Finance Bill Second Reading: Opposition bid to reject Bill fails

The Bill will now pass to its committee stage.

The full transcript of the Tuesday 16 November 2021 session is available here.

Ministers and shadow ministers

The Financial Secretary to the Treasury Lucy Frazer opened the debate claiming the Finance Bill will lead to stronger growth, stronger employment and stronger public finances, with higher wages, high skills and rising productivity. The reduced universal credit taper rate and increased national living wage will ensure ‘work really does pay’ and the fuel duty freeze will help to lower the cost of living, she claimed.

The temporary £1 million level of annual investment allowance (AIA) will back the businesses that generate jobs and growth and changes to business rates will encourage more firms to ‘grow and invest’, the minister told MPs. A bank surcharge rate of three per cent would make sure that our banks stay internationally competitive while still ‘paying their fair share of tax’ and increasing the bank surcharge annual allowance would help smaller, challenger banks.

Frazer went on to say the Bill make capital gains tax easier to navigate and creating a simpler tax system through reforms to basis periods ‘leading to a simpler, fairer and more transparent set of rules for the allocation of trading income to tax years’.

Shadow Financial Secretary to the Treasury James Murray moved Labour’s amendment (see below) which sought to deny the Bill a second reading. Murray accused the Government of putting up taxes on working people while cutting them for banks, giving up on fundamental reforms to business rates and failing to invest in the new jobs of the future that would turn the challenge of net zero into an opportunity.

Low growth is becoming a hallmark of the Conservatives in power and is the reason that taxes have had to go up, said the shadow minister. The Tories are making life harder for half the population through their personal allowance freeze, for all working people through their NICs tax rise, and for struggling families through their cut to universal credit, but making life easier for bankers and for frequent flyers, he argued.

Labour supports the principle behind the residential property developer tax, said Murray. He wants the Government to stop delaying a public register of the beneficial owners of overseas entities that own UK property, to bring transparency and stop the use of UK property for money laundering.

SNP Shadow Chancellor Alison Thewliss called again for the Finance Bill committee to be allowed to take evidence, suggesting  - with a reference to the number of measures in the Bill ‘tidying up’ previous reforms – that it might mean the UK Government makes ‘fewer mistakes’. She called on Frazer to fix abuse of Scottish limited partnerships ‘once and for all’, and argued for a root-and-branch review of the tax system, which, she argued, is much too complex and has too many places to hide and move things around.

Like Murray Thewliss juxtaposed benefit cuts and tax increases for the many with the reduction in the bank surcharge. She said that if the Chancellor was serious about helping business owners and employees then the NICs employment allowance should have been increased. She thought hiking VAT back up to 20 per cent just as the tourist season begins next year ‘absolutely daft’.

Thewliss supports the Bill’s plan to give HMRC powers to publish information on individuals who promote tax avoidance schemes. She said HMRC says that it is targeting ‘the most egregious promoters’ who flout the rules, but the Chartered Institute of Taxation (CIOT) is concerned that the definitions of ‘promoter’, ‘relevant proposal’, ‘relevant arrangements’ and ‘connected person’ set a low bar. She highlighted the CIOT’s concern that in future HMRC could use the measure more widely than is being proposed. This led Thewliss to ask for ‘some assurances that it will get it right the first time, and some assurances about how the scheme will be resourced’.

Lib Dem Treasury spokesperson Christine Jardine complained that this Finance Bill will provide less in extra catch-up funding for schools than it does in tax cuts for big banks. People who have worked hard, paid their taxes and played by the rules are seeing their incomes squeezed through no fault of their own. They are being crippled by tax hikes and their benefits have been slashed – all in the face of ‘skyrocketing bills’, she said.

The reduction in APD will do nothing at all to help to reduce carbon emissions, said Jardine. The business rates announcement will not abolish the ‘skewed and complicated’ system, which only benefits property landlords and not the hard-working business owners who rent from them. She said: “Even the tax cuts for businesses investing in green energy for properties are only set to benefit commercial landlords, not our high street shops, whose owners will really pay the bill.”

Backbench speeches – business taxation

Labour’s John McDonnell said he could not understand why the Government has extended the annual investment allowance (AIA) as well as introduce the super deductions. The Government’s argument is that 99 per cent of the business investment that is undertaken will be covered by the AIA, ‘but to then go on and give a super tax deduction of 130 per cent flies in the face of that argument’, he remarked.

McDonnell and Labour colleague Rushanara Ali joined James Murray in criticising the reduction in the bank surcharge. McDonnell remarked that the amount that banks have paid so far does not even pay off some of the damaging costs that fell to taxpayers as a result of their ‘wild speculation’ that brought about the crash. Ali said that nowhere is it clearer where this government’s priorities lie, and where they think the tax burden should lie, than in giving a tax rise to workers and tax cuts to the banks.

