Finance (No. 2) Bill

James Murray Excerpts

2nd reading
Tuesday 16th November 2021 Commons Chamber

[James Murray (Ealing North) (Lab/Co-op)]

I beg to move the amendment in my name and those of hon. and right hon. Friends including the Leader of the Opposition and the shadow Chancellor, my hon. Friend the Member for Leeds West (Rachel Reeves):

That this House declines to give a Second Reading to the Finance (No. 2) Bill because it does nothing to help people who are struggling with the rising costs of living, who are being hit by the cut to universal credit, or who are facing a rise in National Insurance Contributions and a freeze in the Income Tax Personal Allowance from next April, because it nonetheless cuts taxes for banking companies and derives from a Budget that will see the tax burden rise to its highest level in 70 years and announced cuts in air passenger duty for UK domestic flights, and because it fails to set out a plan to grow the UK’s economy, fundamentally reform business rates, and create better jobs for the future.

I am grateful to have the opportunity to set out the view of the Opposition on the Second Reading of the Bill, which comes at a time when people across the UK are seeing the cost of living, from electricity to food prices, going up and up; when businesses are trying to get back on their feet after 18 months of struggle; and when our country needs leadership to build a new net zero economy with jobs for the future. Yet let us look at what the Government are doing: putting up taxes on working people while cutting them for banks; giving up on fundamental reforms to business rates that would give our high streets the backing they need; and failing to invest in the new jobs of the future that would turn the challenge of net zero into an opportunity for our country’s economy to grow.

The truth is the Tories will never put working people first. I stood here two months ago arguing that the Government were wrong to hike up taxes on working people with their national insurance rise when those with the broadest shoulders should be paying more, and yet what we have before us today is a tax cut for banks. That tells us everything we need to know about the Tories when in power. They do not seem to care whether something is fair for people in this country, except of course when they think something is unfair to one of their own, and then they simply change the rules to suit themselves. The British people are seeing through the Government’s approach: people are seeing that this Government are more concerned with protecting themselves than with protecting the economy and people’s quality of life.

The foundation of any Government’s approach to the economy must be a plan for growth. With a growing economy, we have the chance to create new jobs with better wages and conditions in every part of the country, but without growth it gets ever harder to meet the challenges we face. Let us look at the record of this Government. As the shadow Chancellor my hon. Friend the Member for Leeds West told the Chancellor right after the Budget, it is clear what direction we are going in under the Conservatives. In the first decade of this century, despite the financial crisis, Labour grew the economy by 2.3% a year. In the last decade to 2019, however, even before the pandemic, the Tories grew the economy at just 1.8% a year. In the future, things look even worse. The Office for Budget Responsibility has said that by the end of this Parliament the UK economy will be growing by just 1.3% a year. This low growth is hitting people in their pockets: data from the Office for National Statistics show that average yearly wage growth has fallen from 1.6% in the decade to 2010 to 0.5% in the decade since 2010. We do not have much to look forward to, either, with the Institute for Fiscal Studies saying that over the next five years, real household disposable income is expected to grow by just 0.8% a year, well below the historical average.

Low growth is becoming a hallmark of the Tories in power. What they fail to realise is that with the right investment, the challenges we face can become opportunities for growth. In no part of our lives is that more evident than our response to climate change. Labour has said that we would invest an additional £28 billion every year for the rest of this decade in transforming our economy—from new jobs building batteries for electric vehicles, to manufacturing and maintaining wind turbines, and finally insulating our homes to get energy bills down. With investment on the scale we need, and with Labour’s pledge to buy, make and sell more in Britain, we would turn an urgent, critical response to the climate emergency into an opportunity for new jobs with decent pay and conditions in every part of our country.

In every part of our country, too, we see shops and high streets struggling to get back on their feet after the last 18 months. We should turn their urgent need for support into a chance to fundamentally overhaul the system of business rates, which has had its day. Business on high streets across the country know that the business rates system is broken and that fundamental change is long overdue. We know that, too, which is why we have pledged to scrap business rates and replace them with a new system of business taxation fit for the 21st century, which would incentivise investment, reward businesses moving into empty premises and encourage environmental improvements. Crucially, under our new system, no public services or local authorities would lose out, and online businesses would pay a fairer share.

We thought the Conservatives also knew that change on that scale was needed. We thought they might understand the need for an overhaul of the system, as their 2019 manifesto promised to reduce business rates through

“a fundamental review of the system.”

We thought they might even have meant it: in 2020, the Treasury began a consultation on what it said would be the fundamental review that its Ministers had promised. Yet in last month’s Budget, the Chancellor decided to ditch any prospect of fundamental reform under this Government.

Measures in the Budget for next year may be welcome, but no matter how the Chancellor tries to spin it, the promise of fundamental reform from this Government is over. As the chief executive of the British Retail Consortium put it, what the Government have offered

“falls far short of the truly fundamental reform that is needed and was promised”.

That manifesto promise of a fundamental reform of business rates has been broken, just as the promise not to raise national insurance was broken a month before.

