told us the extraordinary fact that an average five-year-old eats his own body weight in sugar during the course of a year, I considered my own children. I do not have a five-year-old—I have a six-year-old, a four-year-old and lots of others—but the six-year-old weighs 3 stone, which seems to me to be similar to the weight likely to apply to five-year-olds. That is 42 lb, or 672 oz, so if a five-year-old is eating his own body weight in sugar in a year, he is eating 1.84 oz of sugar a day, which is equivalent to 11 teaspoons of sugar. One thinks of the lines of Mary Poppins:
“Just a spoonful of sugar helps the medicine go down”,
and one wonders whether the medicine goes down even better after 11 spoonfuls of sugar.
In spite of thinking that 11 teaspoons of sugar is quite a lot, I am not in favour of sugar taxes, because I do not think it is the job of the Government to tell me how much sugar to give to my children. I think that is a matter for parents to decide for themselves, and the tax system should be there to raise the revenue the country needs to pay its way. The tax system is not there to tell us how to live our lives. There may be an exception with tobacco, but that is not really the case with alcohol, which is a matter of raising revenue. Our rates on alcohol work very well in raising revenue, as, incidentally, do those on tobacco, which is a serious generator of funds for the Treasury to pay its way.
I am sceptical about the proposed approach. I was struck by my hon. Friend’s comments that a lot of obesity is in fact genetic. If that is the case, we are penalising people who have a genetic propensity to obesity while it is fine for people like me.
Mr Rees-Mogg
I give way to another hon. Gentleman for whom it is fine to eat lots of sugar.
George Kerevan
Indeed, I had a fine East Lothian Easter egg. Does the hon. Gentleman accept that the difficulty with the hands-off approach he suggests, leaving it entirely to the individual, is that there is a vast advertising industry that also influences consumer behaviour and that using a sin tax is a way of evening out that process?
Mr Rees-Mogg
There is indeed an advertising industry, but we live in a free country and people ought to be able to advertise products. We have a lot of misinformation, have we not? We now learn that fat is not as bad for people as it was said to be, and that people have put sugar into products from which they have removed the fat in order to make them taste nicer because fat-free products without sugar taste disgusting. Advice that turned out to be wrong has led to manufacturers doing things that then turn out to be unhealthy. I am suspicious of the advice that comes from Government and their ability to get it right. If they end up getting it wrong, force us to change our behaviour and tax us, we get the worst of all possible worlds.
A little bit of sugar does nobody any harm at all—only taking it to excess does so—and the only justification, which has indeed been made, is for children. However, I think that ignores the responsibility of parents, most of whom are responsible, and puts up the cost for responsible parents of giving their children what may, in many households, be an occasional treat rather than a regular habit. It is a tax that falls hardest on the poorest in society, who may occasionally be giving their children something that they like, because of the excesses of others. I do not really think that that is the job of the Government.
That leads me to the issue of hypothecated taxation. Ministers should write out 100 times a day, “Hypothecation is a bad idea.” That has been the Treasury orthodoxy for as long as there has been a Treasury. Hypothecated tax does not work because it produces the wrong amount of money for what it is seeking. We see that with the prospect of putting money from the sugar tax into schools. We now discover that not enough money is likely to come from the sugar tax to meet the obligations given to schools, and that money will therefore have to come out of general taxation.
If it were a good idea to put the money into schools in the first place, it ought to have come out of general taxation in the normal way. If it was not a good idea, but just a clever way of spending the money, taxpayers’ money should not have been used. If we get into the position that something is now being done that did not need to be done because it was promised as money from a tax that has not arisen, that is not a good way of carrying out Government policy. All hypothecation of taxation should be struck off: it simply leads to the wrong amounts.
That leads me to the broader point I want to make about this Finance Bill and the Budget that preceded it. It is very good news that an election has been called, because the Budget has become so hemmed in by the number of promises on taxation and revenue expenditure that have quite rightly been kept. Governments ought to keep their promises, and this Government have been absolutely rigorous in doing so, even ones that I do not like. For instance, I am not in favour of the 0.7% going on overseas aid, which I think has been a wasteful and extravagant promise when money is needed elsewhere. However, the justification was that it was in our manifesto, and in manifestos parties make a pact with the electorate that they ought to continue with except under the most extraordinary circumstances that have not arisen.
Such an approach has led to very many areas of expenditure being fixed, while taxation has been limited at the same time. The deficit has been brought down to a third of what it was when this Government came in—a very substantial achievement, of which this Government and their predecessor ought to be proud—but it has become very hard to take that any further because of the encapsulating commitments that are limiting the Chancellor’s freedom of action. That is why the Finance Bill, for all that it has 700 pages, will not lead to a great deal of fundamental reform. It is tweaking things at the edges—looking at little bits of money here and little bits there—rather than taking a fundamental or basic approach to our tax system.
Our tax system has become overly complex and, from the pressure of having to find little bits of money, it is becoming even more complex, which makes it difficult for taxpayers to pay the right amount of tax. We can see that more anti-avoidance legislation has come in to stop avoidance, because we have overcomplicated the tax system in the first place and a corrective measure has therefore had to be taken to try to prevent revenue from seeping away. A good example is the discussions we are having about perceived employment as opposed to self-employment. The Government were extremely proud of their achievement in making self-employment easier, but a constituent who came to see me explained that the £3,000 national insurance contributions exemption for small businesses had led to all the people working for him having to become individual companies, whereby it cost £3,000 a year less to pay them than if they were directly employed or were employed through one subsidiary company.
Very good ideas come into individual Budgets—particular tax breaks to encourage particular forms of behaviour to lead to certain outcomes that the Government wish to see—but they then have to be corrected by anti-avoidance measures because they get taken and used in a way that was not intended under the initial legislation. That is why the election will be a great opportunity to stand on a platform of tax simplification, and I hope we will achieve the sort of majority that will help to push that through. To achieve tax simplification, it will be necessary to ensure that avoidance is removed at source, rather than by anti-avoidance measures. That means taking away some of the existing exemptions and incentives that encourage people to set up more complex systems than they need to minimise the amount of tax they pay.
I am a defender of people taking such an approach. If Parliament legislates for tax to be collected in a certain way, with certain exemptions and thresholds, the individual taxpayer is completely and legitimately entitled to use them to their fullest extent. The approach is the fault not of the taxpayer, but of Parliament for putting exemptions into or leaving them in legislation. We should always be very careful to distinguish avoidance from evasion. Evasion is straightforwardly criminal—not paying the amount of tax that is, by law, due. Avoidance is looking at the tax system and saying, “I do not owe that tax, and I do not have to pay it because Parliament has not legislated for me to pay it.” As individual taxpayers, we are all entitled, as are all our constituents, to pay the tax Parliament requires, not a penny less or a penny more. If we had a system that was simpler overall, that would be hugely beneficial.
There is a lot about anti-avoidance in the Finance Bill, including the new rules for non-doms, about which I would be very careful. We live in a world where some very rich people want to come to the United Kingdom, and when they are here they employ people, spend money and pay taxes. We have a system that has barely changed since the days of Pitt the Younger—I cannot say I remember them, but I wish I did—and that broadly unchanged system was actually very beneficial for our economy because it brought into this country wealthy individuals who then provided economic activity. It is absolutely right to ensure that people who are obviously domiciled here in all normal senses of the word should be seen as being domiciled here, but we do not want such a difficult regime that people who might come here and contribute to our economy feel that they cannot do so.
Jane Ellison
I want to give my hon. Friend a degree of reassurance. A new measure in the regime advanced as part of the non-doms reforms will make it easier for anyone to invest in the real economy—business investment —which I hope he will welcome. I entirely take his point that we want to make sure that people can come to this country from anywhere and invest in the real economy.
Mr Rees-Mogg
Absolutely. That is an important part of the reforms, but there has perhaps been a tone—more from the previous Chancellor than from the current Chancellor—that the non-doms were using the system. A lot of them could actually go anywhere in the world, but they come here because of the great virtues of investing in the UK: we have clear rights of property; we have an effective rule of law; and we have had simple regulations that have allowed them to be here. However, we have now increased the charges on them and increased their eligibility for certain taxes, and I think we should be very cautious about that because one never knows, with these sorts of things, where the tipping point will come. It may be that the annual charges applied to non-doms seem quite small compared with their wealth, but when we consider that they have families—the charges have to be multiplied for the wife, the number of children and grandparents, or whoever—we may find that the charges become quite high. The people bringing such wealth into the country have enormous mobility: they can go elsewhere. I know that standing up for non-doms six weeks before an election is not necessarily going to be a great rallying call for North East Somerset, but ultimately I think good economics leads to good politics rather than the other way around. A lot of what was done with regard to non-doms was much more about politics and perception than the contribution non-doms make to this country. In the context of Brexit, we want to show that we are genuinely open to the rest of the world. We want people to come here to invest and to spend their money, because that is so important to our long-term economic prosperity.
There is a broad challenge with this Finance Bill, as there will be with its successor which will no doubt come. I have a feeling that this will be one of those happy years where we get more than one Finance Bill. Finance Bill debates are particularly enjoyable parliamentary occasions because they have no time limit. The hon. Member for Aberdeen North (Kirsty Blackman) said that we might go right through the night and not be able to have our debate tomorrow. I look forward to that happening at some point in the future, but I have a feeling it is not going to happen today. Finance Bill debates are the best debates because of their fluidity and flexibility.
When we get to the second Finance Bill, a fundamental choice will still have to be made. This relates to the answer we had from the hon. Member for Bootle (Peter Dowd) on the Opposition Front Bench. There is an absolutely key point at the heart of this Finance Bill, as there will be at the heart of any new Finance Bill. When I intervened on him and said that the tax rate as a percentage of GDP was at its highest since the days of Harold Wilson, his answer to me was that under Labour it would be even higher.
Peter Dowd
May we just have clarity on this? I did not say that. The hon. Gentleman brought it to my attention that it was high under Harold Wilson and I made the point that yes it was.
Mr Rees-Mogg
I look forward to reading the characteristically accurate transcript Hansard will have for us tomorrow. The great thing about Hansard is that it allows us to correct our grammar—indeed, it often corrects it for us—but it does not allow us to correct the sense, so we will see what was said precisely.
That is the choice. If the hon. Gentleman now wishes to move away from that choice I think that is telling: with an election approaching Labour Members are nervous about it, but the Labour party—the socialists—remains the party of high taxation. The Conservative Government have had to increase taxation because of the enormous deficit left by the spendthrifts of the last Labour Government who almost bankrupted the country. We would probably have gone to the International Monetary Fund at the time if it had had any money left, but it was bailing out Greece and everywhere else so it did not have much for us by the time the Conservatives came in. Through hard work, control of expenditure and, I am sorry to say, some tax rises, the deficit has been brought under control. That is the fundamental achievement of this Government.
As we go into an election, it is the really big picture that matters. It will give such a clear and forthright choice to the British people. Do they want to continue to be governed by people who recognise that it is their money—the money of the individual taxpayer—of which the Government must take as little as possible to finance that which they are required to do? Or are we going to go back to the days of socialist tax and spend, with a huge increase in the deficit to finance spending programmes and tax increases that are even higher than those in the days of Harold Wilson? It was, of course, Denis Healey who said that he would squeeze the rich until the pips squeaked. That was his approach to taxation. Do we, by dutiful, sensible and prudent management of the economy, get things back under control where, with proper reforms, we can lower the tax burden?
Dr Paul Monaghan (Caithness, Sutherland and Easter Ross) (SNP)
In that context, how does the hon. Gentleman explain a national debt of close to £2 trillion?
Mr Rees-Mogg
I would explain the national debt of approaching £2 trillion because of the place where we started. It is very interesting that when the previous Chancellor, my right hon. Friend the Member for Tatton (Mr Osborne), started reducing the deficit he was told by Opposition Members, “Too far, too fast!” They chanted it like a mantra as he stood at the Dispatch Box nobly defending his policies. In fact, he went at the right pace to ensure that the Budget deficit came under control, while at the same time the economy was not unduly affected by the reductions in expenditure and increases in taxes that had to be made. It was a first-class balancing act by my right hon. Friend and that is why the deficit is at £2 trillion.
Jonathan Reynolds
I am loth to give the hon. Gentleman further exposure, but if that strategy was as successful as he believes, why did it not meet its own objectives and we are still discussing the deficit and the very large amount of national debt today?
Mr Rees-Mogg
It has succeeded. We have the fastest growing economy in the G7. For all the stuff we heard a year ago, the economy has carried on motoring ahead. The economy has done pretty well every year now since 2010. That is the success of the economic strategy that the Government followed. The deficit is about a third of what it was in nominal terms, but as a percentage of GDP it is now within the normal bounds of deficits.
Jonathan Reynolds
I may be falling into my own trap, but I remember listening to the hon. Gentleman’s speeches in the previous Parliament when he said that if the deficit was at this level, going on from 2010, that would be a disaster. Now he is saying it is a huge achievement. Can he not understand why the lack of humility makes one cynical about the content of his speeches?
Mr Rees-Mogg
I do apologise for a lack of humility. I shall try to do better in that regard. I am, however, flattered that the hon. Gentleman remembers my speeches from years ago. I admire his attention to the debates in this House. The point I was making then was that a deficit of £150 billion a year, or 10% or 11% of GDP, was completely unsustainable. It is now down to about £50 billion and about 3.5% or 4% of GDP. It is at a manageable level. That is the achievement of the previous Chancellor and the current Chancellor.
Rebecca Pow
Is not one of the fundamental reasons why the economy is in safe hands with those of us on the Conservative Benches that Conservatives have an understanding of the importance of business? My hon. Friend is still in business. Unless one understands how business works and what makes it tick, we cannot raise the revenues necessary to pay for what we need in this country.
Mr Rees-Mogg
My hon. Friend comes from Somerset and her parents are constituents of mine. For both those reasons, she is invariably right and on this occasion particularly so. There is no money tree. It has to come from the success of businesses. It is a matter of balance. The hon. Member for Stalybridge and Hyde (Jonathan Reynolds) wishes to get away from that balance, but it had to be done at the right rate to ensure the least economic problems as taxes were raised and expenditure cut. That has been achieved.
Peter Dowd
If the long-term economic plan was such a wonderful strategy, why did the former Chancellor and the current Chancellor keep missing their targets?
Mr Rees-Mogg
Targets are based on forecasts and forecasts have variables within them that even the wonderful, or not always wonderful, boffins cannot get absolutely right. What matters is not the precision of the forecast, but the broad trend of the economy. We have had consistent economic growth. We have the highest employment on record. This is an enormous achievement. As I said a moment ago, we have the fastest growing G7 economy.
George Kerevan
I cannot let the hon. Gentleman continue with his analysis of the previous Chancellor’s single plan for the economy. In the first two years of the previous Chancellor’s reign, from 2010 to 2012, there was a very rapid move to austerity—tax rises and cuts in spending. Growth slowed precipitously and by 2012 the Chancellor reversed his policy. In fact, he got the Treasury and the Bank of England to print money and pump it into the housing market, so there was a change in policy. The original austerity did not work.
Mr Rees-Mogg
I do not agree with that analysis. My analysis is that the austerity allowed for a looser monetary policy which had beneficial consequences, that between 2010 and 2012 it was essential to operate a very tight fiscal policy to permit exactly the type of monetary policy to which the hon. Gentleman has referred, and that it would not have been possible to maintain the confidence of the markets if we had operated a loose fiscal policy and a loose monetary policy during those two years. The lack of economic growth during that period ties in with the considerable problems—the severe crisis—experienced by the eurozone and other economies.
On this occasion, I do not agree with the hon. Gentleman’s analysis of what went wrong, although I often do agree with him. I see a continuity in the policy of my right hon. Friend the Member for Tatton. However, although no time limit has been imposed this evening, I do not feel that I should go on forever. Many Members wish to speak, and others want to have their dinner. Let me end by reiterating that we face a great choice: between the higher taxes proposed by the hon. Member for Bootle and the opportunity for lower taxes, sound economic growth and prosperity. I know you are independent, Madam Deputy Speaker, but vote Conservative.
George Kerevan (East Lothian) (SNP)
I shall support the amendment, although that does not prevent me from believing that there are many interesting and good things in this draft Finance Bill. However, I find myself agreeing with my colleague on the Treasury Committee, the hon. Member for North East Somerset (Mr Rees-Mogg), in one respect. We will have two Finance Bills, because the current process has been truncated, and a much smaller Bill will be passed before the dissolution of Parliament. When a second Bill arrives later in the year, we shall have a chance to be more strategic and reforming, rather than continuing to add bits and pieces and ending up with the monstrosity—in terms of length—that we have at present. That said, I think that in the final few days, as we move towards a slimmed-down Finance Bill, there may be some room for an agreement between Government and Opposition on what can be achieved. In that context, I ask the Minister to deal with a couple of points when she responds to the debate.
Inevitably, in dealing with the financial period between 2015 and 2020—the year that would normally have marked the end of the current Parliament—the autumn statement and the March Budget made certain predictions about Government expenditure and taxation, along with certain promises about what would be achieved by 2020. One Parliament cannot bind another, and this Parliament, as it reaches its end, cannot bind the one that will arrive in the summer; nor can we predict who will govern following the general election. However, I think it would be helpful to Opposition Members if the Minister provided certain clarifications about the Government’s intentions, should they be returned in June, in respect of meeting the obligations that they set themselves for the period between now and 2020.
Let me give an example. The Government have guaranteed that they will meet their obligation to spend £1 billion derived from the sugar levy—the tax on the sugar industry—over the period ending in 2020. Normally that would fall, so I should like some indication of whether, should the Government be returned, that would continue to be their intention between now and the next Parliament It would be helpful for Opposition Members to know that. Although I think that the tax on the soft drinks industry is inadequate, and a bit quixotic in terms of what is and is not taxed, I also think that it is a step in the right direction. There are hypothecation issues, but, given that this is where we are, it would be useful if the Government guaranteed that, if re-elected, they would continue in the same direction.
City deals are another issue for Opposition Members. We were reaching an agreement with the Treasury on a number of city deals in, for instance, Edinburgh and East Lothian—some in the east of Scotland and some in the west—and I understand that the Treasury had intended to sign them off following the local government elections. Again, one Parliament cannot bind another, but I think it would be possible for the Treasury to provide some comfort on the subject of city deals before dissolution.
Mrs Anne Main (St Albans) (Con)
The hon. Gentleman is presenting a marvellous argument for people to vote Conservative. He is presenting the positive argument that if the Minister assures him that the wonderful things that he expects us to do will indeed be done, they will definitely be delivered if the electorate vote Conservative. I look forward to the Minister’s assurances, given that the hon. Gentleman has basically asked everyone to vote Conservative.
George Kerevan
I was very careful to say that I was not anticipating who would actually be in government. I was giving the present incumbents in the Treasury a chance to say what they might do should they be re-elected.
Let me move on now, because I think it important to analyse the contents of the Bill. I think that it contains two sets of structural weaknesses. The first reflects what I consider to be a change in the pulse of the economy, which has occurred since the end of 2016 and is embedded in all the latest data that we have—data that have emerged in the last month, since the start of the Easter break. I fully accept that the Government have presided over a period of economic growth since 2010. I do not want to dismiss the figures—in a number of years, our growth rate has been higher than those in other large industrialised countries—but what has underpinned that growth? All the figures suggest that it has been underpinned by consumer spending, largely funded by the rise in consumer debt.
I do not gainsay the growth, but, in her opening remarks, the Minister placed a great deal of emphasis on the Government’s success in that regard. If economic growth is founded merely on consumer spending, and that consumer spending is based on borrowing, it is not sustainable, and I think it entirely legitimate to question how long the Government can go on relying on consumer debt to fund growth. In fact, we are now approaching the end of that period. What worries me is that the fiscal plan embedded in the autumn statement and the March Budget assumes the continuation of growth that is beginning to falter.
Let me make a point that I raised after the autumn statement, and also during the Budget debate. It seems to me that the Chancellor gave himself plenty of fiscal fire power in the autumn statement through increased borrowing—or, at least, the removal of some of the more over-optimistic projections of the previous Chancellor, and some of his more egregious games with time limits in relation to when income would arrive. The current Chancellor, in the autumn statement, clearly borrowed sufficient money in order to give himself some fire power should the economy slow. The trouble is that in the autumn statement all that spending power was delayed until post-2019, which is when we will see what the Brexit deal actually is. If the economy slows between now and 2019, it will be too late to use the fiscal fire power. That was the criticism of the autumn statement that was made by me, and by other Opposition Members.
The March Budget was fiscally neutral, by and large, but it has run into some headwinds. If the incoming Government, whoever they are, post-8 June, do not make up the projected shortfall from the proposed rise in national insurance contributions by the self-employed, there is a hole of a couple of billion pounds to fill. That aside, as I have said, the March Budget was fiscally neutral. If we put together the autumn statement and the March Budget, the Chancellor has a nest egg that he can bring to bear on a slowing economy, but it is pencilled in for 2019. For the next two years, he is relying on economic growth funded by consumer debt. However, all the latest numbers show that that is no longer happening.
Jane Ellison
The hon. Gentleman is making an interesting speech and I welcome the consensual tone that he has struck on a number of measures. I have to push back on the charge that fiscal firepower will be delayed beyond 2019. The Chancellor was explicit in the autumn statement that we borrowed to invest in greater productivity and some of that is happening now. Some of the national productivity investment fund is for short-term investment. In addition, as the hon. Gentleman knows, Barnett consequentials of £800 million for the Scottish capital budget are there for the Scottish Government to spend as they see fit.
George Kerevan
I accept what the Minister says, but the extra investment from the productivity fund that is going into the economy at the moment totals hundreds of millions, not billions, of pounds. The bulk of the spend, when it comes in 2019, will be in long lead items. A lot of it will be for housing, which is one aspect of the productivity investment fund I have never quite understood, as I do not see how investing in housing will raise industrial productivity.
Let me come back to the key point on which I want the Minister to respond. The latest data on the economy show that consumer spending is starting to slow. The first quarter retail figures, out just this month, are the worst for six years. It is clear that the reserves of spending in consumer hands are disappearing.
The previous Chancellor was very lucky in that in 2010 to 2013 windfall gains came into consumers’ hands, particularly from insurance on mis-selling. In 2015, even though wage rises were limited, there was a precipitous fall in the inflation rate. That raised real incomes. It is clear that, in 2016, because of that boost to real incomes, people started borrowing again and consumer debt started to rise. By the end of 2016, the savings ratio in the UK had fallen to historically low levels. One can sustain that amount of consumer borrowing and spending only for so long. By the end of 2016, it was beginning to fall.
Like the hon. Member for North East Somerset, I was never moved by the visions of economic Armageddon from the Bank of England and the Treasury during the Brexit discussion. However, I do think that, in the next two years, investment will be impacted upon by Brexit fears. That is not happening at the moment. Therefore, I think that there is reasonable evidence that the tapering off of consumer expenditure is not to do with the Brexit debate; that is still to come down the highway. It is to do with the fact that consumers no longer have the reserves to go on increasing their spending, in which case we are looking at an economic downturn in 2017. That is precisely the time the Chancellor should be using his economic firepower, rather than, as in the March Budget, having a fiscally neutral stance.
When questioned on the matter, the Chancellor has said that the slack would be taken up by business investment. There is no sign of that. In real terms, business fixed investment has been falling since 2015. It started to fall well before the Brexit debate. It blipped a little in the middle of 2016, but it has gone on falling. There are no organic signs anywhere that business fixed investment is increasing. Business spending is going on all sorts of things—for example, moving corporate activities to Europe to protect against Brexit—and a lot of money is being spent on buying British companies. However, we are not getting fixed investment in machinery and plant, and even if we did, it would take several years for that to feed through into productivity gains.
The latest quarterly market purchasing managers’ report suggests that growth projections from purchasing managers, who are pretty hard-headed, have halved since the last quarter of 2016. My general conclusion is that the Government are being far too optimistic about where growth is going in the UK. It is going down.
Conservative Members like to quote international comparisons. The latest OECD projections for growth in 2017—the OECD never quite got to the more insane evaluations of a collapse in growth that some other agencies did in 2016—suggest that growth in the G20 countries, in the United States, in Germany and in Canada will on average outstrip UK growth, so the situation is no longer as rosy as the Minister would have us believe. Some of the fiscal proposals in the Bill are based on a previous analysis of where the economy is. They have been overtaken by events. If we go through a general election and come to an autumn Budget and a second Finance Bill, all bets are off and we will be back to square one. That is not the way to run an economy.
Earlier, we discussed corporation tax, which is a key element. There is a long-term plan to cut it, and that hinges on what happens in the Brexit discussion. Clearly, the Government want to try, in a post-Brexit world, to make Britain a very low-tax economy, in the sense of attracting inward investment by having low levels of corporation tax. The danger of that strategy is that other countries will follow us, particularly the US; the Trump Administration have already threatened that. However, there is a stark contrast between countries such as Germany, where the headline rate of corporation tax is still 30% to 33%, and the UK, which is cutting corporation tax. Germany has much better productivity and higher industrial investment. Why is it that it can do that, and outstrip the UK economy, when we, with corporation tax that is low at the moment and going lower, cannot seem to generate the industrial investment and higher productivity?
It comes back to the issue of consumption and relying on debt-fuelled consumption to power growth. If we power our economy through consumer debt, it becomes dangerous to raise taxes on consumers, because we would immediately see a drop in consumer spending. Germany has focused on driving its economy through industrial investment and exports. Once you have that, you take the pressure off taxation on the consumer. That is the solution to the riddle and it is why the Germans seem to tax their industries more but, by running the economy at a higher level and generating more sales from exports, take the pressure off. They recycle a lot of the tax money back into industrial and infrastructure investment. They equate the basis for the industrial wealth that they tax—
Kevin Foster
I am listening with interest to some of the hon. Gentleman’s points. Does he agree that one of the issues that the German economy has, particularly in its industrial sector, is that many of its markets are locked into exchange rates by the euro? In more free-flowing economies and in previous exchange rates, it would have been able to devalue and so increase its competitive advantage.
George Kerevan
I am happy to agree with that point. The weakness of the euro is that across Europe it has locked the German supply chain into an artificially low exchange rate. On the back of that, Germany has generated a massive trade surplus, which it is not redistributing. That is undermining the whole European economy. I perfectly accept that. I was not arguing that the German economy is perfect; rather, I am suggesting that it is too simplistic to link the headline level of corporation tax with the performance of the economy, because we can find all sorts of examples that go the other way.
My real criticism, which I still direct to the Minister, is that the growth that the Conservative Government have trumpeted as their success is based on the shifting sands of consumer debt, which has now reached a level that cannot be sustained, so we need something else. We definitely do need to increase the level of industrial investment, and that requires a different set of fiscal tools in order to encourage consumer saving and recycle that consumer saving into industrial investment. That is the whole weakness that underlies the Finance Bill: it is a set of small measures based on the assumption that the economy will go on growing because consumers will go on spending. If they do not, the whole rationale of the Finance Bill falls apart.
