Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.

Donate to our crowdfunder

New Clause 11 — Stamp duty reserve tax

Oral Answers to Questions — Justice – in the House of Commons at 7:04 pm on 2nd July 2013.

Alert me about debates like this

Votes in this debate

‘The Chancellor shall, within six months of Royal Assent, publish and lay before the House of Commons a report detailing the distributional impact of any changes to or abolition of Schedule 19 to the Finance Act 1999.’.—(Chris Leslie.)

Brought up, and read the First time.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I beg to move, That the clause be read a Second time.

Hon. Members might not have spotted the announcement on this matter in the Chancellor’s Budget in March. It is a little-noticed provision that was buried on page 64 of the Red Book in the table that sets out whether individual policy decisions will mean a gain or a loss to the Exchequer. This decision did not hit the headlines and very few people spotted it. I should look back and see whether the Chancellor even referenced it in his Budget speech.

This little-known provision is the abolition of something called the stamp duty reserve tax. It is not quite the same as the stamp duty on share transactions that many hon. Members are familiar with. That is, for want of a better term, a financial transaction tax of 50 basis points or 0.5% on share transactions. The stamp duty reserve tax is the equivalent change that was introduced in schedule 19 to the Finance Act 1999. It is essentially a proxy for stamp duty on the return of units in unit trusts to the investment managers who deal in those transactions. If individuals buy units in unit trusts and then surrender or sell them back to the investment manager, a stamp duty of 0.5% has not unreasonably been paid.

The Chancellor, in his wisdom, has decided that that must go. He has decided to forgo the princely sum of £150 million in every financial year henceforth. I am afraid to tell hon. Members that there is a lot of this story to be told. The abolition of stamp duty reserve tax is essentially a decision by the Chancellor to give a tax cut to investment managers.

The new clause calls on the Chancellor, within six months of Royal Assent, to publish and lay before the House of Commons a report on the distributional impact of the change detailing who has benefited—whether it is the lower and middle-income households and families in all our constituencies or the privileged and wealthy investment managers.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

Does the shadow Minister not recognise that the abolition of the reserve tax will be a great enhancement to the UK unit trust industry, which has been losing a lot of business to Switzerland, Singapore and elsewhere? Although he has characterised the beneficiaries as being very wealthy, this change will ensure that jobs are retained in this important industry, especially back-office and middle-office jobs, as it goes from strength to strength in the decades ahead.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I commend the hon. Gentleman for doing his duty to his constituents in the City of London. I confess that they probably will be right up there among the beneficiaries of this change. He is assiduous in speaking up for his constituents, but I am sure he would concede that they are not exactly typical of people in the rest of the country. The people who engage in investment trust transactions and unit trust arrangements may well benefit from this £150 million tax cut.

The Chancellor of the Exchequer was supposedly faced with difficult choices and cuts in the Budget. That he has chosen to give a tax cut of this order at this time is a reflection of his priorities, which are beyond understanding for many Opposition Members.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

Would the shadow Minister be willing to extend his new clause to ensure that it takes into account what has happened since 1999 when the tax was instituted under the previous Labour Administration? More importantly, would that reflect Britain’s place in the world and what proportion of the global asset management industry was in Britain in 1999 and is still here today, compared with other countries? That may have a direct impact on why the Chancellor acted as he did in the Budget.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Times are tough, and for most people in the country life is getting harder. I confess, however, that I have not been lobbied by or seen those poor, unfortunate City investment managers knocking at my door, coming to my surgeries, or writing e-mails and saying, “Please, the one thing we need is the abolition of the stamp duty reserve tax. There is massive hardship among investment managers at this time, which demands a £150 million tax giveaway.” Frankly, I think the investment management community is doing reasonably well relative to the rest of the country. Moreover, I do not think that the City of London is uncompetitive. Indeed, all the evidence suggests the opposite and that the City continues to thrive and do exceptionally well—something like £5 trillion in funds is under the management of those investment managers affected by this tax change, and a tax cut of 150 million quid is small change to that community.

We are having this debate because we need to know why the Chancellor decided on this priority—cui bono would be the Latin adage. In whose interest is this? Who benefits from this change? I doubt it is my constituents in Nottingham East, and Government Members must forgive me if I am left with a slightly bitter taste in my mouth when we see the hardship caused by cuts to tax credits, the increase in VAT and the bedroom tax. The Chancellor says that individuals affected by those things must feel the pain and the squeeze, but when it comes to the City and the investment management community, I do not see how they are all in it together or sharing that anxiety.

