Finance (No. 2) Bill

Stewart Hosie Excerpts

2nd reading
Wednesday 29th March 2023 Commons Chamber

[Stewart Hosie (Dundee East) (SNP)]

That was a fascinating and wide-ranging speech from the hon. Member for South Thanet (Craig Mackinlay). Twice he used the analogy of being a Betamax waiting for the VHS video to arrive. I am sure I have heard that speech from the Conservative Benches so many times that it was like a worn-out Philips Video 2000—another plan that never quite made it.

The Financial Secretary made a number of remarks at the beginning of her address. She said debt servicing costs were down, and indeed they are—down from last November, but still massively up from one year ago. She said the fiscal targets were to be met, and indeed they are. The debt target in particular will be met in five years—it will be down by 0.2% of GDP. That is £6.5 billion out of a GDP of, at that point, £3 trillion. The margin for error is very small. She also said that employment will go up—that is to be welcomed—and the OBR certainly suggests that it will. It will go, over the next five years, from 60% to 60.4% of the available workforce. That is helpful, but it does not begin to touch the edges of the labour shortage and skills problems that we have.

The OBR has told us that living standards will fall by 6% or so over this fiscal year—the largest two-year fall since Office for National Statistics records began in the ’50s. We know that there is a combination of reasons for that, particularly inflation, which was at 10.4% in February. I am sure that we have all seen in the last day or so the 17.5% inflation rate in groceries, which is really affecting people and was reported from February. We also know that the Government could have done more to ease people’s cost of living pain. They should not simply have frozen the energy price cap at £2,500 but reduced it to £2,000. They could and should have maintained the £400 energy support payment, but they chose not to. Those measures would have borne down even more on inflation, which would have been helpful.

In a sense, what is more disturbing than the lack of immediate help is that the Government seem relatively content with the modest progress made towards tackling the long-term underlying issues in the UK economy. Productivity in particular remains a huge problem. The OBR forecast from the Budget said that productivity per hour would not even reach 1.5% growth in any year during the forecast period—that is below the 2% norm.

Of course, some aspects of the Budget and the Bill are to be welcomed and may well help with productivity issues. I am thinking particularly of the full expensing of capital allowance until March 2026, but as the hon. Member for Ealing North (James Murray) pointed out, that is temporary—it is only for three years—and the impact on business investment over the forecast period is not particularly clever. At the same time, the failure to increase the annual investment allowance means that businesses planning to benefit from £1 million of investment allowance will find that that £1 million of planned investment has been badly eroded by inflation.

Likewise, the intention to deliver £20 billion of research and development spending by 2024-25, which could certainly help with productivity, was not mentioned in the Budget, as I said on Budget day. I have done some digging about because there seems to be a lack of clarity on that. Is it because that £20 billion was actually meant to be £22 billion but that figure was quietly dropped? And was the 2024-25 goal pushed back to 2026-27? In either event—whether we get £20 billion or £22 billion of total R&D spend, and whether that is in in two, three or four years—the investment will not be of the same value as when it was first announced because of inflation.

Although references to R&D credits are certainly there in the Bill, part 2 of schedule 1 seeks to limit attributable expenditure on data licences or cloud computing in some circumstances. There may be good reasons for that, but I suspect, given that a large amount of future R&D work will be on cloud technologies, that we will have to probe very carefully indeed in Committee to find out whether the Government are justified in removing from R&D credits the attribution of such costs.

Likewise, we will also need to probe in Committee the decision to remove the cap on lifetime pension allowances, which will cost around £3 billion but benefit a tiny number of already pretty comfortably well-off—or, indeed, very wealthy—people. If that measure is genuinely designed to lift certain categories of worker—doctors in particular—out of a pension and employment trap, the Government will, to be brutally honest, have to come up with a much better and narrower solution.

We also saw the decision to impose a huge 10.1% rise in the duty on Scotch whisky. The Scotch Whisky Association could not have been more stark in its response, saying:

“We have been clear with the UK Government that increasing duty would be the wrong decision at the wrong time”—

I agree with that—

“so it is deeply disappointing that one of Scotland’s largest and longest-standing industries has been treated in this way.”

