The latest Finance Bill (the third of the current session) had its second reading in the House of Commons on Monday 12 November. The debate saw Conservatives claiming lower tax rates mean higher tax takes and Labour concerns about universal credit and the parliamentary process. The debate was quite haphazard, as MPs debated the principles of the Finance Bill rather than the detail. A Labour amendment that declined to give this Bill a second reading on the basis that it continues damaging austerity policies was defeated by 302 votes to 279.
The amendments tabled by Labour, SNP, the Lib Dems, the Green Party and Plaid Cymru can be read in full on pages 5-8 of Monday’s Order Paper.
The Finance Bill will now go to its committee stage which begins with Committee of the Whole House on Monday 19 and Tuesday 20 November. The clauses selected for debate at Committee of Whole House are set out on pages 8-9 of Monday’s Order Paper. They have been grouped so that on the Monday debate will focus on tax thresholds and reliefs and on Brexit, and on Tuesday on gaming duty (and fixed odds betting terminals if an amendment is allowed) and tax avoidance and evasion.
Financial Secretary to the Treasury Mel Stride opened the debate. He said that in reducing corporation tax from 28 per cent to 19 per cent since 2010, the Government have increased the yield from corporations, ‘by 50 per cent over that period’. Stride said Labour’s plan to put taxes up to 26 per cent for large companies and to 21 per cent for small businesses, ‘would be a full 50 per cent increase in tax bills for large companies and a 25 per cent increase in tax bills for smaller companies’.
He said the increase in the personal allowance has benefited the low paid very significantly. Since 2015, some 1.7 million more people have been taken out of tax altogether. The saving to the average taxpayer has been more than £1,200 since 2010, he went on to say. He told Labour’s Siobhain McDonagh that this debate was not the place to make pronouncements about the Taylor review because the Government will come back in the ‘fullness of time’ with a full response to that review.
He said that when the SNP took the decision to reorganise fire and police in Scotland, it was fully aware that would mean that VAT was not recoverable. The additional relief from stamp duty for first-time buyers who enter into a shared ownership arrangement shows the Conservatives continue to ‘champion home ownership’. Ninety per cent of high street retailers will benefit from a two-year reduction in business rates of one third for smaller retailers. The structures and buildings allowance will provide a vital tax break for those businesses investing in new commercial property. The annual investment allowance increase will ensure that companies have a critical additional incentive to invest. Stride said that., for businesses concerned with deep-sea oil extraction, the government will allow for the transfer of their historical tax history, ‘ensuring that jobs, expertise and businesses involved in the North Sea are preserved’.
Tax Minister Stride claimed the government have an ‘outstanding record’ with regard to the collection of tax. He said ‘tax avoiders, whether the largest corporates or the wealthiest best-advised individuals, diminish us all’. Specifically, this Bill brings in measures further to address corporate profit fragmentation. “In the Bill, we will ensure that non-residents pay tax on the capital gains they make on UK commercial property. The Bill also strengthens our diverted profits tax, which has already brought in and protected £700 million since 2015. We have announced a digital services tax (DST), so that large multinational businesses such as search engines, social media platforms and online marketplaces pay their fair share in tax—right here in the UK.” When asked by SNP’s Stewart Hosie why the government has been so modest in seeking to achieve only a £400 million tax take from those companies with the DST, Stride said the scope of this tax is very clearly targeted on businesses that make substantial value in the UK as a consequence of the interaction of UK users and the digital platforms they trade across. He said the DST was about ‘levelling the playing field’ between digital companies and bricks and mortar companies.
Closing the debate Exchequer Secretary Robert Jenrick charged that the Finance Bill will make the UK more competitive, more innovative and more entrepreneurial. It will deliver lower taxes and put more money into the pockets of our British working public, he said.
