MPs debate Budget tax measures on first two days of debate
Following Wednesday’s statement by the Chancellor, MPs are holding four days of debate on the measures in the Budget. The first two of these were Wednesday 11 and Thursday 12 March. (The latter two days – Monday 16 and Tuesday 17 March – will be the subject of a future report).
Debate inevitably focused heavily on measures to tackle the COVID-19 breakout, and there was broad agreement on these, although some Labour MPs queried the details. On tax Labour said the Government had not done enough to tackle avoidance and evasion. The SNP called for a temporary VAT cut in response to COVID-19. The Lib Dems called for business rates to be replaced with land value tax. Treasury Committee chair Mel Stride said the international tax regime was not fit for purpose. Former Chancellor Sajid Javid encouraged the Chancellor to consider 100 per cent capital allowances.
Financial Secretary to the Treasury Jesse Norman said this Budget has been well received and well supported by many groups across the business sector. Norman said the Government have kept corporation tax at 19 per cent, the lowest in the G20, so that businesses have more freedom to invest in their own priorities. And delivering a £20 billion patient capital action plan to ‘unlock private financing in high-growth innovative companies’. He spoke about the Government investing an initial £12.5 million in HMRC in 2020-21 to begin implementing the breathing space initiative. (This initiative freezes interest, fees and enforcement for people in problem debt, with further protections for those in mental health crisis treatment.)
Business Secretary Alok Sharma said he was delighted to be part of the ‘most business-friendly Government ever’. On the R&D announcement, Sharma said this is the fastest and largest increase in Government R&D spend ever and there is a multiplier effect: for every pound of public R&D spend delivers around £7 of economic benefit for the country. Sharma also said that COP26 (the climate change conference Britain will host later this year) can be where the world comes together to ramp up momentum towards a zero carbon economy; it can send out a message of ambition and hope that decarbonisation is the future. The Budget delivers for businesses, innovators and entrepreneurs and is a ‘Budget to power pioneers and problem solvers right across our country,’ he charged.
Labour frontbench speeches
Labour leader Jeremy Corbyn called the Budget an admission of failure: “An admission that austerity has been a failed experiment and the measures go nowhere near reversing the damage that has been done to our country.” Conservative governments have starved the country of investment over the last 10 years, resulting in a £192 billion hole in infrastructure spending, he claimed. The Chancellor had claimed the Budget was the biggest capital injection since the 1950s, but as a percentage of GDP, it only returns us to the levels we had before the Conservatives slashed investment so drastically in 2010, said Corbyn.
Corbyn complained that the Government has maintained the freeze on fuel duty without lowering bus and rail fares. The Government’s changes to the national insurance threshold will mostly benefit higher earners, while those on lower incomes would be far better supported by boosting wages and real social security, he said. He wondered how a Chancellor will clamp down on tax dodgers, ‘when previously he worked for hedge funds that used the Cayman Islands, and he had a close business associate who engaged in a multi-million pound tax avoidance scheme’.
Shadow Chancellor John McDonnell majored on the lack of announcements on social care, saying we should look at what support can be given to individual carers within families as they cope with the coronavirus crisis. On statutory sick pay, he said government guidance appears to exclude workers on zero-hours contracts, part-time workers and people earning below the lower earnings limit of £118 per week. Sick pay is currently set at just £94.25 a week. Average pre-tax earnings are £511 per week in nominal terms. Without lifting statutory sick pay, the financially secure will err on the side of caution and self-isolate, and all but the most financially secure will be asked to take a significant pay cut in order to self-isolate, he said, leaving them inevitably choosing between health and hardship.
On the decision to keep entrepreneurs’ relief (albeit with a lower cap), McDonnell complained that it is a tax relief for 5,000 individuals who make an average of £350,000 each. He also complained about what he said was a u-turn on the tax for foreign buyers of UK property. He said the Conservatives had failed to tackle in this Budget “any long-standing challenges at the heart of our tax system, such as how we treat capital alongside income fairly, how local councils can have stable funding, or how we rationalise the long list of tax reliefs that provide opportunities for tax avoidance and evasion.”
Shadow Business Secretary Rebecca Long Bailey concluded in sadness and anger that the Chancellor had blown the biggest opportunity for national renewal since the post-war era and betrayed current and future generations.
