I beg to move, That the Bill be now read a Second time.
I congratulate the new shadow Chancellor and her shadow Treasury team on their appointments. Six weeks ago, on 11 March, this House assembled to hear my right hon. Friend the Chancellor deliver his Budget speech. How long ago that seems now when every day feels like a decade. A Budget statement is a central part of our democracy; indeed, it is at the very heart of a parliamentary tradition of accountability for taxation that goes back to the 13th century. It is deeply sobering to reflect that that 11 March moment might be the last great parliamentary occasion we have in this Chamber for some time to come.
Truly, we know better now. We live in a disenchanted world, a world of self-isolation, of social distancing, of shielding, of lockdown. In the Treasury and across Government as a whole we have worked around the clock since then to respond to the extraordinary challenges posed by the coronavirus to people’s lives and livelihoods. The same has been true in this Palace of Westminster. I know that I speak for all my colleagues in saying that I have the greatest respect for the work that you, Mr Speaker, and so many others, including parliamentarians across this House, have done to prevent covid-19 from becoming a threat to our democracy itself. I pay special tribute to all the Clerks and staff of this House of Commons and of the Palace of Westminster for working so quickly and creatively to adapt to this new reality and for their skill in drawing on the flexibility and resilience of our uncodified constitution to create a virtual Parliament.
When this Chamber was bombed and destroyed on the night of Saturday 10 May 1941, with the fires raging, the roof fallen in and the Lobbies and corridors gutted, it was decided that the Commons should sit immediately in Church House. Extraordinary measures were undertaken at great speed to transfer proceedings to the new location. The Commons rarely sat on Mondays, so it duly reconvened in the normal way on Tuesday 13 May, but it did so in Church House. There were oral questions to the Secretary of State for War, including on officers’ outfits and the collection of swill and vegetable waste from military units, followed by a full Order Paper of business and, at the end, a short statement from the Prime Minister in which he reported that the old Chamber was damaged beyond immediate repair and that preparations were already under way for a move to a further location, if that should be necessary. Thus the biggest and the worst raid of the blitz resulted in the loss of not one single day—indeed, not one single minute—of sitting time for Parliament. It is a moment of which this country can be intensely proud.
Why so much determination and so much speed? It was so that, as Churchill said:
“hon. Members may be reassured that the work of our Parliamentary institutions will not be interrupted by enemy action”.—[Official Report, 13 May 1941; Vol. 371, c. 1086.]
Thank you, Mr Speaker. May I echo the Financial Secretary’s comments about the hard work that you and the parliamentary authorities have gone to, to ensure that these proceedings could go ahead? Of course, as the Opposition we are well aware of the need for Government to have a legal basis to continue levying taxes, and we approach this Bill very much in that spirit.
Many of the clauses in this Finance Bill were written many months ago, with a large number of them involving relatively minor fixes to existing tax legislation—not exactly the vegetable waste and pig swill that the Financial Secretary referred to in his colourful and wide-ranging perorations, but none the less in large part delivering technical aspects of already announced policies. In fact, overall, this Bill presents a picture of continuing the business as usual of the last 10 years.
However, it is unthinkable that we will go many months before additional fiscal measures will need to be brought in by this Government. There will be an urgent need to stimulate the economy as and when we move out of the lockdown, and when boosting consumption will not threaten to damage disease containment. Other measures may well be needed to help alleviate some of the numerous supply-side problems caused by the current dislocation.
Finally, of course, we will need to deal with the considerable burden created by the costs necessarily incurred in fighting coronavirus. Subsequent Finance Bills will need to be very different from this one, and I want to use the time I have available to spell out why. We will need new approaches to taxation generally, the social contract with business, funding public services, the climate crisis and tax reliefs. I will deal with each area briefly in turn.
First, we of course need a different and fairer approach to tax. The Bill largely continues the previous framework, with its reductions in the tax paid by the very best-off people, while support for the worst-off has been reduced. The Financial Secretary will, I am sure, be aware of the Institute for Fiscal Studies analysis of the distributional consequences of successive Budgets since 2010. As of 2019, for example, due to changes in tax and social security, the poorest 10% of households have seen losses of 11% of their income, on average, as a direct result of reforms. Among those with children, the losses amount to 20%: that is £1 out of every £5 being removed from low-income families with kids. Large numbers of frontline careworkers fall into that category. We know from recent research by the Resolution Foundation that half of careworkers are not paid the real living wage, and tens of thousands appear to be paid even below the national minimum wage. They deserve better. In contrast, the best off 10% of people have seen losses of only 2% in their incomes due to tax and social security changes since 2010.
We now have to introduce a formal time limit of five minutes. Members in the Chamber will be able to observe the clock, but I strongly advise Members who are participating virtually to have a timing device nearby that they can see, because, due to necessity, the five-minute time limit will be very thoroughly enforced.
The economic backdrop to this Finance Bill is among the most challenging that this country has ever faced. The Office for Budget Responsibility, for example, in the scenario that it put forward, suggested a 35% contraction in the economy followed by a rapid bounce back—the so-called V-shaped recovery. Whether that is realistic or not remains to be seen, but it is the case that the Government have some significant control over two areas of policy that will determine whether we come back with a V-shaped recovery or not: the timing and nature of our exit from the lockdown.
