Finance (No. 2) Bill

Seema Malhotra Excerpts

Monday 11th April 2016 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

We have just had a speech from the Financial Secretary which puts a very positive spin on the Finance Bill. Although he sought to put a positive spin also on the measures announced by the Prime Minister today on tax avoidance, his speech shed no further light on the critical issue of offshore trusts and the need for a public register of beneficial ownership. It fell far short of the measures that we announced today in our tax transparency and enforcement programme.

The House is back after three weeks of turmoil at the top of the Tory Government which has called into question the competence and credibility of the Prime Minister and his senior Ministers. They were in trouble even before the Business Secretary’s inept handling of the crisis at Port Talbot. Since then we have had a week of ducking and diving from the Prime Minister over revelations in the Panama papers. What the Prime Minister showed today was that he and his colleagues can get top marks for talking the talk, but when it comes to walking the walk their scorecard is far less impressive.

The Bill seeks to put into law the tax-related measures set out in the Budget, and what a Budget it was. The author of the omnishambles surpassed himself and delivered a mega-shambles. No Budget has unravelled as quickly or as comprehensively as this one. It was a Budget that failed to add up. As we begin to debate the Bill, we do so against the backdrop of a huge, gaping black hole, with estimates of a figure of £12 billion or more that has yet to be funded. The Chancellor was faced with the real prospect of a revolt and his Budget not passing. Within days the main revenue-raising policy—cuts in personal independence payments for over 300,000 disabled people—proved too much even for the Work and Pensions Secretary. His parting shot, aimed at the Chancellor, complained of a Tory Government heading in a direction that divides society, rather than uniting it. The Budget and this Finance Bill have unfairness at their very core.

We will be voting against the Bill tonight, because it fails the fairness test and the test of adequately investing for our future. The Bill cuts corporation tax, which is already the lowest in the G7, while the Budget cuts support for working people, leaving over 2 million families, on average, £1,600 worse off a year by 2020. The Bill cuts capital gains tax, which benefits the wealthiest, at a time when the Chancellor has failed to meet his own deficit and debt reduction targets. How can it be fair, at this time, to fund tax breaks for his friends on the backs of the poor and the vulnerable?

Growth has been revised down last year, this year and every year of this forecast, and so too have business investment and productivity. The Chancellor is set to miss his export target by more than 14 years. Growth in average wages is being revised down while household debt is going up. He has admitted failure on his key targets. He has breached his own welfare cap. The Government are set to borrow £38.5 billion more than planned, and public sector net investment is set to fall as a share of GDP over this Parliament.

This is a recovery built on sand, and it is not just us saying it. The right hon. Member for Cities of London and Westminster (Mark Field) told readers of ConservativeHome that, for all the Chancellor’s talk about investment in export-led growth,

“the growth our economy has seen… comes courtesy of debt-fuelled consumption and a renewed housing and property boom.”

It is young people who are being punished by those choices. A recent YMCA survey of young people found that 41% said that debt was the biggest issue facing their family in 2016—so much for a Budget for the next generation.

The Chancellor has singularly failed to rebalance the economy, and that failure has implications for this Finance Bill. The Bill contains a series of tax cuts that he simply cannot afford. The £12 billion estimate does not include new figures published in an answer to a written parliamentary question, revealing that the Tories’ plans to force every school to become an academy could cost £1.3 billion, yet just £140 million was allocated for those plans, leaving a funding shortfall of more than £1.1 billion.

Before the Government seek once again to hide behind the turbulent conditions in the world economy, as the Minister attempted to do, let us be clear that most of the problems are of the Chancellor’s own making. We needed a Finance Bill that builds the foundations of a strong economy and that is the basis for prosperity and security for Britain’s families and businesses. We did not get it. Of course, there are some positive measures, such as anti-avoidance measures and industry support measures, that we broadly welcome. Support for the oil and gas industry and the quality of apprenticeships— 30% of apprentices currently appear not to complete their apprenticeships—are issues that we will want to explore further, along with tackling frequent tax avoiders. But these measures do not go far enough, as I will highlight later.

There is little good news for manufacturing, and no coherent overall industrial strategy, which of course includes the needs of the steel industry.

[Jeremy Quin (Horsham) (Con)]

While the hon. Lady is in a positive frame of mind, would she like to welcome the significant increase in employment over the past few years and the fact that the deficit has been cut by such a large proportion?

