Tuesday 16th November 2021
(2 years, 5 months ago)
Commons ChamberFinance Act 2022 View all Finance Act 2022 Debates Read Hansard Text Watch Debate
17:02 - The House divided: - Ayes: 238 / Noes: 310 - Question accordingly negatived.
17:16 - The House divided: - Ayes: 314 / Noes: 233 - Question accordingly agreed to.
The Financial Secretary to the Treasury (Lucy Frazer)
I beg to move, That the Bill be now read a Second time.
On Sunday, MPs across the House remembered all those who died in conflict. It is now 76 years on from the time we started to rebuild our country from the devastation of world war two. The bombs that rained down during that war caused enormous loss of life. They tore our cities apart. In London, air raids wrecked or razed to the ground some 116,000 buildings, and in Liverpool and Bristol tens of thousands of buildings were damaged or destroyed.
While the war left a mark on the nation that lasts to this day, those dark years were followed by a period of reconstruction and renewal. In 1951, the iconic Royal Festival Hall opened in London as the centrepiece and legacy of the Festival of Britain. In the 1960s, Liverpool built its extraordinary Metropolitan Cathedral, while the iconic Severn bridge was constructed near Bristol.
Today, we are living in very different times, and we have thankfully not experienced such devastation here again, but we share some parallels with our wartime predecessors. As we emerge from the pandemic, our cities’ buildings may remain intact, but jobs, families and livelihoods have been at risk, and some have been damaged by the worst economic shock in 300 years. It is right, therefore, that we too now rebuild and turn our attention to creating a better future for this country and its people. Last month, the Chancellor started that work. His Budget set out our plans for the stronger economy that will allow Britain to succeed: an economy of stronger growth, stronger employment and stronger public finances, with higher wages, high skills and rising productivity. This Finance Bill will achieve that.
Before I turn to the Bill’s main measures, I will talk about its context. Our economic situation has improved since the last Finance Bill. We have moved away from emergency support to focusing on our recovery, which is now well under way. In fact, the economy is expected to bounce back to its pre-covid levels by the turn of the year—earlier than was expected in March—while our economic plan to safeguard jobs, livelihoods and businesses has worked. As a result, we can now invest in better public services, in jobs and skills, and in levelling up the country so that we open opportunity to everyone everywhere.
However, we should not forget that debt is still at its highest level as a percentage of GDP since the early 1960s and is set to pass £1.3 trillion. While this level of borrowing is still affordable, it leaves us vulnerable if another crisis hits, so we must continue to create a stronger economy that can withstand financial shocks. That is why the Chancellor announced a new charter for budget responsibility, with two fiscal rules that will keep us on the right track.
I want to focus on three aspects of the Budget in this Finance Bill: support for people, support for businesses and growth, and some underlying aspects of fairness. This is a Government who put people first, and this Bill’s measures complement the wider action we took in the Budget to support individuals and working families right around the country. We have reduced the universal credit taper rate and increased the national living wage so that work really does pay. We have continued our fuel duty freeze, helping to lower the cost of everyday life. We have announced that public sector workers will receive fair and affordable pay rises across the whole spending review period.
This Bill will improve people’s lives by backing the businesses that generate jobs and growth. In March, we extended the temporary £1 million level of annual investment allowance on plant and machinery assets. The allowance was due to revert to its previous level of £200,000, but as the Chancellor said:
“Now is not the time to remove tax breaks on investment”.—[Official Report, 27 October 2021; Vol. 702, c. 283.]
This Bill extends the £1 million level until the end of March 2023, encouraging firms to invest more and invest earlier.
While the changes to business rates that we announced in the Budget will encourage more firms to grow and invest, the Bill will also help the UK’s financial services industry became even more successful. In the March Budget, we said we would increase the corporation tax rate to 25% from 2023, for which we have now legislated. However, to make sure that our banks stay internationally competitive while still paying their fair share of tax, this Bill sets the bank surcharge rate at 3%. In addition, we are increasing the bank surcharge annual allowance from £25 million to £100 million, a move that will help smaller, challenger banks.
