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House of Lords Hansard
Finance (No. 2) Bill
08 March 2018
Volume 789

Second Reading (and remaining stages)

Moved by

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That the Bill be now read a second time.

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My Lords, the Bill before the House today is a mere 187 pages long, which compares favourably to the more than 600 pages of the previous Finance Bill. In part, this reflects the Government’s move to a single, annual fiscal event but it also represents the fact that in December the Government published a document setting out how future Finance Bills will interact with the new tax policy-making timetable. The new cycle carves out more time for consultations and commits the Government to publishing as much of the Bill as possible in draft. Even so, in this Bill some 111 of the 187 pages were published in draft form last September. The Economic Affairs Finance Bill Sub-Committee takes an understandably close interest in the process by which tax legislation is developed. I hope that it will find very much to welcome in this new approach.

Before I turn to the important tax changes enacted in the Bill, I shall set out the broader economic and fiscal context in which we find ourselves and which this Government have helped to create. The UK economy has now grown for 20 consecutive quarters: that is five years of continuous growth. Manufacturing grew by 1.3% in the fourth quarter of last year and has grown for the longest consecutive period in 30 years, with high-tech sectors such as cars and aerospace growing particularly strongly since 2010. Total exports of goods and services grew by 5% in 2017, up on the previous year, and manufacturers remain optimistic as surveys show high export orders. Employment has continued to rise—by 3 million since 2010. Crucially, these figures do not reflect prosperity just in London and the south-east: since 2010 all nations and regions of the United Kingdom, up and down and across the country, have experienced higher employment and lower unemployment.

At the autumn Budget, the Chancellor reported that the deficit has been reduced from 9.9% of GDP in 2009-10 to 2.3% of GDP in 2016-17. Borrowing is set to fall even further in the coming years, reaching 1.1% of GDP in 2022-23, the lowest level since 2001-02. The plan to get back to living within our means is on track. The Government’s fiscal rules take a balanced approach and the OBR forecasts that the Government are going to hit our fiscal targets. Our debt will start falling from next year. The Budget stayed true to our commitment to fiscal responsibility to improve the health of our public finances. However, at 86.5% of GDP, we recognise that public debt is still far too high. Although productivity growth has shown signs of improvement lately, we want to foster the environment to allow it to accelerate. The tax policies in this Finance Bill support that strategy.

The Bill is an important lever in this Government’s legislative programme. A focus on helping young people get on to the property ladder, improving productivity and business investment and continuing our robust efforts to prevent tax avoidance and evasion is at its heart.

Home ownership is a near universal aspiration. However, it is a dream that is increasingly difficult to realise for many of our young people. Affordability is the underlying problem. Consequently, at the Budget, the Chancellor announced a housing package designed to boost supply to put the housing market on a more equitable footing in the longer term. On Monday, the Prime Minister reiterated her commitment to meeting the housing challenge and announced an overhaul of the planning system to deliver more homes in the right places.

However, the Government also want to act in the short term. That is why the Finance Bill permanently scraps stamp duty for first-time buyers purchasing properties worth up to £300,000. On average, first-time property buyers will save nearly £1,700. This means that 80% of first-time buyers will not pay stamp duty at all, and 95% of all first-time buyers who pay stamp duty will benefit from the changes. Over the next five years, this relief will help over 1 million first-time buyers.

Last year, productivity grew by 0.7%, as measured by output per hour. At the autumn Budget, following weaker than expected growth, the OBR downgraded its estimates for the trend of productivity growth to 1.2% per year. Productivity is the best way to sustainably raise and maintain higher living standards and grow GDP. Since 2010, the Government have introduced a set of reforms intended to bolster the dynamism required from our modern and international economy. This includes unlocking over £0.5 trillion in capital investment—funding the biggest rail modernisation programme since Victorian times and major infrastructure projects such as Crossrail and the Merseyside Bridge, supporting businesses by cutting corporation tax to 17% in 2020, increasing access to finance through the British Business Bank, and improving skills through investment in apprenticeships and the introduction of T-levels.

