Spring Statement

Lord Wakeham Excerpts

Wednesday 20th March 2019 Lords Chamber

[Lord Wakeham (Con)]

My Lords, the right reverend Prelate should not underestimate his contribution over the years to our economic debates. I have heard him many times, and he always brings a great whift of common sense to our debates. We are very grateful for his contributions.

When I was thinking about what I was going to say today, I thought my noble friend Lord Young would be introducing the debate. I was going to tease him slightly—and as he is here, I will do it anyway. He and I entered the House of Commons 45 years ago. In the early days I was the junior Whip sitting on the bench saying nothing; he was the parliamentary Secretary of one department or another. There was one Member of Parliament sitting across the way who raised a subject on the adjournment of the House. Other noble Lords who have been in the House of Commons will know that this happens last thing at night. He did it with utter charm and good will, full of information and so on. It seemed to me that night after night he got the short straw to do it, and when he addresses the House now, as he does from time to time with great skill, he might remember those days 45 years ago when he started.

I confess I have not known my noble friend Lord Bates for 45 years, but I have known him a good many years. I greatly admire the way he has tackled his ministerial jobs and his capacity for making complex issues understandable—and he has lived up to those high standards tonight in his opening remarks.

The Spring Statement was much better than I had anticipated, and augurs well for the position of the country when we can get the uncertainty of Brexit behind us. I will touch on one or two matters that were not mentioned in the Chancellor’s Statement. The Government have taken quite a number of steps to deal with tax avoidance in the UK. They have made some sensible adjustments to their initial proposals about making taxation digital, which is a move in the right direction if they can get it right. But I am not absolutely convinced that they have done all that is necessary to make those changes. It is a massive change in the way in which we run our taxation, particularly for small businesses, and I am not convinced that they have done all that is necessary to get those changes right.

The Chancellor has also made some welcome initiatives in tackling some of the big international technological companies that are trading in the UK but are not paying their fair share of taxes. To be effective, tackling the tax avoidance of big international companies will require international solutions—but it is also a UK problem. UK companies paying their proper corporation tax have to compete with companies that in many cases are not paying their fair share of tax. So, while it is an international problem, it is often a UK problem as well. In my view, that unfair competition has to stop.

Christine Lagarde, the head of the IMF, stated recently that the amount of international tax avoidance was in the order of $600 billion a year. That is massive—it is something like a quarter of all the corporate taxes that are collected in the world. We are talking about big potatoes; it is big money. The IMF recently issued a discussion document making some suggestions as to how this problem might be tackled. There is no doubt that it will be difficult. At the heart of the problem is the transfer of trading profits from high-tax companies to low-tax companies by rather doubtful finance charges and massive charges for intellectual property rights, which gets the tax down in that country and puts the profits into low-tax areas.

As far as I understand it from reading the document, the IMF seems to be saying that in essence it believes that profits should be struck before finance charges and intellectual property rights. That would be part of the solution, but obviously it brings other problems as well. Will my noble friend make sure that the Chancellor understands the problem? Of course he understands the problem, but he ought to understand this as well. The British taxation system and the expertise of our people are highly regarded in many parts of the world. We ought to be making a big contribution to the world’s solutions to these problems. We cannot do it all ourselves, but we can at least make a contribution. I think that is very important.

My noble friend Lord Forsyth, who is chairman of your Lordships’ Select Committee on Economic Affairs—a position which I held at one time, God knows how many years ago now—has called into question the way that HMRC seeks to deal with the loan charge taxes that the Government seek to impose on those who, often with accounting and legal advice, entered into arrangements to receive loans that were unlikely to be called in and at the same time saved a lot of tax and national insurance.

I have a great deal of sympathy for people in that position, but the schemes came out, if I remember rightly, around the year 2000 when I was still active in companies. A number of companies that I advised came up with these fancy ideas and I persuaded every one of them that it was not the route that they ought wisely to take. So, while the Select Committee was right to say that the people who perpetuate these schemes and bring them forward have a great deal of responsibility, I cannot entirely rule out the people who have entered into them. If you are offered a scheme that means that by some fiddle-de-do you do not pay any tax at all, you ought to approach it with a great deal of caution—and I do not think that that has entirely been the case. But I think that HMRC has a case against the people who perpetuate these schemes.

