Finance Bill 2015 went through all its stages in the House of Commons in six hours on Wednesday 25 March. This note and an earlier one on second reading debate pick out the parts of the debates likely to be of most interest to tax professions – that is, relating to tax technical issues – as well as briefly summarising other discussions. As anticipated the focus of the debates was political with relatively little exploration of technical issues.
House of Commons debate – Wednesday 25 March
Committee of the Whole House
The clauses were grouped into nine groups –
- Clauses 66-67 (Value added tax) including a Labour new clause
- Clauses 1-5 (Income tax: charge and rates) including a Labour amendment
- Clause 6 (Corporation tax: charge and rates) including a Labour amendment
- Clauses 7 to 24 (Income tax: general) including a Green / Lib Dem backbench amendment
- Clauses 25 to 33 (Corporation tax: general)
- Clauses 34 to 51 (Income tax, corporation tax and capital gains tax: other provisions)
- Clauses 52 to 65 and 68 to 76 (Excise duties and other duties other than VAT)
- Clauses 77 to 116 (Diverted profits tax)
- Clauses 117 to 127 (Other and final provisions)
However debate was curtailed by a guillotine which fell after discussion on the first three of these groups. The remaining clauses (clauses 7 to 127, apart from 66-67, and associated schedules) were passed as a single group without debate.
Clauses 66-67 (Value added tax)
A Labour new clause proposed the Treasury should publish a report on the impact of the increase in the standard rate of VAT which took effect from 4 January 2011, on living standards, small businesses, the fairness of the taxation system; and economic growth.
Financial Secretary David Gauke opened by paying tribute to Dawn Primarolo, the former tax minister now Deputy Speaker who was chairing proceedings in her final week as an MP (she is retiring at the general election). “This is the last afternoon on which you will be dealing with tax matters, having done so for an unconscionably long period, so I thank you for all that you have done over many years and for your service as Deputy Speaker and wish you a very happy retirement.”
Gauke briefly explained what clauses 66 and 67 would do - refund VAT to various charities and to the strategic highways company which will take over from the Highways Agency – before turning to Labour’s new clause. He argued there was “no need to publish a report on the impacts of the rise in VAT announced in 2010 as “the Government’s economic record speaks for itself”. He defended the increase in the standard rate of VAT in 2010 as “a consequence of the mess that the Opposition left the public finances in”. He noted the Prime Minister’s commitment earlier that day that a Conservative Government would not increase the VAT rate in the next Parliament. This led to some political knock-about with Labour MPs drawing attention to similar statements made before the last election, as well as broader issues around the Government’s progress on deficit reduction. Gauke challenged Labour to rule out increasing employers’ national insurance contributions. Shadow Exchequer Secretary Shabana Mahmood said that Labour had made a statement earlier that day ruling out any rise in national insurance.
In a lengthy speech for Labour, Shabana Mahmood said her party was asking for a review because Oppositions are limited in what they can call for in amendments to a Finance Bill (they can’t propose changes to tax rates). Describing VAT as “the tax that hits everyone”… every single day” she reminded the House of the Shadow Chancellor’s “crystal clear pledge” the previous day “that a Labour Government will not raise VAT or extend VAT to food, children’s clothes, books, newspapers and public transport fares”. With reference to previous Conservative Chancellors who had broken promises not to increase VAT she said the past performance and form of the Conservatives was “the clearest and surest indicator” that they would put up VAT: “It is in their collective DNA".
Among other speakers, Scottish Labour MP Fiona O’Donnell attacked Tory “broken promises on borrowing, the deficit and VAT”. She claimed the 2010 increase in VAT had “stifled confidence and the spending power of many in our communities”. Welsh Labour MP Ian Lucas spoke of the benefits of having the information the new clause requested. Sheila Gilmore – also Scottish Labour – said that one of her big concerns was that low-paid workers already under the tax threshold are being offered nothing from the Government and “face a real risk that if VAT is increased, they will end up paying the price of a reduction in income tax from which they will not benefit by one penny”.