However, we must go further. The Finance Bill does precisely that, encouraging additional business investment by supporting the UK’s dynamic, risk-taking businesses. The Government are a committed partner of the business community. We are, and will continue to be, a world-leading place to start a business. However, due to the lack of finance, some of the UK’s potentially most innovative new businesses are struggling to scale up. That is why we conducted the patient capital review, which reported on these barriers to growth. It concluded that knowledge-intensive companies, which are particularly R&D intensive, often require considerable upfront capital. In response, the Government set out a £20 billion investment and tax incentive action plan. As part of the plan, the Finance Bill works to make more investment available to higher-risk, innovative businesses by doubling the annual limit on how much investment these knowledge-intensive companies can receive through the enterprise investment scheme and venture capital trusts scheme to £10 million, and doubling the limit on how much investors can invest through the EIS to £2 million, providing that anything above £1 million is invested in knowledge-intensive companies.

Within a decade, these changes will produce £7 billion of new and redirected investment into growing companies. On top of this, the Government are stimulating productivity growth by increasing funding in research and development. At the Budget, we extended the National Productivity Investment Fund to £31 billion, and increased the R&D investment element of that by a further £2.3 billion. To complement these and other efforts, the Bill will also increase the rate of the R&D expenditure credit from 11% to 12%.

To achieve a balance in the tax system, the Bill narrows the scope of the bank levy, so that, from 2021, UK and foreign head-quartered banks will only be taxed on their UK operations. Crucially, this provision works in conjunction with the broader package of reforms to bank-specific taxes announced between 2015 and 2016, which includes an 8% surcharge on bank profits over £25 million. The package is forecast to raise an additional £4.6 billion from banks over the current forecast period.

Finally, the Bill continues and strengthens the Government’s work clamping down on tax avoidance and evasion. Since 2010, the Government have introduced more than 100 avoidance and evasion measures. We have secured and protected over £175 billon of extra tax revenue that would otherwise have gone unpaid. As a consequence, the UK’s tax gap stands at just 6%—one of the lowest in the world.

At the Budget, the Chancellor announced a further package of measures expected to raise £4.8 billion by 2022-23. The measures in this Bill constitute part of that Budget package and include provisions to make online marketplaces more responsible for the unpaid VAT of their sellers, close loopholes to ensure individuals with offshore trusts cannot avoid paying UK tax on payments or benefits taken from that trust, extend disguised remuneration rules to include close companies, and clamp down on waste crime by bringing illegal waste sites into scope of the landfill tax. These measures and others like them demonstrate the Government’s enduring commitment to ensuring that taxes are paid.

Although relatively short, this Bill is significant in both ambition and substance. It supports young people buying their first homes, drives productivity by encouraging business investment and ensures tax is paid where it should be—all of this without stifling competition, encumbering the market or hindering growth. This is a Government committed to prosperity and committed to the future. I commend the Bill to the House and beg to move.

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My Lords, I suspect that nearly everybody sitting in this House will struggle to recognise the extraordinarily rosy picture of the economy that the Minister just described. Just about every single one of the markets to which we export and to which our economy is usually tied are absolutely going gangbusters, with extraordinary levels of growth. Normally, even by doing nothing, we would be pulled forward into high growth numbers by that alone. Instead, we are struggling at around 1.7% to 1.8% growth, and if the Government are not worried by and anxious about that, then frankly I wonder where the captain has gone—he is certainly not on the deck.

Investment numbers in this country have fallen off a cliff. Obviously a large part of that is driven by Brexit uncertainty. We get the occasional investment that hits the headlines, but overall the numbers are down very significantly, and if the Government are not worried about that, I am even more concerned.

The OBR has readjusted its trend forecast for productivity down to 1.2%. That is extraordinarily bad news and reflects a set of very fundamental problems, which this finance Bill does not begin to tackle. I accept that it is an extremely deep-seated problem, but if the Government do not recognise the consequences of that for our economy at large, again I am very concerned. If the Minister thinks of this in terms of ordinary people and talks to them about the squeeze on their wages, which have remained stagnant as they see prices consistently increasingly, he will begin to understand that this is not an economy firing on all cylinders and racing ahead. In fact, it is almost inexplicably behind where anyone would have expected it to be in general global circumstances.

Obviously, a good part of this is about the ticking time bomb of potential Brexit. I also fully understand that, because of that, the Chancellor did not use this finance Bill to take major steps forward: it is not a visionary finance Bill but very much a tinkering at the edges finance Bill, because he knows he is sitting with an unexploded bomb and has absolutely no idea of when it might go off, how it might go off and which part of the economy it might hit first or second, and is therefore trying to give himself as much flexibility as possible to react spontaneously as all of those things begin to hit. I suspect that we will have much more extensive discussion of this next week in the debate on the Spring Statement, when we will also have some new figures from the OBR to underpin that discussion.