It also said:

“This is an historic blow to the Scotch Whisky industry. The largest tax increase for decades means that 75% of the average priced bottle of Scotch Whisky will be collected in tax”.

I welcome and support sensible duty measures—the Government know that I would welcome a duty regime based on alcohol content, with no other criteria—but the decision to put such a significant and substantial increase on Scotch tells me that the UK Treasury views this totemic industry as, frankly, no more than a cash cow.

The Financial Secretary spoke earlier about enhancing the environment. In the Budget debate I laid out the huge cost and almost unlimited financial risk to the taxpayer of nuclear energy. The reasoned amendment that SNP Members tabled was critical of not just the decision to invest in nuclear but the failure to invest fully in real green, renewable technologies. Nowhere was that more obvious, and more starkly demonstrated, than in the next contracts for difference auction, which will be allocation round 5, the budget for which has been reduced by 30%, from £285 million to £205 million. The tidal stream ringfencing has been halved to £10 million.

This all comes at a time when inflation in the price of materials and construction is in the order of 30% for established renewables and closer to 50% for projects such as the MeyGen tidal stream, which is the largest tidal stream project in the world. Although the budgets are now annual rather than biannual, the allocation means that fewer projects can be successful when they bid, which means we are likely to see reduced pipelines of orders in the UK and reduced investor confidence. We saw that in onshore and offshore wind projects, which became reliant on foreign manufacturing. By contrast, UK-based supply chains account for 80%-plus of tidal stream content. For example, Orbital Marine Power’s O2 device was delivered with an over 80% UK supply chain spend. It was designed in Orkney and built in Dundee with steel from Motherwell, blades from the Solent, anchors from Anglesey and hydraulics from the midlands

With a bigger ringfenced pot for tidal, we have the opportunity to scale up the MeyGen site in particular; otherwise, we will end up cutting costs and being dependent on foreign manufacturing, and the technology will lose out, as did the wind technology when Denmark provided Government support for its sector and the UK lost out. At this point, if the UK Government do not increase the overall budget, the whole process could fail, like the most recent Spanish auctions, and all against a backdrop of massive investment through the Inflation Reduction Act in the United States.

[Kirsty Blackman (Aberdeen North) (SNP)]

On investment in renewables, does my right hon. Friend feel, as I do, that the Government are missing out on an opportunity? This is the opportunity to capitalise on the move towards a just transition to renewable energy, and the Government are putting down exactly the wrong markers. When we want to build up investor confidence and the industry and to take advantage of it, the UK Government are choosing not to give confidence to those who are keen to invest.

[Stewart Hosie]

This is absolutely the opportunity to invest properly, to deliver the just transition that we all speak about and want to see, and to protect the jobs, abilities and skills of the hundreds of thousands of people in the oil and gas sector across the UK as they transition into renewables, so that Scotland is no longer the oil and gas capital of Europe but becomes the Saudi Arabia of renewables—what a thing we could achieve. However, some of the decisions that are being taken, including the obsession with nuclear and the reduction in funding for real green renewables, are deeply problematic.

I also want to address the lack of action on, and support for, trade. The OBR said that while it is true that

“additional trade with other countries could offset some of the decline in trade with the EU, none of the agreements concluded to date are of a sufficient scale to have a material impact on our forecast. The Government’s own estimate of the economic impact of the free-trade agreement with Australia, the first to be concluded with a country that does not have a similar arrangement with the EU, is that it would raise total UK exports by 0.4 per cent, imports by 0.4 per cent and the level of GDP by only 0.1 per cent over 15 years.”

As an aside, if this is the much-vaunted benefit of Brexit, it is very, very thin. What that means is that the OBR estimates the economic impact of the free trade agreement with Australia, for example, will raise the level of GDP by 0.1% over the next 15 years, while estimating that Brexit will cause a drop in GDP of 4%.