Clauses 66 and 67 were approved without a vote. Labour’s new clause was voted down by 305 votes to 231.
Clauses 1-5 (Income tax: charge and rates)
Shabana Mahmood, for Labour, moved an amendment which would require the Treasury to publish a report on the impact of setting the additional rate of income tax at 50 per cent, and pretty unenlightening political argument over the additional rate was the nature of most discussion under this group of clauses. Lib Dem Ian Swales challenged Mahmood over the fact that the top rate had been 40p until the final week of the last Labour Government. Labour MPs juxtaposed the cut to the 50p rate with tax and tax credit changes which had hit average and poorer families. Stewart Hosie of the SNP attacked Labour for not supporting an SNP bid to keep the 50p rate. Mahmood attacked the Government’s costing of the cut in the additional rate (which reduced it from a ‘static cost’ of £3bn to just £100m after behavioural effects were considered) and repeated Labour’s commitment to return the additional rate to 50p. She in turn was challenged on whether she thought the change back to 50p would raise £3bn; her response was that there would be some behavioural effects but £3bn was “the only certain figure we have”.
Responding for the Government, David Gauke explained what clauses 1-5 would do – that is, set the rates, limits and allowances for income tax for 2015-16 and the following two years, In particular the personal allowance would rise to £11,000 in 2017-18. He noted that earlier that week Labour had voted against the Budget resolution renewing income tax, which would have “put a £150 billion hole in the public finances” if they had succeeded. Turning to the additional rate he said the 50p rate was failing to raise the money anticipated because of behavioural effects. This was not only about tax avoidance, said Gauke, “it can also be behaviour that is clearly compliant both with the letter and the spirit of the tax system yet will reduce yield. Increasing contributions to pension schemes, for example, could result in a reduction in revenue. It could be that somebody decides to relocate out of the United Kingdom. It could be… that international businesses in deciding where to locate staff might conclude that the costs of doing so in the UK are greater than elsewhere, and that there are better climates and environments in which to locate highly paid staff.” Gauke and Swales both quoted IFS estimates that reversing the cut would raise only about £100m. Gauke said Labour’s amendment was unnecessary as “the Government always keep tax rates under review and monitor receipts” anyway.
The Labour amendment was voted down by 309 votes to 230. Clauses 1 to 5 were passed without a vote.
Clause 6 (Corporation tax: charge and rates)
Shabana Mahmood for Labour moved an amendment requesting a review of the impact of a 1% cut in Corporation Tax in 2016, with particular reference to the impact on small businesses and on investment by them, and whether a business rate cut (which Labour favour) would have a greater benefit for these small businesses. Mahmood stressed that Labour “does not oppose the recent changes to the rate of corporation tax that have so far come into effect” but “now is the time to give much more support to smaller businesses” – “my case is that SMEs need particular help with business rates”. She spent some time explaining the effect that business rate increases had had on small firms. The cut being advocated by Labour would be worth an average of £450 over two years to 1.5 million businesses, she said.
Lib Dem Ian Swales made what he expected to be his last speech before retiring from Parliament. He thanked colleagues “for making my time here such a vivid experience. I would struggle to apply the word “vivid” to the many Finance Bill Committees and finance debates I have taken part in, but overall I have had a terrific time.” He spoke in support of the lower rate of corporation tax, and against tax avoidance and evasion. On avoidance he highlighted how the Bill would stop contrived arrangements on carried forward tax reliefs, restructures bank loss relief and put limits on R&D tax credits. On evasion he welcomed the consultation on a new offence for those who aid and abet evaders. He said there was “a lot more to be done for [tax rules for] internet companies”.