[Seema Malhotra]

The hon. Gentleman says that I am in a positive frame of mind. I normally am, but I am just very concerned about the economy. Perhaps he will raise the Resolution Foundation’s finding that, as a result of the measures in the Budget, the poorest 20% of the population are set to be £565 worse off, while the richest 30% are set to be £280 better off. Perhaps he will think about his constituents and how they are set to suffer as a result of the Budget before he makes another intervention.

I was talking about the steel industry.

[Jeremy Quin]

Will the hon. Lady give way?

[Seema Malhotra]

I will just continue on steel, because it is important also to talk about what is missing from the Bill. This is a serious missed opportunity to provide greater support for manufacturing and steel. The collapse of the steel industry could cost the Government £4.6 billion over the next 10 years. Some 40,000 jobs could be lost, devastating steel-making communities and industries that depend on British steel.

We welcome today’s news that a buyer has been found for Tata’s Scunthorpe steel plant, and we congratulate Unite, Community, the GMB and others who played an important role in the negotiations leading to that deal. However, against that background comes the revelation of a U-turn on business rates by the Chancellor. Before the Budget, the Engineering Employers Federation made a strong case for giving companies an allowance on business rates for plant and machinery, which could have applied to assets such as the blast furnaces in the steel sector. However, we learned from The Times that although the Chancellor was planning to act, he then pulled plans to give Britain’s struggling factories tax relief on business rates.

Why did he do that? The answer, analysts suggest, is that British manufacturing has been sacrificed on the altar of the Chancellor’s obsession with getting a £10 billion Budget surplus in the final year of this Parliament. We wait to see what actually materialises from today’s statement and what actual support comes forward from the Government, particularly for Port Talbot.

The Office for Budget Responsibility revealed that the decision was taken so late that there was no time to change the calculations in its economic and fiscal forecast. That means that its forecast for the level of business investment in this Parliament could well be an overestimate.

Families in Britain are to suffer as a result of another missed opportunity—on housing. By 2025, nine out of 10 Britons under 35 on modest incomes will not be able to afford a home. Rents in the private sector are soaring. So much, again, for a Budget for the next generation.

[Jim Shannon (Strangford) (DUP)]

On that subject, the hon. Lady will be aware that the Residential Landlords Association put forward to the Government some ideas for changes, but those have not happened. One was to give people the chance to buy their houses, and the association was happy to do that, but we have not got that in the Bill. Does the hon. Lady feel that something could be done on that to help?

[Seema Malhotra]

The hon. Gentleman makes an important point, and there are many measures we should explore, particularly as we go into Committee, to support house building and home ownership.

We know from the English housing survey that 201,000 fewer households own a home now than did at the start of the Chancellor’s tenure. That compares with an increase of 1 million under Labour. As of last year, the housing benefit bill is forecast to be £350 million more than the Chancellor intended. It is clear that this country needs a massive programme of capital investment in new affordable homes to rent and buy—nothing less will do if we are to tackle the growing housing crisis. That is why Labour has far more coherent plans to build homes and to make sure we tackle spiralling housing costs. That is the way to control the housing benefit bill.

Today’s report from the Women’s Budget Group shows that female lone parents and single female pensioners will, on average, have seen their living standards fall by 20% by 2020. Women are now set to bear a staggering 86% of the cost of changes and cuts to taxes, tax credits and benefits by 2020. That is worse than the figure of 81% identified last year.

The tax cuts in the Bill are likely to benefit men more than women. It is surely time that the Government conducted a full gender impact analysis of their proposals. That would give the opportunity for greater parliamentary scrutiny.

When it comes to measures on capital gains tax and corporation tax, the Bill must pass two tests: are they fair and are they effective? The Bill confirms that the main rate of corporation tax will be cut further to 17% from 1 April 2020, which will be worth £945 million. If corporation tax, which is already the lowest in the G7, can be reduced yet further, perhaps money can be found and the Government can think again about cuts to working age benefits and public services.

More importantly, a cut to corporation tax will not address the underlying weaknesses of our economy, such as the challenges in productivity, skills and the investment required in infrastructure. Businesses that talk to the Minister as well as to us say that these are the biggest issues affecting their future growth. Connectivity and new technology also require investment.

[David Rutley (Macclesfield) (Con)]

The response from the Federation of Small Businesses contradicts what the hon. Lady has said. It said:

“The decision to further lower corporation tax to 17% in April 2020 is an important statement of intent and will provide a boost for affected firms.”

[Seema Malhotra]

The hon. Gentleman certainly does not seem to have the same sort of direct conversations as I do with businesses. This is a question of choices and timing. They also raise the issue of housing, which affects the stability of their workforce, and of infrastructure investment, which affects access and their opportunities to grow. Investment is also required to support the scale-up of their businesses through developing skills. There is a whole host of issues. This is also about judgment, timing and what would be most effective in increasing our productivity.