I will now briefly move on to the second pillar, and the second strategic weakness, of the Finance Bill. In order to maintain the level of consumer spending, this Government have had to pass a series of pieces of legislation to bind their own hands when it came to raising taxes on consumers. If we do that, we then have to find money from somewhere else. Therefore, although this Bill contains a series of small tax rises here and there, in the aggregate what is happening is that this Government are being forced to start distorting the entire tax system because they have no other way to go but to invent new stealth taxes to maintain the level of income to Government.
The Clerks to the Treasury Committee came up with a rather interesting example on probate—the tax, if tax it be, on the probating of wills. The proposal for the levy on probating added to the cut in inheritance tax results in an anomaly. Where a father and mother leave a house to their children that is worth, let us say, £1 million and one penny, the inheritance tax is tiny—it works out at 40p—but the probate that has to be paid is £8,000. So in effect, cutting inheritance tax and replacing it with a probate levy gets us back to where we started. We can see that once we start down that road, we will go on increasing the levy on probate simply as a revenue earner.
That is not just happening with the tax on probate; it is happening in a whole series of small tax changes. By legislating to put a lock on income tax and other taxes, we end up having to raise revenue in a series of anomalous and distorting ways, and that makes the Finance Bill even more complicated.
Mr Rees-Mogg
Does the hon. Gentleman share my concern that the difficulty with doing this through charges is that they come through in a statutory instrument, whereas new taxes go through a much fuller parliamentary procedure? We should all be concerned about taxes that do not see the full rigour of parliamentary scrutiny.
George Kerevan
I could not agree more, and I look forward to the hon. Gentleman taking that up in the 1922 Committee—as I am sure he has.
If we run through a whole series of the provisions in the Bill for raising taxation, we see this creeping distortion of the tax system, such as the tax-free allowance on dividend incomes being cut from £5,000 to £2,000 to raise £800 million, which is a substantial, chunky sum. We can see where the tax-free allowance on dividend income is going to go. As for VAT on mobile phones used outside the EU, I can pretty well guarantee that if this Government are returned, the moment we are out of the EU that roaming tax will go on to our phone bill when we are taking our holiday in the 27 member states.
The insurance premium tax is one of the worst means that this Government have tried simply to increase revenue. They keep raising it year by year, so the increase of 20% proposed in the November autumn statement is simply a revenue-raising tax—there is no rationale other than simply to raise money. In terms of the insurance premium tax, there is a whole series of insurance forms not yet covered by the tax, so one can quickly see a future Chancellor saying, “Well, let’s put the insurance premium tax on reinsurance, or on buying shipping and aircraft. Why shouldn’t an airline pay insurance premium tax on buying an aircraft?” Rather than using the core taxes like income tax, we will end up with a series of distorting taxes, including the rise in spirit duty and the tax on whisky in the March Budget. I presume the Chancellor said to himself, “Well, with the significant fall in the value of the pound, there will be a gain in terms of export prices, so we can afford to claw some of that back as a tax,” but it is not strategic to the needs of the industry; it is simply a revenue-raising power.
What is wrong with the Bill as it stands? It misunderstands the nature of where the economy is and makes no allowance for the fact that consumer spending is about to decelerate, and it introduces a whole raft of new taxes, or increases in stealth taxes, which are fundamentally a change in direction and a distortion of economic processes.
I hope that when we come back after 8 June for a second bite of the cherry with a second Finance Bill, the Government might, should this Government be returned, be willing to look at some of these matters.
Kit Malthouse (North West Hampshire) (Con)
It is a joy to follow my Treasury Committee colleague, the hon. Member for East Lothian (George Kerevan). That should imply not an endorsement of his views, but rather an appreciation of his passion and erudition. I rise to welcome the Finance Bill—if it goes through unmolested, and even if it does not—and to concentrate my remarks, brief as they may be, on a couple of areas.
As an aficionado of my speeches and interventions, Madam Deputy Speaker, you will be aware that I have developed something of an obsession about the future of the British economy being based on a combination of science and private capital. We are fortunate in this country in being a science superpower. In the south-east of England we have five of the world’s top 20 science universities: in King’s, UCL, Oxford, Cambridge and Imperial, we have possibly the largest agglomeration of scientific research on the planet, not just in life sciences, but in physical sciences, synthetic biology and all sorts of new exciting and interesting areas.
We are incredibly good at science. Our history of scientific endeavour points to that. There is one Cambridge college that has more Nobel prizes for science than the whole of Japan, for example. So we are good at science; what we are not so good at is turning those scientific discoveries into companies. We used to be good at that of course, back in the 19th century; much of the wealth of this country was built on the discovery and innovation of the Victorian era, put together with what was then much more adventurous private capital to create some of the monoliths—the huge companies we built over the following century and have sadly too often since sold to the rest of the world.
During that period, and particularly after the war, we were, however, lax in planting the acorns that would be required to produce the forest of oaks that we could chop down and sell to the highest bidder in the future, so our stock of these large companies has diminished. In fact, this is a European problem. Of the top 500 companies in the world, only two have been created in the past 40 years. Fortunately, those two are both British—Vodafone and Virgin—but that is not enough. If we are to continue our proud history of industrial innovation and of creating these large multinationals, we need to start planting those acorns. The operation of private capital and its dynamism in finding the ideas, the discoveries, the molecules, the therapies and the inventions are absolutely critical.
I have raised this issue again and again with the Chancellor in questions and during debates. I have asked about the complexities that are put in the way of individuals who wish to invest in innovations. The primary vehicles for investment that the Government allow private individuals to use are the enterprise investment scheme and the small enterprise investment scheme. They are welcome schemes that provide incentives for investors and some tax relief on disposal, but they are complex. Over the past eight to 10 years that the EIS has been in place—the SEIS has been in place for slightly less time—a body of case law has built up around their operation, as always happens with these things. Investors have tried to be innovative with the schemes, and investments have often been disallowed on technical bases. As a result, people are to a certain extent becoming shy of using them. Looking at the SEIS in particular, we see that the number of companies availing themselves of the scheme has levelled off. It has been broadly the same for the past three or four years.
I therefore welcome the measures in the Bill to introduce flexibility into the EIS and SEIS. If the Government really want to see a cascade of private capital into small, innovative businesses and into scientific endeavour, they need to make those schemes as flexible and easy to operate as possible. At the moment, if I want to invest a relatively small amount of money—£10,000 or £15,000—in a company, I need an accountant and a lawyer, and I need to get pre-approval from the Inland Revenue to ensure that I get my tax relief. I have to do all that in order to invest a relatively modest amount, in investment terms. So is it any wonder that the level of investment in these schemes is not enormous?
In this country at the moment, the Government are making 60% of the investments below £2 million through various schemes and funds and through the British Business Bank. That is all very welcome, but for a capitalist country, this is not right. The majority of investment should be from private capital, and it should be individuals who are making those investments. Accessing retail capital and putting it next to science to allow the two to create a powerful cocktail of wealth creation is key to the future of the British economy. I hope that, if we have another Finance Bill this year, the Government will seek to liberalise the investment regime for private investors in private businesses, particularly those that are innovative or science based.
The same applies to venture capital trusts. These were an enormously beneficial invention when they came in about a decade ago. They attracted huge amounts of capital. There was a time when people saw them as the last 100% tax shelter, but they, too, have fallen out of fashion. Their complexity and the poor returns that they produced compared with the tax relief available for them have meant that the number of VCTs has shrunk and the capital under management by VCTs has been broadly static over the past few years. These two things together—private capital investment through the EIS and SEIS and private capital coming in through VCTs—must be the twin planks underpinning the future of the British economy. We know that we cannot rely on foreign investment and that we cannot rely entirely on institutional investment. They are far too cautious for some of the innovations that need investment. So re-energising private capital and providing easy, flexible ways for individuals to invest quite small amounts of money into innovative companies will be absolutely key. I welcome some of the flexibilities in the Bill and I hope that the Government will be more ambitious over the next 12 months.
Mr Steve Baker (Wycombe) (Con)
My hon. Friend’s speech is an absolute treat because it is a much better version of the speech that I made on science and markets in the Vehicle Technology and Aviation Bill Committee on which we served together. Does he agree that one of the key spirits that we need to recapture from the 19th century, when we took science and innovation and turned them into big companies, is getting people who know how to do things, such as engineers, to become entrepreneurs—perhaps in the spirit of I. K. Brunel? In that way, those who know how to produce will also know how to invest and how to serve people in a commercial way.
Kit Malthouse
My hon. Friend makes a powerful point. This is a chicken and egg situation. If people with ideas and inventions who are thinking about starting their own business know that capital is more easily available, they will be much more likely to go out and take the risk of starting that business. It is often the paucity of capital and the difficulty of raising it that lead such people not to proceed.
Let me give the House a small anecdote. When I was deputy mayor for business and enterprise in London, I went to a life sciences fair where companies were making presentations about their inventions. I came across a group of young biochemists from Cambridge who had invented what they called an espresso machine for DNA. When people are doing primary research, they often need to manufacture DNA on which to carry out their research. The standard ways of doing that are either to send off to have it made elsewhere, which is time consuming and expensive, or to make it themselves by trial and error. This group had developed software and invented a machine to produce the necessary kind of DNA. I thought that was incredible. It was an amazing British invention. The group had won a prize at Cambridge and received a small grant. I thought that they would need £5 million or £10 million, and if I had had it, I would have given it to them. When I went up to them afterwards, I discovered that they were trying to raise only £250,000, but they were having difficulty in doing so, even though, as far as I could see, their incredible invention was going to revolutionise research. Time and again while I was doing that job, I met young, ambitious and exciting scientists who had a molecule, a therapy or an invention but who were unable to access the necessary capital and would therefore go off and become chartered accountants, like me, instead. We lose a huge amount of talent that way. My hon. Friend has made a strong point.
I lament the passing of the employee shareholder scheme, which was introduced by the previous Chancellor, under which employees could enter into an agreement to vary their employment rights in exchange for which shares in the company. Sadly, the scheme was abused. It was often not taken up for the purpose for which it had been intended. It was abused by some as a form of disguised remuneration. The Government are quite right to close the scheme down, but that nevertheless leaves us with a problem. Not enough people in the United Kingdom participate in the balance sheet of this country. The Prime Minister has often talked about having an economy that works for everyone, but such an economy surely has to be one that is largely owned by everyone. I do not mean owned in a statist or communist way; I am talking about an economy in which everyone has some kind of financial interest from a balance sheet point of view.
We spend a lot of time in this House obsessing about people’s profit/loss account. Is my income bigger than the next chap’s income? Am I earning more than the lady round the corner? We obsess about income inequality, but we rarely obsess about wealth inequality; yet intergenerational wealth is built on the balance sheet of the family. It is built on the investments, albeit small ones, made by one generation. That wealth is expanded by the next generation and built on by the third one. That was certainly the story in my family. We came from fairly lowly beginnings, yet here I am now. This has been built on the fact that my grandparents made investments and my parents started a business. Hopefully, in turn, they will pass some of that wealth to me, although not, I hope, for a long time yet. We have a collective family balance sheet. We are able to buy stocks and shares, for example, but that is denied to lots of people in this country.
The one place in which individuals should have a share of wealth is in the companies that they work for. If we are really to have an economy that works for everyone, we need an economy that is largely owned by everyone. The Government have schemes available, particularly for employee share ownership, in which companies can set up pools of capital for their shareholders. I have been looking into this for my own business, but the scheme is incredibly complicated. In dealing with relatively small amounts of money, I need lawyers and accountants and pre-approval from the Revenue. There is an incredible frictional cost involved in getting such a scheme under way.
My plea to the Government, having got rid of the employee shareholder scheme, is to think about how to facilitate that idea—how to make sure that it is in the interests of employers and business owners to involve their employees in the business in a capital sense. That will enable employees to create for themselves a balance sheet on which to begin the intergenerational wealth creation that the country needs. If we can do that, we will start to build an economy that works for everyone.
I want to talk about two other small things. I welcome the change to the allowance for investment in grassroots sport. Members may not have noticed, but the Finance Bill will make investment in grassroots sport deductible for businesses, and that will be extremely welcome to football, cricket, hockey and many other clubs. I am proud to say that my business has sponsored local children’s football clubs at schools and so on. The more we involve business with school and grassroots sport for young people, the more both parties will see each other on the same level and the more interested they will be in each other. That is a good thing.
Finally, I want to say something about the overall tenor of the Bill. It has become clear to me over the last three or four Finance Bills that we in this House will increasingly struggle to tax a changing economy. We have seen in the discussions about national insurance and business rates that because of the changing nature of business, the standard Whitehall way of taxing the world will not last that much longer. We are moving into a world of cloud computing, the gig economy, non-domiciled businesses and cashless businesses that operate from third or fourth countries. All those things will be difficult for us to tax, and one of our challenges over the next Parliament will be to think more radically about how to deal with the changing nature of our economy and how to tax it to pay for the things we need.
My personal view is that given the changing nature of our economy and the removal of a lot of cash from the business cycle, it may be time to start to look at things other than direct taxation. Corporation tax is difficult, complex and hard to collect. There is a big tax gap compared with VAT, which is relatively easy to collect and where compliance is high. If I were Chancellor, I would probably prefer to have VAT.
With international businesses transacting in the UK and extracting money, we may need to start to look at the notion of a universal sales tax. Such a sales or turnover tax would be more easily collected and might well allow us to have a lower tax rate, spread across a wider tax base, because we would catch international businesses that transacted from, say, Luxembourg or Ireland. Fundamentally, the rule should be that if the sale takes place in the UK, the tax on the sale is collected here, no matter where the company is domiciled.
We will have to think quite carefully over the next five years, after we get through the general election in the next few weeks, about the changing nature of the economy and the radical measures we need to take to keep up with it. Beyond that, we are making good progress.
Kirsty Blackman (Aberdeen North) (SNP)
I want to talk about quite a few things. I might have given a somewhat different speech had there not been a general election looming. I might have kept my speech briefer, because I would have known that we would get the chance to discuss things in Committee of the whole House and Public Bill Committee. But just now, everything seems to be up for grabs and there is no clarity about what we will get to discuss. It is really important to lay out the SNP’s position on several matters so that the Government are absolutely clear about where we stand as they make decisions before prorogation. We are in quite uncharted territory.
I want to start by talking about the budgetary process and the issues around it. Earlier this year, the “Better Budgets” report was published by the Chartered Institute of Taxation, the Institute for Fiscal Studies and the Institute for Government. They made several recommendations for making the budgetary process better and ensuring that better decisions are made. I have written to ask the Select Committee on Procedure to look at the procedural matters that could be changed to meet the recommendations. The Government have already done one thing; the report suggested that we should have only one fiscal event a year, and the Government have agreed to that. I am pleased that they have done so, and I think it makes much more sense for the planning process, consultation and scrutiny if everything happens in a single event rather than being split over two different events.
I would also like the Government to consider taking evidence in the Finance Bill Committee. It is a slightly bizarre quirk of the Finance Bill that we do not take evidence in the Committee, and I think it would be really sensible to do so. I know that the Treasury Committee takes evidence, but it is different from the Finance Bill Committee, so the members of the Bill Committee do not necessarily hear the things that are said. I would appreciate it if the Government considered that.
Generally, I have been fairly critical of the budgetary process, the lack of scrutiny around it and the lack of consultation about some of the measures. Things have been slightly better in the last couple of years and fewer rabbits have been brought out of hats, but that still happens and it still inspires U-turns, as we have seen. This Government and future Governments have a huge amount of work to do to secure better scrutiny of the budgetary process and enable better decisions to be made. Decisions are more likely to stick and to be adhered to if they are good decisions in the first place.
I want to talk about a few things, including a few things that are actually in the Finance Bill. The elephant in the room, which was not talked about enough at the Budget, is Brexit and its impacts. My hon. Friend the Member for East Lothian (George Kerevan) covered a lot of that.
One thing that must not be underestimated is the impact of inflation on households, particularly those that have less than £100 in savings. The statistics show us that nearly 50% of households are in that position. For a lot of people here, who have been relatively comfortably off for most of their lives, it is quite hard to understand that. But it is quite easy to end up without that much in savings. It is quite easy to be a broken-down washing machine and a new car battery away from financial disaster, or to be a couple of months without pay away from real financial problems. As my hon. Friend also mentioned, people in that position do not have the access to debt and credit that they used to have. That is a problem that we are storing up for the future, and things such as the changes around ISAs do not help a huge amount. People can save into ISAs only if they have money to save. Changes to wages and the living wage have been positive—
Victoria Atkins
Does the hon. Lady accept, in the spirit of this part of her speech, that the introduction of the national living wage and its increase this very month to £7.50 help exactly the people whom she is talking about, and that raising the threshold at which we start to pay income tax must help as well?
Kirsty Blackman
I absolutely agree that things such as the national living wage—it is not a living wage, however; it is an increase in the minimum wage, and no calculation is done as to whether people can live on it—and the increase in the personal allowance have been positive for people at the bottom of the pile, in particular. However, the reduction in tax credits more than balances things out in many cases. People are losing more as a result of the changes to tax credits, for example, than they are gaining from the changes to the personal allowance and the minimum wage. I absolutely agree that those things are positive, but people are still feeling that their household budgets are squeezed by the cost of food going up in recent weeks, for example, which is set to increase, particularly for imported food.
A few people have mentioned intergenerational fairness, which is a real issue for me that I have spoken about a lot, and there has been a lot of stuff in the news this week about millennials. I am one of the 39 millennial MPs—I am 31 this year and was born in 1986—and many of my peers are worse off than their parents’ generation was in terms of the wages that they can expect to receive at a younger age and their access to property, whether through property ownership or through rents as a proportion of their income. This is purely anecdotal, but many people at my age are thinking about putting off having children because they cannot afford a secure home. For a Government looking forward to a future tax take, that is a real issue for a few years down the line. Many people have spoken about that, although we do not yet have the statistics for how the numbers will look.
The hon. Member for North West Hampshire (Kit Malthouse) talked about the gig economy, and I get that the Government need to find a different way to tax it due to the avoidance of normal tax routes. However, we need to find a different way to ensure that young people who find themselves working in the gig economy have a measure of stability in their lives and can continue to be able to pay money that they owe, such as rent, in order to finance what is a reasonable lifestyle, rather than a particularly comfortable one.
On austerity, I have mentioned the changes that the Government have made for those at the very bottom of the pile who need to claim benefits—not just out-of-work benefits, but tax credits and so on, which encourage people into work. According to what we hear from those who come into our constituency offices, the Government’s changes to the Motability cars scheme have made it more difficult for people to access work, because their vehicle has been taken away, which has an impact on the Government’s tax take and will increase the amount of benefits that will need to be paid to some people.
Moving from the general context to some of the specific issues in the Finance Bill and the things on which we want the Government to be aware of our views, I will start off with the police and fire services. My hon. Friend the Member for Dundee East (Stewart Hosie) mentioned the VAT on police and fire services in Scotland. We have raised this matter on many occasions and will not stop raising it, because the Government do not have a principled position. They cannot say that they are treating Scotland fairly when they have allowed VAT exemptions for Highways England and the London Legacy Development Corporation, which is a UK-wide organisation. The Government cannot stand on the moral high ground, because they have allowed those exemptions. We ask again that the UK Government change the VAT treatment of the Scottish police and fire services. I imagine that they will say no, but we are asking again and will not stop asking until a UK Government of whatever colour change the VAT treatment.
We also want to raise the issue of Scotch whisky, as people may imagine. The above-inflation increase in Scotch whisky taxation is a real issue for our whisky producers. International trading is slightly more uncertain than it has previously been due to Brexit, so whisky trading with European markets could be less easy than in the past, and the same could be said for countries that the EU has free trade arrangements with. Whisky is a high-value product. It creates a huge number of jobs in Scotland. It generates taxation for the UK Government at levels that are not pennies. The UK Government need to think seriously about how they are treating Scotch whisky, and if this Bill goes its full course, we will table an amendment stating that we do not want this above-inflation increase in taxation.
My hon. Friends the Members for East Lothian and for Dundee East both mentioned insurance premium tax, so I will not rehash the arguments too much, but it is being levied largely on people who purchase insurance who are just trying to do the right thing by getting insurance. They are trying to create a safety net for themselves, and the Government should be applauding that, not taxing it. The problem is that the tax has increased dramatically even over the two years that I have been an MP. The Government need to think carefully about whether insurance is a sensible place to tax people when it forms part of a behaviour that we want to encourage.
Colleagues on both sides of the House have talked about their support for the soft drinks levy and positive changes relating to childhood obesity, mentioning the studies that have been done on whether it will make it a difference. The Health Committee suggested that it is important for milk-based drinks to be included and, having looked at the Government’s rationale, their statements on milk-based drinks and the Health Committee’s report, I do not see a good reason for them to be excluded—some milk-based drinks have the same proportion of sugar as their non-milk-based counterparts. If the Bill were to run its full course, we would table amendments suggesting that the loophole should be closed. We generally support the measure, but the loophole should not be left open. If we are creating such a tax in primary legislation, we should do it properly. There is no good reason for milk-based drinks to be excluded at the moment.
There has been a lack of consultation on Making Tax Digital and the changes to self-employment, and the UK Government have had to change their position on a number of things. They have had to slow down the roll-out of Making Tax Digital and change their position on national insurance for the self-employed. Partly because the consultation done in advance is not good enough, they do not properly understand the implications of what they are doing before they do it and, therefore, have to row back on it. Real change is needed.
Some Conservative Members have mentioned the proposed changes to things such as the taxation of self-employment. I get that the UK Government are trying to equalise self-employment and employment, but those in employment get the benefits of holiday pay, maternity leave, sick pay and all those things. If there is to be a massive change to the treatment of self-employment, it must be looked at in its entirety. The changes must be made within that context, rather than the tinkering around the edges that we get in Budgets with a general movement towards a general idea.
The Government should make no changes to this for the next few years while they do a comprehensive survey and work out what self-employment looks like now, in 2017-18. The kind of people who are self-employed certainly did not look the same 10 or 15 years ago—the number of women in self-employment is much higher than in previous years—and we need to make sure that the goalposts are not moved for them. The tinkering needs to stop. If the Government are to make changes, they should make them in one go after a proper consultation. They should make a reasonable change in one move.
Talking about a lack of consultation moves me on nicely to oil and gas. I was frustrated with the UK Government’s spring Budget because they announced exactly the same thing as they announced last year on the transfer of late-life assets. The Minister is shaking her head, but the transfer of late-life assets was announced in last year’s spring Budget. This year the Government have announced exactly the same thing about making it easier to transfer late-life assets, but now they will have a group of experts look at it. Why did they not do that last year? I am frustrated that this has not happened quickly enough. I would have liked it to happen more quickly, but I am pleased that the UK Government are doing it. We have been asking for it for a long time and it is a positive move, but they need to move a bit quicker.
We are seeing platforms move towards decommissioning as fields move towards the end of their useful life. Getting oil out of those fields will not be a priority for the big players, but if a new entrant were to come in and take on an asset, it would get as much oil or gas out of it as possible. We need to encourage such behaviour. If the UK Government do not do that, they will have less tax income in future, so it is key for everyone that it happens.
Let me move on to other matters relating to oil and gas—the UK Government will not be surprised to hear us calling for these because we have called for them before and we will keep doing so in the hope that they might actually happen. We want changes on exploration. Although the moves the Government have made on seismic surveys have been hugely positive and very much welcomed—we really appreciate them—we need to make it easier and more cost-effective for companies to explore. We need more exploration allowances. A huge amount of oil is still under the North sea, and the UK Government could receive a huge amount of revenue from the extraction of these minerals. They need to take action now to secure those future levels of taxation.
So there are a few things the UK Government can do. Exploration is really important, as are small pools. I have lost my notes on this, but I believe there is the equivalent of 3.4 billion barrels of oil in small pools in the North sea. There are more than 360 pools with less than 50 million barrels of oil where extraction is not yet taking place. Those pools are treated in the same way for tax purposes as all the other pools, but we could do some fairly simple things to make them much more economically viable. We could remove the supplementary charge on small pools, which would reduce the taxation level from 40% to 30%. That would make it much more likely that we get anything at all from some of those pools.
We could change the taxation level for those small pools so that it is equivalent to the level for onshore oil and gas extraction. The Government obviously think that that level is reasonable for onshore extraction, so it should also be reasonable for these areas where the technology is new. Extracting from a small pool is different from extracting from the bigger areas—those we have previously extracted from—and people are going to have to innovate to do this. The tax system needs to recognise that this is more difficult to do and that we are not talking about the bigger pumping that we saw previously. This is a different situation and the UK Government will not get any tax take from these pools if they do not do something about it.
I have two more things to say about oil and gas—Members would expect an Aberdeen MP to talk about oil and gas! Some Conservative Members were talking about private capital, and companies and businesses not having enough access to capital investment. We have been calling on the UK Government to be more positive about oil and gas supply chain companies so that they can get increased investment. There is a huge, positive future for oil and gas companies, particularly in the supply chain. The North sea is the gold standard for things related to supply chain extraction and the services that we provide; I am told that you cannot go to Houston without hearing an Aberdonian accent, because of the number people, as well as the skills and expertise, that we have exported. Even in these times of reduced revenues coming from the oil and gas that they are extracting, those companies still need to be innovating, in order to get the more difficult oil and gas out. They need capital financing to do that, and the UK Government need to do what they can to make sure that those companies are linked with the right people and that, for example, banks are not cancelling overdrafts at a moment’s notice. Those changes need to be made.
My hon. Friend the Member for Aberdeen South (Callum McCaig) and I recently had a meeting with the London Stock Exchange Group, when we invited it to Aberdeen to talk to companies about its ELITE programme, which trains companies in accessing capital financing. Although it was a hugely positive meeting, not enough of these companies knew about such schemes or where they could go to get finance. There is a real issue to address and the UK Government need to do what they can to be positive, particularly in relation to the oil and gas supply chain, so that we can secure that future in Aberdeen and the UK more widely.
On that note, the other thing the SNP were going to table an amendment on—we still will if we have the opportunity—was UK content. Decommissioning is coming through in a bigger way. It is not by any means the end of exploration and other things in the North sea, but we are going to see more decommissioning in the coming years. A huge number of people are concerned that not enough of the decommissioning tenders are going to UK companies. Currently, not enough of the tenders for other things relating to oil and gas are going to UK companies, either. We would like the UK Government to take action to see what they can do to ensure that, wherever they can be, companies are incentivised to use UK suppliers and UK content. That would be hugely positive for jobs, including high-value jobs, in the UK.
