(9 years, 10 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
14:00 - The House divided: - Ayes: 241 / Noes: 295 - Question accordingly negatived.
15:47 - The House divided: - Ayes: 247 / Noes: 306 - Question accordingly negatived.
17:48 - The House divided: - Ayes: 301 / Noes: 7 - Question accordingly agreed to.
19:00 - The House divided: - Ayes: 289 / Noes: 228 - Question accordingly agreed to.
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 9—Pension flexibility: Treasury analysis—
‘(1) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons any analysis prepared by the Treasury prior to the publication of Budget 2014 relating to the impact of changes made by sections 39 to 43 of this Act to schedules 28 and 29 to the Finance Act 2004.
(2) The information published under subsection (1) must include—
(a) any assessment made of the impact of the provision for independent face to face guidance on the 2004 Act;
(b) the distributional impact, by income decile of the population, of changes made by sections 39 to 43 of this Act;
(c) a behavioural analysis; and
(d) the financial risk assessment.”
Government new schedule 5—Pension flexibility: further amendments.
Mr Gauke
New clause 13 and new schedule 5 make provision to ensure that individuals who wish to make use of the new pension flexibilities announced by the Government do not face detrimental tax consequences if they take their tax-free lump sum and then defer a decision on how to access the remainder of their pension savings.
On Budget day, the Government announced radical reforms that will enable people with defined contribution pension savings to have more choice and control over their pension wealth from next April. The greater choice and flexibility that these reforms will give pension savers have been widely welcomed. There has been broad consensus that individuals who have been responsible and saved for their future should be trusted to access their pension savings in the way that most suits them.
We announced a consultation on the detail of these longer-term proposals, which has now closed. We will publish a response in the near future, and legislation will be brought forward later this year to implement the necessary changes, but the Government wanted to make sure that people who are approaching retirement now would not miss out. As a first step, we introduced clauses 39 and 40 to ensure that individuals nearing retirement this year can benefit from a wider range of options before next April. We expect that this will enable around an extra 85,000 people to access their pension wealth as a lump sum this tax year. In addition, 400,000 people will have the option of receiving significantly greater withdrawals from their pension savings, but we did not want to stop there.
Usually people lose the advantages of a tax-free lump sum if they do not decide what to do with the rest of their pension savings within six months of taking the lump sum. On 27 March, the Government announced that those who had already taken a tax-free lump sum from their defined contribution pension savings, but had not yet secured their pension, would be given more time to decide what they wished to do with the rest of their retirement savings. We also did not think it would be fair to prevent people from taking their tax-free lump sum now simply because they wished to wait to access their pension savings more flexibly from next April, so the Government promised to introduce new provisions in the Bill to ensure that people do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next.
The provisions are technically quite detailed, but their purpose is not. Full pension flexibility for defined contribution savings will be introduced in April 2015, and until that happens we want people to be able to take their tax-free lump sum and to have until October 2015 to make their pension choices without tax consequences. The changes made in new clause 13 and new schedule 5 will enable people to take a tax-free lump sum and to wait until April 2015 to decide how they want to access their pension savings: by transferring the rest of their pension savings to another pension provider to enable them to access them more flexibly; by repaying the lump sum when the scheme that paid it will accept it in order to access the whole of their savings more flexibly; or by receiving the rest of the pension savings as a lump sum under the higher limits that clause 40 provides. Those changes also ensure that people who have the right to receive a tax-free lump sum at an earlier age, or of a larger amount than is normally allowed, can use the new flexibility and keep those rights.
New clause 13 and new schedule 5 help people who have worked hard to save into a pension, enabling them to take some of those savings tax-free now, and to take advantage of the new flexibilities for the rest of their pension savings.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I understand that the Minister is trying to introduce an element of fairness into the new arrangements while avoiding unintended consequences. Can he give us some assurances about the time scale for the rules being brought in, and tell us whether he has done additional work to ensure that there are no unintended consequences?
Mr Gauke
We have been engaged in a consultation process, which closed recently, and have engaged fully with all interested parties more generally on this policy. I will address some of these points when I respond to new clause 9, but we will respond shortly to the consultation, setting out the details of how the policy will be taken forward. This is an important matter, and it is important that we get things right. There are a number of aspects to it, and new clause 9 takes us into some of those aspects that, although perhaps not relevant to the Finance Bill, are of significance none the less. I can assure the House that there will be plenty of opportunities to debate the details, given that legislation on the subject will be introduced, as the hon. Lady knows full well.
Ian Swales (Redcar) (LD)
The Minister rightly says that on such policy matters, assessments are a normal part of Government practice. Will he confirm that the reviews will take account of any potential future cost to the public purse? For example, what if people have inadequate funds to cover their future care costs, as they have already spent their accumulated pensions, or if they have other recourse to the state because they have inadequate resources later in life?
Mr Gauke
During the assessment of the policy announced in the Budget, we considered all the various issues, including the consequences for the Exchequer in both the short and long term. We will say more about the specific interaction with social care and so on in the near future. I would make the point that the very people restricted by the old regime were the people who, over the course of their working lives, saved responsibly and ended up with a pension sum that demonstrated their prudent approach to saving. It is not unreasonable to believe that the vast majority of those people will continue to act prudently when given greater flexibility. As a matter of philosophy, both parties in the coalition Government share the view that when we can give more power and responsibility to people, we should do so.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
The Minister referred to the Budget and the documents published about this policy, but what was published was merely the estimated tax take for the Treasury. Nothing was published about the behavioural impact, the prospect of mis-selling or the interaction with social care. When I asked the Government via a freedom of information request to reveal the basis on which the policy was made, they refused to do so. Will we get more information as quickly possible about the basis on which the Government reached this policy position? The Minister is right, of course, that annuities need to be reformed, but the question is about the basis on which the policy was made.
Mr Gauke
On the question of social care, let me repeat the point that I just made: we will respond to the consultation in due course and set out our thinking on that point. As for the issue of mis-selling, we made it very clear on Budget day that it was important to have a guidance guarantee in place. We will set out details of how that will work in the near future, as the consultation period closed only relatively recently. It is important that we get that guidance guarantee right. That brings me to new clause 9.
New clause 9 would require the Chancellor to publish any analysis of the impact of changes made by clauses 39 to 43 of the Bill to schedules 28 and 29 of the Finance Act 2004. However, as I said in Committee, only clauses 39 and 40, which increase the amount that can be taken as a tax-free lump sum as a draw-down pension from 27 March 2014, make changes to schedules 28 and 29 of the 2004 Act.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
Before the Minister fully leaves the point about how people might spend the lump sums, one concern that I have had is that people might be tempted to invest in property, for example, which could have the unintended consequence of boosting an already overheating housing market for the next generation. That is still prudent spending from those people’s point of view, but there could be unintended consequences for everyone else. I wonder to what extent that consideration featured in the Government’s thinking.
Mr Gauke
There are two points to make. First, we believe that individuals should be able to make their own choices. Of course, they should be provided with guidance, but essentially a system that relies on the state telling people precisely what their investment portfolio, as it were, should be is too restrictive, and does not perform the role that we should be performing. As for the systemic effect on the housing market, which was, I think, the hon. Lady’s central point, I do not think that our changes will have any such effect. Both the Governor of the Bank of England and the Chancellor of the Exchequer have made it clear that we need to ensure that we do not return to the bad old days and to the unsustainable housing market boom we saw some years ago. There are measures in place to reflect that, and we have the institutions in place to ensure that if there are problems they can be addressed quickly.
Gregg McClymont
I thank the Minister for giving way once again. Opposition Members become concerned—well, I certainly do—when Ministers refer to the state telling people what kind of investment portfolio to have. Most people have never invested in the way that that comment suggests. He is a well-intentioned and good Minister, but I become concerned when we think about investment for the majority of people in those terms. The fact is that on the day of the Budget the Chancellor said that there would be guaranteed advice, but that turned out not to be the case. It is now guidance, which is a very different thing. Unless we get that guidance absolutely right, there is a danger of the kind of mis-selling that Members on both sides will remember from the 1980s. It is crucial that we understand the way in which people tend to make decisions about these kinds of issues.
Mr Gauke
I agree that it is vital that we get the guidance right. I am sure the hon. Gentleman will understand that now is not the occasion for the Government to set out the details of how this will operate, but there will come a point when we will do that. There will be plenty of opportunity for the House to debate those matters. I have no doubt that he is looking forward to that opportunity and will scrutinise our policies on this matter with his customary vigour—[Interruption]—as indeed will the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). While it is very important to get the guidance right, we instinctively support giving people greater flexibility and freedom. Given the tone of the hon. Gentleman’s intervention, I am not sure that he is entirely comfortable with that.
Cathy Jamieson
I understand the point about the timing of the guidance, and I will discuss that in my speech. The Pensions Minister has said:
“Face-to-face, the Chancellor used that phrase, and we will honour that, of course. But if face-to-face means individuals sitting down for an hour with someone every-where in the country, that would be very, very expensive. Face-to-face could involve groups, for example; a lot of the conversation’s generic.”
Some people may have concerns about what is being referred to in terms of guidance. Will the Minister give us some further information at this stage?
Mr Gauke
The hon. Lady, perfectly understandably, is seeking more information at this point. I do not think I am being in any way unreasonable in saying that we will set out the details of this in the near future. We are working very closely with interested parties, whether the industry or consumer groups, to ensure that we get this right. We have set out the broad principles behind our guidance guarantee, and we believe that we can deliver something that provides the protection that all Members want.
James Duddridge (Rochford and Southend East) (Con)
I understand the need for a professional to offer guidance face to face and on a quality end-product. However, may I urge my hon. Friend to consider the use of the internet and technology to collect the basic information? It makes no sense for a qualified financial consultant to take one and a half to two hours to do a basic fact-find that is actually about data collection. It is much more efficient to do that on the internet and use the time spent face to face for guidance right at the end of the process.
Mr Gauke
I am grateful for my hon. Friend’s observation. Without getting too much into the details of what we will announce in due course, it is important to point out that there are various means and methods of delivering guidance and that different people will want different things. We have made it clear that face-to-face guidance will be available for those who want it.
Stewart Hosie (Dundee East) (SNP)
The Minister said that he is discussing this with the industry and other interested parties. I welcome that because, as he will be aware, on the announcement of this plan, the share price of many businesses in the life and pensions field dipped quite sharply with the market discounting what might happen in future. Will he confirm that he is paying attention to ensuring that the life and pensions sector is protected while offering flexibility to people who have saved?
Mr Gauke
The purpose of the reforms is to ensure that there is a savings and pensions environment that is good for those saving for their pension and those claiming on their pension. We believe that the reforms that we have set out will result in greater innovation in this area. We do not think that the purpose of the rules is to protect particular businesses. Nevertheless, the industry has responded well to our proposals. Many see this as an opportunity to improve the culture of saving and have engaged very constructively with the Government. I hope that that addresses the hon. Gentleman’s concerns.
Ian Swales
I recently met representatives of a major financial institution who rightly see the potential for new products following these changes. I am sure that innovative companies will come up with products that meet people’s needs. On advice, will the Minister assure us that the system will be transparent as regards how advisers are rewarded and that we will not get into a situation where overt or covert kick-backs from product providers are the main source of income for those providing the advice?
Mr Gauke
My hon. Friend is trying to draw me into the details of what we will say about how the guidance will operate. It is important that we have a system that is transparent and maintains the confidence of the general public, and that is at the heart of what we are trying to do.
Gregg McClymont
I will not try to draw the Minister into the details. He rightly refers to the instinct to give people more control over their own lives, and that is something we would all agree with. However, I urge him to read the debates involving a Tory Minister in his position in the 1980s who talked about the revolution in personal pensions using language very similar to that used by the Minister and, more exuberantly, by his colleagues about these reforms. He should compare that with what was said in the 1980s, which led to the mis-selling scandals and some of the loss of confidence in pensions. Greater control, yes, but let us also be aware of the lessons of history.
Mr Gauke
I take that point in the spirit in which it was offered. I maintain that it is right that we give people greater control and flexibility. This is about ensuring that individuals are in the best position to make the best decisions for them. Guidance is an important part of that, and, from day one, the Government have been very clear that that was the approach we wanted to take. I suspect that there is, at least at some level, a philosophical difference between Members on either side of the Chamber on this point. I do not think that a Labour Government would have brought forward these reforms, but I welcome any extent to which we can have a consensus.
Mr Campbell
The Minister will be aware that many people are glad that this Government have introduced greater control and flexibility, particularly in pensions. Given that the new individual savings account regime came into force yesterday, will he consider, at a very early stage, introducing flexibility to give people who are saving for their long-term future into retirement—whether through the new ISA or a pension—greater control, particularly as regards spouse-to-spouse transfers?
Mr Gauke
The hon. Gentleman raises an interesting point. Indeed, I have just signed off a parliamentary answer to one of his questions about this. If I recall correctly, I said that these regimes, in essence, work on an individual basis but matters can be kept under review. I will certainly take his comments as a representation for future reform in this area.
The clauses I have been talking about increase the amount that can be taken as a tax-free lump sum and as a drawdown pension from 27 March 2014. In addition, the Government’s new clauses and new schedule make changes to schedule 29. As I have explained before, on Budget day the Government published a tax information impact note entitled “Increasing pension flexibility”, which covered the impact of the changes set out in clauses 39 and 40. That impact note has been updated to reflect the changes made by new clause 13 and new schedule 5.
As I have previously said, the changes made by clauses 39 and 40 are likely to be of particular benefit to individuals with smaller pension wealth, including women. The same applies to the changes that would be made by new clause 13 and new schedule 5. That is set out in the tax information impact note that was published on 27 June.
I have already mentioned that the Government published a consultation, “Freedom and choice in pensions”, on the broader measures announced in the Budget. That document set out the rationale and the relevant analysis behind the Government’s proposals and invited comments on the expected impacts. The consultation will inform the final shape of the Government’s proposals, including the guidance guarantee. The Government will set out further details in their response to this consultation, which will be published shortly.
James Duddridge
I always find terms like “shortly” confusing. Is “shortly” in the next few weeks, in the next the few months or before the next general election? Perhaps, while not giving an exact date, my hon. Friend might hone it down a little finer than the very broad term “shortly.”
Mr Gauke
I used the word “shortly;” I could have said “in due course,” but I hope that my hon. Friend is more encouraged by “shortly.” He will just have to be a little more patient, but I can assure him that it will not be very long before he will be satisfied on those details.
Let me say a brief word about guidance, which I have touched on already. The Government believe that, as people have greater choice over retirement, they will need the right support and guidance to make the choice that is right for them, so we are working to ensure that everyone approaching retirement with a defined-contribution pension can receive impartial, face-to-face guidance on the choices available to them. However, the guidance guarantee is not a tax rule, so I hope that hon. Members will understand that although it is a very important part of the radical reforms that we are introducing from April 2015, it does not form part of the changes being discussed today.
The Government have already published information on the impact of clauses 39 and 40, as well as on new clause 13 and new schedule 5, and have consulted further on their broader proposals. New clause 9 is therefore unnecessary. Whether that is enough to persuade the hon. Member for Kilmarnock and Loudoun not to press her case, I somewhat doubt, and no doubt she will put it very reasonably, but I hope that she considers my response reasonable as well. Whether she considers it reasonable or not, that is my response.
The overall purpose of the changes that the Government are making today is to enable people who had recently taken the tax-free lump sum from their defined-contribution pension savings to use the new flexibility, while remaining in broadly the same tax position. I therefore hope that new clause 13 and new schedule 5 will be added to the Bill, and I request that new clause 9 is not pressed to a vote.
Cathy Jamieson
I want first to put something on the record. Earlier, the hon. Member for Redcar (Ian Swales) suggested that when the Labour Government left office the tax gap was £42 billion, but the most recent HMRC figures show that in 2009-10 it was £32 billion. I think that addresses the point that he raised yesterday with my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood).
To return to issues from today’s debate, as I observed in Committee, the amendment that we moved then and the discussion on it addressed some of the most important clauses in the Bill. The Minister suggested yesterday that I could make the most unreasonable things sound reasonable. I think that today he has done a reasonably good job of putting across the Government’s view. However, I would have to say at the outset that he has not said enough to convince me not to press our amendment—he still has time to say something during the debate—and I will explain why.
As I have said, the reforms provided for in these clauses are very important. Our primary concern in tabling new clause 9 and in pressing it is to ensure that those affected have the information that they need to make an informed choice, because that is very important indeed.
Gregg McClymont
On that point, my hon. Friend, as usual, is making an eloquent, precise case. There is an issue not just around informed choice, but around our ability to predict our own longevity; there are substantial issues. The evidence is that it is very difficult for us to predict our own longevity, both for obvious reasons and in terms of biases inherent in our human nature. Therefore, this is not just about choice—although we think that is important—but about how one makes such decisions on one’s own.
Cathy Jamieson
My hon. Friend makes an extremely important point. My understanding of the research is that, when asked to predict their longevity, people significantly underestimate it and do not always predict long enough into the future, particularly when anticipating their potential care needs or support needs. For understandable reasons, people do not want to think of those things during their earlier years, but increasingly they will have to do so.
I heard the Minister say that some of the issues that have to be dealt with, such as guidance and so on, do not form part of tax law. Of course he is correct on that, but there is an issue about a joined-up approach to government. Already we have concerns—I shall say more if time allows—about how all the Government’s policies on social care and some of the other economic issues that people have to think about will come together. It is important to ensure at every stage that there are no unintended consequences.
As the Minister accepted, we tabled our new clause, as always, in a spirit of being reasonable and sensible. Indeed, I was a wee bit excited when he seemed to suggest that some of the things we might be saying were worthy of further consideration. Of course, my excitement was short-lived, as he then said that he would not accept our new clause.
Quite simply, new clause 9 would require the Treasury, within six months of Royal Assent, to publish and lay before the House any analysis it prepared before the publication of Budget 2014 relating to the impact of the changes made in clauses 39 to 43 and the relevant schedules, and that the information published include any assessment made of the impact of the provisions for independent face-to-face guidance on the Finance Act 2004. That is important, because without it, as my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said in an attempt to elicit information, which has not so far been possible, it will be difficult to scrutinise provisions in a Bill that is to come in due course, shortly, when time permits—whichever one of the time scales so beloved of Ministers is utilised. The new clause also asks that we be provided with information on the distributional impact of the changes by income decile, a behavioural analysis and the financial risk assessment. As our new clause and the points I have made show, our concern about some of the reforms extends to the face-to-face guidance that the Government have committed to providing.
We discussed this issue extensively in Committee. I think Labour Members made a number of valid and reasonable points on the potential pitfalls for savers who have money at their disposal—those who, perhaps for the first time in their life, have a significant pot of money and have to make a decision. Lest anyone suggest that our concern is patronising or that we are somehow not trusting people to decide what to do with, essentially, their own money, let me say that it is important to understand that for many people, having significant pots of money at their disposal will be an entirely new experience at a time in their life when, as we have heard, they may not properly have predicted what resources they are going to need or their own longevity. It is therefore a bit disappointing that the Government have not been able to answer our questions. Looking back over the Hansard report of the Committee stage, I was struck by the amount of time we spent dealing with some of these questions and, unfortunately, not getting the answers from the Government. Some of the responses we got from Government Members were, I would say, misunderstandings if not misrepresentations of our own position, which led us to believe that the Government might simply not want to engage with those issues.
To ensure that the Government are held to account, we have set three tests for the pension reforms. The first is the advice test—ensuring that there is robust advice for people who are providing for their retirement and that measures are in place to deal with mis-selling. In Committee, I and others quoted a number of cases brought to us by financial advisers in our local areas and by constituents in which people had been given so-called advice—often, information provided by unregulated people—and had therefore made wrong choices, which cost them significant sums. We do not want that to happen again.
Gregg McClymont
On the question of guidance, the Pensions Minister’s comments about Lamborghinis were particularly unfortunate. Does my hon. Friend agree that the biggest danger is not that hard-working, sensible people will blow their own money, but that they will take it as cash and not invest it because they have no confidence in the financial services industry, so their money will not be working for them? Is not that as big a danger, if not a greater danger, than the Lamborghini sort of stuff the Pensions Minister raised?
Cathy Jamieson
If I did not know better, I would suspect my hon. Friend of having read my speech. I was just about to come to that very point. The infamous Lamborghini comment might have been made in jest, but that sort of joke is entirely lost on those who have already lost their savings because of poor or insufficient advice. My hon. Friend makes a very valid point indeed about people’s confidence in what they can do with their own resources. To an extent, the Government may have begun to acknowledge the need to expand the range of choices available and ensure that consumers have help to navigate those choices—I think that was the phrase used. That sounds pretty sensible and commendable, but we need to make sure that it actually happens.
The second test we have set is the fairness test—the new system has to be fair to those on low and middle incomes, which means they still should be able to access products that give them the certainty in retirement they want, and the billions we spend in pensions tax relief must not benefit only those at the very top. That is why we have called for restrictions on pensions tax relief for those earning more than £150,000 a year. The third test is the cost test: the Government have to ensure that the policy does not result in extra cost to the state. That point was made earlier, and I think the Minister, to his credit, understands that there is an issue with social care and pensioners having to fall back on means-tested benefits—housing benefit, for example—later in their life if they do not properly or sensibly manage their resources. As yet, however, the Government have not explained how all that will be joined up in policy terms. In our view, if the Government’s pensions reforms fail any of those tests, the negative impact on savers could be considerable.
In Committee, my hon. Friend the Member for Islwyn (Chris Evans) talked about protecting people from the “sharks in the market”. That brings us to the vexed question of guidance. Going back to the Chancellor’s no doubt innocent slip, there is a serious point to be made about definitions. When pressed subsequently, the Chancellor said:
“There is a technical distinction between advice and guidance. The budget document exists, I don’t get up and read it out because it contains all the technical details of the Budget and we publish it at the same moment. The speech needs to also communicate in English so people watching it can understand what is meant.”
