Finance Bill

It is a pleasure to sum up for Her Majesty’s Opposition following an interesting and at times lively debate. It is also a pleasure to speak from the Dispatch Box on St. George’s day. As it appears that I have some time available, I will do my best to refer in turn to each of the dozen contributions that we have heard. The Chief Secretary to the Treasury began his speech in his usual genial manner, which the House appreciates, although he took some friendly fire from the right hon. Member for Birkenhead (Mr. Field). He did his best to justify the Government’s tax breaks for zero-carbon homes. Although he got into a bit of trouble over that on ““Newsnight? last year, he told the House today that some zero-carbon homes are being built in his constituency at a place called Gallions Park. Unfortunately, he was not able to tell us exactly how many homes were being built, so, if the House will forgive me, I shall say that under this Chancellor we still do not know how many zero-carbon homes we get to the Gallion. I hope that the Financial Secretary will be able to give us the precise figure in his winding-up speech. We then heard the feisty speech of my hon. Friend the Member for Chipping Barnet (Mrs. Villiers), the shadow Chief Secretary to the Treasury. She firmly championed the role of small businesses in the economy. In particular, she stressed our reservations about the serious extension to the powers of Her Majesty’s Revenue and Customs set out in part 6 of the Bill, and I will return to that subject in greater detail later. We next heard from the hon. Member for Newcastle upon Tyne, North (Mr. Henderson). He lists economic policy among his interests in ““Dod’s Parliamentary Companion?, and that was borne out by his speech, which lasted 46 minutes. He took interventions from a number of my hon. Friends about levels of inflation throughout history, but I remind him that today inflation in the United Kingdom is above that in France, Germany and Italy, above the EU average and the Organisation for Economic Co-operation and Development average, and above that in Japan, Canada and the United States. That should be a matter of serious concern to Members of all parties, irrespective of what colour rosette they wear on election day. We heard next from the hon. Member for Falmouth and Camborne (Julia Goldsworthy), who spoke for the Liberal Democrats. In fact, she was the only Liberal Democrat to make a speech in this important debate. She was given an award for brass-necked cheek by the hon. Member for Wolverhampton, South-West (Rob Marris), and he does not give those out lightly. I will not pursue that further; I will leave him to discuss that with her outside the Chamber—but she did appear to make up Liberal Democrat policy on the hoof when she said that the Liberal Democrats did not want a Finance Bill each year. I did not know that that was their policy, but we are now informed of it. She also described this year’s Finance Bill as a bit of a damp squib. I have to disagree with her, because there are some worrying aspects of the Bill, as I hope to go on to explain. We then heard from the hon. Member for Wolverhampton, South-West. Last year he spoke for almost an hour in the Finance Bill Second Reading debate, and he repeated that feat today. I owe him a personal apology, as I popped out of the Chamber briefly for a bowl of soup in the middle of his speech. I am sorry about that, but I did so secure in the knowledge that he would still be on his feet when I came back, and as it turned out, I was right. He has become a stalwart of the Finance Bill process, so we look forward to seeing him upstairs in Committee with his well-thumbed copy of the explanatory notes, and we look forward to him joining in our debates as we go through the Bill clause by clause. We then heard from my hon. Friend the Member for Hornchurch (James Brokenshire), who I notice is the star of this week’s edition of The House Magazine. He, too, stressed the potential impact of the Bill on small businesses and on the difficult decision of whether to incorporate. In that context, it should be remembered that the Chancellor, by introducing the zero rate, actively encouraged individuals to incorporate, but when many businesses followed his advice and rushed to incorporate, he effectively decreed that that represented tax abuse, so he abolished the zero rate last year in order to combat that abuse. That seems a curious way to behave if he wants to encourage stability in the tax system. We then heard from the hon. Member for Stoke-on-Trent, South (Mr. Flello), who I am sure is on his way back to the Chamber. He spoke principally about his constituency, but he mentioned some aspects of local taxation, including that in the United States. I should like to remind him when he returns that, in terms of national or federal taxes, the United Kingdom has a much longer tax code than the United States. However, I agree with him on one point: the United Kingdom is undoubtedly better off outside the euro than in it. My right hon. Friend the Member for Wokingham (Mr. Redwood) spoke briefly—as he put it—for an hour and five minutes, and he spoke, as ever, with considerable experience. He, too, praised the fact that the United Kingdom has remained outside the euro, but the real reason for that is what is sometimes called the sixth economic test: it is about whether the Government believe that they could ever win a referendum on the euro. In poll after poll, the British people have proved determined to retain their currency, the pound sterling. The principal credit for keeping it goes to them, and not at all to the Chancellor of the Exchequer, who continues to spend money on euro preparations within the Treasury. My hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) was the only member of the Treasury Committee to make a speech. I find that a little surprising; nevertheless, I commend him for his contribution. He, too, focused on the effect of the Budget and the Finance Bill on small businesses—a theme that received recurrent attention. My hon. Friend the Member for Ludlow (Mr. Dunne) also stressed the likely effect of the Bill on small businesses, including business partnerships. He talked about the need for Ministers to exercise close control—what my old sergeant major would have called ““grip?