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If, as suggested in the Opposition’s amendment 29, the income test applied only to the current tax year as opposed to the previous three, that would give people whose income is more than £150,000 a big incentive to reduce it below that level for the two years to which the anti-forestalling legislation will apply. People in that income bracket are often in a position to renegotiate
their pay to delay taking income into a later tax year. Removing the three-year rule would put at risk a significant amount of tax revenue—we estimate that it could be £100 million in the two years to April 2011. It is important to bear it in mind that, for the majority of pension savers—98.5 per cent.—schedule 35 changes nothing.
I hope that hon. Members will welcome the Government amendments and that Opposition Members will not be inclined to press their alternative amendments.
Mr. Hoban: Schedule 35 has caused much concern to many people, including pension providers and the self-employed. They are concerned about the hasty way in which it was introduced, without consultation, the rough edges that it creates and its discrimination against people who do not make regular contributions—quarterly or more frequently. People have made many representations and sought ways of amending the schedule so that the rules apply more reasonably.
The Financial Secretary, today and in Committee, emphasised a willingness to get the schedule right. However, he tempered that from time to time with a focus on the Revenue cost. He argued today and in Committee that some people are in a position to renegotiate their contracts to alter their package, thus taking advantage of amendment 29. However, some people who earn relatively low sums of money this year will have earned a large sum in the first year. I had an e-mail from a member of the public who earned little in the past two years but suddenly landed a contract this year and earned more than £150,000. [Interruption.] He may well have e-mailed other Members, too. That is the joy of e-mailing prolifically. Other examples have been given of other people who have received income in lumps. I want to ensure that the Government, in their pursuit of tax avoidance, do not create too many rough edges in the scheme so that people who are not in a position to manipulate their tax affairs lose out. That is why I tabled amendment 29.
I am grateful to the Financial Secretary for recognising the strength of the arguments behind amendment 30. Several people have mentioned not only a change in the provider of the scheme—obviously people do not want to lose the benefit of protection under the scheme if the business for which they work decides to change pension provider—but what happens when the scheme itself changes. I wonder whether the Financial Secretary could reassure me by saying that he will deal with that through regulation or that it is already covered in the schedule. It would be helpful if he listened to me rather than his neighbour.
We know that several large employers are closing down their defined benefit schemes and moving to defined contribution schemes. I had an e-mail from someone who was in a defined benefit scheme and was concerned that they would lose the benefit of the protected pension input amount provisions in schedule 35. Could the Financial Secretary say a little about how people in that situation would be protected? If someone remains in the same employment, with the same broad employment package, but the employer closes down the DB scheme and the employee is therefore forced to move to a DC scheme, will the protection remain? Given the changes that are likely to happen in the next couple of years and the number of DB schemes that are closing, that will be of interest to many people.
Let me turn now to amendments 25 to 28. I welcome the fact that the Government’s thinking has moved. In Committee we looked at either increasing the special allowance from £20,000 to £50,000 across the board or averaging the previous year’s contributions. We decided that we wanted to take a hybrid approach, and clearly the Treasury has been thinking along the same lines. We welcome the fact that the Government have moved some of the way, by introducing a £30,000 limit, which is not where I thought they were heading in Committee, when I thought that they were considering simply keeping the £20,000 limit. However, I am still not convinced that they have moved far enough in recognising the difficulties for those who are self-employed who make irregular contributions to their pension funds. I would have preferred a more generous limit, although I take on board the Minister’s comments about the cost of the £50,000 limit compared with the cost of the £30,000 limit.
In conclusion, I will not press amendments 29 or 30 to a vote. I am pleased that the Government have taken on board the thrust of amendment 30 and come up with a more elegant and cheaper version of amendments 25 to 28. If the Minister had tabled those amendments rather sooner than the Friday before debating them, I might have tabled a more elegant amendment of my own to change £30,000 to £50,000. However, the Government have moved somewhat, thanks to the pressure from both inside and outside this House. I do not think that the proposed measure is perfect by any stretch of the imagination. Some people will still suffer from the sharp edges that the proposed anti-forestalling measure will introduce, but schedule 35 is certainly in better shape than it was when the Finance Bill was published a few months ago.