The Bill also supports another important industry—shipping. It does this by making our tonnage tax regime simpler and more competitive, and by rewarding companies that adopt the UK red ensign.
Finally, we should not forget that our cultural industries also contribute to our economic success. This Bill therefore extends the tax relief on museum and gallery exhibitions for another two years until the end of March 2024, and it doubles the tax relief for theatres, orchestras, museums and galleries until April 2023, to revert to the normal rate only in April 2024. This tax relief for culture is worth a quarter of a billion pounds.
Tax is of course central to our economic health and to funding the public services that make people’s lives better, but the way we collect tax must be fair and simple too, and the measures in this Bill will help us to achieve that. As Members will be aware, we are tackling the social care crisis with a new UK-wide 1.25% levy on national insurance contributions. This Bill will increase the tax rate on dividends by the same amount, so that those receiving this income will also contribute in line with employees and the self-employed.
Clive Efford (Eltham) (Lab)
Can the Minister tell the House just exactly how much of that national insurance increase is going to go to social care?
Lucy Frazer
The hon. Member will know that this has been set out. First, the money will go to the NHS, and then afterwards it will be going to social care. It is absolutely essential that we do that. £12 billion will be collected and will be going through to our social care services, as well as to the NHS.
Lucy Frazer
I will just carry on to my next point, which is that there will be an increase in the social care budget in the spending review period.
A fairer tax system also means tackling those who avoid paying their share. A new economic crime levy will help to fund measures that will prevent criminals from laundering money in the UK. It will apply to about 4,000 businesses and bring in £100 million. The Bill also contains tougher measures to prevent promoters from marketing tax avoidance schemes. In addition, it includes sanctions to tackle tobacco duty evasion, which costs the Exchequer an estimated £2.3 billion a year. The Bill also clamps down on electronic sales suppression, a form of tax evasion in which a business deliberately manipulates its electronic sales records to reduce its recorded turnover and corresponding tax liabilities.
Peter Grant (Glenrothes) (SNP)
I am pleased to hear about the Government’s commitment to taking on those who make money by promoting tax avoidance schemes. One such scheme that has been on the go for a long time is the loan charge. Can the Minister give us an update on progress towards bringing to account not the thousands of small-time self-employed people who have been caught, but the big players in that scandal? How many people have actually been surcharged or prosecuted for promoting loan charge schemes?
Lucy Frazer
I am grateful to the hon. Member for that question because I appreciate, since being in this role, that the loan charge is an issue that has affected many people across the country and that many MPs feel very strongly about. I have spent quite a considerable amount of time already talking about this issue not to only the chief executive officer of Her Majesty’s Revenue and Customs, but to officials. I have also had the opportunity to meet HMRC officials who are dealing with the vulnerable people who may be subject to the loan charge and to ask questions about how they are treating them.
The hon. Member makes a really good point, because the real perpetrators in relation to the loan charge are those who offer these schemes and getting people on low pay into them. An issue I have raised directly with HMRC is how we can further prosecute and bring these people to justice. Unfortunately, I understand that many of them are located offshore, but we will be doing everything we can to ensure that those who are responsible for promoting this are brought to justice.
This Bill deals with those who try to get out of paying tax, but it also creates a simpler and easier system. Its measures make capital gains tax easier to navigate, doubling the window for reporting and for paying CGT on residential property from 30 days to 60 days. This will give people longer to work out what they owe and make it less likely that they will make a mistake. For businesses, we are creating a simpler tax system through reforms to basis periods, leading to a simpler, fairer and more transparent set of rules for the allocation of trading income to tax years.
There is no doubt that the pandemic has cast a long shadow over this country and our finances, but just as our wartime predecessors rebuilt from the blitz, now is the time to open a new chapter in our national story—one of economic growth and renewal, and with it, transformed lives.