I will address just two things today, both very briefly. One is the absolutely core issue of funding for the NHS. The Minister will remember that, prior to last November’s Budget, the NHS basically came forward and said that it needed an additional £6 billion a year just to be able to sustain the system—£4 billion for the NHS and £2 billion for social services. Whichever way you add it up, the Government came forward with only £2 billion out of that needed £6 billion.

An amendment to this finance Bill proposed by my right honourable friend Sir Vince Cable asked the Government to task the OBR with looking at a hypothecated, dedicated tax to support the NHS—particularly around the issue of 1p in the pound on income tax that we, as a party, have proposed—to see what the yield would be. There is also a much more fundamental issue. We are running into a long-term crisis and this bullet cannot be dodged unless the Government are willing to take action. Will the Minister take on board and pursue this absolutely vital issue?

The second area is tax evasion. Yes, the Government have made some improvements and I am always pleased to hear that. But frankly, until the coach and horses of an absence of public registers of beneficial interests in our overseas territories is taken care of, we are allowing an avenue that constantly provides the transit route to money laundering in this country and therefore to tax evasion and all the other kinds of evils that go along with it. They are moving to central registers, but those are not going to be public. I hope that the Government will one day realise that they must bite the bullet on this issue, rather than looking the other way. I understand that they feel that there are constitutional problems in dealing with the overseas territories, but the consequence of that is that all the other measures are basically piffling by comparison.

This was a tinkering at the edges Budget. I know that the Government talked about significant changes to housing, but they are going to be very much at the margin and the edges. We know from previous stamp duty holidays that they do not change the pattern of buying in any way whatever. They may be popular but they do not change either supply or demand. In none of their programmes are the Government tackling the fundamental issue of the lack of affordable housing. If they do not allow local authorities to go ahead—whether alone or in partnership—and build the new, needed, affordable houses where they are required, we will not begin to see an end to this particular set of problems.

I look forward to the Spring Statement next week to see whether it makes some radical change that enables us to move forward significantly. This is a small Bill, making small, fringe changes in a set of circumstances where new vision and radical action are required.

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My Lords, Lloyd George should be living at this hour. Here we have a Finance Bill introduced by the Minister where the only contributors are the Opposition Front Bench spokesmen. This is an indication of how limited the House’s role is in relation to Finance Bills, and justifiably so. As the noble Baroness, Lady Kramer, pointed out, we will have the opportunity to have a serious debate about the economy next week, when I anticipate there will be greater participation from all parts of the House.

The Minister put an extraordinarily optimistic gloss on the state of the economy at the present time, as the noble Baroness, Lady Kramer, also pointed out. In circumstances where so many countries are showing real and rapid growth and the world economy is benefiting from that, this Government are still watching their levels of economic growth bounce along at the bottom of the OECD countries. What this low level of economic growth indicates is that there are limited resources for the wider society and also for the Government to meet their obligations.

In the other place, Ministers were so concerned about the possibility of penetrating opposition amendments to this Bill that they introduced a procedural Motion restricting opportunities for critical amendments—a procedure which we have normally only seen either in the exciting times immediately before a general election when the decks are cleared or when warfare is approaching. What is the crisis on this limited and pathetic little Bill that causes Ministers to run for cover under a procedural Motion? The only crisis is the obvious one that this Government lack confidence in handling the other place.

The Government’s lack of confidence, of course, derives from their exiguous majority, which is dependent on another small party. That underpins so many of the Government’s actions. It certainly underpins their whole approach to Brexit, and that is why we fear that the negotiations will not produce the effective Brexit that we all want. The Government are in hock partly to the fact that they do not have a majority in the House of Commons and partly to the fact that a determined section on the right wing of the party do not really care about the terms of Brexit—in fact, they seem to exalt in the possibility of our having the hardest of hard Brexits, and the economy is meant to cope with that. We shall see.