On timing, as the House will be aware, the Government have put forward five tests, one of the most important of which is the fifth test, which is that we should extract ourselves from lockdown but in a manner that does not cause a second flare-up of the virus, which happened with the flu pandemic of 1918. This is critical; if the Government get it wrong and we do have that second surge in the virus, it will be a catastrophe for our economy and we will have not a V-shaped recovery, but at best a double-dip recession of some magnitude. It is therefore very important that the Government be allowed the time and space to take those decisions, and that we are patient with them.
Secondly, on the nature of our withdrawal, it is important that we have transparency. As the Chair of the Treasury Committee, I urge the Government to engage with businesses on the broader elements of the plan, so that they can both input and adjust accordingly. The element of which the Government have control, of course, is the support they are providing to the economy, at considerable scale and pace. The Chancellor is to be congratulated on that, but with scale and pace come hard edges to policy and challenges in delivery. Examples of both that the Government should focus on are, first, making sure that, for the self-employed who work through their own companies, dividends that result from self-employment can count when it comes to assessing the furlough amount that they can qualify for. Secondly, on delivery, we heard from the Chancellor earlier about bounce-back loans. I welcome those a great deal, but we also need to ensure that the banks are on notice that we expect them to deliver on the coronavirus business interruption loans and the other loans concerned. Through the Treasury Committee, I have had conversations with the British Business Bank and also written to the banks on its lending panel to urge them to come forward transparently and provide us with data on how much money is going out of the door relative to the number of applications on a daily basis. I call on the Financial Secretary to the Treasury and the Government to row in behind us and ensure that transparency, because what gets measured tends to get done.
Exactly five minutes; I commend the right hon. Gentleman. I call Alison Thewliss, who, as her party spokesperson, is asked to speak for no more than 10 minutes.
I welcome the shadow Chancellor to her role. She is the first woman ever to do the job. I wish her all the best and look forward to working with her.
Time is tight, so my remarks will not cover all my thoughts on this 186-page Finance Bill. It seems to me that each Finance Bill tries to fix the errors of those that preceded it, and this is no different. It would be useful to have the opportunity to take public evidence on the Finance Bill, because if ever there was a time to ensure that the measures and reliefs proposed by the UK Government are appropriate, it is now. If we are to believe that austerity is over, this Finance Bill must be followed by a recovery package that grows our economy in an inclusive way and protects the most vulnerable.
The UK Government continue to short-change Scotland. We are seeing the limitations of the Barnett formula writ large. The UK promised £242 million for regional deals in the Budget, but we have not yet made up for the £400 million shortfall relative to the money that the Scottish Government are putting in. Scotland is still waiting for Scotland’s £5.8 billion of the DUP’s Brexit bungs and the £175 million of VAT owed to Police Scotland and the Scottish Fire and Rescue Service.
Clause 12 gives Ministers the power by regulation to exempt certain social security benefits from income tax, which is fair enough, but far more extensive measures are required to address the flaws in the social security system. The welfare cap set out in the Budget is surely now set to be breached, and instead of setting a new cap, as he is required to do, the Chancellor may want to consider whether it is a useful tool in the first place.
People who have never had to rely on benefits to put food on the table and meet their rent are suddenly finding out just how pitiful the UK social security system is. A letter from 50 campaigners led by the Child Poverty Action Group and the Bishop of Durham has highlighted the fact that tens of thousands of the 1.5 million households that have applied for universal credit will lose out due to the size of their family. I have been saying, ever since the two-child limit was proposed in 2015, that no one can predict their circumstances. The letter states:
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Sir Charles Walker (Broxbourne) (Con)
The chief medical officer has said that we will have to learn to live with covid-19 for perhaps the next 18 months. I have received scores of emails from constituents who are fearful of losing their business, their employees and ultimately their homes because of the current crisis, so living with covid-19 also has to mean working with covid-19.
This is not a lives versus the economy argument, as some have disgracefully suggested. Most hon. Members know that the economy is lives and that the two march hand in hand. As each day passes, fractures in supply chains and the onward routes to market grow deeper and will therefore take longer to repair. If producers do not have the raw materials to produce, they do not produce. That is a real problem, so it is no good suggesting or thinking that in two or three weeks, in two or three months or in six months we will be back to work and everything will be fine. It will not; supply lines will take time to gear up again, and I hope that the Finance Bill will take that into account. Without cement and without plaster, it is very difficult to build homes.
I hope that the Bill will address the following concerns. Will it look again at the business interruption loan scheme? It is just not sensible for banks to ask desperate businesses, “Can you give us a cash forecast for the next nine months?” Of course they cannot; nobody can. The Government cannot give a cash forecast for the next nine months, let alone a business.
Can we look again at extending the £25,000 grant scheme to all businesses that have rates assessed at £51,000 or less? There are many good businesses not directly involved in leisure, tourism or hospitality, for example, who are nevertheless feeling the pain of this crisis and fear for their futures and that of their colleagues.
Can we also look at dividends? In my constituency, PB Plumbing has been in business for 30 years. It is a great little family business that supports the pub trade in the constituency and surrounding constituencies. The founder/owner of that business pays himself with dividends, mostly—he is not a greedy man. This is the way that he structured his business but he is really not now eligible for any form of support, and I think that that needs to be addressed.