Amendments made: 49, page 302, line 41, at end insert—
‘Increased special annual allowance16A (1) This paragraph has effect where the mean of the infrequent money purchase contributions amount for the tax years 2006-07, 2007-08 and 2008-09 (“the relevant mean”) exceeds £20,000.
(2) Where the relevant mean is less than £30,000, this Schedule has effect as if the references in paragraph 1(4) and (5) to £20,000 were instead to the relevant mean.
(3) Where the relevant mean is £30,000 or more, this Schedule has effect as if those references were instead to £30,000.
(4) The “infrequent money purchase contributions amount” for a tax year is the aggregate of any relevant contributions paid in the tax year—
(a) under money purchase arrangements, other than cash balance arrangements, under registered pension schemes, and
(b) less frequently than on a quarterly basis;
(and so is nil if no such contributions were so paid).
(5) But if the infrequent money purchase contributions amount for a tax year would otherwise be greater than the annual allowance for the tax year, it is to be taken to be the annual allowance for the tax year.
(6) “Relevant contributions” means contributions which are—
(a) relievable pension contributions by or on behalf of the individual, or
(b) contributions paid by an employer of the individual in respect of the individual.’.
Amendment 50, page 303, line 18, leave out ‘are members of’ and insert—
‘(a) are or have been members of currently-relieved non-UK pension schemes, or
(b) have been members of overseas pension schemes that were not’.— (Mary Creagh.)
Amendment made: 8, page 368, line 14, leave out ‘Paragraphs (c) and (d) of sub-paragraph 2A do’ and insert ‘Paragraph (c) of sub-paragraph 2A does’.— (Mr. Gauke.)
Amendment made: 21, page 423, line 14, leave out ‘by’.— (Mr. Gauke.)
Amendments made: 51, page 425, line 1, leave out from beginning to ‘P’ in line 2.
Amendment 52, page 425, line 4, leave out ‘whether before or after that date,’.
Amendment 53, page 425, line 6, leave out ‘during’ and insert
‘between the date on which P makes the request and the end of’.— (Mary Creagh.)6.58 pm
Mr. Timms: I beg to move, That the Bill be now read the Third time.
Let me begin by thanking all hon. Members who have participated in the various stages of this Bill, from Second Reading in early May through to the Committee stage, which all of us who were involved hugely enjoyed, and to debates yesterday and today on Report. The Bill has benefited in a number of respects from the scrutiny that it has received.
The world economy is experiencing the worst conditions for generations. We are taking action to help families and businesses so that we can come through the downturn sooner and stronger. The Bill introduces measures to support the economy and the public finances, and measures to continue the modernisation of the tax system. Together with other policies across Government, it will help to put Britain firmly on the path to recovery.
Help is needed to support the economy through the current problems, and the Bill will help to implement the temporary VAT cut until the end of the year—a fiscal stimulus of more than £11 billion into the economy that has supported households, from those on higher incomes to those receiving benefits. Businesses also benefit from additional household spending. In addition, the exempt sector—including charities and financial services, health and education—is benefiting directly from lower VAT costs. There has been growing recognition that the measure is working.
The freeze in the small companies’ rate of corporation tax will help more than 800,000 companies. The temporary extension of the loss carry-back rules, benefiting more than 140,000 businesses, will help many viable firms that face cash-flow difficulties. The Bill is helping to support investment by temporarily doubling, to 40 per cent., capital allowances for businesses investing now. That will benefit a further 60,000 businesses, together with the business payment support scheme, as part of which 160,000 agreements have already been reached with business, deferring tax payments of £2.7 billion.