I understand that, but as I emphasised strongly in Committee, there is a world of difference between advice and guidance in technical terms and in terms of legality. The Government need to deal with that.
Dr Thérèse Coffey (Suffolk Coastal) (Con)
I am listening carefully and trying to understand. Is the hon. Lady suggesting that the Government should be people’s financial adviser? I am not sure that is what the role of Government should be. I thought the reform was about opening up choices and making sure that people realise what steps they can take, not telling them what direction they should go in.
Cathy Jamieson
It is important that Government use language consistently and do not inadvertently mislead people about what they are going to get, whether it is guidance, advice or information, given face-to-face, over a telephone or through the internet.
The Red Book states:
“from April 2015, all individuals with defined contribution pension pots are offered free and impartial face-to-face guidance at the point of retirement”.
One might consider that a good and positive measure, but it raises some questions—questions that largely accord with the three tests we have set. First, there is a question about cost: the budget for guidance of just £20 million—£10 million each for 2015-16 and 2016-17—gives rise to some concern, as does its including no provision for this year. According to the tax impact and information note, the measures in the Bill will enable up to 400,000 people to draw down their pensions. I note that the Minister referred earlier to an updated tax impact and information note. Perhaps he can tell us whether he has revised any of those sets of numbers. We need to understand why nothing has been put aside for that free and impartial guidance in this financial year.
Gregg McClymont
Before my hon. Friend moves off the important topic of guidance, I am sure she will agree that the context to this is that the median pension pot is much smaller than many hon. Members imagine: it is well below £30,000 a year. Moving from guidance to advice potentially means that a significant proportion of a person’s pension pot is eaten up by the cost of advice. We should all bear that in mind during the debate.
Cathy Jamieson
Once again, my hon. Friend makes an important point and anticipates some of the things I want to mention before bringing my remarks to a close. I understand that in some instances pension pots are relatively small, and we do not want a scenario in which people find that a fairly high percentage of their pension pot must be spent on taking the advice to which he refers.
In that context, I would be particularly interested to know whether the Government have conducted any serious work on how and when savers will invest the money taken out of their pension pots, particularly when those pots are relatively small. Industry analysis from Australia, which has total flexibility at the de-accumulation stage, has found that over half of pension lump sums are spent on homes and cars.
Again, before people get excited and claim that I am somehow suggesting that people should not be in charge of their own money, let me make it clear that there is not necessarily anything wrong with that. For many people it might seem to be the reasonable thing to do. They might wish to pay off a mortgage or debt, buy the car they had not previously been able to afford, or make improvements to their home. Of course they ought to be able to make that choice, but they ought to be able to do so in the knowledge of what they might face in later years.
The potential impact of that change on the wider economy has already been mentioned, particularly in relation to the housing market. For example, what are the implications of people with substantial pension pots deciding to invest in property, particularly in the buy-to-let market? I also think that the Government must look at the impact on household savings ratios, given that the OBR has projected that they will fall from 5% in 2013 to just under 3% at the end of the forecast period. In the midst of any economic recovery that has been driven by consumer savings, any change in the way people choose to invest their savings and the consequent impact on the household savings ratio should be looked at very carefully.
In conclusion, I think that this is a crucial issue for thousands of people across the country. Many people do not think about pensions and long-term savings, and not because they have no interest in them or do not want to save, but because they are trying to manage their expenditure week by week and do not have the opportunity to look at the longer term. Everything we can do to encourage good-quality financial education is important, which is why we must get the guidance and advice absolutely correct. People also need to be confident that the information they get from the industry itself will be tailored and suitable for them.
Gregg McClymont
Perhaps this time I am not anticipating what my hon. Friend is about to say, as I think she is bringing her remarks to a close. It strikes me, having listened to the Government on this issue, that the employer is never mentioned. One arm of the Government is promoting workplace employer pensions, but what is the employer’s role in relation to greater flexibility and choice?
Cathy Jamieson
Once again, my hon. Friend makes a valid and important point. He is correct that I was about to conclude my remarks, so I will resist the temptation to go into great detail on that issue, other than to say—we raised this in Committee—that in some ways there seems to be no joined-up government here, with pensions sometimes seeming to be at odds with other aspects. Rather than all pulling together in the interests of the consumer, there could be tensions, which I think the Government should address.
As I have said, this is a crucial issue for thousands of people. We need to get it right. I am of course aware that there is further legislation coming down the line. However, given that the Minister indicated that at least some of our requests for information are reasonable and relevant to the matter being discussed, I hope that even at this late stage he will agree to our new clause, which we will want to press when the time comes.
James Duddridge
I find this issue rather exciting, although clearly the House does not, given how empty the Chamber is. The pension changes that the Government are bringing forward are absolutely essential and, I think, will transform the marketplace in the long term. However, I am concerned that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), having suffered the Finance Bill in Committee, seems to have spent the intervening time reading the Hansard reports of what we all said. Really, it is too much of a punishment to do that and then have to come back yesterday and today. Thankfully we will have Third Reading later this evening, if all goes well.
On new clause 13, my hon. Friend the Exchequer Secretary talked entirely about defined contribution schemes. When he winds up, perhaps he will update the House on what is happening with defined benefit schemes, or perhaps there are no transitional issues for defined benefit schemes in the new clause. I think it is entirely right to give people plenty of time to look at these issues, because a number of people were not expecting these changes and would not have predicted them, so they will need longer to consider their personal positions. As time goes on, I think that there will be less need for guidance and advice, whether provided by the state or privately, because people now going into defined contribution schemes will know what the options are likely to be when they come out. Indeed, five years from now it will be slightly more predictable. People should look at that years, rather than just a few months, before they retire. Of course, that is not possible immediately, given that these changes have only just come in.
Gregg McClymont
The hon. Gentleman will be aware that the other arm of the Government on this, the Pensions Minister, has developed a whole pensions policy based on the notion that inertia has to be harnessed for the public good, meaning that, as a rule, people are not aware of the complexities of pensions and there therefore needs to be a system in place so that those who do not exercise a choice still get a good outcome. Is the hon. Gentleman really that confident that we will very quickly reach a situation in which there will be informed consumers across the board who can make the kinds of investment decisions to which he is referring?
James Duddridge
I think that the default position will be that an annuity is purchased, rather than a lump sum being withdrawn. I think the hon. Gentleman is saying that that is the more cautious route, but I am concerned that it is not the right route for some people. Taking out a lump sum might make a lot more sense for them. However, it is an additional option. The guidance that the Government are offering is not perfect. In fact, perfect advice, if it is taken forward to a recommendation, is incredibly expensive.
Gregg McClymont
I thank the hon. Gentleman for that thoughtful response. I am not sure that the default position will be that someone is defaulted into an annuity. We need clarity on that as we discuss these clauses. I think that a choice will have to be exercised one way or another, but I might be wrong. Perhaps the Minister will provide clarity on that.
James Duddridge
The Minister, as ever, will provide clarity, and I will ensure that he has plenty of time to do so.
We need to look at these changes in the round and consider other changes being made, particularly the individual savings account legislation that is going through. In the longer term, I think that ISAs and pensions will be linked and that we will move towards the individual retirement accounts we see in America, but working more from the base of an ISA up to a pension, rather than a merging of the two or a dumbing down of pensions.
An earlier intervention referred to spouse-to-spouse transfers on ISAs, which I think are particularly relevant in relation to new clause 13 and defined contribution pensions, because some people will be taking larger sums of money out and investing them directly into an ISA with little awareness that it cannot then be transferred to their spouse. The earlier the Government look at making spouse-to-spouse transfers exempt for inheritance tax, the better, particularly during this early transition period. The Sunday Times and a number of other financial services campaigners are urging the Government to look at the issue of spouse-to-spouse transfer, but I have not heard it mentioned with regard to the release of lump sums and defined contribution lump sums. Through new clause 13 the Government are recognising that there are transitional issues, but the additional transitional issue relating to ISAs has not necessarily been covered.
I welcome the reduction from £20,000 to £12,000, which entrusts individuals to make decisions. Changes to trivial contributions are also very welcome, particularly as people move from employer to employer, building up large numbers of very small pots. It may not make financial sense to merge them, so it may be better to take them out of a pension tax wrapper and independently move them to an ISA.
On the issue of guidance, we should be open and honest that the Government cannot afford to provide full-blown advice and recommendation. It is very good of the Government to allocate a significant sum of money to pointing people in the right direction. If the average pot is £30,000, as we have heard, the thousands of pounds that full-blown advice and recommendation may cost would be totally disproportionate to the potential benefit.
It is good to get guidance, but I would exercise caution about what is best: face-to-face guidance is not always the best option. If I wanted to transfer money or enact a financial transaction, I would not want to sit down face to face with my bank manager. I would much prefer the tried and tested method of interacting with and getting advice and guidance through the internet, at least at an early stage. I would not want the Government spending all the money on face-to-face guidance. Guidance on the internet may well be better for an increasing number of people, including a mini fact find into which they put their basic information.
The change may be from face-to-face to face-to-faces. Financial services presentations can work face to face, but they can also work over the internet. Once people have completed an initial fact find or an overview of their financial position—they may want to use their lump sum to repay debt, for instance—they could be diverted to an individual webcast with the relevant financial guidance.
Gregg McClymont
I thank the hon. Gentleman, who is speaking from his experience of the sector, for giving way again. Would he care to comment on why the existing annuities market was not working? My understanding of the analysis is that the default position of individuals was simply to accept what they were offered and not to get involved in the type of process to which he refers. If that means that the annuities market was a failure because people were not getting value for money as a result of not shopping around, what confidence does he have that there will be an overnight revolution in people’s engagement with the type of guidance he suggests?
James Duddridge
The annuities market was not working effectively in a number of ways, but, in relation to the lump sum, it did not work for a lot of our constituents if they rationally expected a very low life expectancy. If they had been diagnosed with a particular illness, the question of what would happen to their money would cause them great stress. It is important, therefore, to enable them to release some of that pension money and put it into another instrument so that their family can share it or, indeed, so that they can enjoy it themselves in their final years. I understand there is a risk of people under-predicting their longevity, but the large number of people with a diagnosed illness would like to access that pot. That is a slightly extreme position, but it is at the other end of the scale.
Dr Whiteford
The hon. Gentleman is making a very good point about encouraging people to shop around, but is he aware that many parts of these islands do not have very good internet access, so putting all the eggs in that basket will not help many people who want pensions advice?
James Duddridge
I agree that we should not put all the eggs in one basket, but we certainly should not put none in the internet basket. It is a very useful provision and, as public and domestic access to broadband improves throughout the islands, I think that use of the internet will speed things up.
I find it odd that so much of our discussion about this Finance Bill, which is a Treasury matter, has been about pensions Bills. The hon. Member for Kilmarnock and Loudoun has prayed in aid the Pensions Minister’s submission to the Department for Work and Pensions. I wonder whether we conduct our debates on Finance Bills in the right way, structurally speaking, and whether other departmental Ministers should be involved, where relevant, alongside Treasury Ministers. Fundamentally, the report supported by Opposition Members almost amounts to a fundamental review of a number of issues in the pensions industry, which is clearly in the remit of the DWP, not the Treasury. I am not arguing that it is wrong or right; it is just that not all the key players are involved.
Dame Anne Begg (Aberdeen South) (Lab)
I have some sympathy with what the hon. Gentleman is saying about the fact that these pensions provisions are being handled by the Treasury. Does he agree that the two pensions Bills announced in the Queen’s speech appear to pull in different directions? One is about giving people more control over their money, while the other is about collective direct contribution schemes, which are the opposite of that. That could lead to a conflict, because two Departments are involved in developing the policy.
James Duddridge
I do not believe they are contradictory, because some people want to hand over that level of responsibility.
I know that other Members want to speak. I wanted to make a number of other points, but I will sit down and leave it at that in order to give the Minister a chance to respond.
Mr Gauke
Let me quickly try to address some of the points that have been raised, many of which related to guidance. As I said earlier, the issue features in Labour’s new clause 9, but it is not directly related to the Finance Bill. I will be as helpful as I can. On the question of whether guidance will only be face to face, the face-to-face offer will be available to those who need and want it. However, that is not to say that it will be the exclusive delivery channel. Not everyone will want face-to-face guidance, as my hon. Friend the Member for Rochford and Southend East (James Duddridge) has made clear. For many people, both now and in the future, other channels will better suit their needs. We are currently considering the appropriate range of options for delivery channels, to ensure that consumer needs are properly understood and met, building on the views and evidence received during the consultation. We have asked the Financial Conduct Authority, working closely with the Pensions Regulator, the Pensions Advisory Service, the Money Advice Service and consumer groups, to co-ordinate a set of clear and robust standards that the guidance will have to meet.
The point was made about costs and, in particular, the £20 million funding. It is important to realise that that is a development fund for the purpose of getting the initiative up and running; it is not to pay for the ongoing costs of the scheme. We will talk more about that later.
Sheila Gilmore (Edinburgh East) (Lab)
Does not that illustrate the need for gathering and publishing the information, as proposed by our new clause 9? We are constantly hearing new things, such as, “There will be more costs for guidance, but we don’t know what they are or what will happen.” If the information is going to be gathered anyway, as the Exchequer Secretary constantly assures us, why not publish it to make sure we get this right?
Mr Gauke
I do not know whether the hon. Lady was present earlier—[Interruption.] I am pleased that she was. She will have heard me say that we have consulted on this matter and will respond shortly. If I may provide a little more clarity, that will happen before the summer recess, so it is at that point that we will set out our proposals and, obviously, there will be an opportunity over the months ahead for the House to give them considerable scrutiny.
To address the particular point made by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) about whether the numbers in the tax information and impact note have been changed, the answer is no. The TIIN has been amended to take account of the Government new clause and new schedule, but the impacts remain the same, so there is no fiscal cost. I hope that that clarification is helpful.
Lastly, to be clear about the guidance—we will get the full details on it—as we have said throughout, it will be impartial and will not include recommendations for specific products or providers. It will not be a sales process; it is important that the sales process is separate.
I hope that that information is helpful to the House. I hope that new clause 13 can be added to the Bill, and I advise my hon. Friends to oppose the Opposition’s new clause 9.
Question put and agreed to.
New clause 13 accordingly read a Second time, and added to the Bill.
“transitional 2013/14 lump sum | paragraph 11A of Schedule 29”. |
Catherine McKinnell (Newcastle upon Tyne North) (Lab)
I beg to move, That the clause be read a Second time.
New clause 10 takes us back to 2010 and the heady first few months of this Government. It takes us back to a time when the coalition, having inherited a growing economy from the Labour Government, choked that recovery off by adopting an anti-growth, short-termist, short-sighted approach to supporting business and jobs. As hon. Members will be aware, one of the Chancellor’s first moves in government was to announce in the June 2010 Budget that he was cutting Labour’s annual investment allowance. The new clause asks the Government to undertake a proper review of the impact on business investment of that terrible decision. We need to learn the lessons from that dreadful mistake.
Before we consider the new clause in more detail I want to remind hon. Members of the background to this important issue. The annual investment allowance was announced as part of the 2007 Budget by the former Chancellor of the Exchequer, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown). It was introduced as part of a package of reforms to enhance Britain’s international competitiveness, encourage investment and promote innovation and growth. The new allowance replaced first-year capital allowances and meant that from April 2008, under the Labour Government, businesses were able to offset up to 100% of expenditure on general plant and machinery in any given year against taxable profits, up to a limit of £50,000.
We recognised the value of this important allowance to companies up and down the country in supporting them to invest for the long term, and in helping them to create and safeguard jobs. That is why Labour took the decision to double it as part of a series of measures announced in the March 2010 Budget—in order to
“support start-ups and small and medium sized enterprises…to position the UK as a leading centre for research and innovation, and to ensure that the UK is equipped with skills for growth and the infrastructure it needs to be successful in a low-carbon economy.”
The March 2010 Red Book stated:
“In order to provide further cash flow support and an incentive to increase business investment, the Government will increase the threshold of the AIA to £100,000 for expenditure incurred from April 2010.”
That announcement was hugely welcome to businesses up and down the country.
Charlie Elphicke (Dover) (Con)
Will the hon. Lady say what the allowance is today—is it £100,000 or has it gone up?
Catherine McKinnell
We are still at 2010; we will get to the present day in due course, but the hon. Gentleman seems to miss the point somewhat. Obviously, the Conservative party would like to airbrush out the unpleasant blip in 2010, when it almost abolished the investment allowance, and all the impacts that flowed from that, which were evident from the fall in business investment. That is the point that our new clause reinforces. The decision taken at that time was terrible. I do not know what the thinking was behind it—whether it had been planned for a long time by the Conservatives while they were in opposition, or whether it was simply a case of spitefully thinking, “It’s a Labour policy, so we will reverse it”—but it had catastrophic implications. As the hon. Gentleman’s question indicates, they had to think again.
Sheila Gilmore
I am sure that my hon. Friend, like me, welcomes the Government’s conversion and the way in which they have changed their policy. However, it is reasonable for us to question why the original decision was taken.
Catherine McKinnell
We can only speculate on what on earth was going through the Chancellor’s mind when he slashed an incentive that was clearly supporting those businesses in the very manufacturing industries that he claims to champion in making long-term investments, and creating and safeguarding the jobs that we need so desperately.
Mr Gauke
This policy was part of a package that included a significant reduction in corporation tax rates, which more than offset any impact on investment from the changes to the annual investment allowance. The Labour party has made it clear that it would increase corporation tax. This week, it has set out its test, which is to have the lowest corporation tax rate in the G7. That would enable a future Labour Government to increase corporation tax to 26%. Will she rule out a Labour Government increasing corporation tax to 26%?
Catherine McKinnell
Once again, Conservative Members, and indeed the Minister, want to brush over this inconvenient part of their so-called plan. They clearly made a bad decision in 2010. The purpose of the new clause is to show that. If the reduction in the annual investment allowance was offset by the reduction in corporation tax, as the Minister argues, why did they revisit the decision and increase the allowance again? That would not have been necessary if their only plan for supporting business up and down the country, which was to reduce corporation tax, had been successful. We supported that plan, but it was not enough on its own to offset the damaging uncertainty created by slashing the annual investment allowance from £100,000 to £25,000 in one fell swoop.
Charlie Elphicke
Will the hon. Lady rule out an increase in corporation tax under the next Labour Government, should one ever be elected—yes or no?
Mr Geoffrey Robinson (Coventry North West) (Lab)
We are not discussing that.
Catherine McKinnell
My hon. Friend makes a fair point: that is not what we are discussing. However, I am interested to know whether the hon. Gentleman will rule out slashing the annual investment allowance with no notice if the Conservatives are re-elected in 2015. Will he confirm that—yes or no?
Charlie Elphicke
I hate to disappoint the hon. Lady, but I am not part of the Government. It is not for me, a Back Bencher, to rule anything in or out. I am proud that the Government have set the annual investment allowance at £250,000 and have massively reduced corporation tax. That is really great for business.
Catherine McKinnell
The hon. Gentleman is obviously not able to rule in or rule out any slashing of the annual investment allowance, but we have had so much chopping and changing that there is major uncertainty over whether the Chancellor and other Conservative Ministers have a sensible approach to investment. It is as though they do not understand that chopping and changing—slashing the annual investment allowance from £100,000 to £25,000 and then increasing it again—is the worst approach if we are trying to encourage business investment in this country. That is the kind of uncertainty that we have seen under this Government. Although the hon. Gentleman cannot rule anything in or out, I am interested to hear whether the Minister will rule out any further chopping or changing on this policy.
Gordon Birtwistle (Burnley) (LD)
I am in favour of capital allowances. I had an engineering company, and we believed that the Government should support successful engineering and manufacturing companies. Does the hon. Lady accept that a capital allowance of £50,000 on its own is not enough to encourage growth in the economy? Under the Labour Government, from 2007 onwards, GDP went down by 7% in the manufacturing sector, and probably by even more in some manufacturing sectors. I accept that we should have capital allowances, but they should be linked to other things. Does she agree with that?
Catherine McKinnell
That is very much the point that I was making and that we have made all along. We had a financial crisis in 2008, and the Labour Government did everything that could be done in those difficult times to support businesses in order to maintain investment levels, safeguard jobs and lay the foundations for the jobs of the future. That is why Labour decided to bring in the investment allowance, and then to double it in the Budget in March 2010. We knew that businesses needed certainty at that difficult time in the economic cycle to make investment decisions. That proved successful.
The U-turn by this Government was not quick enough. We called for it in every Finance Bill. Their eventual U-turn proved that the annual investment allowance was a successful policy, because they recognised that it needed to be reinstated. We have had these debates many times. We have supported the reductions in the corporation tax rate as part of a package of measures to support investment, jobs and growth. Unfortunately, the Government thought that corporation tax rates would do the job on their own. That is why they decided to slash the investment allowance, and to put all their eggs in one basket—the corporation tax basket. We have made it clear that we support a competitive rate within the G7 and the current rate, in order to provide the competitiveness that will create jobs and growth. The hon. Member for Burnley (Gordon Birtwistle) is right that that has to be part of a package of measures.
One key issue that businesses always raise is certainty. In chopping and changing this policy, the Government have undermined the certainty that is needed to give businesses the confidence to invest for the future.
Catherine McKinnell
I will give way again, but I hope that it is in order for the Minister to confirm that the Tory party will rule out any further chopping and changing on the annual investment allowance.
Mr Gauke
Our plans on the annual investment allowance are clear: this is a temporary increase until December 2015. If the hon. Lady disagrees with that and has a different policy, I would be grateful to hear what it is. She talks about certainty. She has repeated the position that her party has taken this week, which is that this country should have the lowest corporation tax rate in the G7. The second lowest corporation tax rate in the G7 is 26.5% in Canada. That would allow a future Labour Government to increase corporation tax not just from 20% to 21%, but up to 26%. Is that the policy of the Labour party?