We heard this afternoon—the hon. Member for Oxford East (Anneliese Dodds) mentioned this during the statement earlier—that there needs to be some flexibility in furloughing. It would be really useful for many businesses to be able to have a member of staff in for one or two days a week, just to keep things ticking over and going during busy periods. I know the Government say that this is a very difficult thing to achieve, but lots of things are very difficult to achieve and this Government are the Government to achieve them. I say this very generously: the Government are getting things right. They just have to get things even more right, if that is possible.
We are humbled daily by the efforts of the NHS workers and all the other key workers in our country. They are making unimaginable sacrifices to treat the sick and care for the vulnerable, and to provide supplies of medicine and food. We owe them everything and it is right that we should continue the pressure to ensure that PPE, testing and equipment are provided, as we continue to enforce the lockdown.
This is a national struggle but it is being fought hardest at the local level in communities. My constituents in Bethnal Green and Bow are resilient people. Some still recall surviving the blitz, and today, there are many who survive a daily struggle of poor housing, low wages, a lack of opportunities and antisocial behaviour, but no matter how resilient and tough they are, they need the Government on their side. They need targeted interventions to help them in these difficult times. They need protection against the vagaries of a global economy, to protect their jobs, incomes and businesses.
The economic projections are chilling. The latest International Monetary Fund analysis suggests that the global recession is going to be far worse than the 2007 global crash. The World Trade Organisation says that global trade could collapse by 31% this year, just as post-Brexit Britain is desperate to strike deals.
A terrible economic storm is coming, and we are just not ready. The UK is ill prepared after a decade of under-investment, imbalances between the nations and regions and the deep scars of inequality and poverty caused by a decade of austerity characterised by stagnant wages and cuts to our public services.
Young people are once again likely to be the lost generation unless our Government take immediate steps to ensure that they have the training and support—virtually, while we are in distancing mode—and other provisions they need to get into the labour market. We need to use the hundreds of thousands of people who volunteered to help the NHS to support young people by mentoring and backing them, as we find a way through this crisis.
We have already heard how the coronavirus crisis has fundamentally changed our economy and is in the process of changing our society too. We have also heard how the Bill makes changes to important items such as entrepreneurs’ relief. As someone who co-founded and ran two software start-ups before being elected to Parliament, I am a huge advocate of encouraging wealth creators, particularly the ones who are at the technological leading edge and may be creating the fourth industrial revolution jobs in Britain in companies and industries that have hardly been invented yet.
But we have to be fair in the process, and the coronavirus lockdown has revealed an uncomfortable truth. It has turned Britain into a two-nation society, where better-paid, white-collar professionals work from home, while often less well-off key workers keep travelling to work, often on crowded public transport, in riskier jobs where they have to wear PPE. Of course, the lockdown is temporary, but it has shone a spotlight on a more long-term structural problem. Those less well-off key workers are paying a much higher overall tax rate—the marginal effective tax rate, or METR—than the safer, better-off white-collar professionals, because tax rates on investment income are lower than on wages and salaries, and because benefits withdrawal rates only apply to low-income households. The combined effect often means that low-income key workers pay an effective marginal tax rate of up to 75%, while better-off people pay dramatically lower rates. The haves are being subsidised by the have-nots. If we are all in this together, and if we are to go down in history as acting in the Conservative party’s best and finest traditions, how can we ignore that? How can we not act? It cannot be right.
The changes to entrepreneurs’ relief are a small but extremely welcome step in the right direction, but I hope the Chancellor will use the clarity and the challenge of the coronavirus process to make it the first step in a much longer journey. We need to encourage wealth creators, but they should not pay lower tax rates than the people who clean their offices or drive the trucks that deliver their goods. If we believe—as I and many others do very strongly—that rates of tax much above 40% will undermine an incentive to work for high earners, why is the same thing not also true for someone on the national living wage? The last time Britain taxed earned income and investment income equally was under a Conservative Government, when Nigel Lawson was Chancellor.
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It was so that British democracy should not be thought to have been destroyed amid the burning ruins of the Commons Chamber, and so that the great thread of public scrutiny and parliamentary accountability that gives legitimacy and authority to our Government should not be broken. So it is again today, Mr Speaker. For that, we are, and we will always be, profoundly grateful. I hope that we shall soon return to the close combat of political business, whether that be the intimate interrogation of the Chamber, the camaraderie of the Lobbies or the noise and clamour of a full House packed to the rafters with MPs, press and public looking on, all fully intent on our national political business; the House of Commons as the cockpit of the nation.
Here again, history can be our guide. When the Chamber was rebuilt, special care was taken to make it, as it had been, too small for the number of Members. That was at the specific insistence of Churchill. In his words, the essence of good House of Commons speaking is the “conversational style”. This requires a
“fairly small space, and there should be on great occasions a sense of crowd and urgency…a sense that great matters are being decided, there and then, by the House”.
Not for Churchill the vast, empty hall of Deputies, the amphitheatre, or what he called “Harangues from a rostrum”. Without that collective sense of crowd and urgency and the ever-shifting energy of the House in action, we lose something vital.