Rushanara Ali (Bethnal Green and Bow) (Lab)
The Minister mentioned fairness a few times, and also the challenges facing the country. Why have her Government decided to give banks a reduction in the surcharge taxes they pay, which will cost the taxpayer £1 billion a year, when increasing numbers of our constituents are going hungry because of the failure to support them in the challenges they have faced over the last 18 months?
Lucy Frazer
I am grateful for the opportunity to answer that question, because the hon. Lady talked about a reduction in the amount banks are paying but that is not accurate: the banks will actually be paying a higher rate than previously. The hon. Lady might have noted that I referenced in my speech the fact that corporation tax was going up to 25%, and banks will be paying a higher rate than everybody else, who will be paying 25%; the banks will now be paying 28%, not the 27% they are currently paying. We are also ensuring that we have a competitive operating environment for these banks, because the banking sector not only contributes to the economy but employs 1 million people.[Official Report, 19 November 2021, Vol. 703, c. 5MC.]
The hon. Lady also said people were going hungry, but it is important to recognise what this Finance Bill and Budget do for those on the lowest pay. I have talked about the universal credit taper rate, bringing in an additional £1,000 for those in work who will benefit from it. We have also increased the national living wage, which will benefit people by an average of £1,000. There are a number of other measures, too, that benefit people who are not in work.
Rushanara Ali
But the reality is that there has been a UC cut, and the taper rate reduction, which is welcome, will help only a third of the 6 million affected. What about the 4 million others? This is not a fair Budget and it is wrong for this Government to treat the British people in this way given what they have faced in the pandemic over the last 18 months.
Lucy Frazer
The UC taper sends out a message that it is important to get into work and that work pays. We on the Government side of the House believe that the way to help people is to get them into work and into good jobs so they can support themselves, and we have a number of schemes to help those on UC to get into work. It is also important that when they are in work, they are paid well for it.
The hon. Lady also asked about those who are not in work, and I remind her of all the measures we have put in place for them, because not everybody can work. Before the Budget the Chancellor announced half a billion pounds for the most vulnerable—millions of vulnerable people will benefit from that. There are also more than 2 million people benefiting from the warm home discount and all the people who benefit from the council tax rebates we help them with. So it is right that we support the most vulnerable, but the UC credit taper is about making work pay.
We will invest in people, in businesses and in public services, just as we are doing with the 40 new hospitals, the 20,000 new police officers and the extra money we are providing to schools.
Clive Efford
I am grateful to the Minister for giving way again; she is being very generous. It is important that we nail down the issue of where the national insurance increase is going. The Minister said earlier that it was going to the NHS and then it was going into social care, but it cannot be spent twice, so when will that money be switched, and what level of cuts will the NHS face then in order to shift that money into social care?
Lucy Frazer
I find it disappointing when people talk about cuts when actually there is significant investment—record amounts—going into the NHS. This Budget highlighted not just £5 billion for the diagnostic centres the Department of Health and Social Care will be operating around the country, but £9 billion for covid support, and the hon. Gentleman will know that £36 billion was put into the NHS before that—a significant sum. So it is dangerous when people talk inappropriately about cuts. There are not any cuts; this is investment going into the NHS.
Richard Thomson (Gordon) (SNP)
One concern many have about the national insurance increase is that there is an understanding about how much that will raise but no understanding whatsoever about how much will eventually make it through the NHS to social care in England. I am sorry to say that leads many of us to think the Government might not have much of a plan for how they are going to use it first in the NHS and then to benefit service users in the social care sector. Will the Minister have another go at helping those of us with that mindset to understand?
Lucy Frazer
The Government have been very clear that the money will first go to the NHS; there is a significant number of backlogs that we need to tackle and it is important that people can get to see their GP so therefore it is essential that that £13 billion is right now going to the NHS. But we have been clear about this: we are the first Government to tackle the issue of social care—the first Government to put it on the table and put in a plan to raise the money to tackle the social care issue.