The Bill provides real help for businesses now, targeting it at those in most need while encouraging investment for growth in the future. It also introduces measures to support the public finances through the medium term, which is a critically important task for us to accomplish. It tackles the challenges faced by the economy, but also provides for changes that will support businesses and individuals in the medium term. The high level of consultation, both formal and informal, that we carried out in preparing the Bill is reflected in the World Bank’s “Doing Business 2009” survey, which ranks the UK sixth in the world for ease of doing business. The measures in the Bill are good for individuals, good for business and good for the economy as a whole. I commend the Bill to the House.
7.1 pm
Mr. Hoban: I wish that I could talk about the Bill with the same degree of conviction as the Financial Secretary. He has referred to what appeared to be a cornucopia of goodies, but I have to say that this has been a relatively uncontroversial Finance Bill. It has ducked the main issues. Although we have the legislation to establish the 50p rate, the measure to set the rate is deferred to another day; there are measures aimed at fiscal consolidation, such as the anti-forestalling measures on pension contributions, but the increase in national insurance contributions announced in the pre-Budget report is not in the Bill. That has rather limited the areas of heated debate between those on the two Front Benches.
As ever with Finance Bills, the areas of controversy have been principally those on which the Government have not consulted beforehand—the measures that were slipped into the Bill in the days and hours leading up to the Budget. We have had debates about the role of senior accounting officers, and about pensions anti-forestalling rules, for example. In both areas the Government have been widely criticised for failing to consult industry. That lack of consultation undermines the competitiveness of the tax system and creates uncertainty for businesses. It sends out a message that businesses cannot be sure that measures announced in the pre-Budget report represent the full sum of the technical measures to be introduced in the Finance Bill. That causes business a great deal of concern.
Once the Government had bunged those measures into the Bill, they had to retreat and listen to the forceful arguments put forward by us and by those outside the House. That is why, to reflect some of those concerns, we have seen amendments tabled in Committee and on Report. We have made the Government see the merits of allowing people who make irregular contributions to their pension scheme to receive higher-rate tax relief on their contributions. We have forced the Government
to modify the rules on senior accounting officers in a way that leads us to ask what the measure is actually for. Will it simply impose additional costs on business but bring in no real return to HMRC?
Those are not the only areas in which the Government have been prepared to listen. My hon. Friends the Members for South-West Hertfordshire (Mr. Gauke) and for Hammersmith and Fulham (Mr. Hands) have either had amendments accepted by the Government or provided the inspiration for amendments that have been accepted. The Government might say that that shows that they are a listening Government, but it also demonstrates the value of consultation and discussion, as opposed to acting first and thinking later.
The Bill also demonstrates a lack of political will on the part of the Government, and a failure to push forward with difficult reforms. They have abandoned proposals for a per-plane duty as a replacement for air passenger duty. With political will, those proposals could have worked; instead the Government have introduced banded air passenger duty, which will affect many from the Caribbean community who will end up paying more for their flights. A lack of nerve has meant that sensible environmental tax changes have been abandoned.
There are measures in the Bill that we commend. The reforms to the taxation of foreign profits should make Britain a more attractive place to do business. I hope that it will stem the outflow of businesses from the UK seeking to re-domicile their headquarters overseas, but it should be a salutary reminder to the Government that they cannot afford to neglect the competitiveness of the UK’s tax system. That is why my hon. Friend the Member for South-West Hertfordshire tabled a new clause asking the Government to produce an annual report on the measure. Government neglect of the competitiveness of the UK tax system not only risks businesses from this country moving elsewhere, but acts as a barrier to the inward investment that we will need to restart the economy when the recession is over. Businesses are mobile and tax competition can erode our tax base as businesses move overseas, forcing tax rates to go up.
I have referred to measures introduced to deal with the taxation of foreign profits, and the new debt cap rules were part of that package. A number of representations have been made about the detail and the practical impact of those rules. A number of people have expressed the concern that there is a risk of incentivising debt at the expense of international businesses that use their own resources to fund inward investment.
