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Clause 25 and schedule 3 on managed service companies were mentioned by many speakers today and rather dismissed by several Labour Members. I am deeply worried that people who are effectively self-employed but who work through a managed service company to facilitate their contracts, tax returns and tax payments will be deemed to be employees and will be taxed accordingly. Included in this is an additional tax yield of £350 million this year and almost £1 billion over the next three years, and there is a very real suspicion that this is simply a tax raising measure, rather than an anti-avoidance measure.
I understand that a large number of the people who may be affected by the provision work in IT as independent freelance IT contractors and consultants. I also understand that one in four of those work for Government Departments or local government departments. If they are expected to bear an additional cost burden, it is almost certain that that additional cost will be passed on to the employer—a Government Department or local authority department—and there will be a corresponding requirement for more spending by Government in order to pay for the consequences of the change to managed service companies.
The Conservative amendment states that the Bill
“fails to equip the UK to compete”
with the ever-increasing competition from abroad. I agree. The business tax rises in particular are a disincentive for competition. The amendment goes on to say that the Bill
“penalises small companies with higher tax rates”—
that is self-evident, and it offers
“a more complicated tax system, hits freelance workers with more tax bureaucracy”,
as I have just described. I agree entirely with that.
When the amendment states that the Bill
“does nothing to tackle the UK’s worsening pensions crisis”,
it perhaps overstates the case, but I have set out our suggestions and what the Government failed to do in the Budget speech in respect of pensions.
The amendment argues that the Bill
“misses the opportunity to provide effective mechanisms for tackling climate change”.
That is worth repetition. There are measures in clauses 10 to 24 on fuel duty, vehicle excise duty, air passenger duty, energy saving for houses, microgeneration and so on, but the big questions and the big decisions that the Government could have taken, which have been flagged up any number of times to Ministers from the Opposition Benches, and which have been repeated from the Front Bench in two subsequent Budgets and two subsequent pre-Budget reports—about finding the funding mechanism to support the carbon capture and storage project at Peterhead—were missed.
The two issues that the Government could have addressed, the inequity in connection charges to the grid to harness the massive power of offshore wind generation and at last finding a funding mechanism to support the Peterhead CCS project rather than re-announcement after re-announcement, year after year, in Budgets and in pre-Budget reports, have been wholly missed.
The Bill and the Budget from which it was derived were rather well summed up on Budget day by Carol Undy, the Federation of Small Businesses national chairman. She said:
“This is the Chancellor’s eleventh Budget and this year’s offering is no different to the others—he gives with one hand and takes with the other. However, this year, after some welcome initiatives for our members he throws it all away with a tax hike aimed at small businesses.”
The problem is competitiveness. The problem in Scotland is a growth gap. We have seen modest changes in terms of a reduction of 2p in the top rate of corporation tax. We have seen the small company rate increased and personal tax increased.
Carol Undy of the FSB got it right, which is why the Bill and the Budget from which it flows are so dreadfully disappointing. It is smoke and mirrors, a tax raising Budget and a tax raising Finance Bill. They will do nothing to help competitiveness and nothing to help hard-pressed families, who will pay more tax, not least the 52 per cent. of low and modest earners in the Chancellor’s own constituency. That is why, if it is pressed to a vote tonight, we will oppose the Bill.
9.10 pm
Mrs. Siân C. James (Swansea, East) (Lab): I would like to take this opportunity to talk about how the Finance Bill will help to tackle child poverty and help working families in my constituency and many others like it. I have been proud of my Government’s efforts in this area, and of the Chancellor’s role in supporting and sharing the prosperity of this nation with those who too often have been left behind. When I meet people in my constituency—a typical Welsh working-class community—I often hear about how well they are doing. They know that a strong Labour Government helped to deliver the services that they need and the opportunities for them to prosper and grow.
The right hon. Member for Wokingham (Mr. Redwood) urged us to look forward, not back. But what I hear when I am out and about in my constituency is, “We can’t go back. Look at all the things that have improved for us. Look at all the ways in which our lives are getting better. We’re afraid that if we go back to what was there before, we’ll suffer.” I have often heard the simile that life is like trying to drive a car without a rear-view mirror—one does not need a rear-view mirror, but it is very useful. We need to look forward, but every so often we need to have that reassuring glance towards the past.