Madam Deputy Speaker (Dame Dawn Primarolo)
Order. As interesting as some Members might find the debate on corporation tax and the future policy, that is not the subject of the new clause that we are discussing. Although the subject is linked to the question of allowances, it is not the substantive point. I would be grateful if Members addressed their remarks mainly to the new clause. They may use supporting arguments, but they must not allow those supporting arguments to become the only things that are debated.
Catherine McKinnell
Thank you, Madam Deputy Speaker, for your sage guidance. I agree that the Minister appears to be diverting the discussion away from the issue of concern: the Government’s approach to the annual investment allowance, which is the subject of the new clause. It calls for a review of the impact of the Government’s decisions on the allowance. He seems very reluctant to address that issue.
Mr Robinson
Strictly on the annual investment allowance, is my hon. Friend not absolutely on the button when she says that the question under discussion is not corporation tax or anything of the kind, but rather the AIA and the strictly temporary nature of the Government’s increase and extension of it? Will the Government commit to extending the AIA beyond the election, or is this just another election ploy?
Catherine McKinnell
My hon. Friend raises an important point, and that is the first time we have heard a Government Minister confirm that this is a temporary measure. I think that reinforces the argument in the new clause, which is that we should analyse the impact of the various changes to the AIA, year on year—it has gone up, down and all around—on businesses and their investment decisions. Hopefully, that will inform any decisions on the allowance, whether by a future Conservative Government or, as is more likely, a future Labour Government.
Charlie Elphicke
The temporary nature of the investment allowance is clearly set out in a press release issued on 1 January 2013, and I am staggered that the hon. Lady says this is the first time she knew about it. The Labour party ought to brief itself better than that.
Catherine McKinnell
Well, it simply reinforces the impression—in fact, the reality—that the Government are perfectly well disposed to chopping and changing their policy and approach to the annual investment allowance. That is the point we are trying to make, and the point behind the new clause. The Government should stop and take a look. I have heard from businesses that they would rather have no investment allowance than have chopping and changing of the AIA, because that can be destabilising for investment decisions. They would rather have a more stable approach to policy making than that being displayed by the Government.
Returning to the history of the investment allowance, the previous Labour Government doubled it, recognising its importance to giving businesses confidence to invest for the future, and to be supported within the tax system to make such decisions. What happened after it was doubled? We know that, in his infinite wisdom, the Chancellor decided as part of his emergency Budget—or so he called it—in June 2010, to announce to great fanfare that the annual investment allowance would be cut. However, it would not just be cut. At a time when the economy was growing after the financial crisis, the Chancellor decided that the best way to secure the recovery and back British businesses and jobs was to slash the annual investment allowance to just £25,000 from April 2012, as in the Finance Act 2011. He sought to reassure us that the impact of that reduction from £100,000 to £25,000 would be limited because:
“Over 95% of businesses will continue to have all their qualifying plant and machinery expenditure fully covered by this relief.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]
In other words, the Chancellor believed in June 2010 that only 5% of firms were receiving any benefit from the annual investment allowance. HMRC’s tax information note at the time stated:
“Over 95 per cent of businesses are expected to be unaffected as any qualifying capital expenditure will be fully covered by the new level of AIA (£25,000).”
It went on to clarify that
“between 100,000 and 200,000 businesses will have annual capital expenditure of over £25,000”.
Therefore, in the Chancellor’s terms, only 5% of businesses would have been affected by his decision to slash the allowance. In anyone else’s terms, however, that is somewhere between 100,000 and 200,000 firms. That is a significant number of businesses that are employing—or potentially employing—a significant number of people, while also indirectly supporting employment through their supply chains. That seems to ring true of the Government’s approach because when they speak about being pro-business, they seem to forget the many businesses out there that do not fit the Tory vision of what businesses are, and it seems that those 100,000 or 200,000 firms did not feature on the Chancellor’s radar.
Let us remind ourselves briefly of some of the views expressed at the time about the decision the Chancellor took. The independent Institute for Fiscal Studies commented that losers from the cut
“would be those firms with capital intensive operations—with long lasting equipment and machinery—that currently benefit most from the capital allowances. While this is likely to apply to more firms in the manufacturing and transport sectors, it may also be true for some capital intensive service sector firms.”
A senior economist at the manufacturers association, the Engineering Employers Federation, said that financing cuts to corporation tax by
“cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”
In evidence to the Treasury Committee on the June 2010 Budget, John Whiting, then tax policy director at the Chartered Institute of Taxation and now director of the Office of Tax Simplification, expressed his concern that the measure would particularly hit medium-sized firms.
The June 2010 Budget cut the annual investment allowance to £25,000 from April 2012 on the grounds that, in the Chancellor’s view, only 5% of firms would be affected. We then had two autumn statements and two Budgets, at which we put these arguments to the Government, before the Chancellor announced in the autumn statement 2012, again to great fanfare, that he would “temporarily” increase the AIA—the one he had just cut to £25,000—to £250,000 from January 2013.
What happened to business investment between the June 2010 Budget and the 2012 autumn statement that drove the Chancellor to move from feeling perfectly comfortable in slashing the annual investment allowance, because more than 95% of businesses would be unaffected, to announcing in 2012 a significant increase in the AIA to £250,000? Let us cast our minds back to what the Chancellor said when he announced that decision in autumn 2012. He said he was increasing the annual investment allowance because:
“It is a huge boost to all those who run a business and who aspire to grow, expand and create jobs.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]
What exactly does that say about the Chancellor’s cavalier approach back in 2010? Surely the complete opposite—[Interruption.] I see Government Members rolling their eyes, but unfortunately they need to face the truth.
Dr Thérèse Coffey
The hon. Lady is right—I should not roll my eyes; I should get up and engage in debate. We know about the note left by the right hon. Member for Birmingham, Hodge Hill (Mr Byrne): “There is no money left”. Since then, the Office for National Statistics has confirmed that the recession was even deeper than expected. The Government made choices at the time, and there was a clear intention to start to reduce the rate of corporation tax in the grand fiscal regime. Nevertheless, there has certainly been a successful demonstration of industrial strategy, and many more millions of jobs are now being created. It is right that we put our backing behind reinvestment in capital allowances.
Catherine McKinnell
It is a little desperate to try to justify what is proven to have been a flawed decision-making process back in 2010. By the Chancellor’s own accounts, the measure was a huge blow to all those businesses that aspire to grow, invest for the long term and create jobs.
Sheila Gilmore
Does my hon. Friend agree that it seems odd to suggest that the chopping and changing was due to a sudden discovery that the economy was improving? The decision, in effect, to reintroduce the allowance was taken in 2012, when growth was extremely low. It would appear from these plans that, having declared an intention to increase the allowance briefly to £500,000 for one year only, it could drop down to £25,000 in January 2016. What kind of investment planning are companies able to do on that basis?
Catherine McKinnell
As ever, my hon. Friend makes an insightful intervention and raises the key question. The Government need to take a step back and look at the impact their decision-making is having on businesses and their ability to make the long-term decisions necessary to secure the jobs, economic growth and the rebalancing of the economy that we all wish to see.
The Chancellor and his Treasury Ministers cannot have it both ways: either the annual investment allowance supports growth and the creation of jobs or it does not. Labour welcomed the decision to increase the allowance from January 2013 to £250,000, because we know it is important to support business growth and to foster long-term investment. However, we are concerned—this is why we have tabled new clause 10—about the Chancellor’s erratic and, frankly, bizarre approach to this important issue. Slashing the allowance from £100,000 to £25,000 and then announcing that they would temporarily increase it to £250,000, all in the space of just two and a half years, does not, and did not, inspire confidence in the Government’s long-term approach and strategy for supporting growth and investment.
Gordon Birtwistle
As I said, I fully support any funding that goes into capital allowances, but we have to remember that in 2010 companies were not making much profit. They were mainly on their knees from the recession that had been created previously. Companies can only set their allowance against profit, so if they are not making a profit there is no allowance to claim. The Inland Revenue was probably right to say that only 5% of companies were taking it up, because we were coming out of recession. A lot more companies are now busy working hard and making a profit, so the capital allowance is more beneficial to them as they are getting it back against the tax that they are paying now that they were not paying in 2010.
Catherine McKinnell
I know the hon. Gentleman’s interest in this issue is sincere. The Treasury may or may not have been right in its assessment that only 5% of businesses would be affected, but that is still 100,000 to 200,000 businesses—not to mention the supply chain. The new clause seeks an assessment of the impact of the decision taken at the time. How much of an impact did it have?
The hon. Gentleman says that, as we come out of recession, some businesses will be making more profit and will therefore be able to make more use of the annual investment allowance. That was exactly the point of bringing in the allowance in 2010. We had been through a global financial crisis and we knew that many businesses would be very uneasy about making the sort of long-term financial investments, on which they would not see a return immediately, that are necessary to create jobs. The intention of introducing and doubling the allowance in 2010 was to give businesses the confidence to invest. We know that it was welcomed by business at the time and we know that this Government’s decision to slash it to £25,000 was abhorrent to many businesses, particularly in the manufacturing sector. They needed the support and confidence to make the investments that we need to start seeing the benefits of now.
Gordon Birtwistle
The hon. Lady is being very generous. Does she accept that if a company is not making a profit, it will not have the capital resources to purchase the assets against which they can get the capital allowance? What is the point of the Chancellor making it available if companies, which are coming out of recession and really struggling with cash flow, will not be able to find the cash to buy the assets to claim the allowance against? Surely it is better saving it until companies are beginning to make cash profits. They can then buy the assets to improve the profitability of the company and claim the asset back.
Catherine McKinnell
I think the hon. Gentleman is rather confused. The purpose of the allowance is to enable companies to invest and to take advantage of tax support. If they are not able to take advantage of the annual investment allowance, there is no cost to the taxpayer, so why chop and change the regime and create uncertainty? Businesses need, from one year to the next, to be able to project and say, “This year we cannot afford to make an investment, but next year we can afford to invest so much in plant and machinery and we will be able to offset so much of that against tax.” The Government, however, have been chopping and changing the allowance. Companies cannot make long-term investment decisions from one year to the next without knowing exactly what their tax position will be.
The hon. Gentleman is actually making a very good argument for new clause 10 and I will be very surprised if he does not support us in the Lobby this afternoon. He speculates on companies that may or may not be able to invest and take advantage of the annual investment allowance. Our new clause asks the Government to undertake a proper review of the impact of slashing the annual investment allowance and then increasing it on a temporary basis. Many businesses have said to me—I am sure they have said it to the hon. Gentleman—that it is that uncertainty that creates the difficult environment for businesses to invest. They do not know, from one year to the next, what any tax allowance might be. We want to get to the bottom of that, so the mistakes the Chancellor made in 2010 will not be repeated.
Andrew Gotch of the Chartered Institute of Taxation commented on the increase announced at the 2012 autumn statement:
“This is a very generous increase that will be warmly welcomed by many small businesses...However, we note that it is only a temporary increase. Business would really welcome some stability in this area. In recent years, the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back to £25,000. Businesses like certainty above everything and the chopping and changing of the AIA has been a problem”.
Hon. Members do not need to take it from me, but from a whole range of sources who have raised this as a concern. The Institute of Chartered Accountants in England and Wales welcomed the increase to the allowance, but said:
“We are less enthusiastic about the frequency of the change to this amount.”
Let me be clear, the Opposition welcomed the 2013 increase in the annual investment allowance to £250,000, but we share the very serious concerns about the extremely complex manner in which that was implemented. As hon. Members may be aware, many organisations and individual businesses raised concerns that the increase to £250,000 would run from January 2013 to January 2015, rather than over companies’ usual accounting periods, making it problematic for firms, particularly small ones, to administer. Indeed, as the Association of Taxation Technicians neatly put it at the time,
“the chopping and changing of capital allowances will lead to error, confusion and higher professional costs for small businesses.”
The Opposition also welcomed the Chancellor’s announcement in Budget 2014 to extend the period of the temporary increase to 31 December 2015, with the allowance being temporarily increased again to £500,000 from April 2014. The straight fact, however, is that the Chancellor and his Government have tied themselves in knots over this vital issue. Just last year, when we considered in Committee what is now the Finance Act 2013, the then Economic Secretary to the Treasury, the Secretary of State for Culture, Media and Sport, the right hon. Member for Bromsgrove (Sajid Javid), explained why the increase in the allowance to £250,000 from January 2013 would be a temporary measure only. He said:
“We recognise that the change follows quite soon after the decrease in the annual investment allowance to £25,000 that was announced in the June 2010 Budget and implemented in the Finance Act 2011, which took effect from April 2012. The Government’s central position has not changed and remains that, in general, a lower corporation tax rate with fewer reliefs and fewer allowances will provide the best incentives for business investment, with the fewest possible distortions. That is why we have announced a further reduction in the main rate of corporation tax, as we discussed earlier, from April 2015 and is also why the current 10-fold increase in the maximum annual investment allowance is time limited rather than permanent.”––[Official Report, Finance Public Bill Committee, 16 May 2013; c. 145.]
A matter of months later, at Budget 2014, the Chancellor decided to about-turn once again, and extended and temporarily increased the annual investment allowance further—before, presumably, he intended it to return to £25,000 from 1 January 2016. As the Chartered Institute of Taxation put it so well, the one thing businesses need most, particularly in challenging economic times, is certainty. They need long-term stability and predictability to give them the confidence to invest, to make plans for the future and to take on more staff. What they have got from this Government, however, is a continual chopping and changing, with U-turn after U-turn and what seems to be a complete lack of strategic thinking.
What we need to hear from the Minister today is confirmation that the Treasury and his Government have taken seriously the impact of their decisions on business confidence, investment and jobs. We need to know that they have learned from the Chancellor’s mistake back in 2010, and that they will properly review its impact to ensure that the same mistake is not made again.
What assessment has the Minister made of the number of businesses that were not able to grow after the annual investment allowance was slashed? How many jobs could have been created during the last three years of flatlining growth while we have undergone the slowest recovery for 100 years? How many households could have been better off as a consequence, but will find themselves worse off in 2015 than they were back in 2010? Let us not forget that in 2010, back when the Chancellor was slashing the annual investment allowance, he said that the economy would have grown by 9.25% by now. Instead, it has grown by just 4.6%—far slower than in the United States or Germany. Indeed, GDP growth this year is still expected to be lower than the Office for Budget Responsibility forecast in 2010.
On Monday, my right hon. Friend the shadow Chancellor made an important speech about Labour’s approach to developing a business tax system that promotes long-term investment, supports enterprise and innovation and, most importantly, provides a stable and predictable policy framework for business, which is founded on fairness. Yesterday, my right hon. Friend, the Leader of the Opposition set out how a future Labour Government will mend Britain’s fractured economy and develop a genuinely long-term approach to backing growth in every part of this country to ensure rising prosperity for all.
It is this long-term approach to growth and backing Britain’s business and jobs that has been so lacking from this Government, and nothing illustrates it better than their shambolic and chaotic approach to the annual investment allowance since 2010. For that reason, I urge hon. and right hon. Members to back new clause 10 this afternoon, to ensure that the Government understand the impact of the Chancellor’s dreadful decision making back in 2010, and that they do not make the same mistakes ever again.
Charlie Elphicke
This new clause highlights two problems relating to its proposers and their party. The first is that they are stuck in the past. They have talked about the past and completely failed to set out their case for the future and the kind of Britain they would like to create. They just want to talk about something that happened previously. This is another one of the instrumentalised nuggets of attack, policy and press strategies referred to by Labour’s head of policy.
Catherine McKinnell
Let me correct the hon. Gentleman. He seems not to have been paying attention to my final comments, which were very much about Labour’s strategy for boosting economic growth and sustaining long-term economic stability for the future. The purpose of new clause 10 is to reflect back on past mistakes, of which we believe the Government need to take account.
Charlie Elphicke
Let us be clear what we are talking about. Labour and the hon. Lady want to spend two hours of the time available to debate this Bill talking about a period of nine months that happened nearly two years ago. In 2008, Labour introduced the annual investment allowance—an interesting point to which I shall return. It was set first at £50,000; then raised to £100,000; in April 2012, it was reduced to £25,000, which lasted nine months until January 2013, when it went up to £250,000—a far greater amount than under the legacy left by Labour.
Charlie Elphicke
Let me develop my point, and I shall give way again in a few moments.
It is important and instructive that this Government have incentivised investment. What the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) did not develop during the debate is what underpins the whole issue of investment allowances and capital allowances. Why we need capital allowances takes us to the whole issue of business investment. The challenge we all face, and have done for a very long time, is the rising corporate cash balances—about £750 billion—and the desire of us all to see that money spent.
Let us look at the Government’s policy in this area. They initially announced a reduction to £25,000 from April 2012. The hon. Lady’s first argument was that that created some form of uncertainty. The traditional argument goes, “We need to give businesses time to plan ahead; otherwise, we create uncertainty.” Well, the reduction was part of the June 2010 Budget, and it was about two years after the policy was announced before it came into effect, so I do not think that the certainty argument succeeds. The Government increased the amount substantially after only a short period of time, highlighting their concern to ensure investment.
The second problem I have with the hon. Lady’s case is that it is high risk to consider a policy on setting an investment allowance or a capital allowance on its own, as the Minister argued in an intervention. It is instructive that when Labour introduced the investment allowance, they funded the initial £50,000 by reducing general capital allowances from 25% to 20%. All policies need to be seen in a package taken together; they cannot properly be considered and debated unless the other pieces in the jigsaw are taken into account.
Stewart Hosie
That argument is fine as far as it goes, but in the space of seven years, we went from the abolition of the industrial buildings allowance to having an annual investment allowance of £100,000, which was then reduced to £25,000 followed by the very welcome increase to £250,000 for two years—and then there was another change. Of course making that many changes in such a short period of time is going to have an impact on planning for investment. Surely the hon. Gentleman can understand that.
Charlie Elphicke
The hon. Gentleman reinforces my point, which is that under Labour there were substantial reductions and changes to capital allowances that were part of the 2008 package. As I said, the main rate of capital allowances was reduced from 25% to 20%, followed by the creation of what was effectively the old first-year allowance—initially at £50,000. A number of other changes went on in parallel, including the phased withdrawal of the industrial and agricultural buildings allowances—IBA and ABA. We need to look at all policies in context and think about what else was going on, and that includes the changes that the Government announced in the Budget of June 2010. No policy can be viewed in a vacuum.
Mr Robinson
I am very pleased to be able to contribute to a debate whose purpose we seem to lose sight of from time to time. The purpose of the new clause is to review the reforms of the annual investment allowance that have taken place since the Government came to power, and to see what lessons—in very simple terms—can be learnt from them. I do not see why the hon. Member for Redcar (Ian Swales) should not see fit to join us in the Lobby when we vote on the new clause, as I understand we shall do in due course.
No doubt the Exchequer Secretary will recall our Committee discussions in 2010, which were mentioned by the hon. Member for Dover (Charlie Elphicke). In 2010 we were discussing measures to be introduced in 2012, and while we considered that to be an appropriate period in which the Government could introduce the changes that they wanted to make, we strongly opposed those changes. I think that we were sensible to do so, and I think that we have been proved right.
It has proved to be a long road to Damascus for the Government. Many arguments can be made for a broadly neutral approach to taxation matters, and I believe that that is a long-standing aim of the Treasury. Indeed, we were very much on that tack ourselves when we came to office. However, the realities of government, and the realities of the Government’s own Budget of 2010, should have informed them that they could not be so purist in their theory as to ignore the fact that, during the five or so years to which the Budget looked ahead, they would require a massive increase in investment in order to sustain the increased levels of growth that they wanted and the whole country needed, and that to secure that increased investment it would be necessary, in turn, to generate a massive, unprecedented level of exports. We made that case ourselves, but it did not carry the day.
I believe that it was the then Exchequer Secretary who said, “We do not really see what is wrong with companies just investing their depreciation levels.” I pointed out to him that that would barely replace the assets in real terms, and that it was not the way in which to generate an increase in growth, far less the increase in productivity on which the exports could be based. Heaven knows, we need the productivity now more than ever, given that sterling is relatively high. In certain markets we are up against considerable competitive pressures, which we can only fight with real productivity, which is dependent on investment.
We made the case for some element of discrimination in relation to investment, and that remains the Labour party’s preference. While, as the hon. Member for Dover said, there may have been—and may still be, for all we know—massive cash hoards among the bigger companies in the economy, much of the investment that we need must come from the small and medium-sized enterprises, which I do not think are so rich in cash, especially the small-company element. Although the relatively small sum of £100,000 was not to be sneezed at, we welcome the Government’s conversion to £500,000. Why that is to last only until the election I cannot imagine, unless it is due to some very short-term electoral consideration on the Government’s part, which I do not think is realistic even in my wildest dreams. I am slightly reminded—although I must not digress—of our recent debate on the Office for Budget Responsibility, when, for purely party-political reasons, the Government refused to extend the OBR’s remit to an audit.
Be that as it may, we are discussing something else now, namely the fact that the Government will not tell us whether they will maintain the same level of AIA beyond the election—which ought to be possible—and for how long it could be maintained beyond the election. After all, the Government have plans. They have a forward look, and in that forward look must feature the proposed level of AIA. They might have to disentangle it from the accounts in due course, but a simple statement from the Exchequer Secretary would set a lot of minds at rest, and provide the element of forward certainty that is so important to small and medium-sized companies, whose investment programmes often run over several years. Smaller companies in particular may not be able to afford a massive investment all at once. As I am sure we shall hear later from the hon. Member for Dundee East (Stewart Hosie), one advantage of the annual investment allowance relates to the setting off of past losses against future profits, and there are other instances in which they can be most helpful. I will not go into them, however, because I know that the hon. Gentleman wants to do so.
