Multiannual Financial Framework

Debate between David Gauke and George Kerevan

Wednesday 7th December 2016 General Committees

[Mr Gauke]

On the mid-term review, as I have explained, the current proposal ensures that the payment ceilings that we signed up to over this seven-year deal are preserved. Therefore, we would not be looking to oppose the proposed mid-term review. The proposals are essentially neutral, with respect to what we would expect to pay over the MFF period, but we recognise that some commitments and functioning are likely to outlast our membership. On that basis, we took the view that the most appropriate approach for us to take is to abstain. We think that is the most constructive approach in the circumstances.

The hon. Lady asked what our approach to the future MFF will be. She may be familiar with the answer. This will play into our negotiations for Brexit. In those circumstances, the point at which the negotiations will start for the next MFF will be in 2018. We can assume that we will be in the middle of Brexit negotiations at that point, and our role in the next MFF will also be discussed in those negotiations; I think that the two are linked.

On the hon. Lady’s point about why the mid-term review was expedited, the presidency was keen to make progress and show that the budget proposals could be delivered quickly. That is something we welcome. Sometimes these matters can drag on for some time, but where it is possible to make quicker progress, we should do so. I hope that that is helpful.

[George Kerevan (East Lothian) (SNP)]

I am pleased to serve under your direction, Mr Hanson. The hon. Member for Salford and Eccles (Rebecca Long Bailey) has covered a lot of ground that I would have reservations on, but I agree with the specific issues relating to the 2017 budget.

First, can the Minister confirm that the UK abstained on the reconciliation discussions between the Council and Parliament, and can he justify that? It seems that has a direct relationship to spending next year. Secondly, in the reallocation of funds that led to the increase in spending for next year on immigration and immigration security, how did that impact on previous plans to spend on development and development aid within the budget? Thirdly, given the significant funds that are allocated and the increase in funds that will be allocated for pensions and remunerations to former commissioners, is the Minister satisfied with the rules of conduct governing former commissioners in taking paid remuneration after they leave the Commission?

[Mr Gauke]

First, on why we abstained on the annual budget, it is fair to say that the budget deal has a healthy payments margin of €9.8 billion—over €7 billion more than last year—and we welcomed that. We still believe that the EU could go further to cut lower priority spending from the budget. However, progress has been made, and the UK recognises that by not voting against the budget. We very often voted against the budget in the past because we felt that not enough had been done to deal with wasteful spending and that better value for money could be obtained for the European taxpayer. However, given that the payment margins were healthy this year, we decided not to vote against. More could have been done, but, in the circumstances, we decided to abstain.

On the reallocation of immigration expenditure, I can reassure the hon. Gentleman that the spending on aid was not impacted by increases in internal security. In fact, both have been enhanced.

Pensions remuneration is not a matter for budget discussions; it is a matter for the rules that the Commission applies to itself, so there were no particular discussions on that point. The UK and other member states have pointed out that the European Commission’s administration costs are higher than we would like. Indeed, there has been an increase in recent years, particularly in administration costs, although that has largely been put down to increased security costs, given recent events. The specific point that the hon. Gentleman raised was not part of our discussions.

Oral Answers to Questions

Debate between David Gauke and George Kerevan

Tuesday 29th November 2016 Commons Chamber

[Mr Gauke]

There has consistently been a gap. What is important is that there is certainty of supply. We need to ensure that we have the right planning system in place and the right fiscal support, and that is what the Government are determined to deliver.

[George Kerevan (East Lothian) (SNP)]

In last week’s autumn statement, the Chancellor raised the tax on house insurance by 20%. How is that supposed to help first-time home buyers to get access to housing?

[Mr Gauke]

We were very clear that the 2% increase in insurance premium tax was a revenue-raiser that enabled us to introduce the measure on changing the taper for universal credit, which increases the incentives to work. We believe that was the right course of action, but if we look at the autumn statement, and indeed the announcement made at the Conservative party conference, what is very clear is that this Government are committed to ensuring that we build more homes, which is what the public rightly expect.

Oral Answers to Questions

Debate between David Gauke and George Kerevan

Tuesday 25th October 2016 Commons Chamber

[Mr Gauke]

We believe that HS2 is part of modernising our transport system and ensuring that we have infrastructure fit for the 21st century.

[George Kerevan (East Lothian) (SNP)]

In light of the upcoming report of the RBS’s Global Restructuring Group and given that past systems of redress for small businesses have been ad hoc and have failed, will the Chancellor meet the all-party group for fair business banking to see whether we can involve a permanent and effective system of redress?

