Finance Bill passes second reading despite opposition
Finance Bill 2021 has passed its second reading after a five hour House of Commons debate, MPs voting it through by 358 votes to 262.
Minister – ‘a more effective and resilient tax system’
Financial Secretary to the Treasury (Tax Minister) Jesse Norman opened the debate, telling MPs the Government wanted to accelerate work to create a ‘more effective and resilient tax system’, and enhance the ‘stability and effectiveness’ of the UK tax system by using the new 10-year tax administration strategy as the ‘springboard’. He wanted a tax system that enhances productivity, especially across the long tail of SMEs. Digitisation of the tax system provides a nudge to these firms to upgrade their use of information technology and the skills, he added. By giving consultations more profile on ‘Tax Day’, he hopes to make the tax policy process more collaborative and transparent and improve the quality of tax policy making.
The tax measures in the Bill protect jobs and support the economy, said the minister. He went through some of them, including extending the 5% reduced VAT rate until 30 September, followed by an interim rate of 12.5% from October until the end of March; putting into legislation the temporary cut in stamp duty land tax; and for any business that took advantage of the original VAT deferral new payments scheme, the Bill ensures that they will be able to pay that deferred VAT in up to 11 equal payments from March 2021, rather than by one larger payment. For those businesses that have been pushed into losses, the trading loss carry-back rule is being extended from the existing one year to three years for losses of up to £2 million, ‘which will deliver a significant cash-flow benefit’, he added.
But, said Norman, “It is our responsibility as a Government to balance the extraordinary support we are providing to the economy now with the need to start to fix the public finances, and the Bill strikes that balance.” Justifying the income tax personal allowance freeze from now until 2026 he said the UK has the highest basic personal tax allowance of any G20 country. Similarly the inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount in capital gains tax will also be maintained at their 2020-21 levels until April 2026, the minister explained, telling MPs that maintaining the lifetime allowance at current levels affects only those with the largest pensions.
Defending the corporation tax increase the minister said that, since corporation tax is charged only on company profits, businesses that may be struggling will be unaffected. The ‘highly innovative’ new super deduction is expected to lift the net present value of the UK’s plant and machinery allowances from 30th among the countries of the OECD to first, he claimed.
In response to an intervention from DUP MP Sammy Wilson, Norman said that ‘it is absolutely the Government’s intention to have a freeport in Northern Ireland’ at some stage.’
The minister said the Bill also contained ‘important measures to make it fairer and more sustainable’. It allows for the implementation of OECD reporting rules for digital platforms, rules which will help taxpayers in the sharing and gig economies to get their tax right and it will also help HMRC to detect and to tackle non-compliance, he said.
To build on the successful introduction of Making Tax Digital for VAT, the Bill will enable the extension of MTD requirements for smaller VAT businesses from April next year. “It also makes widely welcome reforms to the penalty regime for VAT and income tax self-assessment, so that it is fairer and more consistent as a system, and harmonises interest for VAT and income tax.”
Norman also spoke about the Bill introducing an exemption from income tax for financial support payments for potential victims of modern slavery and human trafficking. Finally, he turned to environmental measures, praising the new plastic packaging tax which the Bill introduces.
Labour – ‘people need to be spared the Bill’s tax rises’
The Shadow Financial Secretary – Labour MP James Murray – moved an Opposition amendment that the House of Commons decline to give a second reading to the Bill because: “It derives from a Budget that failed to guarantee a pay rise for NHS workers after their unparalleled service over the last year; because it undermines the country’s economic recovery, targeting household finances by freezing income tax allowances before increasing the rate of corporation tax; because it does nothing to mitigate the effect on family finances of the sharp council tax rise in April; because it contains measures connected with a cut to social security later in the year; and because it fails to set out the ambitious plan for jobs and growth that is needed to help the country emerge strongly from the worst economic crisis of any major economy.”
The shadow minister criticised the Government for inaction in some areas. He said now should have been the time to at the very least level the tax playing field for high street businesses and online firms, yet there was nothing on that in this Budget, no decisions were taken on Tax Day, and the Finance Bill is silent. He complained that half the country will pay more next year, thanks to the provisions in this Bill to freeze income tax personal allowances. He added: “They raise taxes and cut help for families immediately and without a second thought, years before an increase in corporation tax. Rather than supporting families out of this crisis, the Government are prioritising tax breaks [the super deduction] for tech giants.” The Government has failed to say or do anything to address widespread concerns that the super deduction is open to fraud and abuse, he added. Companies can already benefit from the annual investment allowance (AIA), a 100 per cent tax break on investment up to £1 million, which is helping SMEs. This leaves Murray to think that SMEs stand to benefit only marginally from the super deduction, with the main beneficiaries of the super deduction the big firms that need help least.