It is important that the UK Government think about oil and gas and keep it front and centre, because it certainly was not enough of a priority in the industrial strategy and the leaked documents on Brexit priorities. Given the amount of revenue the UK Treasury has received from the oil and gas industry and the amount of future revenue, we need to ensure that the industry is listened to and that as much as possible is done to make sure that the UK Government can take the maximum amount of taxation.
On tax collection and avoidance, a 2014 Credit Suisse report on the success of small countries mentioned the fact that for large countries corporate tax collection as a percentage of GDP is significantly smaller than for small countries. That is partly an issue of size, but this is a real problem that will continue to come through for the UK Government. Over the past couple of days we have seen news reports about Border Force officials being stretched as it is and not being able to take action on immigration. Well, Border Force staff also deal with some of the customs issues. If we do not have an appropriate customs service in place, we will not be able to ensure that we collect the right amount from whatever tariffs we have in place. That will be another tax loss for the UK Government, so wherever they need to upskill, they should upskill. Frontline staff will have to ensure that tax is collected in the new scenarios where currently we are not having to do nearly as much tax collection.
I appreciate the opportunity to speak in this debate. As I have said several times, we do not know what is going to happen with the rest of the Bill, but I think I have made as clear as I can the SNP’s position on the things that we consider to be most important.
Victoria Atkins (Louth and Horncastle) (Con)
So much has already been said in this debate that I am going to attempt to be short and, I hope, concise in my remarks. I am aided by the fact that a little time ago I got an A-level in economics, and I hope I will be able to explain my views on the Bill in language of which my economics teacher would be proud.
It is particularly appropriate that we are discussing the Finance Bill because, of course, the Prime Minister today made a momentous statement announcing the next general election. It is only right that we are talking about the economy and finances of this great country, because a strong economy is vital to achieve all that we care about. In my constituency, Louth and Horncastle, a strong economy means jobs and successful firms creating prosperity, and from that, taxes flow. Of course, taxes pay for everything that we care about, from the national health service to defence, in which I have a particular interest because RAF Coningsby is in my constituency. They also pay for schools, and I am sure that we all in this House are united in our wish to ensure that the young generation are educated properly and fully so that we can make a success of not only Brexit but the future. I was particularly pleased today to see the Prime Minister emphasising not only her plans for Europe but the future beyond Brexit.
But—there is always a but—we must still continue to get public spending under control. There is no magic money tree, no matter how often Opposition Members would like to pretend there is. We have, sadly, a debt of nearly £1.7 trillion, which equates to almost £62,000 for every household in the country. We are spending more money on debt interest than on defence and policing combined, which is why we must learn to live within our means.
I have to say that, having spent several hours in the Chamber listening to erudite colleagues, I was a little concerned when, in answer to how much money Labour planned to borrow after the next election, the shadow Chief Secretary to the Treasury said something along the lines of—I hope I am not misquoting him—“We will borrow less than the Conservatives.” I did not hear any detailed financial planning. I will look forward to that in the coming weeks.
One of the best ways to ensure that this country succeeds and is prosperous is to make it the best place in the world in which to do business. That is precisely why we are cutting corporation tax, which was 28% under Labour, to 20% today, falling to 17% in a couple of years’ time.
Victoria Atkins
Indeed. I hesitate to rely on my A-level economics, but companies employ people who pay taxes, and companies themselves pay taxes—not just corporation tax, but VAT, payroll tax and business rates. This is all about giving businesses the best chance of succeeding.
Victoria Atkins
I am glad to see that the hon. Gentleman agrees with me.
One of the most important things about any tax system is not just that it should help to pay for the things that we care about, but that it should be fair. In my previous career, I prosecuted tax fraudsters for a living. I am delighted to say that the main offence that we used to prosecute such people was cheating the public revenue, because if they commit tax fraud, they are a cheat. I look forward to helping the Government not just in the Finance Bill, but in the Criminal Finances Bill, to ensure that tax fraudsters feel the full force of the law.
Looking beyond Brexit, the reason I welcome this Finance Bill is that it places a very great emphasis on helping working families with the cost of living. I intervened on the hon. Member for Aberdeen North (Kirsty Blackman) to say that we have raised the national living wage in April to £7.50, which means an income boost of more than £500 for a full-time worker this year. The personal allowance will rise for the seventh year in a row, benefiting 29 million people, which means that a basic rate taxpayer will pay a full £1,000 less in income tax than they did in 2010 under Labour.
I also welcome this Bill for the help that it gives local authorities for adult social services—I am talking about an additional £2 billion of funding over the next three years—and the extra £100 million it provides in 2017-18 for capital investment for accident and emergency departments in England. I also welcome the £320 million to extend the free schools programme. The fact that the Prime Minister has called an election today shows that the Conservatives are the true Government of the United Kingdom. I know that the Scottish National party will welcome the fact that, under this Bill, Scotland will get more money, as will the Welsh Government and the Northern Ireland Executive. I welcome this Bill and I look forward to the campaign on the principles therein.
Suella Fernandes (Fareham) (Con)
I am pleased to speak in support of this Finance Bill on a day when the general election has been announced, giving the British people a real choice to determine the future of our country—a choice between an overspending, overtaxing, profligate Labour Government propped up by SNP subversives and a prudent, fiscally sensible Conservative Government who can continue the achievements that have been secured so far.
I will focus my comments on clauses 1 and 2, relating to income tax. First, though, it is important to put it on the record that the British economy is strong, resilient and robust, which enables it to punch above its weight in the world. Thanks to the decisions of this Government, employment is at a record high. In Fareham, 968 fewer people claim out of work benefits, a drop of 73% since 2010. The budget deficit has been reduced by nearly three quarters, and public sector net borrowing is forecast to fall from 9.9% of GDP in 2010 to 2.6%. In addition, the Bank of England has upgraded its forecasts for growth in 2017. Global businesses such as Google and Nissan are making huge investment decisions in our country. We are seeing expansion in manufacturing, construction and services. So all the predictions that we heard last year about recession, unemployment and stagnation have not been borne out.
While the Bill does not change the income tax thresholds for the 2017-18 financial year, the Government have made sensible changes to income tax in clauses 1 and 2, which should be highlighted. In particular, by raising the tax-free personal allowance threshold to £11,500 this year, we are supporting families, workers and those on lower and middle incomes. This means that the amount that someone can earn tax free will be over 75% higher than it was in 2010. Someone on a salary of £15,000 will pay £800 a year in tax now, compared to £1,700 in 2015. That is a massive boost to those incomes. By taking millions of people out of income tax altogether, we are committing ourselves to supporting people to keep the money that they earn and we are incentivising work.
So why are these lower taxes important? This is a basic principle of economics that the left simply fails to grasp. They just do not seem to get that raising taxes stifles innovation, reduces the incentive to work and kills the desire to get out there and earn a salary.
Mrs Main
My hon. Friend is making an excellent speech. Of course it is the Conservative party that has increased the thresholds so that people keep more of their own money. The Labour party got rid of the 10% tax rate and brought more people into paying tax than ever before.
Suella Fernandes
I could not agree more. That is the point that I want to make. It is a principle of basic economics. My hon. Friend the Member for Louth and Horncastle (Victoria Atkins) referred to her A-level economics. She will be familiar with the Laffer curve and basic economics, which say that higher taxes do not necessarily lead to higher tax revenues because they reduce the tax base.
George Kerevan
Does this Bill not raise taxes on insurance, and on this, that and the other thing? Is the hon. Lady in favour of the Bill or not?
Suella Fernandes
I completely agree. I am not saying no tax rises at all. I am saying that tax rises have to be prudently applied, and this Conservative Government definitely apply that principle, as we are seeing when it comes to income tax. Let us look at why people work. They go to work because they want to preserve the amount of money that is not taxed. It is the post-tax amount, not the pre-tax amount, that we all work for. Increasing the tax rate reduces the amount that people have available for themselves and decreases the amount available to be taxed.
Suella Fernandes
Yes, but let us see what history has shown. When Gordon Brown increased the higher rate of tax, tax revenue fell. When my right hon. Friend the Member for Tatton (Mr Osborne) dropped it again, tax revenues increased. It shows that we need to incentivise people to work and invest in education and training, and incentivise businesses to invest in this country and to employ people, which generates more economic activity and revenue that can be ploughed back into our public services. That is what Opposition Members fail to grasp and Conservative Members see very clearly. That is why under Governments led by Labour we ended up with higher taxes, higher borrowing, higher debt and in a recession that this Government are still tidying up.
To close, I am pleased that this Government are committed to enabling people to keep more of the money they earn so that individuals and businesses can take part in our economy. We can create a fairer Britain, and a country in which we can all prosper and be rewarded for our efforts.
Rishi Sunak (Richmond (Yorks)) (Con)
From the discovery of Australia to the invention of the cat’s eye, the history of Yorkshire’s people is nothing if not entrepreneurial. That spirit is alive and well in my constituency in particular. From Heck sausages to Tennants auction house and the Wensleydale Creamery, ambitious SMEs are at the heart of our community and economy. Before I arrived in this place, I spent my career investing, backing businesses like those with the capital they needed to grow. I am delighted that this Finance Bill recognises what my years in the investment industry taught me—that ready access to finance is the fuel of success for ambitious SMEs, just as successful SMEs are the fuel of a prosperous economy. Yet, as I have said in the House before, the UK funding landscape for growth businesses presents challenges.
Just 3% of British companies manage to expand beyond 10 employees—half the success rate of businesses in America. The UK has a relatively shallow bond market for early stage businesses, and a venture capital sector that is just a seventh the size of America’s. British entrepreneurs often face an uphill struggle to attract equity risk capital. That is why the Government have enhanced the enterprise investment scheme and created the seed enterprise investment scheme. Since their inception, these programmes have together helped more than 3,000 companies to raise more than £15 billion in early stage finance. The Finance Bill builds on that success to ensure that these schemes help even more small businesses to access investment, grow and create jobs.
Under the current regulations, shares with a right to future conversion are unfortunately regarded as a pre-arranged exit, making them ineligible for EIS and SEIS. But that goes against the reality of conversion arrangements. Far from opening the door to tax avoiders, conversions are often a crucial mechanism for facilitating an initial public offering. If an SME has the ambition to accelerate its growth through accessing the public markets, the Government should not stand in the way. I am pleased to say that the Bill addresses that anomaly. However, there is more we can do.
Many lawyers, accountants, investors and entrepreneurs say that the EIS process is often too complicated and takes too long. The Government’s recent consultation on the advance assurance service, which lets HMRC assess a firm’s EIS eligibility before it seeks funding was welcome, and provoked ideas about what we can do to speed things up. First, I can see the logic for introducing some form of fee for advance assurance. This would help to raise the resources necessary for HMRC to provide a smoother service with greater transparency around processing times and specific dates for document review. Secondly, we could look at the use of standardised documentation, which would save time and money for all participants, enabling HMRC to speed up its approvals.
Thirdly, we must look at how to simplify the EIS rules and their interpretation. Of course, provisions must be made to stop tax avoidance, but the widespread view of practitioners is that the pendulum has swung too far the other way. In the words of one leading venture capital lawyer, there are now “too many gotchas” in the current set of rules. In general, it is the view of the EIS Association, admirably chaired by Lord Flight, that a large part of the reason for this complexity is the need for our laws to comply with EU state aid rules. I hope that when we leave the European Union, the Government will have the opportunity to look at simplifying the EIS rules and ensure that our SMEs get the capital they need to flourish.
I will briefly touch on two other points in the Bill: tax reliefs for sports clubs and companies donating to them; and museums and touring exhibitions. The internet enables us to be so much closer, but we cannot replicate the presence of being close to a Barbara Hepworth sculpture or looking at Shakespeare’s first folio. The Government’s incentives to take exhibitions around the country will enable us all to share in our cultural history and heritage.
When it comes to backing small businesses, this Finance Bill—like the others that came before it—shows wholeheartedly why this Government’s record is unmatched. As the British voters decide in the next few weeks who can best steward Britain’s economy, I commend this Bill to the House.
Rebecca Pow (Taunton Deane) (Con)
There is much to welcome in this Finance Bill and I am very pleased to be taking part in this fascinating debate.
Contrary to the ill-informed comments of the hon. Member for Aberdeen North (Kirsty Blackman), this Bill provides the framework for making the UK one of the most competitive fiscal regimes for oil and gas in the world. I was going to intervene to make that point but decided to save it for my speech.
This Bill brings with it the specific tools we need to keep the economy soundly on track. It demonstrates that this Government have a clear understanding of what is needed to run the country, keeping it on a firm financial footing while enabling businesses to grow and thrive, as my hon. Friend the Member for North East Somerset (Mr Rees-Mogg) said. It enables hard-working individuals and families to live within their means. It enables funds to be raised through our fair tax system to provide the necessary public services we all need. It enables us to have the vital funds to treat and to help those who are not so able to help themselves. That is always something essential that we, the Conservatives, should not and never will forget.
All this has been made possible in challenging times. I welcome the Chancellor’s announcement that we have just been able to allocate another £2 billion of additional funding for adult services, another £100 million to the NHS, and an additional £300 million to fund 16 to 19-year-olds in the new technical education system of T-levels. I applaud that because we absolutely have to skill up our young people to keep our economy strong and growing, but also, in this Brexit world, we need to be on top of our game to maintain and grow our global position.
I applaud the increase in the personal tax threshold to £11,500. This is often mentioned on the doorstep in Taunton Deane. People see it as a real bonus and a real benefit, and say thank you for it. Keeping corporation tax low generates more tax revenue, so that has to be applauded. Given the number of times that businesses collar me to mention this, I have definitely got the message, and certainly the Chancellor has.
I am not going to go on any more about the nitty-gritty of those aspects of the Bill because I want to turn to my own constituency. If the Government, with their solid plans for a strong economy, can get it right for Taunton Deane, they can get it right everywhere—and they are getting it right with their sound economic plan. Since I have been the MP for Taunton Deane, as I am absolutely delighted and honoured to be, it has attracted much more funding than ever before, especially for infrastructure. Traditionally, Taunton Deane, and indeed the rest of the south-west, has been completely underfunded under the Liberal Democrat regime that has held sway there, but this is changing, and I am delighted to be a part of that.
Rebecca Pow
Indeed. Where are they, to speak up for themselves?
Having made a strong case with my Conservative local council, my Conservative county council, and the line-up of all the other Conservative MPs in Somerset, we have money coming forward to upgrade the A358 and create a super-expressway to the south-west. We have had £7 million for a smart motorway on the M5, £6 million for the Tone Way and the Creech Castle junction, and £4.6 million to upgrade Taunton rail station, which is the hub of the south-west and will welcome everyone to the south-west. This is absolutely phenomenal, and none of it would have been possible without a sound economy. It is helping to drive up productivity, which is much needed in the south-west, and it is working. It is creating jobs; indeed, unemployment has never been so low in Taunton Deane, at 3.6%. Get this right and everything works.
Finally, I will touch on an unusual area to mention in a finance debate, namely the environment. With a sound economy and appropriate funding, if we want to have healthy air, clean water, flood-resilient measures and wider catchment processes, and if we want to protect our special landscapes, including ancient trees and sites of special scientific interest, we need to fund farmers and landowners to manage the habitat appropriately for all of us. I say to the Chancellor that that will not happen without a thriving economy. If we want to encourage businesses not to use microbeads in their products, they need the time and money to invest in research, so they also need to be thriving. Indeed, if we want to encourage businesses to go along the lines of the circular economy, they need to invest to find the right way to do it. They might have to invest, but in the end it will pay dividends.
That all needs to be done within the positive framework of a sound economy. I applaud the steps that the Chancellor has taken. The right framework is in place, regardless of Brexit, so let us continue to build on it. Thank you, Madam Deputy Speaker, for including my name last on the list.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
It is a pleasure to close today’s debate on the Finance (No. 2) Bill, even if other events have possibly overshadowed today’s important parliamentary business. In fact, I understand that there are reports circulating this evening that the Crown Prosecution Service is about to charge 30 senior Conservatives with election expenses fraud, so I am afraid it is possible that we may be squeezed down the news cycle still further. I am grateful to Members for their thoughtful contributions to today’s debate.
This is a poor Government who have achieved very few of the aims set out by David Cameron when he first came to power in 2010, especially in relation to the public finances. Instead, they have created a crisis in living standards and underfunded essential public services. Those of us who entered Parliament in 2010 know that the Government’s promises on the economy when they came to power have not even come close to being fulfilled, and this Bill takes a lot of pages to deliver very few tangible improvements on that poor level of performance.
I will begin by reiterating the concerns raised by my hon. Friend the Member for Bootle (Peter Dowd) at the beginning of today’s debate. The Bill is certainly large, adding complexity and technical detail to the statute book, yet we have been presented with an almost impossibly tight timeline in which to properly scrutinise and discuss it. The stakeholders we have consulted have echoed those worries. For example, industry bodies tell us that they have struggled with interpreting and analysing the Bill’s full impact, given the time and volume involved. I imagine that that process will be truncated still further, given the imminent general election.
On the specifics of the Bill, HMRC is rightly at the centre of the Government’s plans to tackle tax avoidance. The Government’s own estimate of the current tax gap stands at £36 billion, which in the opinion of many tax experts is a highly conservative figure, given the method of calculation. It is extraordinary that the Government believe that they can address that gap by drastically cutting HMRC’s staffing and budget levels. At autumn statement 2016, the Government announced a series of cost savings via administration and operational measures at HMRC, totalling £180 million a year by 2021-22. It goes entirely against reason that the Government are trying to find £180 million in savings in an organisation that is critical to efforts to recoup a slice of that £36 billion in missing revenue.
The significance of that tax gap has never been more critical. Our NHS has been pushed into crisis by the Government’s failure to fund it and social care properly. Each week brings new and damning revelations about the state of the service we all rely on, with the end result being that in some areas the Government have simply given up on their own targets, such as the 18-week waiting time for hip and knee surgery. We need a properly funded plan for the NHS that takes into account the real needs of delivering a 21st-century health service with patient welfare at its heart.
We also face the significant added complication of Brexit, which remains unaddressed in the plans for HMRC. Although we all remain in the dark about what exactly our departure terms will look like, we face the reality that we may for the first time in decades have a customs border between us and the EU that will need policing. We are already seeing a crisis in VAT evasion from overseas sellers, potentially costing the Exchequer as much as £1.5 billion a year, by its own estimates. Should we leave the single market, there will be a huge increase in pressure on the customs system, which is struggling to cope as things stand. These are serious matters for consideration, related to the fulfilment section of the Bill. UK retailers are not on a level playing field with unscrupulous sellers from around the world, at a cost to both our competitiveness and our Exchequer, and HMRC is currently ill-equipped to tackle that abuse.
Businesses of course operate in a global environment today. That brings its own challenges, and we need to make sure we are providing the right framework for businesses to handle it. We are approaching what has been termed the fourth industrial revolution, which has precipitated a huge shift in the nature of work and employment. It is unsurprising, therefore, that many of the clauses in the Bill legislate for those changes, such as those involving IR35 and Making Tax Digital.
Undoubtedly, we must change our approach to how we treat employment in the 21st century, but the Government seem to be firing unsuccessfully at a moving target. This change in approach comes far too late and, in our opinion, has the wrong focus. The rise of the gig economy has brought opportunities for some, but challenges and exploitation for others. Flexibility and independence have been highly valued advantages for some workers, but self-employment has also been abused by unscrupulous employers as a means to reduce their tax bill and to avoid giving contractors the rights and entitlements of employees. So far, the Government’s only answer has been to propose punishing the employees by increasing taxes on them, not to consider the rights and obligations of both sides of this equation.
We saw that reflected in the chaos of the Budget last month, when the Chancellor’s completely wrong-headed decision to introduce NICs parity with employed workers highlighted the lack of understanding at the highest levels in the Treasury of the modern nature of work. The Government rightly backed down on the issue, but it showed that trying to legislate piecemeal for what has effectively been a revolution in the world of work has been ill thought through and will not succeed.
For example, IR35 shifts the entire burden of taxation on to contractors, rather than looking at the underlying issue of why the public sector has become so dependent on these types of employees. As is argued by the Low Incomes Tax Reform Group, the rules on errors in taxpayer documents seem to ignore the fact that low-income groups could now be caught in punitive anti-avoidance measures simply because they have no choice but to operate through an agency, or because they cannot afford accountancy advice to help them to fill out their tax returns. As an alternative, we advocate a wholesale review of the package of measures offered to self-employed individuals. Our scrutiny of the measures in the Bill is delivered through that lens: these are a succession of piecemeal changes that risk hurting people unwillingly caught in the net of self-employment, rather than wealthy tax avoiders.
Opposition to the NICs rise for the self-employed was so intense because the UK prides itself on being a country of entrepreneurs, and on being able to create an environment in which small businesses and independent workers can thrive. The Making Tax Digital proposals are yet another illustration of how the Government continue to miss the point when legislating for a changing world of work. These proposals will put undue pressure on small businesses and the self-employed, who simply do not have the resources to input tax information on a quarterly basis.
Even the House of Lords Economic Affairs Finance Bill Sub-Committee has said that it does not share HMRC’s confidence in its estimates of how far the tax gap will be reduced by this measure, which it has described as fragile and little more than guesswork. Evidence given to the Sub-Committee showed that the initiative is in fact likely to result in greater errors in taxpayer reporting, not fewer, as businesses come under pressure to fill out accounts four times as frequently. Again, HMRC will be expected to accommodate this system at the same time as its resources are being cut and even more legislation is being piled up for it to enforce. In line with the rise in business rates, it is difficult to see how the Government can truly say that they are seriously committed to helping UK business to succeed. Instead, 2017 has so far been characterised by punitive measures and uncertainty, and this looks set to continue.
We should be discussing a Finance Bill—this is what we needed—that would address the real problems that exist in this country: the fact that real pay is still lower than before the financial crisis, that 6 million people earn less than the living wage, and that 4 million children live in poverty, two thirds of whom are in households where their parents work. We should be talking about how to balance the tax system and spread the burden, not simply getting into a race to the bottom on corporation tax while seeing crushing rises in business rates, alongside increases in bureaucracy and administration. We should certainly be discussing a serious and realistic plan for the NHS and social care; from what I have seen in my own constituency, I reject entirely the Government’s assertion that they are properly resourcing social care in particular. We have a Finance Bill that does none of these things. For that reason and many others, we will oppose giving it a Second Reading tonight.
Jane Ellison
With the leave of the House, I will close today’s debate, and it is a pleasure to do so. It has been an interesting and wide-ranging debate, and I thank all hon. Members for their contributions. I will try to touch briefly on their contributions, but I suspect, with the time being rather against me, that I will not be able to answer all their questions. As I said in my opening speech, we no doubt have several discussions ahead of us about the next steps on the Finance Bill.
The Finance Bill takes the next steps in helping Britain to succeed both now and in the future. What was lacking from the rather opportunistic speech we have just heard was any willingness to face up to the economy’s strategic challenges. Many are touched on in the Bill and I will refer to some of them now. One theme that emerged—in the speech by the hon. Member for Bootle (Peter Dowd) at the beginning of the debate and in other speeches—was a focus on productivity. Nobody could have been clearer about facing up to the country’s productivity challenge than the Chancellor. I think everyone should be able to support the measures we have laid out to respond to the long-term challenge as a priority, and to take targeted action to invest in innovation and infrastructure.
We are also introducing measures on setting corporation tax to make our economy more competitive. I wholeheartedly reject the comments we hear from the Opposition that try to set small business against large business against medium-sized business. All businesses, over 1 million of them, large and small, will benefit from our cuts to corporation tax. We want to ensure that we offer SMEs enhanced research and development tax relief, and other measures that will help them to grow. I welcome the emphasis placed by my hon. Friend the Member for Richmond (Yorks) (Rishi Sunak) towards the end of the debate on that very issue of how we help businesses to grow. I find it extremely disappointing that the Labour party seeks to pass judgment. We want small businesses to become big businesses and we want to ensure that we help that to happen.
There have been a number of comments, not least from both Opposition Front-Bench spokesmen, about HMRC resourcing. I sprang to the defence of HMRC’s record. It has made sustainable cost savings of more than £1 billion over this Parliament while improving performance. Over the same period, it has collected a record level of tax revenue, reducing the tax gap to a historic low of 6.5% in 2014-15. Measures in the Bill will build on the measures already passed by both this Government and the coalition Government to close the tax gap. I would be very disappointed to think that Opposition Members are not supportive of those measures.
Turning to Back-Bench contributions, my hon. Friend the Member for Amber Valley (Nigel Mills) made an excellent and typically thoughtful speech. It was wide-ranging and I will not be able to respond to all the points he made, but he was supportive of the soft drinks industry levy. He rightly focused on measures to tackle the tax gap in VAT and important new steps we are bringing forward. He spoke about a number of other issues. He asked me about when we might look to turn on the power we took last year with regard to country-by-country reporting. We have always said that we want to make the case at various international forums to work through that in an international context. We will continue to raise the issue and pursue international agreement on public country-by-country reporting.
My hon. Friend also sought reassurance on the compressed interest restriction, a measure that, along with the loss relief measures in the Bill, stands to raise £7 billion across the period in question—very significant sums of money from large corporations. He wanted reassurance that that would not be a block on growth and investment. I think I can give him that reassurance. We have a very open and competitive economy, and we have a very competitive tax system, but we expect businesses to pay the right amount of tax. We are not the only country with an interest restriction: for example, Germany, Italy and Spain have similar rules, and other European countries will be introducing similar rules over the coming years. I hope that gives him a degree of reassurance.
My hon. Friend the Member for Vale of Clwyd (Dr Davies) gave a very thoughtful speech on the soft drinks industry levy. I very much welcome his support, drawn from his experience not just on the Health Committee but professionally. He gave a tour de force speech outlining the reasons for providing a prescription to tackle obesity. Obesity offers a considerable threat to the long-term finances of the NHS. I welcome his support for the levy.
The hon. Member for Dundee East (Stewart Hosie) expressed a degree of scepticism about the work that we have done to support the oil and gas industry. I do not think that that scepticism can be justified. We have worked very closely with the industry, and we now have one of the world’s most competitive fiscal regimes for oil and gas, although we intend to go further. At the time of the 2017 Budget, we published a discussion paper on how taxation could better support the transfer of older late-life assets—an important issue for the basin—and ensure that we could put them into the hands of companies that wished to invest. I have met industry stakeholders to discuss the issue, and I know that the announcement has been welcomed. I think it should also be welcomed by Members in all parts of the House, not least members of the Scottish National party—including the hon. Member for Aberdeen North (Kirsty Blackman), who raised similar issues.
The hon. Member for Dundee East also mentioned insurance premium tax. When we made announcements about the proposed new rate, the Chancellor made clear that it was intended to raise vital revenue to fund our public services. Those who oppose such a rise must themselves make clear where they would find the sizeable revenues that we need to invest in our front-line public services and generate income for our economy. I did not hear many answers to that question during today’s debate.