Finance (No. 2) Bill

Debate between David Gauke and George Kerevan

Monday 11th April 2016 Commons Chamber

[Mr Gauke]

The hon. Gentleman makes an important point. It is a long-standing issue for the United Kingdom economy. I would argue that the steps we have taken as a Government to ensure that we have a competitive, business-friendly tax environment, that we invest in skills and increase the number of apprenticeships, and that we spend more on transport infrastructure—we are spending £60 billion over the course of this Parliament—will help to drive up productivity. Without those measures, our productivity levels would not be as high as they are. Further work still needs to be done, but policies that result in, for example, financial crisis so that we cannot afford transport infrastructure spending or that drive investment away from this country by being unfriendly to business will only damage productivity and will not help.

[George Kerevan (East Lothian) (SNP)]

On investment in transport infrastructure, the Budget surely says that between 2018-19 and 2019-20 the Government will cut infrastructure investment by a whole £7 billion in one year in order to accommodate the Chancellor’s desire to run a budget surplus in 2020. How does that justify what the Financial Secretary has just said?

[Mr Gauke]

The Budget brings forward the expenditure on transport infrastructure in this Parliament so that we can gain the benefits of that investment earlier. The hon. Gentleman should welcome that.

Before discussing the measures in the Bill that address avoidance and evasion, I shall briefly address the issue that the Prime Minister covered earlier today—the Panama papers. Those papers have again put the spotlight on the global scourge of tax evasion and avoidance. As the Prime Minister set out earlier today, we are taking further action. First, HMRC and the National Crime Agency will lead a new joint taskforce to analyse the Panama papers and take rapid action where there is wrongdoing. It will initially have new funding of up to £10 million and will report to the Chancellor and the Home Secretary later this year.

Secondly, we will bring forward plans to introduce a criminal offence for corporations which fail to stop their staff facilitating tax evasion, ahead of next month’s summit to tackle corruption in all its forms. For the first time, companies will be held criminally liable if they fail to stop their employees facilitating tax evasion. Thirdly, our Crown dependencies and overseas territories have agreed to provide UK law enforcement and tax agencies with full access to information on the beneficial ownership of companies. We have finalised arrangements with all of them except Anguilla and Guernsey. Guernsey currently has elections and its Parliament is not sitting, but we expect both those territories to follow in the coming days and months. For the first time, UK tax and law enforcement agencies will see exactly who really owns or controls every company in those territories. This Government’s message is clear: there are no safe havens for tax evaders, and no one should be in any doubt that the days of hiding money offshore to evade tax are gone.

Section 5 of the European Communities (Amendment) Act 1993

Debate between David Gauke and George Kerevan

Wednesday 23rd March 2016 Commons Chamber

[Mr Gauke]

Our principled approach over several years has been that the documentation provided to the Commission is based on the most recent publications. I do not think it would be sensible or proportionate to rerun elements of a Budget process purely for an EU audience. That would not be the right thing to do.

[George Kerevan (East Lothian) (SNP)]

On the accuracy of the information being transmitted to the Commission, there is another matter, which has not been brought up. The figures for February’s tax receipts have led to a significant increase in February borrowing. It is therefore impossible in the final month of the financial year for the Government to hit their declared target for borrowing. It will be greater than the target—so, again, the information is inaccurate.

[Mr Gauke]

Again, I make the same principled point. We provide information already published in these reports—we do not seek to amendment it—although the hon. Gentleman makes an interesting point: should this be updated monthly in the light of public finance numbers? I would make a second point about the public finances, however. Having been in the Treasury for a little while now, I know that public finance numbers can be quite volatile, so one should take good news and bad on a monthly basis with a pinch of salt. It is only when one steps back that one has a good view of the overall position, and that is what the OBR does twice yearly.

On the process, I remind the House that although the UK participates in the stability and growth pact, by virtue of our protocol to the treaty opting out of the euro we are required only to endeavour to avoid excessive deficits. The UK cannot be subject to any action or sanctions as a result of our participation in the pact. Following the House’s approval of the economic and budgetary assessment that forms the basis of the convergence programme, the Government will submit that programme to the European Commission. The Commission is expected to make its recommendations to all EU member states in mid-May. These recommendations will then be agreed by Heads of State or Government at European Council.

Budget Changes

Debate between David Gauke and George Kerevan

Monday 21st March 2016 Commons Chamber

[Mr Gauke]

My hon. Friend is absolutely right, and that is why all of us in the House should be delighted that we have record numbers of people in work.