Murray remarked that freeports elsewhere in the world having become ‘magnets for organised crime, tax evasion and smuggling, we fear that at a time when HMRC is already overstretched Britain is not well placed to manage such risks’. He complained that new measures to tackle promoters of tax avoidance are ‘extremely limited’ in scope. He offered support for the principle of a plastic packaging tax, “and because we want it to be as effective as possible we will ask Ministers to consider the detail of its operation in Committee.”
However, said Murray, overall, Labour cannot support this Finance Bill: “rather than supporting families out of this crisis and setting an ambitious plan for the future, the Government are prioritising tax breaks for tech giants.” He concluded: “We will vote for our amendment and against the Bill, to make it clear to people in our country that we understand that people need to be spared the Bill’s tax rises; that Amazon does not need any favours; that NHS workers deserve our support, that we need good new jobs in every region in the nation; that the economy will grow only through responsible investment; and that we need to fix social care, the climate emergency and the housing crisis. Above all, people in our country need a Government who are on their side, and it is absolutely clear from the choices that the Bill and their Budget make, and the problems that they choose to ignore, that this Government fail that test.”
Treasury Committee chair – corporation tax cuts are not cause of increased yield
Chair of the Treasury Committee Mel Stride, Conservative, spoke in support of giving the Bill its second reading. He backed the freeze to income tax thresholds because it is a ‘broad-based, important and very high-yielding tax’. Stride said the UK remains internationally competitive on corporation tax despite the planned increase, and he took on the argument that because corporation tax yield had risen since 2010 as the rate had been reduced that there was a causative link between the two. “I would argue quite strongly against that. I think that the improved yield from corporation tax was as much to do with improvements in the economy across that period, the bank levy, the bank surcharge and various anti-avoidance measures such as the corporate interest restriction. We should not fool ourselves into believing that raising taxes on companies will necessarily yield less in the medium to longer term—albeit that in the longer term we of course want to see those taxes as low as possible.” He thought if there was a ‘Laffer effect’ (scope for reducing rates and getting a higher yield) then the higher rate of capital gains tax, SDLT on high-value properties and duty on cigarettes might be the places to look for it.
Stride, a former tax minister himself, welcomed the super deduction saying it would stop companies from delaying investment. He thought clause 19, capping R&D tax credits to, he understood, ensure that there is no double counting or double relief between a principal company and a subcontractor, would need ‘careful scrutiny’ in committee. He welcomed the extension of the annual investment allowance at £1 million.
Stride challenged James Murray’s implication that the Government’s record on clamping down on avoidance and evasion ‘was rather wanting’. He pointed him to the tax gap, “which I think in recent years has been at historic lows, and has certainly been among the best of the figures available across tax authorities around the world.” He said the UK has been in the vanguard of measures to get tax in from tech giants, “unilaterally rolling out the digital services tax to make sure that companies including Amazon, Google and eBay pay the appropriate level of tax”. He said he “would be interested to hear the Exchequer Secretary explain why the diverted profits tax increase just maintains the punitive margin between the level of that tax and the increased corporation tax in the years ahead, rather than the decision being made to widen the margin, given how successful the diverted profits tax has been in preventing profit shifting.” On freeports he worried about both fraud and that they would simply displace activity that would have occurred anyway, but somewhere else nearby.
Finally he welcomed the change that ensures that where an employee receives a covid test provided by an employer in their place of work, it does not count as a taxable benefit in kind. “I raise the matter because there is a small but important lesson in scrutiny here. Tony Verran, who is a member of the Treasury Committee secretariat, having joined us on secondment from HMRC, spotted this anomaly in HMRC guidance. Within about 24 hours, I was able to raise it with the Chancellor on the Floor of the House in Treasury Questions, and within 24 hours of that, to his great credit, he changed the guidance, and now we see the provision in the Bill. That is how Parliament should work, so I am grateful to Tony and others who were able to point me to that issue.”