Mr Speaker, I ask you this: can we not also gain from this great virtual experiment? Through new forms of questioning and calmer, more dispassionate cross-examination of Government, may we not find glimmers of new possibility amid the present gloom? I believe that we can. The significance of today’s debate lies not just in this Finance Bill, important though it is; it marks a new legislative beginning for Parliament. As we go forward together, I hope that we in this House can restore not merely our old ways, but what was best in them, and use this moment to add, to develop, to reform and to make them better still.
When my right hon. Friend the Chancellor addressed the House on 11 March, he announced a Budget focused on delivering the Government’s manifesto commitments from the general election last year. He not only did that; he also set out and carefully explained the reasons for a very ambitious and wide-ranging set of measures designed to tackle the coronavirus head-on, to buttress our frontline services and to support people, families and businesses affected by the pandemic.
Since then the Government have gone much further still. Indeed, we have announced what we believe to be the most comprehensive and far-reaching economic response to covid-19 in the developed world, and Ministers and public servants across Government have worked to deliver it. Among its many different packages, that response includes a job retention scheme, which guarantees 80% of the wages of furloughed workers, and which has been conceived, developed and launched by Her Majesty’s Revenue and Customs in just a few weeks.
Alongside the job retention scheme is a similarly generous scheme aimed at supporting the self-employed for 80% of taxable trading profits up to £50,000. This covers some 95% of those who are mainly self-employed, including cleaners, taxi drivers, plumbers, musicians, journalists, electricians, childminders and many others. Businesses can also benefit from more than £300 billion-worth of Government-backed loans, numerous tax cuts and grants, with a business rates holiday for the worst-affected sectors of the economy. There has also been a further package of measures aimed at the charitable sector.
These are unprecedented measures for unprecedented times. The impact of the coronavirus falls not only on businesses, but directly on the wellbeing of some of the most vulnerable people in our society, whom the Government are determined to protect. For that reason, the Government have raised by £1,000 the universal credit standard allowance and working tax credit basic element for a year. Almost a billion pounds has been allocated so that the local housing allowance can cover at least 30% of market rent, and the Government have offered vouchers or meals at home for children who would otherwise be eligible for free school meals.
This Bill goes beyond the immediate response to covid-19 by delivering the Government’s manifesto commitment to make the tax system fairer and more proportionate. For example, care leavers who start apprenticeships will pay no income tax on bursary payments that they receive. I am delighted to say to recipients of payments under the Windrush compensation scheme and the troubles permanent disablement payment scheme that those payments will be exempt from income, inheritance and capital gains tax, and inheritance tax will not be collected on Kindertransport fund payments.
Taxes are rarely popular or straightforward, but they are necessary to support our public services. Now, more than ever, the Government have a duty to ensure that the rules are applied correctly. Last month, my right hon. Friend the Chief Secretary to the Treasury announced that, in the light of covid-19, the Government will delay the introduction of reforms to the off-payroll working rules in order to give businesses more time to adapt. However, he was clear that the Government remain fully committed to introducing these reforms to ensure that people working like employees but through their own limited companies pay broadly the same tax as individuals who are employed directly. That has not changed, and the Government will introduce an amendment to the Bill in due course to legislate for a new commencement date of 6 April 2021. The Government will use the additional time to commission further external research into the long-term effects of the reforms in the public sector, with the intention that that research will be available before the reforms come into effect in the private sector in April 2021.
Meanwhile, this Bill implements the recommendations of Sir Amyas Morse’s independent review of the loan charge. It will mean that the loan charge no longer applies to loans entered into before 9 December 2010, which is the point at which Sir Amyas found that the law put beyond doubt the fact that disguised remuneration schemes were a form of tax avoidance. The Bill also brings forward legislation to repay taxpayers who voluntarily settled for years that are no longer in scope, while those still able to pay will be able to spread their loan balance over three tax years to suit their finances.
The Budget also included changes to help businesses to prosper for years to come. This Bill will implement the Government’s manifesto commitment to increase the research and development expenditure credit rates from 12% to 13% in order to help drive growth and productivity across the UK, and to continue to support this country’s proud history of innovation. It also raises the structures and buildings allowance rate from 2% to 3%, which should help to stimulate long-term capital investment in the United Kingdom by strengthening the business case for investment in shops, factories and agricultural buildings. Those changes apply nationwide, underlining the fact that, even in these times of uncertainty, the Government are seeking to level up investment and opportunity right across the whole United Kingdom.
The Government have made successive cuts to the rate of corporation tax since 2010 and we now have the lowest headline rate in the G20. That has helped to create a corporate tax system that supports British businesses, boosts economic growth and strengthens the UK’s pull for inward investment.
However, the extra benefits of lowering corporation tax rates still further must be balanced against other objectives, such as funding the NHS and the public services on which we all rely. That is why the Chancellor announced that the Government will not cut the corporation tax rate further this year, but instead will maintain it at 19%, in line with their manifesto commitment.
Likewise, while the Government are committed to encouraging entrepreneurial activity, the evidence indicates that entrepreneurs’ relief in its current form is neither effective in stimulating new business growth nor good value for money. By reducing the lifetime limit from £10 million to £1 million, we are returning the relief to its original purpose while continuing to promote and reward enterprise.