—over the activities of Her Majesty’s Revenue and Customs. He specifically called for a motive test relating to sideways loss relief—a positive suggestion that we may want actively to pursue. The hon. Member for Dundee, East (Stewart Hosie), who speaks on these matters for the Scottish nationalists, supported several of the points in our reasoned amendment. I therefore hope that he and his hon. Friends will support us in the Lobby against the Government. Finally, the hon. Member for Swansea, East (Mrs. James) talked about so-called teething problems with tax credits. With respect, if half the payments in the system being wrong is a teething problem, I hate to think what would happen if it went seriously awry. As with most Finance Bills, particularly from this Chancellor, there is a great deal of detail to consider, and we look forward to investigating that in Committee. Last year we spent a considerable amount of time debating the introduction of the new real estate investment trusts, or REITs, regime. That has now gone live, and I look forward to debating the Treasury’s proposed tweaks to the regime in clause 51 and schedule 17 with the Economic Secretary, whom I welcome back to his place. We have several more general concerns about what is in the Bill and about the important economic issues that it has plainly failed to address, and I should like to turn to some of those specifically. To start with, the Bill does comparatively little to assist small businesses. Although the Chancellor has followed our suggestion of reducing the headline rate of corporation tax to try to maintain our international competitiveness, in contrast he has begun progressively to increase the small companies rate from 19 per cent. to 22 per cent., forcing entrepreneurs to pay more tax, not less, as they attempt to grow their businesses for the future. Small businesses, which the Department of Trade and Industry defines as enterprises employing 50 people or fewer, are very much the motor of growth in our economy. According to the Federation of Small Businesses, they now employ more than 50 per cent. of the entire private sector work force, and it is apparent that these changes will hit them hard. In fact, as the Federation of Small Businesses said of the Budget in a press release entitled, ““Budget speech dismays small business?, this is a"““tax hike aimed at small business?." As it puts it, what the Chancellor"““gives with one hand he takes with the other.?" Similarly, Nick Goulding, the chairman of the Forum of Private Business, said of the increase in the small companies rate:"““The increase in corporation tax is a kick in the teeth for Britain’s small businesses?." My hon. Friend the shadow Chief Secretary spent some time on this subject, so suffice it to say that we shall return to it in the Committee of the whole House and upstairs in Committee thereafter. Part 6 contains potentially significant extensions to the powers of Her Majesty’s Revenue and Customs, including extending powers of arrest and surveillance across the combined HMRC organisation—even including an ability, as outlined in clause 96, for HMRC to penalise taxpayers when it ““thinks? that they have done something wrong. As Anne Redston of the Chartered Institute of Taxation pointed out in Accountancy Age on 5 April,"““You can’t levy a penalty on something HMRC thinks happens?." She goes on to say:"““If you’ve done something, or failed to do something then you have a fact, but if they think something has happened how can you appeal??" The powers of arrest partly result from the merger of Customs and Excise with the Inland Revenue. Although the Treasury has apparently told the professional bodies that it intends the powers to be limited in scope and used sparingly, few such safeguards are included in the Bill. It is therefore unsurprising that we have strong reservations about the operation of the proposals in practice, not least given HMRC’s increasingly heavy-handed method of dealing with taxpayers in relation to tax credit appeals. We will press the Government for safeguards on the way in which the powers, if the House grants them, operate in the real world, including their effect on the relationship between HMRC and the Serious Organised Crime Agency in combating organised fraud. We will shortly table amendments on the subject for consideration by the Committee of the whole House next week. Like most of the Chancellor’s finance measures, the Bill contains considerable anti-avoidance provisions, which are included in parts 3 and 5. It is part of a trend under the Chancellor to see a tax avoider around every corner and to devise an increasingly complex tax code to try to prevent that. ““Tolley’s Tax Guide?, which is often called the accountant’s Bible, has expanded correspondingly to try to keep up with the raft of additional tax legislation. The Chancellor’s inherent love of complexity means that it has doubled in length since 1997 and now stretches to four rather than two volumes. I can confirm to the House that, under the present Chancellor, we have finally become a world beater: thanks to his love of complexity, we have the longest national tax code in the world. In 1996, PricewaterhouseCoopers, in conjunction with the World Bank, published an analysis of national tax codes around the world. It showed that the UK’s code stretched to 8,300 pages, surpassed only by India, with a notoriously complex tax code, at 9,000 pages. Japan was third with 7,200 pages, while Switzerland barely got on to the pitch with a mere 300 pages of code. The Economist highlighted all that when its 11 November 2006 edition pointed out:"““Of the world’s 20 biggest economies, Britain is second only to India in the number of pages taken up by its primary legislation?." Since then, the Indian Finance Act 2006 and the 2007 Finance Bill have added a little under 300 pages to the Indian national tax code. However, back in good old Blighty, the Chancellor’s Finance Act 2006 contained 180 clauses and 26 schedules, which stretched to 517 pages. The tax law rewrite project prepared the Income Tax Act 2007, which helped to clarify some of the Chancellor’s complex tax law in simple English and even repealed some 250 pages of it. However, to do that it added a further 1,100 pages of clauses, schedules