Skip to main content

Finance (No. 2) Bill

Volume 819: debated on Tuesday 22 February 2022

Second Reading (and remaining stages)

Moved by

My Lords, we are here to debate the annual Finance Bill, introduced in the House of Commons following the Budget on 27 October last year. My right honourable friend the Chancellor of the Exchequer outlined then a Budget to build a stronger economy: an economy of higher wages, higher skills and rising productivity, with more investment in infrastructure, innovation and skills; stronger growth, with the UK recovering faster than our major counter- parts; a stronger labour market, with falling unemployment and record numbers of payrolled employees; and stronger public finances, with a simpler, fairer and more sustainable tax system to support businesses and consumers. That is the Government’s vision for the future of this country, and this Finance Bill will help to deliver that vision for the tax system.

It may be helpful to noble Lords to start with a little of the context behind the Bill. Our country’s economic situation has significantly improved in the past year. The UK’s real GDP growth was the highest in the G7 in 2021, at 7.5%, and the IMF is now forecasting that we will have the highest growth in the G7 again in 2022, at 4.7%. GDP remained at pre-pandemic levels in December, despite the impact of the omicron variant and plan B measures. The labour market is also performing extremely well, with the total number of employees on payrolls above pre-pandemic levels, redundancies at an all-time low and record numbers of vacancies. However, there are challenges ahead, with global supply chain disruption and high energy prices adding to inflation around the world and helping to explain the rise in inflation above the 2% target in the UK in recent months.

These are global problems, neither unique to the UK nor possible for us to fully address on our own, but the Government are committed to working with international partners to monitor global supply chain pressures and strengthen the resilience of our critical global supply chains. We are also providing support worth over £20 billion this financial year and next to help families with the cost of living. In 2021, we moved away from providing emergency economic support to focusing on our economic recovery. This is a transition from a period where the Government rightly provided unprecedented support, to a promising future.

Credit for this recovery must, of course, go to our vaccination programme, including the outstanding booster programme, but equally we must not overlook the steps that this Government have recently taken to support families and businesses, including through measures contained in the last Finance Bill. This action has boosted public finances, allowing the Government to invest at scale through the Budget and the spending review, with significant increases for government departments in overall spending.

But debt is still at a historically high level. It is set to pass £2.3 trillion and is currently at its highest level as a percentage of GDP since the early 1960s. While the level of debt is currently affordable, there are significant risks associated with elevated levels of debt. Although the fiscal outlook has been improving, new fiscal rules will help to ensure that public finances remain on a sustainable path. This approach will ensure that the Government can continue to invest in first-class public services, support people and businesses through the next stage of our economic recovery and lay the foundations for future economic growth. This is also a responsible approach to our public finances that allows the Government to respond to global challenges where needed, including the recent package of support to help households with rising energy bills, worth £9.1 billion this year.

I now turn to the content of the Finance Bill itself. The Bill contains several measures that will help build a stronger economy and help businesses to invest in the UK’s future growth and prosperity. Noble Lords will be aware that productivity in this country has long lagged behind that of our international counterparts. The Government are determined to rectify this and to help businesses to reach their full potential by making it easier for them to invest and grow. That is why, in March 2021, the Government introduced the new super-deduction. As the Chancellor noted at the Budget, now is not the time to remove tax breaks on investment. The Bill therefore extends the temporary £1 million limit of the annual investment allowance again until the end of March 2023, instead of allowing it to revert to £200,000, as planned, from the start of 2022. This higher AIA level provides businesses with more upfront support and encourages them to bring forward investment.

Measures in the Bill will also help to protect our unique culture and heritage, by making our creative tax reliefs more generous. Social distancing and wider restrictions have had a particular impact on companies relying on live performances and exhibitions to generate their core revenue, such as theatres, orchestras, museums and galleries. It is therefore right that the Government support charitable companies to put on high-quality museum and gallery exhibitions. That is why the Bill extends the tax relief for museums and galleries by another two years, to March 2024. It also doubles the tax reliefs for theatres, orchestras, museums and galleries until April 2023; they then revert to their normal rate only in April 2024. This is a tax relief for culture worth almost £0.25 billion, which will enable our creative industries to continue to flourish.

I turn now to another sector that makes an important contribution to our economic well-being, namely the maritime industry, which is responsible for 95% of our trade in goods. The UK has always been a seafaring nation and we must continue to help our shipping industry to succeed. First, that means removing any requirements for ships in the UK tonnage tax regime to fly the flag of any EU country. We will focus instead on boosting the use of the UK’s merchant shipping flag, the Red Ensign. Our flag has a well-deserved reputation for maintaining the highest international standards, and we want more ships to benefit from this by registering in the UK. Secondly, the Bill will make it easier for shipping companies to move to the UK from April this year, bringing jobs and investment to nations and regions around the UK. These measures will support our thriving shipping industry, helping to drive jobs in our coastal communities and boosting our world-renowned maritime services industry.

In March last year, the Government committed to reviewing the bank surcharge, in light of the decision to increase the corporation tax rate to 25% from 2023. As outlined in the Bill, the surcharge will be set at 3%. From 2023, this means that the overall tax rate on banks’ profits will increase from 27% to 28%, a rate that is higher than that of most other companies. This will ensure that banks continue to pay their fair share of tax, while maintaining the UK’s financial services competitiveness and safeguarding tax revenue. The Bill also raises the annual allowance to £100 million to ensure that the tax system is supportive of growth for smaller retail and challenger banks.