Labour MPs contributed mostly on constituency issues. Sheila Gilmore spoke about a small fitness studio in her area who worried about high business rates. Fiona O’Donnell also spoke about small firms in her constituency as well as noting the SNP’s ‘U-turn’ on its plan to reduce corporation tax by 3%. Andrew Gwynne argued that, “in respect of corporation tax, we are talking about a very small number of large businesses operating across the country. The benefits of that tax cut will not necessarily be felt throughout the wider economy. [But] targeting the same amount of money on a business rate cut… would affect 5.1 million small and medium-sized businesses and others.”
Responding to the debate for the Government, David Gauke praised Ian Swales’ contributions during the Parliament and made some general remarks about the business tax regime the Government have sought to move towards. He paid particular attention to simplifying measures including moving to a single rate of corporation tax. He also highlighted the Government’s support for small business rate relief schemes. Reversing the Government’s corporation tax cut “would be a big mistake and send a terrible signal to businesses around the world”, he concluded.
Labour’s amendment was defeated by 306 votes to 229.
Six hours having adjourned the Chair then ended the debate, putting the question that the remaining 120 clauses and 21 schedules be agreed to ‘forthwith’, which they were. The House then moved to a third reading vote, which passed the Bill 207-226.
Green MP Caroline Lucas made a point of order to complain that the organisation of the debate brought the House’s procedures into disrepute because a set of amendments tabled by her (along with a backbench Lib Dem) had not even been debated. These would have delayed implementation of changes to legislation that would allow private equity fund managers who have formed Limited Liability Partnerships to avoid “carried interest” being taxed as ordinary income until the Chancellor had published a report on the impact of including “carried interest” in the definition of “management fee”. The Chair suggested this was a point for the Procedure Committee not him.
House of Lords debate – Thursday 26 March
The Finance Bill passed through all its stages in the House of Lords in just over one hour the following day, under the stewardship of former Customs and Excise Officer Lord Newby.
Opening second reading debate Lord Newby defended the rapid passage of the Bill through Parliament, saying “80% of the legislation before us has already benefited from public scrutiny and comment” and the Government had also held back around 50 pages of previously announced legislation “which, in our judgment, could be delayed until after the election”. He then ran through the range of measures in the Bill.
For Labour, Lord Haskel made some general remarks about productivity and, in particular, why there was no strategy for raising productivity in the Finance Bill. Another Labour peer, Lord Desai, favoured radical tax reform: “when we tax income we make far too many small distinctions—between married people and this and that—so that the whole thing becomes very complicated.” He felt that consumption would be easier to define than income, so “we should think of doing a consumption tax”. Also, “The whole approach is really to go down the expenditure tax route—purely expenditure—and not to worry about income of other kinds. If people are deriving income from capital, that is fine. What we would want to know is what expenses they incur in trying to do that, and tax that.”
Lord Soley, also Labour, made some general points about productivity and the relationship between immigration and growth. He called for the Government to get rid of air passenger duty tax. He welcomed the move to make gift aid easier for intermediaries, declaring an interest as the chairman of a charity. Lord Davies of Oldham, again Labour, described this Finance Bill as “a pretty mean-spirited effort” and “an irrelevant Bill”. He quoted figures from the Resolution Foundation think tank, showing falling incomes. He accused the Government of looking after the better-off while doing very little to help the less well-off.
Winding up the debate Lord Newby noted that, with regard to Lord Desai’s radical plans, “I am not a tax radical, I am afraid, partly because I started my working life as a tax man. I think that grand taxation schemes often have a whole raft of unanticipated consequences. Of course, those who suffer from any tax change make about 100 times as much noise as those who benefit, so politically I wish the noble Lord luck with the sort of grand scheme that he has in mind, but I hope that I am never called upon to try to do something equally ambitious.”
As is customary in the Lords, the Bill was granted its second and third readings without a vote, and passed, ready for Royal Assent, which it gained later in the day, before Parliament was prorogued, and dissolved the following Monday ahead of the general election on May 7th. A second Finance Bill is expected in the summer.
CIOT Head of External Relations
Tuesday 7 April 2015
The CIOT is strictly politically neutral and nothing in this article should be interpreted as endorsement for or opposition to any of the policies mentioned.