[George Kerevan (East Lothian) (SNP)]

As of last Wednesday, the Chancellor has delivered five Budgets in 15 months—one every three months. Are we to take it from the Minister’s statement that the Chancellor wishes to improve on that record and give us a new Budget every week?

[Mr Gauke]

I fear that the quality of the questions might be slightly deteriorating, but there we go. The answer is no.

Oral Answers to Questions

Debate between David Gauke and George Kerevan

Wednesday 4th November 2015 Commons Chamber

[George Kerevan (East Lothian) (SNP)]

5. What discussions he has had with his Cabinet colleagues on reforming the estimates process to take account of the changes made to the Standing Orders of the House to implement English votes for English laws.

[The Financial Secretary to the Treasury (Mr David Gauke)]

Ministers have had discussions with the Leader of the House on English votes for English laws and their implementation. These sensible and pragmatic steps do nothing to limit Scottish MPs’ rights to represent their constituents.

[George Kerevan]

Is the Secretary of State as concerned as I am that Barnett consequentials that affect all three devolved nations are not clearly spelled out and safeguarded in the new arrangements for English votes for English laws? Will he take his fifth opportunity to explain what is happening with the fiscal compact?

[Mr Gauke]

The changes to Standing Orders do not make any difference to the estimates process. When my right hon. Friend the Leader of the House challenged hon. Members to provide examples of where there would be difficulties, no examples could be provided.

National Insurance Contributions (Rate Ceilings) Bill

Debate between David Gauke and George Kerevan

Tuesday 3rd November 2015 Commons Chamber

[Mr Gauke]

With the leave of the House, Madam Deputy Speaker, I want to respond to the points raised by right hon. and hon. Members in this short debate. Before I do so, may I reiterate the main purpose of the Bill? It introduces the final aspect of the five-year tax lock, which is further proof of the Government’s commitment to provide certainty on tax rates for the duration of this Parliament and the commitment to low levels of taxation made in the Conservative manifesto for the general election in May, which resulted in a Conservative majority in that election. The commitment was that the rates of income tax, VAT and NICs would not increase. The Finance Bill introduced legislation to deliver that commitment for income tax and VAT, whereas this Bill delivers on the commitment for NICs. The benefits are that it provides certainty for employers and employees that for the duration of the Parliament NICs will not rise and the upper earnings limit will not exceed the higher rate threshold for income tax.

We have heard the argument that it is not necessary to legislate in this regard, but I remind the House that it was a Conservative manifesto commitment to legislate and we are fulfilling that commitment. Concerns were also raised that the measure might restrict flexibility for future Governments, and the comment made by my right hon. Friend the Member for Wokingham (John Redwood) about the circumstances that might apply in such cases was very good. I do not think that anybody would advocate in the teeth of a recession that we should put these rates up. Fiscal credibility is very important, of course, and our determination in that regard will be demonstrated at the spending review on 25 November. It is important that we bring borrowing down, but we do not believe we should do that by putting up national insurance contribution rates, which is what the Bill prevents us from doing.

Future funding for contributory benefits, should NIC receipts prove insufficient, is a matter for the Chancellor and a decision to be made at the relevant fiscal event based on the latest projections available at the time and taking into account the NIC rate ceilings that we are introducing. The Government Actuary recommends a working balance of one sixth of benefit expenditure for the national insurance fund and there is provision to top up the national insurance fund from the Consolidated Fund to maintain the balance at that level. For the 2015-16 tax year a top-up of £9.6 billion has been provided for in legislation.

Let me point out, though, first, that this Government are committed to meeting our commitments in terms of the state pension and spending on the NHS. Secondly, the hon. Member for Dundee East (Stewart Hosie) raises concerns that the projections might not be accurate. These projections in relation to national insurance contribution rates are made by the Office for Budget Responsibility, an independent body. I can understand why the hon. Gentleman might have concerns in general about projections for tax revenues, given that he fought a referendum not that long ago assuming that the tax revenues from North sea oil would be very much more substantial than they have turned out to be. In those circumstances, I can understand his sensitivity to the fact that receipts might not be what had been anticipated. However, this is based upon an independent assessment and, in the round, is nothing like the fiscal risk that the Scottish National party was offering the Scottish people just over a year ago.

[George Kerevan (East Lothian) (SNP)]

Has the Treasury Minister forgotten that the North sea oil revenues go to HM Treasury and that the recent fall in income from the North sea proves the point to the Treasury that its forecasts can be wrong?