Labour frontbench speeches
Peter Dowd, Shadow Chief Secretary to the Treasury, complained that the timetable set for the Bill meant MPs were expected to table amendments to the Second Reading motion before the Bill had even been published—‘an abuse of power’. To add insult to injury, he said, printed copies of the explanatory notes to the Bill only arrived in the Vote Office earlier today (Mon). “Worse still, the government’s refusal to table an Amendment to the Law [resolution] for the third Finance Bill in a row means that we will be unable to meaningfully amend this proposed legislation following Second Reading. That is unprecedented. It is another abuse of power.” He also complained that the Finance Bill does not include the government-promised full public register of beneficial owners.
Only half the money cut from universal credit (UC) work allowances was returned to the programme, he said, and there was nothing on the social security freeze or the two-child limit. The government cling to their ‘woeful’ plastic straws initiative, he said, but the only measure in the Bill addressed to the 100 corporations that produce 71 per cent of our global emissions was ‘yet another tax break’. On the increase in income tax personal allowances, Labour will not stand in the way of any change that will put additional income into the pockets of low and middle earners, he said, but Labour will table an amendment to protect everyone earning below £80,000 a year— 95 per cent of the population—from any further tax increases, while ensuring that the top five per cent of our society ‘pay their fair share’.
Shadow Treasury Minister Jonathan Reynolds reminded the House that the £1.7 billion promised for UC is only a third of the £7 billion of cuts in the social security system that were already scheduled. Reynolds said the worst legacy for the next generation is a failure to grow the economy. It is nonsense to talk about burdening future generations with debt when they are exactly the ones who would benefit from that long-term investment.
The Scottish government fiscal resource block grant allocation will have been cut by 6.9 per cent in real terms between 2010-11 and next year, and the Barnett allocation for health has not been passed on in full, said SNP economy spokesperson Kirsty Blackman. Like Dowd, she complained about the Budget process, citing the Chartered Institute of Taxation, which said ‘Just 37 of the 90 substantive clauses in the Bill, and 12 of the 19 lengthy schedules, were included in the draft bill published for consultation over the summer’. The government are expecting external organisations to digest clauses that they have never seen before and then to comment on them, in advance of the Committee of the whole House which we expect to be on Monday and Tuesday next week, she complained. The government have pointed out that two measures in the Finance Bill exist to correct errors made in previous years. The government made errors in previous years when there was a more lengthy consultation process for most of the measures, so I contend that there are likely to be even more errors in this Finance Bill given that it has not had external scrutiny due to tight timescales, Blackman said. She will move an amendment to see evidence sessions in the Public Bill Committee and, like Peter Dowd, is also unhappy that there is no Amendment of the Law resolution. The government should have separated out the reserved and devolved matter in relation to clause 5 (the personal allowance and the basic rate allowance) to make scrutiny and read-across better, she argued.
Chris Stephens cited evidence from DWP staff who say that they are spending so much time answering telephone calls that they cannot go through and answer the online journals from claimants. Stephens pointed out that there are 400 people dealing with telephone calls in the DWP, but 4,504 chasing social security fraud in the same department.
David Linden complained that the government have chosen to give tax cuts to high earners and to do nothing for the WASPI (Women Against State Pension Inequality) women.
On IR35, Drew Hendry said even when the government look to clamp down on tax avoidance they miss the mark, ‘as we can see with the implementation of the IR35 changes. The loopholes absolutely need to be closed. However, the employers and agencies benefiting most from these schemes have, for the most part, got away with it. With HMRC implementing stringent measures on many who were duped, many are now fearful of being forced to repay immediately with no provisions that reasonable time will be allowed and a payment scheme be made available. Folk are genuinely worried about becoming bankrupt’.
Lib Dem Leader Sir Vince Cable said that capital spending is due to fall next year, 2019-20, as a consequence of the attempt to maintain borrowing at moderate levels while at the same time expanding the current budget, ‘doing potentially serious damage to infrastructure that has been starved of capital for many years’. Sir Vince complained of a ‘sleight of hand’ in this Budget: the government have given tax cuts, but on the other hand—as a consequence of the squeeze on local government spending—council tax will almost certainly have to rise. He complained that there is nothing in the Red Book that tells us how much revenue local authorities actually get from council tax, which would have given us a much clearer picture of what is happening to taxation.