Let me return to the question of why the Government’s approach is still so short-term. I must tell my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) that my only reservation about the review is that the Government have chopped and changed so much, so quickly and, in fact, so excessively over the past four years that I wonder whether anyone would get any meaningful information out of it. I fear not. However, we should be happy about the Government’s apparent damascene conversion. At least they have come round to the idea of annual investment allowances in principle, particularly for smaller companies.
Mr Robinson
I will in a moment.
We may well see some element of discrimination in favour of smaller companies in the pattern. We do not want too much discrimination, because it could lead to complication, but I nevertheless feel that the Government should be thinking along those lines, which they probably are. No doubt the Exchequer Secretary will tell us when he winds up the debate. However, at present we have a short-term view of what is essentially a long-term problem. It is not that the level of investment has fallen under this Government or the last Government, or that manufacturing has declined under this Government as a proportion of GDP—which it probably has not, because GDP has still not reached the level at which it stood back in 2007. Generally speaking, however, manufacturing has been on a long-term slide, arguably since 1870 and certainly from the 1960s onwards, irrespective of which party has been in power.
Mr Robinson
I will come to the hon. Gentleman, if he will just be patient.
Inherent in the problem is the disinclination of the British economy as a whole to invest. Germany can be taken as a paragon of virtue in this respect. The Germans save more than us, and they generally invest more. They have better plant and equipment and higher productivity. They invest more in plant and equipment, but also in industrial relations. Their industrial work force is better equipped technically, from the top to the bottom, and better equipped physically with modern plant and machinery and computers.
Why is that? No one knows. There is a deep-lying cultural factor. However, it seems to me that if we are to offset it, the more we can afford to encourage investment the better, as long as that is intelligently done. I think that the dangers of misapplication can be much exaggerated, and that the loss of potential output through increased productivity can be underestimated.
If the hon. Member for Redcar still wants me to give way to him, I will do so.
Ian Swales
I have enormous respect for the hon. Gentleman’s experience in this regard. He has spoken of the importance of long-term certainty. I struggled in vain to find in the major speech made by his leader yesterday any mention of this issue, or indeed any mention of manufacturing. I wonder what he is saying to businesses that may be concerned about the potential for a future Labour Government.
Mr Robinson
I wish I had not given way, because when I do we always get into this tiresome point. The Government seek to find refuge by going back nearly five years. The Minister has been at the Treasury for four and a half years now, and his party has been in government for that long. They own the situation now, although I know they do not want to, as all they want to do is airbrush the last four and a half years out of existence—they did that again today—and concentrate on where they are now as if they took power just six months ago. When we are having a narrow debate on the question of our having a review of a particular failed policy of the Government that is relevant to this issue, the hon. Gentleman wants to bring in the whole of Labour party policy. That is tiresome and irrelevant and a waste of this House’s time. I am sure that when the Minister replies to the debate, he will not get into that.
We are discussing a very important point. If there is genuine change introducing some element of discrimination in favour of investment for the reasons I have given, we will welcome that. Indeed, we welcome the commitment on £250,000 and £500,000. We will welcome it doubly if the Minister will extend that commitment beyond the election, to put it bluntly to him. I do not know what our policy on that will be—or whether we will go into such detail in the manifesto—but I will certainly support such a proposal, both in principle now and as party policy if it finds such favour. The Government, however, can do something about this now. Will the Minister tell us whether there is a change of policy and a change of principle on their part? If so, why will they not maintain the amount of the allowance and achieve the levels of investment, productivity and exports on which our future depends?
Gordon Birtwistle
As a business man, I had an engineering company that required a lot of investment. We had to invest heavily to ensure that we were competitive in the markets of the late 1990s and early 2000s. To me, the most important things for investment are confidence and cash. If companies have the confidence to invest, and the cash to invest from the profits they are making, they will invest. The capital allowances that the Government allow them to have against their profits is very helpful and it does persuade—it persuaded me on a number of occasions to buy some very expensive computer-controlled engineering machines. But when there is no confidence and when there is very little cash around, not many companies think about how much capital allowance they will get if they invest.
The country was in a mess in 2007. There was a reduction of over 7% in GDP in 2007-08, so nobody was confident enough to take the step to invest. The confidence had to be put back into the industries to persuade managing directors to invest. We know that billions of pounds were stored in banks waiting to be invested, but the confidence was not there to invest.
If Members look at Hansard, they will see that the Chancellor complimented me for putting pressure on him to bring back capital allowances, and my hon. Friend the Minister will remember the meetings I had when I was the Parliamentary Private Secretary to the Chief Secretary to the Treasury. At every meeting we had I was constantly on to him about the need to try to give confidence to companies, to persuade them to invest in the future of manufacturing in the UK. The answer came back, “There is no confidence at the moment, but we hope there will be soon, but we have all this money stashed away in banks, which is moderately safe.” It was not totally safe, because the banks were not out of the mess they were in, but companies felt it was safer there, rather than invested in capital plant in manufacturing industry.
Chris Williamson (Derby North) (Lab)
Will the hon. Gentleman touch on why he objects to the proposal of my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell)? I have not heard any criticism or, indeed, any reference to it so far.
Gordon Birtwistle
As I said to the shadow Minister, capital allowances are very close to my heart. I believe they are the way to go, but they have to be linked to other financial policies, which the Government have to put in place to work with them. Capital allowances on their own are no good. We must have other structures within the Government’s scheme of things to ensure companies have confidence. It is no good saying, “You can have a capital allowance against a new machine that you want to buy, but we are not prepared to give you the confidence to do that because we are going to increase our taxes so you aren’t going to make any money—so why would you really want to invest in the UK?” We need to create an environment whereby companies will say, “We’ll invest in the UK because the tax regime in the UK is good. We’ll invest in the UK because we feel that the training programmes in the UK will train our young people to do the jobs. We’ll invest in the UK because of the apprenticeship programme that is going ahead, and because we know we will have the future work force to deliver products that we will be able to sell around the world.”
Dr Whiteford
The hon. Gentleman is right to say people will make investment decisions on a range of issues, but does he agree that stability is a very important component of that?
Gordon Birtwistle
Absolutely: stability, confidence, cash, training programmes, and an economic strategy for the future are vital for companies to decide to invest.
I agree with, and certainly do not have any real objections to, the Opposition proposal, but it is not linked to anything. If the Labour party wants to put forward a new economic or industrial strategy that links to this, I would be the first to support it, but this is just one element of a major programme that needs to be put in place.
Ian Swales
I pay tribute to my hon. Friend’s experience on this issue, and his campaigning, which lay at the heart of the increase to £250,000. Does he agree that tax allowances alone do not prevent investment, and in fact capital allowances are a time-shift—in other words, one still gets the tax allowance, but one just gets it later?
Gordon Birtwistle
My hon. Friend is right. We must remember that claiming a capital allowance on a profit is time-lagged, because companies will have worked for a full year and will have produced products at, it is to be hoped, a profit, and it then takes a full year for the accountants to go through the profits, so that is two years from the start, and at the end of the second year the company knows from its audited accounts how much profit it has made and how much it can invest. This does not all happen on day one or even at the end of the trading year, because they do not know just how much can be offset against tax in respect of purchases using capital allowances.
My constituency has a high proportion of manufacturing, and unemployment has gone down from more than 10% to 4.7%. That is because we are manufacturers. We make things. We create the wealth for the country. One company in my constituency, Lupton and Place, was contemplating buying a new injection moulding machine—it makes aluminium castings for the automotive industry—and it thought about that for quite a long time. I had meetings with it to discuss various schemes that might assist it to do that, but no such scheme was available. However, as soon as we announced the new capital allowances, it immediately ordered the machine. It cost €400,000. It did not get the capital allowance against the whole lot, but it did get the capital allowance against £250,000, as the sum was at the time. Although there was some money that it did not get a capital allowance against, under our strategy it was able to write the rest of it off against depreciation of the machine over the next few years.
I accept the need for capital allowances, therefore, and I hope the Minister takes that back to the Chancellor, as I have done on many occasions, to ensure that companies keep investing in this country. However, the main factor before people invest in anything is confidence—confidence that the country is going forward, and that there is growth and companies can see profits coming. People are not going to invest anything in anything unless they get a return. Returns are important for shareholders, business owners and partners in business, and if there is not going to be a return on the investment, they are not going to invest. If the confidence to invest is there and the cash is there to support the purchase, either from their own resources or from banks to ensure that the investment is made, capital allowances will be a major player in the investments that take place. On their own, they are not enough; they need to go with an overall industrial strategy. I am pleased to say that I believe that is happening.
Mr Gauke
It is a pleasure to respond to this debate, and in particular to follow my hon. Friend the Member for Burnley (Gordon Birtwistle), who has been a great advocate for manufacturing industry over the years he has been in Parliament. He has provided a strong voice on the issue of capital allowances.
Labour’s new clause asks that the Chancellor review the impact on business investment of changes to the Capital Allowances Act 2001 made by the Finance Act 2011. The new clause is identical to the new clause 5 we opposed in Committee and we will be opposing this new clause for the same reasons. As set out in our corporate tax reform road map, the Government’s central objective is to secure a low corporation tax rate, with fewer reliefs and allowances. We remain of the view that that strategy provides the best incentives for business investment. As part of that approach we reduced the annual investment allowance to £25,000 a year in the Finance Act 2011, at the same time as we were setting out our plans to reduce corporation tax—we have extended those plans and as of next April our corporation tax rate will be 20%, the lowest in the G20.
Chris Williamson
The Minister is trying to set out the Government’s position, which he would assert is one of success. If their policies are really so effective, how does he explain the fact that we are living through the slowest economic recovery for more than 100 years?
Mr Gauke
If the hon. Gentleman wants to debate that, I am happy to do so. We faced a crisis in the eurozone and we had to deal with the impact of the financial crisis that occurred on the last Government’s watch. Clearly that had a considerable impact on the growth of the UK economy and the economies of other developed countries, but the reality is that our economy is now growing strongly, and we need to ensure that that continues to be the case. There are risks to a recovery, but if we are to compete and succeed, we need to ensure that we have a competitive tax system, the conditions for growth and credible fiscal plans, all of which this Government are delivering as part of our long-term economic plan.
Chris Williamson
The Minister has just asserted that the economy is growing strongly, but I am surprised by that. Will he help the House by comparing that “strong growth” with the growth that took place in the 1950s, 1960s, 1970s and even in the 1980s, at a time, before the regrettable election of Margaret Thatcher, when regulation was significantly greater than it is today and when trade unions were more numerous than they are now? How does this “strong growth” compare with what happened in the period I have just outlined?
Mr Gauke
It is a little difficult to compare a period in the 1980s before the election of Margaret Thatcher, given that she was elected in 1979. What I say to the hon. Gentleman is that we are forecast to have the fastest growth in the G7 this year. Clearly, Members on both sides of the House should welcome that, but we must not be complacent because we have further to go and we need to ensure that we stick to the plan to deliver that growth on a sustainable basis.
Stewart Hosie
The Minister has said he has plans for low corporation tax, and fewer reliefs and allowances—I understand the strategy. He will be aware that the argument is that it helps to establish profitable businesses but is less helpful to growing, investing businesses. Even if he was right, that would rather argue against the Government increasing the annual investment allowance to £250,000. Therefore, is the report envisaged in the new clause not precisely what is required to identify whether that allowance is at the correct level?
Mr Gauke
I am grateful to the hon. Gentleman for returning me to the subject matter before us, and no doubt you are, too, Madam Deputy Speaker.
The Office for Budget Responsibility forecast in the June 2010 Budget stated that the cuts in the corporation tax rate would more than offset the reduction in investment allowances such that the
“cost of capital for new investment is lower for all non-financial companies, and the rate of return from the existing capital stock is higher”.
That very important point could easily be missed from this debate. However, we also recognise that in the current economic climate, businesses face particular challenges. Having got the corporation tax rate down significantly, making a temporary boost to support and encourage increased investment was both appropriate and desirable. That is why we introduced a temporary generous increase in the annual investment allowance at the 2013 Budget, and we have gone on to double its generosity a year later.
Bob Stewart (Beckenham) (Con)
Would the Minister like corporation tax to come down below 20%, if possible? Is that ever envisaged?
Mr Gauke
My hon. Friend raises an interesting point, which I could spend some time discussing. Some challenges are involved in reducing corporation tax below 20% in terms of ensuring that such a tax cut is well focused in encouraging increased investment. He will be aware of some of the difficulties that occurred when the previous Government temporarily introduced a 0% corporation tax rate for smaller businesses; that resulted in quite a lot of tax-motivated incorporation. I will not detain the House for long on this point, so I will just say that some issues would need to be addressed in respect of that.
What would certainly be damaging would be to reverse the considerable progress we have made on reducing corporation tax. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) placed great emphasis on providing certainty for businesses, and I would agree on that, but what we have done in reducing the corporation tax rate from 28% to 21%, and then to 20% as of next April, has undoubtedly helped the UK’s competitiveness position. One could quote survey after survey demonstrating that the UK is now viewed much more favourably as a place in which to do business because of our corporate tax regime, and it would be damaging were we to reverse this. Labour is on the record as wanting to put corporation tax back up to 21%. That would be the first increase, as a revenue raiser, in corporation tax since the 1960s, and we have heard a significant hint this week that Labour may even increase it to 26%.
Catherine McKinnell
Once again, the Minister is trying to change the subject from the annual investment allowance to corporation tax. Given that he acknowledges the importance of certainty in this area and that a reduction of the AIA back down to £25,000 is already on the horizon, does he accept that it would be beneficial for the Government, for Members of this House and for members of the public to have an assessment of the impact of that slashing to £25,000 in 2010, in order to inform the Government’s decision making in the future?
Mr Gauke
That is the fourth opportunity the hon. Lady has had to provide some reassurance to businesses and investors looking to the UK as a place in which to do business that a future Labour Government, should that misfortune occur, would not increase corporation tax to 26%. That is the fourth time she has ducked that opportunity. Corporation tax is linked very heavily with the annual investment allowance; they are not separate issues. If our debate is about ensuring that we have certainty for investment in the UK, it is a very salient point.
Chris Williamson
I am interested in the Minister’s comments. Will he comment on the fact that corporation tax in the United States is up to 35%? Furthermore, does he believe that businesses have a responsibility to contribute to public services and infrastructure investment in our country? If we enter into this arms race and continue to reduce corporation tax, we end up in a situation where we either put the burden of funding our public services and infrastructure investment on ordinary taxpayers, or are forced to make even deeper cuts than we have seen under this Government over the past four years.
Mr Gauke
As always, the hon. Gentleman’s questions are interesting and could take me in a number of directions. Let me just say this: it is important that the United Kingdom has a competitive tax system. It is the case that corporation tax will continue to play an important part in our tax system, and it is important that it is properly enforced. Indeed, the UK is leading the way on international reform to ensure that we have an international tax system that takes a contribution from companies. In the end, however, it is always individuals who pay tax—whether it is the shareholder, consumer or employee. All tax is paid by people even if the cheque is written by the company.
Let me return to the measures that we have set out. The Office for Budget Responsibility has said that the measure to extend the AIA is expected to bring forward another £1 billion of business investment in the short and medium term. Although the Government rightly keep all tax policy under review, there is limited merit in conducting an evaluation in the way that the amendment suggests, and there are also a number of obstacles that make it impossible. Her Majesty’s Revenue and Customs will not have the relevant data to conduct such an evaluation for another year, and as the hon. Member for Coventry North West (Mr Robinson) said, it would be extremely difficult to isolate the impact of this change from the other factors influencing business investment, and from subsequent changes, in the ex-post data.
An important point was made by my hon. Friend the Member for Burnley (Gordon Birtwistle), who said that a number of factors are involved in business investment, not least confidence. As my hon. Friend the Member for Dover (Charlie Elphicke) pointed out, the AIA has been set at various levels over this period; identifying a direct link between the level of AIA and business investment is extremely difficult.
Dr Whiteford
The Minister is quite right to point out that there have been dramatic fluctuations in these types of allowances over a long period, but surely that emphasises the point about trying to get better at assessing their impact. If these allowances are a good thing at the moment, the Government might be well advised to consider bringing some stability to the system and committing to them over a slightly longer period.
Mr Gauke
The point I was making is that it was this Government who introduced a corporate tax road map in 2010. That road map has provided a great deal of certainty to businesses and set out our plans for corporation tax. Given that we have been able to make progress with corporation tax rates in the current circumstances, although businesses feel uncertain about the challenges that lie ahead, including the referendum in Scotland and the possibility that an anti-business Government might be elected at the next general election, it would be helpful to have an annual investment allowance in place.
Catherine McKinnell
The Minister seems to be completely obsessed with corporation tax. Whatever question is put to him about annual investment allowances, he responds with an answer on corporation tax. I wonder whether that reinforces our call for the Government to be forced to look at the issue of annual investment allowances—the chopping and changing of them, and the lack of certainty—so that they address AIA as a serious issue that concerns businesses up and down the country.
Mr Gauke
The hon. Lady does not seem to recognise that there is a link between the annual investment allowance and corporation tax; it is an allowance set off against corporation tax. The two are not separate subjects. Of course, if we are discussing certainty within our tax system, one has to look at the bigger picture, and this Government, through the corporate tax road map, have provided much greater certainty for businesses in this country. The biggest threat to the certainty of our tax system at the moment appears to be a Labour party that is at least considering increasing corporation tax to 26%, which would be a huge increase and deeply damaging for the UK’s competitiveness.
Chris Williamson
Let me return the Minister to the historical context. He keeps implying that a Labour Government would be anti-business, but I challenge him to compare the economic growth record of previous Labour Governments with that of this Conservative Government. I think he will find that the Labour record compares extremely favourably. The truth is that Labour Governments have invested in our economy; what we should be concerned with in this place is improving the living standards for the British people, and they have always achieved that.
Chris Williamson
The Minister seems to imply that the worldwide downturn—the economic recession that was a consequence of the banking crash—was the responsibility of the previous Labour Government. It is a ludicrous assertion. Surely he will accept that there was an international banking crash that led to the economic difficulties with which the Labour Government were faced in 2007.
Mr Gauke
Let me summarise the hon. Gentleman’s position: when the economy grows under a Labour Government, the Labour Government get the credit, but when it shrinks under a Labour Government, that is to do with international factors. At least we know where he stands.
We have heard a lot of criticism of the reduction in the annual investment allowance, and I have attempted to try to put that in the context of what we have generally done within our tax system. The impression given by the hon. Member for Newcastle upon Tyne North at all times was that it was a disastrous decision that resulted in business investment being slashed. I do not accept that position at all, and I have made it clear, by putting this in the context of what we are doing with corporation tax, that we are encouraging investment.
Just this week, the Labour party set out its plans for business tax. As far as I am aware, nothing was said in those plans about the annual investment allowance, or about extending the increase to £500,000 beyond December 2015. We heard a lot about an allowance for corporate equity, but I do not think that I heard anything at all from the Opposition on this subject. If it is so important to them, why do they not have a policy in this area? Indeed, at one point, it seemed to come as a surprise to the hon. Member for Newcastle upon Tyne North that this was a temporary measure, although subsequently in her speech it became clear that she was aware of that. What is Labour’s position? If Labour Members feel so strongly about this issue and it is a priority for them, why have they said nothing on the subject? On that point, I urge the House to reject new clause 10 if it is put to a vote.
Catherine McKinnell
It is absolutely clear that the Government have tied themselves in knots over the annual investment allowance. They have tried at every turn during this debate to change the subject, and not to deal with the catastrophic decision taken in Budget 2010 to slash the investment allowance from £100,000 to £25,000. That was followed by a welcome U-turn that moved it back up to £250,000, and now they have promised to double it to £500,000. I accept that it is a temporary measure, but the point that I was trying to make, which the Minister seems to have missed, is that the very fact that it is a temporary measure perpetuates the uncertainty, and we know, because businesses have told us, that that uncertainty undermines their confidence to invest.
The hon. Member for Burnley (Gordon Birtwistle) made a speech that I know was sincere, as he is aware of the importance of the manufacturing industry and of certainty in the tax landscape, particularly regarding the annual investment allowance, in enabling businesses to make investment decisions, to invest in plant and machinery, and to expand to create jobs for the future. However, I might also say that he made a typical Liberal Democrat speech, in that he sat on the fence and would not acknowledge that the Government need to take stock of the impact on investment decisions of chopping and changing this policy.
Ian Swales
I thank the hon. Lady for giving way, and she will be pleased to know that I will not sit on the fence on this issue. Investment decisions about plant and machinery are one-off decisions, and the annual investment allowance is only needed once for each investment decision. What we need is certainty around a specific decision, not long-term certainty.
Catherine McKinnell
That flies in the face of the advice given by the EEF, the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales, which all feel that the Government’s chopping and changing on this policy has been damaging to investment. Someone might want to make a decision to invest this year, next year, or the year after, but obviously if they do not know what the Government’s policy will be in 12 or 24 months’ time, they might well not have that confidence and not take that decision. The hon. Member for Burnley acknowledged that, but the hon. Member for Redcar (Ian Swales) seems to be completely at odds with what industry has been saying.
Mr Gauke
The hon. Lady says that her concern is that business will not know where it stands on the annual investment allowance when making decisions, but, much more importantly, if a business does not know whether the corporation tax rate will be 20%, 21% or 26%, that will surely have a much bigger effect on investment in this country. Can she provide some clarity on that?
Catherine McKinnell
I agree that business needs certainty about taxation to make investment decisions, and that is why we have committed to maintaining one of the most competitive tax rates in the G7, but today’s theme seems to be that the Government wish to talk only about corporation tax, and to airbrush out their catastrophic mistakes with the annual investment allowance. The hon. Member for Dover (Charlie Elphicke) made a valiant speech, but I felt it was dreadfully misguided. He was in quite a bit of trouble trying to defend the Government’s record in this respect, but frankly the decision making has been erratic and completely indefensible.
I pay tribute to my hon. Friend the Member for Coventry North West (Mr Robinson), who made a very thoughtful and considered speech in which he set in the historical pre-2010 context some of the rationale behind the Government’s decision making in this regard, but he also highlighted the irrational aspects.