The economic recovery is under way, and we are investing record amounts in our public services. However, we must still take a prudent and responsible approach to our national finances, and this can mean tough choices. As the House will know, the Government are introducing a new ring-fenced health and social care levy, based on national insurance contributions. This will be supported by increasing the tax rates on dividends by 1.25 percentage points in the Bill, ensuring that those with dividend income make a contribution in line with that made by employees and the self-employed. But our generous allowances mean that everyday investors will be entirely unaffected. Around 60% of individuals with dividend income will pay no dividend tax in 2022-23.

I now turn to the new residential property developer tax. This is a 4% tax on the profits made by the largest developers carrying out residential property development activity in the UK. It forms part of the Government’s building safety package, aiming to bring an end to unsafe cladding. It will help to ensure that developers pay a fair contribution to help fund this package, and it will apply from April.

The Bill also contains measures that will help tackle economic crime, tax avoidance and tax evasion, all of which undermine our efforts to strengthen the country’s finances and build a stronger economy. The new economic crime anti-money laundering levy will help to fund new and uplifted anti-money laundering measures, including the ambitious reforms the Government announced in their 2019 Economic Crime Plan. The Bill will implement the levy on entities that are regulated for anti-money laundering purposes. These firms will benefit, both directly and indirectly, from the new and uplifted measures funded through the levy. It will impact an estimated 4,000 businesses, which will be liable to pay the levy. The amount payable will be determined by reference to the business’s size, based on its UK revenue.

I turn to tax avoidance. We know that the vast majority of tax advisers adhere to high professional standards and are an important source of support for taxpayers. However, promoters of tax avoidance schemes who use every opportunity to sidestep the rules to sell their wares fall into a very different category. The Government have taken action to clamp down on these promoters. Indeed, as a result of this action, the tax gap attributed to marketed tax avoidance has already steadily declined from its peak of £1.5 billion in 2005-06 to £0.5 billion in 2019-20—a fall from 0.4% to just 0.1% of total tax liabilities.

But we have not stopped there. We have developed, through continued engagement and consultation with stakeholders, further powers to disrupt avoidance. Measures in this Finance Bill will reduce the scope for promoters to market tax avoidance schemes. They will allow HMRC to clamp down on these schemes by giving it the power to impose penalties on UK entities that enable offshore promoters, freeze promoters’ assets to ensure that penalties they are liable for are paid, and shut down promoters which continue to sidestep the rules.

The Bill introduces tougher sanctions to tackle tobacco duty evasion, which is estimated to have cost the Exchequer £2.3 billion in 2019-20. Electronic sales suppression will also be tackled by the Bill. This is a form of tax evasion whereby a business deliberately manipulates its electronic sales records to reduce the recorded turnover of the business and corresponding tax liabilities. The Bill will make those facilitating ESS liable to a penalty fine of up to £50,000.

The Bill also helps to deliver a simpler and more sustainable tax system; for example, by simplifying the rules around basis periods. These rules determine how profits are split between tax years. The Bill will create a simpler, fairer and more transparent set of rules for the allocation of trading income to tax years. Currently, small businesses that choose an accounting date other than the dates between 31 March and 5 April face complex rules. They also face double taxation in the early years of trade and the need to maintain accurate records of overlap relief, which is often lost and not used by taxpayers. These reforms will remove this double taxation and the existing requirements of the basis period rules, creating a simpler tax environment for many small businesses.

Finally, noble Lords may also have noted that the Government brought forward a new tax during the Bill’s passage through the House of Commons. This is the new public interest business protection tax, a temporary measure aimed at protecting taxpayers and energy consumers. It is, in principle, possible for an energy business to derive value from a valuable financial asset, such as a forward purchase contract, for its own benefit and the benefit of its shareholders, while leaving its energy supply business to fail or increasing the costs of a failure. The costs of that failure would then be picked up by the taxpayer or consumers, because it would trigger a special government-funded administration regime.

Ofgem is now consulting on a range of regulatory actions that it proposes to take to ensure that the right protections are in place in these circumstances. However, it will take some time for these changes to come into effect. It would be unacceptable for the Government to allow business owners to profit from engineering this kind of outcome in the interim period, at great and direct expense to the UK taxpayer. That is why we are introducing this temporary tax. It is our hope and expectation that no business will undertake this course of action and that the tax will therefore not be charged.

There is no doubt that the pandemic has cast a long shadow over this country and our finances, but now is the time to open a new chapter in this country’s story, characterised by economic growth and renewal. We will invest in people, businesses and public services, but we will also never forget our responsibility to strengthen the public finances. A simpler, fairer and more sustainable tax system will help us achieve this. The measures in the Bill support these goals, while also continuing our long-standing efforts to tackle fraud, avoidance and evasion. For these reasons, I commend the Bill to the House and beg to move.

