Bankers and bubbles, but will workers’ toil lead to trouble for Sunak?

Technically the debate is on the first Budget resolution (that income tax is charged for the tax year 2022-23) but the other 56 resolutions are grouped in with it. There were no amendments. MPs voted on the resolutions at the end of the debate on Tuesday (they only divide on the more controversial ones).

You can read the Budget resolutions here, the explanatory notes on them here and if you want background on what the resolutions are for and what MPs can do with them (not much) see here. The debate on Budget Day (Wednesday) and Thursday is summarised here. The full transcript of this week’s day three (Monday) debate is here and day four (Tuesday) debate here.

Government headlines

Opening Monday’s debate, Secretary of State for Levelling Up, Housing and Communities Michael Gove said ‘levelling up’ is about making opportunity more equal across the UK. He argued there are a series of measures in the Budget statement designed to specifically attack the problem of child poverty. He went on to say the Budget saw the biggest increases in capital investment from any government for 50 years; the biggest block grants ever given to home nations and an increase of 6.6 per cent in the national living wage.

Closing Monday’s debate the Exchequer Secretary to the Treasury Helen Whately said ‘right now, communities throughout the country are held back by disparities in health, education and jobs’. She said  Resolution Foundation analysis says that the Government’s policies boost incomes for those on the lowest incomes, while those with the broadest shoulders - the better off - are the ones who will be paying the most. She said both the increase to the national living wage and the changes to the universal credit taper rate will help millions of households on the lowest incomes.

Opening Tuesday’s debate, Education Secretary Nadhim Zahawi said schools will be £1,500 better off per pupil than in 2019-20. Apprenticeships funding will increase by £170 million to £2.7 billion, alongside other improvements to support more small businesses to hire new apprentices. With our ‘Skills for Jobs’ White Paper, we are committed to boosting the job prospects of adults, he said. Levelling up to him means empowering local leaders and communities to drive real change: boosting living standards, particularly where they are lowest; spreading opportunity and improving public services.

Closing the four days of debate, Chief Secretary to the Treasury Simon Clarke said the OBR’s forecasts show that the UK economy returned to its pre-pandemic size around the turn of the year, several months earlier than previously expected; more people are in work and literally millions fewer people than anticipated last July are unemployed. We are increasing the national living wage, cutting the universal credit taper rate and increasing the universal credit work allowance by £500 a year, he continued.

Labour headlines

Shadow Communities Secretary Steve Reed said Britain is more divided and unequal than at any time in living memory. He accused Rishi Sunak of leaving the country facing the highest level of personal taxation for 70 years yet claiming he is a ‘tax cutter really’. This Tory decade has been the weakest for pay growth since the 1930s, yet the Tories are cutting universal credit for the lowest earners, ‘hiking up’ taxes on working people and ‘eating up what is left of people’s incomes with rising levels of inflation’, he claimed. This while a landlord with a portfolio of properties, a shareholder or a banker will pay nothing more. The Government is refusing to protect our high streets by levelling the playing field on tax between independent high street shops and the online giants, which pay far less, he argued.

Shadow Education Secretary Kate Green was disappointed that in her view we got a high-tax, low-growth Budget that hits working people with a £3,000 hike in their tax bills; a Budget that did nothing to reduce living costs, tackle soaring energy bills or support working families this winter; and a Budget that failed to address the deep-rooted pressures on the public services. The levy to fund social care is one more tax that will hit ‘hard-pressed families’ in the spring and will do nothing about the deep-seated need to address the social care crisis and the increasing pressure from an ageing demographic, she argued.

Shadow Chief Secretary to the Treasury Bridget Phillipson cited Paul Johnson of the Institute for Fiscal Studies on the outlook for living standards, quoting him as saying: “This is actually awful… High inflation, rising taxes, poor growth keeping living standards virtually stagnant for another half a decade”. The Resolution Foundation has highlighted how, by 2026, taxes will reach an additional £3,000 per household compared with when the Prime Minister took office. The Chancellor could have cut instead VAT on domestic heating bills to zero for the next six months, she said, and Labour’s retrofitting plan would have helped to bring 19 million homes up to standard, cutting heating bills by an average of £400 a year. The reason why the Conservatives are increasingly a high-tax party is that they have been a low-growth Government, she argued.