With families still burdened by high inflation, and also feeling the pinch from rising mortgage and rental costs; with energy costs still way higher than they should be; with the long-term problems of the economy, particularly poor productivity, inadequately addressed; and with the self-inflicted economic harm of Brexit hampering trade and GDP growth, I am afraid that this Budget and this Finance Bill simply are not enough.

Finance (No. 2) Bill

Stewart Hosie Excerpts

Report stage
Tuesday 20th June 2023 Commons Chamber

New clause 5 makes technical changes to ensure HMRC’s civil information powers work as Parliament intended, to support its tax collection functions. The new clause will clarify the law to put beyond doubt that HMRC may continue to collect what is termed “communications data”, including essential information such as names, addresses and dates of birth from businesses and third parties. Following a recent change by the Home Office to its interpretation of communications data under the Investigatory Powers Act 2016, the clause will simply ensure that existing legislation continues to function exactly as Parliament originally intended, including the important safeguards already in place for the protection of citizens’ data.

[Stewart Hosie (Dundee East) (SNP)]

The subparagraphs that new clause 5 intends to delete were not in the original Finance Act 2008 but were added by the Investigatory Powers Act. I am at a loss as to why it is necessary to remove them from that Act to make it work in the way intended.

[Victoria Atkins]

That gives me the opportunity to declare that I sat not only on the Joint Committee for that Bill but on the Select Committee. There was a great deal of concentration and discussion, as I recall—the House will have to forgive me as I am rolodexing back several years in my memory—about the meaning of communications data, because of the sensitivities in relation to some of the powers rightly given to our security services in order to safeguard national security and for other purposes.

There has been some debate about how the General Data Protection Regulation and the Data Protection Act apply in the years that have fallen since. The clarification has been made because the Home Office wanted to ensure that it defines that accurately, protects citizens’ rights and permits Government agencies, law enforcement agencies and other agencies to collect and review the data necessary to protect us all. We are tabling this amendment now at the first opportunity we have had, to ensure that that phrasing still permits HMRC to collect the vital data that we need to ensure that our taxes are collected properly. To sum up my point on new clause 5, the civil information powers allow HMRC to continue to collect vital revenue to fund our public services.

In conclusion, the Government’s proposed amendments will ensure that the legislation works as it should and that HMRC has the powers it needs to continue collecting tax revenue that is vital to fund our public services that so many in our country rely on. I will, of course, address all amendments tabled by other Members when I wind up later. I very much want to listen closely to the debate that will now follow. In the meantime, I commend amendments 9 to 19 and new clauses 4 and 5 to the House. I urge hon. Members to accept them in due course.

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[Madam Deputy Speaker (Dame Rosie Winterton)]

I gently remind colleagues that if they want to intervene on a speaker, it is important that they are in the Chamber at the beginning of the speech, just in case the point that they wish to raise has already been made. It is also important to stay until the end. I call the SNP spokesperson.

[Stewart Hosie]

Before I turn to the new clauses and amendments before us, it is worth reminding ourselves briefly about the debate so far, not least that the Bill was derived from a Budget that had the stated intention of seeing the debt, borrowing and inflation all fall. As the Financial Secretary has said previously, debt servicing costs are down, and indeed they are—they are down from last November, but massively up from the previous year. She said that the fiscal targets are to be met. Again, indeed they are. The debt target in particular is forecast to be met in five years’ time measured against the fiscal charter, but it will be at 0.2% of GDP. That is £6 billion out of a GDP approaching £3 trillion. As I have said before, these are very fine margins.

Although it is true that having a weather eye on debt and deficit—the big macro-economic indicators—is important, so too is immediate help for families suffering from high inflation, high energy prices and spiralling mortgage costs. Those things, however, are all sadly absent from the Bill. That is important because the OBR has told us that living standards will fall by 6% over this fiscal year. That will be the largest two-year fall since Office for National Statistics records began in the 1950s. It is important because inflation is still at 8.7%, and it is far worse for certain essentials such as sugar, at nearly 50%. Remember that inflation was forecast to fall to 2.9% by the end of this year. Since then, it has been revised up to 5% by the end of this year. That means that the forecasts and the pain keep rising.