Finally, following an extensive period of consultation, the Bill will implement the digital services tax. Digital businesses providing search engines, social media platforms and online marketplaces derive significant value from their UK users, but current international corporate tax rules mean that that value is not reflected in the level of UK tax they pay. Setting a tax on revenues from those digital services at a rate of 2% will make the system fairer and should raise up to £2 billion over the next five years, but the Government’s ultimate goal is to secure a long-term global solution. We are working with international partners through the Organisation for Economic Co-operation and Development to agree a way forward.
Covid-19 is the most pressing challenge for the country—and, indeed, the world—at the moment, but it is by no means the only one. Notwithstanding our intense focus on tackling the pandemic, the Government have not lost sight of longer-term public concerns, notably the need for the UK to move to a greener and more sustainable economy in the years ahead. Now that we have left the European Union and as we prepare to leave the EU emissions trading system, this Bill introduces legislation for both a charging power to create a UK emissions trading system, and a carbon emissions tax.
This twin-track approach is designed to ensure that, whatever the circumstances, the UK will have an effective carbon pricing regime in place. In the Budget, the Chancellor also revealed key elements of the plastic packaging tax, which should significantly increase the use of recycled materials in packaging. This Bill allows preparatory spending ahead of its introduction.
The Bill will also encourage the uptake of zero-emission vehicles by removing them from the vehicle excise duty expensive car supplement, which will mean that employers and employees pay no tax on zero-emission company cars in 2020-21. The United Kingdom has led the world in introducing legally binding carbon emissions reduction targets; these measures underline once again how serious the Government are about meeting those targets.
My right hon. Friend the Prime Minister has made it quite clear that we will do what it takes to support our public services and key workers as they respond to this pandemic, and to safeguard jobs and businesses so that our economy can bounce back as quickly as possible. Yet we must also look to the future. The advent of a virtual Parliament is a chance to chart new territory, and this Bill is a first step on that journey.
The Bill also redeems the manifesto promises of the last election. It points the way to a fairer tax system and a greener and more sustainable future. With the support of Members from across the House, and as we look beyond lockdown, it gives us all an opportunity to cement the United Kingdom’s place as one of the most innovative, exciting and enterprising nations in the world. For all those reasons, I commend this Bill to the House.
As all in this House will remember, George Osborne maintained that, in his recovery, 80% of the reduction in debt should come from cuts to spending and only 20% from tax changes, yet the latter went alongside cuts in income tax, inheritance tax and capital gains tax for the very best-off people.
There is already a lively debate about how we should deal with the costs incurred by the coronavirus. The academic consensus is that decisions taken to load the cost of debt on to spending cuts in the 2010s made our recovery slower than it would have been otherwise, so it was the slowest not only in a generation but in eight generations, and slower than in many other countries. I am not saying that to castigate the Government; I am saying it because we will need to adopt a radically different approach to future Finance Bills from that seen over the last 10 years.
We are currently feeling the impact of that decade’s fiscal approach very keenly, especially when it comes to UK households’ resilience. A quarter of UK families entered this crisis with less than £100 in savings—making it impossible for them, for example, to buy a new cooker or get their car fixed—and almost 2 million households did not even have a cooker in their home in the first place. As and when we return to what will be a very different normality, we must have building up financial resilience at the core of future Finance Bills. That will mean instituting a more progressive tax system, with those with the broadest shoulders contributing to services that benefit us all.
Secondly, we will need a new social contract with business. As discussed at length during the statement, huge numbers of businesses are currently struggling like never before. We have already discussed the Government’s economic package today, and I must emphasise again that there is a very strong expectation from the public that public support must translate into protecting jobs, not the extraction of value into already deep private pockets.
We have called for the Government to consider the examples of other nations, such as France and Denmark, as well as that of the Labour Government in Wales, when approaching the bail-out of different large firms. Jobs must be retained, workforces must be supported, and we should expect and require good corporate behaviour going forward. That means a ban on public funds being passed into tax havens or doled out immediately in dividends, no share buy-backs on bailed-out companies, and a commitment to improvements in environmental performance in future.
We also need a renewed focus on dealing with the enablers of tax avoidance and evasion. I regret that we still do not see that when it comes to those who facilitated disguised remuneration loan arrangements, while those who received such arrangements continue to be affected by the loan charge.
The Bill rightly rows back on the Government’s previous ill-advised commitment to cut corporation tax further to 17%, by maintaining it at 19%. The OBR estimated that a cut to the latter rate would reduce receipts by £5.4 billion a year in three years. Recent reductions in corporation tax have not boosted investment in the UK. It was clear that such a reduction simply could not be afforded in current circumstances, and we therefore welcome that element of the Bill. When we talk to businesses, as I am sure Government Members do regularly, rates of corporation tax are not the headline reason given for locating in the UK. Other factors are far more important, such as workforce development and training, logistical factors such as transport, and—critically—business rates, which are a key issue for many companies in our nation.