Let me be absolutely clear about this Bill: it does not in any way, shape or form measure up to the significant needs of the economy or do anything to repair the damage done to the economy by the actions of previous Conservative-led Governments. As we all know, their record on economic growth is poor and their record on productivity is almost negligible. I have seen the noble Lord join the considerable list of Treasury Ministers since 2010 who have taken up their post expressing considerable optimism about the role that they can play in this regard. Yet even the noble Lord, Lord O’Neill, who we all know has vast experience of productivity issues, was still trapped by the fact that productivity under this Government is showing no significant improvement at all. What the Minister referred to as an encouraging development is just a marginal movement which we can scarcely credit.

We also recognise, of course, that the Minister slides very carefully past the targets which the preceding Chancellor used to have for clearing the deficit in 2015. That has long since been buried as a potential successful objective, and we are now in a miasma of somewhat changed definitions of the deficit we are tackling. We all know that the Government, because of their limited progress on the economy, are struggling to meet targets on reducing the deficit.

The Bill’s failure to address any real issues relating to the economy and society means that crucial issues remain completely unaddressed. How can the Minister talk optimistically about a society in which the average basic pay is below the level it was in 2010? That means there has been no pay rise for large numbers of working people since 2010, and yet the Government have the arrogance to suggest that things are showing considerable improvement. It is quite clear that we have had decades of lost earnings growth. We have not had an issue with regard to wages for 200 years that matches the record of this Government in that respect over the last few years.

That is how serious the situation is, but you would not have detected that from the Minister’s gloss on what this Bill is meant to represent. As the noble Baroness, Lady Kramer, mentioned earlier, no attempt has been made to address—what everybody recognises in our society—the crisis facing the National Health Service. Look at the limited amount that the Government set free for the health service when informed opinion was quite clear just what was necessary. The Government did not meet even half that.

Related to the National Health Service is the great problem of social care for the elderly. We all recognise that the changing demographic of our society is putting greater weight on the health service and on care for the elderly. Yet the Government seem quite incapable of addressing these issues. What greatly upset my colleagues in the other place was that, when a clause was tabled there for the Bill to contain an equality impact assessment, because the Government need to carry out a thorough analysis of the nature of the challenges faced by so many people in our society, the Government made sure that that was not passed. Therefore, an essential building block for the analysis of the problems in our society was not even contained in this Bill. At least if that assessment of the nature of the problem had been there, it would have been something to save the Minister’s face in introducing such a forlorn exercise. But it was turned down and rejected in the other place.

When it comes to productivity, I recognise certain aspects of where the Government are making some progress. We recognise the value of developing apprenticeships, although it is quite clear that we have got to be very encouraging towards that development. It is still the case that the vast majority of young people in education who are aspiring and have good results think overwhelmingly of university and in academic terms rather than of the needs of our economy for skilled manpower.

Alongside that, the Government have produced a devastating onslaught on the further education colleges that provide training. In addition, opportunities for part-time education have fallen almost completely by the wayside. One thinks back to the days when institutions such as the Open University were at their prime. Part-time education is now unsupported by public resources and, consequently, the opportunities have declined. A vigorous economy would keep open opportunities for people as they mature, irrespective of their achievements at any one level. People can change both in their aspirations and their abilities, and it is important to have systems that are open and flexible. With regard to education, I am afraid the Government have done exactly the opposite.

We may not have had the full equality impact assessment, but we all know the nature of our society. Even the Government are beginning to recognise that women come out of this Finance Bill more poorly than men. It is part of the pattern of our society. We have had a great deal of publicity about the issues of discrimination against women by the BBC, and we all recognise the challenge with institutions like that, but the whole question of equality for women needs to be addressed at a much more basic level. On this International Women’s Day, it is only right that we should have a debate—as will take place after this one—on the issues confronting women. It is important that the Government recognise that so much needs to be done to change the levels of discrimination that are plain at the present time.

It is not just about women: young people also feel heavily discriminated against. You cannot talk to those between the ages of 18 and 25 without recognising that the possibilities for them in our society are, in so many respects, inferior to those which their parents faced. If ever there was one clear objective that the vast majority of parents have always had, it is to try to make sure that their children have greater opportunities than they had—to improve society and the economy in such a way that their children’s opportunities are greater. We are now facing a situation where exactly the opposite is occurring. That is why this Bill should have paid some attention to tackling that crisis.

