This is the second of a series of reports on the progress of this year's Finance Bill, as it goes through its various parliamentary stages.
This report covers the two days of committee of whole House debate. As previously noted, these reports focus on the aspects of the debates most relevant to the CIOT and our members, which is primarily the technical elements of the Bill, although the reports will aim to give a flavour of the main issues debated, which will often be more political.
A note on the stages the Finance Bill goes through appears here.
Links to the various debates are available here.
Committee stage is the stage of a Bill’s passage when it gets (in theory at least) detailed clause-by-clause analysis by MPs. Most Finance Bill 2014 clauses will be debated by a standing committee of 35 MPs ‘upstairs’ in a committee room, starting from April 29th. However the opposition gets a chance to choose a small number of clauses (generally the most contentious or those that help them make an important political point) to be debated in ‘Committee of the whole House’, ie. on the floor of the Commons. This year these were corporation tax rates, income tax rates, childcare, the transferable tax allowance for married couples, the bank levy and air passenger duty. Predictably all government clauses in these areas were approved and all opposition amendments and new clauses were rejected, with no noticeable rebellions.
Day One: Tuesday 8th April
Day one of the Committee Stage focused on corporation tax rates, income tax rates and childcare
Clauses 5 to 7 and Schedule 1– Corporation tax rate
Shadow Exchequer Secretary, Shabana Mahmood, tabled an amendment proposing a review of the next year’s cut to the main rate of corporation tax with a particular focus on the impact on businesses with fewer than 50 employees and whether alternative measures would benefit them more. Although a number of Labour members conceded that there were some benefits to be gained from the corporation tax cut, Mahmood claimed that it was mainly helping a minority of the largest corporations and said that a reversal back to 21% would be implemented if Labour attained power, in order to fund a business rates freeze and then cut.
Coalition members sharply criticised Labour policy to reverse to the cut in corporation tax and strongly rejected the need for a review. Conservative John Redwood led the attack, claiming that the policy would cause significant damage to those businesses which were benefiting from the CT cut. Priti Patel (Con) said that Labour’s corporation tax policy was a cynical attempt to pit small and big businesses against each other. Nigel Mills (Con) pointed out that in any case corporation tax was unlikely to be cut further than 20%, since if it was lower than the basic-rate income tax, it would create ‘interesting’ tax-planning opportunities.
Summing up, Exchequer Secretary David Gauke said that clauses 5 to 7 of the Bill provided further evidence that the Government were continuing to make progress towards the delivery of a simpler and more competitive tax regime. The minister said that, next year, this section of the Bill would be far simpler, thanks to the unification of the small profits rate and the main rate of corporation tax, as had been recommended by the Office of Tax Simplification. Gauke added that, for those outside the ring-fence regime, it would mean the end of the complex marginal relief system that currently captures 45,000 companies. It would also enable the Government to abolish the complex “associated companies” rules and replace them with a much simpler rule based on 51% ownership of a firm (which is what schedule 1 does). He noted that the CIOT had welcomed the abolition of the “associated companies” rules when this was announced.
Labour’s amendment was defeated 288 to 219. Clauses 5 to 7, and schedule 1, were agreed to.
Clause 1 – Income tax charge, rates, basic rate limit and personal allowance for 2014-15
Plaid Cymru’s Jonathan Edwards led debate on this clause, after tabling a new clause which would have required the Chancellor to publish a report on the impact of setting the additional rate of income tax at 50 per cent. Edwards claimed that the cut to 45p had disproportionately benefited the wealthy and this argument was repeated by others from the opposition benches during what was a highly politically charged debate. Edwards explained that the reason both the nationalists and Labour had tabled calls for a review of the policy was because parliamentary rules do not allow anyone other than the Government to propose legislation altering tax rates (known as financial initiative of the Crown).
Ian Swales (Lib Dem) reminded members of other measures the Coalition had implemented to increase tax revenue from the wealthy including the personal allowance withdrawal and capital gains tax measures. Sheila Gilmore (Lab) said that the Government’s tax changes had done little to improve the lot of the working poor. Leading for the opposition, Shabana Mahmood quoted statistics from the Government which showed that the Treasury lost £3billion as a result of reducing the rate from 50 to 45p in her support of the amendment.