Other opposition headlines

Lib Dem Leader Sir Ed Davey criticised the Chancellor for offering tax cuts for people using fossil fuels, not least on short-haul flights. He said the Lib Dems would have brought in a one-year windfall tax, on the gas producers making ‘an absolute killing’ with the rise in global gas prices. They would have shared that windfall with Britain’s fuel-poor and with Britain’s struggling energy-intensive industries. “For this, we would have more than doubled the warm home discount and doubled the number of people who benefit from it,” he said. Davey said the tax on developers will not raise sufficient money. He would like to see a levy put on the profits of the tobacco companies and the money put into smoking cessation services.

SNP Treasury Spokesperson Peter Grant quipped that this levelling up Budget is like claiming that you have levelled out the potholes on the road by digging a massive great hole somewhere else in the road to supply the rubble to fill in the original potholes. Grant noted the Institute for Fiscal Studies finding that for most departments the budget increases announced will be welcome, but not enough to reverse the cuts of the 2010s. The MP anticipates yet more years of real incomes barely growing: high inflation, rising taxes, poor growth. Living standards could be improved by reinstating the pensions triple lock, reversal of the £20-a-week cut to universal credit and reversing the hike in national insurance that penalises small businesses for every new job they create, he said.

Tax levels

Sir Edward Leigh (Conservative) warned we are, to quote the Prime Minister in another context, “at ‘one minute to midnight’ in terms of our future as a tax-cutting Government. With mortgages going up, inflation going up, and a £3,000 increase per household to fund £150 billion of spending, soon we will be paying £1 trillion in tax. Who will pay for this? It will be the people who elect us Conservative MPs and middle earners in middle Britain. Even beer will go up.”

On inheritance tax, Leigh complained that freezing the nil rate band means more people with modest homes are being brought into the tax. On the health and social care levy, he claimed we might be taking up to £85 billion off older people. With the fiscal drag on income tax, we are bringing another million people into the higher tax level. Instead of flattening out taxes, which is what Nigel Lawson did, we have not yet had the courage to get rid of that higher tax burden, he charged.

Matt Western (Labour) said that according to the Resolution Foundation, we all face an average of £3,000 in tax increases, with women, on average, £1,800 worse off over the next six years. Bell Ribeiro-Addy also noted the research showing that an average British woman over 18 will be £1,800 worse off over the next six years because of the Chancellor’s tax rises.

Alcohol duty reform

Conservative Douglas Ross was glad to have seen a fifth successive UK Government Budget that has frozen taxation on Scotch whisky. Dehenna Davison (also Conservative) praised substantial changes to the alcohol duty system because it is a form of tax simplification.

Labour’s Kerry McCarthy said lowering the 40-litre threshold for draught duty relief to include any container would be a simple fix with huge benefits for independent businesses. Valerie Vaz (also Labour) said the UK shared prosperity fund does not deliver the £1.5 billion a year until 2024-25. Funding for next year is just £400 million, so the Government are failing even to replace the EU funds, she said.

Peter Grant (SNP) welcomed the news that alcohol excise duties are to be reviewed ‘at last’. But his party colleague David Linden said the freeze on alcohol duty only gives breathing room to an industry that already faces a ‘70 per cent tax burden’.

Employment taxes

Labour’s Dame Margaret Hodge said only a Conservative Government would use hikes in regressive taxes, such as council tax and national insurance, to fund health and social care. Dame Diana Johnson (also Labour) was concerned at the ‘laser-like focus’ on squeezing real incomes by increasing unreformed, regressive taxes such as national insurance and council tax. Bridget Phillipson, for Labour, criticised basis period reform, calling it ‘a stealth raid on self-employed people’, ‘buried in the Budget documents’. “[T]hey will have to pay an extra £1.7 billion over the next five years,” she continued. “Let us never again hear the Tories claim to be the party of business.”

