Tax matters top of Peers‚ minds in debate

16 Nov 2018

Peers wait a civilised two weeks before debating the Budget in the upper House.

Conservative speeches Government spokesman Lord Bates said the Budget has shown the British people that their hard work has resulted in better living standards, a stronger economy and better and more sustained funding for our great public services.

Stamp duty is a bad tax because it is a tax on change, said Lord Wakeham. The peer wants the government to look at ways to raise just as much money without the same amount of ‚ damage‚ that stamp duty causes. He said that the government are absolutely right to try to get a fairer amount of tax from the enormous tech giants. ‚ Corporation tax itself is not a terribly fair tax. A UK-based company with no overseas affiliates pays the full rate, whereas if you are part of an international group and organise yourself in the way that these companies seem to be able to do, you get a lower tax rate‚ He urged caution, however, because the UK earns a great deal of money from intellectual property that is sold abroad. If we move too quickly and without agreement on the way to deal with the problems, we might find that we are paying more tax not less, he said.

On MTD, he cited a survey which shows only 51 per cent of businesses registered for VAT have ever even heard of MTD, and only 58 per cent of the businesses that next year will have to file their returns under this new system have made any provision at all. ‚ The government and the Inland Revenue have got to work hard if they are not to have a disaster or difficulties on their hands.‚

The Chancellor has laid the groundwork for the spending review to address some of the long-term funding issues in areas such as children‚ s services, adult social care and infrastructure, said Baroness Eaton.

Baroness Neville-Rolfe worries that the UK has not solved its fiscal problems; by declaring an early end to austerity and spending over £100 billion, the Chancellor has reduced his ability to cope with a crisis or a downturn. At the same time, Hammond has promised another, tougher Budget if it is needed because of Brexit. She said: ‚ If adopted, this would mean that we would have to impose expenditure cuts or increase taxes at a time when uncertainty will be rife and people will be blaming one another. This seems peculiar. What happened to prudence?‚ The Baroness welcomed the review of the apprenticeship levy, a levy that was ‚ meant to usher in a new German or Swiss-style dawn, but in fact so far it has increased business costs and reduced overall numbers‚ .

Lord Leigh of Hurley, a CIOT member, welcomed Hammond‚ s comments that higher productivity remains the only path to sustainable growth and rising living standards. He was pleased that profit fragmentation, whereby UK businesses can arrange for UK-taxable profits to be booked to entities resident in lower tax jurisdictions, ‚ ãwill be addressed in the Finance Bill, and this ‚ corrosive practice‚ outlawed. He also encouraged the Chancellor to seek ways of increasing the share of tax that these multinational, internet-based entities pay. He is glad that entrepreneurs‚ relief remains an absolutely key part of our offer to entrepreneurs, who really are incentivised by this opportunity to make capital to invest in businesses and then to use it to reinvest in new businesses.

Lord Northbrook was concerned that neither the increase in national insurance nor the new probate charge were mentioned in the Budget speech.

Baroness Altmann welcome in particular the absence of yet more radical pension reform. She said increasing the personal tax threshold to £12,500 next April will help protect the pensions auto-enrolment programme from a rising number of opt-outs as employee contributions rise from 2% to 4% of relevant earnings. ‚ However, this rise has a major downside because it worsens the social injustice in pensions inflicted on low earners, who are mostly women. More than 1 million people earning between £10,000 and the personal tax threshold, which is currently £11,850 but will rise sharply next April, will be forced to continue paying 25% extra for their pension if their employer chooses the wrong type of administrative arrangement, as so many have done. This scandal has been ignored time and again. I hope that my noble friend will urge the government to show that they care about these lowest-paid workers and remedy the injustice.‚

Responding to Lady Altmann at the close of the debate, Lord Bates said: ‚ Some people who earn between £10,000 and the personal allowance are missing out on tax relief on their pension. To date it has not been possible to identify any straightforward or proportionate means to align the effects of the net pay and relief at source mechanisms more closely for the population. The government are already committed to ensuring that we can deliver a modern digital tax system to make it more effective, more efficient and easier for customers to comply and to reduce the amount of tax lost through avoidable error. This may present opportunities to look afresh at the two systems, and I welcome my noble friend‚ s continued engagement in this important area.‚

We should go back to Thatcher‚ s time and make capital gains and dividends taxed as highly as earned income, advised Lord Horam.