Sir Vince talked about the disparity between standard-rate taxpayers, who stand to gain £130 a year from the income tax measures, and upper-rate taxpayers, who stand to get £800 a year. This reflects the government’s wrong priorities. “It would be less bad if the Chancellor had been willing to tackle something that he acknowledges is a problem, which is the expense of the reliefs given to higher-rate taxpayers through the pension system.” He called business rates “a bad tax—they tax improvement in property.” Business rates should be replaced with a tax on commercial landowners, he said. “It would be much more equitable, and it would not discourage business improvement. Currently if a factory installs machinery, it makes itself eligible for higher commercial rates. This is a thoroughly bad system, and extreme Treasury conservatism is why the problem is not being addressed.” He concluded by damning the DST with faint praise, calling it ‘very weak’, and stating that we are talking about £5 million next year, rising to £440 million, in a context where the NAO, not a political body, has estimated that the retail sector in the UK had lost £9 billion of revenue as a result of competition from internet platform companies—‘in essence, we are talking about eBay and Amazon’.
Conservative backbench speeches
Sir Edward Leigh told the Financial Secretary of his concern that the Government is increasing spending by £30 billion a year up to 2023 and ‘that we are taking out of the state the same proportion as Gordon Brown took out’. The FST replied that the OBR has forecast that in each year of the coming period we will be reducing debt as a percentage of GDP.
Kevin Hollinrake claimed that if we combine the increases in the national living wage with the increased personal tax threshold, somebody in full-time work is £3,955 a year better off in cash terms than in 2010.
Rachel Maclean said unexplained wealth orders are an innovative approach but Peter Dowd joked that they have been so successful that the government have only used them once.
John Redwood said Trump’s ‘bold’ tax reforms are working, for example American corporations have repatriated their profits to the US, where they then pay the reduced tax rates and either invest that money, give wage rises or better remunerate their shareholders to encourage yet more investment’. Redwood is worried at the exceptionally tight monetary policy. On stamp duty, he said the government needs to think about people who are trying to buy a different house, perhaps to move up the property ladder, in expensive parts of the country and the government needs to think about the impact of transactions at the dearer end on chains and on people buying cheaper houses. He concluded that the government “have overdone the tax attack at the top. The market has become ossified, and they must be losing quite a lot of revenue.” Bob Stewart agreed, saying he considers stamp duty “to be daylight robbery. The government do nothing for it; they just take money from people who are trying to get a home.”
Alan Mak said the cut to corporation tax will make our country even more competitive, and that OECD’s evidence suggests that the more we cut corporation tax, the higher the rate of revenue we get.
To those who say that the jobs that are being created are not high-quality jobs, Chris Philp would say that 80 per cent of them are full time, and only three per cent of the jobs in the UK economy involve zero-hours contracts. Philp said the universal credit (UC) system massively strengthens work incentives. “Before, we had a system in which effective marginal tax rates were often running at 90 per cent and in which there were cliff edges at 16 and 32 hours, after which people would actually get less money for working more hours.” The ‘teething problems’ with UC are on nothing like the scale of those we saw in the early 2000s when Gordon Brown rolled out tax credits and there was unmitigated chaos for some years., he claimed.
The Opposition simply want to raise corporation tax, and they think that corporations will just pay and that will be it, said Kevin Hollinrake. Of course they will pay extra tax, but the consequence in a competitive market is that prices will go up, he added.
On the income tax measures, Colin Clark claimed the £50,000 threshold benefits many public sector employees, such as headteachers, consultants, GPs, senior council officers, senior police officers and senior nurses. One per cent of the population are paying 28 per cent of tax—in Scotland, that constitutes 19,500 taxpayers, and the OBR recently reported that the number of higher taxpayers is lower in Scotland than it estimated, and this has actually cost Scotland between £550 million and £700 million in respect of the original estimate. That means the Scottish economy is more vulnerable to losing higher rate taxpayers, he claimed.