There is, of course, an imbalance in the taxation of those businesses based in fiscal property compared with internet-based businesses—the division between bricks and clicks. The Bill details the digital services tax—a new 2% tax on the revenues of search engines, social media platforms and online marketplaces that derive value from UK users. We welcome that tax to the extent that it recognises the comparative under-taxation of many digitally provided services, but we are concerned about the restricted scope of the measure. It means, for example, that Amazon will continue to pay a lower rate of tax in relation to revenue than many high street bookstores and other retailers. In addition, it fails to fill the gulf in unpaid corporation tax from many of the largest technology firms. TaxWatch UK has suggested that the UK is losing £1.3 billion in corporation tax from just five of those firms, and the digital services tax would make up less than half of that.
The current crisis suggests that digitally based businesses will amount to an even larger part of our economy in the years to come, so we need to get this right. Above all, our Government need to be more explicit about their discussions with international partners about the move to a formula-based corporation tax system. Given the ability of those firms to shift profits between countries, we must work with other countries to apportion taxing rights better.
The OECD’s anti-base erosion and profit shifting project was a good start, but it failed sufficiently to inform countries in the global south. I hope Ministers will be more forthcoming in future about what they are doing to seek that international consensus, not least given current hostility from the US towards multilateral approaches in a number of areas. This topic is controversial, and we need to hear more than just that our nation is engaged in those discussions.
I hope Ministers will be more forthcoming in their approach when it comes to local government finance, which is crucial in providing public services—from social care, to helping the homeless, to providing areas for leisure and play. Local authorities will be crucial in helping to rebuild the economy after this period, through their work on economic development.
My third point concerns the need for the Government to commit to a proper, deep and wide review of local government finance that takes account of the full impact of the crisis in terms of extra expenditure and forgone income, and which considers business rates and council tax in the round. We still only have a commitment to yet another restricted review of business rates. Surely we can be more ambitious in that area, as the need for a deeper review is now very strong. The goal must be to provide certainty and stability about the provision of local public services.
An additional area where action is needed is tackling the climate crisis. Survey evidence, albeit tentative at this stage, suggests a renewed appetite from the public to grasp the challenges posed by the need to decarbonise. The Bill makes small moves in the right direction. It incrementally increases vehicle excise duty, using emissions as a benchmark—the Chief Secretary to the Treasury mentioned that—and it introduces the world- wide harmonised light-duty vehicles test procedure, a UN-established vehicle testing procedure, in an attempt to prevent the gaming of emissions standards by vehicle manufacturers. We encourage the Government to adopt a steady replacement of all testing procedures within that framework. More broadly, we need a far stronger shift in taxation to disincentivise carbon production. The previous Finance Bill continued implicitly to support fossil fuels in a number of areas, and this one only sets the scene for some elements of the promised new plastics tax and the new emissions controls that will be necessary. Given that we have declared a national climate emergency in this very House, we need far stronger action in subsequent Finance Bills.
Finally, we fail to see in the Bill any substantive change in the Government’s approach to tax reliefs. This is essential. Public funding will be under pressure, so we must choose very carefully what we subsidise through these reliefs.
The incidence of tax reliefs has increased over recent years, yet there is little thorough oversight of their impact. Labour has called repeatedly for a thorough review of tax reliefs, but this Bill does not deliver one. As public finances come under substantial pressure, that position is no longer sustainable.
The National Audit Office’s recent report on tax expenditure showed that the Government are not reporting costs of over two thirds of reliefs; that must change. Alterations are made in this legislation to entrepreneurs, relief—that was right to state—but the Institute for Fiscal Studies has suggested that the £1 million limit is still too generous. Furthermore, it does not achieve its principal aim of boosting investment, with the IFS stating:
“If one of the aims of reduced capital gains tax rates on business assets is to incentivise individuals to invest more in their businesses, this evidence suggests they are not working.”
We must ensure that corporate tax reliefs are focused on employment retention and promotion, and the provision of public goods. That is as essential for entrepreneurs, relief as for the hundreds of others that continue to receive little public scrutiny.
There are many measures in the Bill that are sensible, that tidy up anomalies and that make life easier for taxpayers and HMRC, and we welcome them. But, as I have said, in many ways this feels like a Finance Bill for a different age. Subsequent Budgets and Bills will need to recognise the need for a much more resilient household financial situation and much more resilient public services, and will need to move away from the demand-sapping, confidence-stripping approach that has characterised the response to the last crisis. We stand ready to work with the Government where we can to achieve that new approach.
Let me turn to two specific points in the Finance Bill. The first is the changes that the Financial Secretary to the Treasury has just outlined in respect of entrepreneurs relief. He is right to make those changes; it is a relief that is not fit for purpose. However, there are £24 billion-worth of reliefs every year relating to businesses, and at a time when we need economic growth encouraged at every single turn, it is imperative that the Treasury examines all £24 billion-worth of those reliefs and makes sure that they are all fit for purpose.
Secondly, I was particularly pleased to see such a large number of clauses relating to the digital services tax. It is not right that search engines, online marketplaces and social media platforms should not be paying a fair level of tax in our country. It is not a case of evading tax; it is a case of the taxation system not being adequate for the 21st century. We cannot assess national taxation rights on property, on where people are, on where the management are or on where the intellectual property resides; we must do it on where value is created. These measures are a big step in the right direction. I urge the Financial Secretary to stick to his guns. He will face great pressure from the United States in particular, but in the absence of an international approach to this matter, it is vital that we take action.