Sheila Gilmore
Does my hon. Friend want to reflect on the suggestion made earlier that it did not really matter to people whether the investment allowance was clear? Surely, when putting forward a formal business plan, people are not necessarily just working on a year-to-year basis; they want to know what, if things go on as they are, they could do in a year’s time, two years’ time, or three years’ time.
Catherine McKinnell
My hon. Friend makes an absolutely valid point. Businesses do not work in electoral cycles or annual tax return cycles; they plan for the future. Businesses have told us how unhappy they have been with the chopping and changing of this policy.
I am very surprised that the hon. Member for Redcar takes such a strong stance in supporting what has clearly been a disastrous Government policy. I would have thought he would have liked to distance himself from it, but he has obviously tied himself to this mast, and I am disappointed that he will not come through the Lobby with us. We will push our new clause to a vote, because we believe that the Government need to take stock and learn from their mistakes, and that this has been an absolute disaster of a policy, in terms of the Chancellor’s indecision.
Question put, That the clause be read a Second time.
The Minister for Skills and Enterprise (Matthew Hancock)
On a point of order, Madam Deputy Speaker. Given that the Office for National Statistics has confirmed this afternoon that four fifths of new jobs have been created outside London, and given that the Leader of the Opposition may inadvertently have misled the House by saying that the number of people waiting more than four hours in A and E has risen by over 300% when this is not accurate, may I take your advice on how the Leader of the Opposition may be brought before the House to retract these inaccuracies and apologise?
Madam Deputy Speaker (Mrs Eleanor Laing)
No, the hon. Gentleman may not take my advice. It is not the position of the Chair to advise hon. Members, far less the Leader of the Opposition, on the content of their speeches, but the hon. Gentleman has put his facts on the record, and I am sure that they have been noted on both Front Benches.
Chris Leslie (Nottingham East) (Lab/Co-op)
Further to that point of order, Madam Deputy Speaker. Is there anything that you can do to stop these eager Front Benchers seeking Cabinet preferment in the forthcoming reshuffle from making spurious points of order, when what they should do with statistics is allow the Office for Budget Responsibility to audit these—
Madam Deputy Speaker
Order. The hon. Gentleman knows that that is not a point of order, nor could it be further to a point of order, as there was no point of order.
Ian Swales
On a point of order, Madam Deputy Speaker. I made a point of order earlier today regarding a figure used yesterday by the hon. Member for Birmingham, Ladywood (Shabana Mahmood). The 2010 figure that I gave was correct, but I am now aware that the hon. Lady was using a figure derived on a new basis, so the comparison that I drew was incorrect. I felt that that should be put on the record.
Madam Deputy Speaker
I am grateful to the hon. Gentleman—[Interruption.] Order. I am grateful to the hon. Gentleman. That is a point of order. He has put the record straight, and the House is grateful to him.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
On a point of order, Madam Deputy Speaker. Could you advise me, please, with reference to the inaccurate information that was given by the Prime Minister about waiting lists for A and E, and the fact that in 48 out of the past 52 weeks, A and E targets have been missed by this Government—
Madam Deputy Speaker
Order. I have already reminded the House that the content of Ministers’ speeches is not a matter for the Chair, and that is not a point of order.
New Clause 1
Oil contractor activities: ring-fence trade etc
‘Schedule (Oil contractors: ring-fence trade etc) contains provision about the corporation tax treatment of oil contractor activities.’—(Mr Gauke.)
Brought up, and read the First time.
Madam Deputy Speaker (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
Government new clause 2—Determination of beneficial entitlement for purposes of group relief.
Government new clause 3—General Block Exemption Regulation.
Government new clause 4—Co-operative societies etc.
Government new clause 5—Tax relief for theatrical production.
Government new clause 6—Exclusion of incentivised electricity or heat generation activities.
Government new schedule 1—Oil contractors: ring-fence trade etc.
Government new schedule 2—General Block Exemption Regulation.
Government new schedule 3—Taxation of co-operative societies etc.
Government new schedule 4—Tax relief for theatrical production.
Government amendments 42, 43, 5, 6, 1, 2, 4, 11 to 14, 7 to 10, 15 to 41, 3 and 44 to 66.
Mr Gauke
I will attempt to speak briefly to this long list of Government new clauses, new schedules and amendments, although I will respond later in the debate if any questions are raised.
New clause 1 and new schedule 1 make changes to provide a fair amount of taxation for activities carried out on the UK continental shelf in connection with the UK’s oil and gas resources. The Government are committed to maximising the benefits that the North sea can bring to the UK economy while ensuring that all companies benefiting from the UK’s natural resources, either directly or indirectly, pay their fair share of tax.
The UK is not currently receiving a fair amount of tax from companies that provide drilling rigs and accommodation vessels to the oil and gas industry. Many of those companies own their assets in lower tax jurisdictions overseas. Those assets are then leased to associated entities operating on the UK continental shelf through specialised leasing arrangements known as bareboat charters, giving rise to a large deductible leasing expense in the UK. That results in up to 90% of operating profit made in the UK being moved overseas.
This measure will cap the amount the UK base contractor can claim as a deductible expense for those leasing payments. It will ensure that companies pay a fair amount of tax for the activities they carry out in connection with the UK’s valuable natural resources.
New clause 2 makes changes to corporation tax group relief rules to remove an unintended restriction that has been identified in current anti-avoidance legislation. That legislation is well targeted and limits the opportunities for avoidance, for example through artificial groupings. However, the rules are triggered in limited circumstances where conditions are agreed or imposed on a group by the Government or a statutory body. That is clearly unintended.
The clause proposes a restricted amendment to section 169(2) of the Corporation Tax Act 2010 to exclude from the definition of “arrangements” situations where conditions are agreed or imposed by the Government. That will ensure that the anti-avoidance rules are more effectively targeted for the future and that companies involved in these specific commercial arrangements will have improved access to group relief. The amended rules will continue to ensure that they prevent manipulation of company control and group status and will continue to restrict access to group relief where appropriate. That will maintain the fairness and consistency of the tax system.
Government new clause 3 and amendments 42 and 43 make a number of changes to three capital allowances: enhanced capital allowances for zero-emission goods vehicles; enhanced capital allowances for enterprise zones; and business premises renovation allowances. All are state aids designed to comply with the general block exemption regulation. The existing regulation ended on 30 June and a new one took effect from 1 July. Although it is similar to its predecessor, the new regulation contains a number of differences that need to be reflected in those reliefs. The new clause and the amendments do that. Broadly, they ensure that various definitions found in those reliefs refer to the new general block exemption regulation.
In the case of enterprise zone allowances, it also excludes expenditure on energy generation, distribution or infrastructure, and broadband networks; restricts qualifying expenditure incurred by large companies in certain enterprise zones to new economic activities; and requires companies that make a production process more efficient to ensure that the qualifying expenditure exceeds by value at least three years’ depreciation of the machines being replaced.
New clause 4 and new schedule 3 make technical changes to the tax legislation applying to co-operative and community benefit societies, industrial and provident societies, European co-operative societies and credit unions to ensure that the definitions used in the legislation are clear, up to date and work as intended. There has been no policy change on the taxation of the various societies or the reliefs available to them, or indeed their members. There will be no effect on their tax position, but the changes we are making will ensure that the legislation is accurate and fully in accordance with the policy intention.
New clause 5 will introduce an additional corporate tax deduction and payable tax credit for theatre production costs. Production companies will be eligible for a payable tax credit worth up to 25% of qualifying expenditure for touring productions and 20% for all other productions. These provisions will be available from September for producers of a wide range of theatre and performance, supporting plays, musicals, dance, ballet, opera and circus.
Andrew Bingham (High Peak) (Con)
I welcome this particular measure, because the very well known Buxton opera house is in my constituency of High Peak and it hosts lots of touring theatrical companies. Offering different types of performances to the area engages people in going to the theatre and promotes the local economy, so the measure’s benefits will be broader than we may have thought at first.
Sir Peter Luff (Mid Worcestershire) (Con)
Circus is a performing art invented in the United Kingdom and it provides many children with their introduction to the performing arts and leads them to a love of theatre. May I therefore welcome my hon. Friend’s decision to include circuses in those areas covered by the tax relief in new clause 5? The travelling circus industry welcomes that decision, which is already leading directly to new investment in travelling circuses.
Mr Gauke
Again, I am delighted to hear that. My hon. Friend lobbied us and made representations on behalf of his constituents for the inclusion of circuses. As a consequence of the consultation process and listening to the points raised by my hon. Friend and others, I am delighted that circuses will benefit from this tax relief.
Debbie Abrahams
It is important to support this area, but would the Exchequer Secretary like to comment on the National Audit Office and Public Accounts Committee’s recent reports criticising the Government and Her Majesty’s Revenue and Customs for not properly monitoring the tax reliefs in this area?
Mr Gauke
The Government will respond formally to that, but I believe that well-designed, well-focused and targeted tax relief, which is what we have, can help the economy grow and help particular sectors. Indeed, I am delighted that two examples have just been provided to us. This Government have successfully lowered rates, including corporation tax, which we have debated this afternoon, and, if particular sectors can be supported by a well-targeted tax relief, we should do that. We believe that, overall, our tax system is working to enhance the UK’s competitiveness. This Government have a good record in the creative sector in particular, and I am delighted that, through new clause 5 and new schedule 4, that will continue.
New clause 6 amends the list of excluded activities in the tax-advantaged venture capital schemes—the seed enterprise investment scheme, the enterprise investment scheme and venture capital trust schemes—so that a company whose trade consists substantially of the generation of electricity or heat that attracts renewable obligation certificates or payments under the renewable heat incentive will no longer qualify for investment under those schemes, with limited exceptions.
As in the case with the feed-in-tariff exclusion, community interest companies, community benefit societies, co-operative societies and Northern Irish industrial and provident societies will not be affected by the restrictions. The exceptions for co-ops will also apply to European co-operative societies, in line with the changes being introduced as part of the “taxation of co-operative societies” amendment, which aims to align and update all references to industrial and provident societies across the Taxes Acts. The restriction will also not apply where the electricity is generated by anaerobic digestion or by hydropower, nor where heat is generated, or gas or fuel produced, by anaerobic digestion. The measure will apply in respect of both UK ROC and RHI schemes and overseas equivalents. It will make the tax-advantaged venture capital scheme better targeted and effective in supporting small and growing, higher-risk businesses.
Amendments 5 and 6 make technical changes to clause 73, which will restore sense and fairness to air passenger duty by reforming the destination banding and introducing a simple to understand two-band system. As the House will know, we have devolved the power to set rates on direct long-haul flights from Northern Ireland to the Northern Ireland Assembly, which set the rates at £0 in the Air Passenger Duty (Setting of Rate) Act (Northern Ireland) 2012. As the structure of the tax, including the number and composition of the destination bands, remains a matter for the UK—the Northern Ireland legislation refers to the UK legislation—the Northern Ireland Executive have asked us to make the consequential amendments needed to their legislation so that it aligns with the UK legislation.
Catherine McKinnell
I thank the Minister for introducing the 60 or so proposals that the Government have tabled for consideration at the end of proceedings on the Finance Bill. [Interruption.] I hear some tutting behind me. The House will be relieved to hear that although I have a number of questions they relate mainly to new clauses 1, 5 and 6, new schedule 4 and amendment 2.
I will start with new clause 1. It is important to take the opportunity to scrutinise what are fairly significant changes. They have been introduced by the Government at a fairly late stage in the Bill’s progress. Will the Minister comment on why that is the case? The measures were first announced in the autumn statement but the Government were still consulting on them some five months later while we were scrutinising the Bill clause by clause in Committee.
Perhaps the most controversial of the Government’s announcements on North sea oil and gas over the past year is contained in new clause 1 and new schedule 1, which make changes to the UK continental shelf oil and gas fiscal regime. As the Minister set out, they relate specifically to leasing arrangements between oil and gas contractors and oil and gas licence holders on the UK continental shelf—arrangements that are commonly known as bareboat chartering. Oil and gas service companies often lease drilling rigs, vessels and other equipment from overseas related parties on a bareboat basis—that is, without operating personnel—and the associated rental costs are claimed as a deduction against the UK profits of the service company when it uses the equipment to provide services to oil and gas licence holders on the UK continental shelf.
As the Red Book sets out,
“the government is concerned about the use of”
such leasing arrangements
“to move significant taxable profit outside the UK tax net”.
I would be interested to hear from the Minister what estimate his Department has made of the total taxable profit that has been moved outside the UK tax net as a result of these leasing arrangements. More importantly, what evidence does HMRC have that such profit shifting or transfer pricing is avoidance activity, as the Government seem to suggest?
Sir Malcolm Bruce (Gordon) (LD)
When the Minister is answering those questions, I wonder whether he will also say what impact the measures will have on drilling activity in the UK.
Catherine McKinnell
The right hon. Gentleman raises an important question. I hope that the Minister addresses it in his response. I will come on to that issue.
In May, a Reuters report on these measures suggested that HMRC had
“allowed an industry with annual revenues of 2 billion pounds to pay almost no corporation tax for two decades”.
It also suggested that such arrangements have allowed drilling operators in the North sea
“to operate almost tax free for 20 years or more”.
It would be useful to know why the Government are acting now on those arrangements. I hope that the Minister will elaborate on that.
The Chancellor made an announcement in last year’s autumn statement that appears to have come as a surprise to many. He proposed the introduction of a cap on the deduction that is available to UK service companies on bareboat charters from connected companies. He also announced plans to ring-fence profits from other business activities so that the taxable profit could not be reduced by other tax losses. It appears that, because of the considerable lack of consultation before those announcements were made, the Government have significantly altered the plans to take account of the views of the industry.
The final proposals that are before us today will introduce a cap on the amount that service companies can deduct from their taxable profits through such leasing arrangements. The leasing deduction will be limited broadly by reference to a cap of 7.5% on the original cost of the asset or equipment. The cap was originally set at 6.5% but has been changed following the extensive consultation with the industry. Again as a result of the consultation, the cap will apply only to drilling rigs and accommodation vessels, which are otherwise known as “flotels”.
Mr Mike Weir (Angus) (SNP)
I am listening carefully to what the hon. Lady is saying. Does she agree that, although the cap applies only to drilling rigs and accommodation vessels, drilling rigs are the crucial matter? There is a worldwide shortage of drilling rigs, so the cap might mean that they are used elsewhere, rather than in the North sea.
Catherine McKinnell
The hon. Gentleman raises an important point. Again, it would be helpful if the Minister addressed that concern in his response. I will come on to that matter a little later.
New schedule 1 introduces a new form of ring fence that is similar to that imposed in respect of ring fence corporation tax for companies that operate on the continental shelf. The ring fence will be applicable to the composite activity that is the subject of this measure. That means that, although profits within the ring fence will only be taxed at the standard corporation tax rates and not the higher rates that apply to oil and gas producers, it will no longer be possible to reduce those profits through other tax reliefs that are derived from activity outside the UK continental shelf.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)
The hon. Lady is making an important point: maximising exploration is crucial to future revenues. Unless oil is produced out of the ground, we will not see any tax revenue.
Catherine McKinnell
That is an ambition that I believe the Chancellor has expressed himself. It is vital the Government get this right and that is why we are asking these questions today. I hope we will receive reassurance from the Minister.
Production fell by 38% between 2010 and 2013, which is the equivalent of 500 million fewer barrels of oil being produced. Critically low exploration has meant that 150 million fewer barrels of oil equivalent have been discovered in the past two years.
This clearly has wider implications for the UK’s oil and gas sector. As the hon. Gentleman points out, it also has serious implications for the Exchequer. Just yesterday, there was a report in the Financial Times highlighting the fact that North sea oil and gas tax receipts decreased by 60% in the past two years alone, and are now at their lowest level since 2004. Some of that can be accounted for by significant investment in the past few years—the fiscal regime was designed in such a way, under the previous Labour Government, to encourage such activity and therefore be less liable to tax—but these figures are still reflective of the wider issues facing our North sea oil and gas sector, as I outlined previously.
I want to draw the attention of the House to concerns, expressed by numerous tax specialists, that these measures represent the Government abandoning the application of the arm’s length principle in determining transfer pricing in the oil and gas sector. Just to explain the background, OECD member countries have agreed that to achieve a fair division of taxing profits, and to address international double taxation, transactions between connected parties—for example, intra-group companies—should be treated for tax purposes by reference to the amount of profit that would have arisen had the same transaction been executed by unconnected or independent parties. The arm’s length principle is enshrined in article 9 of the OECD model, treaty or convention.
The Government apparently support the arm’s length principle, but the Chartered Institute of Taxation has expressed concern that imposing such a cap, as new schedule 1 would provide for, calculated through a formula based on the original cost of the asset, effectively imposes a legislatively fixed benchmark price that overrides the arm’s length principle. An article for Tax Journal in February highlighted this issue and concluded:
“these measures are reflective of the Treasury’s willingness to introduce special measures where it perceives that the application of the arm’s length principle fails to determine an appropriate allocation of profits in cross-border transactions.”
Will the Minister say whether this reflects the Treasury’s willingness to intervene and override the arm’s length principle, where it deems the application of such to be inadequate? The main reason why the Government’s abandonment of the arm’s length principle is of such concern is the possibility that other countries may follow suit and introduce their own special measures; something that the OECD and its members, through the arm’s length principle, are at pains to prevent. It would be useful to hear from the Minister whether the Government have taken account of international reactions to these measures and their potential detrimental impact.
As the Minister well knows, and as we have put on the record in this House on countless occasions, the Opposition support the Government on any steps they take to tackle tax avoidance. However, a number of concerns remain as to how the Government have approached implementing these measures. We welcome the Government’s consultations with the industry, belated though they are, but I would be interested to hear from the Minister whether he and his officials believe that they have, in the final version of the Bill, fully addressed the concerns of industry. The feedback I have received from the industry suggests otherwise.
After the debacle of the autumn statement last year with regard to this unexpected announcement, it is important that Ministers finally, three years after they made the same mistake, learn the lessons of turning to the North sea oil and gas industry to plug holes in their books, and coming up with policy on the hoof. In 2011, we saw the detrimental impact such unilateral action can have, particularly in an increasingly marginal industry—that was, perhaps, reflected in the Financial Times report yesterday. We can only hope that the Government have fully considered the impact of the latest changes and properly accounted for them. Finally, the measures seem to diverge from the Government’s general approach to transfer pricing and the arm’s length principle, but I hope the Minister can provide clarification on that.
New clause 5 and new schedule 4 provide for further tax relief for the creative sector—based, of course, on the last Labour Government’s highly successful film tax relief. They introduce a tax relief for theatrical productions, and the relief will operate in almost exactly the same way as it does for high-end television and animation productions, but with one small difference. It allows qualifying companies engaged in theatrical productions to claim an additional deduction in computing their taxable profits. Where that additional deduction results in a loss, they have to surrender it for a payable tax credit. Both the additional deduction and payable credit are calculated on the basis of UK core expenditure capped at 80% of total core expenditure by the qualifying company.
The Minister set out the provisions in some detail, and they received some welcoming comments, particularly from Government Back Benchers, but I have a few queries about the new relief; I hope the Minister will be able to resolve any outstanding ones. The first relates to measures contained in new schedule 4, and it is important to ensure that the measure is not open to abuse. Such reliefs as these—or tax expenditures, to use Treasury-speak—well-intentioned though they are, have increasingly come in for criticism from the Public Accounts Committee and the National Audit Office. We have already discussed the number of both known and potentially unknown tax avoidance schemes generated around the reliefs and the subsequent criticism of them. I do not think it would be helpful to hold this discussion again here on the Floor of the House; Members will be able to read Hansard to see the extensive debates and discussions we had in the Public Bill Committee.
Following the consultation process, the Government appear to have taken on board the views of the Chartered Institute of Taxation, which suggested in its consultation submission that any evidence of abuse should be promptly identified and acted on by using the general anti-abuse rule. New schedule 4 provides for a general anti-abuse rule based on the GAAR, but the Chartered Institute of Taxation suggested that this tax relief should be properly monitored and reviewed by the Government. The Government’s consultation response suggests HMRC will “continue to monitor” for abuse, but can the Minister give a specific commitment in this respect?
Ian Swales
Does the hon. Lady join me in welcoming the fact that the arrangements in HMRC are to give specific permission on a production-by-production basis? I hope that HMRC will be staffed up accordingly, but that should avoid some of the abuses that took place under the previous film arrangements.
Catherine McKinnell
I hope that will happen and that HMRC will have the resources available to it, as we know that it has faced significant reductions in staffing. That does not necessarily mean that it will not be able to undertake the sort of monitoring we would like to see under the scheme, but it would be useful to hear from the Minister that HMRC has the resource, capacity and systems to ensure that this does not become just another vehicle for tax abuse.
Helen Goodman (Bishop Auckland) (Lab)
In the case of the film tax credits, the British Film Institute has a role in assessing whether the criteria are met, and it obviously has great expertise in that area. It would be helpful to know whether this work is going to be contracted out in any way or whether any particular expertise is needed by Revenue officials in doing this job.
Catherine McKinnell
My hon. Friend raises a very important point. I have not specifically considered it, but it fits well with some of the additional concerns put to me, which I am now putting to the Minister, about defining who should qualify for the relief and how it should be assessed by HMRC. It would be interesting to hear whether consideration has been given to using the expertise of outside bodies to ensure that HMRC gets its assessments right first time in administering this tax relief.
In the light of the National Audit Office’s recent report that HMRC monitors just 10% of its “tax expenditures”—there are more than 1,000—it would be reassuring if the Government committed themselves to reviewing the operation and take-up of this tax relief each year to ensure that HMRC is fully aware of how it is being used, and, more important, whether it is being abused.