[Mr Gauke]

The proposition of the independence movement was much more optimistic about receipts than the OBR at the time of the referendum. Most important of all, the United Kingdom is more easily able to absorb a volatile oil price than an independent Scotland would be—a point that I would have thought anyone looking at this fairly had to accept.

Finance Bill

Debate between David Gauke and George Kerevan

Monday 26th October 2015 Commons Chamber

[George Kerevan (East Lothian) (SNP)]

I want to make a brief contribution on new clause 3. The Minister, elegantly as he does, fobbed us off by saying, “We’re having a consultation and so on, but meanwhile we’ll press on regardless.” However, there is still a major issue regarding a potential tax loophole that has not been closed.

I accept that fund managers are remunerated on two different and distinct levels: they are paid for the work they do as investment managers and also receive a reward for hazarding their own capital. I also accept that there is a gain in having fund managers hazard some of their own capital, perhaps more so than they do at the moment. Unfortunately, though, if we charge very different marginal rates on the income component and on the hazarding their own money component, we will create the capacity for a loophole in paying the lower tax on the capital gain and less on the income.

It does not matter what short-term changes the Minister makes to try to prevent existing ways in which hedge funds allow the personal investment component of the investment to be organised, because people will just think up new ones. We have to close the loophole at source. The obvious way to do that would be to go back to a previous situation in which income tax and capital gains tax were charged at the same marginal rate.

Unfortunately, for the past several decades we have proceeded down a road of constantly cutting taxes on capital. I think there was a case in the 1990s for cutting marginal rates of tax on capital, because it was a difficult economic period and we had to encourage investment, but the Government have transformed that into an ideological demand that we always go on cutting taxes. Indeed, one of the core philosophies of the Finance Bill is to cut corporation tax even more, despite the fact that, on both a UK and a global level, we have pyramided up corporate surpluses, which are not being used. The current problem is not to find more loose capital, but to find fiscal incentives to make the owners of capital invest it.

The inherent philosophical problem with which the Government present us in the Bill is the imbalance created when marginal rates of taxation on capital are pushed lower and lower while significant taxes on labour are not reduced effectively and significantly. Our new clause 3 is specifically designed to force the Government to respond to the philosophical principle that the loophole should not be created in the first place. I do not think that the Minister has answered that effectively, which is why we will press new clause 3 to a vote.

[Mr Gauke]

Let me respond to what has been an eclectic debate. I welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to the Dispatch Box for her debut. I echo the comments of my right hon. Friend the Member for Cities of London and Westminster (Mark Field) and wish her a long and successful career speaking from the Opposition Dispatch Box. I am sure she will be something of a star of the Labour Opposition Front Bench for years to come.

The hon. Lady said that the explanatory notes were only made available this morning, but I understand that they have been available on the gov.uk website since Thursday 22 October, which was the day after the amendments and new clauses were tabled. If she has any contrary information, I will happily look at it.

The hon. Lady touched briefly on the compound interest charge and asked me to respond to hostile comments from business. The measure is being introduced to ensure that a fair amount of corporation tax is paid and that any awards of restitution interest are paid by Her Majesty’s Revenue and Customs. We are setting the special rate to reflect the unique circumstances of the claims. It will affect only a relatively small number of companies—about 0.5% of those submitting corporation tax returns in relation to specific payments—and it will not affect the benefit given by the historically low rates of corporation tax on the trading and investment profits they currently make. It will ensure that relatively few do not gain a significant additional benefit at the expense of the public purse.

Let me turn to the lengthier debate we have had about reforms of vehicle excise duty. The hon. Lady raised a concern that they may damage UK car manufacturing and penalise cars built in the United Kingdom. We are not doing that. The supplement will apply to all cars worth more than £40,000, regardless of where they are manufactured, and we are supporting cars such as the Nissan Leaf, which is built in Sunderland, through zero rates for zero-emission cars. We think it is fair that more expensive cars pay more than ordinary family cars.

On the accusation that it is unfair that cars that are more fuel efficient pay the same as gas-guzzling vehicles, I would argue that they do not. Under the new system, the first-year rates for the highest-emitting cars will be doubled compared with the current system. Zero-emission cars will continue to pay no annual VED rate, and more expensive, bigger, higher-polluting cars will pay the standard rate supplement, so there will be incentives to buy smaller, lower-emitting cars on the second-hand market. What is unfair in the current system is that those who can afford to buy a brand-new car pay less than those who cannot do so. That point was made by the hon. Member for East Antrim (Sammy Wilson). In the new system, those who can afford an expensive car will pay more.