My Lords, I draw attention to my entry in the register of interests. I am an unpaid senior adviser to the Tax Justice Network. I too thank the Minister for her very eloquent speech, but it cannot hide the fact that the Budget does not really do anything at all for the average person. It is regressive, the word “redistribution” is missing altogether, and taxes are piled upon the poorest. On tax avoidance, all we need to do is look for evidence. I once again ask the Minister to name any big accounting firm that has been investigated, disciplined and fined after the courts declared that the tax-avoiding schemes that it marketed were unlawful. I am still yet to hear any name at all.

In the time available, I will raise three questions about the Bill. They relate to an area that I have not really seen debated either in this House or the other House. The first follows on from the Minister’s speech, relating to the tax rate on dividends. From April, it will be in the range of 8.75% to 39.35%. That is still less than the marginal rate of income tax on earned income. Earned income is taxed at 20%, 40% and 45%. Because the two rates are different, that opens the floodgates for the tax avoidance industry. Numerous schemes designed by accountants and lawyers enable clients to convert income into dividends, so that the beneficiaries pay tax at a lower rate and national insurance contributions at a zero rate. Nobody pays any national insurance on unearned income, and that includes dividends, even though those who are not paying can use the National Health Service and receive the benefit of social care.

The Government’s approach is clearly distorting taxpayer behaviour because taxpayers will try to minimise their duty. The Government are fuelling the tax avoidance industry and then expecting HMRC to go and chase down the avoidance schemes. This is an exercise in futility, and it has gone on for years and years. The Government could take a leaf out of the book of the former Conservative Chancellor, the noble Lord, Lord Lawson, who recognised that there is no difference between earned and unearned income—both augment somebody’s wealth and purchasing power. In 1988, the Government decided that earned income needed to be taxed at exactly the same rate as unearned income; both were taxed at the same rate—at least, that was applied to capital gains, which were taxed at the same marginal rate. So the Government at that time ended a whole variety of tax avoidance schemes. The current Government are fuelling the demand for them.

In respect of this, I ask the Minister two questions. First, why do the Government aid the tax avoidance industry by taxing unearned income at a lower rate than earned income? Secondly, what is the cost of chasing the tax avoidance schemes facilitated by the Government’s own policies? I hope that the Minister will be able to give me some numbers, and then we will see where to go.

The second issue I wish to raise relates to tax reliefs. Under this Government, and other Governments since 2010, the number of tax reliefs have vastly increased. The Office of Tax Simplification, which published its final report in November 2021, had previously identified some 1,140 tax reliefs—that is how many tax reliefs we give. The cost of principal tax reliefs is published, but the disclosures by HMRC do not cover all the tax reliefs. Even worse, little is known about the macroeconomic benefits of handing out vast numbers of tax reliefs, or the amount of tax concessions—the actual amounts that people do not pay.

Following on from this, the related question is about the anomalies and abuses of tax reliefs. Let me give one or two illustrations. The first relates to something called video games tax relief, which the Government created in 2014. It was thought that this tax relief would come to about £35 million a year. By the end of March 2020, 1,000 games had received the kitemark that they need—it is called “culturally British accreditation” and is given by the British Film Institute—as a prerequisite for getting video games tax relief. However, anything seems to go; it is nothing to do with being British. Some of the games that received this accreditation are called “Batman”—I did not know that Batman lived in Downing Street—“Goat Simulator” and “Sonic the Hedgehog” are just some examples of games that have been given this culturally British accreditation and millions in tax relief. The real truth is that this culturally British fig leaf was really designed to get around the EU Commission’s rules on state aid and, in reality, it is costing the taxpayer millions of pounds.

Two of the 1,000 games that have been accredited were published by a company called Rockstar: “Grand Theft Auto V”, which received the accreditation in 2015, and “Red Dead Redemption 2”, which received it in 2019. In 2020, Rockstar claimed £56.6 million in video games tax relief. According to its accounts, it has claimed £136.6 million in total in tax relief over the years. It has paid no corporation tax at all but has paid £67.5 million in dividends. Where exactly did those dividends come from? They came from picking the pockets of the British taxpayer. There is no other explanation for this. It does not seem to me that these kinds of tax reliefs are monitored. No evidence is provided by any government department to show what exactly the benefit to the UK economy is of this American company receiving all these tax reliefs.

I will give noble Lords another example, which relates to the James Bond films. James Bond is a quintessentially British fictional hero, but the enterprise is also very lucrative for minimising the UK tax liabilities of the foreign companies behind it. In recent years, the company known as EON, which controls the Bond movies and is behind the films, has declared pre-tax losses while simultaneously receiving a total of about £120 million in tax credits via the UK’s creative industry tax relief schemes. “Spectre”, a Bond film, received £30 million, with £47 million given to “No Time to Die”. “Skyfall” received £24 million. “Quantum of Solace” received around £21 million. The James Bond films are made and marketed through a complex labyrinth of opaque offshore entities. The upshot is that, despite receiving £120 million of subsidy, EON has been paying less than £500,000 a year in UK corporation tax. So where exactly is the benefit of these things?

I would like to talk a little more about these things. A good example concerns R&D—research and development —tax credits or reliefs. For 2019-20, 85,900 claims were made for this tax relief. Some £7.4 billion of tax reliefs were claimed on an expenditure of £47.5 billion. But the Office for National Statistics data for the UK’s total R&D spend is only £25.9 billion. How come the Government have given relief on £47.5 billion?

