I tabled a number of amendments to the Finance Bill and spoke in the debate about Income tax, Corporation tax and capital allowances and Freeports. My contributions can be viewed below.
With the greatest respect for the previous speaker, I think there is a view across the House and in all parties that we need to manage the economy effectively in the interests of everybody. That means addressing the debt to GDP ratio—of course it does—but the question always arises, “Who bears the burden? Who carries the heaviest burden?” I believe that the Bill shifts too much of the burden on to those who are the least able to bear it. That is where we disagree, and it is an honest disagreement.
I will speak to oppose clause 5 standing part and to support amendment 2, and consequential amendments 3 and 4, which stand in my name and those of a number of my colleagues. Some of this is about confidence in politics, which at the moment is receiving a bit of a drubbing.
In the last general election, the Conservative manifesto pledged:
“We promise not to raise the rates of income tax…This is a tax guarantee that will protect the incomes of hard-working families across the next Parliament.”
Clause 5 breaches that pledge; incomes are not protected. More of people’s incomes will be hit by income tax. It is especially harsh on the millions of public sector workers who have faced from this Government: first, a pay freeze; a 5% rise in council tax; and now a stealth rise in their income tax. These people are low earners who struggle to make ends meet as it is. Low earners are heavily indebted. Some have been furloughed, losing 20% of their income for a year. Now they are being hit by a stealth rise in income tax that was not pledged at the last election and that any fair reading of the Conservative manifesto would have thought was completely ruled out.
The Labour party also stood on a manifesto that said there would be no rise in income tax for 90% of earners, and has recently said that now is not the time for tax rises. I hope that Members across the whole House will stand by their commitments at the last general election and oppose clause 5. This would allow the threshold to rise with inflation, as legislated for way back under the last Labour Government in the Income Tax Act 2007.
Low pay is endemic in our society. In 2015, the then Chancellor, George Osborne, promised a £9 minimum wage by 2020. It is 2021 and the minimum wage is still below that level. Let us look at an example. We know that half of all care workers earn less than the real living wage and the majority of children are living in working households. What does that say about low wages? The last thing any Government should be doing is raising taxes on low-paid workers, especially when that Government have broken their promises on raising wages and have failed to reach the target they set for the minimum wage.
Some Members may recall the Rooker-Wise amendment; it was a long time ago—44 years ago. That amendment overturned a similar proposal from the Callaghan Government. With many low-paid workers not getting a pay rise and facing mounting household debts, we should not be taking more of their income in tax. With high street retail needing an urgent stimulus, there cannot be a worse policy than removing demand from the economy at this time. That demand is really created by the people—these are the people who will spend, not hoard.
If the House is not minded to leave out clause 5, perhaps the Government can compromise and accept amendments 2, 3 and 4 in my name and those of other hon. and right hon. Members. These amendments would ensure that the stealth tax on working people was delayed until 2023-24—the same year that the corporation tax rise kicks in. Low-paid workers should not be hit with an extra year of tax that the corporations are not hit with.
Another point that I hope the Government will consider incorporating into the Bill before Report stage is the case for equalising capital gains tax rates with income tax rates. Ahead of the Budget, I was heavily briefed that this was being considered by the Chancellor. It is manifestly unfair that income derived from wealth is taxed at a lower level than income derived from work. I hope that the Government will look at this issue ahead of Report stage. I urge the Government to consider accepting amendments 2, 3 and 4 at a bare minimum—better still, leave out clause 5 altogether. Do not force the lowest paid in our economy to shoulder what could be the heaviest burden.
Corporation tax and capital allowances
Following on from my right hon. Friend the Member for Barking (Dame Margaret Hodge), I find it almost incredible that we are having this debate at all, given what we know about the track record of abuse of this type of tax deduction, as she so eloquently pointed out. The Minister is right to suggest that amendment 11, tabled in my name and those of other right hon. and hon. Friends, would have the effect of removing the provision of capital allowance super deductions.