--- Later in debate ---

[Mr Gauke]

My hon. Friend is right. Whereas the previous Labour Government doubled the 10p rate of income tax, this Government and the coalition Government increased the personal allowance very substantially from below £6,500 to the levels I have set out this evening.

I turn now to the support that the Bill will provide to business. We want to provide certainty to businesses, increase investment and improve our infrastructure, because that will drive growth and job creation in the coming years. First, it is clear that we need a business tax regime that is stable, competitive and fair. This is essential to make the UK more competitive and to support growth. In the previous Parliament, the main rate of corporation tax was cut from 28% to 20%, which led to more businesses coming to the UK to carry out their activity. Given the global competition that the UK faces, we must go further. This Bill cuts the corporation tax rate to 19% in 2017 and to 18% in 2020, saving businesses more than £6 billion in 2021 and giving the UK the lowest rate of corporation tax in the G20. The Bill also sets the annual investment allowance at the permanent higher level of £200,000. This will provide long-term certainty to businesses and encourage them to invest in plant and machinery.

Finally, I would like to turn to the measures in the Bill that tackle tax avoidance and evasion, tax planning, compliance and imbalances in our tax system. Hon. Members will recall that the summer Budget announced a raft of measures to tackle those who do not pay their fair share of tax. The measures will collectively raise £5 billion a year by 2019-20. I am proud to say that the Bill will implement a number of those measures and will make an important contribution to the further £37 billion in fiscal consolidation that is required over the course of this Parliament to run a budget surplus by the end of this Parliament.

[George Kerevan]

Will the Minister give way?

[Mr Gauke]

Let me make a little progress.

First, the Bill ensures that investment fund managers cannot exploit tax loopholes to avoid paying capital gains tax. We will also address a tax planning risk in which corporate groups could exploit tax rules for asset transfers between connected parties. This ensures that profits are brought to tax.

Finally, the Bill modernises HMRC collection powers by allowing HMRC to recover tax and tax credit debts directly from a debtor’s accounts. This measure will tackle those who seek to play the system and who are avoiding paying their fair share of tax, which they can afford to pay. This measure will also, of course, be subject to robust safeguards and the most vulnerable will be protected. Taken together, these measures will protect our public finances and send a clear message that everyone in Britain must pay their fair share of tax.

[George Kerevan]

In terms of helping business, would the Minister care to comment on press reports this morning that the Government are planning to abolish research grants to industry and replace them with loans, on which interest would be paid?

Finance Bill (Third sitting)

Debate between David Gauke and George Kerevan

Tuesday 13th October 2015 Public Bill Committees

[George Kerevan (East Lothian) (SNP)]

I welcome clause 19, which fits in with the drift of the previous discussion we had about not all banks being the same and about how treating them the same under the new levy was therefore the wrong approach. We also agreed that savings banks should be encouraged. I am happy to tell colleagues that they are not simply a Scottish invention, but grew out of the savings movement in the 19th century following the industrial revolution. Given the experience of banking in this country in recent years, the savings movement is to be encouraged at all levels.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.

Clause 21

Pensions: special lump sum death benefits charge

[The Financial Secretary to the Treasury (Mr David Gauke)]

I beg to move amendment 13, in clause 21, page 32, line 44, at end insert—

‘( ) In paragraph 16 of Schedule 32 to FA 2004 (benefit crystallisation event 7: defined benefits lump sum death benefit is a “relevant lump sum death benefit”)—

(a) in the first sentence, in paragraph (a), after “benefit” insert “, other than one—

(i) paid by a registered pension scheme in respect of a member of the scheme who had not reached the age of 75 at the date of the member’s death, but

(ii) not paid before the end of the relevant two-year period”, and

(b) in the second sentence, for “sub-paragraph” substitute “paragraphs (a)(ii) and”.”

--- Later in debate ---

[Mr Gauke]

It is up to individuals to decide how they wish to save. We are determined to ensure that the opportunity to own one’s own home is available to as many people as possible. That requires us to increase the supply of homes in this country, and that is a Government priority. We are moving in the right direction, but, as we set out during the Conservative party conference last week, we want to do more to put in place the conditions wherein more people will have that opportunity.

On the impact of the changes, there was a question about whether the measures might move a basic rate taxpayer into the higher tax band. We expect that around 94% of landlords who will have to pay more tax will have a total taxable income of over £35,000. On average, landlords own 2.7 properties. Those currently with taxable income under £35,000 who will have to pay more tax have, on average, larger rental incomes and larger property portfolios; they have an average pre-tax rental income of more than £64,000, and own six properties. It is true that basic rate taxpayers could be affected by the measures, but often—not in every case, but overwhelmingly—those people will have quite large portfolios and may have leveraged up to a greater extent than the typical buy-to-let landlord.