I think my five minutes are now up, and I am very aware of your exhortation, Madam Deputy Speaker, so I will conclude, except to say that I will be supporting the Second Reading of this Bill.
“Even in normal times, no parent can be sure that their financial security will withstand unpredictable events such as illness, bereavement or redundancy. Certainly no parent could have had foresight of Covid-19, and so planned their family size accordingly.”
I urge the Chancellor and the Financial Secretary to the Treasury to bring forward measures to remove the two-child limit and end the unfairness being meted out to families in need.
This UK Government have failed to go far enough for workers. The cut to employers’ national insurance goes only a third of the way that we demanded towards the £2,500 in the Tories’ own manifesto commitment. Younger workers will continue to suffer state-sanctioned age discrimination, and this is really a missed opportunity to introduce a real living wage for all. The Chancellor previously claimed that he would do whatever it takes to help people affected by the coronavirus crisis, and the UK Government must follow through on that commitment and strengthen welfare provision so that people get the help they need now. They must scrap the five-week wait, turn the loans already given into emergency grants and ensure that all new claimants are given automatic grants to prevent millions being plunged into debt and poverty. If the UK Government had listened to our calls to introduce a universal basic income at the start of this crisis, the huge difficulties people are now facing could have been avoided.
I also support the calls from the Low Incomes Tax Reform Group, Age UK and the TUC for action on the net pay pensions issue. Due to a flaw in the tax system, around 1.7 million lower-income workers, mostly women, are being unfairly charged 25% more for their pensions as a result of the way in which their employer pension scheme operates. I ask the Government to look at this.
Firms are already finding it difficult to access cash, not least because of the limitations of the UK Government’s coronavirus business interruption loan scheme. Part 4 of the Finance Bill lays out plans to grant HRMC preferential status in insolvency procedures from December this year, and measures to make directors personally liable for a company’s tax liabilities where HMRC considers avoidance is taking place or where there is evidence of phoenixism or tax abuse via insolvency. I very much want to see companies and their directors take their responsibilities seriously and to avoid phoenixism wherever possible, but I am not alone in questioning whether this is the correct approach. R3, the Association of Business Recovery Professionals, wrote to the Chancellor last September:
“While extra money for HMRC in insolvency procedures may appear positive, it means less will be going back to trade creditors, pension schemes, and consumers. This will hurt the economy in the long run. Poor returns from insolvency procedures can jeopardise the health of other businesses, can make creditors more likely to vote down rescue proposals, and can trigger further insolvency. The government’s policy increases the chances of this happening.”
Coronavirus has brought this issue into sharp focus. UK Finance estimates that this policy could hit lending by at least £1 billion per annum. Furthermore, if HMRC gobbles up the largest amount first, there will be very little left for unsecured creditors such as small and medium-sized enterprises. Examples include the contractors and clients of a building company, food suppliers and parents who have paid upfront for a nursery that has gone bust. Why should creditors—real people in the real economy—lose out on much-needed pay-outs because of the vague notion of giving value to the taxpayer? The City of London Law Society also highlighted, in a letter in September last year, that this proposal erodes protections and would put the UK at a competitive disadvantage, so I urge the Chancellor and the Financial Secretary to the Treasury to give further thought to this measure. What would help to prevent phoenixing would be to tackle this matter at Companies House, giving it the full powers under anti-money-laundering legislation to carry out due diligence, rather than simply nodding companies through. This would protect consumers and other businesses that end up losing out.
The Scottish National party welcomes the Bill’s attempts to counteract tax avoidance laid out in clause 64 on anti-avoidance. The UK Government must urgently introduce a robust and transparent system of company registration in order to combat money launderers’ attempts to register entities for illicit and avoidance purposes. The UK Government must act to tackle the ongoing improper use of Scottish limited partnerships through a proper reform of Companies House. In reference to clause 72 of the Finance Bill, relating to properties and trusts, will the Chancellor also update the House on what has happened to the Registration of Overseas Entities Bill, which seems to have disappeared?
The SNP will support a fit-for-purpose digital services tax. We agree that it is unfair that huge multinational online firms pay less in tax than small high street businesses, but the devil will be in the detail, as the shadow Chancellor laid out. Firms may seek to get around measures, which is where good evidence comes in. The UK Government must be a step ahead of, rather than several steps behind, those companies that seek to evade paying their fair share. It is regrettable that the UK has failed to implement the measure alongside international partners, despite countries such as France, Spain and Italy seeking to introduce similar measures.
The Finance Bill is another example of the Tories yet again failing to support the oil and gas sector when it needs support to transition to a greener future. The oil and gas sector has generated £334 billion in net tax revenues to the Government since 1970-71, but the Tories have failed again to support it in its time of need. Promising a sector deal within the term of this UK Parliament is just not good enough; the sector needs fiscal support, and it needs it right now. OGUK chief executive Deirdre Michie has said:
“OGUK will be pressing the case for a COVID-19 resilience package to governments in the coming days which will focus on protecting the supply chain, jobs and our ability to continue to reposition ourselves for the future.”
I urge Government Front Benchers to listen carefully to that plea.