One explanation is that, when companies conduct research and development—there is a big issue about what that means and, as an accountant, I can tell you that you can classify almost anything as R&D and claim tax relief on it—it appears that foreign companies can also claim. A company may operate and have a subsidiary here but do its R&D in the Bahamas; it can also claim these tax reliefs. So there is a discrepancy of £21.6 billion between the HMRC and ONS data. No explanation has ever been provided by the Government of why these numbers differ and why foreign entities that have little or no economic link with the UK are able to claim these things. The tax reliefs are clearly being abused, yet there is no urgency from the Government to investigate.

I will ask the Minister to do a number of things. First, at every Budget, can we have a complete list of the tax credits? Tell us exactly what their tax cost is and what the abuses might be. Tell us whether the economic benefits that are claimed actually materialise. Have they been audited? At the moment, we get very little or almost no data.

The last issue I would like to talk about is the impending global minimum tax rate of 15%, which the Government support. While the Government are handing out 1,140-plus tax reliefs, what is the impact of these reliefs on the commitment to a 15% global minimum corporation tax rate? The Government say that they are increasing the corporation tax rate but, at the same time, they are giving so many tax reliefs and allowances—at 130% of the cost and so on—that the effective tax rate is incredibly low, and the Government are reducing it even further by handing out more and more tax reliefs. So can we also see some reconciliation from the Government on the relationship between handing out these tax reliefs and a commitment to a global minimum tax rate of 15%?

My Lords, since 1911 the House of Lords, quite rightly, has not been able to amend or reject a Finance Bill, but, in recent years, we have been given the opportunity to debate them. This enables us to range somewhat more widely over government economic policy. As the Minister realises, this Finance Bill comes at a time of unprecedented financial turbulence that is affecting so many. She will be aware of fuel price increases; oil and gas prices continue to rise, affecting everybody’s bills, and recent events in Ukraine will not help that. As she will be aware, inflation is now at its highest level for 30 years. As she indicated in her remarks, government debt as a proportion of GDP, although falling, is at record levels.

Against this background, although the Minister made a brave attempt to defend the Government’s economic policy, does she not agree that this Budget and Finance Bill are a missed opportunity for the Government? To me, and I suspect to other noble Lords, it is not entirely clear what government economic policy is today. In the light of the problems faced by ordinary families, does the Minister really think that now is the time to raise national insurance? This is ostensibly to fund social care although we know that, in the medium term, it will go towards propping up the National Health Service. Does she really think the Chancellor’s plan to reduce fuel bills is the correct way to help hard-pressed families? Does she also believe that the recent cut in universal credit was fair, just and necessary?

What is the Government’s overall strategy? The Chancellor says in public that he is a tax cutter—but how? It is clear from Mr Gove’s White Paper on levelling up that there is a split at the heart of government. The White Paper contains wonderful aspirations but no details of costs, payments or how levelling up will be funded. There is no commitment to building up business and infrastructure banks to support local enterprise. Where is the financial commitment to serious transport investment so that journey times and frequencies match those of London? Where is the serious investment in social infrastructure that is promised in the White Paper? Do the Chancellor and the Minister really believe in creating one globally competitive city in each of our regions? More particularly, will the Government let him and her do that? There is surely no point in promising a gain of £2.5 trillion, as the Government have done with levelling up to the economy, if they do not provide the resources to achieve it.

I fear that the Government hope that a Brexit dividend will save them, but this is a chimera. The £350 million paid to the NHS from Europe, promised on the side of a bus during the Brexit referendum, was a lie then and is a lie now, as the cartoonist Peter Brookes demonstrated so well in his cartoon last week, with Jacob Rees-Mogg in his favourite position, lying on top of a bus.

Great play was made by the Minister of the highest growth rate in the G7 as a result of Brexit. But, first, after 2022, there is no forecaster who thinks this will last. Secondly, it is a statement of the obvious that it is easiest to be the fastest if you start from the lowest point. Thirdly, and most worryingly, growth has come primarily from a one-off increase in public expenditure as a result of the pandemic, and the private sector has been noticeably flat. It remains the case, as the Office for Budget Responsibility said last year, that our economy will be 4% smaller each year as a result of Brexit, contrasted with only 1% as a result of the pandemic. As the chair of the Public Accounts Committee in the other place said recently, all Brexit has given our industries is

“increased costs, paperwork and border delays.”

The Government cannot say they were not warned.

My Lords, in May last year, I chaired the B7 before the G7 in my role as president of the CBI. One of our speakers was Gita Gopinath, chief economist of the IMF. She said that an economy like the UK would have a V-shaped recovery because of our £400 billion of spend to save businesses, jobs and the economy—which is one of the highest in the world per capita, and for which businesses are very grateful—and because of our world-beating vaccination programme. But what has happened since then? We have had labour shortages, supply chain problems, energy prices soaring, with inflation predicted now to go up to 8% and interest rates rising. We have a very fragile recovery. The noble Baroness, Lady Penn, mentioned productivity: productivity has been flatlining since the financial crisis of 2008-09.