I will conclude with a nice reference to stamp duty. I do not think I have ever made a speech in this House on economic matters without touching on stamp duty. I was a Treasury Minister 30 years ago and I had awful battles in the Treasury over stamp duty because it wanted me to sign a foreword to a discussion document about stamp duty and I had a frightful battle to tone down the words. The Treasury loves stamp duty because it is an easy tax to collect. It raises a lot of money and it is efficient and easy to collect. However, as my noble friend behind me said, it is an economically damaging tax. It stops downsizing in housing and is essentially a tax on change. My noble friend was right to say that the Chancellor had made some changes. However, I will go on mentioning this every time I speak, until he makes the sort of changes that I want. Good luck to him.

Economy: Budget Statement

Lord Wakeham Excerpts

Tuesday 13th November 2018 Lords Chamber

[Lord Wakeham (Con)]

My Lords, the last time I followed the noble Lord, I had never heard him speak before. I was at a considerable disadvantage, because I had received a message—which came from his mother—asking how he was doing. I waffled on a bit about how good and effective he was, but I had actually never heard him say a thing in the House. This year, I am at least able to report—through my friend, who is a friend of his mother’s—that he is doing pretty well. I do not agree with what he says, but he made a good contribution to the debate.

I have been around long enough to have lived with a lot of Budgets. It is surprising how often, if they are a great success in the first few days, they are not too good a week later. That is the way it normally works. This Budget was not like that at all. Members on this side of the House, both here and in the Commons, were, by and large, supportive of it, and the opposition parties were opposed to it. Frankly, not much has changed since the original Budget, which is not the normal pattern.

I want to say one or two things about the taxation policies. I have some concerns, and there are some things that I think are right. First, I want to talk about stamp duty. In my view, stamp duty is a bad tax because it is a tax on change. We want change in our country, and for all my political life, that is what we have been seeking. There are many examples of where change is not happening because of the high rate of stamp duty. Take, for example, downsizing in housing. I would like the Government to look more at the economic costs of stamp duty to see whether there are ways—I believe that there are—to raise just as much money without the same amount of damage that stamp duty causes. It must be 25 years since I was in the Treasury. Then, it absolutely loved stamp duty, because it is an easy tax to collect. Ministers will have a hard job persuading the Treasury that stamp duty is not the right way forward, but they should have a try.

Secondly, the Government are absolutely right to try to get a fairer amount of tax from the enormous tech giants, which play an important part in our economy. But this brings into focus a problem that has been around for a long time: corporation tax itself is not a terribly fair tax. A UK-based company with no overseas affiliates pays the full rate, whereas if you are part of an international group and organise yourself in the way that these companies seem to be able to do, you get a lower tax rate. The Government are right to tackle this, but there are wider issues that they have to consider. The Government are also right to be cautious about what they do, because we as a country earn a great deal of money from intellectual property that is sold abroad. If we move too quickly and without agreement on the way to deal with the problems, we might find that we are paying more tax not less. The Government have made the right start, and I want to encourage them.

The third thing I want to talk about, very briefly, is the massive change in the way that we collect taxes, which was not even mentioned in the Budget speech. I refer, of course, to making taxation digital. Originally, this required all businesses, however small, to file their accounting information online four or even five times a year. About a year ago, in a Select Committee report, some of us said that while the object is right, it was likely to have the most disastrous consequences for the way that a lot of people operated. To its credit, HMRC persuaded the Chancellor—somebody did; I am giving it the credit—to delay the introduction by one year and to exempt many smaller businesses from its proposals. It is to be congratulated on that.

There are, however, still some pretty massive problems. According to a survey by the Institute of Chartered Accountants—of which I have been a member for over 60 years; it does not even charge me a subscription anymore, I have been a member for so long—only 51% of businesses registered for VAT have ever even heard of making taxation digital, and only 58% of the businesses that next year will have to file their returns under this new system have made any provision at all to go down that road. The Government and the Inland Revenue have got to work hard if they are not to have a disaster or difficulties on their hands.