Winding up the debate for the Government, David Gauke rejected the nationalist new clause and Labour’s amendment on the grounds that it would be illogical and unfair to reintroduce a tax rate that was ‘ineffective at raising revenue from high earners’ and that would end up making ordinary taxpayers pay more and risk damaging growth. The nationalist new clause proposing a review of the additional rate was defeated 295 to 231, and Labour’s amendment calling for the same thing was defeated 296 to 231. Clause 1 was passed.
New Clause 1 – Childcare provision
Labour’s Catherine McKinnell (Shadow Exchequer Secretary) proposed a new clause on childcare provisions which would require a review of the ways in which changes to the tax and childcare system could be used to increase the affordability of childcare. Labour’s rationale was that the Government has not adequately combatted the rising cost of childcare for working parents. She called on the Government to extend the free childcare that is available for three to four-year-olds. Lorely Burt (Lib Dem) reminded the Shadow Minister that the Government had announced in the Budget that the tax-free child care cost cap would be raised to £10,000. McKinnell responded that families where both parents work would be £2,073 a year worse off and that the raise would disproportionately benefit the wealthy.
Meg Hillier (Lab) said that the study proposed by Labour’s new clause could investigate how to support quality through a tax voucher system. She noted that childcare in Denmark is free for families on the lowest incomes: “the subsidy is tapered, depending on the family income - in this country, it would need to be done sensibly through the tax and tax credit systems - which means that three quarters, 76%, of Danish women are working”.
Nicky Morgan (in her final speech as Economic Secretary before her promotion the following day), dismissed the need for a review; the Government was committed to full flexibility and that could be realised through the provisions of tax-free child care, she said. Morgan re-emphasised that the Government had increased the child tax credit to £3,265 a year and touted other taxation measures aimed at easing the cost of living including the increase in the personal income tax allowance and the freeze in council tax. Labour’s new clause was defeated 286 to 226.
Day Two: Wednesday 9th April
Day two of the Committee Stage focused on the transferable tax allowance, the bank levy and air passenger duty.
Clause 11 - Tax relief for married couples and civil partners (transferable tax allowance)
This measure will allow someone earning below the personal allowance to transfer £1,050 of their allowance to their spouse or civil partner in the first year (provided that spouse or civil partner is themselves a basic rate taxpayer), with effect from April 2015. Labour oppose this policy, as do the Liberal Democrats, with the coalition agreement stating that the party’s MPs can abstain on the proposal.
Labour’s Shadow Economic Secretary, Catherine McKinnell, proposed an amendment calling for a review of the impact of the relief, and an assessment of alternative tax reliefs that would benefit a much greater number of families. She argued that the allowance was perverse and unfair, a poorly targeted use of resources and overly complex. The current proposals would, she said, offer tax benefit to only a third of married couples. It would exclude married couples and civil partners on the very lowest incomes where both spouses earn below the income tax personal allowance, couples where both spouses have incomes higher than the personal allowance, and couples where either spouse pays the higher rate or the additional 45% rate. Men would benefit from the policy more than women, she said. McKinnell cited representations from the Low Incomes Tax Reform Group when commenting on the need to make the allowance accessible. LITRG were pressing to ensure that a claim for the marriage tax allowance can be made on paper, as well as online, and for the claim/election process to be made as simple as possible – “preferably a joint election rather than separate claim and election.”
Conservative MPs defended the relief. Tim Loughton argued that in 13 years of power, Labour did ‘nothing’ to support the institution of marriage. Stewart Jackson said that the clause ‘may not yet be worth a huge amount, but it is of seminal importance in supporting marriage in the tax system’. David Burrowes refuted Labour’s claim that the Government want to ‘hive off men against women’, saying that recipient households would benefit as a household rather than on an individual basis. Other Conservative MPs also commented throughout the debate that the policy was a ‘start’ in the right direction, stating an aspiration to extend the transferable allowance to more married couples as time goes on. Responding to the debate, David Gauke, Exchequer Secretary, accepted that the 1.8 million couples in which both partners are non-taxpayers would not benefit from the relief. However, he said, “It is worth pointing out that since 2010 about 350,000 couples have become non-taxpayers because we have taken them out of income tax. It is impossible to provide an income tax cut for people who do not pay income tax.”