On 3 February this year, our director-general of the CBI made an excellent speech on growth. It was very well received all round. He said—the noble Lord, Lord Razzall, just mentioned this—that the Government say we are the fastest-growing economy in the G7 but that V-shaped recoveries around black swan events are not the time for credit or blame. The downward nosedive is not an accurate judgment of economic performance, and nor is the climb back up. He went on to point out that the OBR is forecasting the UK’s economic trajectory, after the rebound is complete in the next 18 months, to grow at 1.3% to 1.7%.

As a country, historically we have grown at between 2% and 2.5%. Between 1993 and 2008, before the financial crisis, we grew at an average of 3%. Are the Government willing to accept a forward growth rate of 1.3% to 1.7%—such a low level of growth? A Government should have low taxes but also fiscal discipline and dynamic regulation. Do the Government agree? Today we have high spending, high taxes and low growth—a vicious cycle. We have a record 6 million people in England on waiting lists for routine hospital appointments. Sajid Javid, Secretary of State for Health, at one stage said that the waiting lists might go up to 13 million people. We have backlogs in courts, schoolchildren who have lost out on learning, transport funding models that are under pressure and, on top of all this, an ageing population. The CBI has worked out that by 2030, we may need to find an additional £40 billion to £50 billion per year to cover the costs of an ageing society. Do the Government accept this?

How do we pay for this? Is it by turning to taxation? Is it by raising taxes? We are already facing the highest tax burden in 70 years. On corporation tax, analysis by the CPS and the Tax Foundation demonstrates that we are currently the 11th most competitive country in the OECD. A lot of that is to do with the super-deduction that the Minister mentioned. However, when this ends in April 2023, and corporation tax increases from 19% to 25% in one swoop, we will fall to 31st place. Will the Minister and the Government accept that?

Our property tax is eyewatering, one of the highest in the OECD. I will come to business rates later. We know that raising taxes reduces growth and cutting taxes drives growth up. Look at the examples just now. We remove road tax to stimulate the buying of electric vehicles and sales are rocketing. We reduce VAT to stimulate consumption. We reduced VAT during the pandemic from 20% to 5% in hospitality. We put that up to 12.5% but the Government are now putting it back to 20% in April. Why are they doing that? I ask them to keep it at 12.5% for a while longer. UK Hospitality and the British Beer and Pub Association are saying that they need help for longer. What is the point in a VAT relief when for the past two years, restaurants, pubs and hotels have been shut? They cannot avail themselves of a relief when they are shut, only when they are open. What is the point, when there is guidance to work from home in December and January and their outlets are empty because of it? They need the help when their outlets are full, which is starting to happen now. Give more help and let it carry on.

We will not pay down todays debt or extend the public services and reduce taxes on a growth rate of 1.3% to 1.7%. We need sustainable long-term growth based on investment, innovation, and productivity. Tony Danker, the director-general of the CBI, where I am president, says:

“Now it has been the Treasury’s job as an institution since the stone age to be sceptics of this kind of talk. But economic policy and fiscal policy are not the same thing. No CEO… puts the Finance Department in charge of sales. Or lets them alone determine strategy. Companies can’t afford not to invest in growth. And nor can countries.”

We have seen this before. The growth rate that I spoke about, at an average of 3% per year between 1993 and 2008, was twice the rate of the last decade, and three-quarters of that growth was driven by investment, technology, and innovation—double what they have contributed over the past decade.

Let us look at other countries and take an example. Tony Danker took the example of Singapore, which reduced its operating costs, cut corporation tax by 10%, incentivised investment, spent on infrastructure, and had new venture capital services, low-interest loans, and tax incentives. The result of all those measures is 6% growth per year.

There is talk of Singapore-on-Thames: the three forces of Brexit, the race to net zero and the end of the pandemic give us a huge opportunity. During the pandemic, we have proven what a powerhouse of innovation and life sciences we are, with Oxford/AstraZeneca and the collaboration with the Serum Institute of India. Three-quarters of companies adopted new technologies. In 2020 alone, 700,000 new businesses were created. In offshore wind, we have shown with contracts for difference that the Government can use the balance sheet to unlock high-growth markets. The Budget mentioned skills bootcamps—this is just the sort of thing we need to do.

The CBI has recommended that, when the super-deduction ends in March 2023, we should replace it with a permanent investment deduction—a 100% tax deduction for capital spending. I will come to that later. Would the Government also agree that it is time to turn the apprenticeship levy into something far more flexible, which would allow businesses, for example, to buy training modules and have greater flexibility in types of training, and to incentivise and reward firms that go the extra mile to train their people, with an upside kicker for any businesses that spend more than their levy?

We must incentivise green growth. We need an extra £3 billion a year to properly retrofit our homes and businesses to bring down energy bills. Hydrogen is the future. The University of Birmingham, of which I am chancellor, was proud to demonstrate at COP 26 the world’s first retrofitted hydrogen-powered train, designed by the university and built in collaboration with Porterbrook, the rolling stock company, and 20 other companies, including Siemens and the Government’s Innovate UK—universities, business and government all working together for a world first. This is the sort of thing we should be doing.