We know that real pay is not keeping pace with inflation. Troublingly, the Government are keeping their head in the sand regarding the inflationary impact of Brexit, ignoring even the former Bank of England Governor, Mark Carney, who could not have been clearer about the contribution Brexit has made to the soaring inflation we face.

I turn to the amendments and new clauses we are considering on Report. New clause 1 calls for a review of alternatives to the abolition of the lifetime allowance, and amendments 1 to 6 delete clauses associated with the abolition. On Second Reading, I suggested the need to probe this matter in Committee. The decision to remove the cap on lifetime pension allowances, which will cost around £3 billion, will benefit a tiny number of already pretty comfortably off or very well-off people. I also suggested that, if the measure was genuinely designed to lift certain categories of worker—doctors in particular—out of a pension and employment trap, the Government should, to be brutally honest, have come up with a much better and far narrower solution.

My hon. Friend the Member for Aberdeen North (Kirsty Blackman) also raised the matter in the Committee upstairs. She made the point that a significant number of questions have been raised in the House and elsewhere about the lifetime allowance and the problem it has caused, particularly for NHS doctors, but went on to quote Torsten Bell of the Resolution Foundation, who noted that 20% of those who will benefit from the change in the lifetime allowance work in the finance industry, meaning that nearly as many bankers as doctors will benefit. That surely cannot have been the intention. We are pleased to support new clause 1, because it seeks not simply a review, but a review that will make recommendations about how a more focused alternative could be delivered.

Amendment 7 seeks to remove entirely the abolition of the Office of Tax Simplification, and new clause 2 seeks reports based on metrics to measure the performance of tax simplification. We will support both if they are voted upon. My hon. Friend the Member for Dunfermline and West Fife (Douglas Chapman) provided some excellent context in Committee, arguing that

“the OTS achieved a significant amount during its 12 years of existence and, with greater ministerial support for its proposals, could have achieved much more.”—[Official Report, Finance (No. 2) Public Bill Committee, 18 May 2023; c. 136.]

He also quoted George Crozier of the Chartered Institute of Taxation, as many have done over many years, who said that there had been

“useful reforms to employee expenses and inheritance tax reporting,”

and that

“every Finance Act of the last decade has had measures in it which owe their genesis to the OTS, and which have made navigating the tax system easier for one group or another.”

My hon. Friend also made the rather important point that it was the independence of the Office of Tax Simplification that made it stand out from anything that can be provided in-house. We will back amendment 7 and new clause 2 if they are pressed to a Division.

If I may say a few words about Government new clause 4 and Government amendments 9 to 13, they appear to come under the category of tidying up and clarification. New clause 4 in particular ensures that both domestic and international top-up taxes commence at the same time, and the other amendments ensure that reliefs and charges operate as intended.

However, I am rather less sanguine about Government new clause 5. Ostensibly, it is required to deal with the situation where

“financial institutions are regarded as telecommunications or postal operators”.

For example, subsection (5) of Government new clause 5 suggests that paragraph 19(4) and (5) of schedule 36 to the Finance Act 2008 be removed, but paragraph (19)(4) says:

“An information notice does not require a telecommunications operator or postal operator to provide or produce communications data.”

That is a protection against the requirement to produce data in certain circumstances. Paragraph 19(5) defines “communications data”, “postal operator” and “telecommunications operator” as per the Investigatory Powers Act 2016—the very legislation that inserted those protections into schedule 36 to the Finance Act 2008 in the first place. Government new clause 5 not only affects the financial institutions regarded as telecoms or postal operators but, it would appear on my reading, removes protections in the Act for all telecommunications and postal operators not to be required to provide certain information in certain circumstances.