The hon. Member for Birmingham, Selly Oak (Steve McCabe) spoke mostly about the NHS. Let me respond by saying that a strong NHS needs a strong economy, and that is what we are trying to build.
The hon. Member for East Lothian (George Kerevan) made a thoughtful speech, and I agree with him about the need for long-term investment to address the productivity challenge. He gave a degree of support to the soft drinks industry levy, and sought a number of reassurances—not all of which I can give him tonight—about some of the steps that would be taken in the weeks ahead. I was glad to hear that he thought there was much to be commended in the measure. I expect that we shall return to the issue of the productive growth agenda, but let me repeat what I said to him in an intervention: £800 million of additional capital will flow, in Barnett consequentials, to the Scottish Government as a result of the announcements in the autumn statement about the national productivity infrastructure fund. The hon. Gentleman also talked about household debt. I merely note that the debt interest to income ratio is at a record low: it was 4.5% in 2016, compared to 10.1% in 2008.
Although I was not in the Chamber at the time, I believe that my hon. Friend the Member for North West Hampshire (Kit Malthouse) made a typically robust speech in which he supported all measures to promote investment. He talked about science, the need to encourage entrepreneurs, and the challenge of taxing the gig economy, which the Chancellor has acknowledged to be one of the strategic challenges facing not just our economy but developed economies throughout the OECD area. We are contributing to the international debate on that subject. There is more to be said about it, but measures in the Bill begin to address, for example, how some online trading platforms deliver in terms of VAT. That missing VAT represents one of the big parts of the tax gap, and we hope that there will be widespread support for our measures.
The hon. Member for Aberdeen North referred to the scrutiny of tax policy. I think that she and I can agree about many aspects of the announcement of the move to a single fiscal event. As for her other points, we have worked extremely closely with a number of industry stakeholders on some of the more complex measures in the Bill. I think that those measures have been greatly improved as a result, and the stakeholders have given the Government credit for that. We heard another rerun of the argument about VAT refunds for the Scottish police and fire and rescue services, and once again—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. It is a little impolite to make so much noise that the House cannot hear the Minister. While there may be other matters that Members need to discuss, there is nothing more important than the Minister’s summing up of a debate on the Finance Bill.
Jane Ellison
What could be more exciting and important to talk about? I wonder.
I reiterate that the Government warned Scottish Government officials at the time that the new funding model that they proposed would lead to the loss of eligibility for VAT refunds. I expect the SNP will raise the matter again, but it will continue to get that straightforward response to the issues that it has raised.
There was a cluster of pithy and important speeches towards the end of the debate. My hon. Friend the Member for Louth and Horncastle (Victoria Atkins) spoke about the need for sound finances and about reducing borrowing. She made a welcome contribution. My hon. Friend the Member for Fareham (Suella Fernandes) put a welcome emphasis on the increase in personal allowances. How little we heard about that from some Opposition Members. Since 2010, there has been a huge increase in what people can earn before they are taxed.
My hon. Friend the Member for Richmond (Yorks) (Rishi Sunak) drew on his experience and gave voice to the entrepreneurial spirit of Yorkshire. He focused on early-stage finance for growing businesses. He is right that there are things that are helpful in that regard in the Bill, but we are always happy to hear more ideas about how we can support entrepreneurs and businesses to grow.
Fittingly, my hon. Friend the Member for Taunton Deane (Rebecca Pow) ended with the message that we need to keep the economy on track to greater growth and stability. That brings me to my conclusion.
The changes that the Bill is introducing are significant in a number of regards. They will raise significant revenue to support the public services on which our nation depends by tackling tax avoidance and evasion. The Labour party has been a little opportunistic in some of the things it has said in the debate. In the coming weeks, it will have to answer questions about how it would close the tax gap and balance the books to gain any credibility in the eyes of the electorate. It will also have to address in the coming weeks questions on the strategic challenges that this Government have been prepared to face up to—the challenge to look at a tax system that works however people choose to work, and the challenge to address the erosion of the tax base in a serious, long-term, strategic way. The Government are prepared to face up to those challenges, and measures in the Bill begin to address some of those head on.
We are also addressing head on the critical issue of childhood obesity. We are tackling it with our game-changing soft drinks industry levy; that is just one of the measures being taken across Government to tackle childhood obesity. It was welcome to hear support on all sides for that measure. I hope that we are able to make good progress with that because it is a game changer.
The Bill demonstrates the Government’s commitment to a stronger, more secure, more productive economy. I am therefore delighted to commend it to the House.
Question put, That the amendment be made.
Finance (No. 2) Bill
Tuesday 25th April 2017
(6 years, 11 months ago)
Lords ChamberRead Full debate Finance Act 2017 Read Hansard Text Amendment Paper: Committee of the whole House Amendments as at 25 April 2017 - (25 Apr 2017)
Finance (No. 2) Bill
Tuesday 25th April 2017
(6 years, 11 months ago)
Commons ChamberRead Full debate Finance Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 25 April 2017 - (25 Apr 2017)
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
Clauses 2 to 6, 16 to 47, and 52 to 56 stand part.
Government amendments 13 to 29.
That schedule 3 be the Third schedule to the Bill.
Government amendments 30 to 56.
That schedules 4 to 15 be schedules to the Bill.
The Financial Secretary to the Treasury (Jane Ellison)
I will speak briefly, as we have a fair amount to get through this afternoon. Obviously, I shall attempt to address any points that are made during the debate.
The Bill is progressing on the basis of consensus and therefore, at the request of the Opposition, we are not proceeding with a number of clauses. However, there has been no policy change. These provisions will make a significant contribution to the public finances, and the Government will legislate for the remaining provisions at the earliest opportunity, at the start of the new Parliament. The Government remain committed to the digital future of the tax system, a principle widely accepted on both sides of the House. We recognise the need for the House to consider such measures properly, as called for by my right hon. Friend the Member for Chichester (Mr Tyrie) and his Treasury Committee. That is why we have decided to pursue those measures in a Finance Bill in the next Parliament, in the light of the pressures on time that currently apply.
Clauses 1 and 3 provide for the annual charging of income tax in the current financial year and maintain the basic, higher and additional rates at the current level. The annual charge legislated for in the Finance Bill is essential for its continued collection, and it will enable the funding of vital public services during the coming year. Maintaining these rates, while increasing the tax-free personal allowance and the point at which people pay the higher rate of tax, means that we are delivering on important manifesto commitments. On top of that, as of April this year, increases in the personal allowance since 2010 will have cut a typical basic-rate taxpayer’s income tax bill by more than £1,000, taking 1.3 million people out of income tax in this Parliament alone.
Clause 4 will maintain the starting-rate limit for savings income—applied to the savings of those with low earnings—at its current level of £5,000 for the 2017-18 tax year; clause 6 will charge corporation tax for the forthcoming financial year; and clauses 17 and 18 will make changes in the taxation of pensions. Clause 18 legislates for a significant anti-avoidance measure announced at the spring Budget. It will make changes to ensure that pension transfers to qualifying recognised overseas pension schemes requested on or after 9 March 2017 will be taxable. The charge will not apply if the individual and the pension savings are in the same country, if both are within the European economic area or if the pension scheme is provided by the individual’s employer.
Before the changes were announced in the spring Budget, an individual retiring abroad could transfer up to £1 million in pension savings, without facing a charge, to a pension scheme anywhere in the world provided that it met certain requirements. Overseas pension transfers had become increasingly marketed and used as a way to gain an unfair tax advantage on pension savings that had had UK tax relief. That was obviously contrary to the policy rationale for allowing transfers of UK tax-relieved pension savings to be made free of UK tax for overseas schemes. This charge will deter those who seek to gain an unfair tax advantage by transferring their pensions abroad. Exemptions allow those with a genuine need to transfer their pensions abroad to do so tax-free.
Clause 17 will make various changes in the tax treatment of specialist foreign pension schemes to make it more consistent with the taxation of domestic pensions.
Clause 21 will simplify the payment of distributions by some types of investment fund. Following the Government’s introduction of the personal savings allowance, 98% of adults have no tax to pay on savings income. In line with that, the clause will remove the requirement to deduct at source tax that must subsequently be reclaimed by the saver.
Clauses 45 to 47 provide for the removal of the tax advantages of employee shareholder status for arrangements entered into on or after 1 December 2016, in response to evidence suggesting that companies were not using the status for its intended purpose and that it therefore was not delivering value for money. The status was introduced to increase workforce flexibility by creating a new class of employee, but it became apparent that it was being widely used as a tax planning device, rather than for its intended purpose of helping businesses to recruit.
Evidence suggests that companies, particularly those owned by private equity funds, were using employee shareholder status as a tax-efficient way to reward senior staff. In many cases, contract provisions were used to replace the statutory rights that had been given up, which was undermining the purpose of the status. That continued to be the case despite the introduction of the £100,000 lifetime limit on capital gains tax-exempt gains in the 2016 Budget. The Government therefore announced in the 2016 autumn statement that they would remove the tax reliefs associated with the status and close the status itself to new arrangements at the next legislative opportunity. The action that we are taking tackles abuse and increases the fairness of the tax system.
Peter Dowd (Bootle) (Lab)
I thank the Minister for her opening remarks about consensus, with which I fully concur. We are here today to debate what is effectively a condensed version of the Bill for which my colleagues and, indeed, everyone else had been preparing, with a view to taking part in a number of Public Bill Committee sittings over a number of weeks to scrutinise properly the longest Finance Bill that has ever been produced. That is the context in which I shall make my comments.
The Prime Minister’s announcement outside No. 10 and the subsequent vote mean we do not have sufficient time in this Parliament to give the full Bill the proper parliamentary oversight it requires and deserves, as I am sure Members will understand. It is clear that the Treasury was unaware of the Prime Minister’s plans for a snap election—otherwise, it would not have introduced the longest ever Finance Bill—but the Opposition recognise the unique scenario we are in and the Government’s responsibility to levy taxes, and I am sure the Minister recognises our responsibility to scrutinise the Bill in as open and transparent a manner as we possibly can. That is why we have acted in good faith to ensure that a version of the Bill can pass before Parliament is dissolved.
Our approach to the pre-election process and the presentation of the condensed version of the Bill has been underlined by two concerns: fiscal responsibility balanced against parliamentary scrutiny. The Opposition have a responsibility to taxpayers to ensure as little economic disruption as possible; we will therefore not attempt to block any measure in the Bill that has to be passed to ensure business as usual for our public services, such as on income tax, and nor will we obstruct tax that is already in the process of collection. But of course we cannot give the Government carte blanche, as we have made clear.
There are many clauses in the Bill that we can and should wait to deal with until after the general election, as that would provide the opportunity for them to be properly scrutinised. The one exception is the soft drinks levy, which I will speak about later.
In relation to alcohol duty, the Bill includes measures that have already been implemented but that we opposed in the Budget resolutions. They include the Government’s decision to raise alcohol duty in line with inflation, raising the price of a pint of beer by 2p, a pint of cider by 1p and a bottle of Scotch whisky by 36p. As I said on Second Reading, rising business rates and rising inflation are creating a perfect storm for many small businesses. Therefore, the decision to raise this duty is a risk.
Another measure that we would have liked to avoid but that is included as a result of the necessity of the compressed process that this Bill is going through is the rise in insurance premium tax. It has already been doubled and this raises it further. Had there been a longer process, we would have sought to challenge that, as we did at the Budget resolution stage, so there is no surprise in this, but the reality is that the measure is already in effect due to the resolutions.
On tax avoidance, it is time for a wholesale shift in how we approach taxation and the treatment of self-employment given the rise of the gig economy in recent years. The Bill originally contained a number of initiatives, and no doubt we will come back to them in due course.
I welcome the Minister’s statement on the digitalisation of tax. It will be a great relief to many small businesses given the onerous requirements for quarterly reporting. No one is against a move to a digital tax system, but we do not agree with the rush to implement it.
A large portion of the Bill relates to the introduction of the soft drinks industry levy, which the Government have consulted on heavily and on which they have cross-party support in this House. The levy has popular public support, too, as a poll has indicated. I want to take this opportunity to pay particular tribute to Jamie Oliver and the Obesity Health Alliance, who have campaigned tirelessly on this issue and on the need for a joined-up Government obesity strategy, and I must compliment the Minister, who in her current and previous roles has been a strong advocate for the levy. We would like to see a review of the sugar tax levy in due course, if possible. The Minister might well wish to comment on that. I am sure that a range of issues, such as in relation to multi-buy discounts, could form part of this.
In conclusion, as a responsible Opposition, we will not stand in the way of passing a Finance Bill before the election, as that is a necessity. There are some measures that a Labour Government would bring back, and we will have an opportunity to scrutinise them in due course, but we need to get this through and we need to be responsible, and we will support the Government where required.
Several hon. Members rose—
The Chairman of Ways and Means (Mr Lindsay Hoyle)
Order. I am about to call the hon. Member for Copeland (Trudy Harrison), but first I remind the House of the courtesy that we do not intervene on a maiden speech.
Trudy Harrison (Copeland) (Con)
I am grateful for this opportunity to deliver my maiden speech as the newly elected Member of Parliament for Copeland, in what is one of the last debates of this Parliament.
First, I would like to pay tribute to my predecessor, Jamie Reed, who was the Member for Copeland from 2005 until he stood down in January this year. It is, in fact, Jamie whom I have to thank for inspiring my introduction to politics. The very first parliamentary debate I ever watched was a Westminster Hall debate called by Jamie and also attended by other Cumbrian Members—my hon. Friend the Member for Penrith and The Border (Rory Stewart) and the hon. Member for Westmorland and Lonsdale (Tim Farron)—to discuss the future of my children’s school, Captain Shaw’s in Bootle. I saw the positive impact that MPs in Westminster could have on their local communities and the powerful influence of their support, even in remote areas, which I had previously felt would never be anyone’s political priority.
Like me, Jamie was born, raised and educated in Copeland, in the fine Georgian harbour town of Whitehaven. He has served the people of Copeland with great talent and dedication. As the elected Member, he worked hard for the rural communities he represented and placed a strong emphasis on improving health and education. In announcing his decision to stand down last December, he said he could achieve more for our community by returning to work in the nuclear industry at Sellafield than by remaining a Labour Member of Parliament.
Jamie was a relentless, proud supporter of our local industry; he championed the world-class specialist skills that make up our towns and villages. He worked hard to make the case for Copeland to host the new nuclear power station, Moorside, adjacent to Sellafield, based on the strong belief that our workforce are best placed to power the northern powerhouse; after all, Copeland welcomed the world’s first nuclear reactor at Sellafield back in 1950. Our local knowledge, experience and skills in the nuclear and other highly regulated industries are internationally recognised and respected.
Sellafield’s safety record is exceptional, and it is seen as an example of outstanding performance across the globe. Jamie said that Copeland’s “best days are ahead”, a statement I agree with and will quote many times. I would like to take this opportunity to thank Jamie for his commitment to Copeland and wish him all the very best in his new role in community development at Sellafield.
Copeland has for centuries pioneered a modern industrial strategy. Our largest town, Whitehaven, was once Britain’s third largest trading port, with an extraordinary shipbuilding reputation thanks to the locally grown, hard-as-nails oak trees used to build the boats. Our ancestors sailed the world, securing deals, and returning with goods which created a crucial global trading centre. Perhaps that is why the Copeland constituency voted to leave the EU with such a high majority: because history provides confidence in our ability to export our knowledge and products across the globe.
Like true pioneers we do not stand still; innovation is in our veins. As shipbuilding and rum sales declined, we dug deep for prosperity. Mining transformed the towns of Egremont, Cleator Moor and Millom; indeed, Millom was widely regarded as an exporter of the world’s highest quality iron ore.
But we are perhaps best known in Cumbria for a delightful little rabbit, Peter Rabbit, and his friends Mrs Tiggywinkle and Squirrel Nutkin, to name just three of Beatrix Potter’s adorable characters. Writers, artists and poets have found inspiration in the beautiful Cumbrian countryside. Wordsworth was sent, under doctors’ orders, to my home village of Bootle, to aid his recovery from a chest infection. With 32 miles of coastline in the Copeland constituency, our air and our landscape are good for the soul.
Three quarters of the Copeland constituency is situated within the Lake District national park boundary, which I hope will become the second world heritage site for the Copeland constituency, complementing that of Hadrian’s Wall in Ravenglass. We eagerly await a decision in July to confirm another world first—the first UNESCO world heritage site to include an entire national park—thanks to a 20-year project by the Lake District National Park Authority and local communities to put Cumbria on the same international must-visit platform as the Taj Mahal and the great barrier reef.
I was brought up in Seascale, and then I moved to Wasdale, where I would open my curtains every morning to reveal Britain’s best view: England’s highest mountain, Scafell. Well before wild swimming was trendy, my childhood weekends would be spent paddling in Wastwater, England’s deepest lake. It is easy to see why Wasdale was the birthplace of mountaineering, and why the beautiful market town of Keswick enjoys such popularity with its annual mountain festival. That is one of the many festivals enjoyed in the Keswick community calendar.
Although the Lakeland topography is the result of glacial formations, our landscape and cultural heritage, for which we are internationally celebrated, are of course man-made. It is vital to support and protect our farming industry, both upland and lowland, to ensure that we can all benefit from quality food production, the highest standards of animal welfare, conservation and our enormously successful tourism industry, on which Copeland is so dependent.
I could not give my maiden speech without acknowledging that I would not be standing in this House today if it were not for the fantastic and unwavering support of my family, friends, community and local association. My husband Keith, my parents, my brother and my daughters—Gabrielle, Savannah, Francesca and Rosemary—have been incredible towers of strength. From the moment I decided to stand, they were there with me, campaigning, delivering leaflets and knocking on doors. My girls have become quite the persuasive activists, and it has been wonderful to see their interest in politics grow.
Having four teenage daughters aged 14, 15, 17 and 18, I was delighted to tip the balance between all history’s women Members and the current number of male Members, equalling it at 456. There was a change of reference in my Mother’s day cards this year, however. Gone were the thanks for the practical tasks of washing, cooking, cleaning and generally being there. Instead, each one referred to a theoretical role, referencing inspiration and pride. That is what a by-election does to family life, and you can only imagine their comments about another round of doorstep challenges! It is, after all, our children and young people who motivate us to secure a bright future for Britain and inspire the next generation of leaders.
I watched my right hon. Friend the Prime Minister’s speech at the Conservative party conference last year and I was so impressed by her strength and commitment to deliver for Great Britain. Her ambitions for our country resonated with my own. As she spoke, I said to myself, “That’s me, that’s who I am, that’s what I want for my community and for my country.” I stood for Parliament because I want to get on and make things happen. I want to be part of a proactive, positive team that makes a tremendous difference to my community: the land of Copeland glory.
My husband and I moved from Whitehaven in the north of the constituency to Bootle, a small village in the south of Copeland, to raise our young family. Our move was motivated by a desire for our girls to attend a village primary school, and in Captain Shaw’s we found our perfect, quintessential Lakeland school. In 2006, I discovered that the school was really struggling to make ends meet. It desperately needed extra funding so I joined the parent teacher association. I soon realised that the problem was a decline in pupil numbers, so I joined the governors. Then I learned that the whole village was declining: we had lost 20 businesses in 20 years. I then applied for the position of regeneration officer at my local borough council, where I realised that the challenge was far more extensive.
Copeland desperately requires investment in infrastructure to be able to thrive. Both professionally, working for the council, and personally, working with the can-do people in my community, I worked to shape policy, giving our planning authority the option to be either the nail in our coffin or the key to our future. We trailed the streets and lanes, collecting and providing the necessary evidence to shape the strategic vision for Bootle, which would become a beacon of hope to other rural communities. We worked hard to secure the Lake District national park’s biggest ever mixed-use planning application for Wellbank, a former 12.5 acre Ministry of Defence base. Wellbank will bring 50 homes, a hotel and enterprise areas, and it will attract public and private investment. For Bootle, that will mean an extra 64 homes, new businesses and, when complete, £20 million of inward investment.
I stood in the Copeland by-election to really make a success of the modern industrial strategy, to be an asset to the northern powerhouse and to realise our full potential as a centre of nuclear excellence and global exporter of knowledge and products. Copeland needs investment. I know that as a pioneering, hard-working and innovative community, we can succeed with the Government’s support. We have people with the skills, the potential, the essential natural resources and a landscape where people love to live, work, learn and invest. We have every reason to be optimistic and to become an asset to the country’s economic performance and world-leading reputation. Copeland is on the brink of the most exciting, game-changing transition, but we need investment to kick-start that transition.
Throughout the election, I campaigned on six vital points. First, I campaigned to make a success of Brexit, as 62% of my constituents voted to leave. Secondly, I campaigned to secure nuclear new build at Moorside benefiting both Copeland and the country. Our Government must commit seriously to new nuclear, now more than ever, if we are to attract international investment. Thirdly, I campaigned to bring our road and rail networks up to modern standards, as they are simply not fit for the modern industrial strategy. Our infrastructure is holding back our ability to diversify and thrive. Fourthly, building resilience against flooding, which wrecks lives and livelihoods, is also essential.
Fifthly, access and connectivity will be key enablers, particularly in our rural area, if we are really going to trade and compete in a global marketplace. Improving mobile and internet connectivity will make a huge difference to our quality of life and our ability to do business in a global market. It will ensure a bright future for our children and young people, and the announcement in the spring Budget supporting an enormous increase in technical apprenticeships is wonderful news for a practical, skilled community such as mine.
Sixthly, I campaigned to secure services. Ensuring that we keep our 24-hour, seven-day-a-week, consultant-led maternity department at West Cumberland hospital in Whitehaven has been one of my key aims throughout my election campaign and as a Member of Parliament. I was born at that hospital and all four of my daughters were born there too. My community has clearly demonstrated the importance of retaining such an essential service. In my first weeks as an MP, I have been able to meet my right hon. Friend the Secretary of State for Health and I have visited the hospital to see the new wards for myself and to meet the staff. I have talked to clinicians and management in order to understand the barriers to having fully operational departments in the future. We now have a fully staffed maternity department, the trust has been removed from special measures and, in addition to the £90 million already invested by this Government, we have secured the funding for the final phase of the hospital’s construction.
Supporting a further recruitment drive with Choose Cumbria is also my priority. Positive action, listening to concerns, tackling problems head on and working with the can-do people in our community who really care—all these have been my mantra for many years. I will continue to strive enthusiastically, because I believe passionately in Copeland, its people and its potential.
Turning to today’s debate on the Finance Bill, I have seen that this Government are the only Government who can deliver a stronger, more secure economy. The economy is getting stronger and growing, the employment rate is at a record high and the deficit has been reduced enormously since its pre-financial crisis peak. We are in a much stronger position than in 2010, but I recognise that we must not be complacent. We must continue to reduce the country’s debt and the deficit even further. We cannot, as previous Labour Governments did, borrow endlessly to plug holes. We need to get the public finances in good order to safeguard the future— the future I want for my daughters and their generation.
Finally, Copeland has been my home since I was born. It is an area I know and love. The opportunity to represent the communities I grew up in as their Member of Parliament is truly a great honour, and I will ensure that the voice of our towns and rural communities is heard loud and clear. I am utterly committed to Copeland, and I will fight hard to deliver on promises made to my constituents during the election.
I am extremely grateful for the time I have been allowed and for the opportunity to deliver my maiden speech in this debate.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
I invite the hon. Lady to join the all-party group on rugby league, as Whitehaven have a great reputation.
Kirsty Blackman (Aberdeen North) (SNP)
I warmly welcome the new hon. Member for Copeland (Trudy Harrison) to what is left of this short Parliament. I am particularly pleased that we have finally broken the barrier of the number of women who have been elected— I am really delighted that that has happened. As a child I holidayed in her constituency, and I fondly remember visiting where Beatrix Potter created her animals and the Beatrix Potter museum. I can see the passion with which the hon. Lady speaks about her constituency and the amount she obviously cares about the area in which she was born and bred. She is a truly local MP, so I offer her a huge welcome to the House. Who knows whether she, or any of us, will be coming back in June? But welcome, anyway.
This first group of measures addresses income tax, but I will also comment on the way that the Bill is progressing through Parliament. With the surprise announcement of a general election, the Bill looks rather different from when it was first introduced. I am sure the Minister is in a similar position, but we received provisional notification of the amount of withdrawals and changes only last night, so there will not be the normal level of scrutiny of some things in the Bill. There will possibly also be slight confusion in today’s proceedings, given that so many things are being withdrawn.
I welcome the Government’s withdrawal of the dividend tax threshold changes, which we argued against on Second Reading. I am pleased that they have chosen to do that because it was a particularly contentious part of the Bill. More generally on the income tax changes, I have said previously and am happy to state again that I appreciate the Government’s increases to the personal allowance and the minimum wage. But I have said previously and say again that the Government have not gone far enough. We have a national living wage, but there has been no calculation of whether people can live on it.
Alison Thewliss (Glasgow Central) (SNP)
Does my hon. Friend agree that the national living wage is not actually a real living wage but a pretend living wage and that it does not go far enough in that it is available only to people over the age of 25?
Kirsty Blackman
I agree that it is a real problem that this increased minimum wage does not apply to people under 25. Just because a person is under 25 does not mean they are doing any less of a job than a person over 25, and the minimum wage should apply to them just as much as to those who are older.
The other issue is that the tax credit changes more than balance out the extra money people are getting from the increased minimum wage and personal allowance. People at the bottom of the pile are worse off as a result of the Government’s decisions. Despite the Government’s talk about how great the new personal allowance and the new minimum wage are, they have to be considered in context. People who work are worse off as a result of the tax credit changes.
More generally, the Government have made a few suggestions on the taxation of self-employment, some of which have been withdrawn and some of which have not. They intend to try to equalise the taxation of employment and self-employment. However, what is missing is that people in self-employment do not receive the same benefits as people in employment, such as maternity leave and holiday entitlement. I have argued before and will argue again that if the Government are making changes to self-employment, they need to do so in the round. The need to stop this piecemeal tinkering and consider the whole situation. They need to do a proper review and come back with the results, and then consult on any changes. Rather than pulling rabbits out of hats—changing national insurance contributions with very little consultation, for example—they need to consult properly on how taxation should look for individuals, whether they are employed or self-employed.
I appreciate that the Government are undertaking the Taylor review, but I am not sure it goes far enough. I would like to see the Taylor review, or a future Government review, take self-employment into account in the round by considering all the factors that face the self-employed. We need to remember the changes in the self-employment landscape in recent years. We have seen a massive increase in the number of women and older people in self-employment, and the Government’s changes do not take into account the changes in that landscape. I would like to see a holistic approach, rather than a tinkering approach.
That is all I have to say on this group but, again, I welcome the Government’s withdrawal of the dividend tax threshold changes.