and tables to the tax code. The Bill piles on another 113 clauses and 27 schedules, which represent another 305 pages. In comparison with India’s nearly 9,300 pages of national tax code, the United Kingdom’s stands just short of 10,000 pages. The Chancellor, who always says that he wants to reduce red tape, has burdened the British people with the longest national tax code in the world. When the Financial Secretary responds to the debate, perhaps he will confirm that under his boss we have become a world leader—but as champions of complexity rather than clarity. The abolition of the 10p starting rate tells a similar story. The Chancellor rushed it through on Budget day in the hope that no one could follow him while he did it. How many of those Labour Members who cheered so loudly on Budget day and waved their Order Papers so enthusiastically realised that they were supporting a tax increase for those on low incomes? How many had worked out what the Institute for Fiscal Studies subsequently told us: that more than 5 million households—predominantly those on lower incomes— would be worse off as a result of the Chancellor’s Budget and the Bill? How many are happy to go back to their constituency Labour party executives and champion that? The net effect of those measures is actually to increase taxation on lower-paid families and that must drive ever more of them into the Chancellor’s highly complicated tax credit system, in which we now know that more than half of all the payments are wrong. More than 333,000 people appealed last year against the attempted recovery of an over-payment and fewer than one in 20 are likely, on the latest figures, to succeed. The tax credit system devised by the Chancellor is crying out for reform—[Interruption.] The Economic Secretary shouts out ““abolition? from a sedentary position. No, it needs to be reformed, and 90 Labour Back Benchers signed early-day motion 545, calling for reform of the tax credit system, particularly for the reform of the handling of overpayments. One of the signatories of that early-day motion is the right hon. Member for Birkenhead. In an article entitled, ““I won’t make life easy for Gordon by defecting?, in The Spectator of 24 February, he said:"““Gordon has been wrong on Pensions, we’ve run our course on Tax Credits, there’s no more money and we’ve enveloped huge sections of the population in means tested benefits; there ain’t any future in this. There is a need for a mega rethink, and there is a need for a leadership contest.?" Indeed. In the same article, when the right hon. Gentleman was asked whether he had considered defecting, he replied:"““I am not moving. That is not to say that I am happy in the Labour Party. Who is??" In fairness, he then flatly rejected the idea of leaving Labour entirely, but mainly on the ground that he did not want to give the Chancellor the pleasure. We then come to the vexed topic of pensions. The Finance Bill contains some measures that relate to pensions—for instance, three clauses in part 4, including those relating to changes in alternatively secured pensions or ASPs, as they are generally known. However, the Bill does little or nothing to address the massive damage done to the UK’s pension system by the Chancellor’s £5 billion a year smash and grab raid on our country’s pensions. When we debated the topic last week, the extraordinary thing about the Chancellor’s performance was his absolute and total refusal to say sorry. Despite the misery that he has caused pensioners up and down this country, there was not a hint of contrition or regret. If he is confident about what he has done on pensions, why has he had to spend two years and a considerable amount of taxpayers’ money fighting the release of papers under freedom of information legislation? When challenged and put on the spot, all the Chancellor could manage was to blurt out that Labour had introduced the Freedom of Information Act in the first place. When the Chancellor’s own Treasury civil servants warned him prior to going ahead with the change that the"““actuarial valuation of the pension scheme assets would fall by up to 20 per cent.; this would cause a shortfall of up to £75 Billion?," what part of that statement did the Chancellor—and the Economic Secretary, who was advising him at the time—not understand? The Economic Secretary’s hurried defence of the decision was that it had actually been done at the behest of the CBI. Subsequently, that was flatly denied by the CBI’s then director general, Adair Turner, who, on ““The World at One? on 2 April said:"““Let’s be absolutely clear, the CBI never lobbied for an end to tax relief at any time whatsoever in 1996 or 1997?." I remind the House that, whenever we debate pension changes in the Finance Bill or elsewhere, we have to be conscious that the general public are well aware that, as Members of Parliament, we have relatively generous pension arrangements of our own. For instance, as the Economic Secretary will know well, the hon. Member for Morley and Rothwell (Colin Challen)—or the future Lord Challen of Normanton, as we must probably learn to call him, can now look forward to a comfortable retirement, but what about the millions of pensioners who cannot? It is no wonder that the Prime Minister’s previous pensions adviser, Ros Altmann, said tellingly:"““The Chancellor will go down in history as the one who destroyed our pensions system. He just ignores what he doesn’t want to hear, then tries to cover up the consequences.?" This Finance Bill is brought to us by a Chancellor who is in denial about the misery that some of his measures have caused to ordinary, hard-working families up and down this country. It comes from a man who flatly refuses to apologise for any of this, because he seems to think that humility is a human weakness and not actually a strength. That kind of thinking has led to a poor Finance Bill that does little for pensioners against a background of rising inflation, which has helped to give us the longest tax code in the world but done little for small businesses, and which gives HMRC powers that need to be reined in. In short, it is a Finance Bill from a tired Chancellor, not a future Prime Minister. In view of the Bill’s inherent weaknesses, I urge the House to vote for our reasoned amendment tonight.