It is a pleasure to close today’s debate on the Finance (No. 2) Bill, even if other events have possibly overshadowed today’s important parliamentary business. In fact, I understand that there are reports circulating this evening that the Crown Prosecution Service is about to charge 30 senior Conservatives with election expenses fraud, so I am afraid it is possible that we may be squeezed down the news cycle still further. I am grateful to Members for their thoughtful contributions to today’s debate.
This is a poor Government who have achieved very few of the aims set out by David Cameron when he first came to power in 2010, especially in relation to the public finances. Instead, they have created a crisis in living standards and underfunded essential public services. Those of us who entered Parliament in 2010 know that the Government’s promises on the economy when they came to power have not even come close to being fulfilled, and this Bill takes a lot of pages to deliver very few tangible improvements on that poor level of performance.
I will begin by reiterating the concerns raised by my hon. Friend the Member for Bootle (Peter Dowd) at the beginning of today’s debate. The Bill is certainly large, adding complexity and technical detail to the statute
book, yet we have been presented with an almost impossibly tight timeline in which to properly scrutinise and discuss it. The stakeholders we have consulted have echoed those worries. For example, industry bodies tell us that they have struggled with interpreting and analysing the Bill’s full impact, given the time and volume involved. I imagine that that process will be truncated still further, given the imminent general election.
On the specifics of the Bill, HMRC is rightly at the centre of the Government’s plans to tackle tax avoidance. The Government’s own estimate of the current tax gap stands at £36 billion, which in the opinion of many tax experts is a highly conservative figure, given the method of calculation. It is extraordinary that the Government believe that they can address that gap by drastically cutting HMRC’s staffing and budget levels. At autumn statement 2016, the Government announced a series of cost savings via administration and operational measures at HMRC, totalling £180 million a year by 2021-22. It goes entirely against reason that the Government are trying to find £180 million in savings in an organisation that is critical to efforts to recoup a slice of that £36 billion in missing revenue.
The significance of that tax gap has never been more critical. Our NHS has been pushed into crisis by the Government’s failure to fund it and social care properly. Each week brings new and damning revelations about the state of the service we all rely on, with the end result being that in some areas the Government have simply given up on their own targets, such as the 18-week waiting time for hip and knee surgery. We need a properly funded plan for the NHS that takes into account the real needs of delivering a 21st-century health service with patient welfare at its heart.
We also face the significant added complication of Brexit, which remains unaddressed in the plans for HMRC. Although we all remain in the dark about what exactly our departure terms will look like, we face the reality that we may for the first time in decades have a customs border between us and the EU that will need policing. We are already seeing a crisis in VAT evasion from overseas sellers, potentially costing the Exchequer as much as £1.5 billion a year, by its own estimates. Should we leave the single market, there will be a huge increase in pressure on the customs system, which is struggling to cope as things stand. These are serious matters for consideration, related to the fulfilment section of the Bill. UK retailers are not on a level playing field with unscrupulous sellers from around the world, at a cost to both our competitiveness and our Exchequer, and HMRC is currently ill-equipped to tackle that abuse.
Businesses of course operate in a global environment today. That brings its own challenges, and we need to make sure we are providing the right framework for businesses to handle it. We are approaching what has been termed the fourth industrial revolution, which has precipitated a huge shift in the nature of work and employment. It is unsurprising, therefore, that many of the clauses in the Bill legislate for those changes, such as those involving IR35 and Making Tax Digital.
Undoubtedly, we must change our approach to how we treat employment in the 21st century, but the Government seem to be firing unsuccessfully at a moving target. This change in approach comes far too late and, in our opinion, has the wrong focus. The rise of the gig
economy has brought opportunities for some, but challenges and exploitation for others. Flexibility and independence have been highly valued advantages for some workers, but self-employment has also been abused by unscrupulous employers as a means to reduce their tax bill and to avoid giving contractors the rights and entitlements of employees. So far, the Government’s only answer has been to propose punishing the employees by increasing taxes on them, not to consider the rights and obligations of both sides of this equation.
We saw that reflected in the chaos of the Budget last month, when the Chancellor’s completely wrong-headed decision to introduce NICs parity with employed workers highlighted the lack of understanding at the highest levels in the Treasury of the modern nature of work. The Government rightly backed down on the issue, but it showed that trying to legislate piecemeal for what has effectively been a revolution in the world of work has been ill thought through and will not succeed.
For example, IR35 shifts the entire burden of taxation on to contractors, rather than looking at the underlying issue of why the public sector has become so dependent on these types of employees. As is argued by the Low Incomes Tax Reform Group, the rules on errors in taxpayer documents seem to ignore the fact that low-income groups could now be caught in punitive anti-avoidance measures simply because they have no choice but to operate through an agency, or because they cannot afford accountancy advice to help them to fill out their tax returns. As an alternative, we advocate a wholesale review of the package of measures offered to self-employed individuals. Our scrutiny of the measures in the Bill is delivered through that lens: these are a succession of piecemeal changes that risk hurting people unwillingly caught in the net of self-employment, rather than wealthy tax avoiders.
Opposition to the NICs rise for the self-employed was so intense because the UK prides itself on being a country of entrepreneurs, and on being able to create an environment in which small businesses and independent workers can thrive. The Making Tax Digital proposals are yet another illustration of how the Government continue to miss the point when legislating for a changing world of work. These proposals will put undue pressure on small businesses and the self-employed, who simply do not have the resources to input tax information on a quarterly basis.
Even the House of Lords Economic Affairs Finance Bill Sub-Committee has said that it does not share HMRC’s confidence in its estimates of how far the tax gap will be reduced by this measure, which it has described as fragile and little more than guesswork. Evidence given to the Sub-Committee showed that the initiative is in fact likely to result in greater errors in taxpayer reporting, not fewer, as businesses come under pressure to fill out accounts four times as frequently. Again, HMRC will be expected to accommodate this system at the same time as its resources are being cut and even more legislation is being piled up for it to enforce. In line with the rise in business rates, it is difficult to see how the Government can truly say that they are seriously committed to helping UK business to succeed. Instead, 2017 has so far been characterised by punitive measures and uncertainty, and this looks set to continue.
We should be discussing a Finance Bill—this is what we needed—that would address the real problems that exist in this country: the fact that real pay is still lower than before the financial crisis, that 6 million people earn less than the living wage, and that 4 million children live in poverty, two thirds of whom are in households where their parents work. We should be talking about how to balance the tax system and spread the burden, not simply getting into a race to the bottom on corporation tax while seeing crushing rises in business rates, alongside increases in bureaucracy and administration. We should certainly be discussing a serious and realistic plan for the NHS and social care; from what I have seen in my own constituency, I reject entirely the Government’s assertion that they are properly resourcing social care in particular. We have a Finance Bill that does none of these things. For that reason and many others, we will oppose giving it a Second Reading tonight.
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