We at the CBI have recommended that the Prime Minister should set up a new office for future regulation. Labour shortages are an acute problem across all sectors; the Government did not listen when we brought up the issue of drivers and butchers last June—sadly, pigs have been unnecessarily culled. We suggest that there should be, in effect, a revamped Migration Advisory Committee, an independent council for future skills; as the Monetary Policy Committee sets interest rates that the Bank of England has to follow and the Low Pay Commission sets a minimum wage which the Government have to follow, this body would from time to time say “We need so many thousand jobs—open up the shortage occupation list and provide a one or two-year visa.” Do the Government agree that this is required to address the labour shortages?

Growth is the only real answer to our cost-of-living crisis, with rising energy prices and high inflation. Better growth ensures that we will not be imprisoned in a cycle in which we cannot afford what we need or raise taxes to pay for it. The noble Baroness, Lady Penn, spoke about the super-deduction; the day before yesterday, the CBI released our survey. A super-deduction successor, which I spoke of, could trigger a £40 billion a year boost for UK business investment. According to our survey, 22% of investment qualifying for the super-deduction would not have taken place in the UK without it; another 19% of investment qualifying for it has been brought forward to take advantage of the relief. The Government announcing a permanent successor now could increase annual capital investment by 17% by 2026—worth £40 billion a year. Will the Government acknowledge this and listen to this recommendation?

We need to incentivise investment much further. It is not just about taxes going up to the highest level in 70 years; we need to reduce taxes. We have seen research time and again which shows that, if you reduce taxes, growth increases. The most famous example is the Laffer curve—in the growth that took place in the 1980s, you had low levels of inflation, a steep rise in private investment and rising incomes. Between 1982 and 1990, the foundations of the Laffer curve enabled the second-longest peacetime economic expansion in the history of the United States—of course, Laffer was an adviser to both President Reagan and Margaret Thatcher. Yet here we are with the highest tax burden in 70 years.

We now really need to focus on investment. Are the Government aware that the UK has been seriously underpowered when it comes to investment? It has deteriorated from 14.7% of GDP in 1989, to as low as 10% at the end of 2019. Of course, we have had the pandemic, but we are still 5% below our pre-Covid levels by the end of 2022. We must do everything we can to increase investment. Between 2021 and 2025, the UK Government were projecting to invest an average of 3.4% of GDP, versus 3.9% in America, 4.1% in Canada, and 5.9% in Japan—let alone 9% in China. Green spending represents 3.8% in the US and 1.8% in the EU, compared with just 0.55% here in the UK. Our business rates, which I mentioned earlier, are four times higher than Germany and three times higher than the OECD average. We invest 1.7% of our GDP in innovation and R&D, compared with 3.2% in Germany and 3.1% in the United States of America.

Instead, we have: a freezing of the income tax thresholds; National Insurance increases of 1.25% for employers and 1.25% for employees; corporation tax going up from 19% to 25%; the super-deduction of 130% being removed in 2023; VAT, having gone down from 20% to 5% and then up to 12.5%, is being put back up to 20%; and dividend tax being increased. On top of that, we were just informed yesterday by the Prime Minister that lateral flow tests will be removed from 1 April. Could the noble Baroness, Lady Penn, tell us that this has surely been penny-wise and pound-foolish? How much of the £2 billion that was spent in January on testing, which the Government speak about, was for lateral flow testing or for PCR testing? What is the bet that a small proportion was for lateral flow testing and the Government are trying to cut-back cost when they should be making that available to people who need it—whether they have symptoms, are visiting vulnerable people or need to test to get the antivirals which the Government have just ordered? People are now used to taking these tests. It has taken a year of people using them regularly to feel comfortable with them.

Finally, debt to GDP went up to 250% after the Second World War—arguably the last major global crisis before the pandemic. We have gone up to 100%. Now is not the time to give up. With the fragile recovery that we have, we need to ensure that we are like India, which did not put up its taxes in the February budgets of either last year or this year, because it did not want to stifle its recovery or for businesses to suffer. What is the result? The IMF has forecast India to be the fastest growing major economy, with a 9% growth rate.

With £400 billion, let us not stop at the last mile; let us keep giving help to businesses. Then we will have the investment, the growth and the jobs that will pay the taxes and pay down the debt.

My Lords, it is a pleasure to follow the noble Lord, Lord Bilimoria, and I will pick up some of the points he raised as I reach the end of my contribution. It is also a great pleasure to listen to the rich, informative speech from the noble Lord, Lord Sikka. Many people outside this Chamber would be interested to learn that the James Bond films enjoy a government subsidy. It does not seem like that, does it? When you consider the amount of money they must make from product placement, you really would not think that they also need to get a subsidy from the taxpayer to be able to make these films. Often, they look more like an advertisement than any sort of creative endeavour.

I want to begin by looking at the formal language behind this Bill—something I am continually informing myself on as I get to grips with the archaic, often incomprehensible, language of the governance of the UK. This is a language which reflects the distance of our Government from the life of the people of these islands. This is a Bill, I learn, of aid and supplies—aid, in this context, means taxation. It provokes the question: who is being aided by this Bill and who is not being aided by this Bill? First, the group I would identify as being aided by this Bill, by an act of omission—which is an action every bit as much as a provision is—are the oil and gas companies. As we heard earlier from the noble Lord, Lord Sikka, in Oral Questions, oil and gas companies are benefiting hugely from the rise in the global price of their product, while the cost of its production remains static.

