Finance (No. 2) Bill — House of Lords, 2018-03-08
Topic: Macroeconomics
Michael Bates (Conservative, Centre-right): My Lords, the Bill before the House today is a mere 187 pages long, which compares favourably to the more than 600 pages of the previous Finance Bill. In part, this reflects the Government’s move to a single, annual fiscal event but it also represents the fact that in December the Government published a document setting out how future Finance Bills will interact with the new tax policy-making timetable. The new cycle carves out more time for consultations and commits the Government to publishing as much of the Bill as possible in draft. Even so, in this Bill some 111 of the 187 pages were published in draft form last September. The Economic Affairs Finance Bill Sub-Committee takes an understandably close interest in the process by which tax legislation is developed. I hope that it will find very much to welcome in this new approach Before I turn to the important tax changes enacted in the Bill, I shall set out the broader economic and fiscal context in which we find ourselves and which this Government have helped to create. The UK economy has now grown for 20 consecutive quarters: that is five years of continuous growth. Manufacturing grew by 1.3% in the fourth quarter of last year and has grown for the longest consecutive period in 30 years, with high-tech sectors such as cars and aerospace growing particularly strongly since 2010. Total exports of goods and services grew by 5% in 2017, up on the previous year, and manufacturers remain optimistic as surveys show high export orders. Employment has continued to rise—by 3 million since 2010. Crucially, these figures do not reflect prosperity just in London and the south-east: since 2010 all nations and regions of the United Kingdom, up and down and across the country, have experienced higher employment and lower unemployment At the autumn Budget, the Chancellor reported that the deficit has been reduced from 9.9% of GDP in 2009-10 to 2.3% of GDP in 2016-17. Borrowing is set to fall even further in the coming years, reaching 1.1% of GDP in 2022-23, the lowest level since 2001-02. The plan to get back to living within our means is on track. The Government’s fiscal rules take a balanced approach and the OBR forecasts that the Government are going to hit our fiscal targets. Our debt will start falling from next year. The Budget stayed true to our commitment to fiscal responsibility to improve the health of our public finances. However, at 86.5% of GDP, we recognise that public debt is still far too high. Although productivity growth has shown signs of improvement lately, we want to foster the environment to allow it to accelerate. The tax policies in this Finance Bill support that strategy The Bill is an important lever in this Government’s legislative programme. A focus on helping young people get on to the property ladder, improving productivity and business investment and continuing our robust efforts to prevent tax avoidance and evasion is at its heart Home ownership is a near universal aspiration. However, it is a dream that is increasingly difficult to realise for many of our young people. Affordability is the underlying problem. Consequently, at the Budget, the Chancellor announced a housing package designed to boost supply to put the housing market on a more equitable footing in the longer term. On Monday, the Prime Minister reiterated her commitment to meeting the housing challenge and announced an overhaul of the planning system to deliver more homes in the right places However, the Government also want to act in the short term. That is why the Finance Bill permanently scraps stamp duty for first-time buyers purchasing properties worth up to £300,000. On average, first-time property buyers will save nearly £1,700. This means that 80% of first-time buyers will not pay stamp duty at all, and 95% of all first-time buyers who pay stamp duty will benefit from the changes. Over the next five years, this relief will help over 1 million first-time buyers Last year, productivity grew by 0.7%, as measured by output per hour. At the autumn Budget, following weaker than expected growth, the OBR downgraded its estimates for the trend of productivity growth to 1.2% per year. Productivity is the best way to sustainably raise and maintain higher living standards and grow GDP. Since 2010, the Government have introduced a set of reforms intended to bolster the dynamism required from our modern and international economy. This includes unlocking over £0.5 trillion in capital investment—funding the biggest rail modernisation programme since Victorian times and major infrastructure projects such as Crossrail and the Merseyside Bridge, supporting businesses by cutting corporation tax to 17% in 2020, increasing access to finance through the British Business Bank, and improving skills through investment in apprenticeships and the introduction of T-levels However, we must go further. The Finance Bill does precisely that, encouraging additional business investment by supporting the UK’s dynamic, risk-taking businesses. The Government are a committed partner of the business community. We are, and will continue to be, a world-leading place to start a business. However, due to the lack of finance, some of the UK’s potentially most innovative new businesses are struggling to scale up. That is why we conducted the patient capital review, which reported on these barriers to growth. It concluded that knowledge-intensive companies, which are particularly R&D intensive, often require considerable upfront capital. In response, the Government set out a £20 billion investment and tax incentive action plan. As part of the plan, the Finance Bill works to make more investment available to higher-risk, innovative businesses by doubling the annual limit on how much investment these knowledge-intensive companies can receive through the enterprise investment scheme and venture capital trusts scheme to £10 million, and doubling the limit on how much investors can invest through the EIS to £2 million, providing that anything above £1 million is invested in knowledge-intensive companies Within a decade, these changes will produce £7 billion of new and redirected investment into growing companies. On top of this, the Government are stimulating productivity growth by increasing funding in research and development. At the Budget, we extended the National Productivity Investment Fund to £31 billion, and increased the R&D investment element of that by a further £2.3 billion. To complement these and other efforts, the Bill will also increase the rate of the R&D expenditure credit from 11% to 12% To achieve a balance in the tax system, the Bill narrows the scope of the bank levy, so that, from 2021, UK and foreign head-quartered banks will only be taxed on their UK operations. Crucially, this provision works in conjunction with the broader package of reforms to bank-specific taxes announced between 2015 and 2016, which includes an 8% surcharge on bank profits over £25 million. The package is forecast to raise an additional £4.6 billion from banks over the current forecast period Finally, the Bill continues and strengthens the Government’s work clamping down on tax avoidance and evasion. Since 2010, the Government have introduced more than 100 avoidance and evasion measures. We have secured and protected over £175 billon of extra tax revenue that would otherwise have gone unpaid. As a consequence, the UK’s tax gap stands at just 6%—one of the lowest in the world. At the Budget, the Chancellor announced a further package of measures expected to raise £4.8 billion by 2022-23. The measures in this Bill constitute part of that Budget package and include provisions to make online marketplaces more responsible for the unpaid VAT of their sellers, close loopholes to ensure individuals with offshore trusts cannot avoid paying UK tax on payments or benefits taken from that trust, extend disguised remuneration rules to include close companies, and clamp down on waste crime by bringing illegal waste sites into scope of the landfill tax. These measures and others like them demonstrate the Government’s enduring commitment to ensuring that taxes are paid Although relatively short, this Bill is significant in both ambition and substance. It supports young people buying their first homes, drives productivity by encouraging business investment and ensures tax is paid where it should be—all of this without stifling competition, encumbering the market or hindering growth. This is a Government committed to prosperity and committed to the future. I commend the Bill to the House and beg to move.