Labour’s proposal to amend the Bill failed 276-217. The clause was then approved 279-214.
Clause 112 - Bank levy (and debate on a bank payroll tax)
The Opposition, led by Shadow Financial Secretary Cathy Jamieson, proposed a new clause calling for a review of the feasibility of reintroducing a bank payroll tax (specifically on bankers’ bonuses), and of whether the additional revenue could be used to fund a job guarantee scheme for people in long-term unemployment (Labour’s policy). Jamieson also moved an amendment which would compel the Government to produce a report specifically detailing all the tax receipts (including corporation tax, the bank levy and bank payroll tax) received from banks since 2010.
Turning to the bank levy, Jamieson argued that given the ‘consistent failure’ of the Government’s levy to raise the projected amounts, it would appear not only that the Government have miscalculated its behavioural impact upon banks, but they have failed to accurately predict the impact on the banks of their cuts to corporation tax. Labour have labelled this the ‘secret tax cut’ for banks. Jamieson explained that Labour would increase the bank levy to raise an additional £800 million a year, in order to fund an expansion of free child care places for working parents of three and four-year-olds to 25 hours a week.
From the backbenches David Mowat (Con) expressed surprise that the Labour Party appeared to be concerned with variable pay but not with fixed pay: “Labour Members appear to be quite sanguine about a pay level of £2 million a year, but not about a pay level that consists of a £1 million basic salary and a £1 million bonus. That strikes me as rather odd.” Winding up the debate David Gauke said that there was no need for the Government to produce a separate report on the tax receipts from banks as HMRC already published annual statistics on PAYE, the bank levy, corporation tax and bank payroll tax receipts from the banking sector. Responding to Labour’s proposal of a repeat of the bankers bonus tax, he pointed out that the then Chancellor Alistair Darling had said in 2009 that the bonus tax should be a one-off.
Labour’s bank payroll tax new clause failed by 293 votes to 219. The amendment proposing a report on tax receipts from banking fell by 286 votes to 217.
Clauses 72-74 - Air passenger duty
Jonathan Edwards of Plaid Cymru moved a new clause and new schedule proposing the devolution of air passenger duty (APD) to the Welsh Assembly. He said that APD devolution was an essential part of the recommendations of the Silk Commission (the cross party UK Government commission on devolution in Wales). He argued that the Westminster government has ‘cherry picked’ its favoured recommendations and it had been a slap in the face for Wales when it was omitted from the Wales Bill, which is currently progressing through Parliament. Edwards argued that the devolution of the tax would increase Wales’ ability to attract long-haul flights and also significantly improve its competitiveness as a regional economy. Angus MacNeil of the SNP explained that the Scottish Government aim to reduce APD by 50% within the first term of an independent Parliament, and to abolish it completely when circumstances allow, with a proposal for a straight reduction in bands. He proposed amending the Bill to allow for the devolution of APD on flights to all destinations.
Henry Smith (Con) stated that he would love to see the abolition of APD, saying that the rate is uncompetitive, with only Chad charging more than the UK. David Rutley (Con) spoke in support of government policy, arguing that it was right and fair that the Government had brought private jets into the scope of APD. From the Labour frontbench, Catherine McKinnell said that Labour remains to be convinced of the merits of devolving APD.
Responding to the debate for the Government, David Gauke said that the devolution of duty for Northern Ireland was in specific response to Northern Ireland’s unique circumstances. It shares a land border with Ireland, leading to a risk of flights relocating from one part of the shared land mass to another. The Government recognised that risk and acted to ensure that Northern Ireland was not disadvantaged. He argued that variable rates within the mainland of the UK could create the same market distortions which Northern Ireland sought to prevent.
Plaid Cymru’s proposal to amend the Bill failed by 9 votes to 254. The SNP proposal was not voted on. The Government’s clauses were approved.
CIOT Head of External Relations
Monday 19 May 2014