We have a Government who are breaking their promises and failing to set out a plan to grow the UK’s economy and create better jobs for the future. Growing our economy would mean more jobs and higher tax revenues to invest in public services, but if the UK economy had grown at the same rate as other advanced economies over the last decade, we could have had £30 billion more to invest in public services without needing to raise taxes. Yet under the Tories, lower growth means that taxes need to go up. Last month’s Budget saw taxation rise to its highest level for 70 years.

Crucially, the decisions about who should shoulder the burden of tax rises tell us everything we need to know about the Tories when they are in power. The Tories are making life harder for half the population through their personal allowance freeze, for all working people through their national insurance tax rise, and for struggling families through their cut to universal credit, yet they are making life easier for bankers by cutting taxes on banking companies, and for frequent flyers by cutting air passenger duty on domestic flights. A banker flying between London and Leeds is getting a double tax cut, but someone working in the airport where that flight lands is getting a double tax rise.

[Rushanara Ali]

Does my hon. Friend agree that it is scandalous that the Government have only just agreed to restore schools expenditure to its 2010 level, despite a shortfall of £10 billion for catch-up notwithstanding requests from the former catch-up tsar? If we are serious about improving productivity in this country, we need to invest in our kids and in skills. Government expenditure falls far too short, and that will damage the future of our economy.

[James Murray]

As my hon. Friend rightly points out, investing in education is critical to the future of our country and the next generation. We heard the Minister say how uncomfortable she feels talking about cuts, but that is the reality of 11 years of Conservative government. No matter how they try to massage the announcements they are making now, the truth is that if we compare 2021 with 2010, we can see the impact that 11 years of the Tories has had on our public services.

At a time when working people are facing rising prices and flatlining wages, it shows the Tories’ true colours that they are prioritising a tax cut for bankers. To rub salt in the wound, as the IFS has pointed out, the cut in air passenger duty will flow through the UK emissions trading scheme and push up electricity prices at home. It was shocking to hear the Chancellor announce a cut in air passenger duty just days before COP26, and it is shocking that his tax cut for banks will cost the public finances £1 billion a year by the end of this Parliament.

That cut will see the corporation tax surcharge for banking companies slashed from 8% to 3%, with the allowance for the charge raised from £25 million to £100 million. It is worth reminding ourselves why that sector-specific tax was first introduced. As the policy paper published alongside the Budget—I am sure the Minister has read it—sets out clearly, the charge has been levied on banks to reflect

“the risks that they pose to the UK financial system and wider economy”

and to recognise

“the costs arising from the financial crisis.”

When the surcharge was introduced 10 years ago, in the wake of the financial crisis, the Government at the time seemed to recognise that banks had an implicit state guarantee due to their central position in the UK economy, and that that guarantee should be underpinned by greater tax contributions. Yet, as Tax Justice has pointed out, the Office for Budget Responsibility found in 2019 that £27 billion of Government expenditure on bailing out the banks was still outstanding. It seems that the Government are determined to push ahead with a cut to the surcharge, despite the fact that it will not even have fully repaid the public money spent on banks during the financial crisis, let alone provided any insurance against a future crash. We will question Ministers on that further in Committee.

We will also use that chance to press Ministers on other parts of the Bill, including those that introduce the residential property developer tax and measures relating to money laundering and tax avoidance. We support the principle behind the residential property developer tax, which will be levied on the largest developers in the residential property sector. It is right that those responsible for putting dangerous materials on buildings should pay towards the very significant costs of removing unsafe cladding, but it would be a mistake to assume that levying that tax alone will mean that the cladding scandal will in any way come to an end.

The tax is expected to raise £2 billion over 10 years, yet the Housing, Communities and Local Government Committee has estimated that addressing all fire safety defects in every high-rise or high-risk residential building could cost up to £15 billion. What is more, extreme pressures on labour and materials mean that the cost of fire safety works could rise significantly, all but wiping out the money raised from the new tax proposed in the Bill.

The bottom line is that leaseholders living in buildings with potential fire risks and facing huge remediation costs need to know how those costs will be met in full and that the necessary work will be done without delay. There are plenty of people involved in this scandal who should be paying to fix it, but leaseholders are absolutely not among them.

We also support the principle behind the economic crime levy to raise money from the anti-money laundering regulated sector to pay for measures in the economic crime plan to help tackle money laundering. As the director of the Centre for Financial Crime and Security Studies has said, a

“key challenge for the UK Government’s response to financial crime is a lack of investment in capabilities to respond to its policy ambition.”

We hope that the funding from the levy will go some way towards increasing the capacity in government to tackle economic crime, although we will press Ministers on whether it is enough.

[Peter Grant]

Does the shadow Minister agree that, as part of the drive to deal with money laundering, there is also a need for significantly greater transparency so that the people who buy up huge swathes of property in London, for example, are openly identified and any illegal money that has been laundered in that way is much harder to hide?