Conservative backbench speeches
Chair of the Treasury Committee Mel Stride noted that given what is happening with coronavirus and the fact that the OBR struck its forecasts some time ago, the current forecasts are almost certainly already out of date. He said that despite the Bank of England reducing interest rates to deal with COVID-19, the real issue will be around the fiscal measures particularly relating to business rates, time-to-pay arrangements and the deferral of taxation. He claimed the increase in R&D tax credits, the more generous treatment in the structures and building allowance and the changes in the employment allowance, will be ‘much more meaningful and powerful’ in supporting small businesses than entrepreneurs’ relief ever was.
The former Tax Minister went on to claim the international tax regime was unfit for the 21st century, saying we have to get away from attributing tax rights simply to where the bricks and mortar, the people and the intellectual property are, and where management decisions are taken, and look more at where value is created. He said the UK has waited too long for a multilateral approach.
Andrew Griffith supports the Chancellor’s proposal to maintain the rate of corporation tax at its current level of 19 per cent rather than reduce it further: “Indeed, I would go further on a future occasion and support an increase back to £1 in every £5 of profit as part of a fiscally neutral rebalancing of the business rates burden.”
Bim Afolami claimed the business rates review to be completed by the end of this year is really the best opportunity this country has had for a very long time finally to reform what he believes to be ‘one of the worst taxes in our tax system’.
Mike Wood asked the Treasury to consider how a post-Brexit duty system could better support our community pubs, rather than those who pile the beer high to sell it cheap in our supermarkets or off-licences.
Sir Peter Bottomley said the Government will have to recognise that our pattern and levels of taxation will change dramatically over the next 10, 20 or 30 years, with climate change and adaptation to it. “We have to be prepared for a proper debate on what we are going to tax,” he said, adding that he prefers a life cycle approach. People are willing to pay more at certain stages of life or in certain circumstances, and less at other times, he said. He believes the decision by the coalition government to make child benefit ineffective for people on £60,000 a year or more was wrong, saying the taxation they pay on their high earnings will easily outweigh the child benefit they receive.
Former PM Theresa May said the Treasury’s definition of R&D spending is currently too narrow to enable certain expenditure that could genuinely be described as R&D to be incorporated.
Sir John Hayes set out his thoughts on R&D funding: he wants bold investment that is mindful of risk; need to avoid the bureaucracy that is often associated with Government funding; and that kind of investment also has to be long term.
Former Chancellor Sajid Javid called for time-to-pay arrangements to be extended to business rates and a temporary cut in employers’ national insurance —perhaps over a three-month period—thereby relieving the cost of labour, because of COVID-19. Javid said we need to put people and place back at the heart of a more human capitalism. And we must not lose sight of the long-term failures of UK economic policy under successive governments—failures that have caused profound regional inequalities and a sense of anger and betrayal in many of our communities. He urged the Chancellor to consider in his next fiscal statement 100 per cent capital allowances.
John Redwood said it is good to see already in the first-year figures—for 2020-21— £4.6 billion of Brexit savings coming through. Redwood said: “My one worry about the Budget is that it does not cut taxes enough; I would like to see more tax cuts. We only have five years to show how fast this economy can grow before the electorate will judge us.”
Nigel Mills welcomed that there is no sliding back in the Budget on the IR35 changes because we must try to make sure that people who are really employed have a legal employment contract. He said: “We can see today that it is much easier for the Government to direct help to employers through national insurance or through other tax measures, to help them to support their employees and the costs of employment, than it will be to try to get support to those who are not employed.” He called for an honest debate about the long term future of tax, saying a lot of the taxes we currently use are under threat either because they are unpopular or because of the way we work or do business today. We are not sure how much more we can collect from corporation tax, business rates or employment taxes, h observed. He fears that we will get to future Budgets and see large and unpopular tax measures that target certain behaviours or certain people in a way that the country is not prepared for because we have ‘not entirely thought through’ what the impacts will be.
Mark Harper said the Government have to keep the spirit of their promises and not have any disguised tax rises later in the cycle. Harper supports increasing the resources going into social care, but does not want to increase taxes to pay for it. To voters, a tax of 2.5 per cent on their income will be seen as an income tax, he suggests.