Photo of Russell Brown Russell Brown Shadow Minister (Defence)

Yet again I am back on my old hobby-horse about the economy. If this measure is passed and people benefit from it, what will that do to the local economy? Will we see massive spending on our high streets? Will it help to regenerate the economy?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Dare I say that my hon. Friend knows the answer to his question? I do not think it will make a blind bit of difference to the success—or otherwise—of the investment management community, and I have seen no evidence from the Government that this measure is the thing that will transform the economy at this time, or make a massive difference to jobs and growth in society at large.

Let me put this in context: £150 million is a lot of money. In fact, it is exactly the same amount that the Chancellor cut from young mothers when he abolished the health in pregnancy grant—hon. Members will remember from the Chancellor’s first Budget that the health in pregnancy grant was given to mums-to-be to ensure they ate healthily and had a little help at that time. That was slashed; that had to go because £150 million had to be saved, yet in next year’s Budget the Chancellor is introducing a £150 million tax cut for the investment management community. That is about the same amount of money as was cut from the child tax credit supplement for one and two-year-olds in that original Budget. In fact, it is about the same amount of money that the pasty tax and the caravan tax were supposed to save—I am sure the Minister will remember that from the ill-fated omnishambles 2012 Budget. All the hassle that fell on the Chancellor’s shoulders at that time was due to saving £150 million. In that context, this is a strange choice by a strange Chancellor.

Photo of Stephen Doughty Stephen Doughty Labour, Cardiff South and Penarth

My hon. Friend is making a strong point. Does he, like me, think that people will be bemused by this measure when the Government voted recently against a reasonable motion on an international financial transaction tax? When people see those two things, as well as the bedroom tax, what will they make of this Government?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 7:15 pm, 2nd July 2013

We had that debate on a financial transaction tax a few weeks ago. I think we managed to extricate from the Minister, despite his reluctance, a suggestion that somehow, somewhere, buried in the Government, there was still some flicker of interest in a financial transaction tax. I am not sure whether it has been snuffed out by this particular measure. If this is the abolition of stamp duty on unit trust transactions, what will be next? What else will they give away to this particular set of fortunate investors? Will the Minister rule out plans to abolish the other financial transaction tax, the stamp duty on equity transactions? Do the Government have that long-standing financial transaction tax, which has been around for several hundred years, in their sights? Conservatives are second to none when it comes to defending the best interests of the wealthiest in society, and I take my hat off to the Minister for managing to slip this little one through in the Budget provisions without anybody really spotting it.

Photo of Geraint Davies Geraint Davies Parliamentary Assembly of the Council of Europe (Substitute Member)

My hon. Friend has already pointed out that this £150 million saving per year for the very richest should be compared with the bedroom tax saving of £450 million from the very poorest. The difference between the two measures is that the bedroom tax is hitting thousands upon thousands of the poorest people. The bedroom tax costs about £10 per week, and I have had people tell me that their disposable income is being reduced from £30 to £20 per week. With this tax, the £150 million saving is going to a very small number of people who will receive a large amount of money. These are the choices we face in Britain today. Does my hon. Friend think that that is disgraceful?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I am more disappointed that the Government think they can get away with it. I want very much to hear the Minister defend this decision. I am sure he will do so with gusto and alacrity, as ever, but I know that deep inside—the record will reflect that I am looking into his eyes—he realises that this is a completely daft idea. This is not a priority at this time. It is a crazy priority when the public are struggling, and I know that in his heart of hearts he agrees with me. It is not clear where this idea has come from. I saw something on the Deloitte website that said there had been many decades of lobbying in favour of this particular change. Perhaps the lobbying is something that the Treasury has eventually succumbed to.

When we line this measure up alongside other examples of largesse the Government have shown to those who are doing very well, it is notable. We cannot take it out of the context of the paucity of the bank levy, which was supposed to raise £2.5 billion in the previous financial year but did not. Last night, the Minister said that they will try to get £2.7 billion next year instead, but they are already £1.9 billion in arrears from the previous two financial years. It will be more than a decade before they are able to recoup the loss. It was notable last night that he did not say that he was certain that £2.5 billion would be brought in from financial years 2011-12 and 2012-13.

