Finance Bill — House of Commons, 2016-06-28
Topic: Macroeconomics
Rebecca Long-Bailey (Labour, Centre-left): I thank the Minister for his earlier kind words, and commend him for his sterling effort over the last two days. He has fought his way through the Finance Bill with a bad back, and we wish him a speedy recovery. There will be a place in heaven for him, I am sure of that I want to speak about clauses 72 to 81, schedules 11 to 14, Government amendments 30 to 68, new clause 2, and the amendments that stand in my name and those of my hon. Friends. Clause 72 and schedules 11 and 12 cut the basic rate of capital gains tax from 18% to 10%, and the 28% rate to 20% on most gains made by individuals, trustees and personal representatives. Gains accruing on the disposal of interest in residential properties that do not qualify for private residence relief, and gains arising in respect of carried interest, remain subject to the 18% and 28% rates The Government have said that the retention of the higher rates for residential property is intended to provide an incentive for investment in business over property. Entrepreneurs relief will remain at 10 %, and will be extended to investors. I shall return to those reliefs, about which the Opposition have some concerns, later in my speech. The changes will take effect on 6 April 2016 As the Committee will know, Labour Members have a serious problem with this policy decision, which they opposed during the Budget debate and on Second Reading. It constitutes a major tax giveaway to the tune of £2.7 billion over the next five years for the wealthiest in our society, at a time when the poorest communities are crying out for help and investment. The Chancellor had a choice to make in his Budget. He had to decide whether to use any spare cash, of which he keeps saying there is none, to help the most vulnerable, who have suffered six years of the Government’s austerity programme, or to give a tax break to those who need it the least. He chose the latter, and, in the Opposition’s view, that says it all about the Government’s priorities The explanatory notes state that "the Government wants to ensure that companies have the opportunity to access the capital they need to grow and create jobs, and wants the next generation to be backed by a strong investment culture." Opposition Members want capital investment in our economy. Indeed, we champion it and we have been saying so for more than nine months. However, we question whether cutting the headline rate of capital gains tax will indeed trigger large-scale investment. We believe that it could simply line the pockets of some of the wealthiest The Chartered Institute of Taxation echoes those concerns, stating that "the intention of the reduction is stated as being to drive productivity growth across the UK, but we question whether a simple reduction in rates will stimulate growth" The Office for Budget Responsibility’s economic and fiscal outlook document suggests that such a cut is unlikely to put rocket boosters under business investment, having not predicted massive increases over the next five years. What is more, business itself has not been calling for this measure, which was totally unexpected. The top priority for business is investment in skills and infrastructure, not cuts in the top-line rate of taxation—especially when the headline rates are frequently chopped and changed by the Chancellor in what Paul Johnson, the director of the Institute for Fiscal Studies, describes as an "up and down rollercoaster ride" He also stated that "we need a serious plan and strategy here. This is not the way to make good tax policy" In the current economic climate, given the result last Thursday, it is even more vital to provide as much certainty as possible to business on the rates of tax that they will pay. Given the serious risk of recession in the latter end of this year, I again make the point that £2.7 billion is a lot of money that could be put to better use. The Opposition will not support such an unfair measure, and we will oppose this clause standing part of the Bill Clauses 73 to 75 relate to entrepreneurs relief, which provides a rate of capital gains tax of 10% on any gains accrued when directors who own 5% or more of a company sell shares in the companies they own, up to a lifetime limit of £10 million. The clauses address some issues with the legislation that was introduced in the Finance Act 2015. According to the Government’s explanatory notes to the Bill, changes in that Act "prevented certain abuses involving ER, but they also limited the availability of relief on some transactions where there was no abuse. The effect of the changes made by this clause are backdated to the introduction of FA 2015 in order to mitigate the disadvantage suffered by some as a result of earlier changes." Opposition Members have no issue with the content of the clauses, and we are pleased that the Government have tabled amendments to correct the poor drafting of the original ones. The Chartered Institute of Taxation had raised some concerns about that, so we are pleased that the Government have clarified the legislation However, the Opposition are concerned about entrepreneurs relief as a whole and we have therefore proposed, in new clause 11, that the Government produce a report within six months of the passing of this Bill giving the Treasury’s assessment of the value for money provided by entrepreneurs relief. The relief was estimated to cost £2 billion in 2012-13, rising to £3 billion in 2015-16. That represents a vast amount of Government revenue that is being forgone, and there appears to be no assessment of the relief’s efficacy in encouraging entrepreneurialism. We understand the rationale behind it, but as with all tax reliefs, the Government must ask themselves whether it provides value for money and whether it works in practice Tax Research UK’s analysis of the relief suggests that in the 2013-14 financial year, 3,000 people received tax relief to the tune of £600,000 each, at a total cost to the Treasury of £1.8 billion. Will the Minister confirm whether that is the case and tell us whether the Treasury has the relevant figures for 2014-15? That analysis also highlighted a couple of issues with the logic behind the relief itself, arguing that it is given at a time when people cease to be entrepreneurs by selling their businesses, and that it therefore does not encourage entrepreneurialism. It also argues that the relief has unfortunate behavioural consequences because by increasing the reward from sale it encourages sale far too early. The Opposition therefore feel that an assessment of the relief is in order given the vast amount of forgone Government revenue, which appears to be concentrated in the hands of a small number of individuals. I noted the Minister’s earlier comments and look forward to the results of the Government’s research, due to be published in 2017.