The next stage in the revolution which will come is to make everyone file their income tax information in the same way. The Government have rightly said that they will not do this until they are satisfied that the first stages of it are working properly. That is an important pledge. I am glad that they have given it and I hope that they stick to it. Let us get the first thing done. It is the right policy—I am not arguing about that—but the changes are dramatic for many people.

The last thing I wish to address—this was not in the Budget but hardly a day goes by when it is not on the front pages of newspapers regarding business affairs—is the understandable concern about the significant number of audited company accounts that turn out to be in serious error. There are legitimate calls for inquiries into the role of the auditors. I am perfectly happy that those inquiries should happen to see whether some of the things they got involved in were not quite as they should be. However, I would also make the simple point, which seems to be elective, that it is not the auditors but the directors who prepare the accounts of the companies. It is with the directors who have presented phoney or incorrect accounts for their auditors to audit that the prime responsibility for inaccurate accounts lie. I like to take every opportunity to remind people that it is not always the auditors’ fault. Sometimes it is the auditors’ fault, but not as often as it is the fault of the directors of the companies. They need to take more care and perhaps make more provision to ensure that they present to their shareholders and the tax people accurate information.

Budget Statement

Lord Wakeham Excerpts

Monday 4th December 2017 Lords Chamber

[Lord Wakeham (Con)]

My Lords, I am delighted to follow the right reverend Prelate the Bishop of Portsmouth. I do not quite live in his diocese—I live on the very edge of it, in Winchester—but I have heard him speak on many occasions. I do not usually agree with him and I am not sure that I entirely agree with him this time, but he always makes his case very persuasively and he adds greatly to the debates in the House. I congratulate him.

I first spoke in a Budget debate in the spring of 1974 following Denis Healey’s first Budget, and I have spoken in most of these debates ever since. I am pretty sceptical about the Budget forecasts that Chancellors make on growth, inflation, productivity and what have you. I am not saying that they are always wrong but they seem to be wrong as often as they are right, and it remains to be seen whether this Chancellor is right or wrong. I hope that things will be better than he suggested. I can well understand why George Osborne subcontracted the forecasting problem to an outside body, so it is not revolutionary to be somewhat cautious about Budget forecasts.

Of course, our productivity is too low, and I welcome the steps that the Chancellor is taking to improve matters, but I am particularly concerned about the way we make comparisons regarding our productivity without mentioning the level of employment in this country. Employment and low unemployment are, in their different ways, both at record levels, and I do not believe they can be totally dissociated from productivity. They are things which any civilised society ought to be proud of. If you add to that Brexit and the need to recover from the economic disaster of recent years, my view is that the Chancellor did a pretty good job in his last Budget.

Looking at the measures that have or have not been included in the Budget, I think that one or two things could have been done differently. The last time I spoke on these matters—it seems only a few days ago that my noble friend spoke from the Front Bench—I was very critical of the level of consultation between HMRC and professional bodies over taxation matters. Maybe I was a bit unfair, as I was very pleased to see from the Red Book that the Government will consult before making any changes to taxing the self-employed. That is good, but the Government have a role in that. They need to make the differences in taxation and national insurance between the self-employed and the employed as small as possible. It is not easy but, the more they can do that, the less of a problem they will have.

When I was in business years ago, Jim Callaghan, as Chancellor, gave capital allowances at more than 100% for a short while. That increased capital expenditure and was particularly valuable to a number of small businesses, and is another thing the current Chancellor could do.

Perhaps I may for a moment look back to when I ran a small businesses. My difficulty with getting working capital was due not to the cost of the capital but to my inability to persuade the banks to lend me the money that I needed. That was much more difficult than the rate of interest I had to pay. Of course I wanted the lowest rate I could possibly get, but that was not the main factor. Currently, many people who are not in business—I guess that some here today are—have money in their bank current account, whereas if they put it on deposit they would get interest of 0.5% or 1%. I just wonder whether the banks could be encouraged to find a way of lending money to smaller businesses to a greater extent than they currently do, and perhaps give a slightly greater return to those with deposits.

The Government will know—there is no need to go over the subject again—how carefully we shall be watching their progress on the Making Tax Digital initiative. What they are doing is highly desirable but, as I said in the last debate, they have set about it in the wrong way. HMRC knows what has to be done to make these desirable reforms happen. The Government need to encourage it to do it in an acceptable way.