Another Labour MP, Lloyd Russell-Moyle, suggested the upper earnings threshold on national insurance be abolished. He said it did not seem fair to him that people earning £60,000 can pay three per cent, while someone earning below the upper threshold has to pay 13 per cent. Abolishing that upper threshold would raise between £15 billion and £20 billion, he said.

Patricia Gibson (SNP) said the tax burden is now at its greatest since the 1950s, with national insurance contributions being raised and personal income tax allowances frozen, cutting people’s disposable incomes while inflation is set to rise above four per cent by April. There is no levelling up there, she said.

Business rates

There was lots of positivity on the Conservative benches about reductions in business rates. Jonathan Gullis said the 50 per cent reduction for hospitality, retail and leisure, along with the 12 months of rates relief for those investing in properties, ‘will allow our high streets to regenerate’. Jack Lopresti claimed the 50 per cent discount on business rates will incentivise and assist this important sector of our economy, culture, recreation and overall wellbeing. Robbie Moore, Derek Thomas and Johnny Mercer were among the others praising the move. James Davies urged the Welsh Government to ensure a level playing field for businesses in Wales.

However Ben Bradley said business rates are not fit for purpose, and Bim Afolami said we need a longer-lasting solution to business rates.

On the Labour benches, Virendra Sharma accused the Government of levelling up some of the pandemic’s most profitable companies at the people’s expense, yet having no plan to remove the enormous tax burden they have placed on working people and SMEs. The Government must go much further to fix the ‘broken business rates system’ and truly level the playing field between the high street and ‘tax-avoiding’ tech companies, he argued.

He wasn’t the only Labour MP unhappy with the lack of fundamental reform of business rates. Imran Hussain attacked the ‘outdated business rates system that penalises small, family-run businesses to satisfy the greed of large multinationals’. Emma Hardy said that by refusing to step up and finally deal with the business rates fiasco, the Government has completely failed businesses in her Ilford constituency, and many will be forced to close or make redundancies.

Capital taxes / taxing the wealthy

Labour’s Dame Margaret Hodge said wryly only a Conservative Government would leave capital gains and dividends taxed at a lower rate than income tax. Imran Hussain said the only people levelled up by this Budget are the millionaire bankers sipping champagne on their short-haul flights: “This is a Budget by the rich for the rich.” John McDonnell said fair taxation means fairer taxation of wealth - that is capital gains - and of the wealthiest.

A number of Labour MPs argued explicitly for a wealth tax. Beth Winter said we should be ‘levelling back down the extreme wealth owned by such a small proportion of our population – millionaires whose wealth has grown over the time of the pandemic’. We need to introduce a wealth tax, which could raise more than £300 billion over a five-year period, she said. Kate Osborne called for reforms to create a fairer tax system in which the wealthiest in our society pay a fairer share through a wealth tax that helps to fund public investment. Richard Burgon said we are going to build a mass movement for a wealth tax on the super-rich, because it is time that those who have got away with rigging the system for so long actually pay their fair share.

Conservative John Penrose called for more tax reform, wanting a ‘Nigel Lawson-esque’ tax system that says, ‘it should not matter whether you are getting money from your earnings, from unearned income or from benefits; they should all be treated the same as income’. The whole point of it is that it creates work incentives for everybody, he said.

Corporate taxes and the bank surcharge

Conservative Bim Afolami praised the Chancellor’s increase of the bank surcharge annual allowance to £100 million, thereby ensuring that small challenger banks benefit the most.

Labour’s Valerie Vaz said a ‘conflicted Chancellor’ is giving money to bankers by cutting the surcharge on bank profits from eight per cent to three per cent, but has nothing on tax evasion or avoidance. Lloyd Russell-Moyle (also Labour) complained that there is £4 billion in tax cuts for banks in this country – banks that have made record profits in this period.

Former Shadow Chancellor John McDonnell said fair taxation means not cutting tax on the bankers who caused the crisis of 2008. He added that a financial transaction tax, newly designed over the last month by the Robin Hood campaigners, could be a realistic way for the City to make a better contribution to our economy overall.

Richard Burgon (Labour) said there should have been a windfall tax on fossil fuel companies to fund a one-off winter fuel payment to help every household in the country through the winter.