SNP – ministers should listen to experts on improving Bill
The SNP’s lead Treasury spokesperson at Westminster, Alison Thewliss, said the Bill falls short in a number of respects, adding: “Expert organisations such as the Chartered Institute of Taxation, the Association of Taxation Technicians, the Institute of Chartered Accountants of Scotland, the Institute of Chartered Accountants of England and Wales, and the Low Incomes Tax Reform Group have all pointed out sensible tweaks to the Bill the Government could easily make. I urge Ministers to listen carefully to that expertise and to act.”
Thewliss also called for evidence sessions ahead of the Finance Bill. She said: “The recent Financial Services Bill had useful evidence sessions where the Economic Secretary to the Treasury asked useful questions of our witnesses. I see no reason why the Government would not make time for that. Indeed, they might make better, more considered financial legislation if the evidence to support it was better examined.”
The measures on CJRS and the SEISS show the degree of complexity that we are now left with because of schemes being brought in necessarily in haste and extended for longer than the Government had anticipated, Thewliss argued. What she called the ‘stop-start, on-off furlough dither last autumn’ caused job losses from employers unable to bear the costs and the uncertainty, and the UK Government must not repeat that mistake, she said.
On clause 31, which makes the working tax credit uplift match the temporary £20 increase to universal credit by means of a one-off £500 payment, Thewliss commented that “there are real concerns about the rough edges of this policy from experts such as the Low Incomes Tax Reform Group. My understanding is that this £500 will be paid automatically, but there will be a charge to income tax where someone receives this in error—an error that would be HMRC’s error, not the recipient’s. There is a lack of certainty about what will happen if people get money they are not entitled to through HMRC’s own error, and what those receiving support are expected to do if they are unsure, especially as there is only a 90-day period in which to notify that error. I ask the Minister to give us some further detail on how exactly he envisages that this will work and what information people will receive.”
Thewliss observed said the income tax personal allowance freeze appeared to be contrary to the Government’s stated policy on low-income taxpayers. She identified ‘problems in the detail’, noting “that Ministers are also not taking the opportunity to amend the high income child benefit charge, which has proved so problematic for so many people.”
Turning to business taxation Thewliss noted: “The Association of Taxation Technicians has some concerns about interaction with the introduction from 1 April 2023 of the small profits rate. I appreciate that the UK Government may believe they have good grounds for excluding leased or second-hand machinery, but the ICAEW has pointed out that industries that lease plant and machinery rather than acquire it outright make a significant contribution to the UK economy. The Construction Plant-hire Association estimates that the UK’s plant hire industry is worth £4 billion per annum, and the Construction Equipment Association estimates that 60% to 65% of all construction equipment sold in the UK goes into plant hire. This sounds to me to be quite significant, and I would ask Ministers to set out their reasoning in greater detail.”
The SNP spokesperson called for more certainty on the annual investment allowance, complaining that it has ‘jumped about over recent years’ with permanent and temporary limits. She noted the Treasury Committee’s call for “the Government to look favourably on further extension and possibly permanency at the existing level, which would provide welcome certainty to small and medium-sized enterprises.” “The ATT agrees that such extension or permanency would be welcome for many businesses in providing certainty, although for smaller businesses an opt-out provision might be a useful solution,” she added.
“On clause 113 and schedule 25, on penalties for failure to pay tax, there is no doubt that I support people paying the taxes they should in full and on time and that there should be a penalty for not doing so,” said Thewliss. “That said, the ATT and the ICAEW have concerns that the proposed late payment penalty regime is overly complex and, as a result, will not be understood by taxpayers and not act as an effective deterrent. The ATT in particular feels that allowing HMRC up to 48 weeks in some circumstances to notify a person of the award of a penalty point, and up to two years to assess a penalty liability, is quite excessive. The periods should be further reduced and/or assurances should be given by Ministers that they will be used only in the most exceptional circumstances.”
Thewliss said it was ‘deeply disappointing’ that the UK Government will extend the five per cent VAT rate for the hospitality sector only until the end of September. She had concerns about the effectiveness and the potential for tax dodging with freeports. And she thought the Bill ‘really does not go far enough’ on tax evasion and avoidance. “Yes, there are some measures here, but there are also some massive gaps,” she said, citing continued abuse of Scottish limited partnerships as an example. She expressed frustration that the Scottish Parliament “does not have access to the levers and the powers that it needs”.