[David Rutley]

rose—

[Seema Malhotra]

I will make a little progress and then I will take another intervention.

[George Kerevan]

Is the hon. Lady aware that there is ample evidence in the United States and the UK that large amounts—possibly half—of the retained earnings from lower corporation tax actually go into share buybacks, and that those share buybacks, which end up in the pockets of the original shareholders, do not get reinvested in industry, but go back into property and other kinds of non-productive assets?

[Seema Malhotra]

The hon. Gentleman makes a very important point. That is one of the concerns. It is assumed that the proceeds from those tax cuts will go directly into investment, but the evidence for that does not necessarily stack up. In fact, an estimated £500 billion is not invested in this country at the moment. That is an important point, which is why greater analysis and scrutiny are required, as well as conversations with businesses about what will actually make a difference for them in the long term.

The basic rate of capital gains tax is to be reduced from 18% to 10%, and the higher rate from 28% to 20%. That is set to cost £735 million in 2020 and £2.7 billion over the forecast period. Capital gains tax was paid by only 200,000 taxpayers in 2013, which means that about 0.3% of the population will benefit from a giveaway of more than £600 million in total from the first year. That was not called for or expected. In fact, the Financial Times described it as an “unexpected gift” for wealthy investors. In 2010, the Chancellor told the House that raising capital gains tax was necessary to

“create a fairer tax system.”—[Official Report, 22 June 2010; Vol. 512, c. 178.]

It would be interesting to hear perhaps during the Exchequer Secretary’s wind-up speech what has changed.

[Jim Shannon]

The Residential Landlords Association was keen to see the extension of the capital gains tax relief so that landlords could sell property to their tenants. That is a small thing that could incentivise the whole housing market if it was done in the right way.

[Seema Malhotra]

I thank the hon. Gentleman for his comments, but I think he will agree that the key issue in addressing the housing crisis is the rapid building of new homes and the strategy to deliver that effectively.

I want to make a few comments about entrepreneurs relief and the Government’s new investor relief. We welcome the endeavours to encourage investment, particularly long-term investment. The question will be whether the measures pass the test of what business is looking for: simplicity, stability and a strategic approach to fiscal policy. Our concern is that tinkering is no substitute for a clear, long-term strategy to support investment. That is why we are undertaking a review of tax reliefs to see what the evidence is for what incentivises business investment and provides real value for money. Our aim is to ensure that there is a strategic approach to supporting investment and the transparency around it. Those are questions we will pursue as we go forward into Committee.

We also welcome clauses on the reduction in oil and gas corporation tax and petroleum revenue tax. The Chancellor announced that he would reduce petroleum revenue tax from 35% to zero, and that he would reduce the corporation tax supplementary charge from 20% to 10%. There is no doubt that the struggling North sea oil and gas industry needs support. In fact, we think that the Chancellor could have gone further and announced the measures that Labour has called for. Our bold new proposal to invest in the industry is based on the creation of a new public body, which would be called UK Offshore Investment Ltd, to identify areas for temporary public investment. The purpose of that new body was spelled out last month by the Scottish Labour leader, Kezia Dugdale. It would conduct an open-book review with the Oil and Gas Authority to identify assets that have long-term viability and profitability. That, in turn, would provide the evidence to allow UK OIL to commit to public investment in strategic infrastructure and potentially profitable assets.

Clause 115 gives the Government power, through a statutory instrument, to reduce the VAT rate on women’s sanitary products from 5% to zero. That is welcome, as are the Minister’s comments. I am glad that the Chancellor has finally recognised that women’s sanitary products are not a luxury. However, it is crucial that the clause should set a firm deadline for the VAT reduction, and although the Minister’s comments signalled moves in that direction, they did not go quite far enough. I am sure that we will continue to address the point as we move forward in Committee and beyond. I congratulate Labour Members, particularly my hon. Friend the Member for Dewsbury (Paula Sherriff), and campaigners inside and outside Parliament on their hard work in forcing the Government’s hand on the issue. It is a sad indictment of the Government that it took a Labour amendment and an embarrassing Government defeat to achieve that result.

Where in the Finance Bill is a clause to reflect the Government’s other U-turn, which was on VAT on energy-saving materials? The Government accepted our amendment to the Budget resolution, which allowed the Government to legislate on the matter in the Finance Bill. The lack of legislation and the contradictory and noncommittal answers from Ministers are causing uncertainty in the industry. We simply call on the Government to make a commitment that they will not include a VAT rise for solar or other green energy measures in this or future Finance Bills.