Baroness McGregor-Smith was delighted that we will deliver the lowest corporation tax rate in the G20. The UK must continue to be mindful of the fact that inward investment to the UK from many companies around the world will always consider its tax regime, and it must continue to be attractive. She said: ‚ However, I was pleased to see the introduction of the new digital tax, which I think is a little low, despite my fundamental belief in low taxes for business. This tax must be introduced and increase while the international corporate tax framework is further developed, but that needs to be urgently assessed.‚ ã‚

The uncommercial hike in stamp duty flies in the face of the long-standing economic truth that if marginal rates are too high, revenues will fall, said Lord Flight.

On the loan charge, Baroness Noakes said this affected ‚ ordinary people earning ordinary levels of income‚ . She said: ‚ HMRC has some arrangements in place for deferred payment but this will often not mitigate the extraordinary impact of the debts now being created. I hope there is a beating heart somewhere in the Treasury that will understand the personal misery and havoc that this legislation is creating. It is clear that the individuals have obtained an unwarranted tax and national insurance advantage, but is the cure worse than the disease?‚

Labour speeches

Baroness Smith of Basildon pointed out that the OBR forecasts are just slightly better than last year, although it warns of slowing growth in business investment, and unsecured debt rising as a proportion of household income. Also, while employment has marginally increased, there has been no significant improvement in wage growth. ‚ It is hardly a rosy picture,‚ she said. The reduced borrowing forecast from the OBR provided flexibility for the Chancellor and more money to draw on for this year but the OBR could easily reverse that decision next year, leaving the Chancellor to increase borrowing or raise taxes. The government have made much of their plans to reverse the intended cuts to welfare benefits, but in reality it is only a quarter of the £12 billion-worth of cuts planned by 2020, she said. ‚ Not only does the benefits freeze remain, but the tax cuts will cost far more than the changes being made to universal credit.‚

Lord McKenzie of Luton joined Baroness Altmann to ask about net pay arrangements, citing the work of the CIOT to raise awareness of the unfairness that some people who earn between £10,000 and the personal allowance are missing out on tax relief on their pension. (See above for Lord Bates‚ response.)

The narrowing of the tax base concerns Lord Wood of Anfield. The peer said decisions by successive Chancellors since 2010 will reduce income tax receipts by £24 billion alone through the personal allowance threshold increases. That is one per cent of GDP by 2021. In the past decade the proportion of That is two million fewer people paying any income tax at all, despite population growth.‚ ã The narrowing of the tax base has been accelerated by the boom in self-employment. The proportion of self-employment incomes below the personal allowance threshold has nearly doubled in 10 years, from 30 per cent to 60 per cent. There is a similar story of narrowing the tax base elsewhere‚ in business rates, in stamp duty land tax and perhaps also in capital gains tax, he said. ‚ Because increasing our dependence on a diminishing number of taxpayers exposes the public services that they fund to the risk of economic volatility and the risk of losing tax revenue as wealthier taxpayers‚ behaviour changes to reduce their tax payments or avoid them.‚

Lord Wood continued: ‚ If we are to preserve the health of our tax base, we need to return to making distributional decisions through varying tax rates and using existing taxes on the books that we are scared to touch‚ such as the fuel duty escalator, which sits in mothballs in our tax system‚ rather than by eroding the tax base. We also need to extend the tax system to encompass wealth, rather than just income, to broaden the tax base and have a tax system that matches how people make their income.‚

Lord Livermore said the Chancellor cynically pretends that austerity is over, solely with the aim of delivering a Brexit deal that he knows will decimate the public finances, making further, far more severe and long-lasting austerity inevitable.