Conservative backbench speeches
George Freeman said the 45 town deals and the eight freeports are ‘genuinely transformational’ for places such as Teesside. Freeman went on to say, ‘we are a phenomenal powerhouse in the biosciences, and if we invest in that, support it and commercialise it better, we will grow the industries of tomorrow’. Brexit does create an opportunity for the UK to embrace variable tariffs, he said.
Peter Aldous said: “Previously, I was doubtful about freeports, concerned that they move business around, displacing projects rather than attracting additional investment. However, taking into account the unprecedented challenges of covid and the opportunities of Brexit, it is necessary to pursue policies that can help to attract footloose global investment.” But Aldous spoke of his concern that the focus on freeports could lead to the abandoning of enterprise zones. Jacob Young claimed, outside the EU, freeports have a significant role to play in our recovery and in levelling up our left-behind areas such as Redcar and Cleveland.
Bim Afolami praised the Help to Grow scheme, which he said is fundamental, transformative and can make a big difference to businesses. Afolami claimed the super deduction is an inventive, creative, clever new way of turbocharging and increasing private sector investment and moving it forward; it would be negligent of the Government to not bring forward a measure that will help our economy because it might benefit big employers ‘that employ thousands of our constituents’.
Jo Gideon welcomed the super deductions for new plant and machinery, together with the provision for an extension of the £1 million annual investment allowance. We are enabling the private sector to build back better, she claimed.
Andrew Griffith claimed the super deduction has mobilised lots of businesses in his Arundel and South Downs constituency to invest significantly. Griffith welcomed the extension of the lower rate of stamp duty but he encouraged the Government to bring forward an exemption to stamp duty for downsizers. The UK used to have one of the best systems of providing for retirement in the western world but the freezing the lifetime allowance is another ‘Jenga brick ‘whipped away from that once strong pillar.
Richard Holden said the Government’s work recently, particularly in relation to continuing the business rate holiday and the VAT holiday, has been helpful to create wealth and will really help some of my businesses rebound. Separately, Holden said: “The super deduction gives a real opportunity, particularly for the manufacturing centre, which is so capital intensive, to invest for the long term, knowing that that cash will be repaid in spades and also that there will be a tax break. That will also help to counter some of the issues that we are bound to see around unemployment because of the covid pandemic.”
Julie Marson said the Government are clearly innovating and continuing to provide packages of flexible support that will maintain protection for those businesses and the jobs that are still subject to restrictions.
John Redwood said: “If we threaten too many tax rises, it will damage confidence. We will put people off investing here and make people nervous about spending and make them want to save more. This is the time when we need people to spend, to recreate those jobs and get businesses going again. This is the time when we really need businesses to want to come to the UK or to stay and grow because we need that massive investment.” He added: “I pray in aid our neighbour the Republic of Ireland, which has been extraordinarily successful by having an extremely low corporation tax rate. It is 12.5 per cent – a knockout low rate – and what has happened? First, the Republic of Ireland collects far more as a proportion of its total tax revenues from business than us or other EU countries, because so many great companies have gone there and book a lot of profit there, since the rate is obviously agreeable and favourable. The Republic of Ireland also has a much higher GDP per head.” He does not think this is the time to be looking at new taxes on small businesses and the self-employed. ‘I do not think the IR35 idea is a particularly good one’.
Stephen Hammond called on the Exchequer Secretary to talk to MPs about the loan charge, again, in light of the clause 117 in this latest Finance bill which will see responsibility for the obligations within POTAS, and for any failure to comply with them to be placed on the people and entities behind the schemes. Separately, he wanted the Government to link the super deduction with the new apprentice scheme because ‘human capital formation and investment in skills are as important as physical formation’.
Duncan Baker, a chartered accountant, said the Budget laid out how, through fair taxation measures, not austerity, we can begin to rebuild and fix the public finances. Baker said: “There are undoubtedly those who have prospered in lockdown from a sense of a captive market, and thus the taxation policy to increase corporation tax not now but in a couple of years’ time is sensible and proportionate. Equally, our rates will still be some of the lowest in the G7. Those making the lowest profits—under £50,000—will be largely unaffected and only those earning over £250,000 will pay the top rate. The vast majority of limited companies in the UK will see little tangible difference.” But he was disappointed that the super deduction is only applicable to limited companies: “Imagine farmers in my constituency parting with the best part of half a million pounds to buy farm machinery such as combine harvesters, as many of them may do, but because they operate as partnerships they are ineligible for the tax break.” He closed his speech by saying the Government must look at modernising the rates system and consider how we level up the disparity in competition between those bricks-and-mortar stores that now face online competition.