People understand full well that only a Labour Government can deliver on their behalf and ensure that their future prosperity is taken care of. I am thinking of the difference between now and the time when I worked with families who needed the support of a charity such as Save the Children. I had to go out into communities across Wales. I worked in fundraising and supported hard-pressed families who had lost hope. They had lost the chances that life had given them. Perhaps they had not had the opportunities that others had had. I know that I do not want to go back to that.
The security of good employment, low mortgage rates and sustained economic growth is allowing people to prosper and to plan for the future. They tell me what a difference child tax credit, working tax credit and pension credit are making to their lives and how
confident they are for the future. Yes, we have had teething problems and complaints, but every time people think about being without those tax credits, they are afraid. In the past there were fears, doubts and worries about jobs, mortgages and savings. I do not see that any longer. I see confidence, hope and proposals for the future.
In the wake of the Budget, a number of constituents have taken the time to thank me not only for what the Government are doing, but for what the Chancellor has done. They recognise that the Chancellor has invested in families and communities. Under the stewardship of the most successful Chancellor of the Exchequer this country has ever seen, they have seen those differences. The Finance Bill will play a key role in ensuring the continued prosperity of this country and will help even more working families and children to achieve the best standards of living possible.
In Swansea, East, the figures speak for themselves. It was an area of high unemployment and it suffered huge changes after the loss of the heavy industries. We now have 2.9 per cent. unemployment. If somebody had told us 10 or 15 years ago that we would achieve those low levels, we would all have said, “You’re dreaming.” But we are there, and we have achieved that dream. The employers in my community and my constituency are different employers. The workplaces are different. I visited Admiral insurance, which is a major employer in my constituency. It operates four of its services—its various companies—out of the SA1 development in my constituency. That is a prestigious development that has happened under this Government and with the foresight of the last Labour administration in Swansea. When I visited, I saw hope. The people there were not talking about how things were not getting better. They were telling me about how their families were prospering.
Young people have been helped by the new deal, which was opposed by the Opposition. Nearly 3,000 young men and women have joined the new deal and benefited from the guidance and advice on offer. The Bill will provide further support to families. Such investment is crucial. The child element of the tax credit, which will be increased by £150, will help even more children. Already that has made a difference to more than 10,000 children in my constituency. There are challenges, but the benefits are visible to everyone.
Julia Goldsworthy: Will the hon. Lady concede that the take-up of tax credits remains a key problem, as is identified by the Treasury Committee report published today? Until that is addressed, the changes in taxation will be a problem for low-income families who are either not entitled to tax credits or are not claiming those to which they are entitled.
Mrs. James: I thank the hon. Lady for that intervention, but we must encourage people to take up any opportunities that exist. People are not taking up various tax benefits and opportunities. The rate of take-up of the child bounty is not good in my constituency. We must use publicity to encourage people to take up everything to which they are entitled. The people of my constituency look to the Labour Government to do that.
Mrs. Madeleine Moon (Bridgend) (Lab): Has my hon. Friend found that the child trust fund has led to a change among families? Young families in my constituency not only use the trust fund, but add their savings to it. They are investing in their children’s future in a way that they would not have done if the fund had not been set up. The fund has made a tremendous difference to their attitude towards saving for their children and their future.
Mrs. James: I agree with my hon. Friend about that saving attitude. We must encourage people to take the available opportunities and nurture their ability to think about how they can save and use money positively in the future. We want their children to benefit and to get the saving ethic as soon as possible. However, we need even more people to take up child tax credit and the child trust fund.
It is not only families and children who have benefited and will benefit further. The increase in pension tax allowances will take 600,000 pensioners out of paying income tax. Again, the message from pensioners whom I meet in my constituency is that there have been significant changes and improvements in their lives. They realise that a Labour Government have taken care of them and helped them to achieve a better quality of life.
Nearly 5,000 pensioners in Swansea, East are in receipt of pension credit, which gives them an extra £49 a week. More than 11,000 households receive winter fuel payments. What matters to people is the help in their pockets, and how they can improve their lives. Of course I welcome all the improvements. I would have liked the Chancellor to be even more generous to families and children, but I realise that he has done everything that he can to help as many people as possible.
We as a Government have made a difference to some of the poorest people in our communities. I am confident that we will continue to deliver good job opportunities and financial support for working families, children and pensioners, and will ensure that everyone benefits from the success that we enjoy in Britain. I commend the Bill to the House and hope that it has a speedy passage.
9.18 pm
Mr. Mark Francois (Rayleigh) (Con): 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
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