Lord Hain said the Chancellor‚ s Spring Statement envisaged a £37 billion deficit for the current year 2018-19. That figure was the very target that George Osborne set for 2014-15. The OBR figures show that between 2010 and March 2018, the Tories squeezed £130 billion of spending out of the economy in tax rises and public spending cuts.

Lord Haskel said: ‚ Yes, the Chancellor has instituted a review of how the [Apprenticeship] levy will function, but that is after 2020. What is the point of a review of the levy system when the private sector firms that deliver training are performing so poorly? The largest one, for the retail sector, went bust. Learndirect had to be rescued with public money. Virtually all the training companies received very poor ratings from Ofsted. The result is that large companies are doing it themselves or recruiting from overseas and the rest struggle with a reduced public sector. In the public sector, FE colleges are being starved of funds and, as the House of Commons Education Select Committee recently reported, only eight of the 24 Russell group universities offer degree apprenticeships.‚ On the DST, he said a ‚ unitary tax‚ would raise more money and be a lot more equitable; that is why it is finding favour in the EU.

Lib Dem speeches

On the loan charge Baroness Kramer echoed the concern of Baroness Noakes (see above). ‚ This House will know that, in the other place, my colleague Stephen Lloyd, the MP for Eastbourne, put down an Early Day Motion on this issue; 100 MPs have signed it across all parties, reflecting the experiences of their constituents. These are ordinary people such as hospital cleaners, social workers and nurses, who found themselves moved out of their normal employment and did not have the scope or understanding to realise that they were being put into tax-fragile arrangements when they were moved over to work as contract workers. I ask the Minister to take this back. The public pronouncements that have been made, both by the Chancellor and the Financial Secretary, seem to suggest they do not understand that this is the kind of person affected rather than a handful of glamorous celebrities or footballers. It is crucial that that is drawn to their attention.‚

Kramer said that ‚ we have a broken tax system and this should have been the Budget that began to deal with it.‚ She has no problem with raising the personal allowance threshold for low earners, but at this time and in these circumstances she regards it as inappropriate to raise the threshold for higher earners. The government could have made real headway with our public services and welfare crises if they had supported Liberal Democrat proposals to put a penny in the pound on income tax and dedicate it to the NHS and social care, she said. Additionally the government could have made real headway if they had returned corporation tax to 20%, if they had restored capital gains tax to equate with income tax, if they had overhauled inheritance tax and if they had changed pension relief as Lib Dems proposed.

Lord Fox criticised Hammond for giving a ‚ little money here and a little there‚ , but then proposing tax cuts, which benefit the most well-off and not the poorest in this country. The Lib Dems would ensure that the wealthy paid their fair share, he said. ‚ We have proposed alternatives that would help to fix the tax system. We would tax wealth and commercial land value, and would use that to invest in public services, schools and police. The commercial land value tax would also help hard-pressed local businesses.‚

Lord Shipley wants the Government to look at whether stamp duty could be reduced for those who are downsizing their property to release it for younger people.

Other speeches

Lord Macpherson of Earl‚ s Court, former Treasury Permanent Secretary, said two things make the public finances even more vulnerable : the revenue forecast looks difficult to sustain and the spending settlement for the NHS looks like the bare minimum necessary to keep the service on an even keel. The triple lock uprating formula for the basic state pension is unsustainable and the case for a hypothecated tax for health and social care remains compelling, he said.

Lord Gadhia said if the chain of events triggered by the collapse of Lehman Brothers 10 years ago ultimately leads to the creation of a UK sovereign fund, mandated to invest in our country‚ s long-term productivity and prosperity, that would be an altogether more positive legacy from the turmoil of the financial crisis, and something he hopes the government will consider seriously.

The full session can be read here.