David Mowat
Does the hon. Lady not think it right that we incentivise these renewables projects through contracts for difference and all the mechanisms the Department of Energy and Climate Change has brought forward rather than these sorts of EIS schemes? Therefore, it is rational to do what the Government have done, and that of itself should not make any difference to the propensity to go ahead with these things.
Catherine McKinnell
We would always hope that the Government would behave rationally in respect of these matters. I am pleased that the hon. Gentleman has absolute confidence in that, but I would be grateful if the Minister could provide some reassurance because the Government’s record on these issues has not always been entirely rational and I do not share the confidence of the hon. Member for Warrington South (David Mowat) in this regard.
On follower notices and accelerated payments, amendment 2 inserts subsection (8A), which provides that if a tribunal finds that a penalty should not have been charged because it was reasonable for the taxpayer to continue his dispute, the follower notice on which it was based remains valid, as does any accelerated payment notice or partner payment notice related to it. Concerns have been raised that if a penalty is cancelled on the grounds specified in clause 207, the validity of the follower notice—or related accelerated payment notice or partner payment notice—is not affected by the cancellation of the penalty. HMRC has confirmed that the intention is that if the penalty is cancelled on other grounds specified in subsection (2A), the follower notice, and any related accelerated payment notice or partner payment notice, would be cancelled. That is clearly the logical result of a successful appeal against the penalty. However, a few questions have been raised about this, so will the Minister say in what circumstances the grounds of appeal in clause 207(2A)(d) might be used, and why if successful, the FN and related APN or PPN would not be cancelled? When will guidance be published on this and the rest of the legislation on FNs and APNs, bearing in mind how important the guidance will be in helping taxpayers and their advisers to understand how this legislation is intended to operate? When will HMRC be publishing a list of the disclosure of tax avoidance schemes that will be issued with an APN, as we know that there is a lot of concern about the implementation of some of the Government’s proposed changes? On that very technical note, I conclude my queries to the Minister and I look forward to receiving reassurances from him in his response.
Christopher Pincher (Tamworth) (Con)
I welcome the chance to make a brief contribution to the debate on this group of amendments. It was a pleasure to serve on the Public Bill Committee with the Exchequer Secretary; it was certainly an educational experience for me. It was also a pleasure to serve with the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), although her professed determination to scrutinise the legislation line by line did at times make it feel as though she was scrutinising it word by word.
I should like to speak briefly to Government amendments 1 and 2, which affect clause 207, encompassing clauses 192 to 212. As the Minister and the shadow Minister have said, those provisions deal with follower notices and the accelerated payments regime. I was heartened to hear that the Minister is spelling out the ground rules for appeal in respect of follower notices, but he will know that there remains some residual concern, to say the least, about the retrospective nature of accelerated payment notices.
A number of people and their advisers have made what they believe to be a proper disclosure, particularly after the increase in the fine for non-disclosure from £5,000 to £1 million, erring on the side of caution and over-disclosing. They are concerned that they will now be caught up by that disclosure and will find themselves with retrospective tax liabilities, perhaps dating back to 2004. The Minister was good in Committee in making it clear that he would continue to consult the industry and taxpayers, because the original consultation was brief. I hope that he will do that, and will continue the dialogue with the industry and with taxpayers to ensure that nobody is caught up unfairly, having tried to do the right thing, by these proposals. I look forward to hearing him make the position clear in his remarks .
Stewart Hosie
I rise to speak against new clause 1 and the introduction of the bareboat chartering regime. I heard the Minister’s comment that this is about trying to get a fair tax return from this small but important sector. It tells us that at the moment it is paying about £200 million a year in tax and national insurance. At a yield of about £100 million, the tax return from this small sector will be increased by about 50%—that seems a substantial increase in a short period.
I would like to say that this bareboat chartering regime was a one-off stand-alone bad measure, but it does not stand in isolation. It is part of a pattern of ill-judged, disjointed and sclerotic decisions that this Government have taken, and it typifies their attitude to the North sea. Some years ago, we had the massive hike in North sea corporation tax supplementary charge, which absolutely stifled investment and brought it to a grinding halt. That led the Government, in panic, to make some kind of correction through the introduction of a large series of complicated new and enhanced field allowances.
Mr Weir
My hon. Friend makes a very good point. Given that the Government have so recently and so enthusiastically embraced the Wood review, does he not think that it is an odd measure to introduce, as it will hit the maximisation of the recovery of our oil and gas reserves?
Stewart Hosie
That is an extremely good point. It is not just the International Association of Drilling Contractors that has welcomed the Government’s approach to accepting the full recommendations of the Wood review, but the overall trade body, Oil and Gas UK. Indeed, the Scottish National party thinks that it is a good thing, too. Both the industry and the SNP have also welcomed some of the field allowances that the Government were forced to introduce, particularly the ultra-high-temperature, high-pressure field allowance for mixed gas and oil fields. That kind of measure is incredibly sensible, but as my hon. Friend says, and as Oil and Gas UK points out, there is huge disappointment that the Government are continuing with the bareboat charter measure. They believe that it is ill-conceived and should have been dropped in its entirety. The backdrop to its introduction is a period in which operating costs have increased sharply. Last year’s cost increases of more than 15% led to an all-time record high of almost £9 billion in costs. I understand that new developments in the North sea are facing similar cost pressures, so it is illogical to introduce this measure at this point, especially as drilling rigs and accommodation vessels alone are included in the scope of the legislation.
We are looking at a part of the sector where the return on capital is only 8% or 9%, and the cash break-even on a drilling rig or an accommodation platform is typically 15 years. These are large investments, with investors taking substantial long-term risks, and we cannot understand why the Government want to put that at risk at this particular point.
Stewart Hosie
Indeed; I recognise all those points, and the pressures that are being applied to finite and very mobile resources, such as rigs and accommodation vessels, but I will come back to some of that later.
This measure not only penalises the drilling and accommodation vessel sector, but potentially impacts on the entire £35 billion upstream oil and gas supply chain. Derek Henderson from Deloitte UK said:
“While it doesn’t affect operators directly, many expect that the costs will be passed on to them and could discourage drilling.”
That would impact on the entire support and supply chain that is dependent on drilling activities.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
On the point about making other jurisdictions more attractive, are the Government not actually helping Scotland’s competitors by ensuring that rigs, of which there is a shortage, go to more sympathetic jurisdictions?
Stewart Hosie
Indeed, and Malcolm Webb from Oil and Gas UK made a near-identical point when he said:
“It is perplexing…that the Government has chosen to proceed with the bareboat measure. This can only increase costs on the”
UK continental shelf. He also said:
“we fear that this move will drive drilling rigs, already in short supply, out of the UKCS.”
That would be a ridiculous thing to do.
What makes this measure all the more peculiar is that the bareboat charter arrangements are commercial arrangements that are widely used across a range of industries, and not just in the oil and gas sector. The arrangements we are talking about are used internationally, and have formed a consistent part of the UK continental shelf operation for 40 years. So why pick now to take an extra £500 million or £600 million out of the North sea over the next five years? The Treasury’s decision in the Budget to apply this measure only to the oil and gas industry, and only now, to a few specific vessel types, is utterly illogical.
I do not want to detain the House too long, so I think that the key thing to do is to consider the points that the International Association of Drilling Contractors makes about the measure. This is not a gentle criticism of a mildly inconvenient tax; it is an excoriating critique of what the UK Government have done. The association says:
“The measure is unfair and a unilateral deviation from international best practice…with no ability for contractors to reset prices,”
it
“amounts to retrospective and double taxation”,
and in a real and practical sense, it does. It says:
“The measure will depress economic activity. The…changes affect the cost base of the drilling industry”,
with all the impact that might have. It goes on:
“The measure targets a single, specialist sector for additional rent…Specialist international companies that have relocated”
to the UK “will be particularly hit”, when they and their investment should be welcomed instead.
The association argues:
“The government has manipulated the introduction of the measure to avoid proper scrutiny.”
In a particular criticism, it goes on to say:
“It is not appropriate for legislation as complex as this to be published in initial draft form”
on the day it was due to come into effect. That is a preposterous way for the UK Government to behave. The association continues:
“The consequences of the measure have not been properly assessed by HRMC”,
and it says that there are reports that up to £2 billion could be lost from the continental shelf. It also says:
“The measure is deliberately discriminatory...all vessels bar drilling rigs and accommodation units have been exempted for reasons that are far from clear.”
To put that another way, only two sorts of vessels remain included in the scope of the measure, which appears to be the usual sort of smash-and-grab cash raid that this Government make on the North sea.
There appear to be a great many reasons why the bareboat chartering regime is wrong. There appears to be an illogicality about the way it is being introduced, as well as a complete lack of transparency and time properly to assess the long-term impact, not just on drilling rigs and accommodation vessels, but on the entire supply chain. Little concern appears to have been felt about the consequential impact on growth and jobs in the sector and in the economy in general. That is quite a scathing set of criticisms to make of this Government, although it is not unique and could apply to any number of other things that they have done.
I look forward to hearing what the Minister has to say, but unless there is a very credible explanation of the amount of tax that he believes is lost, and of how the proposals will help, rather than having the consequences that I have described, I fear that we might divide on new clause 1.
Helen Goodman
I should like to speak to new clause 5 and new schedule 4 on the theatre tax relief and to set this in the context of the current state of British theatre.
The Government’s own documents point out that the film tax credit introduced by the previous Labour Government has been a significant success. In answer to written questions from my right hon. and learned Friend the Member for Camberwell and Peckham (Ms Harman), the Government have told us that the film tax credit has supported 1,200 films, provides 46,000 jobs, and has brought in £1 billion of investment. Obviously, therefore, a theatre tax relief is a good idea in principle, but it is worth considering whether the drafting of the new clause will achieve all the desired objectives. If it is not drafted sufficiently generously, the positive benefits to the theatre industry and to the British economy will not be achieved, but if it is drafted too loosely, it can become open to abuse. In either of those instances, we will have to come back and revisit the drafting, and the industry will face an unstable regime that is not helpful to its planning. In one respect, the drafting is a bit too loose and in another respect it might be a little too tight.
Sir Nick Harvey (North Devon) (LD)
I strongly support the hon. Lady’s thesis that it is essential to get the wording right. At the moment, there seems to be a practice on the part of HMRC investigators to assume that any investment—certainly by private individuals taking advantage of this facility—is, by definition, improper. There is far too much of an assumption that people are on the fiddle. I share her view that it is an entirely valid form of tax allowance and that it is important to get the definitions absolutely bang on the nail.
Helen Goodman
I am grateful to the hon. Gentleman. It is slightly unfortunate that the Government have brought the new clause and new schedule to the House now, because this is the only opportunity we are going to get to scrutinise this.
The object is obviously to support the development of British theatre and, in particular, to support touring. We have some of the best theatre in the world; we all know that. It all began with having the best playwright in the world. We have built on that over time, and our theatre is one of the major attractions for inward visitors and a major export industry. I point out to the Minister that we can draw a distinction—it is a little crude—between two parts of the current theatre industry. The commercial part is a series of chains of theatres producing successful, profitable plays that are often sold to New York and have very long runs, particularly in the west end of London.
If the sole benefit of the tax relief was to make those companies more profitable, that would be very nice for them, but it would not achieve what the Minister is aiming for—namely, to support the development of the industry. We therefore need to look at whether the relief supports the part of the theatre that is not always profitable and is supported by the public purse. That is why the question that my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) asked about whether the allowance will be claimable by companies that are charities is very pertinent. Large parts of the subsidised theatre sector, the Minister hopes, will be getting a tax subsidy instead of a public spending subsidy; I appreciate that that is his aim. However, that will not happen if their legal structure is not in line with what the Bill provides for. It is rather disappointing that we are being asked to agree this primary legislation when the guidelines on the definitions have not yet been published and so it has not yet been possible for them to be scrutinised by people in the industry who understand this very well.
Jenny Chapman (Darlington) (Lab)
My hon. Friend has spoken about how the changes might apply to the National Theatre. Is she intending to move on to talk about regional theatre and how those changes may or may not benefit somewhere such as the Darlington Civic Theatre?
Helen Goodman
I am, because I know that my hon. Friend has a keen interest in that, as do people up and down this country.
So we have had big cuts to the Arts Council. The Government have also imposed big cuts on local government, and from answers that I have received to freedom of information requests, we now know that on average local authorities are cutting their arts provision by even more—some 14%. So, given the estimates in the Red Book of the value of this tax relief rising from £5 million to £20 million per year, we can immediately see that it does not compensate for the reductions that have been experienced in public support.
My hon. Friend is right: there is a big issue about what is going on in the regions. The “Rebalancing our Cultural Capital” report suggested that the Government were supporting cultural institutions to the tune of 14 times as much per person in London as elsewhere, and that is not conscionable in the long term for this country. It is clearly because of that concern about regional imbalance that the Minister has decided to provide a slightly more generous relief for touring.
Simon Kirby (Brighton, Kemptown) (Con)
Will the hon. Lady be very clear: is she opposed to the cuts in the DCMS, and if so, would Labour reverse them?
Helen Goodman
I think it must be a matter of regret to everybody in the House that DCMS has taken 36% cuts. Of course, the question whether they can be restored is, as the hon. Gentleman knows, a completely separate one. I am just pointing out that the tax relief, if the legislation is properly drafted, will not cancel out the effect of those cuts. I am hoping that no one on the Government side is trying, through some sleight of hand, to give such an impression.
To return to the point that my hon. Friend the Member for Darlington (Jenny Chapman) raised, it is my understanding that in Darlington, the theatre is what is called a receiving house. That means that new plays are not being made in Darlington. Companies come on tour to Darlington and their productions are shown for several days. There are many very good producing houses in the regions as well; one good example would be the Nottingham Playhouse, where they make plays and tour them, and sometimes they tour them to London—they have just had something on at the Almeida.
A receiving house will not get the benefit of this tax relief; it is the producing company that gets the benefit. Of course, it may be that if they get the tax relief or the tax credit, they could offer the production to the receiving house for slightly less money, which might ease the situation in a place like Darlington, but there will not be a direct benefit, as I understand it.
My next question is whether the definition of touring is the right one and whether the measure will address the regional imbalance. As my hon. Friend the Member for Newcastle upon Tyne North pointed out, it is completely sensible to say that the extra relief is given if the play is taken to more than six places, but we must question whether 14 productions in two places is an appropriate definition of touring. Some of those who responded to the Government’s consultation said it would be a good idea to have a geographical definition of touring, and I do not understand why the Minister has not done that. I think he is risking some revenue leakage on this point. To give a concrete example, a play could be on on one side of Shaftesbury avenue for 14 nights, then move to the other side of Shaftesbury avenue for 15 or 25 nights and it would benefit, but the Government would not have achieved their policy objective of ensuring that the theatrical experience took in a new, wider audience.
I think there is a problem and I am disappointed by the way the Minister has drafted the provision; it is a weak spot. On the other hand, he might be being too restrictive in the number of production companies that can benefit, although we do not yet know how the guidelines will operate. In principle, of course it is a good idea to support British theatre. It is a great industry, we are very good at it and we have some of the best actors and theatre companies in the world, so in principle, it is a good idea to have a theatre tax relief, but I do have those two questions about those two parts of the new clause and the schedule.
Mr Aidan Burley (Cannock Chase) (Con)
I have a couple of questions for the Minister about the accelerated payment of tax and avoidance cases. I have written to him about this and received a letter from him, and also met him subsequently. Others have mentioned this issue, which has caused a lot of concern, especially within the accounting community. Many of my constituents who are accountants and who run businesses have written to me and met me to voice their concern about what they believe is retrospective legislation, with no right of independent appeal. I hope the Minister will be able to reassure my constituents and those of other Members.
The first question is about the oft-quoted 80% success rate in tax avoidance cases tried at court. The Minister has quoted that statistic, and HMRC has quoted similar figures, but we have yet to discover the source of that statistic, nor do we have a list of the cases on which it is based. Many of those who have contacted me feel that the figure is unsubstantiated. Will the Minister tell us the source of that 80% success rate statistic?
Secondly, there is a strong view that this law is being implemented retrospectively, with no right of independent appeal. I know the Minister has said it is not retrospective legislation, but he knows that that opinion is not shared by the accountancy profession, the legal profession, the CBI or even the Treasury Select Committee. Will he comment on that?
It is predicted that the legislation will result in some 150,000 redundancies, and the loss of future tax revenues from companies going to the wall, including some in my constituency, is estimated to be £50 billion, all to collect a mere £4 billion in unpaid revenues over the next five years. That seems to me to be a very bad bang for your buck. Does the Minister believe it is worth such loss and unemployment?
Mr Gauke
We have had, unsurprisingly, a wide ranging debate. I shall try to respond to the points raised by hon. Members in our debate, starting with those relating to new clause 1 and new schedule 1 on oil and gas. I outlined the measure in my opening remarks, and a number of questions have been raised. The question that gets to the heart of the matter concerns the impact on drilling activity and how that affects the UK’s competitiveness.
The Government’s support for the sector over the past few years through field allowances and decommissioning relief certainly has helped to encourage record levels of investment—£14.4 billion in 2013 alone—and supported the market for rigs in the UK continental shelf, where rates are driven by demand. Rig rates in the UK are among the highest globally, so we are not convinced that this measure will drive rigs from the UK continental shelf. In fact, recent press coverage indicates that rigs continue to be attracted to the UK continental shelf after the measure’s introduction.
In addition, the Government do not accept that they should seek to address the issue of rising costs by accepting an unfair tax system where a small group of companies are able to pay almost no UK tax. The new oil and gas authority which the Government announced as part of their implementation of Sir Ian Wood’s recommendations will aim to identify ways to ensure that Government and industry can work together to address cost escalation.
Stewart Hosie
That is a valid point to make, but having had the chartering regime in place in the North sea for 40 years, why introduce change now and why restrict it to rigs and accommodation vessels, affecting only one industry?
Mr Gauke
On the question why now, it is worth pointing out that following a refocusing of the UK corporation tax regime to a more territorial basis over recent years, and in view of increasing recognition, through the base erosion and profit shifting OECD initiative, that transfer pricing and other international rules do not always provide a fair or consistent outcome, the Government have decided that the need to protect the tax take from those who benefit indirectly from the exploitation of the UK’s natural resources requires domestic action now.
In addition, recent Government incentives have resulted in record investment in the UK continental shelf. It is right that action is taken to ensure a fair amount of tax from activities carried out in connection with the exploitation of the UK’s natural resources, and HMRC ensures that all businesses pay the tax due in accordance with the tax law.
Mr Brian H. Donohoe (Central Ayrshire) (Lab)
I have a constituent who is on a ship that serves the North sea. He is the only member of the crew who has had his national insurance contributions changed in the last round. He is an electrical engineer. The mechanical engineer, the captain and the bosun are still on the old rate, but the electrical engineer is not. Can the Minister explain to me why an electrical engineer is being discriminated against on a North sea supply vessel?
Mr Gauke
The hon. Gentleman raises a somewhat different point from the one that I am addressing, but if he writes to me in respect of the individual case—[Interruption.] If he has already written to me, I am delighted to hear that. HMRC may be better placed to respond to the particular case, but we are taking action in respect of intermediaries to ensure that the national insurance contribution system works fairly. This is another area where we are making sure that businesses that benefit from our natural resources make a fair contribution in tax.
Simon Kirby
Is the Exchequer Secretary any clearer than I am about whether the Labour party will reverse the cuts to the Department for Media, Culture and Sport, because I am still not sure whether it intends to or not?
Mr Gauke
I am grateful to my hon. Friend for another example of Labour opposing yet another measure that this Government have taken to try to reduce the deficit. At least Labour Members did not make another spending pledge on this occasion, but we will, of course, continue to monitor their remarks very closely because they frequently do make spending pledges. [Interruption.] Perhaps the presence of the shadow Chief Secretary, the hon. Member for Nottingham East (Chris Leslie), has instilled some uncharacteristic discipline in Labour Front Benchers.
Let me turn to the question of why some circuses are excluded and some points of definition. With the exception of the named exclusions, other types of performing arts can benefit, provided that those giving the performance can demonstrate that they are wholly or mainly playing a role and that each performance is live and that the presentation of live performance is the main object, or one of the main objects, of the theatre production company’s activities. The Government believe that using that definition, which considers the nature of the performance, is more appropriate than listing types of performing arts. In cases where further clarity may be required, companies should seek professional advice or contact HMRC. On the subject of HMRC, I was asked about its resources. The House may be pleased to know that a specialist unit has been provided to assist businesses with making claims under this relief.
The definition of “touring” has been raised and whether more should be done in terms of relating it to geographical location. A production can qualify as “touring” if there is an intention to perform at six or more separate premises or to present 14 performances in two or more premises. The hon. Member for Bishop Auckland (Helen Goodman) is right to say that we considered alternative definitions of “touring,” including the use of geographical restrictions, but we believe that our definition provides a simple and effective way to support the range of types and sizes of tours that take place. That is why we have gone with that definition.
On the question whether this will cause a significant administrative burden for charities or not-for-profit theatre companies, minimising complexity and ensuring straightforward compliance was one of the central considerations in designing the relief. That is why we are basing it on the film tax relief model, which is also used successfully for other creative industry tax reliefs. We have worked closely with industry in determining the design of the relief, to ensure that it works for the industry, particularly the not-for-profit sector. Officials continue to engage with industry, including by attending events to help and advise in the run-up to companies starting to make claims in September. Ultimately, detailed guidance will be published on the HMRC website to ensure that companies and charities get the support they need.
Mark Field (Cities of London and Westminster) (Con)
Is it the Treasury’s intention, for the sake of simplicity and certainty, to ensure that the definition of “touring” is a nationwide one? In central London, which has a lot of theatres, it would be very easy to suggest that performing in only two or three theatres would not be a tour.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. It is not good for Members just to walk in and intervene, in fairness to those who have been here throughout. I know that the hon. Gentleman has a great interest in this issue, but may I ask Members to please not just walk in and intervene? I am sure, however, that the Exchequer Secretary would like to take the question on board, because it is such a good intervention.