I will put the bank levy to one side. After all, what is a couple of billion pounds between friends? The Government refuse to repeat the bank bonus tax, despite the fact that financial services bonuses leapt by 64% in the first month of this year, when all those who benefited from the reduction in the additional top rate of tax—earnings over £150,000 were taxed at the 50p rate, but from, I think, 6 April they were taxed at the 45p rate—rushed out all those bonus payments. Of course, those individuals found ways and means to avoid the higher rate of tax, as the Government helpfully flagged the change up for them far in advance.

Photo of Geraint Davies Geraint Davies Parliamentary Assembly of the Council of Europe (Substitute Member)

Does that not contrast sharply with the 2 million people in Britain who are on payday loans? They could each be given £70 with that £150 million. They are desperate for the money, but instead these tens and hundreds of thousands of pounds are all focused on, again, the very rich. Does that not speak volumes about the cruel values of the Tories?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The point is the context in which these things arrive from the Government. Perhaps it is our fault that we have not successfully flagged up for the wider country what exactly is happening in the Budget or what will happen in future Finance Bills; but for the time being, it is incumbent on the Minister to do at least this one thing: let us have the distributional analysis showing who benefits from the change. Which deciles, in terms of the affluence of society, will gain the most from this £150 million tax cut? The case for it has not been made. It has not been high on the public agenda. There is no problem in the City or the investment management community of such significance that it merits this intervention by the Chancellor, at the expense of the health in pregnancy grant or the cuts to tax credits that merited the pasty tax and the caravan tax.

This £150 million tax cut is an incredibly important totem of the Chancellor’s priorities. It is a sign that he does not care about the fact that most people—the typical family—will be paying an extra £891 this year because of the tax and benefit changes made since 2010. Those who have found themselves pushed into greater deprivation and poverty will look at the decision and be absolutely disgusted that this is the Government’s priority now. This change has no justification. The Minister has not made the case for it. We need more information about who benefits from the arrangement.

All that comes on top of the Government’s giveaway on the bank levy, their failure to repeat the bonus tax, the millionaires’ tax cut from 50p to 45p and other changes hidden in the Bill, such as making the additional tier 1 debt coupon tax deductible for the banks, which The Times described thus: “Chancellor to the banks’ rescue with secret £1 billion tax break”. Lots of people will have questions, although not necessarily about this Minister’s priorities. He is doing the best of a bad job and having to cope with the hand he has been dealt. He is, I am sure, a decent and honourable chap, but when he goes home this evening, turns on the television and sees the hardship afflicting families up and down the country, I would ask him to keep in mind whether making a tax cut of £150 million for those investment managers was the right call to make at this point in the economic cycle, such as there is a cycle involved.

Photo of Russell Brown Russell Brown Shadow Minister (Defence)

I come very much from the school that says that if someone is under a bit of pressure and is struggling, it is only right for the Government to try to step in, but I am amazed by the figures. In 2011, the UK fund management industry was up 5%, after double-digit growth in the previous two years. The industry is not struggling. Why on earth should we consider giving even more money to people who, at the end of the day, are not in desperate need?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

That is the £150 million question. The tax cut is £150 million in the key years, but it goes up to £160 million in financial year 2017-18. It gets greater and greater as time goes on. If we roll all the numbers together, as the Chief Secretary to the Treasury is wont to do when presenting figures in the Budget, we get a total of £600 million of tax cuts in this area in the Red Book. I am sure that you could think of a good use for £600 million, Mr Deputy Speaker. At the very least, we want a distributional impact assessment. We want to know who will benefit from the measures, and it is incumbent on the Minister to tell the House the facts.

Photo of Geraint Davies Geraint Davies Parliamentary Assembly of the Council of Europe (Substitute Member)

I have been provoked to stand up and speak on this outrageous stealth tax, which is an attempt to subsidise the very richest in a clandestine way. If hon. Members had known about the £145 million being crept into the back pockets of the very richest people in the City, the Chamber would have been full of Members speaking in protest, as I am doing now.

The direction of travel in the Budget and the spending review continues unabated. It consists of blaming the poorest for the bankers’ errors, punishing them with cuts in public service jobs and wages and cuts in welfare benefits, particularly outside London and the south-east—and especially in Wales—then pumping all the infrastructure growth opportunities into London and the south-east, to line the pockets of the very richest, many of whom were responsible for the disaster in the first place.

The Government are allegedly trying to balance the books, but they are dismally failing to do so. They have decided to sack 600,000 public sector workers. This is having a disproportionate effect in certain parts of the country. Many parts of Wales, for example, are 50% more likely to have public sector workers than London, and it is in those areas that the cuts are biting deepest. Meanwhile, the money is going to places such as London, where the cuts are not so deep, not only in infrastructure investment but in measures such as this one. We are talking about getting rid of stamp duty on transactions in the City of London, where a small community of people will benefit from that tax cut of £145 million a year, and rising.