As I said at the outset, a number of cities were devasted by the second world war, and I return to my analogy. In London, £65 million is going from the first round of the levelling-up fund to local infrastructure projects to improve everyday life; in Liverpool and the wider north-west, that figure stands at £232 million; separately, in Bristol and the west of England, we are providing £540 million over five years to transform local transport networks.
At the same time, we will never forget our responsibility to strengthen the public finances. The tax changes in this Bill will allow us to achieve all these things, and for those reasons I commend it to the House.
The Exchequer Secretary to the Treasury (Helen Whately)
It is a pleasure to close this debate on behalf of the Government. In a moment I will address many of the points raised in the debate, but I want to begin by reminding the House of the announcements made by the Chancellor in the Budget: more investment in infrastructure, innovation and skills; business rates cut by £7 billion, including the 50% business rates discount for the retail, hospital and leisure sectors; a cut in the universal credit taper; a £500 increase in work allowances; and an increase in the national living wage, rewarding people for their hard work. Those are announcements that the Finance Bill builds upon.
Let me remind the House what the Bill is designed to achieve. First, it will deliver a stronger economy for the British people by encouraging businesses to invest in the UK’s future growth and prosperity. Secondly, it will help to deliver stronger public finances. Thirdly, it will improve our ability to tackle economic crime, tax avoidance and tax evasion. Finally, it will contribute to a simpler and more sustainable tax system, in turn supporting businesses and consumers.
A stronger economy and a strong, dynamic business environment go hand in hand. As a Government, we will always do everything that we reasonably can to encourage business investment. The previous Finance Bill delivered the super deduction, the biggest business tax cut in modern British history, and extended the annual investment allowance, to the end of this year, at its higher level of £1 million. Now is not the time to remove tax breaks on investment. That is why the Bill extends the £1 million level again until the end of March 2023, encouraging businesses to bring forward investment—because this is a Government who back business. It is also why the Bill will make our creative tax reliefs more generous by extending the relief for museums and galleries for another two years and doubling the reliefs for theatres, orchestras, museums and galleries until April 2023.
A number of Opposition Members spoke about the taxation of banks. I should like to put everyone straight on that. As the Bill explains, the surcharge will be set at 3% from 2023, which means that the combined tax rate on banks’ profits will increase—I emphasise that: the tax rate will increase—from 27% to 28%. [Interruption.] There seems to be some problem with doing maths. Opposition Members are shouting at me, but it is a simple fact: the rate will go up from 27% to 28%. Banks will be paying more tax. It may be convenient for Opposition Members to suggest something different—they like the rhetoric—but it is simply not true.
Richard Thomson
As the Minister is so good at maths, can she tell us what the tax rate would be if the surcharge was not being reduced?
Helen Whately
The answer to that question is 33%, but the fact is that the rate is going up, from 27% to 28%. That is an increase in tax; it really is quite simple maths.
While supporting investment and competitiveness in our key industries, we must also continue to fund our crucial public services and strengthen our public finances. To keep this Government on the path of discipline and responsibility, the new charter for budget responsibility sets out two key fiscal rules. First, underlying public sector net debt, excluding the impact of the Bank of England, must, as a percentage of GDP, be falling. Secondly, in normal times the state should only borrow to invest.
That is the context for the introduction of the health and social care levy, which we have already voted on, and the 1.25% increase to tax rates on dividend income, delivered through this Bill. This funding is to provide a new long-term funding stream for health and social care, raising more than £12 billion a year over the spending review period, of which £5 billion is earmarked for social care—that picks up on the question from the hon. Member for Gordon (Richard Thomson). I would be delighted to tell him more about the plans involved in that, but I would be digressing too much from the context of the Bill and that is probably one for another occasion. However, what I will say to Opposition Members who want to scrap that extra funding is that they have no other plan to finance getting down the NHS backlog or social care reform, other than through borrowing—they would pass the cost on to future generations. The Government are taking a responsible, fair and progressive way to raise revenue. Additional and higher-rate taxpayers are expected to contribute more than three quarters of the revenue from this increase in 2022-23. Those with the broadest shoulders will pay more.