On debt, with a ratio of 82 per cent to GDP, Julian Knight argued that we should really not give ourselves a pat on the back, saying productivity is a better solution than inflation.
Andrew Bowie welcomed that the Bill will implement a number of indirect tax cuts, such as the freezing of duty rates on beer, on ciders and most of all on whisky.
Jack Brereton welcomed the DST, which he said is very important for the revival of our town centres, as is reducing taxes on smaller retailers and putting in place funding for the town centres.
Eddie Hughes said 270 people in his Walsall North have benefited from stamp duty relief for first-time buyers.
Labour backbench speeches
The Conservative Party came to power in 2010 promising to eliminate the deficit by 2015. Not only has it not done that, but it has doubled this country’s debt and brought public services to ‘their knees’, argued Ruth George.
Mary Creagh said if the government is ‘serious about taxing the digital giants that are offshoring their money’, why give them a couple of years to make provision elsewhere? The FST claimed this is a complicated tax and ‘we absolutely have to get right’ and that a multilateral approach is best because it ‘obviates’ the problems that one would otherwise have with aspects of double taxation. Creagh went on to say the government’s failure to introduce a ‘latte levy’ on single-use disposable coffee cups and bottles or to introduce a tax on virgin plastic until 2022 means that 700,000 tonnes of plastic packaging will be thrown away before then. The minister countered that the sugar levy changed behaviour in the sugar-based drinks sector before it came into effect.
Emma Dent Coad said that council tax, based on 1991 values, is effectively a subsidy to landlords. Capital gains tax relief costs the country about £6 billion a year. The lack of property tax costs, ‘apparently, £11 billion a year’. The right-to-buy subsidy costs £2 billion a year. We also have shared-ownership subsidy, tax relief for buy to let, and Help to Buy, which pushes prices up, and indeed even subsidises second homes for those earning six-figure sums. This led her to say we need a thorough review and a frank discussion about these subsidies and a review and a frank discussion of the role and practice of housing associations and their management of existing and new buildings.
Faisal Rashid pointed out that if the Chancellor allowed the thresholds to increase in line with inflation, as they do by default, they would have reached £12,390 and £48,590 respectively by 2020. For some the increase in the personal allowance, coupled with the Government’s inaction on pension tax relief, will mean that they will lose out on the tax relief on their pension contributions. He said: “According to the Low Incomes Tax Reform Group, together the higher personal allowance and increased contribution rate will mean that the minimum pension contribution for someone earning £12,500 will now cost them £323.40—an increase of £64, or a week’s food shopping for a family or a tank of petrol for the family car. The inconsistency already affected more than 1 million people; with the Budget changes, it will now impact many more.”
Labour has a different outlook that sees real value in working people and offers them a fair deal by not raising taxes for 95 per cent of workers but instead fairly raising taxes for the five per cent who prosper the greatest in society, said Karen Lee.
Bambos Charalambous said the £1.7 billion put back into UC by the government was less than a third of the £7 billion taken out. He charged: “A fair taxation system is for the common good, and should underpin shared prosperity through universal services. The Bill does not offer a progressive and fair tax system, and it means more austerity for the vast majority of the people.”
Independent Charlie Elphicke said the experience of reducing the top rate of tax from 80 per cent to 60 per cent, and then from 60 per cent to 40 per cent, was that more money was brought in to the Treasury on each occasion. Labour’s Peter Dowd replied that international evidence does not show that and cited the IFS which said the top one per cent have received an increase in share of total income—from 5.7 per cent in 1990 to 7.8 per cent in 2016-17. Since 2000, four million jobs have been created by small and medium-sized enterprises, whereas big business has created only 800,000, said Elphicke. That is another reason why we need to ensure that there is a financial tribunal system to protect small businesses from being exploited by the oligopoly of big banks.
The full debate can be read here.