Sir Edward Leigh complained about the length of the tax code and said: “We have armies of accountants persuading businesses, large and small, to avoid taxes. If we could just begin to simplify taxes, we would make so much progress.”
On air passenger duty, Tobias Ellwood said it is ‘simply wrong’ that when a person flies to Lanzarote, they pay half the APD that they would for a return flight to Glasgow.
Stephen Crabb strongly welcomed the measures on statutory sick pay to protect family incomes. His two concerns are placing an awful lot of faith in the banks to do a lot of the heavy lifting in providing support to small and medium-sized businesses and about the self-employed weathering the storm that coronavirus potentially places on them: “This crisis will highlight the vulnerability and fragility of some workers in our economy.”
Harriett Baldwin commented that the Chancellor in the Budget suggested that the money that is going to be invested in the long-term plan—that ‘levelling up,’ that infrastructure investment—is going to generate a greater rate of return for the economy than the OBR assumes in its forecasts.
Labour backbench speeches
Public Accounts Committee Chair Meg Hillier remarked that the UK has a two or even three-tier employment system, with too many people not even able to get statutory sick pay. Hillier complained that there was little about social care nor about Brexit preparations in the statement.
BEIS Committee Chair Rachel Reeves complained that, at £94.25 a week, statutory sick pay is about 40 per cent of what someone would take home if they were earning the minimum wage. The Government are telling them to draw on ESA or universal credit, but there is a waiting period and conditionality involved, Reeves said.
Chris Evans welcomed the business rates holiday for many shopkeepers. His view is that the Government have to introduce a two per cent online sales tax to level up the playing field. Equally, they need to bring in a tax collection mechanism, similar to the way that VAT is collected, with a levy of one per cent to two per cent as a retail sales tax.
Matt Western welcomed the help for SMEs and talked about the challenges small businesses face because of the presence of the internet and the pressures of the coronavirus, as well as Brexit.
There might be £100 billion for small businesses to borrow, but Catherine West worried about how people will know that those loans are available to them. West also said freezing fuel duty is a mixed message, and new roads are a mixed message, when Parliament has decided that climate change is an emergency.
Seema Malhotra remarked that Labour had two fiscal rules in 12 years, while the ‘Tories have had 16 in 10 years’. Malhotra worries that it is not clear what the compensating measures to local government will be with the cuts to business rates.
Liam Byrne complained that the ‘levelling up’ fund promises £4.2 billion over five years, but it does not start until 2022 and it has to be shared by at least eight different mayoralties.
Pat McFadden said the Chancellor had little choice but to change course because the backdrop to the Budget was a flat economy and an anaemic forecast for future growth—even before the impact of the coronavirus.
Steve Reed said for thousands of people with mental health problems, the benefits system pushes them further away from work. The roll-out of universal credit, ignoring the major failings during the pilot stages, has pushed many people with mental ill health into poverty and deeper mental health crises.
The Budget marked the end of the Tory promise to eliminate the deficit, said Work and Pensions Committee Chair Stephen Timms. Timms said the minimum income floor should not be there, and there is a strong case for making its suspension to deal with COVID-19 permanent.
Steve McCabe said the Chancellor should also have lifted the five-week wait for universal credit. He said the Government should carefully monitor the impact of the reduction in entrepreneurs’ relief. The last thing we need to do at a time when we are experiencing a significant restructuring of our economy is to take measures that discourage start-ups, entrepreneurs and innovation. He said the pension tax relief taper change is an expensive giveaway that will disproportionately help those with the highest salaries and biggest pension pots.
Kate Green pointed out that the Treasury’s own distributional analysis shows that those in the eighth and ninth income deciles are gaining most from tax and benefits changes, while the lowest income decile loses in cash terms. For all the fanfare around universal credit over the last 10 years, our social security system remains punitive, complex and ‘as mean as it has ever been’.
Yvonne Fovargue welcomed the Chancellor axing of the ‘reading tax’ and hoped it could be extended to audiobooks, which are a lifeline to people who have impaired vision. She said; “We also have issues with IR35, where the HMRC is acting according to the reverse of Jean-Baptiste Colbert’s principle of taxation, by getting as much hissing out of the goose for the lowest possible tax imaginable. Eighteen years of collective failure by HMRC—please, Financial Secretary, do not be the fall guy for HMRC’s blatantly poor execution of this policy on treating entrepreneurs.”