That is the very definition of a windfall—wealth falling into your lap without effort—yet we do not see an oil and gas windfall tax in the Bill before us. That is despite the fact that the Chancellor, repute suggests, is a fervent disciple of Margaret Thatcher, and it was Margaret Thatcher who in 1981 introduced the first windfall tax on the banks, whose profits had leapt following a rise in interest rates. In her memoirs, Margaret Thatcher said that it was because the increased income was not because of increased efficiency or better services to customers but purely by economic accident that she brought the tax in. Can the Minister perhaps explain to me how the situation now with oil and gas companies is different from that of the banks in 1981?

Of course, there have been very widespread calls for an oil and gas windfall tax, going back to the Green Party leaders who called for it in the autumn. Some of the arguments we heard from the Government and the Benches opposite during the Oral Question from the noble Lord, Lord Sikka, just do not stack up. Investment in the North Sea contributes very little to the UK’s energy security—80% of its oil and gas is exported and the price is decided by the global market. Conversely, if we, say, had that windfall tax and spent it on a massive programme of energy-efficiency measures, particularly for private homes, that is something that could not be exported, could not be lost and could be directed towards the poorest in society.

It is worth noting that we do not hear the Government often talking—in that phrase they like to use—about “windfalls” when it comes to their oil and gas tax regime. This is not surprising, because it is one of the least effective regimes in the world. The Government pull in an average of $2 a barrel from production, whereas Norway, by contrast, collects $21 a barrel. As the noble Baroness, Lady Sheehan, pointed out on the Oral Question, our oil and gas majors are contributing only a derisory amount to investment in renewables. Where is the aid going? To the oil and gas companies. Who is losing out? Energy consumers and the general society.

Secondly, I come to another group being aided by this Bill, again by omission. We saw efforts in the other place to introduce reports on the progress of establishing a register of overseas beneficial owners of UK property and a review of HMRC’s publication of tax avoidance schemes. Opposition amendments to introduce such simple and moderate measures were defeated on party lines. Who does this aid? It is clear who the US and EU allies think it aids: Russian dirty money, much of it closely associated with the regime of President Putin, whose dangerous, aggressive actions we will be discussing later in this Chamber.

On 10 February, the Government laid legislation to allow the sanctioning of entities and businesses of economic and strategic significance to the Russian Government and their owners, directors and trustees. But to impose a sanction, you first have to be able to find the sanctionee. The highly respected NGO Transparency International reports that more than 85,000 properties in the UK are owned anonymously by entities registered abroad. It estimates that £1.5 billion of property is owned by Russians accused of corruption or of links to the Kremlin.

We have been promised this register of beneficial ownership in London since 2016. Provision was included in the 2019 Queen’s Speech, but despite the flood of Bills we are now seeing in your Lordships’ House—a Bill to attack some of the most vulnerable people on this planet: refugees seeking asylum on these shores; a Bill to suppress the turnout of voters least likely to support the Government; a Bill to reduce the capacity of our courts to defend the rule of law—the Government have not found time in the parliamentary agenda for this register to be created. Who is being aided here? I am afraid it is very obvious. Who is losing out? We are all losing out through insecurity for the people of the UK and damage to the security of the world.

Thirdly, I come to something that is apparently being aided by this Bill, social care, for this is the legislative mechanism by which the Government are bringing in the health and care levy. But is it really for social care? What is it doing to address the acute staff shortage or the extreme exploitation by hedge fund owners taking 16% of every pound paid for care? What will be its impact? The first two questions are very easy to answer: nothing. On the third, the Commons Treasury Committee points out that, with this levy being announced outside a fiscal event, Parliament has not been provided with important information that would usually accompany a decision of this kind, such as an independent impact assessment from the Office for Budget Responsibility or a distributional analysis. Who is being aided here? Not the overworked, underpaid care worker or the clients she is trying to serve.

Finally, I shall move away from the question of who benefits to an even bigger one: who decides? This morning, I was at a debate held by UK in a Changing Europe which reflected on the extreme centralisation of power and resources in the UK. Our local councils are left without the funds to provide essential services, simply delivering the statutory requirements decided by Westminster and unable to make the decisions they want to for their local communities. Of course, the centralisation is even tighter than Westminster dominating our councils and, as we often see in this House, resisting the devolved power that is supposed to have been handed to the nations of the UK. Power is in fact concentrated in one address in Westminster, and that is not the Prime Minister’s.

We are all familiar with a Minister apologising from the Dispatch Box opposite for some departmental failing, explaining that there is no money to fix it and rolling their eyes to the heavens, muttering “Treasury”. It is a gesture that is almost guaranteed to get a sympathetic laugh from all sides of your Lordships’ House. I have been delving again into the history of this. The Chancellor of the Exchequer is a post that predates that of Prime Minister by several centuries. The Treasury’s structure, like so much of our governance, was created in early medieval times. Interestingly, the department is the only one that has two Ministers in Cabinet. It has also been said that Prime Ministers govern via the Treasury.