On tax avoidance, the two key issues we face are structural reforms and public confidence. The rhetoric today, as in the past, has sought to be impressive—in the past, the Chancellor has said that aggressive tax avoidance is “morally repugnant”—but the reality has yet to match the rhetoric. Indeed, the tax gap has grown under this Government to £34 billion. Serious measures to tackle tax avoidance, which is estimated to account for £7 billion of the tax gap, will be even more critical.

It is two years since the Prime Minister wrote to UK overseas territories and Crown dependencies calling on them to publish a public register of firms and individuals sheltering money there, yet virtually no progress has been made so far. Today’s statement did nothing to move us forward on such a public register of firms and individuals. Fundamentally, this issue is about a rotten system that undermines the faith of ordinary families in the fairness of our tax system. Indeed, a definitive analysis by the Financial Times shows that the corporate tax avoidance measures that the Labour Government brought in will still raise 10 times as much as those introduced during the last Parliament.

While we broadly welcome the measures in the Bill, we think that they simply do not go far enough. We believe there must be far greater transparency and enforcement in relation to those who try to hide their wealth and profits in tax havens. As ever, the Chancellor and the Prime Minister give the impression of acting tough, while in reality they are proposing half-measures. Instead, as Labour have set out in our tax transparency enforcement programme, we require the introduction of a general anti-avoidance principle that proactively looks at intent and does not need the consent of the tax profession before it can be used.

Our programme includes an immediate public inquiry into the Panama papers, and more resources for HMRC. Staff numbers having been cut by 6,000 and then added to by 670, we can see that there has been a return of about 10% of those whose jobs were cut, and real concerns have been raised about the impact on tax collection as a result. We have called for a specialised enforcement unit and for greater co-operation with European partners on country-by-country reporting and protection for whistleblowers.

[John Mann]

Far be it from me to make any proposals to Labour Front Benchers, but will my hon. Friend consider some research into the impact of the Liechtenstein disclosure facility and how it has been used during the past two to three years to subvert the Government’s attempts on taxation?

[Seema Malhotra]

I thank my hon. Friend for his extremely well made comment. He is absolutely right that we should explore that area, because we want evidence about what works as we move forward urgently on the issue of gross tax avoidance and evasion. Indeed, if we want to ensure that tax avoiders and tax evaders pay their fair share of tax, the Finance Bill will need to be toughened up considerably. If the Chancellor fails to listen to our arguments, the public will want to know why.

The Bill also fails the fairness test. Resolution Foundation analysis shows that 80% of the gains from this Budget’s changes to income tax will be for the top half of the income distribution, with the top 20% of households getting the lion’s share. It estimates that, during this Parliament, households in the lower half of the income distribution will lose an average of £375 a year, while those in the top half are set to gain £235 a year. We are lucky that it can tell us that. It is a matter of shame that the Chancellor no longer produces his own full distributional analysis. This is a Chancellor who either does not want to know or does not want to tell us what impact his decisions are having. Neither competent nor compassionate—after the Budget, that is the verdict on this Chancellor.

This country faces huge economic challenges—automation, competition from nations such as India, China and other growing economies, our grossly imbalanced economy and our growing current account deficit—yet faced with these big challenges, what do we get? We get cuts to corporation tax that the Office for Budget Responsibility says will do nothing to reverse the deteriorating outlook for business investment, productivity and exports. There are cuts to capital gains tax that will benefit a tiny minority but do nothing for the millions of working people struggling simply to stay out of debt, let alone save for a home or a pension. There are clever accounting tricks aimed at reducing the Chancellor’s short-term political embarrassment that do nothing to secure our long-term public finances or economic stability. Missing was a clear vision of the future—a vision of a Britain that has a strategic partnership between Government and business, and is stronger because prosperity is shared more fairly.

We will vote against this Finance Bill because it is unfair. It is unfair on women, on low-paid workers and on children living in poverty—the number of children in poverty has increased by half a million since this Government came to power. These are people who are seeing their living standards cut to pay for the Chancellor’s tax giveaways to the better off. The Bill is unfair on the workers in our steel and manufacturing industries, who are worried now about their jobs and their families. It is unfair on all the hard-working families and responsible businesses that play by the rules and pay their fair share of tax. We will vote against the Bill because it fails the test of moving this country forward to a more prosperous and secure future for Britain’s businesses and families.