The Treasury has made no assessment of the impact of this Budget on women complained Dame Diana Johnson.
The SNP is advocating a package of measures, including a temporary drop in the VAT rate to five per cent to help businesses to reduce their costs because of Covid-19. SNP leader Ian Blackford suggested ‘static productivity’ is a direct consequence of choices made during the financial crisis. Blackford called on the Chancellor to increase the monthly allowance for universal credit and end the benefit cap; increase benefits above inflation and restore their value after the four-year freeze; scrap the two-child cap on tax credits and the rape clause; and follow the lead of the Scottish Government and bring in a child payment scheme similar to theirs.
The SNP’s economy spokesperson Alison Thewliss said the timing of the Budget further reveals the UK Government’s careless attitude to Scotland because the Scottish budget process has had to be carried out blindfold. The UK’s resilience has been weakened under sustained Tory cuts, with wages barely growing in the last decade, she charged. On the COVID-19 measures to the benefits regime, she is concerned that the five-week wait for universal credit will still apply, potentially making the changes functionally useless for that purpose. And the minimum income floor temporary removal is cold comfort to someone stuck on universal credit permanently because they have already lost their entitlement to tax credits, she added. The minimum income floor is being removed temporarily, but that is cold comfort to someone stuck on universal credit permanently because they have already lost their entitlement to tax credits. She suggested providing VAT relief for the hospitality sector because of COVID-19.
On a different note, Thewliss spoke of how devastating the UK Government’s new migration scheme stands to be for certain sectors in Scotland. The forecasts in the OBR’s book estimate a loss of HMRC income and national insurance rising to £1.5 billion in 2024-25 as a result of those changes, she said. She said she was glad to see the alcohol duties review, because the current alcohol taxation system ‘frankly makes absolutely no sense at all’. If you look at the graphs for those different alcohol taxes, there is no logic to them at all, she said.
On VAT relief to S4C, where is the equivalent relief for MG ALBA? she asked.
Owen Thompson welcomed some of the steps outlined to tackle more of the promoters of tax schemes, ‘as usual the little guys and gals are merely collateral damage’. Not one single promoter of a loan charge scheme has been prosecuted, while countless individuals, who were simply following the advice and guidance available at the time, are left ruined, he said.
Lib Dem speeches
Acting Lib Dem leader Sir Edward Davey has looked at Budgets over 30 years, and said he has rarely seen a Budget where the growth forecast for the British economy for the whole forecasting period is less than two per cent and that is before coronavirus is taken into account. He blames Brexit uncertainty and is concerned there is nothing in the Budget about help for small businesses to deal with Brexit. Unless the Government want a ‘no deal’ Brexit, it will have to extend the transition period, he said. He is similarly disappointed at the silence about IR35. He reiterated the Lib Dem proposal to replace business rates with land value tax. He is ‘deeply disappointed’ that the Government are not properly reforming universal credit, because the two-child limit for universal credit is extremely damaging to many families.
On business rates, Sarah Olney reiterated Lib Dem calls for a landlord tax to be paid by those who receive the proceeds from the underlying value of the property. This would relieve small businesses of the burden of taxation altogether, she argued. On IR35, she said an uplift in the minimum income level for class four national insurance contributions is no consolation to those who face losing their livelihoods as organisations refuse to take on contractors or source their contracts from overseas, to avoid the unnecessary burden that the legislation will impose, she said.
The DUP’s Sammy Wilson is pleased that the Chancellor has not increased the tax on red diesel for farmers because he knows many farmers in East Antrim for whom fuel is a substantial but inescapable cost. The carbon tax that the Chancellor proposes to impose on gas will impact severely on energy bills, though. The tax on gas will have an impact on many people, especially in places such as Northern Ireland, where they rely heavily on gas for electricity generation. Wilson is disappointed that there is no mention in the Budget of APD — at a time when connectivity is so important and following ‘the Flybe episode’. He closed his speech by saying ‘the Chancellor has made a decision to live within his resources, but there will be some consequences’.
By Hamant Verma.