I hope that clarification has been helpful to the Committee, and that the measures will have the Committee’s support.

[George Kerevan]

rose—

[George Kerevan]

Forgive me, Sir Roger. I am concerned about a sub-class of property owners in rural areas who might have unincorporated businesses on farms. They often rely on rented accommodation as part of the diversification of their business. I am concerned that one of these changes will make that more difficult for them, as they will be penalised, albeit unintentionally, with regard to investing in their property as part of a farm business. They might also be penalised with regard to their ability to make relevant commercial deductions for investment loans. In rural areas, property is quite often mortgaged less as part of a buy-to-let and more as part of the general farm business. Will the Minister comment on that?

[Mr Gauke]

The same principles apply to rural landlords as apply across the board. We want to ensure fairness in how interest deductibility applies: the same rate should apply across the board. In terms of whether businesses will be able to secure loans against property for business development, the measure will apply to restrict relief for borrowings used for the purpose of residential property businesses, not to borrowings secured against residential properties that are used for the development of other business. I hope that that reassures the hon. Gentleman and, again, I commend the clause to the Committee.

Amendment 22 agreed to.

Amendments made: 23, in clause 24, page 37, line 18, leave out “finance costs” and insert

“costs of a dwelling-related loan”

Amendment 24, in clause 24, page 37, line 19, leave out

“non-deductible costs of a dwelling-related loan”

and insert “individuals”

Amendment 25, in clause 24, page 38, line 26, at end insert—

“274B Tax reduction for accumulated or discretionary trust income

(1) Subsections (2) to (4) apply if—

(a) an amount (“A”) would be deductible in calculating the profits for income tax purposes of a property business for a tax year but for section 272A,

(b) the trustees of a particular settlement are liable for income tax on N% of those profits, where N is a number—

(i) greater than 0, and

(ii) less than or equal to 100, and

(c) in relation to those trustees, that N% of those profits is accumulated or discretionary income.

(2) The trustees of the settlement are entitled to relief under this section for the tax year in respect of an amount (“the relievable amount”) equal to N% of A.

(3) The amount of the relief is given by—

BR × L

where BR is the basic rate of income tax for the year, and L is the lower of—

(a) the total of—

(i) the relievable amount, and

(ii) any difference available in relation to the trustees of the settlement and the property business for carry-forward to the year under subsection (4), and

(b) the profits for income tax purposes of the property business for the year after any deduction under section 118 of ITA 2007 (“the adjusted profits”) or, if less, the share of the adjusted profits—

(i) on which the trustees of the settlement are liable to income tax, and

(ii) which, in relation to the trustees of the settlement, is accumulated or discretionary income.

(4) Where the amount (“AY”) of the relief under this section for the year in respect of the relievable amount is less than—

BR × T

where BR is the basic rate of income tax for the year and T is the total found at subsection (3)(a), the difference between—

(a) T, and

(b) AY divided by BR (with BR expressed as a fraction for this purpose),

is available in relation to the trustees of the settlement and the property business for carry-forward to the following tax year.

(5) In this section “accumulated or discretionary income” has the meaning given by section 480 of ITA 2007.”

Amendment 26, in clause 24, page 40, line 3, at end insert—

‘( ) In section 26(2) of ITA 2007 (tax reductions deductible at Step 6 of the calculation in section 23 of ITA 2007 in the case of taxpayer who is not an individual), before the “and” at the end of paragraph (a) insert—

“(aa) section 274B of ITTOIA 2005 (trusts with accumulated or discretionary income derived from property business: relief for non-deductible costs of dwelling-related loans),”.—(Mr Gauke.)

Clause 24, as amended, ordered to stand part of the Bill.

Clause 25

Enterprise investment scheme

Question proposed, That the clause stand part of the Bill.

Finance Bill (Second sitting)

Debate between David Gauke and George Kerevan

Thursday 17th September 2015 Public Bill Committees

[George Kerevan]

I stand chastened, Mr Howarth. My point is that the one does not offset the other because of the time gap, which is where I wanted to finish. That is what I would like the Minister to reflect on.