[James Murray]

The hon. Gentleman makes an important point. Alongside funding, of course, there are also changes to the law that would strengthen the UK’s ability to fight economic crime. Top of the list must be putting in place a public register of the beneficial owners of overseas entities that own UK property. Such a register would bring much needed transparency to the overseas ownership of UK property and help to stop the use of UK property for money laundering.

So, where is the register? In 2016, Prime Minister David Cameron first announced plans to make it a reality. In 2017, the “National Risk Assessment of Money Laundering and Terrorist Financing” confirmed that property continued to be an attractive vehicle for criminal investment, particularly high-end money laundering. In 2018, a draft Bill to set up a register of overseas entities was published. In 2019, a Joint Committee of MPs and Lords published their pre-legislative scrutiny of the Bill and the Government published their response. In that response, published in July 2019, the Minister responsible, the hon. Member for Rochester and Strood (Kelly Tolhurst), said:

“Knowing who ultimately owns and controls a company is an important part of the global fight against corruption, money laundering and terrorist financing.”

We agree. The Minister committed to

“turn this Bill into an Act, and to deliver an operational register in 2021.”

However, since that Government response was published in July 2019—and since, as it happens, the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) became Prime Minister, at the end of that very month—the desire to see the register put into place seems to have lost its energy.

Ministers are legally required by the Sanctions and Anti-Money Laundering Act 2018 to report to Parliament annually on the progress that has been made toward putting such a register in place. In 2020, a ministerial statement was indeed published, but any commitment to the register being operational by 2021 had by then been dropped. This year’s ministerial statement, published on 2 November, barely mentioned the register, arguing:

“The overseas entities register is one of a number of proposed corporate transparency reforms”.

The statement focused mainly on other changes and, in fact, barely mentioned the register, ending with that dreaded phrase:

“The Government intends to introduce legislation to Parliament as soon as parliamentary time allows.”

It is astonishing that the Government feel that the need for the register is becoming less urgent. The Pandora papers confirmed how overseas shell companies secretly buy up luxury property in the UK, and how much transparency is needed to help to tackle money laundering.

What are we meant to conclude from the fact that the appointment of the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) as Prime Minister in July 2019 coincided perfectly with a change in direction by the Conservatives away from a commitment to make transparent the ownership of overseas companies buying up UK property? What could possibly be the connection between overseas individuals investing in UK property through anonymous companies and the current occupant of 10 Downing Street? Why on earth would anyone in Government not want to introduce the transparency that their own colleagues have said in the past is crucial to tackling high-end money laundering?

I am sure that later in the consideration of the Bill, we will return to the matter of anti-money laundering. At later stages, we will also consider the effectiveness of measures in the Bill to tackle tax avoidance, as that is an important matter for us and the public. In the Opposition, we have long been pushing for the Government to do more to tackle tax avoidance, and while any action on that is welcome, including the measures in the Bill, we do not believe they go far enough. Crucially, as well as the regulations that are needed, the Government must invest in the resources that Her Majesty’s Revenue and Customs needs to tackle the problem effectively.

The Budget papers confirm that HMRC is set to receive a

“£0.9 billion cash increase over the Parliament”.

However, as TaxWatch has pointed out,

“the vast majority of this will not go towards tackling tax fraud, but rather to deal with the additional complexities surrounding the UK’s departure from the European Union.”

We know that effective investment in tackling tax avoidance can bring in much more than is spent, so it is crucial to make sure that that is not ignored by the Government. We will return to this important matter in later stages of the Bill. We will return to that point because the principle at the heart of our tax system must be that everyone plays by the rules and pays their fair share. That principle needs to be stated and supported, as under this Government, with this Budget and this Finance Bill, our country is moving further and further away from that ideal.

Labour’s vision of the economy is this: invest in good modern jobs with decent pay and conditions in every part of the country; support small businesses and high streets from being undercut by large multinationals who do not pay their fair share of tax; and buy, make and sell more in the UK to use every lever we have to support British industries to succeed. That is how we begin to rebuild and strengthen our economy after a decade of low growth, with no end in sight. That is how we make sure people have more money in their pockets for them and their families, and how we increase tax revenues to invest in public services.

But that is not what we are getting from this Government. The low growth they are responsible for means that taxes have had to go up. Faced with a choice of which taxes to raise, the Tories have shown the British people their true colours. Millions of families across the country are already being hit by the Tories’ decision to cut universal credit. From next April, working people across the country will pay more, as their income tax personal allowance is frozen and their national insurance contributions are hiked up. Yet from the April that follows, banks will see the tax they have paid since the financial crisis cut by £1 billion a year by the end of this Parliament. That is the choice the Tories have made: taxes on working people will go up, while taxes on banks will be cut. For people who are working hard but finding things tough, the Tories have nothing to offer except a tax rise.

Fairness is the one of most British values there is, yet it is one this Government just do not get. The Tories are spending all their time protecting themselves, when they should be looking out for the British people. Labour would grow the economy. We would invest in the future. We would make sure working people were never again the first to feel the brunt of tax rises that this Tory Government are forcing on their shoulders.

--- Later in debate ---

[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.