McDonnell cited the OBR, the UK Trade Policy Observatory and the TUC as having said that the introduction of freeports is the new opportunity for tax avoidance schemes, for the displacement of jobs from one area to another with no overall benefit and for the undermining of trade union rights. He said that the tonnage tax was introduced in 2000-01 at a cost of £2.165 billion but only 75 jobs have been created as a result of it.

Turning to tax and climate change, McDonnell said the failure to link tax reliefs to the achievement of ‘net zero’ means that we are undermining the ability of the government to intervene effectively in the economy to ensure that we are all signed up to tackling climate change. McDonnell had wrongly thought that the Government were going to come forward with amendments in legislation to prevent companies with any record of tax avoidance from being able to qualify for tax reliefs at all, but he added: “We are therefore in a situation where we are giving tax reliefs to companies that we know have in the past engaged in tax avoidance.”

Backbench speeches – employment taxes

John McDonnell asked how the Government could argue that the Bill is about high wages when they are freezing tax bands, introducing NICs increases and cutting universal credit. All those things hit earners.

McDonnell was also disappointed about the Government’s refusal to take on the imbalance between the taxation of wealth and the taxation of earnings. “The Government argue that, in the Bill, they are doing something about the taxation of earnings from dividends, but it is negligible in comparison with what is needed and it sends out a similar message that they are willing to penalise earners, but, at the same time, allow others who earn their money from wealth to walk away.”

Money from ensuring that taxation on earnings and on capital gains were brought into line ‘could have resolved the issues in social care’, claimed McDonnell. On the entrepreneurs’ allowance, he said people were walking away with large amounts of benefits without in any way demonstrating their entrepreneurial skills. It is the same with the patent box, he claimed.

Another Labour MP, Ruth Cadbury, complained that to plug gaps in the NHS and social care, the Chancellor had hiked up NICs, ‘a regressive tax payable by everyone in work’ when other ways could have been found to find the funding needed than this ‘regressive tax hike’.

SNP MP Richard Thompson challenged the Financial Secretary on how much of the NICs increase will eventually make it through to social care in England. Frazer replied that the government has been very clear that the money will first go to the NHS to clear backlogs and this is the first government to put in a plan to raise the money to tackle the social care issue.

Backbench speeches – the loan charge

The loan charge continues to exercise a number of MPs. Peter Grant (SNP) intervened on the Financial Secretary to ask about progress on ‘bringing the big players’ in the loan charge scandal, rather than just the ‘small time self-employed’, to book. Frazer agreed that ‘the real perpetrators in relation to the loan charge are those who offer these schemes and getting people on low pay into them’. She added: “An issue I have raised directly with HMRC is how we can further prosecute and bring these people to justice. Unfortunately, I understand that many of them are located offshore.”

In his speech during the debate, Grant expanded on his earlier comments, saying a lot of people who signed up to the loan charge did so because they did not understand it or because they were assured by paid tax advisers that it was all okay, and a lot of them did it because they would have lost their jobs if they had not. “They get hounded to the ends of the earth - some of them literally get hounded to death - yet very few of the people who made millions out of these schemes have ever been brought to justice,” he said. “The victims in my constituency have serious doubts as to whether any of the real villains of the piece will ever be brought to justice or indeed whether this government have any intention of doing that.”

Labour’s Ruth Cadbury complained that the Finance Bill does nothing to support those already impacted by the loan charge and still being forced to sign illegal disguised remuneration schemes if they want to do the work in which they are skilled. The all-party parliamentary group (APPG) on the loan charge and taxpayer fairness published a damning report earlier this year on the ‘wild west’ supply chain of unregulated umbrella companies and rogue recruitment agencies, yet the government have ‘so far done nothing but publish some guidance’. When will the Treasury take some ownership of the bullying and aggressive activities of HMRC in chasing down those who have signed these disguised remuneration schemes, she asked.

There is 'considerable new evidence - evidence not known at the time of the last review - showing that the conclusion of the Morse review was flawed, claimed Cadbury. She added: “The clause in the Finance Bill mentioned by the Treasury Minister does nothing to stop the ongoing mis-selling. To stamp that out legislation on umbrella companies is needed. Fining the promoters and freezing their assets is all well and good, but it is much easier to legislate to make agencies responsible, as the APPG proposed, and that would stop the schemes overnight. Without legislation to clean up the supply chain there will be ongoing skimming of contractors’ pay, misappropriation of holiday pay, and backhanders between agencies and umbrella companies. Action is needed to actually stop the schemes rather than pursue the scam after it has happened.”

