Finance Bill

(Report stage: House of Commons)
(Report: 1st sitting: House of Commons)
Sir Edward Leigh Excerpts
Wednesday 1st July 2020

(2 months, 3 weeks ago)

Commons Chamber
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HM Treasury
Dr Rupa Huq Portrait Dr Huq - Hansard
1 Jul 2020, 12:01 a.m.

My hon. Friend is so much more knowledgeable than me. Lots of my constituents cannot afford to buy their own home and are in rented accommodation, so that does not even apply to them. They are in beds in sheds—maybe I should not dob them in, but that is a phenomenon in the London Borough of Ealing.

Again, HMRC must accept responsibility for not communicating regularly with people. It could have acted sooner to avoid this sizeable group of people who went into these remuneration schemes having to pay back sometimes hundreds of thousands of pounds at a time. IR35 is being rolled out now, so the deferral is obviously welcome, because these things can be fixed in real time, as long as the deferral is not just pushing punitive measures further away. The Government need to urgently commit to a full review of tax reliefs.

While the debate is about job creation, I want to flag, as my hon. Friend the Member for Liverpool, Wavertree pointed out, that the global pandemic we are in seems to be a bit of a cover for certain companies to behave badly. British Airways and Virgin spring to mind as using the coronavirus job retention scheme—the clue is in the name—to do the very opposite. Having accepted furlough funds from the public purse, they are now using coronavirus as a cover for restructuring plans—plans they were always itching to execute—while they believe the eyes of the world are diverted elsewhere. I say to the Minister that we need a sector-specific deal for aviation.

The situation is the same for the creative, cultural and arts sector. I represent many constituents who work in it. Not for nothing was Ealing long-called a BBC borough. The Questors theatre—the jewel in our crown—is the biggest amateur dramatic venue in the country and it has written to me. It is about to go under. Its rateable value is too high to get any of the reliefs. That is another plea to the Minister.

We were told that, when we left the EU, we would be world-beating on employment rights, and that our rights could exceed those of the bloc after Brexit, but now, with IR35, we are heading for zero employment rights. The Government always said that this would not be a race to the bottom, so they need to put their money where their mouth is. There is nothing like a global pandemic to concentrate the mind. We have heard slogans such as, “We’re all in this together”. To stop all these Government utterances from being just hollow words, we need action. Snappy slogans are not enough.

Sir Edward Leigh Portrait Sir Edward Leigh (Gainsborough) (Con) - Hansard
1 Jul 2020, midnight

It is true that we find ourselves in a very serious situation. The number of workers on UK payrolls was down by more than 600,000 between March and May. Of course, the Government are attempting to redress the situation with the Business and Planning Bill and the Corporate Insolvency and Governance Bill. We also hope that we can end lockdown as soon as possible. Certainly, the Prime Minister is talking the talk in terms of build, build, build. That is all very good. We have infrastructure needs; let us meet them. There are no massive spending projects. The problem with them is that they are often hugely bogged down in cost overruns.

I want to say a bit about tax simplification. That is the genesis of this whole debate on IR35 and the loan charge. There is also our hugely ineffective, inefficient and long tax code—longer than India’s—and that is after 10 years of Conservative Government. I think that there is a new wind breathing through No.10, and I hope that we are going to be bold about tax reform. Are there any taxes that we can abolish completely or replace with simpler alternatives? We have created this massive tax avoidance industry, which has sucked many people with quite moderate means into its claws. Let me cite as one example, inheritance tax at 40%. We have to understand how people act. At a rate of 40%, most people are willing to make a significant investment to reduce the effectiveness of that rate. I am not condoning that behaviour, but if someone were left a million pounds and if the state said that it would take £400,000, they might begin to think that it is worth spending £40,000 or £50,000 on tax advice as a way of lessening their payment of tax. All sorts of complicated trusts and avoidance schemes are available to those who recognise that they can avoid paying tax. The result is less money for the Treasury to spend on the things that we need.

On this debate about the loan charge, it is natural that politicians should want to close down loopholes, but often, in closing down loopholes, we are affecting people of quite modest means. It is true that as a level of complexity involves means, those loopholes are usually available to those who have the resources to investigate them, but not necessarily. An entire industry has been created around how to lessen our tax burden, inheritance or otherwise, and I think that the Government are, in a way, responsible for this kind of behaviour. The people who have taken advantage of these tax loopholes, often of modest means, are simply reacting to our hugely complex tax codes. Taxes need simplifying and they need lowering. I make that point because I hope the Minister will say something in his summing up about this. I hope that he tells us that the Government have an agenda, otherwise we will go on having these debates over and over again. Every time a new loophole is discovered, people will take advantage of it, often with the wrong sort of advice. Then the Government have to close the loophole, creating injustice, which we have heard all about in this debate.

Sir Iain Duncan Smith Portrait Sir Iain Duncan Smith - Hansard

My right hon. Friend talks about tax loopholes and, yes, that is absolutely clear, but the thing about the loan charge is that HMRC itself was complicit in the process. It was advising and letting people believe that those charges were quite safe and reasonable. Then quietly, it came to the conclusion that they were not and did not make it clear to anybody. In effect, therefore, it is HMRC that has created the tax loophole and then failed to identify it and tell people that they were on the wrong scheme.

Sir Edward Leigh Portrait Sir Edward Leigh - Hansard

I absolutely agree with my right hon. Friend, and he puts it far more clearly than I have done. I was trying to make the point that he has just made, which is that, ultimately, HMRC and the Treasury are responsible for this in not giving proper advice and in creating an over-complex tax system, and that has created this kind of behaviour. It is natural behaviour and we should not blame the people who have tried to take advantage of these sort of schemes. This complexity kills the economy.