I welcome the fact that on Thursday next week we will have an opportunity to debate the economy and our society, and I am sure there will be a large number of participants. This miserable little Bill scarcely gives us any opportunity for that, but what it did do was crush opportunities that could have been taken under a more confident Government with clear objectives in pursuing their policies in the country. This Bill does not look like that to the average citizen or to the vast majority of our people. That is why the Government need to address themselves more satisfactorily to the economic situation than they do in this rather miserable little Bill.

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My Lords, I may have overshot the mark in my opening speech by being a little optimistic. I congratulate the noble Baroness, Lady Kramer, and the noble Lord, Lord Davies, on having well and truly rebalanced that perception. There are two potential reasons why there was not a long list of speakers for the debate. One could be a lack of interest, but the other reason could be that there is broad support across the House for the measures in the Bill before us —the House itself can judge whether or not that is true.

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My Lords, could it be perhaps that noble Lords wish to speak in the next debate, which they see as more important?

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That is one possible explanation, but your Lordships have always been assiduous in their attention to matters such as the Finance (No. 2) Bill before us.

Let me try to address some of the points that were raised. The first point was on the argument about growth. We were the joint fastest-growing major economy just as recently as 2016. Of course, there has been a level of uncertainty as a result of the British people’s decision to exit the European Union; that is understandable and most people would recognise it. However, I do not see 1.7% as being a miserable or pathetic rate of growth, or that other OECD competitors with rates of 1.9%, 2% and 2.9% are experiencing extraordinary rates of growth. We entered into this cycle of growth out of the recession of 2008-09, much earlier than others. Therefore, we are at a different stage of growth. But to be able to say that we have grown for 20 consecutive quarters—five years of growth—and that manufacturing has grown for eight consecutive months, which is the longest continuous streak for 30 years, is surely reason for a degree of optimism.

The noble Baroness, Lady Kramer, asked about NHS funding. The Budget provided an extra £6.3 billion of new funding for the NHS, and we are committed to increasing the NHS budget by a minimum of £8 billon in real terms over the next five years. This is a significant first step towards that. The NHS is seeing over 2.9 million more A&E patients every year compared to 2010 and treating 57,000 more people every year for cancer, giving the UK its highest ever cancer survival rate. The noble Baroness asked whether we would have a hypothecated tax for health. Of course, we have such a tax in the sense that 20% of NIC receipts go directly towards the National Health Service.

On the point about housing provisions not bringing about changes, if the measure on stamp duty were taken alone, that might well be true, but it will help a million first-time buyers. Surely that has to be welcomed. In the wider context, the fact that employment is at almost record levels, with 3 million more people earning a salary than in 2010, must also be helpful for the housing market, because it means they have a salary with which potentially to buy. But that is not enough, and it is why we said that stamp duty was one element of that. Another element was to go towards our aspiration of building 300,000 new homes each year.

Let me turn to investment—I think the noble Baroness said that business investment had “fallen off a cliff”. Again, that might be overstating it a little. Business investment contracted by 2.6% in the year to the EU referendum, but grew by 2.5% in the year since. The OBR forecast is for business investment to grow by 2.5% in 2017 and 2.3% in 2018-19, which is a different approach. A key element of that was extra funding of £31 million for the productivity investment fund. That will make a significant contribution, as will businesses investing in themselves, which is the most successful form of business investment. The corporation tax rate has fallen from 28% to 19%, which means that small, medium-sized and large businesses have more money to invest in their own businesses and their own futures.

The noble Lord, Lord Davies, referred to the equality briefing. It was under this Government that we became one the first countries to introduce gender pay gap reporting. The gender pay gap for full-time employees is at a record low. Building on this, the Budget announced steps to boost female enterprise and innovative trials to support women returning to work. The number of women in work is at a record high of 15 million, an increase of 1.4 million since 2010, of which 80% were full-time. The gender pay gap for full-time employees is at a record low of 9.1%.

There are reasons to recognise that we need to be prepared to strengthen the economy to make more it competitive internationally so that we make a success of Brexit for Britain. The people who do that will be the workers and businesses of this country. This Bill strengthens measures to help them by reducing their taxes, increasing incentives to invest—especially in knowledge-intensive industries—and helping young people to achieve their aspiration of getting on to the housing ladder. These are all reasons why I am happy to commend this Bill to the House.

Bill read a second time. Committee negatived. Standing Order 46 having been dispensed with, the Bill was read a third time, and passed.