We must set against that the fact that 2 million people are already using payday loans. Dividing the £145 million between those 2 million people would give them about £70 each. Only today, I have been talking to colleagues in Swansea about the emerging problem on our council estates, and on estates generally, of companies setting up shop to take advantage of people in dire need by offering them payday loans. At the same time as the Chancellor announced this cut in stamp duty, he asked the newly unemployed to wait an extra week before receiving their money. That will of course feed the stomachs of the payday loan sharks. Those sharks are not just the well-known wonga people; they are also the new, smaller operations setting up in very poor communities. They hire people in the community, on a commission basis, to persuade their neighbours to take out loans at exorbitant rates of interest that they cannot afford. They then harass them by phoning them in the middle of the night or following them into the supermarket, for example, until they repay the loan. That is the cruel reality of Tory Britain today.

Alongside that reality, we have this ghastly attempt to give another £145 million to some of the richest people in the banking community, who were part of the problem in the first place. The alleged justification is to make the City of London more competitive. It appears that these whizz kid City folk, with their red braces, zoom up in their Rolls-Royces to see their old Etonian friends, such as Ministers, and look in awe at them and say, “Have another champers, will you, Minister?” and all that sort of stuff.

Photo of Greg Clark Greg Clark The Financial Secretary to the Treasury 7:30 pm, 2nd July 2013

I think that the hon. Gentleman will find that I went to a comprehensive school in Middlesbrough, not to Eton.

Photo of Geraint Davies Geraint Davies Parliamentary Assembly of the Council of Europe (Substitute Member)

I am sorry that the right hon. Gentleman no longer has any school friends. Those who have abandoned the communities from which they came have proposed legislation to punish the poorest and reward the richest, which is a great shame. It is not too late for the Minister to think again about what is fair and right in distributive economics.

The reality is that the marginal impact of this change on the competitiveness of the City of London is very small indeed; it is not a serious argument. I can imagine the greed-fuelled lobbyists who come here on behalf of the City to demand an extra £145 million being the sort of people who say, “Oh, well, we have got to give these people more money, because otherwise they will leave the country.” We have heard all that before. In any case, many of those individuals have all sorts of tax havens, about which the Government pay lip service to investigating.

At the same time as we hear alleged concerns about those rich people avoiding tax, the Government say to them, “I’ll tell you what; here’s another 5p off the income tax.” People sometimes ask why there has been a 64% increase in bonuses this year. Could it be because the Government have provoked it, as people move their income from a tax year where they pay 50p to a tax year where they pay 45p? It was completely predictable, and it was even factored into the Treasury figures in the form of behavioural changes. The perverse thing was to hear the argument, “Oh, well, we are going to move to 45p instead of 50p because more money can be raised that way. Look, we are going to encourage our mates to move all their money to save tax”—

[Interruption.]

That proves that it is an absolute farce.

Photo of Geraint Davies Geraint Davies Parliamentary Assembly of the Council of Europe (Substitute Member)

Of course. I was wondering whether the mumbling man was listening to anything, but I shall certainly give way to him.

Photo of Tim Loughton Tim Loughton Conservative, East Worthing and Shoreham

There is of course always a temptation not to listen when the hon. Gentleman is on his feet. Does he remember the Finance Bill 1997, on which Committee he and I both served? I remember him making a similarly prejudicial class-bashing speech then and accusing merchant bankers or anyone working in the City as parasites, yet this industry accounts for many billions of pounds of revenue to the Exchequer and employs 1 million people. Does he still hold to that completely outrageous view—from what he is saying, it sounds as though he does?

Photo of Geraint Davies Geraint Davies Parliamentary Assembly of the Council of Europe (Substitute Member)

It is interesting to see that the hon. Gentleman has changed from his red braces to blue braces—and very nice, too! I obviously do not regard the whole City of London and the banking community as parasites, as they are a major engine for exports, growth and productivity in Britain. The issue is about managed capitalism and what is the acceptable face of capitalism. It seems to me that many people on the hon. Gentleman’s side are not at all concerned, as more and more money is given to people who have already acquired enormous pots of money.