Kevin Hollinrake said direct sales of Amazon are not covered by the digital services tax. That gives Amazon a competitive advantage over the other sellers on its platform, which cannot be right, he said. Hollinrake wants VAT as a replacement for business rates. On banking, he said a key thing is to make sure that SMEs are treated fairly in the forbearance process.
Steve Double, Chair of the All-Party Parliamentary Group For Hospitality And Tourism, said all the measures that were in the Budget have been ‘hugely’ welcomed by the many businesses in his constituency that rely on tourism and hospitality. On the removal of the red diesel entitlement, Double was concerned about the impact that the speed with which this measure is being introduced will have on the mining and quarrying sector, because much of the heavy gear used in the mining and quarrying sector just does not have an alternative to diesel.
Labour backbench speeches
John McDonnell said introducing the furlough scheme without conditions enabled fire-and-rehire employers to cut wages and conditions of employment. Low wages and inadequate sick pay have resulted in around 750,000 households being behind on their rent or their mortgage, and millions more are behind on basic household bills. With the eviction ban ending on 31 May and, realistically, no action on debt from the Government, we risk a surge in evictions leading to more homelessness, he warned. On low pay, the Government have already failed to meet George Osborne’s much-heralded target of a minimum wage of £9 an hour by 2020, he said. The former shadow chancellor complained that the Bill pushes through a tax threshold freeze for low and middle earners but delays corporation tax increases, it contains no action to fulfil the much-publicised proposals to equalise the rate of CGT with income tax and the super deductions tax reliefs are a huge giveaway of £25 billion to large corporations. The entrepreneurs’ allowance, the patent box and the tonnage tax are just a few of the allowances that have failed to deliver and been open to abuse. Freeports will, unless strictly regulated, open up a vista of tax abuse, wage undercutting and the drainage of investment from surrounding regions, he predicted.
Former shadow chief secretary to the Treasury Peter Dowd said there was nothing at all in this Bill in substance that deals with productivity issues. Dowd said: “It does not deal with job insecurity, low pay and low skills. It does not deal with inequality in education, social care and health.”
Stella Creasy said the Bill squeezes family finances by freezing the personal allowance, after many families will have struggled to pay their increased council tax bills as well. This Government have no answer to our R&D sector, which is crying out for support while they use this Bill to give a tax break that will go to the biggest corporations and venture capitalists, said Creasy. Our charity sector is on its knees, but it gets nothing from this legislation, she added. Other nations are investing in their people and infrastructure, yet our Business Secretary has chosen this moment to abandon the industrial strategy enacted just four years ago, she complained.
Rushanara Ali remarked that by freezing the threshold for the personal income tax allowance, the Bill introduces a stealth tax on households and the super deduction gives tax cuts to some of the biggest businesses in the country, including those who have done particularly well during the pandemic.
Geraint Davies said the reason we are seeing tax increases, ‘taking us to a share of taxes not seen since the 1960s’, is not the pandemic, which is a one-off hit that will be recovered, but the ongoing problems of ‘the botched Brexit’. We need to look towards better realignment and better trade with our closest marketplace, said Davies. He suggested that local authorities should be empowered to provide digital marketplaces to support local businesses to sell to local people with overnight delivery so that people would have a choice between sending their money offshore to ‘some huge American organisation’ that does not pay tax, is destroying local jobs and undermining workers and supporting local businesses through a collective approach with a modernised online service.
Richard Burgon said the Budget ‘fails to give NHS staff the proper pay rise they need, because it cuts the pay of millions of public sector workers and hands billions in giveaways to mega-corporations such as Amazon, many of which have done very well out of the crisis, because it leaves many of the lowest earners facing tax rises and because later this year it will cut social security payments for people who really should get much more help. Where is the tax on the companies that have made super-profits during the crisis? Where is the one-off tax on the super-wealthy as other countries are doing?’
Mike Amesbury was not a fan of the Bill, saying that our NHS and key workers deserve a decent pay rise, not just platitudes, and complaining about the regressive council tax bombshell of five per cent imposed by the Chancellor on councils up and down this land.