Backbench speeches – indirect taxes and other issues

SNP’s Richard Thomson called for a continuation of the VAT reduction for hospitality. Thomson said: “With lower footfall and cash flow, they did not get the chance to benefit throughout this year, and just as they come into what will be a crucial summer season for many of them, that financial boost is to be taken away.” VAT is a tax that can influence behaviour, but it can also be used to stimulate growth and the kind of recovery we need, he said. Separately, he called for waiving VAT on school uniform items in Scotland and across the UK, saying ‘it could really make a big difference to individual families’.

Conservative Jerome Mayhew welcomed the announcement in the Budget on draught relief, saying it will be a £100 million a year support per annum for our local pubs, to the other sectors that bring communities together, including museums and artistic establishment.

SNP’s Peter Grant asked how a casino with a gross gaming yield of £10 million a year will pay £100,000 less in tax next year than it would have last year because of the UK Budget, while the people whom they employ on low pay in their kitchens and catering departments must pay increased tax.

Labour’s Rushanara Ali said of the six million families who were hit by the £20-a-week cut in universal credit, fewer than a third will benefit from the changes in the universal credit taper rate. Ruth Cadbury (also Labour) called the cut ‘absolutely devastating’ and said the changes to taper relief still trap so many in poorly paid and irregular work.

Wind-up speeches

Shadow Exchequer Secretary Abena Oppong-Asare said the Finance Bill is a product of the Government’s economic failings over the past 11 years. She said people are paying the price in increased NICs and the freeze in income tax personal allowances. They are paying the price through the cut to universal credit. They are paying the price through lower wages, with real wages on course to be more than £10 an hour lower in 2026 than if the pre-2008 trend had continued. And they are paying the price through inflation.

Oppong-Asare said that Labour’s plan for replacing business rates will introduce a system that will incentivise investment, reward businesses moving into empty premises and encourage environmental improvements. She observed that the Select Committee on Housing, Communities and Local Government had estimated that there is a gap of £13 billion between the £2 billion that the residential property developer tax is expected to raise and the £15 billion cost of works – ‘and it has been reported that the rising cost of works as a result of the ‘Tory supply chain crisis’ will wipe out much of the £2 billion’. Who will meet the gap? she asked.

Exchequer Secretary to the Treasury Helen Whately said the effect of setting the bank surcharge at three per cent from 2023 would be that the combined tax rate on banks’ profits will increase 27 per cent to 28 per cent (although she acknowledged that it would be 33 per cent if not for the reduction).

The minister described the new economic crime levy as a proportionate measure, which will be paid by entities that are regulated for anti-money laundering purposes. On promoters of tax avoidance schemes, she said the government is giving HMRC new powers: to freeze and secure a promoter’s assets; to introduce a new penalty on UK entities who support offshore promoters; to petition the courts to close down companies or partnerships that promote avoidance schemes; and to share more information on promoters to support taxpayers to steer clear of such schemes. She said the Bill does more to build a simpler and more sustainable tax system, such as with basis period reform which will remove the existing highly complex requirements around basis period rules, including double taxation of early years of trading.

Votes

‘Declines to give a Second Reading to the Finance (No. 2) Bill because it does nothing to help people who are struggling with the rising costs of living, who are being hit by the cut to universal credit, or who are facing a rise in National Insurance Contributions and a freeze in the Income Tax Personal Allowance from next April, because it nonetheless cuts taxes for banking companies and derives from a Budget that will see the tax burden rise to its highest level in 70 years and announced cuts in air passenger duty for UK domestic flights, and because it fails to set out a plan to grow the UK’s economy, fundamentally reform business rates, and create better jobs for the future’.

This was rejected by 238 votes to 310.

Lib Dem, SNP and Green amendments (you can read them here) were not called by the Speaker so MPs voted next on the government motion to give the Bill a second reading. This passed by 314 votes to 233.

Next steps

The Bill now moves to its committee stage.

There will be one day of debate at Committee of the Whole House (expected to be on 1 December) with the clauses selected by the Opposition for whole House debate as follows:

Group One

(a) Clause 4 (increase in rates of tax on dividend income);

(b) Clause 6 (rate of banking surcharge and surcharge allowance);

(c) Clauses 7 and 8 and Schedule 1 (attribution of trade and property business profits etc for a tax year);

(d) Clause 12 (capital allowances: extension of temporary increase in annual investment allowance);

Group Two

(e) Clauses 27 and 28 (diverted profits tax: mutual agreement procedure and closure notices etc);

(f) Clauses 53 to 66 (economic crime (anti-money laundering) levy);

(h) Clauses 84 to 92 and Schedules 12 and 13 (avoidance);

Group Three

(g) Clauses 68 to 71 (value added tax);

(i) Clause 93 and Schedule 14 (free zones)

The remaining clauses will be debated in a public bill committee which is expected to begin on 14 December and must conclude no later than 13 January.

By Hamant Verma, CIOT Senior External Relations Officer