A number of hon. Members asked about the funding of net zero. Taking a step back for a moment, let me say that the net zero strategy sets out our path to net zero by 2050. Overall, we have earmarked £30 billion-worth of investment in net zero, but that is a long-term investment. Net zero funding in this spending review and Budget specifically includes £1.3 billion of energy innovation funding, £1.4 billion of public sector decarbonisation funding, £1.8 billion to help low-income households to transition to net zero, £620 million extra for the transition to electric vehicles and up to £1.7 billion for large-scale nuclear energy. So, as hon. Members can see, there is funding for net zero in the spending review and Budget. In addition, the revised Green Book means that all policy objectives need to align with net zero.
Let me turn to measures in the Bill that tackle economic crime, and tax avoidance and evasion. The Government are committed to making the UK a hostile place for illicit finance and economic crime, helping to protect our security and prosperity. In recent years, we have taken a series of steps to combat economic crime, including the creation of a new National Economic Crime Centre to co-ordinate the law enforcement response, as well as passing the Criminal Finances Act 2017, which introduced new powers for enforcement authorities to investigate cash believed to be derived from criminal proceeds. The Bill builds on those steps by introducing the new economic crime levy, which will help fund further action on money laundering, including the ambitious reforms that the Government announced in the 2019 economic crime plan, and help safeguard the UK’s global reputation as a safe and transparent place to conduct business. It is a proportionate measure, which will be paid by entities that are regulated for anti-money laundering purposes.
We are also taking action through the Bill to clamp down on promoters of tax avoidance schemes. In response to the question from the hon. Member for Brentford and Isleworth (Ruth Cadbury), we are giving HMRC new powers: to freeze and secure a promoter’s assets; to introduce a new penalty on UK entities who support offshore promoters; to petition the courts to close down companies or partnerships that promote avoidance schemes; and to share more information on promoters to support taxpayers to steer clear of such schemes.
James Murray
Will the Minister explain when the register of overseas entities owning UK property will be in place?
Helen Whately
I am happy to write to the hon. Member on that question.
Finally, I turn to the administration of the tax system. Only last year, the Government published a 10-year tax strategy that seeks to improve the tax system and its support for taxpayers. The House will recall that the Chancellor was clear in his Budget speech that we must deliver a simpler, fairer tax system that supports consumers and is also competitive for business, and we have, for example, the most radical simplification of alcohol duties for more than 140 years. As part of that, community pubs can look forward to a new and simpler system of alcohol duties, including draught relief, which will cut duty on beer and cider served in pubs by 5%, as celebrated in the contribution of my hon. Friend the Member for Broadland (Jerome Mayhew). Alcohol duties will also be reformed around the simple, common-sense principle that the stronger the drink, the higher the rate. That will be legislated for next year after a detailed consultation.
In the meantime, the Bill does more to build a simpler and more sustainable tax system. Basis period reform, for example, will remove the existing highly complex requirements around basis period rules, including double taxation of early years of trading. Anyone who, like me, has studied accountancy will appreciate that.
As my right hon. and learned Friend the Financial Secretary said at the beginning of the debate, the Bill comes before us when we are seeing significant improvements in the economic situation. The Government are rightly focused on economic recovery, and let there be no doubt that our plan is working. A year ago, the country was experiencing the deepest recession on record, but thanks to our plan for jobs, which the Office for Budget Responsibility has called “remarkably successful”, we are recovering fast. The OBR expects the economy to return to pre-pandemic levels at the turn of the year, several months earlier than it thought in March. We do still have historically high levels of debt, but new fiscal rules together with measures in the Bill will ensure that the public finances remain on a sustainable path.
It is a Bill that encourages business investment, delivers stronger public finances, tackles tax avoidance and evasion, contributes to a simpler and more sustainable tax system and fundamentally delivers a stronger economy for the British people. For those reasons and more, I commend it to the House.
Question put, That the amendment be made.