The Financial Secretary said she would answer questions at the end in her summing-up, and my questions are rather simple. What problem is Government new clause 5 designed to address? Why has a potentially significant amendment such as this come so late in the day? Is it even remotely appropriate that a criminal justice measure, the Investigatory Powers Act, should be amended in a potentially significant way through a late-delivered new clause on Report of a Finance Bill?

New clauses 3 and 8 to 14 call for reviews or reports of one form or another on the public health and poverty effects of the Bill, the oil and gas profits levy allowance, the impact of those with non-dom status, the bands and rates of air passenger duty, the impact of tax changes on households, and the effect of the Bill on the affordability of food and on small businesses. We are happy to look on those positively, although I am not certain that new clause 12 should really be opening the door to reducing the electricity generator levy. The Lib Dems have disappeared, but I would have said to the hon. Member for Tiverton and Honiton (Richard Foord), had he been in this place, that if one opens the door to a tax cut to the Tories, they by and large take it.

We will also support new clause 7, which requires a statement of progress on the pillar 2 reforms, seeking

“to extend and strengthen the global minimum corporate tax framework”.

It is important that we have a global minimum corporate tax framework, and I am not convinced by the arguments made by the right hon. Member for Witham (Priti Patel) about offering the opportunity for implementation to be delayed.

Again, the Lib Dems are not in their place, but I am also not yet convinced by new clause 15 because, while there are issues with the Government’s research and development framework, which I have raised before—namely, the stated intention to limit attributable expenditure for data and cloud computing licences—the new clause seeks to make the regime more restrictive and introduces the extraordinarily subjective viability clause in subsection (2)(a).

It is, however, true that none or few of the amendments and new clauses tabled substantially alter the Bill. It is also sadly true that none of the Government changes offer any hope of substantial help for the cost of living crisis any time soon. I fear that the Bill, and the Budget it derived from, will go down in the missed opportunity category.

[Alun Cairns]

I will speak to part 2 of the Bill, clauses 46 to 60, to which Government amendments 15 and 16 refer. In general, they relate to duty rates and any exemptions that apply thereafter. The Government’s objectives have been to simplify the system, to have an emphasis on health and healthy consumption, and, of course, to support pubs. In general, these are significant changes that have a positive impact on the hospitality sector.

When the Exchequer Secretary’s predecessor, my hon. Friend the Member for South Suffolk (James Cartlidge), said at the Dispatch Box that the Bill delivers the Brexit pub guarantee, there was significant enthusiasm within the sector to recognise and interpret a long-term commitment. There are two elements that immediately stem from that. The first is that these are changes that can be delivered as a result of Brexit; there were difficulties, challenges and nonsensical structures in the sector that could not be amended while we were a member of the EU. That is a major positive impact. However, the significance of the Brexit pub guarantee is that it will be long-term and we look for it to be ever extended.

I pay tribute to the Exchequer Secretary, who has engaged with me on some of the points that I have already made, but also to his predecessor, to the Chancellor, and to the Prime Minister when he was Chancellor, for recognising the opportunities to amend duty rates. That can genuinely help the hospitality sector, particularly pubs.

The original draft duty relief, which was in the Budget two years ago, was set to be 5% and to come into force this year. This year’s Budget and the Bill increased that to 9.1%, which will make a real difference. It follows the theme, all being well, of a continuing differential between rates that apply to the off-licence trade and those that apply to pubs and the general hospitality sector. The Government have therefore taken important, positive steps, which are welcomed far and wide.

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[Stewart Hosie]

Loth as I am to disagree with the Minister, there was little by way of substantial growth in the Budget and there is almost nothing by way of immediate cost of living support in this Bill. We can only hope—although it is hope over expectation—that the Bill at least delivers some of the growth and some of the investment that the Government’s rhetoric would suggest they expect to see. I hope that happens, even though I doubt it will, and that the forecasts we see at the next fiscal event will be rather better than the ones we have seen over the past three or four years.

[Madam Deputy Speaker (Dame Eleanor Laing)]

I am pausing in case there is a speech about to erupt, but there is not. Therefore, I will put the Question.

Question put and agreed to.

Bill accordingly read the Third time and passed.