Mr Andrew Smith (Oxford East) (Lab)
I also congratulate the hon. Member for Copeland (Trudy Harrison) on a fine maiden speech and thank her for her well-deserved compliment to her predecessor on his service. She spoke with passion, wit and understanding of her beautiful constituency, as well as of Peter Rabbit. None of us envies her speedy transition from by-election to general election, but I do congratulate her.
I made my maiden speech to this House on the remaining stages of the 1987 Finance Bill, so there is a certain symmetry in my making my last remarks on this one. On the substance of the Bill, it is too often overlooked—the hon. Lady talked about balancing public spending—that, although the Conservative party often talks about balancing the budget, the last Government to do so were Labour in 2001-02. Right now, it makes sense to invest more in productive infrastructure, training and public services, with action to combat poverty and to secure Brexit terms that enable our country to grow and flourish. I wish we had a Finance Bill for social justice that stands up for the many, not the few. That is what we need a Labour Government for.
It has been a privilege to be an MP, in and out of government, and I thank the staff of the House, the Library, those who keep us safe and you, Mr Hoyle, and your colleagues. I am grateful to all colleagues and wish them well for the future.
I would like to say a huge thank you to all those who have helped me serve the wonderful constituency of Oxford East for 30 years; my family and friends; my neighbours in Blackbird Leys; our party members and supporters; my trade union, the Union of Shop, Distributive and Allied Workers; my office staff and party organisers across the years; and, most of all, my constituents. Thank you.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
I wish you well in your retirement.
George Kerevan (East Lothian) (SNP)
May I, too, thank the new hon. Member for Copeland (Trudy Harrison) for such a passionate and entertaining speech? It is good to have a representative of the land of Beatrix Potter here in this Chamber. I listened to her last points about the deficit and her encomium that this Government are bringing it down. I will be slightly wicked in saying that I am sure she knows that the Office for Budget Responsibility is forecasting a rise in Government borrowing this financial year, and she might care to ask why that is the case.
I have one specific question for the Minister on this group, as her introduction notably failed to explain why clause 5 has been withdrawn. That clause deals with the proposed reduction in the dividend income that investors in small companies can take. Are the Government embarrassed by the clause and is that why it is being withdrawn?
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 4 ordered to stand part of the Bill.
Clause 5 disagreed to.
Clause 6 ordered to stand part of the Bill.
Clause 7
Workers’ services provided to public sector through intermediaries
Question proposed, That the clause stand part of the Bill.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
Clauses 8 to 15 stand part.
Government amendment 4.
Clauses 48 to 51 and 124 to 127 stand part.
Government motion to transfer clause 127.
Clauses 128 and 129 stand part.
Government amendment 10.
That schedule 1 be the First schedule to the Bill.
Government amendments 11 and 12.
That schedule 2 be the Second schedule to the Bill.
Government amendment 57.
That schedules 16 to 18 and 27 to 29 be schedules to the Bill.
New clause 1—Review of international best practice in relation to tax avoidance and tax evasion—
‘(1) The Chancellor of the Exchequer must, within two months of the passing of this Act, commission a review of international best practice by Governments and tax collection authorities in relation to—
(a) the prevention and reduction of tax avoidance arrangements, and
(b) combatting tax evasion.
(2) A report of the review under subsection (1) must be laid before the House of Commons within six months of the passing of this Act.
(3) In this section, “tax avoidance arrangements” mean arrangements broadly comparable in their effect to arrangements in the United Kingdom which have the obtaining of a tax advantage as the main purpose, or one of the main purposes, of the arrangements.”
Jane Ellison
Before I say something about this group, I wish to comment on the maiden speech and on the retirement speech that we just heard. It was a real honour to be here in the Chamber for the maiden speech by my hon. Friend the Member for Copeland (Trudy Harrison). She told us what inspired her, but she also reminded many Conservative Members of how she inspired us to make the journey up to her beautiful constituency in the knowledge that we were supporting an outstanding woman who is rooted in and passionate about her community. She was generous about her predecessor, which was nice to hear. I had many friendly dealings with Jamie Reed when he was a Labour shadow Health Minister and I was in the Department of Health, so I welcome her comments. It was a wonderful maiden speech and I look forward to many more speeches from her in the future, and I wish her and her long-suffering family well for the weeks ahead. She spoke with conviction about the contribution of nuclear power, but I think that in the forthcoming campaign it will be girl power to the fore.
It is always nice to hear Members reflect on their time in this House and the way they have served. As the right hon. Member for Oxford East (Mr Smith) noted, he has had a nice bookending, with a Finance Bill debate at the start and a final contribution on Treasury matters. Of course, he also paid tribute to his constituents. I am sure that in these circumstances one has a bit less time than one thought to do a round of goodbyes, but I am sure he will continue to be active in his community. I congratulate him on his speech and thank him, on behalf of all hon. Members, for his service to the House.
This group deals with the taxation of employment income, and contains some clauses addressing tax avoidance and evasion. There are a number of clauses and schedules in this group, including a new clause from the hon. Member for Aberdeen North (Kirsty Blackman), but I am going to focus my remarks on clause 7 and schedule 1, which refer to workers’ services provided to the public sector through intermediaries and which might be of interest to Members. I will, of course, address any other areas in the course of the debate.
Clause 7 and schedule 1 reform the off-payroll working rules—also known as the intermediaries legislation, or IR35—for individuals working in the public sector. The tax system needs to keep pace with the different ways in which people are working. As the Chancellor set out at both the autumn statement and the spring Budget, the public finances face a growing risk from the cost of incorporations. Indeed, the Government estimate that by 2021-22 the cost to the Exchequer from people choosing to work through a company will be more than £6 billion. A not insignificant part of that cost comes from people who are working through their own personal service company but who would be classed as employees if it were not for that company. The off-payroll working rules are designed to ensure that where individuals work in a similar way to employees, they pay broadly the same taxes as employees. However, non-compliance with these rules is widespread, and Her Majesty’s Revenue and Customs estimates that less than 10% of those who should operate these rules actually do so. As a result, more than £700 million is lost each year across the economy, of which about 20% relates to non-compliance in the public sector. This is neither sustainable nor fair, and we believe that public authorities, in particular, have a responsibility to taxpayers to ensure that the people working for them are paying the right amount of tax.
Kirsty Blackman
People have told me that no matter what information they have put in, they have always been told that they have to pay more tax than they were expecting. Concerns have been raised with me about that online tool and its shortcomings, and about the fact that HMRC is always asking people to pay a level of tax that they think is wrong or too high.
Jane Ellison
Given where we are in this Parliament, the best thing the hon. Lady can do is to send details on that, immediately and before Dissolution, so that HMRC can look at the factual issues. I am surprised by what she says, but let us ask HMRC to look at the practical issues she raises—while we are off doing other things, it can perhaps look at those if she supplies the information in the next few days. HMRC has worked with the Cabinet Office Crown Commercial Service to produce guidance for public authorities and has supported them to implement the changes.
Government amendment 10 is a technical one to ensure that the reform only applies to the public sector, as set out in the Government’s original announcement.
In conclusion, the Government believe it is essential to ensure that public funds are used correctly and that those in receipt of them are paying the correct amount of tax. The changes being made by clause 7 and schedule 1 will improve compliance with the tax rules, raising a substantial amount of revenue by 2021-22. I therefore ask Members to support this clause and schedule, along with clause 8, schedule 2, clauses 11 and 48, schedule 16 and clause 127.
Kirsty Blackman
I wish to discuss the issues raised in this group, including by my new clause 1. The Minister has covered the IR35 issues in some detail, but the Scottish National party still has real concerns about these changes. Just the other day somebody told me that they are no longer bidding for public sector contracts as a result of the tax changes made on IR35. That is a real concern, which we have raised before, particularly in the context of rural communities. In some of our most rural communities, people such as teachers, doctors and nurses are employed through intermediaries, and for very good reasons: it is sometimes difficult to get people to come to some of the most rural parts of Scotland. We are concerned that this move is going to have a real disadvantageous effect, particularly for rural communities that rely on teachers, doctors and other individuals working in the public sector who are employed through intermediaries. I understand that it is already having an effect, but it would be interesting, and I would very much appreciate it, if the Government let us know what difference it has made, not only to the tax take, but to our communities. Having read through the Government’s document on the impact of the tax changes, called OOTLAR—the overview of tax legislation and rates—I do not think they have recognised the impact the changes could have on communities, so it would be interesting to see what that impact is. The change has already been made and people are now working under it, so I imagine that within six months or so we will be able to see the outcomes and whether or not there is a disadvantage.
New clause 1 is on tax avoidance, which the Scottish National party has spoken about at length in this Parliament, and about which we will continue to speak at length. Tax avoidance is a real concern and contributes to the UK tax gap, which is £36 billion. Back in 2014, Credit Suisse published a report suggesting that larger countries such as the United Kingdom struggle to get people not to avoid tax. Smaller countries are much better at it—I am just pointing that out. The new clause would require the Chancellor of the Exchequer to review within two months international best practice in relation to the prevention and reduction of tax avoidance arrangements and combating tax evasion, and to publish a report of the review. We are asking for that because we do not think that the United Kingdom is the best place in the world at tackling tax avoidance. It is certainly not the best place in the world at all the different ways of tackling tax avoidance; we could learn a huge amount from what different countries are doing. The new clause would be a sensible way forward, so I hope the Government are keen to accept it.
Something else we have mentioned in relation to tax avoidance is the protection of whistleblowers. Some whistleblowers tend towards having poor health as result of their whistleblowing. It is really important that people are encouraged to come forward if they see problems, and that we are making it as easy as possible for them to do so, because we need people to be whistleblowers. We need them to tell us where practice is going wrong and where tax dodging is happening. We would support the Government in any action they take to encourage whistleblowers and to create a better environment in which they can come forward.
Lastly, there has been talk of the possibility of the United Kingdom becoming a tax haven after Brexit. We absolutely reject the notion that after Brexit the United Kingdom should reduce all taxes to nearly nothing. For a start, that just does not work if we want to have public services such as the NHS—
Kirsty Blackman
I hope everybody present is supportive of the NHS, but I get why my hon. Friend has the impression that some people are not. We need our NHS to continue to be supported, and for that we need taxes to continue to come in.
Nigel Huddleston (Mid Worcestershire) (Con)
Does the hon. Lady agree that the focus should be on maximising the tax take? A reduction in tax rates can actually lead to an increase in the tax take.
Kirsty Blackman
I agree that the focus should be on maximising the tax take, but I would go about it in a slightly different way by trying to encourage companies and individuals and by encouraging the economy to grow. I would try to get people back into more productive jobs in order to increase productivity. The Government have mentioned increasing productivity, which is something we have been pretty good at doing in Scotland in recent times; our productivity increase has been significant and much higher than the productivity increase south of the border. Those are the measures I would start with to grow the economy.
Mr David Nuttall (Bury North) (Con)
Will the hon. Lady give way on that point?
Mr Nuttall
Well, we have plenty of time. I am grateful to the hon. Lady for giving way. Does she not agree that by reducing taxes, particularly corporation tax, in this country, we are more likely to attract inward investment and new companies from around the globe to this country, thereby producing the taxes to pay for our public services?
Kirsty Blackman
I do not believe that there is a huge amount of evidence for that. When companies are looking at where to base their headquarters and their staff, corporation tax does not feature all that high up the list. They are looking for good infrastructure, schools and support for individuals in the community. Corporation tax is not at the top of the list, so I would do other things first to try to encourage inward investment, if it were me who was in government and making those decisions.
Kirsty Blackman
Mr Hoyle, that is the end of my comments on this group.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8 ordered to stand part of the Bill.
Clauses 9 and 10 disagreed to.
Clause 11 ordered to stand part of the Bill.
Clauses 12 to 16 disagreed to.
Clauses 17 and 18 ordered to stand part of the Bill.
Clauses 19 and 20 disagreed to.
Clause 21 ordered to stand part of the Bill.
Clauses 22 to 44 disagreed to.
Clauses 45 to 47 ordered to stand part of the Bill.
Clause 48
Employment Income Provided through Third Parties
Amendment made: 4, page 49, line 26, leave out
“Schedules 16 and 17 make”
and insert “Schedule 16 makes”.—(Jane Ellison.)
Clause 48, as amended, ordered to stand part of the Bill.
Clauses 49 to 56 disagreed to.
Clause 57
VAT: Zero-rating of Adapted Motor Vehicles Etc
Question proposed, That the clause stand part of the Bill.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
That schedule 19 be a schedule to the Bill.
New clause 2—Review of VAT treatment of the Scottish Police Authority and the Scottish Fire and Rescue Service—
“(1) The Chancellor of the Exchequer must, within two months of the passing of this Act, commission a review of the VAT treatment of the Scottish Police Authority and the Scottish Fire and Rescue Service, including but not limited to—
(a) an analysis of the impact on the financial position of Police Scotland and the Scottish Fire and Rescue Service arising from their VAT treatment, and
(b) an estimate of the change to their financial position were they eligible for a refund of VAT under section 33 of the VAT Act 1994.
(2) A report of the review under subsection (1) must be laid before the House of Commons within six months of the passing of this Act.”
Jane Ellison
No VAT is charged for the buying of an adapted vehicle by or on behalf of a disabled wheelchair user. Unfortunately, this scheme, which supports disabled wheelchair users to live independently, has been fraudulently abused by unscrupulous individuals who make purchases under this relief and then sell the vehicles on for additional profit. For example, HMRC discovered that one person purchased 30 BMWs under the scheme in one day, while another individual bought 100 vehicles that I would describe as high-performance sports cars and the like in under two years. This is clear abuse of the scheme, and its integrity is being brought into question by such behaviour.
Clause 57 will tackle abuse of the relief, while ensuring that it remains available for those with disabilities. The changes made by clause 57 will restrict the number of vehicles that an individual, or someone on behalf of that individual, may purchase under the scheme to one every three years. That will stop fraudsters from purchasing multiple vehicles in one day, or over a prolonged period. The legislation recognises that, in some circumstances, a replacement vehicle may genuinely need to be purchased within the three-year period. In addition, the clause makes it mandatory for vehicle dealers to submit a declaration of eligibility for each car purchased under the scheme to HMRC and applies penalties to those found to abuse the scheme.
Jane Ellison
Let me just complete the exposition of why these bodies do not qualify.
Both those new bodies are funded centrally rather than through local taxation and therefore do not meet the eligibility criteria for section 33 VAT refunds. The Treasury warned the Scottish Government in advance that making these changes would result in the loss of VAT refunds. In deciding to go ahead, the Scottish Government fully considered the costs and benefits of doing so, including the loss of VAT refunds. Therefore, there is no additional benefit to be had from the Government committing resource and time to produce a report on this issue. I therefore urge the Committee to reject new clause 2.
Kirsty Blackman
Just on that, can the Financial Secretary tell us how London Legacy and Highways England are funded?
Jane Ellison
Again, those are matters that have been covered before. I refer the hon. Lady to comments that I have made previously in response to very similar interventions. These measures have been discussed not just in Finance Bills, but during the passage of the Scotland Bill. Again, the message was the same that this was a decision taken in the full knowledge of the VAT consequences. Once again, I urge the House to reject the new clause that calls for a review.
Kirsty Blackman
If the Minister changes the VAT treatment of the Scottish police and the fire and rescue service, I promise not to raise the matter again in the House. I can see that she is fed up with discussing it, but, frankly, so am I. If the Government were to move on this, we would not have to raise it again.
Patrick Grady
The other option open to the Government is to devolve power over VAT to the Scottish Parliament, so that it could make all of these decisions. We were promised the most powerful legislature in the world, so why do the Government not live up to that commitment and give us the powers that we need?
Kirsty Blackman
I agree with my colleague. We have a portion of VAT devolved to the Scottish Parliament, which does not make a huge amount of sense. Although we obviously welcome any new powers coming to the Scottish Parliament, it would be much better if we had control over all of VAT, rather than have a portion of the income from VAT coming to us.
The Scottish police and the fire and rescue service are charged VAT unlike Highways England, which is a national English body, and unlike London Legacy, which is a national UK-wide body. The UK Government have created exemptions for both of those organisations, but not for Scottish police and Scottish fire. This costs the Scottish people, because Scottish police and Scottish fire are having to pay this VAT bill to the UK Government rather than having this money to spend.
Joanna Cherry (Edinburgh South West) (SNP)
This VAT charge is costing Scotland’s emergency services tens of millions of pounds a year. Does my hon. Friend agree that our constituents would rather that this money was spent on fighting crime and funding emergency services in Scotland than on plugging the holes in the Tory Government’s budget because of their poor financial planning and budgeting?
Kirsty Blackman
I absolutely agree with my colleague.
In June 2016, it was reported that, since it was formed three years previously, Scotland’s single police force has paid £76.5 million in VAT, and it remains unable to reclaim that tax. The UK Government have created exemptions for other bodies that they see as important. Why do they see London Legacy and Highways England as more important than Scottish police and Scottish fire? We again ask the UK Government to change that.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clause 58
IPT: Standard Rate
Question proposed, That clause 58 stand part of the Bill.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to consider clause 59 stand part.
Jane Ellison
Clause 58 legislates for the increase in the standard rate of insurance premium tax from 10% to 12% as the Chancellor announced in the autumn statement 2016. This change will be effective from 1 June this year. Clause 59 will make minor changes to anti-forestalling provisions, so that insurers cannot artificially avoid paying the new rate of insurance premium tax by adjusting contract dates.
The Government remain committed to our fiscal mandate of eliminating the deficit. Much has already been achieved. The Government are forecast to reduce the deficit by more than two thirds by the end of this year, and in 2018-19, debt will fall for the first time in 16 years. However, we cannot be complacent. The Office for Budget Responsibility’s recent fiscal sustainability report highlights the challenges posed by an ageing population, projecting debt almost trebling to 234% over the next 50 years, if no further action is taken.
Stephen Pound
I am so sorry to interrupt the hon. Lady, but I speak on behalf of the 4th Perivale scout group, which is most concerned about the impact that insurance premium tax increases are having on not just scout groups but other charities. Has she considered this matter since my hon. Friend the Member for Bootle (Peter Dowd) raised it, and does she have any good news if not for the whole charity sector, at least for the 4th Perivale scout group?
Jane Ellison
I am delighted that the hon. Gentleman has had the opportunity to put his local scout group on the record. These issues have been discussed in general terms. In particular, I spoke at the Charity Tax Group conference recently. The point that I made there was that although we are not making exceptions for a number of reasons—some of them logistical—there are many different ways in which the Government exempt tax for charities and try to support them in other ways. The existing tax reliefs that go to charities and community groups in this country are worth many billions, and many are not taken up as much as they should be. In particular, the issue of scout groups got a very thorough airing during the passage of the gift aid small donation scheme measures that we took through the House last autumn. Those measures are designed to help such groups that do a lot of their fundraising outside their headquarters. Although I cannot give him comfort on this issue, I draw his attention to the fact that there are many other ways in which we help to relieve worthy groups. In particular, I refer to that recent change, which I encourage him to discuss with the Perivale scout group, because, as I have said, that was made very much with it in mind, especially with regard to how it collects donations.
George Kerevan
Essentially, this is one of the taxes that the Government are keeping in. It is the third insurance premium tax rise in 18 months. Will the Minister justify why the Government are proposing this third increase, which actually increases the rate by 20%—well above the rate of inflation?
Jane Ellison
I am coming to that, but the Chancellor was admirably clear when he laid the change out for the House when it was announced.
The Government have worked to eliminate the deficit and to invest in Britain’s future. We want to ensure that the public finances remain sustainable and to build resilience to future shocks. We have prioritised tax changes to help ordinary working families, and encouraged businesses to invest in the UK. We are supporting jobs and helping people’s money to go further through increases to the personal allowance and the national living wage. We have committed to investing £23 billion for infrastructure in the national productivity investment fund and an extra £2 billion for social care, which will ease pressures on the national health service.
By increasing insurance premium tax, we will ensure that we can maintain the balance between that investment and controlling the deficit. The additional revenue gives the Government the flexibility to invest. IPT is a tax on insurers. They are not in any way obliged to pass on the tax through higher premiums. However, if insurers do choose to pass on the increase, it will be spread thinly across a wide range of people and businesses. In line with the informal agreement between the Government and the Association of British Insurers, firms have been given more than six months’ notice, which gives time to implement the change. The agreement aims to give insurers proper warning of a rate change and to ensure that the correct rate of tax on a policy is known when the policy is arranged.
The changes made by clause 58 will raise approximately £840 million each year to reduce the deficit, while ensuring that we can fund spending commitments. That really is the answer to the intervention by the hon. Member for East Lothian (George Kerevan). Insurance premium tax is a tax on insurers, not consumers. It will be insurance companies’ choice whether to pass on the 2% rate increase. Even if the increases were passed on in full, the impact would be modest, costing households less than 35p a week on average.
The changes made by clause 59 will protect revenue by ensuring that insurers cannot artificially avoid paying the new rate of IPT by adjusting contract dates. As I have said, the Government are committed to reducing the deficit, while still investing in the UK. This requires some difficult decisions, including this 2% increase to the standard rate of IPT. The change will be invaluable in funding vital public spending, such as the additional £2 billion committed to social care.
Kirsty Blackman
It is really interesting to hear the Minister say that the change will only cost an average of 35p a week. That is quite a lot, particularly for people who do not have an extra 35p a week. The director general of the ABI said:
“UK consumers and businesses already pay relatively high levels of IPT… It cannot be right that people are being forced to pay an increasingly high price for doing the responsible thing”.
As my hon. Friend the Member for East Lothian (George Kerevan) said, this is the third increase. At the start of this Parliament, IPT was at something like 3%. It was then increased to 6.5% and then to 9.5% during this Parliament. This is a tax on people doing the right thing by insuring their homes and properties. I agree with the hon. Member for Ealing North (Stephen Pound), who spoke about a scout group, that this is also a tax on charities and organisations providing a brilliant experience for young boys and girls going through scouting. The change has not been considered in the round; the Government have seen another opportunity to get a few extra pennies in.
Huw Merriman (Bexhill and Battle) (Con)
The hon. Lady, like me, may have a rural constituency, where there are lots of young drivers experiencing high insurance costs. Would she welcome signs from the Minister that the Government will look at the impact of the change on the young in the future, particularly if it has an impact on social mobility for the young?
Kirsty Blackman
I do not actually have a rural constituency, but I do live near one, so I recognise the issues that are faced by young drivers. We want young people, particularly those in rural areas, to be able to access services, learn to drive safely and afford insurance when they do, so that they can travel and access jobs, opportunities and training. I agree with the hon. Gentleman and also ask the Government to look at this area. We cannot continue to see hikes in insurance premium tax. A 20% hike is absolutely ridiculous, especially as it follows hot on the heels of a number of other hikes in insurance premium tax. The Government need to look at this seriously and commit to not making any further increases in the next Parliament.
George Kerevan
I have two points. First, I reiterate to the Minister, who artfully shifted to saying that there was a 2% rise in the tax, that there is a two percentage point rise. It is a 20% rise in the tax. I asked the Minister how she justified that massive, excessive increase relative to inflation. She did not reply—I suspect because, as a Conservative tax cutter, she is embarrassed. I have a further question for the Minister. Will she rule out extending the provision of IPT to reinsurance? Clearly, IPT has been hit on by the Government because it is one of the few things that they have not yet legislated not to increase as a form of taxation. That will doubtless change in the Conservative manifesto. But as long as this is the tax that the Government are hitting on because it is the one they have left, will the Minister state that they will not in future years extend IPT to the reinsurance market, which would net them even more money?
Question put and agreed to.
Clause 58 accordingly ordered to stand part of the Bill.
Clause 59 ordered to stand part of the Bill.
Clause 60
Landfill tax: taxable disposals
Question proposed, That the clause stand part of the Bill.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to consider the following:
Clauses 61 to 64 stand part.
Amendment 1, in clause 65, page 73, line 4, leave out subsection (2).
Clauses 65 to 70 stand part.
New clause 3—Review of oil and gas corporation tax rates and investment allowances—
“(1) The Chancellor of the Exchequer must, within two months of the passing of this Act, commission a review of the corporation tax rates and investment allowances applicable to companies producing oil and gas in the UK or on the UK continental shelf.
(2) A report of the review under subsection (1) must be laid before the House of Commons within six months of the passing of this Act.”
New clause 4—Review of tax regime relating to decommissioning of oil and gas infrastructure—
“(1) The Chancellor of the Exchequer must, within two months of the passing of this Act, commission a review of the ways in which the tax regime could be changed to increase the competitiveness of UK-registered companies in bidding for supply chain contracts associated with the decommissioning of oil and gas infrastructure or the development of new fields in the UK continental shelf.
(2) In undertaking the review under subsection (1), the Chancellor of the Exchequer must consult—
(a) the Department for Business, Energy and Industrial Strategy;
(b) the Oil and Gas Authority;
(c) Scottish Ministers; and
(d) such other stakeholders as the Chancellor of the Exchequer thinks appropriate.
(3) A report of the review under subsection (1) must be laid before the House of Commons within six months of the passing of this Act.”
Jane Ellison
I plan to focus my comments in this part of the debate on alcohol duties, which I anticipate will be of greatest interest to hon. Members. Other clauses within the group provide for other duty changes, and a new clause has been tabled by the hon. Member for Aberdeen North (Kirsty Blackman) on the oil and gas decommissioning regime, which we may come to.
Clause 65 sets out changes to alcohol duty rates that took effect on 13 March 2017. We announced in the 2017 Budget that the duty rates on beer, cider, wine and spirits will be kept flat in real terms, uprating by retail price index inflation. This is in line with policy and previous forecasts. As hon. Members will probably be aware, the public finances assume that alcohol duties rise by RPI inflation each year, so there is a cost to the Exchequer from freezing or cutting alcohol duty rates. If alcohol duty rates had been frozen or cut at Budget 2017, the Government would instead have had to raise taxes in other areas of the economy, to cut public spending or to increase the public deficit. Consumers and businesses continue to benefit from the previous alcohol duty changes, which initial estimates suggest will save them around £3 billion in duty between fiscal years 2013 and 2017. I will now briefly set out how past duty changes and other Government policies have affected different drinks and the sector.
I will start with spirits duty. The Government recognise the important contribution that Scotch whisky makes to the economy and local communities. The Scotch Whisky Association, which I had a meeting with and had the chance to hear from directly, estimates that Scotch whisky adds over £5 billion overall to the UK economy and supports more than 40,000 jobs, some 7,000 of which are in the rural economy. Distilleries provide an important source of employment in rural communities. The Scotch Whisky Association estimates that exports to nearly 200 countries in every continent were worth nearly £4 billion last year and accounted for about 20% of all UK food and drink exports. Single malt Scotch whisky exports exceeded £1 billion for the first time last year, and more Scotch whisky is sold in France in just one month than cognac in an entire year.