There has been considerable evidence, and concern, from economic think-tanks and Committees of this House that tax reliefs have failed to deliver their stated objectives and, worse, that they have often had unintended consequences through the creation of perverse incentives. Members have raised example after example in recent years, including the entrepreneurs allowance, the patent box and the tonnage tax, all of which have not only failed in their objectives but lined the pockets of company directors and shareholders, exactly as my right hon. Friend said. Accountants, lawyers and others have been using them effectively for tax avoidance. The scope for perverse incentives and unintended consequences is even greater with these super deductions. If the Chancellor wants a sweetener to go alongside his corporation tax rises, surely at a time of rising unemployment it is more urgent to incentivise job retention through a temporary cut to employers’ national insurance contributions rather than introduce what has been described as this dog’s dinner of untargeted super deductions in clauses 9 to 14.
Unlike Ministers, in dealing with business, I do not believe in a something-for-nothing culture. If the Government are giving tax breaks to businesses, the Government, as guardians of the public purse and the public interest, should demand something in return. New clause 1, in my name and those of other hon. and right hon. Members, asks simply that, in return for companies being eligible for these super deductions, they should pay their workers the real living wage and should recognise trade unions for collective bargaining purposes—two simple things that reflect that they are responsible employers.
I regret very much the Minister’s reference to these as “burdensome” requirements. Paying a decent wage and recognising trade unions are not a burden, but actually things that enhance the role of an individual company. As has been said in debate after debate, even by Government Ministers, in many instances the greater involvement of the workers in a company increases productivity. These are just low barriers for companies to pass. It does not take long to recognise a trade union or to be accredited as paying the living wage. Companies that do not currently meet these extra criteria could easily do so during the passage of this Bill and its enactment.
I also back the Front-Bench amendments in the name of the Leader of the Opposition, and I pay tribute to my hon. Friend the Member for Ealing North (James Murray). He is right that companies such as Amazon that dodge their taxes and evade their responsibilities to their workers should not be given tax breaks on top. The Chancellor of the Exchequer made much of his compact with unions and business groups over the furlough scheme. This modest new clause 1 puts in legislation the approach I am putting forward. I believe that it is within the spirit of that relationship between Government, trade unions and employers, and I just urge the Government to think again about accepting it.
New clause 2, in my name and those of other hon. and right hon. Members, combines a request for an evidence base for super-deductions in respect of capital allowances and to explore what economic benefits could be derived from attaching social and environmental conditions to the receipt of super deductions. I heard one hon. Member in this debate say that the Treasury monitors these policies and does indeed review them; unfortunately, it does not.
Historically, tax reliefs have been introduced, and over the years an accumulation of tax reliefs have never been reviewed and never really been tested for their effectiveness in the way they should be. The Office for Budget Responsibility stated in its March “Economic and fiscal outlook” that the super deductions, as others have said, are expected to cost at least £25 billion in total between 2021-22 and 2023-24. This is a huge commitment, and it is surely in the public interest that we have an assessment of policies’ effectiveness and also ensure they deliver on social and environmental goals.
In new clause 6, I seek to create an evidence base on which this House can assess the merits and drawbacks of the super deduction policy. The Public Accounts Committee has previously looked into the operation of UK tax reliefs, and its findings painted a worrying picture. These reliefs already cost more than £100 billion a year in forgone tax, and HMRC does not even know how many reliefs exist or monitor their cost, let alone their effectiveness. Let me quote my right hon. Friend the Member for Barking, who is the former Chair of the Committee. She said:
“HM Treasury and HM Revenue and Customs…do not keep track of those tax reliefs intended to influence behaviour. They do not adequately report to Parliament or the public on whether reliefs are working as intended and what they cost and whether they represent good value for money.”
She went on:
“HMRC does not effectively monitor changes in the cost of tax reliefs so is slow in identifying instances where a relief is being exploited for a purpose”
beyond what Parliament intended. I think that is an accurate but damning indictment and one that should concern the whole House, but especially Treasury Ministers.
New clause 6 specifically recommends that the Public Accounts Committee is tasked with reviewing the effectiveness of existing capital allowances and that this House then votes on the clauses that provide for super deductions in the light of that evidence. I urge the Government to get a grip on the whole process of tax reliefs. We have seen how they can be abused. We have seen how ineffective they can be. We have also seen an industry develop, with accountants and lawyers who have profiteered from tax reliefs that the Government have introduced over decades. To add now to that abuse of taxpayers’ money in this way, I deeply regret. I urge the Government to think again. I give the Government this warning: in a few years’ time, if the Bill goes through as it is now, I bet we will be returning to this debate with example after example of how this system has been abused, to all our cost.