On research and development, Dehenna Davison (Conservative) said the R&D announcements, finally introducing the Advanced Research and Invention Agency and R&D tax credits and the super-deduction scheme, is incentivising businesses to improve their productivity and to grow our economy. But Dame Margaret Hodge (Labour) accused the Chancellor of pouring more money into those ‘wasteful’ R&D tax credits while ‘tax-avoiding corporations’ such as Amazon are ‘laughing all the way to the bank’.

Plaid Cymru’s Liz Saville Roberts said investment in research and development has too long been centred in London and the south-east. But Conservative Peter Aldous thought it concerning that the Red Book explicitly states that the Government will invest in research, development and innovation outside London, the south-east and east of England.

Broader economic issues

A number of opposition MPs pointed out the impact of Brexit on the UK’s finances. SNP’s business spokesperson Stephen Flynn was among them, noting the OBR’s verdict that Brexit means that our economy will be four per cent smaller than it should be, as a result of an act by this Government for which they show no contrition whatsoever.

Conservative MPs praised the increase in the national living wage. Jonathan Gullis said it means that some of his constituents will be £1,000 a year better off. Robert Halfon said this is a ‘true worker’s Budget’ in many ways because there is a strong desire across the country to improve the cost of living and for low taxation.

However Labour’s Maria Eagle sighed that real wages have risen by a meagre 2.4 per cent in total since the 2008 financial crisis. The OBR expects only a 1.5 per cent increase a year, ‘which is pretty low, and much less than the 2.5 per cent a year increase that was the norm before this Government came into office’. Peter Dowd (also Labour) said: “Inflation is on the rise; interest rates are on the rise; taxes are on the rise; the deficit is on the rise; the national debt is on the rise; inequality is on the rise; billionaire incomes are on the rise; profits from dodgy covid deals are on the rise; covid infections are on the rise – the Chancellor is taking the rise.”

Conservative Dr Liam Fox asked us to remember the economic and social cost of inflation hits the poorest hardest and also hits those with no assets. The Bank of England should set a small, quick increase in interest rates - a 0.25 per cent rise - to show that we are neither panicking nor complacent, he thought.

Conservative Stephen Crabb said we are in a new reality where there will be less migrant labour, so we must find more workers from within our own potential workforce. The imperative is on the Government to make progress in improving the disabled employment rate and helping more lone parents and those with caring responsibilities into work.

Spending

Stephen Flynn (SNP) noted that Scotland’s budget will increase by 2.4 per cent but that is well below the rate of inflation, and well below the spending increases across a whole host of reserved UK government departments.

Plaid Cymru’s Liz Saville Roberts complained the spending review confirmed the loss of the £370 million that Wales would have received annually if we had remained part of the EU – funding that this Government are unprepared to match even though they had it in their 2019 manifesto. Hywel Williams was worried that the arrangements for replacing EU structural funds are ‘to be very kind’ a bit unclear.

Stephen Hammond (Conservative) said the two new fiscal rules that underline that public sector net debt as a percentage of GDP must be falling and that the state must borrow only to invest in our future growth and prosperity, with everyday spending paid for by taxation, are undoubtedly correct.

Universal credit

Conservatives focused on the cut to the universal credit (UC) taper while Labour emphasised the impact of the removal of the £20 uplift.

On the Conservative benches John Penrose applauded the cut to the taper on universal credit because ‘it is targeted, laser like, on the least well-off and the lowest paid’. Penrose said such a measure has an impact not just on tax cutting and levelling up, but on work incentives. Scott Benton remarked that reducing the taper rate from 63 per cent to 55 per cent is a ‘massive step forward’ in ensuring that work truly pays and focuses our welfare system on those ‘who are willing to meet the state halfway by working hard’. Johnny Mercer said ‘the return of the taper rate to where it should have been when it was designed is perhaps the single biggest factor’. Robert Halfon claimed the universal credit changes gets people out of the poverty trap and incentivises more people into work.  Matt Warman, Sally-Ann Hart, Stephen Crabb and Jesse Norman also praised the taper cut.