Bell Ribeiro-Addy said that ‘the Government’s mishandling of the pandemic and an inadequate social security system have caused widespread financial hardship, unemployment and debt, yet the Finance Bill falls short in tackling poverty, low pay, insecure work and the ever-deepening divisions in our society. Instead, it includes a whole host of damaging measures, such as cutting working tax credit to its lowest level in decades’. She added that while TIINs for each tax measure are available, they lack detail and quantitative estimates of impact, or simply state that no equality impacts are anticipated. That is not good enough for legislation that will so fundamentally impact on our society, she said: “Incentives such as the super deduction are biggest for larger firms, and the Financial Secretary to the Treasury has admitted that only one per cent of firms will benefit this year, as the rest are within the AIA.”
Ruth Cadbury highlighted that the All-Party Parliamentary Loan Charge Group has just published a comprehensive report, ‘How Contracting Should Work’, which found that the unintended consequences of IR35 or off-payroll legislation has been a proliferation of umbrella companies, some of which have pushed people into disguised remuneration schemes. The report also exposed significant malpractice, including withholding of holiday pay, kickbacks for recommending or passing on contractors, and even the provision of fitted kitchens and holidays for recruitment agency directors. It concluded that we need legislative changes in and beyond the Bill, including aligning tax and employment law. Cadbury said: “The Government could simply strike out clause 21. Doing so would ensure that workers got the agency rights they should be getting. Agencies can run their own payroll; they do for their own staff anyway. They do not need umbrella companies and neither do their contractors. Alternatively, the Government could redraft clause 21 to seek to stop the exploitation. They must do one or the other.”
SNP Treasury spokesperson Peter Grant said it is not easy to find a way to change an income-based tax system so that we collect more tax but target the impact on people on lower incomes, but that is exactly what the Government propose to do. On the one-off uplift in working tax credit, Grant said the eligibility criteria are crude and it will not be at all easy for recipients to work out for themselves whether they qualify. On freeports, how do the Government know that they will create new investment and new jobs, rather than just move investment and jobs that would have happened anyway? How will they make sure that those who buy and sell land in a designated freeport area are investing the tax breaks they enjoy in creating jobs on the site, rather than just siphoning the money off into the profit and loss account of an offshore investment trust somewhere? In general comments, he said the Government seem hellbent on taking us back to the same unfair, unequal and divided society that we had before.
Richard Thomson (also SNP) commented that this Bill fails to get to grips with the big issues of ensuring a green recovery and fails when it comes to dealing with the ‘much-vaunted levelling-up’ agenda.
“This Bill is a catalogue of hard choices unconfronted, challenges ducked and emergency measures to deal with the pandemic used as a fig leaf for the failure to face up to long-term challenges,” said Liberal Democrat business spokesperson Sarah Olney. Olney lamented the lack of action to level the playing field between high street and digital retail, adding that we need to lower the barriers to entry to retail and other town centre businesses. She was worried that the Budget does not deal with a potential ‘huge spike’ in unemployment when furlough ends. She wants the Government to cut national insurance contributions for small businesses in order to boost employment. She added: “Many people who were excluded from help were contractors moving between pay-as-you-earn contracts, which they were forced to take on because of the IR35 regulations that the Government are still insisting on introducing. Had they been able to continue as self-employed, they might have qualified for help.” She is disappointed that the Government failed to cut VAT on home insulation products to encourage people to invest in their home themselves (to make them more environmentally friendly). She ended by saying the one advantage of freeports is that they can avoid the customs duties and paperwork currently creating such a barrier to trading, ‘thanks to the Government’s terrible deal with the EU’.
DUP’s Sammy Wilson said spending on apprenticeships and training will increase the skills of our workforce and prepare those who need to move into new industries with the skills they will need, again increasing productivity and competitiveness. Wilson wondered whether increasing the income tax burden will conflict with a consumer spending driven recovery. If we look at the impact of business rates over the next five years, the impact of the Budget means that in money terms, the business rates take across the economy will go up by 50 per cent, he said. “That is a considerable burden on businesses that are coming out of a difficult period, that have not built up cash reserves, and that still do not know exactly how the economy and the demand for their services will increase,” he said.
Jim Shannon (also DUP) said the Government needs to acknowledge that other European countries are giving substantial grant-based funding to airports. The UK Government’s lack of support, other than limited rates relief and access to loans, risks UK aviation falling behind our European competitors. He said: “Instead of supporting the sector, the Finance Bill includes rises in air passenger duty that will harm the recovery of an industry that has largely been shut down for over a year. Added to that, there is the blow of the removal of airside VAT-free shopping at the end of 2020.”