Mr Gauke
I will do so, Mr Deputy Speaker, because my hon. Friend makes an interesting point. I have set out the definition of touring. We think that the right approach is to use that definition, for the sake of simplicity, rather than to try to come up with something more complicated.
A question was asked about how a business not subject to corporation tax can qualify for relief. The new relief is available only to companies subject to corporation tax: it is a corporation tax relief. As I have said, it is modelled on the successful reliefs that already exist for the creative sector, and it is designed to give the relief to producers while minimising the scope for abuse. The Government recognise that not-for-profit companies make up a valuable and substantial part of the theatre industry, and we are confident that the sector will be able to access the relief without significant additional administrative burdens. A concern was expressed about whether setting up a trading subsidiary is complicated for charities. As I have said, we have tried to minimise complexity, and we have based the relief on what is already in place. We believe that charities will get the support they need.
David Mowat
I have, indeed, been here all the time, Mr Deputy Speaker.
The hon. Member for Bishop Auckland (Helen Goodman) asked whether the relief will apply to blockbuster successes, such as “Les Misérables”, on which massive amounts of money are made. Indeed, the return on capital for such ventures is far higher than that for contractors in the North sea. Can the Minister give us any assurance that the relief will not be disproportionately skewed towards such companies?
Mr Gauke
The point is that the relief is designed to support the range of theatre productions across the UK, in both the subsidised and commercial sectors. We worked closely with the subsidised sector when developing the policy, and we are confident that it will benefit from the relief.
Let me turn to the points made about measures to deal with tax avoidance schemes, including the accelerated payments regime and follower notices. My hon. Friend the Member for Tamworth (Christopher Pincher) asked whether taxpayers who have not used a true tax avoidance scheme will be caught, perhaps with a precautionary notification having been made under the DOTAS regime. Any unintended consequences for compliant taxpayers will be minimal. Where the taxpayer has used a relief correctly, but a DOTAS disclosure has been triggered, there would not normally be any tax in dispute, and there will therefore be no accelerated payment. If a taxpayer has used a relief largely as intended, but some elements are disputed, then an accelerated payment—if one is required—would be confined to the disputed elements. Let me be clear that the accelerated payment is the amount of tax that the taxpayer can expect to pay if their avoidance fails, taking account of their overall tax position. It is not some arbitrary amount, as has been alleged by those who have tried to discredit the measure.
My hon. Friend asked whether the measure will be retrospective in effect, as did my hon. Friend the Member for Cannock Chase (Mr Burley). We had an extensive debate on that point in Committee, and the Committee reached a sensible conclusion, but let me set out the issue again. The measure is not retrospective. The rules about whether the taxpayer’s scheme does or does not work and about the amount of any tax liability will not be changed. The taxpayer would have already paid the money had they not entered an avoidance scheme. The taxpayer can continue to dispute the case, and will be paid back with interest should they win. We are not restricting people’s rights. Prudent taxpayers should recognise that tax avoidance carries a significant risk of not working and that the tax might become payable, so they should make plans for such an outcome.
Christopher Pincher
My hon. Friend is being very generous with his time. I am pleased that he has made the position clear. Will he also make it clear that he will continue the dialogue with the tax advice industry and with taxpayers who are concerned about the issue? The Treasury Committee has described the measure as a retrospective piece of legislation. I know that he has received representations from the noble Lord Flight, and I trust that he will also take those on board.
Mr Gauke
I have received a number of representations on the matter, but I have been clear as to why the Government do not consider the measure to be retrospective. It is right that in these circumstances the disputed tax should be held by the Revenue.
The hon. Member for Newcastle upon Tyne North asked about the grounds for a penalty appeal. We have introduced amendments to provide extra clarity on that. They separate cases in which the penalty is cancelled because the notice should not have been issued from those cases in which the notice was appropriate but the taxpayer has reasonable grounds to continue the dispute—for example, because they could reasonably argue that different grounds are relevant. Then it will be for the tribunal to decide. HMRC is on course to publish the guidance and the DOTAS list in time for Royal Assent.
To answer the question from my hon. Friend the Member for Cannock Chase about the follower notices, there is no appeal against the requirement to pay the accelerated payment. That would simply substitute one dispute over the substance of the scheme for another. HMRC is not making a decision about whether the avoidance scheme works, which would have full rights of appeal, and the rules do not change that situation; rather, the requirement imposed on the taxpayer relates solely to the timing of the payment. If payment of the tax is a problem because the taxpayer cannot afford the full amount immediately, HMRC will use its normal approaches, including appropriate payment arrangements.
The source for the HMRC success rate of 80% is the list of tribunal and court decisions. Those decisions are all published and people can read for themselves HMRC’s continued success in these cases.
The hon. Member for Newcastle upon Tyne North asked whether we are withdrawing support for investment in renewables. The change we are making is not an attack on renewables. It will simply end double subsidy of companies that are at lower risk because they will benefit from Department of Energy and Climate Change support, and will ensure that the venture capital schemes remain well targeted and operate in a fair and sustainable way. The Government continue to support the renewables sector more generally and have set out the amount of support we will allocate to low-carbon generation up to 2020-21, when it will reach £7.6 billion. The Government continue to offer generous incentives to the sector.
The hon. Lady asked whether funds already invested in renewable energy schemes will have to be returned to investors. I can reassure her that new clause 6 will have effect only for shares issued by companies on or after Royal Assent to the Bill. Existing schemes and investors will not be affected by the changes.
With those points of clarification, I hope the House will support the proposals.
Question put, That the clause be read a Second time.
“associated person (in Part 8ZA) | section 356LB” |
“contractor (in Part 8ZA) | section 356L(2)” |
“contractor’s ring fence profits (in Part 8ZA) | section 356LD” |
“exploration or exploitation activities (in Part 8ZA) | section 356L(4)” |
“lease (in Part 8ZA) | section 356LC” |
“oil contractor activities (in Part 8ZA) | section 356L(2)” |
“relevant asset (in Part 8ZA) | section 356LA” |
“relevant offshore area (in Part 8ZA) | section 356L(5)” |
“relevant offshore service (in Part 8ZA) | section 356L(3)” |
“commercial purpose condition (in Part 15C) | section 1217OB”; |
“company tax return (in Part 15C) | section 1217OA”; |
“core expenditure (in Part 15C) | section 1217GC”; |
“costs of a theatrical production (in Part 15C) | section 1217IC”; |
“EEA expenditure (in Part 15C) | section 1217GB”; |
“EEA expenditure condition (in Part 15C) | section 1217OB”; |
“income from a theatrical production (in Part 15C) | section 1217IC”; |
“production company (in Part 15C) | section 1217FC”; |
“qualifying expenditure (in Part 15C) | section 1217JA”; |
“the separate theatrical trade (in Part 15C) | section 1217OB”; |
“theatrical production (in Part 15C) | section 1217FA”. |
Mr Gauke
I beg to move, That the Bill be now read a Third time.
I will keep my remarks brief, but I would like to remind the House once more of the important provisions before us. Finance Bill 2014 delivers measures that will help British businesses invest and create jobs, help British households work and save, and help to ensure that everyone in Britain pays their fair share of tax. The Bill builds on the strong foundations that we have secured in the past four years, safeguarding our economic stability, creating a fairer more efficient and simpler tax system, and driving through reforms to unleash the private sector enterprise and ambition that is critical to our recovery.
Let me focus first on growth and competitiveness. When this Government took office, we inherited an economy in crisis. We have had to make some tough choices, but we have delivered our economic plan. As a result, the UK economy is finally getting back on track. The deficit is shrinking, employment is at record levels and the our economy grew faster than that of any other advanced economy over the past year. To support the recovery, it is vital that the UK tax system attracts investment to this country and does everything possible to ensure that UK businesses can compete in the global race. That is why, in the corporate tax road map in 2010, we set out our ambition to give the UK the most competitive tax regime in the G20.
In my conversations with financial directors and tax advisers I am told again and again of the importance of a low headline rate and the signal it sends. I am proud to say that, as a result of this Government’s actions, the main rate of corporation tax will fall to 20% by 2015-16—not only significantly lower than the uncompetitive rate of 28% we inherited from Labour, but the lowest of any major economy in the world. It is vital for our national interest that we continue to have that low competitive rate. Altogether, by 2016, our corporation tax cuts for small and large businesses will be saving businesses £9.5 billion every year. These reforms have been a central plank of the Government’s economic strategy, and that strategy is working.
Competitiveness is not just about the rate of corporation tax. That is why this Bill will raise the annual investment allowance to £500,000 with effect from April 2014 to December 2015. This doubles the amount of investment on which firms can get up-front tax relief. More than 4.9 million firms will benefit, the vast majority of which will be small and medium-sized enterprises.
The Bill will also reduce business and household energy costs by freezing the carbon price support rate to £18 in 2016-17. The Government have also committed to maintain the freeze until the end of the decade, which will save businesses £4 billion by 2018-19. The Bill includes measures to give targeted support to the innovative sectors that will drive growth in the 21st century. We will legislate further to increase the generosity of the research and development tax relief for small businesses, with an increased rate of support for loss makers of 14.5%. This demonstrates the Government’s commitment to supporting research-intensive SMEs and start-ups and could support up to £1 billion of investment over the next five years. We will support social enterprise with a 30% tax relief, unlocking up to £500 million in additional investment over the next five years, and we are making permanent our successful seed enterprise investment scheme to support investment in start-ups and early-stage firms. Let me mention again the new theatre tax relief, which we have just debated, that recognises the unique cultural value that the theatre sector brings to the whole of the UK.
With low corporation tax rates, support for innovation and help for small business, Finance Bill 2014 sends the clearest possible message that Britain is open to multinational companies, open to entrepreneurs, open to investors: Britain is open for business.
Let me deal with fairness. While the Bill supports businesses, it also provides for individuals and helps families with the cost of living. We are delivering our coalition commitment to raise the income tax personal allowance to £10,000 and we are going further to increase it to £10,500 in 2015-16. By April 2015, a typical basic rate taxpayer will be more than £500 better off than under the previous Government’s plans. Taken with previous increases, the Government will have lifted over 3.2 million people out of income tax altogether. That is real help for hard-working people.
The Finance Bill rewards those who want to save for the future. We recognise that people who rely on their savings income have seen low returns in recent years. From April 2015, the 10% starting rate of tax on savings will be abolished, and a 0% rate will be extended to the first £5,000 of savings income above the personal allowance. This will benefit 1.5 million people, over 1 million of whose total incomes will be below £15,500 a year. They will pay no tax on their savings income at all.
We are delivering our promise to recognise marriage in the tax system by introducing a new transferable tax allowance for married couples and civil partners, allowing spouses in households where neither partner is a higher or additional rate taxpayer and where one partner has not used up the full allowance, to pay tax on up to £1,050 less of their income from 2015-16.
Let me deal with some of the measures we are taking to tackle avoidance. The vast majority of individuals and businesses pay the tax that they owe, but there are some who continue to pursue unacceptable ways of reducing and delaying their tax bill. This Government are determined radically to reduce both the incentives and the opportunities for individuals and businesses to engage in abusive behaviour. This Government have taken unprecedented steps to tackle avoidance and abuse. Since 2010 we have legislated to close more than 40 tax avoidance loopholes, and we have made major strategic reforms such as introducing the United Kingdom’s first anti-abuse rule. As a result, the market for tax avoidance schemes is shrinking. The number of disclosures of tax avoidance schemes fell by nearly 50% between 2011-12 and 2012-13.
However, we are not complacent. That is why the Bill introduces a new requirement for users of avoidance schemes which have already been struck down by the courts, which fall within the scope of the DOTAS rules, or which are being counteracted by the general anti-abuse rule to pay the disputed tax up front. That will generate nearly £5 billion of revenue over the next five years, and ensures that those who knowingly enter avoidance schemes will not be able to hold on to the disputed tax. They will have to pay up front like most other taxpayers. We are also cracking down on high-risk promoters of tax avoidance schemes by imposing minimum standards of behaviour, supported by onerous information powers and stiff penalties for those who do not comply. Those measures demonstrate the Government’s continued commitment to swift, effective and targeted action to tackle avoidance and aggressive tax planning.
The Bill may be substantial, but it contains a number of provisions to clarify or simplify the tax system. It contains proposals to simplify the tax rules and administrative procedures for employee share schemes, and to merge the main and small-profits rates of corporation tax. Those changes will make it easier for small businesses to meet their tax obligations, and will give them greater certainty that their tax affairs are in order. The Bill also follows a longer, more thorough process of policy development. In December 2013 we published more than 300 pages in draft legislation for comment, and we received more than 300 responses, which have improved the final legislation.
The Bill once again delivers on the Government’s commitment to unprecedented levels of consultation and scrutiny in the development of new tax proposals. It has also undergone 31 hours of scrutiny in the Public Bill Committee. Let me take this opportunity to thank and pay tribute to the Members on both sides of the House who served tirelessly on the Committee, as I did not have a chance to put all my thanks on record at the end of the Committee stage.
I particularly thank the Whips: my hon. Friend the Member for Hastings and Rye (Amber Rudd) provided invaluable help, and I also thank the hon. Member for Scunthorpe (Nic Dakin). I thank my hon. Friend the Member for Gosport (Caroline Dinenage) for her assistance in ensuring that inspiration flowed readily. I thank the members of the Opposition Front-Bench team, who probed diligently. We did not necessarily agree, and Ministers certainly did not accede to any of their endless requests for reports and reviews, but they put their case in, for the most part, reasonable terms.
I thank the hon. Members for Birmingham, Ladywood (Shabana Mahmood), for Kilmarnock and Loudoun (Cathy Jamieson) and for Newcastle upon Tyne North (Catherine McKinnell)—not forgetting, of course, the hon. Member for Nottingham East (Chris Leslie), who at least was there at the beginning and is here at the end. That is half the skill of dealing with a Finance Bill, as far as I can see.
I thank the Financial Secretary to the Treasury and the Economic Secretary to the Treasury for their help in setting out the Government’s case. I also thank my hon. Friends on the Back Benches, whose contributions were generally both valuable and brief: I am grateful for that.
I fear that my time is almost up, Mr Deputy Speaker, so I shall draw my remarks to a close. The 2014 Finance Bill rewards hard work, and restores our private sector’s competitiveness. It encourages investment, tackles avoidance, and helps those on low incomes. This is a Bill that takes difficult steps but delivers real change, and I commend it to the House.
Chris Leslie
Now that we have reached the final stages of consideration of the Finance Bill, may I join the Minister in commending all hon. Members in all parts of the House who took part in the scrutiny, and in considering all the details? As he said, there were 31 hours of consideration of the Bill. I particularly pay tribute to my hon. Friends the Members for Kilmarnock and Loudoun (Cathy Jamieson), for Newcastle upon Tyne North (Catherine McKinnell), and for Birmingham, Ladywood (Shabana Mahmood). Let us be honest: they did the heavy lifting in Committee and on Report, as did—in an equal but perhaps less audible way—my hon. Friend the Member for Scunthorpe (Nic Dakin), the Opposition Whip, who made sure we kept to time and that everything was pursued diligently. Many hon. Members, certainly from the Opposition side of the Chamber, pushed Ministers and probed on specific matters of policy, and I grant that Ministers tried to address many of those points, though they were ably assisted, I suspect, by the officials from the Treasury, who also put a lot of work into these Finance Bills.
The Bill is long on clauses but short on ambition, I am afraid. I said on Second Reading that our goal was to try to improve the specifics. We have tried our best in a number of areas, but I fear we have not always succeeded in persuading Ministers to see the error of their ways. Let us consider some of these specifics, such as the crass and ill-timed tax cut for investment fund managers through the abolition of stamp duty reserve tax. At a time when so many people in this country are struggling with cuts to tax credits, such as the bedroom tax, and finding it difficult to make ends meet, the Government’s priority was to give that support and help first and foremost to those poor, hard-up investment fund managers. It is a badge of shame that that was their priority.
Chris Leslie
I do not know whether the hon. Gentleman is an investment fund manager who has done well out of this, but I will give way and find out.
Ian Swales
The hon. Gentleman is repeating something we have discussed over and over again. Does he not understand that the money from the change in stamp duty goes to the investment funds, not the manager, and that, in fact, millions of ordinary people up and down the country benefit from this change?
Chris Leslie
I am sure those investment fund managers have absolutely no interest in the abolition of SDRT in any way! I thought the hon. Gentleman was once a Liberal Democrat. Before the general election, the Liberal Democrats used to pretend they were in favour of standing up for the vast majority of people, against the vested interests in society who tend to look after their best interests, yet here he is again, voting for tax cuts for investment fund managers. This is a specific element of the Bill that we opposed. We tried to persuade the Government to drop that measure, but we were unsuccessful.
Mark Field
I feel I must stand up for investment fund managers, not least because their business brings significant amounts of money to the UK. I reiterate the sensible words of the hon. Member for Redcar (Ian Swales): ultimately it is all of us who are investors in such funds who will reap the benefits of ensuring that this business comes to these shores, rather than to many other globally competitive financial centres.
Chris Leslie
The hon. Gentleman represents very many of those investment fund managers. He is doing the job he was sent to do, but this is a matter of priorities, and I have to say that the Opposition just disagree. The Treasury has finite resources at its disposal, and at a time of pressures, cuts, and rises in tax—through VAT and in other ways—that hit the least well-off in society, I just disagree with Ministers and Members on the Government Benches that this should have been the priority.
There were other specific areas where we tried to persuade the Government to improve the Bill, such as the proposal to give shares to employees in exchange for employment rights. We believe that undermines what should be a healthy approach to employee share ownership, because it gives the sense that something is being taken away, and that there is a disadvantage. That point was voiced not just by Opposition Members, but by some Government Members. Again, however, we could not persuade the Government on that.
So many tax loopholes need to be addressed, and the Finance Bill should have been the opportunity to tackle some of them, not least the notorious quoted eurobond exemption, which is costing taxpayers hundreds of millions of pounds. Ministers ought to have had the courage to take on that issue. Some of the Bill’s proposals for pensions flexibility are sensible, but big questions remain about the advice we will be able to give retirees to make sure that they get the guidance they need, at that most crucial point in their financial lives, to make the right choice, if they are not purchasing an annuity. Ministers have not lived up to the challenge of ensuring that that guidance and advice is possible. In the debate, I heard that that guidance may currently equate to 15 minutes of face-to-face advice—perhaps I should say face-to-faces advice, because the Minister with responsibility for pensions is now saying, “We will give you some guidance, but it might be as part of a group of people.” The Government have to improve the legislation in this area.
The Bill contains a proposal for a married couples allowance. The Chief Secretary to the Treasury and, I suspect, the Chancellor personally disagree with it, but in a coalition they have to throw a bit of meat to the Back Benchers. The allowance discriminates between forms of partnership and does not help many married couples at all, as we see when we look at the total number who will benefit. If we have tax cuts to give, they should be given to as many people as possible.
Of course, we also tried to improve the specifics and dissuade the Government from continuing their tax cut for millionaires—the reduction from 50p to 45p in tax on earnings of more than £150,000. Again, that is a sign of their priorities: they stand up for those who already have significant wealth in society, but do not respond to the needs and requirements of the least well-off.
We tried our best to improve the Bill, but it missed a number of opportunities. Significant reforms should have been in it, but are conspicuous by their absence. Why did the Treasury not put the cost of living concerns front and centre in this legislation? I am not just talking about making sure that energy companies stop ripping off households up and down the country, or about passing on wholesale price reductions to ordinary households; the Bill should have contained, for example, steps towards a 10p starting rate of tax. There are a number of ways in which cost of living issues should have been far higher up in this legislation.
Mr Jim Cunningham (Coventry South) (Lab)
The Conservative Government of the early 1970s recognised that there was a cost of living problem in this country, and they gave a cost of living payment, through the wage packet, to the low-paid in industries.
Chris Leslie
One would have thought that by now Ministers would have twigged that for all the talk of growth and the recovery, their constituents, never mind ours, are not seeing the benefits in their daily lives. That should have been a focus in the Finance Bill. It should have focused more on housing, as we have a crisis in this country, whereby demand exceeds supply and we have the lowest level of house building since the 1920s. Yet Ministers seem intent on structuring a lopsided recovery in our housing market, failing to deliver the 200,000 properties a year we should be aiming towards by 2020. In addition, many tenants are being ripped off by lettings agencies in our private rented sector. We need reforms to deal with those sorts of things and the Budget ducked those issues, as did the Finance Bill.
The Bill could have dealt with some of the exploitative zero-hours contracts. It should have contained measures to help small and medium-sized enterprises with business rates, because many firms in our constituencies are finding it difficult to get by. We should make sure that we help them, not just with business rates but by making sure that the banks do their job and provide credit. Those are the sorts of reforms that would make a big difference, but again, they were not in this Finance Bill.
Mr Brooks Newmark (Braintree) (Con)
The hon. Gentleman should at least acknowledge that we dropped the small business rate by at least 1p, which has helped businesses. Will he guarantee before the House that he would not increase corporation tax should the country be unfortunate enough to see a Labour Government in power after 2015?
Chris Leslie
That is already on the record. Our view is that the proposed change in corporation tax from next April—from 21p to 20p—should not proceed. That help, instead of going to 2% of companies, should go to 98% of businesses, including the small and medium-sized companies that are the backbone of our economy and that form the bedrock of enterprise in this country. Funnelling that resource through business rates is our preferred choice, but we will set out all our plans in a manifesto, as I suspect the Minister will do as well. We had a debate on this matter earlier, in which we focused on annual investment allowances—the capital allowances for businesses. As we all know, the Minister cut that allowance to a very small level straight after the general election, causing great chaos for very many businesses. Amazingly, it is going up again, in time, coincidently, for the next general election. He revealed in the small print today that it is a temporary change, so the allowance will presumably go back down again.