The Government are committed to supporting this great British success story. Scotch whisky was one of the first food and drink products to feature in the GREAT campaign, giving it high visibility internationally in key markets. More recently, the Scotch Whisky Association joined my right hon. Friend the Prime Minister on her trade mission to India last year. Scotch whisky is currently just 1% of the Indian spirits market, but it has the potential to grow to 5% with the right trade agreement. That would be equivalent to a 10% increase in the current global trade in Scotch.
The spirits duty escalator was ended in 2014, and the tax on a bottle of Scotch whisky is now 90p lower than it would otherwise have been. The hon. Member for Aberdeen North has tabled an amendment to reverse the uprating as applied to spirits. To be clear, that would not help exports, because the £4 billion of exports a year are unaffected by the duty change, as no duty is paid on exported spirits. Instead, it would help those selling in the UK market. The amendment would cost the Exchequer, and so increase the deficit by, around £100 million this year. For the reasons I have indicated—not least the bottom line scorecard cost—the Government reject the amendment, which would not help exporters of whisky or other spirits and which is unfunded. Clause 65 will keep spirit duty rates flat in real terms, so consumers will continue to benefit from the previous change to spirit duty rates.
While we are on spirits, I should touch on another great British success: the UK gin industry. When I met the Wine and Spirit Trade Association, it informed me that, in 2016, gin sales exceeded £1 billion for the first time in the UK. I suspect that many of us will be partaking of a number of these products in the weeks ahead. [Interruption.] I said many of us. We will be partaking perhaps in celebration or perhaps for sustenance —who knows what reason. It is good that we put these British success stories on record.
I was also told that the number of gin brands has more than doubled since 2010. [Interruption.] Yes, doubles all round. The price of a typical bottle of gin remains 84p lower than it would have been now that we have ended the spirits duty escalator. As with Scotch whisky, no UK duty is payable on exported gin.
As well as ending the spirits duty escalator, we also ended the beer duty escalator to help pubs. Pubs play an important role in promoting responsible drinking, providing employment and contributing to community life—that sentiment is expressed regularly on both sides of the House. Brewers also make an important contribution to local economies. The increase in the number of small breweries in recent years has increased diversity and choice in the beer market. By promoting interest in a larger range of beers, that has benefited all brewers.
The clause will not undo the previous beer duty cuts or freezes. The Government cut the tax on a typical pint by one penny at Budgets 2013, 2014 and 2015 and then froze duty rates last year. As a result, drinkers are paying 11p less in tax on a typical pint this year than they otherwise would have paid.
On wine duty, the Government are committed to supporting the UK wine industry. The first joint industry and Department for Environment, Food and Rural Affairs wine roundtable last year resulted in a set of industry targets, including to increase wine exports tenfold and to double production to 10 million bottles by 2020. The wine sector will continue to benefit from the previous changes to wine duty rates.
Cider makers, too, play an important role in rural economies, using over half the apples grown in the UK. The duty on a typical pint of cider remains around half the duty on a typical pint of beer. The tax on a typical pint remains 3p lower than it would otherwise have been, as a result of the Government’s changes to cider duty rates since Budget 2014.
To conclude, we fully recognise the importance of the alcohol industry to the economy and local communities. I have talked with and met various representatives from across the industry, and I will, of course, continue to engage with them. The cuts and freezes in duty rates since the ending of the alcohol duty escalators continue to deliver great benefits. They will save consumers and businesses around £3 billion in duty between fiscal years 2013 and 2017. However, allowing alcohol duties to fall every year in real terms would be unsustainable in the long term. If alcohol duties had been frozen or cut at Budget 2017, the Government would instead have had to raise taxes in other areas of the economy, cut public spending or increase the public deficit. The clause simply increases duties in line with inflation, as assumed in the fiscal forecasts. This is not a return to the real-terms increases year after year imposed by the alcohol duty escalator. I therefore suggest that the clause stand part of the Bill.
Kirsty Blackman
I will start by talking about alcohol and whisky, and then I will move on to talk about oil and gas. Specifically on whisky, I appreciate the Minister taking the time to talk about the contribution of the Scotch whisky industry. It does, indeed, contribute to our economy; of particular note are the 40,000 jobs it provides, including the 7,000 in the rural economy, which are really important for Scotland’s rural communities.
The positive changes the UK Government previously made to spirit duty meant there was confidence in the industry again, and we have seen a real change in the industry over the last couple of years, with a dozen new distilleries opening and 14 in various stages of planning, but the changes that have been made this year will put 36p on a bottle of whisky and mean that £4 of every £5 spent on whisky goes to the UK Government’s coffers.
My hon. Friend the Member for Argyll and Bute (Brendan O'Hara), who is the chair of the all-party group on Scotch whisky, spoke about this issue on Second Reading, although not at enough length—he got only four minutes. He is really concerned about distilleries. I appreciate the Minister talking about the success story that the gin industry has been for new distilleries—it takes a long time to mature Scotch whisky but not to mature gin, so distilleries can be up and running pretty quickly. The issue is the context in which things are seen. I understand that, as the Minister said, the change will not affect those selling abroad, but given that most producers sell whisky in the domestic market, it will obviously have an effect on those who also sell abroad.
In the wider context of Brexit, where the trade deals we currently have will no longer exist and we will have to negotiate new trade deals, including with the EU, if we are to sell whisky to France, as the Minister mentioned, we will need to have a trade deal. We will need to have trade deals with all the countries we trade with under the EU’s free trade agreements.
A major concern for those of us who represent constituencies involved with whisky is the protected geographical indication. The EU has protected geographical indication status, so people are not allowed to bottle whisky somewhere else and call it Scotch whisky. We are set to lose that protection when the UK leaves the EU, and it is important that the UK Government do what they can to ensure that the Scotch whisky industry can continue to trade and protect its brand—but I do not see that coming through. If the Government had not raised duty in this Budget on spirits and on whisky in particular, the industry would have known that it had the confidence of the UK Government and been in a much better position to take decisions.
Moving on to oil and gas, we have two new clauses on the amendment paper. New clauses 3 and 4 on behalf of the SNP are in my name, and I particularly thank my hon. Friend the Member for Aberdeen South (Callum McCaig) for his input into them. New clause 3 is about investment allowances. This Tory Government have come up with a line that we are one of the most competitive fiscal regimes for oil and gas, which is all well and good, but we also have one of the most mature fields in the world. In the North sea and on the UK continental shelf, we are also having to do things and implement technologies we have never seen before. A huge amount of innovation from our companies is having to go on in order for them to be able to achieve the UK Government’s and Sir Ian Wood’s maximising economic recovery strategy.
New clause 3 is about investment allowances and corporation tax rates on companies producing oil and gas. The UK Government have put the tax up and put it down, but they have not at any stage sat down and looked at the entire taxation regime for the oil and gas industry and said, “We are operating in a new scenario.” They have kept the level of taxes that we have had since oil and gas began to be taken out of the North sea. It is time for the UK Government to look at that tax structure and those tax regimes to see how they can incentivise companies to ensure that they are getting the best out of the North sea and securing jobs in the north-east of Scotland, and beyond, for as long term a future as possible.
The Chairman of Ways and Means (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
Clauses 72 to 75 stand part.
Amendment 2, in clause 76, page 81, line 15, leave out paragraph (a).
Amendment 3, page 81, line 20, leave out subsection (2).
Clauses 76 to 107 stand part.
That schedules 20 to 23 be schedules to the Bill.
Jane Ellison
Clauses 71 to 107 contain provisions for a new tax called the soft drinks industry levy to be introduced from April 2018. This is a key pillar in the Government’s childhood obesity plan, and it has been welcomed by a wide range of public health experts and campaigners. Tackling obesity is a national challenge—indeed, an international challenge. The UK has one of the highest obesity rates in the developed world, and childhood obesity in particular is a major concern. Today nearly a third of children aged two to 15 are overweight or obese, and we know that many of these children will go on to become obese adults. Obesity drives disease, as we are reminded at the moment as we come through Westminster underground station by the Cancer Research UK posters. It increases the risk of heart disease, type 2 diabetes, stroke, and some cancers. The NHS spends over £6 billion a year across the UK in dealing with obesity-related costs, and the overall costs to our economy are estimated at between £27 billion and £46 billion a year. This cannot go on.
Health experts have identified sugary drinks as one of the biggest contributors to childhood obesity and a source of empty calories. A 330 ml can of full-sugar cola typically contains nine teaspoons of sugar. Some popular drinks have as many as 13 teaspoons. This can be more than double a child’s daily recommended added sugar intake in just a single can of drink. The Government recognise that this is a problem, and so have many others, with over 60 public health organisations calling for a tax on sugary drinks and many thousands signing a petition in favour. I am delighted that this issue has also received a high level of cross-party support.
Indeed, some soft drinks producers had recognised that sugar levels in their drinks were a problem too, and had started to reduce the sugar content, move consumers towards diet and sugar-free variants, and reduce portion sizes for high-sugar beverages. Nevertheless, reducing the added sugar in soft drinks is now a public health priority, and this new levy is needed to speed up the process. It is specifically designed to encourage the industry to move faster. We gave the industry two years to make progress on this before the levy begins, and we can see that it is already working. Since the Government announced the levy last March, a number of major producers have accelerated their work to reformulate sugar out of their soft drinks and escape the charge. These include Tesco, which has already reformulated its whole range of own-brand soft drinks so that they will not pay the levy. Similar commitments have come from the makers of Lucozade and Ribena, and the maker of Irn-Bru, A. G. Barr. In fact, we now expect more than 40% of all drinks that would otherwise have been in scope to have been reformulated by the introduction of the levy. We see international action too. In recent months, countries such as Ireland, Spain, Portugal, Estonia and South Africa have brought forward similar proposals to our own.
As a result of such reformulation before the levy begins, we now expect the levy to raise around £385 million per year, which is less than the £520 million originally forecast—but we are clear that this is a success. The Government will still fund the Department for Education’s budget with the £1 billion that the levy was originally expected to raise over this Parliament, including money to double the primary schools sports premium and deliver additional funding for school breakfast clubs, and £415 million to be invested in a new healthy pupils capital programme. The devolved Administrations will receive Barnett funding in the usual way. The Secretary of State for Education has made recent announcements about how some of the money will be spent, particularly on the healthy pupils capital programme.
The levy has shown that the Government mean business when it comes to reducing hidden sugar in everyday food. That willingness to take bold action underpins another major part of our childhood obesity plan, namely Public Health England’s sugar reduction programme, which is a groundbreaking programme of work with industry to achieve 20% cuts in sugar by 2020 across the top nine food categories that contribute the most to children’s sugar intake. It has been acknowledged, not least by industry, that that is a challenging target, but one that industry is committed to working with Government to achieve. The sugar reduction programme will cover some of the drinks products that are not part of the levy, such as milk-based drinks. The programme is already bearing fruit: there have been announcements and commitments to reduce the levels of sugar in some of the products.
I know that some would like the levy to go further. In particular, the hon. Member for Aberdeen North (Kirsty Blackman) has tabled amendments 2 and 3, which would remove the exclusion from the levy of high milk content drinks containing at least 75% milk. We oppose those amendments. Milk and milk products are a source of protein, calcium, potassium, phosphorous and iodine, as well as vitamins B2 and B12. One in five teenage girls do not get enough calcium in their diet, and the same is true for one in 10 teenage boys. It is essential for children’s health that they consume the required amount of those nutrients, which aid bone formation and promote healthy growth as part of a balanced diet. Health experts agree that the naturally occurring sugars in milk are not a concern from an obesity perspective, and they are not included in the definition of free sugars, which Public Health England now applies.
Of course, we want milk-based drinks to contain less added sugar, so they will be part of Public Health England’s sugar reduction programme. Producers of the drinks will be challenged and supported to reduce added sugar content by 20% by 2020. Public Health England has committed to publishing a detailed assessment of the food and drink industry’s progress against the 20% target in March 2020, and today I make a commitment to the House that we will also review the exclusion of milk-based drinks in 2020, based on the evidence from Public Health England’s assessment of producers’ progress against their sugar reduction targets. In the light of that assurance, I urge hon. Members to reject amendments 2 and 3, and allow us to review the evidence in 2020, two years after the levy has begun, and to decide at that point whether milk-based drinks should be brought within scope.
Obesity is a problem that has been decades in the making and we are not going to solve it overnight. The soft drinks levy is not a silver bullet, but it is an important part of the solution. This Government’s childhood obesity plan, with the levy as its flagship policy, is the start of a journey and it marks a major step towards dealing with our national obesity crisis.
Kirsty Blackman
The Minister is absolutely correct about the huge amount of cross-party support for the general thrust of the soft drinks industry levy and the move towards tackling obesity, particularly childhood obesity. However, we are concerned that the levy does not go far enough and that the Government could have chosen to close certain loopholes when drafting the Bill.
The single biggest cause of preventable cancer is obesity. More than 18,100 cancers a year are associated with excess weight. Cancer Research says that sugary drinks are the No. 1 source of sugar for 11 to 18-year-olds, which is a pretty terrifying statistic, and I appreciate that the Government have chosen to take action.
I am concerned about the Government’s response on milk-based drinks and about the fact that they are excluded from the levy.
Joanna Cherry
Does my hon. Friend agree that the problem with omitting high-sugar milk-based drinks from the provisions is that parents may mistakenly think that they are healthier than soft drinks that are subject to the extra tax, when that is simply not the case?
Kirsty Blackman
My hon. and learned Friend is absolutely right. It is true, as the Minister has said, that milk-based drinks contain protein, calcium and other nutrients, but so does milk. Children could just drink milk without the added sugar. I do not think people realise quite how much added sugar there is in such products. The same is true of pasta sauce. When parents see a milkshake on the shelf, they do not realise that it could have as much sugar in it as a can of fizzy juice.
The Temporary Chair (Sir David Amess)
With this it will be convenient to discuss the following:
Clauses 109 to 123 and 130 to 133 stand part.
Government amendments 5 to 9.
Clauses 134 and 135 stand part.
That schedules 24 to 26 be schedules to the Bill.
Jane Ellison
These are consequential amendments and I want to move them formally.
Kirsty Blackman
I appreciate the Government withdrawing the making tax digital provisions. I understand their commitment to making tax digital, but the changes are reasonable.
George Kerevan
With your indulgence, Sir David, I thought that this might be an appropriate moment to pay tribute to the outgoing right hon. Member for Chichester (Mr Tyrie), the Chair of the Treasury Committee, which has paid a lot of attention to making tax digital. There could be no more fitting tribute to the right hon. Gentleman leaving this House than the Government withdrawing the making tax digital provisions.
The Temporary Chair
That is certainly news to me, but the hon. Gentleman’s tribute is most appropriate and I thank him for it.
Jane Ellison
On a point of clarity, may I make it clear that the Government do not support clause 108? I apologise for not making that clear before. On making tax digital, I refer colleagues to my statement at the beginning of our debate on the first group.
Question put and negatived.
Clause 108 accordingly disagreed to.
Clauses 109 to 126 disagreed to.
Clause 127 ordered to stand part of the Bill.
Ordered,
That clause 127 be transferred to the end of clause 69.—(Jane Ellison.)
Clauses 128 to 133 disagreed to.
Clause 134
Interpretation
Amendments made: 5, page 126, leave out line 17.
Amendment 6, page 126, leave out line 20.
Amendment 7, page 126, leave out lines 22 to 24.
Amendment 8, page 126, leave out line 30.
Amendment 9, page 127, leave out lines 1 and 2.—(Jane Ellison.)
Clause 134, as amended, ordered to stand part of the Bill.
Clause 135 ordered to stand part of the Bill.
Schedule 1
Workers’ services provided to public sector through intermediaries
Amendment made: 10, page 129, line 32 , at end insert—
‘(3) Subsection (1) is subject to subsection (4).
(4) A primary-healthcare provider is a public authority for the purposes of this Chapter only if the primary-healthcare provider—
(a) has a registered patient list for the purposes of relevant medical-services regulations,
(b) is within paragraph 43A in Part 3 of Schedule 1 to the Freedom of Information Act 2000 (providers of primary healthcare services in England and Wales) by reason of being a person providing primary dental services,
(c) is within paragraph 51 in that Part of that Schedule (providers of healthcare services in Northern Ireland) by reason of being a person providing general dental services, or
(d) is within paragraph 33 in Part 4 of Schedule 1 to the Freedom of Information (Scotland) Act 2002 (providers of healthcare services in Scotland) by reason of being a person providing general dental services.
(5) In this section—
“primary-healthcare provider” means an authority that is within subsection (1)(a) or (b) only because it is within a relevant paragraph,
“relevant paragraph” means—
(a) any of paragraphs 43A to 45A and 51 in Part 3 of Schedule 1 to the Freedom of Information Act 2000, or
(b) any of paragraphs 33 to 35 in Part 4 of Schedule 1 to the Freedom of Information (Scotland) Act 2002, and
“relevant medical-services regulations” means any of the following—
(a) the Primary Medical Services (Sale of Goodwill and Restrictions on Sub-contracting) Regulations 2004 (S.I. 2004/906),
(b) the Primary Medical Services (Sale of Goodwill and Restrictions on Sub-contracting) (Wales) Regulations 2004 (S.I. 2004/1017),
(c) the Primary Medical Services (Sale of Goodwill and Restrictions on Sub-contracting) (Scotland) Regulations 2004 (S.S.I. 2004/162), and
(d) the Primary Medical Services (Sale of Goodwill and Restrictions on Sub-contracting) Regulations (Northern Ireland) 2004 (S.R. (N.I.) 2004 No. 477).
(6) The Commissioners for Her Majesty’s Revenue and Customs may by regulations amend this section in consequence of—
(a) any amendment or revocation of any regulations for the time being referred to in this section,
(b) any amendment in Part 3 of Schedule 1 to the Freedom of Information Act 2000, or
(c) any amendment in Part 4 of Schedule 1 to the Freedom of Information (Scotland) Act 2002.’—(Jane Ellison.)
Schedule 1, as amended, agreed to.
Schedule 2
Optional remuneration arrangements
Amendments made: 11, page 160, line 14, at end insert—
“() section 307 (death or retirement provision), so far as relating to provision made for retirement benefits;”
Amendment 12, page 160, line 26, at end insert—
‘( ) In subsection (5) “retirement benefit” has the meaning that would be given by subsection (2) of section 307 if “or death” were omitted in both places where it occurs in that subsection.”—(Jane Ellison.)
Schedule 2, as amended, agreed to.
Schedule 3
Overseas pensions
Amendments made: 13, page 166, line 18, leave out from beginning to “in” in line 23 and insert—
“(a) that, in the case of any money purchase arrangement relating to a member of the fund that is not a cash balance arrangement, no contributions are made under the arrangement on or after 6 April 2017;
(aa) that, in the case of any cash balance arrangement relating to a member of the fund, there is no increase on or after 6 April 2017 in the value of any person’s rights under the arrangement;
(b) that, in the case of any defined benefits arrangement relating to a member of the fund, there is no increase on or after 6 April 2017 in the value of any person’s rights under the arrangement; and
(c) that, in the case of any arrangement relating to a member of the fund that is neither a money purchase arrangement nor a defined benefits arrangement—
(i) no contributions are made under the arrangement on or after 6 April 2017, and
(ii) there is no increase on or after 6 April 2017.”
Amendment 14, page 166, line 24, at end insert—
‘(6AA) For the purposes of subsection (6A)(aa)—
(a) whether there is an increase in the value of a person’s rights is to be determined by reference to whether there is an increase in the amount that would, on the valuation assumptions, be available for the provision of benefits under the arrangement to or in respect of the person (and, if there is, the amount of the increase), but
(b) in the case of rights that accrued to a person before 6 April 2017, ignore increases in the value of the rights if in no tax year do they exceed the relevant percentage.’
Amendment 15, page 166, line 30, leave out
“ignore increases in the value of a person’s”
and insert
“in the case of rights that accrued to a person before 6 April 2017, ignore increases in the value of the”.
Amendment 16, page 166, line 31, at end insert—
‘(6BA) For the purposes of subsection (6A)(c)(ii), regulations made by the Commissioners for Her Majesty’s Revenue and Customs may make provision—
(a) for determining whether there is an increase in the value of a person’s rights,
(b) for determining the amount of any increase, and
(c) for ignoring the whole or part of any increase;
and regulations under this subsection may make provision having effect in relation to times before the regulations are made.’
Amendment 17, page 166, line 32, leave out “subsection (6B)(b)” and insert “this section”.
Amendment 18, page 167, leave out lines 5 to 7.
Amendment 19, page 167, line 8, after “subsection” insert “(6BA) or”.
Amendment 20, page 167, line 10 , leave out from “(7)” to end of line 16 and insert—
‘(a) for “In this section—” substitute “For the purposes of this section—
‘arrangement’, in relation to a member of a superannuation fund, means an arrangement relating to the member under the fund;
a money purchase arrangement relating to a member of a superannuation fund is a ‘cash balance arrangement’ at any time if, at that time, all the benefits that may be provided to or in respect of the member under the arrangement are cash balance benefits;
an arrangement relating to a member of a superannuation fund is a ‘defined benefits arrangement’ at any time if, at that time, all the benefits that may be provided to or in respect of the member under the arrangement are defined benefits;
an arrangement relating to a member of a superannuation fund is a ‘money purchase arrangement’ at any time if, at that time, all the benefits that may be provided to or in respect of the member under the arrangement are money purchase benefits;
‘cash balance benefits’, ‘defined benefits’ and ‘money purchase benefits’ have the meaning given by section 152 of the Finance Act 2004, but for this purpose reading references in that section to a pension scheme as references to a superannuation fund;
‘member’, in relation to a superannuation fund, has the meaning given by section 151 of the Finance Act 2004, but for this purpose reading references in that section to a pension scheme as references to a superannuation fund;”;
(b) at the end insert—
“‘the valuation assumptions’ has the meaning given by section 277 of the Finance Act 2004.”’
Amendment 21, page 167, line 16, at end insert—
‘( ) After subsection (10) insert—
(11) Where the conditions in subsection (6)(a) to (c) are met in the case of a superannuation fund (“the actual fund”)—
(a) any disqualifying contributions made under an arrangement relating to a member of the actual fund are treated for the purposes of the Income Tax Acts as instead made under an arrangement relating to the member under a separate superannuation fund (“the shadow fund” for the actual fund),
(b) any disqualifying increase in the value of a person’s rights under an arrangement relating to a member of the actual fund is treated for the purposes of the Income Tax Acts as instead being an increase under an arrangement relating to the member under the shadow fund for the actual fund, and
(c) any reference in this or any other Act (including the reference in subsection (3) and any reference enacted after the coming into force of this subsection) to a fund, or superannuation fund, to which subsection (3) applies does not include so much of the actual fund as—
(i) represents any contribution treated as made under, or any increase in the value of any rights treated as an increase under, the shadow fund of the actual fund or the shadow fund of any other superannuation fund, or
(ii) arises, or (directly or indirectly) derives, from anything within sub-paragraph (i) or this sub-paragraph.
(12) For the purposes of subsection (11) a contribution, or an increase in the value of any rights, is “disqualifying” if it would (ignoring that subsection) cause the benefit accrual condition not to be met in the case of the actual fund.
(13) For the purposes of the provisions of this section relating to the benefit accrual condition, where there is a recognised transfer—
(a) any transfer of sums or assets to the recipient fund by the recognised transfer is to be categorised as not being “a contribution” to the recipient fund, and
(b) any increase in the value of rights under the recipient fund that occurs at the time of the recognised transfer is to be treated as not being an increase in that value if the increase is solely a result of the transfer effected by the recognised transfer.
(14) For the purposes of subsection (13), where there is a transfer such that sums or assets held for the purposes of, or representing accrued rights under, an arrangement relating to a member of a superannuation fund (“the transferor fund”) are transferred so as to become held for the purposes of, or to represent rights under, an arrangement relating to that person as a member of another superannuation fund, the transfer is a “recognised transfer” if—
(a) the conditions in subsection (6)(a) to (c) are met in the case of each of the funds, and
(b) none of the sums and assets transferred—
(i) represents any contribution treated as made under, or any increase in the value of any rights treated as an increase under, the shadow fund of the transferor fund or the shadow fund of any other superannuation fund, or
(ii) arises, or (directly or indirectly) derives, from anything within sub-paragraph (i) or this sub-paragraph.’
Amendment 22, page 167, line 19, leave out sub-paragraphs (6) to (8).
Amendment 23, page 169, line 13, leave out “Subsection (4) does not” and insert “Subsections (7A) and (7B)”.
Amendment 24, page 169, line 20, at end insert—
‘(7A) If the lump sum is wholly in respect of rights which have accrued on or after 6 April 2017, there is no reduction under subsection (4).
(7B) If the lump sum is wholly or partly in respect of rights which accrued before 6 April 2017, the amount of any reduction under subsection (4) is given by—
R x A/LS
where—
A is so much of the lump sum as is in respect of rights which accrued before 6 April 2017,
LS is the amount of the lump sum, and
R is the amount which (ignoring this subsection) is given by subsection (4) as the amount of the reduction.’
Amendment 25, page 170, line 22, at beginning insert—
“Where the lump sum is paid under a pension scheme that was an employer-financed retirement benefits scheme immediately before 6 April 2017, deduct so much of the lump sum left after Step 1 as is deductible in accordance with subsection (5A).
Where the lump sum is paid otherwise than under such a scheme,”
Amendment 26, page 170, line 23, leave out
“rights, which accrued before 6 April 2017,”
and insert—
“the value immediately before 6 April 2017 of rights, accrued by then,”.
Amendment 27, page 170, line 39, at end insert—
‘(5A) These rules apply for the purposes of the first sentence of Step 2—
(a) “the post-Step 1 amount” means so much of the lump sum as is left after Step 1;
(b) “the relevant amount” means so much of the post-Step 1 amount as is paid in respect of rights specifically to receive benefits by way of lump sum payments;
(c) “reckonable service” means service in respect of which the rights to receive the relevant amount accrued (whether or not service in the same employment or with the same employer, and even if the rights originally accrued under a different employer-financed retirement benefits scheme established in or outside the United Kingdom);
(d) “pre-6 April 2017 reckonable service” means reckonable service that is service before 6 April 2017;
(e) “pre-6 April 2017 reckonable foreign service” means pre-6 April 2017 reckonable service that is foreign service;
(f) the deductible amount is the value immediately before 6 April 2017 of the rights then accrued to payment of so much of the relevant amount as is paid in respect of pre-6 April 2017 reckonable service if—
(i) at least 75% of pre-6 April 2017 reckonable service is made up of foreign service, or
(ii) the period of pre-6 April 2017 reckonable service exceeds 10 years and the whole of the last 10 years of that period is made up of foreign service, or
(iii) the period of pre-6 April 2017 reckonable service exceeds 20 years and at least 50% of that period, including any 10 of the last 20 years, is made up of foreign service;
(g) otherwise, the deductible amount is the appropriate fraction of the value immediately before 6 April 2017 of the rights then accrued to payment of so much of the relevant amount as is paid in respect of pre-6 April 2017 reckonable service;
(h) “the appropriate fraction” is given by—
F/R
where—
F is the period of pre-6 April 2017 reckonable foreign service, and
R is the period of pre-6 April 2017 reckonable service.’