We are aware that the Treasury sees its role as governing for the economy, maintaining economic stability and promoting growth. This is where I get to a bit of a response to the noble Lord, Lord Bilimoria. What is the Treasury operating for? It is operating for the economy and growth. The noble Lord talked about the period he obviously saw as a golden age, when we had regular annual growth rates of 3%. That was a period when we had 15%-plus of pensioners living in poverty. It was a period when we saw increased casualisation of the economy, with the gig economy growing and young people in particular finding it harder and harder to get a steady job. Fewer and fewer people were able to afford to buy or rent a home. We had growth and we had a society of poverty, inequality and very poor public health. The fact is that we have a situation in which people are working for the economy instead of the economy working for people. It is this dedication to growth—the Treasury’s chasing of growth —that has given us this situation.

There are other ways of doing things. I will point, as I have before in your Lordships’ House, to New Zealand—a system based originally on our Westminster model. Its Treasury is guided by the living standards framework. It looks at a balanced set of measures about the economy, yes, but also about poverty, inequality, public health and the state of the environment and says that we need to keep all these at a decent level when managing for people.

Lest noble Lords think that I am standing out here with something just the Greens are saying, I point to a report called The Tragedy of Growth, which was co-authored by, among others, Caroline Lucas, the Green MP, Clive Lewis from Labour and the noble Lord, Lord Deben, from the Conservative Benches. It points out that growth does not enhance living standards, alleviate poverty or protect the environment. To quote the report:

“To protect human wellbeing and avoid environmental disaster, we must escape the growth paradigm once and for all.”

I would say that we need to go further than simply escaping the growth paradigm; we need to see and escape from the dictatorship of the Treasury. There might be quite a number of Ministers and former Ministers in your Lordships’ House who will quietly agree with me.

My Lords, as an old Treasury man I cannot go all the way with the noble Baroness, Lady Bennett. It is regrettable that we do not have more speakers in this evening’s debate because it is not, as the contributions so far have made clear, as though there is a lack of important economic and, indeed, social issues arising from the Finance Bill.

Unlike the contributions so far, I will concentrate my remarks on two rather technical aspects of the Finance Bill which were the subject of a report by the Finance Bill Sub-Committee of your Lordships’ House. I was privileged to serve on that sub-committee, as was the noble Baroness, Lady Kramer. One of the aspects covered by the report was—the Minister referred to this—tax basis reform, the effect of which is that self-employed individuals and partnerships are to be taxed on profits arising in a financial year rather than on their own accounting years. The second is uncertain tax treatment, under which large companies will be statutorily required to report to HMRC instances where the company’s view of the likely tax treatment may be different from that of HMRC. I do not need to weary the House by going through the technicalities that these provisions throw up. They are set out clearly in the sub-committee’s report and the government response. I want to just make some general points.

I particularly wanted to speak in this debate because I did not want the report of the sub-committee to go unnoticed by the House. I believe that the sub-committee provides a useful service, excellently chaired by the noble Lord, Lord Bridges, who could not be here tonight because he is on jury service, and expertly supported by the sub-committee’s clerks and advisers. The sub-committee, in effect, provides an additional channel of communication between representative taxpayer associations and HMRC. That is the basis of an objective assessment by the sub-committee. I say an “additional” channel of communication because there are, and certainly should be, close communications already between HMRC and representative taxpayer associations. I hope that the sub-committee’s work, through the process of taking evidence from both sides, supports this process and provides an independent assessment of the position of both sides.

Although inevitably the Government have not accepted all the sub-committee’s recommendations, their response has shown some helpful movement on some of them. On the substance of the provisions, I merely want to say that my main concern with both sets of provisions is that their complexity for both HMRC and taxpayers did not seem to have been properly thought through in the first place. Their introduction was not given sufficient time. In fact, the implementation of both sets of proposals has had to be postponed for a year. Even now doubts remain about their practicability and the resources needed to successfully implement them. An additional complication has been Covid, which must have interfered with the preparations for these changes on both the HMRC and taxpayer sides. I am reminded of Denis Healey’s mot that the best time for removing a man’s appendix is not when he is carrying a piano upstairs.

However, that is not the only cause of difficulty. Some of these proposals could have been surfaced with more notice and been subject to earlier consultation. For example, the proposals for simplifying the tax basis period were first made some eight years ago, yet proposals for implementing it were brought forward at the same time as the changes involved in making tax digital, when they were going to have to be implemented. Also, when the proposals for requiring large companies to report uncertain tax treatment—whatever that may be—were first introduced, those proposals were half-baked, and they are not fully baked even now at the time of their introduction in this Finance Bill.

We know that the resources of HMRC are already under great pressure and these reforms will add to that pressure, at least in the short term. They will also add costs to the taxpayers affected by them. There is a question mark over whether the return in terms of extra revenue will be worth the resources devoted to them. I hope that all goes well but I have to say that, despite the Government’s response to the sub-committee’s report, I remain uneasy about the ability of both HMRC and businesses to cope.

The Minister referred to the Government’s aim of achieving a simpler and fairer tax system. That is a worthwhile objective and I have no doubt that they are sincere about it, but I am afraid I do doubt whether, in the shorter term, this will be the result of these measures in the Finance Bill. The difficulties have been exacerbated by the manner in which the Government, in their zeal to close the tax gap, have introduced them with such little notice and consultation. I hope that HMRC will give serious consideration to the general lessons set out in the sub-committee’s report.

My Lords, I believe that it would be convenient to adjourn the debate and break briefly before the Statement on Ukraine.

Sitting suspended.