The SDLP’s Claire Hanna said the Budget does not deliver the transformational investment needed to create green jobs, particularly at a time when so many people have lost their work and when so many sectors will take time to recover. Hanna said: “Recent moves by the Government, including approving a mine, granting new licences for oil and gas exploration, scrapping the green homes grant and cutting overseas aid to countries that are dealing with the impact of climate change and removing funding at a time when they need to transition to less carbon-intensive measures, is going in the wrong direction.”
Plaid Cymru’s Ben Lake said the ‘supposedly new’ spending pledges were proven to be nothing of the sort, most clearly at Wales’s expense, where only five per cent of the spending announced was new and unconditional. The Bill prematurely ends the VAT reduction to help hospitality businesses across the UK, neglects fully to correct the exclusionary failures of the self-employment income support scheme, and fails to guarantee the permanency of the £20 a week universal credit uplift, he said. Plaid Cymru will table amendments requiring the consent of the devolved Parliaments before freeports can be established in their respective nations, said Lake. He welcomed the proposed plastic packaging tax but bemoaned that only days ago it was reported that the ‘much vaunted' deposit return scheme has been further delayed until 2024; having been unnecessarily tied to Westminster inaction on that issue, Wales will by then have waited six years for such a scheme to come to pass.
Responses to the debate
Winding up for Labour Pat McFadden said the Budget’s tax changes turn on its head decades-long conservative orthodoxy, not just because tax rates are going up but because the expectation is that alongside rising tax rates will come rising revenues. McFadden said the income tax threshold freeze proposals mean that 34,000 basic rate taxpayers in Hartlepool will face a tax increase before corporations have had to pay a single extra penny toward the costs of the pandemic.
He concluded by saying the argument was about “who can best equip the country for the future, who can rebuild the best and who can deliver the transition to greener jobs, heal the inequalities that have been exposed by the pandemic and help children to recover from the education that has been lost.” He continued: “The Finance Bill is silent on those challenges, as was the Budget. That is why it is a job only half done. It puts tax increases in place for the next few years that hit family finances before corporations, and it does so with no plan for the recovery that the country needs or one to rebuild the public realm—the public square—to make it more resilient in the future. That is why we have tabled the reasoned amendment on the Order Paper. The second half of that job—what the country has to do—is still to come, and that will be where the argument over the best economic future for the country and how we truly recover from the events of the past year is played out.”
Closing the debate, Exchequer Secretary to the Treasury Kemi Badenoch said the Bill boosts some of the hardest hit industries through extending the VAT reduction for the hospitality and tourism sectors. And It provides extra security for workers in the housing sector by maintaining the temporary cut in stamp duty until the end of June. The Finance Bill supports struggling businesses by allowing them to carry back up to £2 million of losses and receive refunds for tax paid in additional previous years further to the one year provided at present, she said.
Mel Stride asked why the diverted profits tax (DPT) increase just maintains the punitive margin between the level of that tax and the increased corporation tax in the years ahead rather than the decision being made to widen the margin, ‘given how successful the diverted profits tax has been in preventing profit shifting’. Badenoch explained: “This tax is charged at a higher rate than corporation tax to discourage the diversion of profits that should be taxed in the UK to another country. The six-point differential between the main rate and the DPT rate has proven an effective deterrent, and that is why the DPT is being increased from 25 per cent to 31 per cent from April 2023 to maintain the current differential.”
On super deduction, the minister said there are safeguards in the legislation to prevent such abuse, such as the exclusions of connected party transactions and second-hand assets. The legislation introduces a new anti-avoidance provision that applies to counteract arrangements that are contrived, abnormal or lacking a genuine commercial purpose, she added.
She said the Bill improves tax transparency by paving the way for the UK to implement the OECD’s international reporting rules for digital platforms, ‘stops tax cheats’ by strengthening our existing anti-avoidance regimes and tightening the rules designed to tackle promoters and enablers of tax avoidance schemes and provides even more certainty to taxpayers by setting out a more consistent, fairer penalty regime across VAT and income tax self-assessment.
The Opposition amendment was supported by all Opposition parties but was defeated by the Government (358 – 268). The Bill has now passed Second Reading (358-262) and Committee of the Whole House will take place on Monday 19 and Tuesday 20 April, with public bill committee commencing on Thursday 22 April.
The full session on 13 April 2021 can be read here.
By Hamant Verma