Amendment 28, page 170, line 42, at end insert—
‘“foreign service” has the meaning given by section 395C,’
Amendment 29, page 171, line 17, at end insert—
‘Relief from tax under Part 9 of ITEPA 2003 not to give rise to tax under other provisions
13 (1) In section 393B(2)(a) of ITEPA 2003 (tax on benefits under employer-financed retirement benefit schemes: “relevant benefits” do not include benefits charged to tax under Part 9), after “646E” insert “or any deductions under section 574A(3)”.
(2) The amendment made by this paragraph has effect in relation to benefits by way of lump sums paid on or after 6 April 2017.’—(Jane Ellison.)
Schedule 3, as amended, agreed to.
Schedule 4
Pensions: offshore transfers
Amendments made: 30, page 172, line 23, after “sub-paragraph” insert “(6C) or”.
Amendment 31, page 174, line 21, at end insert—
‘(4A) In sub-paragraph (4) (power to specify whether payments by scheme are referable to relevant transfer fund), after “payments or transfers made (or treated as made) by” insert “, or other things done by or to or under or in respect of or in the case of,”.’
Amendment 32, page 176, line 28, leave out “with the next 5” and insert—“immediately before the next 6”.
Amendment 33, page 177, line 1, leave out “with the next 5” and insert—
“immediately before the next 6”.
Amendment 34, page 178, line 8, leave out
“for the purposes of sections 244L and 254”.
Amendment 35, page 178, line 28, leave out
“for the purposes of sections 244L and 254”.
Amendment 36, page 178, line 48, leave out
“for the purposes of sections 244L and 254”.
Amendment 37, page 179, line 18, leave out
“for the purposes of sections 244L and 254”.
Amendment 38, page 180, line 19, leave out “was” and insert “has been”.
Amendment 39, page 180, line 21, leave out “was” and insert “has been”.
Amendment 40, page 183, line 17, leave out from beginning to fourth “the”.
Amendment 41, page 184, leave out lines 30 to 38.
Amendment 42, page 188, line 8, at end insert—
“17A In Schedule 32 (benefit crystallisation events: supplementary provision), after paragraph 2 insert—
‘Avoiding double counting of refunded amounts of overseas transfer charge
2A (1) This paragraph applies where an amount of overseas transfer charge is repaid (whether or not under section 244M) to the scheme administrator of one of the relevant pension schemes.
(2) The amount crystallised by the first benefit crystallisation event that occurs in respect of the individual and a benefited scheme after receipt of the repayment is to be reduced (but not below nil) by the amount of the repayment.
(3) If the amount of the repayment exceeds the reduction under sub-paragraph (2), the excess is to be set sequentially until exhausted against the amounts crystallised by subsequent benefit crystallisation events occurring in respect of the individual and a benefited scheme.
(4) In sub-paragraphs (2) and (3) “benefited scheme” means—
(a) the scheme to which the repayment is made, and
(b) any other pension scheme if as a result of a recognised transfer, or a chain of two or more recognised transfers, sums or assets representing the repayment are held for the purposes of, or represent rights under, that other scheme.’”
Amendment 43, page 188, line 38, at end insert—
‘(1A) In those Regulations, after regulation 13 insert—
“14 Claims for repayments of overseas transfer charge
(1) This regulation applies where the scheme administrator of a registered pension scheme becomes aware that the scheme administrator may be entitled to a repayment under section 244M of the Act in respect of overseas transfer charge on a transfer.
(2) The scheme administrator must, no later than 60 days after the date on which the scheme administrator becomes aware of that, make a claim for the repayment to the Commissioners for Her Majesty’s Revenue and Customs.
(3) The claim must provide the following information—
(a) the member’s name, date of birth and principal residential address,
(b) the date of the transfer and, if different, the date of the event triggering payability of the charge on the transfer,
(c) the date on which the scheme manager accounted for the charge on the transfer,
(d) why the charge on the transfer has become repayable, and
(e) the amount in respect of which the claim is made.
(4) In a case where the 60 days mentioned in paragraph (2) ends with a day earlier than 14 November 2017, paragraph (2) is to be treated as requiring the claim to be made no later than 14 November 2017.”’
Amendment 44, page 188, line 39, leave out “this paragraph” and insert “sub-paragraph (1)”.
Amendment 45, page 188, line 42, at end insert—
“( ) The amendment made by sub-paragraph (1A) is to be treated as having been made by the Commissioners for Her Majesty’s Revenue and Customs under the powers to make regulations conferred by section 244M(8) of FA 2004.”
Amendment 46, page 190, line 3, at end insert—
‘(4A) In regulation 3(3)(a) (reporting duty under regulation 3(2) expires after 10 years from creation of relevant transfer fund), after “beginning” insert “—
(i) if the payment is in respect of one or more of the relevant member’s ring-fenced transfer funds (whether or not it is also in respect of anything else), with the key date for that fund or (as the case may be) the later or latest of the key dates for those funds, and
(ii) if the payment is not to any extent in respect of the relevant member’s ring-fenced transfer funds,”.’
Amendment 47, page 191, line 26, after “take” insert “place”.
Amendment 48, page 192, line 26, at end insert—
“3AEA Information provided by member to QROPS: inward and outward transfers
(1) Paragraph (2) applies where—
(a) a recognised transfer or onward transfer is made to a QROPS, or an onward transfer is made by a QROPS or former QROPS, and
(b) either—
(i) the overseas transfer charge arises in the case of the transfer, or
(ii) the transfer is required by section 244B or 244C to be initially assumed to be excluded from the overseas transfer charge by that section.
(2) Each time during the relevant period for the transfer that the member—
(a) becomes resident in a country or territory, or
(b) ceases to be resident in a country or territory,
the member must, within 60 days after the date that happens, inform the scheme manager of the QROPS or former QROPS that it has happened.
(3) In a case where the 60 days mentioned in paragraph (2) ends with a day earlier than 30 June 2017, paragraph (2) is to be treated as requiring the information to be given no later than 30 June 2017.”
Amendment 49, page 194, line 23, at end insert—
“3AK Claims for repayments of charge on subsequent excluding events
(1) Repayment under section 244M (repayments of overseas transfer charge) to the scheme manager of a QROPS or former QROPS is conditional on making a claim to HMRC.
(2) Such a claim in respect of overseas transfer charge on a transfer—
(a) must be in writing,
(b) must be made no later than 12 months after the end of the relevant period for the transfer, and
(c) must provide the following information—
(i) the member’s name, date of birth and principal residential address,
(ii) the date of the transfer and, if different, the date of the event triggering payability of the charge on the transfer,
(iii) the date on which the scheme manager accounted for the charge on the transfer,
(iv) why the charge on the transfer has become repayable, and
(v) the amount in respect of which the claim is made.”
Amendment 50, page 194, line 38, leave out “regulation 3AE(1) to (5)” and insert—
“regulations 3AE(1) to (5) and 3AEA”.
Amendment 51, page 195, line 3, at end insert
“, and
( ) are, so far as they insert new regulation 3AK, to be treated as having been made by the Commissioners under the powers to make regulations conferred by section 244M(8) of FA 2004.”
Amendment 52, page 196, line 28, leave out “potentially excluded” and insert “overseas”.
Amendment 53, page 196, line 32, at beginning insert
“either—
(i) the overseas transfer charge arises in the case of the transfer, or
(ii) ”
Amendment 54, page 196, line 4, at end insert—
‘(3) In a case where the 60 days mentioned in paragraph (2) ends with a day earlier than 30 June 2017, paragraph (2) is to be treated as requiring the information to be given no later than 30 June 2017.’
Amendment 55, page 198, line 41, after “Regulations,” insert—
“and the amendments in regulation 11BA of the Registered Pension Schemes (Provision of Information) Regulations 2006,”
Amendment 56, page 198, line 46, at end insert—
“if it would otherwise be considered for those purposes as charged in an earlier period.”—(Jane Ellison.)
Schedule 4, as amended, agreed to.
Schedules 5 and 6 disagreed to.
Schedule 7 agreed to.
Schedules 8 to 15 disagreed to.
Schedule 16
Employment income provided through third parties
Amendment made: 57, page 607, line 18, leave out from ‘“step”)’ to ‘insert’ in line 19 and insert ‘at the end’.—(Jane Ellison.)
Schedule 16, as amended, agreed to.
Schedules 17 and 18 disagreed to.
Schedule 19 to 23 agreed to.
Schedules 24 to 29 disagreed to.
The Deputy Speaker resumed the Chair.
Bill, as amended, reported.
Bill, as amended in the Committee, considered.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. Under the Order of the House of yesterday, we shall now move to the remaining stages, with no amendments on consideration. I shall now suspend the House for no more than five minutes in order to make a decision about certification. The Division bells will be rung two minutes before the House resumes. Following my certification, the Government will table the appropriate consent motion, copies of which will be made available in the Vote Office and distributed by the Doorkeepers.
Madam Deputy Speaker (Mrs Eleanor Laing)
I can now inform the House of my decision about certification. For the purposes of Standing Order No. 83L(2), I have certified clause 2 of the Finance (No. 2) Bill as relating exclusively to England, Wales and Northern Ireland and within devolved legislative competence. Under Standing Order No. 83L(4), I have also certified the following amendment as relating exclusively to England, Wales and Northern Ireland—the omission of clause 60 of the Bill in Committee of the whole House. Copies of my certificate are available in the Vote Office and on the parliamentary website.
Under Standing Order Nos. 83M and 83S, a consent motion is therefore required for the Bill to proceed. Copies of the motion are available in the Vote Office and have been made available to Members in the Chamber. Does the Minister intend to move the consent motion?
Jane Ellison
indicated assent.
The House forthwith resolved itself into the Legislative Grand Committee (England, Wales and Northern Ireland) (Standing Order No. 83M).
[Mrs Eleanor Laing in the Chair]
The First Deputy Chairman of Ways and Means (Mrs Eleanor Laing)
The consent motion for England, Wales and Northern Ireland will now be considered. I remind hon. Members that all Members may speak in the debate, but if there is a Division, only Members representing constituencies in England, Wales and Northern Ireland may vote on the consent motion.
Resolved,
That the Committee consents to the following certified clauses of the Finance (No. 2) Bill and certified amendments made by the House to the Bill—
Clauses certified under Standing Order No. 83L(2) (as modified in it is application by Standing Order No. 83S(4)) as relating exclusively to England, Wales and Northern Ireland and being within devolved legislative competence
Clause 2 of the Bill (Bill 156).
Amendment certified under Standing Order No. 83L(4) (as modified in it is application by Standing Order No. 83S(4)) as relating exclusively to England, Wales and Northern Ireland
The omission in Committee of Clause 60 of the Bill (Bill 156).—(Jane Ellison.)
Question agreed to.
The occupant of the Chair left the Chair to report the decision of the Committee (Standing Order No. 83M(6)).
The Deputy Speaker resumed the Chair; decision reported.
Third Reading
Jane Ellison
I beg to move, That the Bill be now read the Third time.
Before I briefly comment in summary of the Bill, may I beg your indulgence, Madam Deputy Speaker, in making some remarks about a couple of colleagues?
The right hon. Member for Oxford East (Mr Smith) was present earlier and made a valedictory speech. I referred to that in my subsequent speech, but I was not then in a position to mention his record of service to the country. Not only has he been a parliamentarian since 1987, but he was a Minister of State for Education and Employment between 1997 and 1999, Chief Secretary to the Treasury between 1999 and 2002 and, indeed, Secretary of State for Work and Pensions between 2002 and 2004. He is no longer in his place, but I ask his party’s Front-Bench spokesman to confer my sentiments to him and to draw to his attention the fact that I—on behalf of the Government and, I am sure, of all colleagues—have placed on record our thanks for his service to the country as a Minister during that period.
With the House’s indulgence, I will pay tribute to a second Member. I have very recently been informed that my right hon. Friend the Member for Chichester (Mr Tyrie) is not seeking re-selection at this election, so I want to make a few comments about him. He has been the MP for Chichester since 1997. He is a former adviser to Nigel Lawson—Lord Lawson—when he was Chancellor, as he was to John Major when he was Chancellor. Members may be aware that my right hon. Friend was a senior economist at the European Bank for Reconstruction and Development before he entered Parliament. He is of course a very senior parliamentarian, and when we moved to electing our Select Committee Chairs, it was no surprise that he was elected overwhelmingly by the House with cross-party support. In recent times, he has served in one of the most senior positions in Parliament, if not the most senior position, as Chairman of the Liaison Committee. In all those roles across his life of public service, governmental service and service to this House, he has been enormously distinguished, and I think I speak for everyone in saying that he is very well liked. I have known him during the years I have been in Parliament, but as a Treasury Minister, I have of course come to know him better in recent months. Indeed, I have responded to his letters on many occasions, and discussed them with him on the sidelines on many other occasions. Throughout those dealings, I have seen all his experience and qualities being brought to bear. I just want to say that to me, as a Minister, he has been kind and wise, and I will miss him enormously.
To move on to my Third Reading speech, the economy is fundamentally strong, and with this Finance Bill we are taking yet another step forward in building a stronger economy and a healthier society. As we have discussed, the Bill is proceeding on the basis of consensus. A number of key policy changes to the tax system, such as measures to tackle tax avoidance, are not being proceeded with now, but will be brought forward in a Finance Bill at the first opportunity after the election.
Even in its shortened form, the Bill takes action in three areas that have been consistent priorities for us in making changes to the tax system. First, the measures in this Bill take further action to reduce the deficit and secure the nation’s public finances, and the Bill raises much-needed revenue to fund the public services we all value. Secondly, the Bill takes the next steps to achieve this Government’s aim of a fairer and more sustainable tax system. It makes it clear that the tax system must keep pace with the different ways in which people choose to work, and ensure fair treatment between individuals. It also demonstrates our continued commitment to tackling tax avoidance and evasion to level the playing field for the honest majority of businesses and individuals who pay the tax they owe. Finally—this cause is particularly close to my heart, as a former Minister for Public Health—the Bill marks an important step in tackling childhood obesity by legislating for the soft drinks industry levy. As I noted earlier, we have achieved a great deal of cross-party consensus on the levy, which will help to deliver a brighter and healthier future for our children. I am delighted that we will be able to put it on the statute book.
In conclusion, this Finance Bill supports our commitment to a fair and sustainable tax system, one that offers support for our critical public services and will get the country back to living within its means. In that regard, it sits with this Government’s long-term commitment to improving the strength of our economy, and I commend it to the House.
Madam Deputy Speaker (Mrs Eleanor Laing)
Before I call the Opposition spokesman, may I echo on behalf of the whole House the Minister’s kind words about the right hon. Members for Oxford East (Mr Smith) and for Chichester (Mr Tyrie)? We extend those kind words to all other hon. Members who are present this afternoon, who have taken part in the debates on this Bill and many similar Bills assiduously and brilliantly on behalf of their constituents, and who will not be here during the next Parliament. The whole House wishes them all very well indeed.
Peter Dowd
I absolutely concur with the comments that you have just made, Madam Deputy Speaker, and that the Minister made about my right hon. Friend the Member for Oxford East (Mr Smith) and the right hon. Member for Chichester (Mr Tyrie). May I comment on my hon. Friend the Member for Wolverhampton South West (Rob Marris), who is also leaving the House? It seems to me that some people have got time off for good behaviour.
May I just make a point about my hon. Friend the Member for Ealing North (Stephen Pound) and the Perivale scout group? He was very concerned about the insurance premium tax. I do not think he won on that point, but he has won on the sugar tax, which will save the teeth of the scout group. Good news for teeth; bad news for dentists, I suspect.
I alluded earlier to the fact that, as far as I could gather, this was the longest Finance Bill to be presented to the House. It had 135 clauses and 792 pages. It had clauses on pensions advice, overseas pensions, personal portfolio bonds, an employee shareholding scheme, an insurance premium tax, air passenger duty, duties in general, fraudulent evasion, digital reporting, data gathering and search powers, as well as umpteen schedules. Of course, each of the clauses and schedules has had some degree of scrutiny, but not necessarily the amount we would like, because the general election has rather unhelpfully intervened in our deliberations. But, as they say, that’s democracy. Scrutiny is the fundamental role of Parliament, so when we do not have enough time for that role, we need to ensure that measures are not simply pushed through willy-nilly. I do not think that they have been in this regard.
We must always have a balance between raising tax and the dampening effect that that can have on business and society. That can be a difficult balance to draw and I think it has been drawn pretty well today.
I have referred previously to the need to raise our game in relation to productivity in the economy. Higher productivity is a driver of economic growth. Whatever our position, I hope that, to some degree, the Bill will help to push up productivity growth.
On the soft drinks levy, to which the Minister referred, the primary school PE and sport premium will go up from £160 million to £320 million annually, there will be an extra £10 million for breakfast clubs and, of course, 57% of the public support the levy. The Obesity Health Alliance found that the levy could potentially save up to 144,000 adults and children from obesity; prevent 19,000 cases of type 2 diabetes; and avoid, as I alluded to, 270,000 decayed teeth. I welcome the Minister’s commitment to the review in a couple of years, based on the advice of Public Health England.
Some measures are no longer in the Bill, some will no doubt come back and we will bring some measures back before the House. We hope that those measures, in one way or another, will be scrutinised.
Kirsty Blackman
Like this one, the debates today have tended to be fairly quiet, with not many of us speaking.
I echo the comments that have been made about the right hon. Members for Chichester (Mr Tyrie) and for Oxford East (Mr Smith) and the hon. Member for Wolverhampton South West (Rob Marris), with whom I had the pleasure of serving on the Finance Bill Committee last year. I was constantly impressed by his incredible knowledge about all the matters we discussed. I will be sorry to see him go from this place.
I have a few matters to raise on Third Reading. We have had a greatly curtailed debate on the Finance (No. 2) Bill this year. Obviously, we will see a new Finance Bill in the next Session, but this Bill has been one of the most bizarre things I have been part of since I was elected. Last Tuesday, we had Second Reading. On Tuesday morning, everything was going to proceed as normal with the Finance Bill. We were going to have two days of Committee of the whole House, something like six Public Bill Committee sittings and two days for Report stage and Third Reading. As it is, it has all been squidged into three hours or so, with the opportunity for it to last for five hours. It has been totally bizarre.
I appreciated receiving the Government’s notification that they would withdraw some things last night, but that was very little notice to allow us to go through all these matters properly and to work out exactly what the Government had and had not decided to proceed with. It has been difficult to operate under these circumstances and to provide the appropriate scrutiny, given the lack of time. The SNP has done its best. We have spoken on every group today and were the only party, other than the Government, to table amendments to the Bill. We have gone out of our way to provide scrutiny.
Before I talk about the provisions of the Bill, I want briefly to mention the way in which the Government tackle budgetary scrutiny, the way in which the Standing Orders are drafted and the way in which this House considers financial matters. In the past, I have raised at length the shortcomings of the estimates process. The Budget process is marginally better, but still not great.
I have mentioned a number of times the “Better Budgets” report. I absolutely back the call by the organisations that wrote that report for the Finance Public Bill Committee to have public hearings. It is really important for this House to do that. I would very much like whatever Government come in after 8 June to change the Standing Orders to allow hearings in the Public Bill Committee stage of the Finance Bill. That would make a really big difference to the level of scrutiny we are able to provide. I have heard the argument that the Treasury Committee hears evidence from members of the public. However, different individuals sit on the Treasury Committee and the Finance Bill Committee. I will keep making this call—the Minister knows that once I start bringing something up, I am not very good at letting it go—until the Government change the Standing Orders. I recognise that they were not put in place by this Government.
On the provisions of the Bill, I welcome the Government’s withdrawal of certain measures. I note the Government’s position on making tax digital, but I welcome their recognition that it is a contentious matter and that it would be better to bring it back following the general election. I welcome the withdrawal of the changes to the dividend threshold. We did not feel we had adequate time to scrutinise those changes and I appreciate the Government taking that measure out of the Bill.
We are less supportive of some matters that have made it to Third Reading. We still feel that the Government can do more on tax evasion. New clause 1 on tax evasion, which we tabled for debate today, asked the Government to look at international comparators and to bring back a full report on all the ways in which international comparators are successful in tackling tax evasion. I get that piecemeal work has been done on this, but a full report would be incredibly helpful for the UK Government to ensure that the right decisions are taken to tackle tax evasion.
We are clear that there is still not enough protection for whistleblowers. We are very indebted to individuals who come forward and we would like to encourage them to continue to do so. Anything the Government can do on that would therefore be welcome.
On self-employment, last year’s Finance Bill made some changes for those employed through intermediaries and this year’s Finance Bill does the same. The Chancellor proposed changes to national insurance, but then rowed back on them. Those, however, are all piecemeal changes. If the Government want to make changes, they need to do them properly by looking at everything that affects the taxation of self-employed individuals. They also need to look at tax credits, so that self-employed individuals are supported through childcare vouchers and so on. Everything needs to be taken in the round, in addition to pension entitlement, holiday entitlement and maternity leave entitlement. A proper tax system needs to be put in place to tax self-employed individuals appropriately and provide them with appropriate benefits to encourage them to aspire and to leave employment—or leave unemployment—to begin their own businesses. The more we do that, and the less we shift the goalposts, the better situation we will be in.
The UK Government could do more to give confidence to the oil and gas industry. I would very much like them to look at changes to the tax regime on small pools. They have said they are committed to backing the maximising economic recovery strategy put in place by Sir Ian Wood. However, they have not followed up on that with enough measures. I do not feel that oil and gas has been given the priority it should be given. Oil and gas is incredibly important to the UK’s economy as a whole, as well as to the economy of Scotland. It supports a huge number of jobs in our communities, even though there has been a massive reduction in the number of those jobs in recent years.
I am not asking for the Government to significantly reduce the rates of tax for oil and gas; I am asking them to look at incentivising investment and to look at those more difficult to reach pools. I am not asking for massive tax giveaways. In fact, incentives for investing in small pools would be a net benefit for the Government—it would not cost them anything. I am not asking for an amazing massive reduction in headline rates of tax; I am asking the Government to listen to companies that are coming forward and asking for small and reasonable changes, some of which will increase, not decrease, the UK Government’s tax take. I therefore ask the Government to consider the amendments we have tabled and the suggestions we are making.
I appreciate the changes—they are long overdue—the UK Government hope to make in relation to late life assets. The sooner the commission can report and the change can be implemented the better. I would really appreciate that coming forward quickly.
Regardless of which Government are elected, we will have a new Budget and a new Finance Bill. We have not seen from this Government in any discussion of finances, nearly a year on from the Brexit referendum, an acceptance of the effects Brexit will have on the UK Government’s budget and tax take, on employment levels, on our constituents’ jobs, on what businesses will come in and on the level of investment that will be coming in. Nearly a year on, we have not seen any recognition of any of that. I hope that in the next Parliament, the new Government will recognise the financial impact of Brexit on household budgets and jobs. I hope we see real changes that take into account the effects of Brexit.
Rob Marris (Wolverhampton South West) (Lab)
During the coalition Government, fiscal policy was unnecessarily tight and our constituents paid the price. After seven years, we have moved to a position where, despite the Prime Minister in her election campaign saying that taxes will be lower under a Conservative Government—she has not actually said lower than what—this year, on projections which of course may or may not come to pass, taxation as a percentage of national income is likely to be at its highest ever level in peacetime. That is not exactly a low-tax Government.
For the Government to try to pretend that they are a low-tax Government is unfortunate during a general election. It also leads to an unfortunate trend on both sides of the House to talk about taxation as if it were an evil in and of itself. Taxation pays for public services, which all our constituents enjoy. I have no problem with taxation that is fair and sustainable—the Minister talked about that—and if we clamp down on tax avoidance. I only wish that the outgoing Government and the incoming Government, whoever they are, were more forceful on the public register of beneficial ownership of offshore-held accounts and funds, particularly since about half the amount around the world, as far as we can tell, is held in British overseas territories. The UK therefore has a huge role to play. I salute the role the Conservative Government have thus far played, but there is further to go. I hope that an incoming Labour Government on 9 June will take it a lot further.
I have done seven or eight Finance Bills in my time in this House. As some right hon. and hon. Members know, this will be my final speech to the House, as I am retiring at the general election. I will be putting my feet up in the garden and watching the rest of you work. One has to try, as the right hon. Member for Chichester (Mr Tyrie) always tried—he has rightly been praised in this debate—to be realistic about what is going on. What is going on is that, under the coalition Government and the Conservative Government of the past two years, inequality of income has fallen—that is true on the Gini coefficient—and unemployment has fallen fantastically. In round terms, employment is up by 2.75 million. That is a fantastic achievement. About one in five of those new jobs is a zero-hours contract and not all zero-hours contracts are decried by those who have them. The proportion of workers who are working part time has hardly changed in seven years. There will be some who are working part time who would prefer to work full time, but many of those who are working part time, including within that 2.75 million, choose to do so and they should have the flexibility to do so.
The achievement on falling unemployment has, however, been bought on a sea of debt. The national debt in the past seven years has gone up by almost 70%. That is an enormous amount in peace time in seven years. The deficit, I have to say to this outgoing Government, is a bit like Gordon Brown’s golden rule—another can that kept getting kicked down the road—that Government borrowing should, on the economic cycle, be balanced. Gordon Brown, as Chancellor and Prime Minister, kept redefining what the economic cycle was to try to make his figures work out.
With this Government and the previous Government, the annual deficit, which is still enormous, is always going to be sorted out in five years’ time. I am not sure how many of my constituents believe that any more, particularly in a year when, I think I am right in saying, the Government of Greece, through measures that every Labour Member and many Government Member would find far too painful, socially disruptive and unacceptable—measures forced on them by the troika and the International Monetary Fund—are due to record a surplus on their current account.
Here we are, in the wealthy United Kingdom, with a Government who are saying, as did their predecessor Government over the preceding five years, “We want to get the deficit down, and we will get it down in five years”—it is always mañana, always another five years—but who, on that measure, are doing far, far worse than the Government of Greece. It is an indictment of seven years of Conservative-led Government. My constituents have had the pain but not the gain. Inequality of wealth, in contradistinction to inequality of income, has increased very markedly in the past seven years. Not only do I find that distasteful as a socialist; as a citizen of the UK, I find it worrying, because if a society becomes too unequal, it carries a severe risk of social fracture.