I also encourage UK Government Ministers to do all they can to finally deliver justice for the former Roadchef workers who have been waiting for decades for their employee benefit money. My hon. Friend the Member for Airdrie and Shotts (Neil Gray) has offered one solution via early-day motion 268; the other solution would be for HMRC to act reasonably in recognising that the employee benefit trust was non-taxed at its establishment and negotiating positively with the trust to allow payments to happen quickly.
Our economy does not need Ministers to be given trade war powers. To protect jobs, we believe that the Brexit transition should be extended by two years. Clause 94, “International trade disputes”, will amend the Taxation (Cross-border Trade) Act 2018 as follows:
“In section 15(1)(b)…(import duty: international disputes etc), for ‘is authorised under international law’ substitute ‘considers that (having regard to the matters set out in section 28 and any other relevant matters) it is appropriate’”.
What that amendment means, in short, is giving the UK Government the right to abrogate from international agreements and engage in trade wars at the whims of a Brexiteer Government, which is really not what we need right now. The Government need to decipher whether that is really what they mean by the clause.
The UK Government should ask the EU today for the maximum two-year extension to the transition period. An extended transition will keep the UK as close as possible to the EU and provide an opportunity to rethink the future relationship. The Scottish economy just cannot afford the double hit of covid-19 and the growing likelihood of no deal, or at the very best a hard Brexit deal, in eight months’ time.
The SNP seeks to work constructively with all parties on the Finance Bill. We know that voting will be a challenge and that proceedings will be very different this year. The UK Government have a majority, but they do not have a monopoly on wisdom. They should listen carefully to ideas from every part of this House and from people across the country.
We have a fantastic Treasury Minister here today, and we need a dedicated Treasury Minister responsible for filling in the gaps. I sometimes think that the media have better access to Ministers not only than I do, but, more worryingly, than my constituents do, so let us have a consultation with all colleagues. How can these schemes be made better? There are these Downing Street statements every evening, where the media get to ask questions. I think there are some fabulous people in the media. There are a few moderate ones, but there are some very good ones. However, let us allow small businesses—they are the engine of our economy—to ask questions.
In my remaining minute, I will focus on one constituency business, called Kupros Dairy. It makes fabulous, award-winning cheeses, which it was selling to 200 great restaurants in London and a few specialist food shops. All of these restaurants are no longer open, so its market has entirely disappeared. Supermarkets will not take specialist cheeses in the main, because they cannot stock them from Land’s End to John O’Groats—by the way, the supermarkets have done a simply fabulous job in rising to this challenge. Could the Minister get in touch with Dave Lewis of Tesco and others and ask them to have a dedicated aisle, or part of an aisle, for local produce? That would save Kupros Dairy and allow it to start making cheese again, stay in business and employ people and pay mortgages.
This Finance Bill does little to strengthen our economy or make us more resilient. Even before the covid crisis, it was inadequate. It does not deal with the challenges of climate change and the climate emergency, and it does not go far enough to reverse the challenges posed by the deep-seated inequalities in health, education and other spheres over the last decade.
The Office for Budget Responsibility predicts that there will be a 35% reduction in GDP in the second quarter of the year and that unemployment will rise by more than 2 million. Already, the deficit hawks are circling over the Treasury Bench, calling for huge cuts in public spending. Another decade of austerity as the answer to Government debt is absolutely not acceptable. Surely we have learned from the financial crisis in recent weeks that we have to ensure that our public services are resilient and strong in order to face the threats of global pandemics and economic downturns.
We need to ensure that we protect those on the frontline, who have often been the low-paid and have not been treated well—the teachers, nurses, carers, delivery workers and shop workers. They do not run the country, but they make the country run, as we have seen in recent weeks. We need a modern-day Marshall plan, rebuilding and reconstructing our NHS, social care, police, schools and other vital public services, rather than leaving them vulnerable and fragile as we face crises like the current pandemic.
We need to ensure that local authorities on the frontline get the support they need. Tower Hamlets Council in my constituency is having to spend around £25 million and is losing £35 million of income—that is a significant amount of money. I call on the Minister to ensure that local authorities get support. The job retention scheme is welcome, but hundreds of thousands of people in hospitality and other sectors are still being excluded, and they need help urgently.
Finally, I want to highlight the impact in the global south. In countries like Bangladesh, the failure of companies such as Asda, New Look, Edinburgh Woollen Mill, Peacock and Urban Outfitters to pay up for contracted work is leaving millions of people vulnerable to unemployment and starvation. It is important to ensure that our companies are responsible and that people’s lives are protected. We have a duty to work together domestically and internationally.
If we can go back to taxing all income the same, whether from benefits, work or wealth, it will be transformational. It will show that we are serious about helping the people who voted Conservative in their tens and hundreds of thousands, some for the first time ever, in the general election last year. It will create clear and stronger work incentives for everybody, not just the rich. It will make our economy work better by allowing investment to flow to wherever it can be used best without distortions in the tax system, and it will make taxes simpler and harder to dodge. It will reduce in-work poverty, because less well-off families will keep more of any extra money they earn, and, as we come out of the coronavirus crisis, it will prove beyond a shadow of a doubt that Conservatives really mean it when we say we are all in this together.
Changing entrepreneurs’ relief is a good sensible Conservative idea, but it is only a start. The Chancellor has taken the first step. I hope we will all go with him on a much longer and more important journey.