[Mr Gauke]

I begin by welcoming the support of the hon. Member for Worsley and Eccles South for the reduction in corporation tax—although, if I may say so, she could have sounded a little more enthusiastic about the measure. I would be grateful to know whether the shadow Chancellor agrees with the reduction in the corporation tax rate first to 19% and then to 18%. He is on record suggesting that the rate should be considerably higher, but I appreciate that he made those comments when he was a Back Bencher, so perhaps we should not dwell on them for too long.

A few issues were raised, some of which relate to this clause. I will try to address as many as possible. First, on the issue of the UK’s reputation and the base erosion and profit shifting process, which was instigated by the UK Government and others, the UK believes in a tax system that is competitive and fair, and which properly reflects where economic activity takes place. We want a simple, competitive and fair tax system, which is why we instigated the BEPS initiative to ensure that companies are not able to make use of an outdated international tax system that does not properly reflect where economic activity takes place. Within that system it is perfectly reasonable to have low and competitive rates, and that is exactly what we have delivered.

As I set out earlier, we are seeing signs of increased business investment. The analysis undertaken by the Treasury and HMRC shows that much of the tax loss as a consequence of the reductions is recovered by increases in economic activity. A dynamic behavioural analysis shows that this is helping. Real business investment is growing as a proportion of GDP; business investment grew by 8% in 2014, and the Office for Budget Responsibility is forecasting that it will grow strongly over the next few years. It is also worth pointing out that the likes of the OECD make the case that corporation tax is perhaps one of the most economically damaging taxes and one of the most inefficient of our taxes. That is why it has been a priority for the Government to reduce it. We believe that if the UK is to prosper and to win the global race, it is important that we have that competitive tax system.

Our case as a country would be aided if there was consensus that we should have low rates of corporation tax, and that is why I genuinely welcome the fact that the Opposition parties apparently will not divide the Committee on that issue. I hope that that consensus can be maintained, because those who go around advocating very high rates for corporation tax do not aid those of us who are trying to advocate that businesses should invest in the UK when they have a number of international choices.

Finance Bill (First sitting)

Debate between David Gauke and George Kerevan

Thursday 17th September 2015 Public Bill Committees

[Mr Gauke]

My hon. Friend makes an important point. A striking point made by a number of my hon. Friends on Second Reading of the National Insurance Contributions (Rate Ceilings) Bill earlier this week was that the introduction of the tax lock in the context of employers’ national insurance contributions gives employers much greater confidence. Providing economic stability and security is an important part of the Government’s long-term economic plan. A credible party needs to present to the British people how it will provide economic security and stability. That is what this Government are doing. I look forward to the day when there is cross-party consensus that economic security and stability are important to this country.

[George Kerevan (East Lothian) (SNP)]

Sir Roger, not having served under your chairmanship before, I look forward to doing so. I accept the Minister’s point that he is trying to produce certainty through the clause, but it is surely the case that he is merely displacing the uncertainty. If projected tax receipts fail and the Bill is on the statute book, the Government will have to either cut public expenditure, which will impact on the economy and affect the confidence of suppliers, or raise borrowing, which again will have an impact on confidence in the economy because interest rates will have to go up. In no way can we ever introduce certainty; all we can do is put the uncertainty somewhere else, so the Minister’s argument fails.

[Mr Gauke]

I was making the point that it is important we provide certainty on taxes. At the last general election, the Labour party—I am not sure this was the case for the SNP—certainly said that it would not increase income tax, VAT and national insurance contribution rates. In that sense, there was a cross-party consensus—at least there was at the last general election; I appreciate things may have moved on since then—on not increasing those rates. We are underlining our pledge by legislating for it, which further strengthens our commitment. In the context of a Government who have a record of ensuring that income taxes do not increase, even when we face the most difficult circumstances, that pledge and this legislation have credibility.

The changes made by clause 1 will set out that the basic, higher and additional rates of income tax will not rise above their current levels of 20%, 40% and 45% respectively for the duration of this Parliament. The tax lock will apply to the main rates of income tax for earnings and savings. That accounts for more than 90% of income tax revenue collected, and that is what we want to lock, enabling working people to keep more of what they earn.

The tax lock does not prejudice the Government’s commitments on tax devolution. From April 2016, Scotland will have the power to vary the rate of income tax for earnings, and we are devolving further unprecedented flexibilities over income tax to Scotland through the Scotland Bill, which will give the Scottish Parliament the power to set the rates and thresholds applying to earnings income. The Government are committed to delivering that in full, giving Scotland full flexibility over income tax rates and thresholds on earnings income. The tax lock will therefore not restrict Scotland from setting higher rates of income tax, nor Wales when it has the Welsh rate of income tax.