Sir Christopher Chope Portrait Sir Christopher Chope (Christchurch) (Con) - Hansard

One of my constituents says that because he put in freedom of information requests to HMRC, on two occasions last summer, HMRC paid him a visit at his home. Is that the behaviour we expect from HMRC?

Sir Edward Leigh Portrait Sir Edward Leigh - Hansard

We have learned to expect that sort of behaviour. As Ronald Reagan said—we have heard about Roosevelt, so why can we not hear from Ronald Reagan, who was a better sort of Conservative as far as I am concerned?—when we tax something, we get less of it, and when we subsidise something, we get more of it. Research from the European Central Bank shows that when the tax burden is raised by 1%, economic growth is reduced by 0.13%. We have heard a lot about job creation, but that change means many fewer jobs. Every time we create taxes, we destroy jobs.

The Office for Budget Responsibility forecasts that the UK tax burden will grow to 34.6% of GDP by 2024, which is the highest tax burden for this country in more than half a century. We think of ourselves as a seafaring, deal-doing, trading nation, but how can we compete when the trend of tax burden is going the wrong way? That is how we will stifle job creation. We must look at a comprehensive reform of our economy, not the usual tinkering under the hood, and we can do some of that through regulatory reform. That is not aiming for deregulation—instead, the Government should ensure that the UK’s regulatory structure is simple, clear, and appropriate. That is the genesis of this entire debate: our tax system is not simple, not clear, and not straightforward.

If we radically simplify the tax system we will spur more activity, so it is a virtuous circle of benefit to the whole of our society. Imagine if all the money spent on corporate or personal tax avoidance—tax avoidance is perfectly legal, I say to the Minister—could be invested in productive activity instead. Imagine all those thousands of accountants going off and taking up machine tools—I know it is unlikely, but at least it is a thought. That would also be fairer, as it would no longer mean that the richer someone is, or the bigger their company, the more they are capable of exploiting complicated tax loopholes.

We know it is simplistic to base our economy on Singapore or Hong Kong—we are a larger country with more complex needs—but on tax policy, the example they have set is applicable. Let us consider per capita GDP of the UK, Singapore and Hong Kong. They were all more or less at a parity in 1989, about five years after I came to this House, with each at around $25,000 a year. All three countries have improved their GDP per capita, but the scale of the difference is notable. By 2016, six years into a Conservative Government, the UK, with its complex tax code, had a per capita GDP of $37,000. Low tax, simple tax Hong Kong was at more than $48,000, and Singapore at $65,000 to our $37,000. We neglect at our peril that opportunity for a huge growth in numbers of jobs, for our per capita GDP and for income for the Treasury. My simple point to the Minister is this: when he sums up, will he say something about tax simplification and tax reduction?

Mary Kelly Foy Portrait Mary Kelly Foy (City of Durham) (Lab) - Hansard

We are facing an employment crisis unlike anything we have seen in a decade. The impact of coronavirus will undoubtedly weaken much of our infrastructure, leaving many workers unemployed, and businesses on the brink of collapse. Unfortunately, when lockdown ends, the Government seem intent on a return to normality and business as usual, stuck in the past when they should be learning lessons and looking to the future. The Government’s slow reaction cost us as we entered this pandemic, and they cannot repeat that mistake as we emerge from lockdown.

In contrast, my hon. Friend the Member for Oxford East (Anneliese Dodds) has proposed a back-to-work Budget that places jobs at the heart of the economic recovery. That does not mean a sticking plaster solution, however, or jobs with little or no protection for workers. The damage to our economy caused by this awful virus has been severe, but the economic structuring of society was already broken—skewed in favour of the wealthy rather than workers.

Over the last decade of Tory austerity, the Government have launched attack after attack on the rights and protections afforded to working people. Through the promotion of zero-hours contracts, ambiguity in employment status, low pay and lack of protection in the workplace, the Government have encouraged irresponsible employers and abandoned the country’s workers. Before lockdown, 9 million people living below the poverty line—3 million of them children—were in households with at least one person in work. The Government boast of record levels of employment, but they should be ashamed of the amount of in-work poverty. This economic model needs to end.

If this pandemic has shown us anything, it is that the people on whom society relies the most are those least rewarded in pay and respect. Whether it is the poorly paid nurse, the carer on a zero-hours contract or the retail and hospitality staff working shifts so long that they would not be out of place in Victorian society, the people of Britain deserve better. This pandemic has been devastating, but it provides us with an opportunity to shape the economy and society in a way that prioritises the environment and protects workers. That means better pay, shorter and more consistent working hours and job security. Workers need to be able to look ahead into the week knowing that they have work, that their wages will provide a decent standard of living and that their working hours will leave them the time and energy to live their life. The better the conditions and protection for workers, the better their quality of life and the greater their health, wellbeing and sense of worth—it really is that simple.

The pandemic has also exposed the lack of protections for staff in the workplace and how fragile health and safety standards are. The Government must begin to see employment law as a red line, rather than being advisory, and they must properly fund the Health and Safety Executive, so that safety in the workplace is properly enforced. When the Government finally begin to plan for our post-coronavirus society, they must accept that the status quo has not worked, and any attempt to return to business as usual will fail the public. The 33 million workers of Britain deserve more. When society needed them most during this pandemic, they delivered. It is time for the Government to do the same for them.