We see that in the housing market. On current trends, many people will never have affordable housing. Those in the next generation who have it often have it because their parents or grandparents did as well and they have inherited a deposit or house from earlier generations in their family who owned property. That trend will lock in inequality into our society. Both sides of the House profess to decry and wish to address such inequality, but it will be locked in through the housing market because in the past 10 years, in particular, we have not built or created nearly enough housing units in the UK. It will have huge social implications when that trend creates rigid inequality that cannot be overcome, regardless of what we do on schooling, because it is locked in. Does someone inherit or not inherit a down payment on a house? That is very sad for a society in which average earnings—average incomes have risen because pensioner incomes have risen thanks to the triple lock—are still below what they were nine years ago before the crash.
That is not all the fault of the Government, who have taken some good steps, but they have not gone far enough on what they now call the national living wage. They are converts—the Conservative party opposed the minimum wage on principle when we introduced the legislation in 1998—and with the zeal of converts, they have gone a lot further than I and many Labour Members expected in terms of a statutory minimum wage and national living wage, but they still have not gone far enough. That is bad for social cohesion and poverty in this country and bad for economic growth, because in a capitalist society, one way to drive productivity is through higher wages and a substitution of capital for labour. When we substitute capital for labour, very often—not in every case, but overall and very often—we get higher productivity.
We need to do more. The Government have taken some steps, but we on the Labour Benches do not think they have gone nearly far enough, on productivity as it relates to technical training and upskilling the workforce. The Conservatives have come late to that party. We now have the target of 3 million apprentices, which might or might not be met, but if it is met, one fears it will be through redefining as “apprenticeships” courses and training schemes that many of us would not regard as such, to make the figures work—that is always a danger with targets. It is laudable, however, that the Government want to take policies from Labour and increase training, particularly technical training, in our economy, and the Bill will help in that regard.
Over the past seven years—this is not addressed in the Bill—infrastructure spending has been insufficient, but we have also had, and are having, inappropriate infrastructure spending. Unless there is a change of course, as I hope there will be, we will be spending about £60 billion or more on the HS2 railway line, which is a very bad allocation of capital for transport spending. We are also on course to spend—indirect spending through much higher electricity prices, not direct spending by the Government—upwards of £18 billion on the Hinkley Point C nuclear reactor, which is to be built by a bankrupt French company, EDF, which is only still going because it is being bailed out by its state owners, the French Government, and using a design that has never worked anywhere in the world. It is being tried in Finland and Normandy, but those projects are years overdue and massively over-budget, yet it is part of the Government’s approach to infrastructure spending. We on the Labour Benches recognise that the Government have again started to borrow some of our policies, such as the possible cap on domestic energy prices, but they have not gone far enough on infrastructure spending and have lost their way on some of these big projects.
The final issue, mentioned by the hon. Member for Aberdeen North (Kirsty Blackman), is Brexit, which looms over us all and all our constituents but, surprisingly, not over the Bill. Before the referendum last summer, the Treasury was keen to put out projections of what its officials thought would be the consequences of a Brexit vote. It was an entirely appropriate use of its resources by a Government whose official policy was to support the United Kingdom remaining in the EU. We had all those projections, but since 23 June things have gone quiet. I appreciate that the UK, in round terms, is still 100 weeks away from leaving the EU, which makes it more difficult to come up with projections of what is likely to happen with our economy—partly because we do not know what the Brexit package will be—but there are some signs of concern in the markets about Brexit that I do not think are adequately reflected in the financial measures proposed by the outgoing Government, including the measures in the Bill. If the Government are re-elected—in my view, that would be unfortunate—they will have to get their act together and be a bit more public about where they see the economy going with Brexit.
As I said, I appreciate that that cannot easily be done given that we do not know what the final package will look like or whether it will be a hard Brexit with no package at all, but to reassure the markets and—just as importantly—our constituents, whichever side of referendum they might have been on, the Government of the day, from 9 June, will have to be rather more open about the direction of travel and what they are doing to be proactive, rather than reactive, to the process of Brexit and its effect on the economy. That will be the case whatever the Government’s colour, because without that greater clarity the markets will be more concerned and more spooked, and our constituents will be more concerned and more worried, than they need to be. Of course nobody has a crystal ball, but it would help us all to have a few more projections than we hitherto have had.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Finance (No. 2) Bill
Wednesday 26th April 2017
(6 years, 11 months ago)
Lords ChamberRead Full debate Finance Act 2017 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 25 April 2017 - (25 Apr 2017)
The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)
My Lords, this Government have long demonstrated that we can deliver a stronger, more secure economy. The economy continues to grow robustly, employment is at a record high and the deficit has been brought down by almost two-thirds. Following discussions, the Bill before us is shorter than on its introduction in the other place. None the less, the changes it will make take significant steps in helping to create a fairer and more sustainable tax system.
Following the parliamentary vote on the general election, the Finance Bill is proceeding on the basis of consensus. At the request of the Opposition, the Bill has been amended to take out a number of measures originally included. There has been no policy change. The provisions before the House will make a significant contribution to the public finances and the Government will legislate for the remaining provisions at the earliest opportunity at the start of the new Parliament. These include: corporation tax restrictions on interest expense and on loss relief; the reduction in the dividends allowance; changes to the tax treatment of the non-domiciled; anti-avoidance changes, such as the new penalty for enablers of tax avoidance; and the primary legislation for the Making Tax Digital programme. The Government remain committed to the digital future of the tax system, a principle which has been widely accepted in extensive consultation. I want, in passing, to acknowledge the work that the Economic Affairs Finance Bill Sub-Committee has done on the tax administration aspects of the programme. The Government have decided to pursue this measure in a Finance Bill in the next Parliament, in the light of the restrictions on time which now apply.
I now turn briefly to the main provisions included in the Bill before us. The UK has one of the highest rates of obesity among developed countries. Soft drinks are a major source of sugar in children’s diets. Obesity drives disease and it costs our economy. The NHS incurs direct costs of over £6 billion each year from treating ill health related to obesity. The Bill legislates for a soft drinks industry levy to encourage producers to reduce added sugar in their drinks. I am pleased that this change has gathered a wide degree of support here and elsewhere. I am even more pleased that the levy is already working, with Tesco—once my employer, so that is good to hear—and the manufacturers of Lucozade, Ribena and Irn-Bru among those already committing to reformulate their drinks and reduce added sugar. That is good news for our children’s health and, although revenues will be lower, we will maintain the full £1 billion funding committed to the Department for Education to give children a better and healthier future.
There has been debate as to whether the levy should go further and, in particular, whether it should apply to milk-based drinks. Milk and milk products are a source of calcium and other nutrients. One in five teenage girls do not get enough calcium in their diet, and the same is true for one in 10 teenage boys. However, we want milk-based drinks to contain less added sugar, so Public Health England will challenge and support producers to reduce added sugar content by 20% by 2020, and will publish a detailed assessment of progress in that year. Yesterday, in the other place, my honourable friend the Financial Secretary, Jane Ellison, committed to review the exclusion for milk-based drinks in 2020, based on the evidence from Public Health England’s assessment of producers’ progress against their sugar reduction targets. I am happy to reaffirm that today.
The Finance Bill also legislates for increases in duty rates as announced in the Spring Budget and that took effect shortly afterwards. These increase tobacco duty rates by 2% above RPI inflation for all tobacco products, which also makes an important contribution to the Government’s wider health agenda to reduce smoking prevalence. A minimum excise tax on cigarettes ensures that the cheapest cigarettes will pay a minimum level of duty, making it less profitable to sell cigarette packs below this level. Alcohol duties will be uprated in line with RPI inflation, while producers will continue to benefit from the effect of freezes and reductions in recent years.
The Finance Bill makes an important contribution to securing the nation’s public finances, reducing the deficit while allowing the Government to support our critical public services. For that reason, we announced in the Autumn Statement an increase in the rate of insurance premium tax from 10% to 12%. The Bill provides for this increase, which will take effect from 1 June and is expected to contribute over £800 million annually to the public finances.
Turning now to personal tax, the tax system needs to keep pace with the different ways in which people are working. As the Chancellor set out in both the Autumn Statement and in the Spring Budget, the public finances face a growing risk from the cost of incorporations. Indeed, the Government estimate that by 2021-22 the cost to the Exchequer from people choosing to work through a company will be over £6 billion. Part of this arises from people choosing to work through their own personal services company who would otherwise be classed as employees. The off-payroll working rules, also known as IR35, are designed to ensure that, where individuals work in a similar way to employees, they pay broadly the same taxes. However, non-compliance is high, costing an estimated £700 million each year. The Finance Bill therefore addresses this by transferring the liability for compliance with the rules in the public sector to the body for which the individual is working. We expect it to improve compliance significantly, raising revenue, while simply ensuring that the correct amount of tax is paid under the existing rules.
Finally, while some changes to address tax avoidance and evasion originally included in the Bill have been omitted and will be legislated for at the next available opportunity, the Bill includes a number of changes that advance the Government’s aims in this area. This Government are committed to tackling tax avoidance and evasion at all levels in order to ensure that everyone, no matter who they are, pays the right amount of tax at the right time. Since 2010, we have invested more than £1.8 billion in HMRC to tackle evasion, avoidance and non-compliance, helping to secure more than £140 billion in additional tax revenues. This includes more than £45 billion from large businesses and more than £2.5 billion from the very wealthiest. The UK also has one of the lowest tax gaps in the world, and the Government have announced more than 35 policies in this Parliament which are forecast to raise more than £18.5 billion by 2021-22. The Finance Bill extends that record by making changes to ensure that those who promote tax avoidance schemes cannot circumvent the rules by reorganising their business while continuing to use high-risk tactics in promoting avoidance schemes. It tackles abuse of the VAT relief for adapted motor vehicles and introduces a new charge on loans from disguised remuneration schemes that have allowed beneficiaries to avoid paying the tax that should have been due on their employment. The Government’s record on tackling avoidance and evasion and making sure that tax is paid fairly is one of which I am proud.
So to conclude, this Finance Bill supports our commitment to a fair and sustainable tax system, one that can support our critical public services and gets the country back to living within its means. I beg to move.
Lord Haskel (Lab)
My Lords, I cannot remember speaking in such a select debate. It may be that other noble Lords were deterred by the 762 pages of the original Finance Bill, which I think made it probably the largest Bill ever. Fortunately it was cut down yesterday and it is hard to know what is left, so I thank the noble Baroness for telling us.
We debated the Budget Statement on 14 March, and since then we have learned two important things. First, Brexit is going to be a lot more difficult than we thought, and secondly, we are going to have an election. The election means that the social aspects of the Finance Bill have to take priority. It is a Bill that, as well as trying to grow the economic pie, has to be accompanied by the politics that divide it up fairly. Does that happen with what is left here? I do not think so.
From what the Minister has said, the Bill avoids some awkward choices on things such as social care and national insurance for the self-employed. Indeed, since our debate last month, we have had more proof that the proliferation of low-paid and insecure work is strongly aided by the way the Government are still allowing companies to differentiate between people who work off a digital platform and those who work off a bricks-and-mortar platform. We now also know more about how this contributes to the lack of investment in raising productivity. In his Budget speech, the Chancellor called this our “number one priority”. Yes, the number of people in work is rising, but the disappointing growth in productivity continues. This indicates that much more attention should be paid in a Budget such as this one to the quality of jobs and whether they enable people to achieve an acceptable and rising standard of living. This is the social necessity that needs to be incorporated into the Bill, but it misses an opportunity to put that right.
We now know even better that the Bill’s indecision on adult social care is putting more of a burden on NHS finances. This Finance Bill is a lost opportunity to take the tough decisions on where public care ends and private care begins—an opportunity, perhaps, to introduce an insurance scheme whereby we all pay in and those who do not need care help to fund those who do. This is what would take pressure off NHS finances. This is a solution for those who are still at work, but for people who need care now, perhaps the Bill should have introduced some kind of loan scheme that would be repayable on death, but it is silent on that.
Since 14 March, when we last debated this, we have had further proof that the growth in the economy is not fuelled by investment, but by consumption—consumption with diminishing investment. That investment has been financed by borrowing. This private debt is approaching record levels. We all know that the housing market is being fuelled by the thin margins that brought Northern Rock down, yet the Bill still encourages this reckless lending. As long as this private debt remains there will be stagnation in growth and productivity. It is a pity that the Bill did not take up the opportunity to do something about this.
Since the Budget Statement, we now know that Brexit will cost us a lot more than we thought. The House of Commons Library tells us that up to 19,000 EU rules and regulations may have to be put on the statute book. EU statistics speak of 12,000. The CBI tells us that to avoid a race to the bottom we will have to create domestic versions of 34 regulatory organisations. The head of the Civil Service tells us that Brexit entails more than 1,000 new rules. Indeed, the Institute for Government speaks of 15 new Bills before we even exit. This is a tremendous undertaking.
Does this Finance Bill provide for the people and resources necessary? The National Audit Office tells us that over the last 10 years there has been a 26% reduction in the number of civil servants. It also tells us that Whitehall alone would need to recruit some 2,000 staff in digital roles. Perhaps the new Government will have to take note of the American system, whereby IT experts do a tour of duty with the Government as a kind of patriotic contribution. Yes, the Government speak of seconding people and hiring consultants, but we all know the limitations of this and how inefficient it is. The Minister will know this from her business experience. She will know that the real cost is the reduced efficiency and slower progress elsewhere in the departments from which these people are seconded. Maybe this is already happening. It was reported that because departments are short of staff, many—some say hundreds—of government contracts with the private sector which expire are being automatically extended instead of using the opportunity to find better ways of carrying out the services and reducing the costs. So much for raising productivity, our “number one priority”.
This Bill still speaks of apprenticeship schemes, funding them and how high standards will be maintained. That is great, yet a committee in the other place recently said that, to ensure these high standards, apprenticeships should not start until there is a clear way of measuring and ensuring these standards. In their response to that, the Government have said, “Yes, this could be a problem”. Is this because people were seconded from the Department for Education to the department for Brexit? If we are trying to reverse our dependency on immigration and rely more on the skills of our own people, we will have to do a lot better than that.
Since the election was announced, we all seem to agree on one thing: the mark of a civilised society is good public services and welfare funded by taxation. The Minister told us about taxation in the shortened Bill, but what a pity it was not reflected that, especially since our debate, we have learned that our economic prospects are less rosy and that spending cuts will make it even more difficult for many people. The Minister outlined the tax changes but not how we could civilise our society even more, perhaps by broadening the tax base with heavier taxes on activities that damage the environment, extending VAT to financial services, revaluing residential property, or fairly taxing inherited wealth. All this could go towards achieving the civilised society we seem to agree we want.
If the purpose of the Bill is to raise our standard of living and public services through economic and social growth working together, from what the Minister said it will need a lot more work by a new Government to achieve that. Perhaps another 762-page Bill is needed from the next Government.
Lord Kerr of Kinlochard (CB)
My Lords, I rise briefly in the gap to congratulate the Minister on her magisterial exegesis of what is still 148 pages and a dozen schedules. However, her reference to the plan to proceed—in due course after the election if returned—with the proposals for making tax digital slightly worries me.
I think everybody would agree that making tax digital for business is a good idea. However, both the Treasury Committee in the other place under the leadership of the admirable Mr Tyrie and your Lordships’ Economic Affairs Committee under the leadership of the admirable noble Lord, Lord Hollick, made rather serious criticisms of some of the details of the proposals. They are very big proposals. If the 780 pages were in front of us today, we would be debating a proposal that 2.5 million self-employed people, 1.5 million companies and 1 million landlords, even if their annual turnover was as low as £10,000, should be required to go online and make their tax returns quarterly—every three months—not annually. That would be for all these companies, including very small ones.
Both committees support the principle but your Lordships’ committee recommended that this should be phased in and made optional for small companies and the Treasury Committee in the other place proposed that the threshold should be raised to be in line with that for VAT. That seems reasonable to me. I hope that, back in the Treasury and in the Revenue, people will not be idle in the next few weeks and months, and will take careful account of the reports from the two committees. Both support the principle that the Government propose to follow but find serious fault with some of the details of implementation and particularly phasing.
Lord Davies of Oldham (Lab)
My Lords, I, too, thank the Minister for describing so fully the remaining sections of the Finance Bill to be considered today. We all recognise the constraint in terms of the general election’s imminence. She will anticipate that, as what is before us is an agreed position in the famous wash-up procedure, I am unlikely to add too much controversy to this debate. Well, we shall see. I appreciate the fact that she explained accurately what is in the measures. Of course, I have no debate with the measures at present.
I very much appreciate the contribution by my noble friend Lord Haskel. As ever, he has the ability both to identify the minutiae of a problem and to draw some general principles from it. It is a facility I wish I had to the same degree because it is important in economic debates that we understand the full implications of what is going on with discrete pieces of legislation.
I am also grateful to the noble Lord, Lord Kerr, who took from me the responsibility of analysing in particular the problems with regard to the controversial digital tax proposals. These are controversial, of course, because quite clearly a lot of people considered that their interests had not been taken sufficiently—if at all—into account. Both the committees to which the noble Lord referred indicated their views that the Government had made a pretty poor show of this.
In principle, we are in favour of the digitalisation of the taxation system but, pursued under a Labour Government, it will be after due consideration of the needs of business, particularly the categories to which the noble Lord, Lord Kerr, referred: businesses with limited resources being put under very substantial demands indeed. Meanwhile, of course, the Government have to wrestle with the fact that the intended taxation is not necessarily coming in at the rate they would have wished.
The Government have not been too lucky with Budgets in recent years. We all recall the rather embarrassing business of the pasty tax. We recall that the tax credit cuts were reversed by wiser counsel in this House. We remember the cuts to personal independence payments, which the Government had to rethink. Of course, we remember that in his Budget the Chancellor introduced a national insurance contribution proposal that turned out to be something of a fiasco. All the key features of recent Budget proposals have had more than their fair share of difficulty, to the extent that one can wonder whether one can trust a Conservative Chancellor these days to get the fundamentals of the Budget right.
It is the job of the Opposition to point out when the Government have got things wrong and we will continue to pursue that role, even under the constraints of this Bill. We are now considering a gutted Bill left with those parts which both the Government and Opposition agreed should become law.
Of course, the Government tend to avoid tough choices while at the same time pursuing tax cuts for the multinationals and the super-rich, to be paid for by the mass of our people, who have rather more limited resources. So we take it with more than a pinch of salt when the Government put their proposals before us and suggest that they have some concept of fairness.
The Government fail to realise the need for additional fiscal resources, even when the NHS is in crisis. There is not a person in this country who is not aware of the current privations of the National Health Service. The one that is often cited is that the NHS has been obliged to jettison its target of dealing with people requiring hip or knee operations within an 18-week period. This is evidence of the considerable difficulties that the health service is in, and it is not at all clear that the Government have shown the political will to resolve the issue.
Of course, the health service has also been acting as a proxy for the problems of the social care service. Hard-pressed local authorities have not been able to sustain their share of the resources in social care. The fundamental responsibility for this crisis in two absolutely critical public services rests with the Government, and there is nothing in this Bill which indicates that the Government are prepared to face up to these issues effectively.
The Government’s fiscal policy shows a ruinous performance on the public finances, as their target period for clearing the deficit has now been surpassed. It has gone from five years originally on to a further five years. It is now suggested that it will be a further seven years before the Chancellor can see his way to hitting the target, which between 2010 and 2015 dominated the then Chancellor’s objectives. There was never really a recognition of the extent to which failure was enjoined in that period.
The weakness is not helped by cuts in HMRC staffing. In 2011, when I first addressed this issue in the House, I could not understand how the Government could be serious about indicating that they wanted to improve their taxation collection capacities—they had that as a major issue on the agenda—while pursuing their clear ideological objective of reducing the size of the state. The HMRC began to suffer its significant cuts at that time. How can a Government be so committed to a philosophy that they cannot recognise that cutting the efficiency of a government department, which does not just pay for itself but brings in huge resources far in excess of the cost of that department, is surely a nonsensical position to take up? But of course the Government did not accept that argument in 2011 and are not accepting it in 2017. I have not the slightest doubt that if they were to continue in power, they would not accept the argument beyond 2017—but of course the electorate might have some say in that.
This weakness is not helped by the fact that over this period, the Government have misdirected their taxation targets in any case. The work of cutting staff resources in these terms is just emblematic of the fact that the Government are prepared to reduce their services, even when it is quite clear that the costs borne by the community are very significant. That is true not just in our health service and in social care but certainly in education. How can the Government waste resources on private schools when the state school system as a whole is crying out? The obvious fact is that every school is facing a reduction in the resources available to it.
The Government have a lot to answer to. They have at times paid lip service to one important feature of improving the economy: improvement in productivity. I well remember, and I welcomed, the appointment of a Minister who specialised in productivity and I regretted his departure after a very short time—too short for him to make any real impact on the issue. From what I can see, the Government have largely given up on this matter. They talk about certain areas in which there will be expenditure for contribution but the simple fact is that under their period in office since 2010, we have slipped crucially against the G7 criteria of productivity. We now have the largest gap since 1991 with the G7. How do the Government expect us to be successful in our trade negotiations with other countries if our productivity stays so low that our comparative costs are high, and we are not in a sufficiently competitive position with other countries?
This would be bad enough if we were in a relatively steady state, but of course Brexit has occasioned a complete convulsion in the country’s prospects with regard to international trade and earnings. That means that the Government are going into this election with a great question mark over whether they have the will and the capacity to tackle the fundamental issues of our economy that ought to have been addressed long since.
This Budget is consistent with the performance of the Government since the Conservative Party became the dominant force in politics in 2010. There has been a conspicuous failure to hit economic and fiscal targets, backed up by taxation and social strategies which on the whole reward those who are already well off and hit the average working family and those on lower incomes hardest. So much for fairness. What we are actually seeing is the ever-growing inequality in our society which is prompting a response which the Government will have to reckon with in the very near future.
As my noble friend Lord Haskel pointed out, the Government’s greatest failure is on growth. We have hit very low levels of growth ever since they have been in office. There has been a slight improvement in the past 18 months, but all forecasts show that within two to three years even those low growth levels will begin to subside. The Government cannot expect the country to be able to afford all that the public need in terms of personal resources and public provision if we cannot get growth in our economy.
I was grateful to my noble friend Lord Haskel and the noble Lord, Lord Kerr, for embellishing this debate with degrees of precision in areas on which the Minister should respond. Although she may think that, because I am trammelled to a degree by the fact that there is an agreement about the provisions in the Budget which should go ahead, I hope that at the very least the Minister will feel obliged to respond to their cogent points.
Baroness Neville-Rolfe
My Lords, I thank noble Lords for their valuable contributions to this select debate. In his wide-ranging speech, the noble Lord, Lord Haskel, mentioned the importance of social measures and, as usual, made a number of interesting suggestions, including the point he often rightly makes about the importance of digital. On this occasion he not only referenced the workplace generally but the importance of getting it right in Whitehall.
On care and the NHS, to which he referred and which was also tackled by the noble Lord, Lord Davies of Oldham, we announced at the spring Budget an additional £2 billion for social care. This will help to ease pressures on the NHS by supporting more people to be discharged from hospital and into care as soon as they are ready. We are giving the NHS the funding that it needs. The Five Year Forward View plan asked for annual funding to rise by a minimum of £8 billion above inflation by 2020-21 and for investment to be frontloaded. The Government have delivered what the NHS asked for on both counts: the NHS’s annual funding will increase by £10 billion above inflation by 2020-21 and £6 billion of this £10 billion will be delivered by the end of 2016-17, which is particularly important. I was pleased that to help manage demand on A&E we have committed to provide £100 million of new capital investment in A&E departments because that will help to ensure that patients access the most appropriate care as quickly as possible by improving the space for assessing patients and providing on-site GP facilities. This can help with bed blockers and is a good example of how things can be improved through management and efficiency, which I always regard as extremely important.
The noble Lord, Lord Haskel, talked about business investment and growing consumer debt. The OBR forecast business investment to grow by 15% over the forecast horizon period to 2021 and to rise as a share of GDP. Households’ financial positions are certainly stronger than they were before the financial crisis, and debt interest as a proportion of income is at a record low.
The noble Lord also talked about productivity, a subject that we have often debated here. At the Autumn Statement, we announced £23 billion of extra investment through the national productivity investment fund, and tackling the UK’s productivity challenge is a priority. To respond to the noble Lord, Lord Davies: the Chancellor mentions it often, it has pride of place in the Prime Minister’s industrial strategy consultation and I agree that it is important. The Government are taking targeted action to invest in important things such as innovation, infrastructure and digital, to promote skills, to improve management and—I see my noble friend the Minister for Trade here—to encourage firms to export, which always tends to be associated with strong productivity growth. There is work to do, as has been said, but productivity as measured by output per hour grew by 0.4% in Q3 of 2016 and by 0.4% in Q4 of 2016.
The noble Lord, Lord Haskel, asked about Brexit resourcing. The Treasury is working with all departments to understand the work required to prepare for a successful exit from the EU. Although aggregate spending plans for this review period remain in place, I can assure the noble Lord that the Treasury continues to engage with departments to ensure the right resources are allocated to the right places. I would add that I know from my own experience in dealing with Brexit for financial services that there is very high-quality Civil Service and external support, both in the Treasury and in DExEU.
The noble Lord, Lord Davies, asked about HMRC resourcing. The Government have always ensured that HMRC has the resources it needs. It makes sense to do so, and since 2010 we have invested over £1.8 billion in HMRC, and steps have again been taken to improve its effectiveness and efficiency.
I, too, was grateful to the noble Lord, Lord Kerr of Kinlochard, for joining us in the gap to share his view on making tax digital and for referring to the two recent parliamentary reports on the subject—particularly the one that was done in this House by the Finance Bill Sub-Committee, which I mentioned in my opening remarks. I am always very grateful for the work that is done on Treasury areas in the House. It really helps us to improve policy formation. Although there has been no change of policy, I entirely accept that time is needed for proper debate and scrutiny of the provisions for making tax digital. The Government remain committed to the digital future of the tax system—it was good to hear support for that from the Opposition Benches—and it was of course, in principle, accepted in the extensive consultation we held. But more time is needed for parliamentary scrutiny, and that will be made available at the earliest opportunity in the next Parliament.
I am grateful to noble colleagues for their contributions. We will debate some of the wider issues in the country, when we will demonstrate that we have a programme for a stronger, more secure and more productive economy under a Prime Minister who is also determined to lead a country which works for all people and for all regions.
I have this evening outlined the benefits that the finance Bill, in this form, will bring in advancing our aims for a fair and sustainable tax system. I take this opportunity to thank Treasury officials for their high-quality support on the Bill and for getting it quickly into a state in which it could be considered today. On that basis, I invite the House to give the Bill a second reading.
Royal Assent
Thursday 27th April 2017
(6 years, 11 months ago)
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