New clause 4 stands in my name and those of several right hon. and hon. Members. As I said in the debate on the provisions for super deductions, if the Government are giving tax breaks to businesses, then the Government, as guardians of the public interest, should demand something in return. The provisions in new clause 4, listed as (a) to (d), are modest demands that many Members, especially those on the Opposition Benches, think should be required of all businesses anyway. It is important that public money supports public goods and good public outcomes, like a fair day’s pay for a fair day’s work, like tackling climate change, in which we all—individuals, Government and businesses—must play a role, and like eradicating the gender pay gap, a process this House began over 50 years ago with Barbara Castle’s groundbreaking Equal Pay Act 1970.
The Minister referred to those as “complications”. I do not believe that paying decent wages, tackling climate change or overcoming the gender pay gap are complications. I believe they are essential criteria for any policy for the future. If we are to tackle rising poverty—if the Government want to do that—there is an opportunity here to end in-work poverty by guaranteeing the real living wage in companies locating to freeports. We have 4.3 million children in poverty, and most are living in households where at least one parent is in work. Government policy must act to tackle low pay.
Low pay holds people back and is often linked to insecure work, which is why the Government should also act to end zero-hours contracts. Insecure and low-paid work means insecure housing and instability for children. The Government should put down a marker in this policy for the society we want to be. As things stand, from what we have heard in the debate so far, it is a society for a few to profit and the rest to struggle. This new clause is about hardwiring fairness and justice into our economic system, and about levelling up. It should not be in conflict with any stated aim of the Government, and I hope that they accept the new clause or at least consider the issues about how we tackle this range of policies and use the state to enable that to happen.
New clause 5 also stands in my name. In its analysis of the Chancellor’s Budget, the Office for Budget Responsibility said of freeports:
“Further details have been announced in the Budget but came too late to be incorporated into our forecast. We will return to this in our next” economic and fiscal outlook. So this is policymaking as a leap in the dark. It is not evidence-based, but done on the basis of supposition and, largely, ideology, given what we have heard so far. What I seek to do in new clause 5 is create an evidence base for policy, on which this House can assess the merits and drawbacks of such a policy. There are reasons to be concerned. Many Members of this House will recall the debates about enterprise zones in the 1980s. Those zones did little to benefit local workers and simply transferred jobs and investment, rather than stimulating it. In an assessment of the enterprise zone policies of the 1980s, the Centre for Cities think tank found:
“The first two rounds…created 58,000 additional jobs (directly and indirectly), but over 40 per cent of those jobs were created by businesses that had relocated to enjoy the tax cuts”.
It also found that each job
“cost the public purse £26,000 (in 2010-11 prices), which was significantly more expensive than other policies”
for job creation that we were being pursued at that time. The same policy was brought back under the Government of David Cameron, championed by the then Chancellor George Osborne. Analysis of those zones by the Centre for Cities showed the jobs supposedly “created” in these zones were often just relocated from elsewhere. Unfortunately, the evidence showed that they were also overwhelmingly low-skilled and low-paid. Tax breaks in underinvested areas are not an industrial strategy. New clause 5 is a simple plea for evidence-based policy making, and one I hope the Government will accommodate in their future discussions.
I hope the Government will also accept new clause 25 in the name of the Opposition Front-Bench team, because it too demonstrates that evidence-based policy requires policies to be reviewed, and that the evidence base has to be assessed throughout implementation of any particular policy. The case for freeports has not been made and the risks are significant. There are risks of accelerating tax avoidance, and actually doing economic damage to areas neighbouring freeports is a real concern. To leap into a policy with such a lack of evidence and of account taking of past practice is worrying, to say the least.
This is the last time I will speak at this stage of the passage of the Bill, so I would like to place on record that, after listening to the debates on Second Reading and today, even I am shocked at the undeniable evidence of the scale of corporate capture of this Government, going well beyond anything we have seen under the last two Tory Prime Ministers. The central purpose of this Government, on the basis of these policies—both the super deduction and holding back the corporation tax increase, as well as the freeports—appears to be simply to line the pockets of corporations with taxpayers’ money and to render them free of any effective regulation that would make them accountable to a wider community. I therefore honestly and fervently fear for the future of this country in the hands of this Government.