Clause 1 delivers the Government’s commitment to rule out increases in the main rates of income tax for the duration of this Parliament, ensuring that working people can keep more of the money they earn.

Finance Bill

Debate between David Gauke and George Kerevan

Tuesday 21st July 2015 Commons Chamber

[Mr Gauke]

No, I do not accept that. Indeed, if one looks at Her Majesty’s Revenue and Customs’ tax gap publication, which identifies where the tax gap falls, one sees that, in terms of avoidance and acting contrary to the intention of Parliament, we should not overstate the element that is corporation tax avoidance by large multinationals. It is important that we address it, but one should not believe that it amounts to a huge pot. We have taken a number of steps in this area, some of which are operational. For example, we have supported HMRC to expand its large business service. Again, further progress on that was announced in the Budget. We have introduced the diverted profits tax, which came into force earlier this year. That is a very significant measure to address aggressive tax avoidance. We want to take further steps. Indeed, the base erosion and profit shifting project, which the OECD is running, means that we can hopefully take further steps in future. But those areas are best dealt with on a multilateral basis, and the UK has been very engaged in ensuring that there is progress in that area. I hope that there will be further progress on that front later this year.

Once again, this Government have introduced a Bill that makes it clear that avoidance and evasion by corporates and wealthy individuals will not be tolerated. But fixing the public finances also means that everyone in Britain must pay their fair share of tax. The vast majority of people pay their tax on time and in full, but a small minority of taxpayers refuse to pay what they owe despite having the money to do so. The Finance Bill introduces direct recovery of debts, giving HMRC the power to recover tax and tax credit debts directly from debtors who have debts of over £1,000 and more than £5,000 in the bank.

The UK must remain competitive as a global financial centre, but it is only fair that the contribution banks make reflect the risk they pose to the UK economy. The Finance Bill introduces a new supplementary tax of 8% on banking sector profit, while gradually reducing the full bank levy rate over the Parliament. That will ensure that banks contribute a further £2 billion to the short-term task of deficit reduction, while ensuring the lowest tax rate of banks’ profit in the G7 nations.

[George Kerevan (East Lothian) (SNP)]

In the shift to the new tax on banks, the Government are sweeping in mutual banks, building societies and the smaller challenger banks. That creates problems both in capital accumulation for the mutuals and in the ability of the new challenger banks effectively to gain capital to take on the larger banks. Is that an accident, or has some decision been taken to penalise those organisations?

[Mr Gauke]

The first point I have to make is that banks with the smallest profits do not pay the surcharge. There is a minimum level to protect the very smallest banks. The bank levy that was introduced early in the previous Parliament reflected some of the issues that existed at that time. It was designed in part to encourage a different type of behaviour that would reduce risks. Regulatory changes have rather addressed that particular point. The move to a surcharge—a higher level of corporation tax—is sensible and timely given some of the changes that have been made. It is not possible in those circumstances to carve out those institutions that we like and dislike beyond putting in that de minimis level. That was a sensible approach to take.

--- Later in debate ---

[Mr Gauke]

I am happy to give that undertaking to the right hon. Gentleman. We have always been clear that the devolution of corporation tax was dependent on stability in the finances for Northern Ireland, and I believe we agree on that point. We want to be in a position to implement that policy and I know he is also keen to implement it, but it is dependent on proper progress being made, and I entirely agree with him on that point.

To provide certainty to business and encourage investment in plant and machinery, the Bill also sets the annual investment allowance at the permanent higher level of £200,000. Improving productivity also means prioritising investment in infrastructure.

[George Kerevan]

The reality surely is that the AIA is being cut from the de facto £500,000 per year to £200,000, so it is not an increase. Doing that at the same time as cutting corporation tax runs the risk that firms’ accumulated reserves will be used to buy back shares rather than to go into productive investment, thereby meaning that the productivity growth the Government are seeking will not be achieved.

[Mr Gauke]

I do not accept that point. First, the increase to £500,000 was temporary, as we always made clear. Very strong representations were made by business groups that what was important was putting a permanent level in place. We have the highest permanent level ever; at £200,000 it is twice the level we inherited in 2010, at a time when corporation tax rates are substantially lower. This is therefore a much more generous regime than we have had before. Our changes to corporation tax rates are an important measure in encouraging investment. I am sure I will be corrected if I am wrong, but I do not believe it was that long ago that the Scottish National party was advocating a corporation tax rate of 18%. I am sure the SNP is delighted that there will be a rate of 18% across all the United Kingdom.