Chris Leslie
I will give way to the Minister if he will tell us what that investment allowance will fall back down to in 2015. Will he tell us?
Mr Gauke
It is hardly in the small print. It was in the announcement that was made when we extended and increased the annual investment allowance until December 2015. After that, it is a rate of £25,000. That rate is in the public domain, and, presumably, it is the rate that the Opposition have as well.
As the hon. Gentleman did not quite respond to the question from my hon. Friend the Member for Braintree (Mr Newmark), let me ask it again. The Labour party has given a heavy hint this week that it could increase corporation tax up to 26%, as that would still be the lowest rate in the G7—that is the test that it has set itself. Will he provide some reassurance today that a Labour Government would not increase corporation tax to 26%?
Chris Leslie
We know the Minister’s game. He is again trying to scare firms and businesses with various suggestions on tax. We have made it very clear that we need to ensure that corporation tax levels remain at their most competitive among the G7. We will set out our tax plans in a manifesto, as the Minister will be required to do as well. If my hon. Friends think that VAT is due to stay at 20% under a Conservative Government, they should think again. I have heard that the Conservatives may wish to increase VAT to 21% or 22%. I will give way to the Minister if he can rule it out for us right now, here in the Chamber, that he does not have any plans to increase VAT in the next Parliament. Will he rule that out?
Mr Gauke
I will tell the hon. Gentleman what we can do: we can continue to reduce the deficit without increasing taxes. That is more than he can offer. Unlike his party, we have not given a heavy hint that the test based on the most competitive rate in the G7. Canada has a rate of 26.5%. If the Labour party imposed a rate of 26%, it raises the question of whether it would be complying with that commitment.
Chris Leslie
Let the record show that the Conservative Minister did not rule out increasing VAT to above 20%. It is telling that he gave a heavy hint that that remains open as an option. We can have these discussions and examine these particular issues, but I am looking at the missed opportunities—the things that should have been in the Finance Bill. We are now on its Third Reading, and it is time that Ministers realised that people from across the country are crying out for significant changes and improvements that will affect their lives.
I am thinking, for example, of the 5 million people in low pay and the incentives to deliver a living wage. That could have been part of the Finance Bill, but it is not. I am thinking of those families who are struggling with the high cost of child care, which is increasing at a rate higher than inflation. If only the Minister had designed his bank levy properly in the first place and collected the £2.5 billion that he promised the country, we could afford to move from 15 hours of free child care for working parents of three and four-year-olds to 25 hours. That is the sort of reform that could make a big and appreciable difference to the lives of working people up and down the country.
Mr Jim Cunningham
Once again, it comes back to helping families with the cost of living. The Government cut Sure Start, nursery places and so on. Although they boast that they expanded that provision, they did not—they cut it, although we do not have the exact figures. The situation is exacerbated for a lot of families by the bedroom tax, which is forcing people into more expensive accommodation and thereby driving rents up. There is also a lack of social house building in this country.
Chris Leslie
That is my point. The Press Gallery is not bursting at the seams because the Government do not want people to think about what could have been in the Finance Bill. That is not something they want to talk about. They want it to be a “steady as she goes” Finance Bill. They do not want to address the problems of the bedroom tax or to supply real help to the long-term unemployed through starter jobs to give them the opportunity to repair their CVs and get a foot on the ladder. Repeating the bankers bonus tax would have supplied the revenue for that. There are funded ways of doing those things; despite how Ministers seem to want to portray it, this is not about unfunded commitments or borrowing. There are clear, practical and well-costed ways of delivering real improvements to people’s lives, but Ministers refused to do them.
Why are Ministers missing the opportunity offered by this Bill? As far as they are concerned, everything is fine with the economy. It is all going perfectly well. That is their view, but I am afraid that we disagree on that point. As far as Ministers are concerned everything is fine with living standards, but the OBR has said that people will be worse off in real wage terms in 2015 than they were in 2010. Ministers think that everything is fine in the welfare system, but they do not realise that the welfare bill is rising because they are not tackling the root causes of welfare inflation, such as rising rents, long-term unemployment and the subsidies required for low wages. Those are the sorts of challenges that should have been covered in the Finance Bill but are not.
On the deficit and the national debt, Ministers think that everything is fine even though the past couple of months have seen the deficit rise. It is going in the wrong direction. They have added a third to the national debt, which is now at £1.2 trillion. If interest rates go up even by 25 basis points—0.25%—an extra £2 billion of public expenditure will be required to service the debt that they will be accumulating.
Ministers think that everything is fine with productivity, yet infrastructure output is down by 10% compared with in 2010. They think that everything is fine in the housing market, yet we can see by the lopsided nature of what is happening in the economy that there are real risks that mortgage rates might well rise prematurely because of how they have failed to recognise the need to match demand and supply more effectively. They might be satisfied with the state of the economy, but we are not.
Mr Cunningham
It is interesting that my hon. Friend has mentioned interest rates, because, one way or another, they are bound to go up over the next 12 to 18 months. That will have a major effect on negative equity for people who have bought their houses, but, more importantly, it can affect small businesses that want to borrow money and are not getting much help from the banks at the moment. The Government spend half their time blaming a Labour Government for the mess that the banks created. They have never attacked the bankers, who made the economic situation worse, not better. They are apologising for the bankers and blaming us.
Chris Leslie
Government Members and Ministers do not understand how important it is that we ensure that the recovery is sustained and sustainable. A premature rise in interest rates has considerable risks. Three quarters of credit and debt is floating, so if interest rates do rise prematurely, significant harm will come to many householders. Even a quarter point rise in interest rates will cost the typical householder £240 per year. [Interruption.] The hon. Member for Suffolk Coastal (Dr Coffey) may be relaxed, as the Chancellor is relaxed, about interest rates. The Chancellor says that he is not bothered—that he is relaxed about rising interest rates. Is the hon. Lady relaxed about rising interest rates? I will give way to her if she is.
Dr Thérèse Coffey
All I will say is thank God we have not had a Labour Government for the past four years, because I expect that interest rates would now be at 10% and people would be handing back their keys and hoping that the hon. Gentleman does not get into power next year.
Chris Leslie
I do not know what evidence the hon. Lady has for that spurious assertion.
We will see what happens in the coming months. We will make sure that mortgage customers in the hon. Lady’s constituency know that the increases in interest rates are partly related to the condition of the housing market, which is causing significant risk. The Governor of the Bank of England is trying to deal with this very lopsided situation. Of course, it is a matter for him to decide on. Government Members need to speak to the Chancellor to get him to pull his finger out on the housing market and make sure that this is pursued correctly. They do not understand why it is important for the recovery to be fair for all—to be something that everybody in every part of the country benefits from. The richest 1% having been doing especially well in the past year.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Just to be helpful, there are three more speakers to come. The debate that is ping-ponging across the Chamber is very interesting, but I would like to hear from Back Benchers as well.
Chris Leslie
You are completely right, Mr Deputy Speaker. We have had this debate going on throughout the day.
The Minister is a Member of Parliament for Hertfordshire. If his constituents find work in London, under one set of statistics the jobs are classified as located in London, but under the set of statistics he prefers, they are located in Hertfordshire and not London. We can talk about the methodology used in relation to these things.
Ultimately, this Finance Bill is not focused on the long-term best interests of this country. It is not a long-term Finance Bill for stability and for the vast majority of this country; it is a short-term Finance Bill from a part-time Chancellor who is more concerned about getting from here to election day than building a sustained recovery that is fair for all. The defining challenge of our times is to reconnect the wealth of our country with the ordinary finances of households up and down the country. I urge my hon. Friends to vote against the Finance Bill and to send this Bill and these Ministers back to the Treasury drawing board.
Mark Field
I am glad that I am looking more youthful and Conservative this afternoon, Mr Deputy Speaker.
This is a very good Bill containing much that I agree with. The Minister has rightly pointed out that it does some important things, particularly on something close to my heart—the theatre industry in my constituency—but also on technology, which is one of the big growth areas for the future prosperity of this country.
I want to talk about an ongoing concern of mine. The Minister will be aware of what I am about to say. Barely a fortnight ago, Her Majesty’s Revenue and Customs began writing to some 5.5 million taxpayers to confess that it had got things wrong. Errors in the pay-as-you-earn calculation had led the taxman to charge some 2 million fellow citizens too much tax and a further 3.5 million Britons had been assessed too leniently. That latter group now faces the prospect of several years of repayments. All this is in spite of expensive IT and personnel reforms that were meant to improve the system’s accuracy.
That news came at a time when the House was scrutinising this Finance Bill, which proposes bestowing ever more powers upon that organisation—in my view, an unjust reward for yet another year of error-strewn performance. Meanwhile, a consultation is now under way as to whether HMRC should be given direct access to UK citizens’ bank accounts so that it can claim from source any tax that it believes it is owed. I share the view of many people on the Government Benches who are concerned that this coalition Government are overseeing the transfer of very considerable powers to the state. I fear that a precedent will be set for a future Labour Government, which we all hope will not come any time soon. However, such a Government might well be minded to expand further the taxman’s remit.
Will the Minister reconsider the new accelerated payments regime that is proposed in the Bill—other Members have spoken on that in the past couple of days—about which I raised my own concerns at Second Reading? It is vital that the Treasury considers carefully the impact of granting such powers to an organisation that, I am afraid, has proven itself time and again to have incorrectly calculated tax on a grand scale.
Mr Gauke
Since 1944, there has been an end-of-year reconciliation under the PAYE system, because not all the information necessary to calculate the PAYE amount is available to HMRC during the year. To some extent, the PAYE amount is a provisional one, which is corrected at the end of the year. Notifying people at the end of the year quickly is not the system failing; that is how the PAYE system operates. It is not errors; that is the system.
Mark Field
I do appreciate that, but the Minister will also appreciate that trust in many institutions, whether Government, banks or this House, has been at an all-time low in recent decades. If we are going to pass on more powers to such institutions we—
Mark Field
If the hon. Lady will excuse me, I will make some progress, as there are other Members who want to speak.
We are now looking at drawing tax avoidance measures so widely. It has been common practice for investors to err on the side of caution and sign up, as the Minister knows, to the HMRC’s own disclosure of tax avoidance schemes—DOTAS—register. Currently, if the UK tax authorities wish to challenge the legitimacy of a DOTAS-registered scheme in court, the taxpayer is permitted to hold on to the disputed tax while the case is being resolved. The Government believe that that incentivises scheme promoters to sit back and delay resolution, so they propose extending the accelerated payments measure to existing DOTAS-registered schemes. That will mean that disputed tax is paid up front to the HMRC, and will be returned if a scheme is subsequently found to be legitimate.
I quite understand why the Minister has felt tempted to explore that route. There is, I understand, a desperate need for money to shore up the public finances, which are still far less rosy than any of us would wish, with a recovery that remains somewhat fragile. There is also, understandably and justifiably, a consciousness of the need to deal more quickly with the tens of thousands of outstanding mass-marketed avoidance cases that are currently clogging up the courts.
However, there is also a vital issue of principle at stake. The Government have been celebrating and espousing their reverence for the eight-centuries-old principles set out in Magna Carta. It was that charter that established the supremacy of the law by dictating that no Englishman could be punished without first going through the proper legal process. That set in train a constitutional revolution that has seen billions across the globe having their rights expanded and protected against an all-powerful state.
Yet at the same time, our Government are now overseeing the creation of a law that will permit HMRC to confiscate a citizen’s property before the courts have established who is legitimately entitled to it. The DOTAS register was a good idea. It was designed to promote openness and transparency in investors’ relations with the HMRC. It is now, in effect, introducing retrospective legislation, with DOTAS declaration being used as a stick with which to beat legitimate investors—those who had never planned on having the liquid assets to meet disputed liabilities.
No doubt the Government—any Government—feel they can railroad those proposals through on a wave of popular demand for new measures to tackle tax avoidance, but although I agree that we have to clamp down on illegitimate tax avoidance, I worry about the potentially very wide-ranging consequences, including the fundamental undermining of the Government’s overarching aim to make Britain a place that is open for business. I support many of the underlying measures in the Bill that are focused on that aim, but this measure expands a profoundly anti-Conservative notion of retrospective legislation. The Minister and I have both been shadow Ministers; we know the number of Finance Bills proposed by the erstwhile Labour Administration in the latter half of the last decade that we expressed concern about because they contained precisely this type of anti-avoidance legislation with retrospective elements. We have to recognise that considerable hardship is imposed on many of those who are affected by such provisions.
I addressed these issues in an article in The Daily Telegraph several months ago. I was and continue to be inundated with letters and e-mails from ordinary people across the country who are utterly dismayed that a Conservative-led Government would initiate such a change in law. Let me highlight some of their comments, so that the Minister is fully aware of the impact of the proposal. One correspondent advised me:
“If this goes through, HMRC will be able to demand immediate and upfront payment of the money it says I owe as a result of their changing the law retrospectively—but without me even being able to present any arguments to the tax courts in my defence. If this were to happen I would need to lose my home in order to pay the bill. It is a monstrous injustice.”
Another correspondent wrote:
“If one was to listen to the Government, it could easily be believed that users of the structures declared under the DOTAS are malicious, super rich individuals, out to escape payment of their ‘fair share’, in contrast to ‘honest taxpayers’. I have been an employee of a company that provided a remuneration structure duly registered under the DOTAS.
In the aftermath of the most severe economic crisis in generations, the IT industry, in which I work, got hit very hard. I have been subjected to rate cut after rate cut since 2009, and for me, nominal income is only going in one direction: down. Yet, if I listen to”
the Government,
“it sounds like complying with an ‘accelerated payment’ will be but a well-deserved inconvenience, forcing me maybe to sell one of my numerous yachts or…homes. I am shocked and appalled at the cynical discourse that consists of creating this false image. I personally feel deeply insulted…. I am not a rich person by any stretch of the imagination; my partner and I rent a one bedroom apartment, and we live modestly.”
What is slightly depressing is that this sort of scrutiny has not really happened. I well understand why the Labour Opposition feel they do not want to stand up for those individuals affected by the accelerated payments regime. I ask the Minister once again in the implementation of the Bill to consider an exception in the case of existing DOTAS-registered schemes whose promoters have taken all reasonable measures to enable a dispute to be brought before the statutory appeals tribunal. I think there should also be a right to appeal against an accelerated payment on the ground that the money is not due, or that a follower notice or accelerated payment notice is not applicable.
Although the Government say the legislation is not retrospective, as it does not change an underlying tax liability, it will in fact apply with retrospective effect over the past 10 years to anyone who currently has an open appeal or inquiry. In my view, if the provision is to come into effect, it should be applied only in cases involving tax planning carried out after Royal Assent to this Finance Bill.
I am sorry if I sound a little churlish. The Minister is well aware, because we have discussed this privately as well as on the Floor of the House, that I think there is much that is good in the Bill, but it is right that these things are properly scrutinised and that scrutiny is ongoing. We are putting into place certain measures that I think set a potentially dangerous precedent and run counter to a principle that should be close to all our hearts: that the British tax system and the British economy should be open for business and open to the opportunities that we all want our constituents to benefit from as we move into a strong economic recovery in the years ahead.
Chris Evans (Islwyn) (Lab/Co-op)
It is a pleasure to follow the hon. Member for Cities of London and Westminster (Mark Field), who always speaks with great expertise in his field. I served on the Bill Committee—I have not missed a Finance Bill Committee since I entered the House. On the first Committee on which I served in 2010 I was full of enthusiasm and, having listened to the Minister, I am still filled with that enthusiasm as he has negotiated a thousand different ways to say no. I pay tribute to all the Members who served on that Committee.
As we approach the general election, the public are crying out for help to ease their burdens as the economy belatedly shows some green shoots of recovery. People around their kitchen tables wondering how they will pay their bills, those in the workplace who are worried about their job security, and those running a small business will judge the Bill on three tests—are taxes fair for my family and myself, do business taxes encourage growth and are they fair, and how will pensions reform—
Mel Stride (Central Devon) (Con)
The hon. Gentleman mentions business taxes. The shadow Minister was repeatedly pressed to say whether business taxes might rise under the next Government. We know from what the Opposition have said that business taxes could rise to 26.5%, the level that they are at in Canada. Does the hon. Gentleman share my concern that that could be a major brake on business development in the future?
Chris Evans
Of course I share the hon. Gentleman’s concern. I shared the concern that the very first act in the very first Budget of this Government was to put VAT up to 20%, increasing the tax burden by 2.5% for businesses all over the country. That was not exactly pro-business, but I am not here to talk about what the Tory Government have done or not done.
Let us deal with facts. Working people have seen their wages fall by £1,600 a year on average under this Government. Real wages will have fallen by 5.6% by the end of the Parliament. People feel worse off. On growth—the one test that the Tories said they would achieve—after three years of a flatlining economy, we see the economy growing by only 4.6%. The Chancellor does not talk about his forecast that the economy would grow by 9.2% in 2010. Our present rate of growth is far slower than that of America at 6.6% or Germany at 5.7%. GDP growth this year is still expected to be lower than the independent Office for Budget Responsibility forecast in 2010.
On borrowing, on which the Conservatives attacked the Labour Government, the present Government promised to balance the books by 2015, but borrowing will be £75 billion that year. Over this Parliament borrowing is forecast to be £190 billion more than planned at the time of the first spending review. National debt as a percentage of GDP is not forecast to start falling until 2016-17, breaking one of the Government’s own fiscal rules.
All the headlines following the Budget were about pension reform. Yes, annuities need to be reformed, and I support increased flexibility for people in retirement and reform of the pension market so that people get a better deal. However, the Labour party has consistently called for reforms to the annuities market and a cap on pension fund charges over the past three years. The Government have failed to reform the private pensions market to stop people being ripped off and to create a system that savers can trust. The Government are failing to prevent savers from being ripped off by delaying bringing in a cap on charges. This is costing savers up to £230,000. The Government are failing to make tax relief on pensions fair, with 15% of all relief—£4 billion—going to the richest 1% of taxpayers.
When we talk about the reform of pension markets and the ending of annuities, I believe we should set three tests. The first is the advice test. Is there robust advice for people providing for their retirement, with measures to prevent mis-selling? Forget the patronising “buy a Lamborghini”. I do not believe the people of Britain are so naive as to go out and buy a Lamborghini. As a former financial adviser, I am talking about good advice. With the reform of the annuities market there will be new products—products that we have not thought of before, such as bonds, investment trusts and all sorts of vehicles that people can invest in. Those will be complicated and people will need advice, but that will not be achieved by 15 minutes of guidance, where advisers cannot sell.
The second test is fairness. The new system must be fair, with those on middle and low incomes still being able to access products that give them the certainty they want in retirement. The billions we spend on pension tax relief must not benefit only those at the very top.
The third test is cost. The Government should ensure that this does not result in extra costs to the state, either through social care or through pensioners falling back on means-tested benefits, such as housing benefit. The Treasury must publish an analysis of the risks it considers when costing this policy. I was deeply concerned when the Minister said this afternoon that this change, which is the biggest ever to the pensions market, is still to be worked out and that a consultation on advice is still running. For those facing this change, advice is vital.
I talked for little short of half an hour yesterday on the other major change introduced in the Bill: exchanging employment rights for company shares. I will try to break it down into two fundamental arguments. First, if an employer has an employee they are suspicious of, why would they give them shares in the company? Equally, if a company wants to trade shares for rights, does that mean it trusts the employee? Will they be hard-working and industrious for that company? Secondly, if a company is going to dismiss an employee, why would it give them shares in the company anyway? Surely share save schemes should be used to reward employees for hard, industrious work, but that is not happening. We still need reform.
We have talked about a report and analysis. Even though the statistics now show that after a 33-week consultation only five of the 200 companies that responded said that they were interested in taking up the scheme, the Government still say that it is far too early to even think about a report.
As we bring to a conclusion our consideration of the Finance Bill, which I am sure all of us who served on the Bill Committee are excited about, the one question we have to ask ourselves is this: is it fair to the people of Britain? Based on the statistics, it is not. I will therefore be joining my colleagues in the Lobby tonight and voting against the Bill.
Mr Brooks Newmark
(Braintree): It is always a privilege to follow the hon. Member for Islwyn (Chris Evans). I want to focus on one small aspect of the Bill, new clause 10, which I know Opposition Members hold dear to their hearts. A couple of years ago the Government extended the £25,000 rate tenfold to £250,000. I told the Chancellor that that was going down extremely well with small businesses and asked whether there was any chance that we could extend it a little longer. He said, “I can do better than that; I’ll double it again, to £500,000.” That takes in pretty much 99% of companies, which is a good thing.
For some reason, Labour wanted to enshrine in law the need to review the impact of the annual investment allowance, which I find peculiar. I do not think it is necessary at all. Governments review every year what is going on and whether tax cuts or increases work. I see no need to introduce that requirement into law.
However, I thought that it might be helpful for Opposition Members if I offered a quick review of what we have done for business. I have come up with 10 points. First, we have lowered corporation tax. Secondly, we have cut the business rate by extending the small business rate relief scheme. Thirdly, we have brought in electronic invoicing. Fourthly, we have raised the threshold for the enterprise investment scheme. Fifthly, we have introduced the seed enterprise investment scheme, helping small businesses get a kick start. Sixthly, we have brought in the employment allowance, saving businesses £2,000. Seventhly, we have cut national insurance contributions for under-21-year-olds, saving businesses £500 per young person they employ. Eighthly, we have introduced the Small Business, Enterprise and Employment Bill. Ninthly, we have frozen fuel duty, making it cheaper for people to go back and forth to work. Finally, we have improved the research and development relief for businesses. We have done a lot for businesses.
What has the impact been on businesses? The confidence index is at an all-time high. We have rebalanced the economy, with growth of 3% in construction, services and manufacturing. We do not need to enshrine in law the need to review the impact of the investment allowance on business, because actions speak louder than words. The Government’s long-term economic plan is working and Britain is back in business.