I will finish on a much bigger issue facing us, and in particular the Treasury and HMRC. The Chancellor certainly referred to it, but we have not yet got to the problem. I think all of us realise that we are at the beginning of a massive industrial revolution in which technology will revolutionise our whole economy. Much of this is good, but there are dangers. The five biggest companies in the world are now internet companies. They will fundamentally change the fiscal landscape, and that trend will continue. We have to work out how to handle that in terms of taxation and a competitive marketplace. These enormous companies can make their profits and pay tax, I suspect, pretty much where they like, and as a result corporation tax will become yesterday’s tax before very long. The answer is that if you are a small business based in the UK, you will pay corporation tax; if you are a big, powerful company that trades internationally, you will have many other options.

Coupled with this is the ability of any of these supra-national corporations to enter virtually any business they want and put the competition out of business through predatory pricing. That runs the risk of standing on its head virtually every norm on which our economy and many of the world’s economies have been run, changing them beyond recognition. I think the Government understand this, and I hope proper consideration is being given to the problem of the downsides, as well as the upsides.

Finance Bill

Lord Wakeham Excerpts

3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Wednesday 15th November 2017 Lords Chamber

[Lord Wakeham (Con)]

My Lords, before I say what I am going to say about the Finance Bill, I have been waiting for an opportunity to say how much I appreciate my noble friend’s contributions from the Front Bench. He seems to be speaking on all kinds of different subjects at all kinds of different times and every time he does so he is well informed, has done his homework, is courteous and is a great tribute to the House in the way he acts as a Minister. I hope he does not mind me saying that because, as my next sentence, I am going to say that I have been party to the Select Committee report that the noble Lord, Lord Turnbull, has spoken about and it is the most critical report I have ever been associated with in over 40 years in Parliament—so I thought that would be a good way to start.

We all think that making tax digital is the right way to proceed, and it is strange to be as critical as we were of a proposal which, in essence, we think ought to happen. It is a peculiar situation in which to find ourselves. No doubt there are objections to what has been done. This morning I received in the post something like 15 pages of criticism of the proposals from the Chartered Institute of Taxation. I have to say to the Minister that the Government are not yet finished in terms of getting these proposals right, although in principle they are.

I want to comment on how it could have happened like this because it is intriguing. As soon as I saw that this was the way we were working, I made sure that the Prime Minister in No. 10 knew what was coming, because that is where it would have ended up. The proposition that a Government could bring in taxation changes that would be damaging to the small business community in our country while more sophisticated operators with their advisers could get away with it is a proposition that you realise was simply never going to run in the way it was originally envisaged. There was a great deal of logic in what HMRC was trying to do, but in my view the way it set about doing it was completely wrong. I want to discuss briefly what went wrong and perhaps how that can be avoided in the future.

We have to ask the Government to look at the effectiveness of HMRC’s consultation process. I have had no part in it for a long time now, but when I was a Treasury Minister, my boss Geoffrey Howe asked me to see if we could improve the consultation process. I have to say that my work was not entirely successful. The Inland Revenue, as it was known in those days, wanted to know exactly what issues were going to be raised, particularly so that at meetings its officials could speak with one voice and carefully make sure that they did not have to concede anything. I am afraid that the special advisers were not in a much different position because they themselves had negotiated with all the other professions what they were going to say, so as far as I could see those meetings were, at best, things of minds that were not really prepared to negotiate at all; they just wanted to reiterate their points. I do not say that some good was not produced from time to time, but the consultation was not nearly as effective as it should have been. If that is the sort of consultation which is going on at the moment, it is not surprising that we get some of the results wrong. Going back all those years ago to when I was a Treasury Minister, I asked Geoffrey Howe’s permission to have another go. We found two or three eminent professional people who would come in and talk about these things informally, off the record and in a quiet and effective way. That was infinitely more effective than the formal process of the two sides marching in and doing battle, so it was much more useful.

To its credit, HMRC can see the problems and has tried to deal with some of them, but I am not convinced that its process of consultation, which should have avoided many of these problems, was anything like as good as it could have been. I say that because it was obvious what was going to happen. My recommendation to the Government is that they should take another look at the consultation process to see whether it could be more effective in the future for other things they want to change.