Our debate on dividend exemption demonstrated the increasing influence of the EU on our tax affairs, as rules on the free movement of capital and establishment now make it difficult to have rules that favour UK companies. It was because of a threat from the EU that the dividend exemption rules dictate that dividends from UK companies are not automatically exempt. That is a retrograde step for UK companies that were previously used to having all their dividends and distributions automatically exempted.
Despite the Finance Bill running to 448 pages, there were only three measures on tax simplification. At a time when we need to reduce the burden on businesses, we should be seeking more opportunities to reduce the complexity of legislation and the costs of compliance.
There were few controversial issues for the Committee to get its teeth into. Difficult decisions, as with so many
other areas of this Government’s policy, have been kicked into the long grass. At a time when the tax system needs reform to help businesses, to support families and to adjust to the realities of modern business, the Bill does little to address the challenges that lie ahead. This is a Bill from a Government who have run out of steam, run out of ideas and run out of road—no big arguments, no big ideas.
7.8 pm
Mr. Jeremy Browne: The Finance Bill is an inevitably enormous piece of legislation that is rightly subjected to many months of scrutiny both in Committee and on the Floor of the House. It has been a privilege to get to know the other hon. Members who have scrutinised the Bill with a degree of detail and to come to understand better their qualities—and occasionally, as in my own case, limitations. We have all got to know each other better and I hope that we have all subjected the Bill to a suitable level of scrutiny.
I would like to take this opportunity to thank a few people: Hanneke Hart, my master researcher, without whose efforts I would not have been as well equipped to try to hold the Government to account; Madeline Lewis from PricewaterhouseCoopers and John Whiting, formerly of that organisation, have been very helpful; and my hon. Friends the Members for South-East Cornwall (Mr. Breed) and for Southport (Dr. Pugh) have shouldered the burden of the many hours of scrutiny that we have undertaken.
The backdrop to this Bill is the ruinous state of the public finances. As a country, we are borrowing an extra £480 million every single day—a level of borrowing that is without precedent and clearly unsustainable in anything more than the fairly short term. That big backdrop required a Government who had big, bold measures in order to address the magnitude of the situation. Instead, we were given a very small Finance Bill containing many micro-proposals. In the last few days, for example, we have discussed a small above-inflation increase in the duty on beer at a time when pubs are closing, breweries are struggling and beer consumption is falling. The amount of extra revenue raised will be tiny, if it exists at all. Only this afternoon, we discussed further punitive measures affecting the bingo industry at a time when bingo halls are closing. Again, the amount of extra revenue will be tiny, if any money is raised at all.
The Minister talked of the VAT cut. The Bill enabled us to extend it by one extra month: that is another timid measure. Even the measures that have been sold to the public as big, headline, dividing-line issues, such as the 50p income tax rate—a broken Labour manifesto promise—turn out, when subjected to closer scrutiny, to be raising very little money in the grand scheme of things, and possibly no additional revenue at all.
The sad conclusion that we must reach after several months of detailed scrutiny is that this Government are exhausted, and that what is needed is a fresh start with innovative ideas and bold leadership for our country.
7.11 pm
Stewart Hosie:
As the Minister said, the Bill extends the temporary VAT cut. He suggested that there was evidence that it is working. Even now, at the stage of this short Third Reading debate, there is still extraordinary
denial. The temporary VAT cut will protect fewer than half the number of jobs that the same amount of money would have protected had it gone into direct capital investment. The tragedy is that with debt approaching £1.6 trillion, with net investment due to fall from £44 billion to £22 billion and with employment rising—we have seen the largest-ever single monthly rise this year—all that we are seeing is tinkering around the edges.
I will not detain the House further, but I agree with the other Front-Bench spokesmen that this is a Bill from a Government who have clearly hit the buffers.
Bill accordingly read the Third time and passed .
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