Yvette Cooper (Labour) criticised the Government for going ahead with the £20 cut to universal credit and increasing national insurance contributions and tax on low-paid workers at a time when costs are going up. They could have cut VAT on fuel, they could have raised national insurance thresholds to ease the pressure on lower-income workers and they could have gone further in increasing the minimum wage, she observed.

Labour’s Dame Margaret Hodge remarked that only a Conservative Government would slash universal credit for the poorest by £4 billion while, in the same breath, giving bankers a £4 billion tax cut. Liam Byrne remarked that the universal credit taper cut does not make up for the removal of the £20 uplift and the poorest people in this country will be £280 worse off as a result of the Government’s decisions. Ruth Jones, Margaret Greenwood and Chi Onwurah made similar points.

John McDonnell said we should ensure that benefits are linked to earnings so that we all share in the growth of the economy.

SNP’s David Linden said wider reform of universal credit is still desperately needed. Changes in the taper rate will not benefit those who are out of work or unable to work owing to sickness or a caring responsibility, or indeed those who have a disability, he said.

Margaret Ferrier, Independent, called on the Chancellor to conduct an impact assessment of what that £20 cut would mean to millions of people so that we can see how it tallies up with the taper rate changes.

Resolutions (all were passed)

1. Income tax (charge).

2. Income tax (main rates).

3. Income tax (default and savings rates).

4. Income tax (rates of tax on dividend income).

5. Income tax (starting rate limit for savings).

6. Surcharge on banking companies – Passed in a vote (319 – 230)

7. Income tax (attribution of trade profits etc to a tax year) – Passed in a vote (319-231)

8. Pension schemes (liability of scheme administrator for annual allowance charge).

9. Normal minimum pension age.

10. Public service pension schemes.

11. Extension of temporary increase in annual investment allowance.

12. Structures and buildings allowances (allowance statements).

13. Asset holding companies.

14. Real Estate Investment Trusts.

15. Film tax relief.

16. Theatrical productions tax relief.

17. Orchestra tax relief.

18. Museums and galleries exhibition tax relief.

19. Returns for disposals of UK land etc.

20. Corporation tax (abolition of cross-border group relief).

21. Tonnage tax.

22. Hybrid and other mismatches.

23. Diverted profits tax (mutual agreement procedure).

24. Diverted profits tax (closure notices etc).

25. Insurance contracts (change in accounting standards).

26. Corporation tax (deductions allowance and leases).

27. Expanded dormant assets scheme.

28. Residential property developer tax.

29. Economic crime (anti-money laundering) levy.

30. Stamp duty and stamp duty reserve tax (securitisation companies etc).

31. Value added tax (margin schemes for used cars etc and Northern Ireland).

32. Value added tax (margin schemes and removal or export of goods: payments).

33. Value added tax (margin schemes and removal or export of goods: zero-rating).

34. Value added tax (relief on imported dental prostheses).

35. Insurance premium tax (contracts relating to risks outside the United Kingdom).

36. Import duty (transitioned trade remedies).

37. Import duty (calculation of duty by reference to documents).

38. Hydrocarbon oil duties (use of rebated diesel and biofuels).

39. Rates of tobacco products duty

40. Rates of vehicle excise duty for passenger or light goods vehicles, motorcycles etc.

41. Vehicle excise duty (exemption for cabotage operations).

42. HGV road user levy (extension of suspension).

43. Amounts of gross gaming yield charged to gaming duty.

44. Excise duty penalties.

45. Rates of landfill tax.

46. Plastic packaging tax.

47. Promotion of tax avoidance schemes.

48. Electronic sales suppression.

49. Tobacco products duty (tracing and security).

50. Free zones.

51. Large businesses (notification of uncertain tax treatment).

52. Discovery assessments etc.

53. Temporary income tax powers in disaster or emergency.

54. Vehicle CO2 emissions certificates (tax reliefs).

55. Vehicle CO2 emissions certificates (vehicle licences).

56. Office of Tax Simplification (membership)

57. Incidental provision etc.

Blog by Hamant Verma, CIOT Senior External Relations Officer