The distribution of income has shifted massively since 2010. We have seen the incomes of a large number of people in the top 10% growing by 5.5% each year over the past two years—at a time when most people have had pay cuts or pay freezes, certainly in the public sector, or lost their jobs. We have heard the Government boasting—this is their latest creative thought—that an extra 1.2 million people are in jobs, yet that has been contradicted by the Office for National Statistics. Even if there were another million extra people in work, with no extra growth and no extra output in the economy, productivity is going down and things are not going well. Nevertheless, the answer from the Government is still to give more and more money to the richest people and less to the poorest, and that is supposed to get us out of the mess, but it does not.

This stamp duty on transactions is the tip of an iceberg. I am sorry, Mr Deputy Speaker, that I have come on to describe the entire iceberg rather than the tip at the top, which we are talking about. It is important for people to stand up and be counted on this issue. There is no justification for these extra few buckets of money being thrown in the direction of those who have most. There is a great need for a more balanced growth strategy, whereby there is investment in infrastructure across the piece and where the opportunities for tax and spend are more fairly spread, so that together we can build a future that works and a future that cares—a one-nation Britain of which we can all be proud. I do not think that this suggestion makes sense, so I am very much in favour of putting a halt to this £145 million handout to people who are already rich, as it will not make any appreciable difference to the competitiveness of the City of London.

Photo of Greg Clark Greg Clark The Financial Secretary to the Treasury

This has been an astonishing debate. I have a lot of time for Chris Leslie, but he must have been pretty dozy in recent months if he thinks that this is a Budget measure that has emerged by stealth having hitherto been hidden from view, because it was given considerable prominence in the Chancellor’s Budget speech. The Chancellor said, in the Chamber,

“I also want Britain to be the place where people raise money and invest. Financial services are about much more than banking. In places such as Edinburgh and London we have a world-beating asset management industry, but they are losing business to other places in Europe. We act now with a package of measures to reverse that decline, and we will abolish the schedule 19 tax, which is payable only by UK-domiciled funds.”—[Hansard, 20 March 2013; Vol. 560, c. 939.]

However, the measure did not only feature in the Chancellor’s Budget speech. It was the subject of a press conference, and received quite a lot of publicity on the money pages. I should have thought that the shadow Financial Secretary would be aware of that, and would know what a good reception the proposal was given in the very important financial services industry.

Many misconceptions need to be cleared up. Geraint Davies talked about banking, but this measure has nothing whatever to do with banking. A regrettable consequence of what has happened in recent years is that the financial services sector as a whole has too often been equated with the banking industry and associated with its frequently catastrophic misjudgments and regulatory failures, and people have been tainted unfairly by that association. Just as there are hundreds of thousands of ordinary working people employed by banks who bear no responsibility for—indeed, are sickened by—some of the misdeeds that were committed by those at the top before and during the crisis, there are people who work hard for a living elsewhere in financial services, who contribute to our national income, the taxes that pay for our public services and our foreign exchange earnings, and who have certainly not put taxpayers' funds at risk in the way that characterised the worst excesses of the banking industry.

The investment management industry in this country is a case in point. It employs 30,000 people across the United Kingdom, mostly in areas such as administration, IT and legal services. At least 10,000 of these people, who are directly employed in the sector—I am not talking about those who are ancillary to it—are based outside London and the south-east. A large number of them are concentrated in Scotland—I should have thought that Mr Brown would be aware of that—and in the north-west and the north midlands. In fact, 12% of the asset management industry is in Scotland. I am amazed that the hon. Member for Nottingham East—not just as shadow Financial Secretary, but as a Nottingham Member of Parliament—did not recognise the important contribution made by investment management in his city. He should be aware that the professional services sector in Nottingham is an important component of the city’s economy.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

The Financial Secretary is characterising the Opposition as if we were somehow denigrating the investment management community. Far from it. We are simply asking this question: where is the hardship that justifies £150 million of generosity from the taxpayer at this point in time?

Photo of Greg Clark Greg Clark The Financial Secretary to the Treasury

I shall come to that. The hon. Gentleman professed not to recognise the problem that existed. As I have said, given the position that he enjoys, I would expect him to be aware of the long-standing damage to the competitiveness of an industry that employs people in his constituency. There are some very distinguished firms in his constituency. The Nottingham office of Brewin Dolphin has been there for 150 years, and I think that it is a vital component of our regional economy. These are valuable jobs, and they exist throughout the country.

The British investment management industry has a strong reputation internationally, yet—here we come to the reason for the reform—since 2000, countries such as Luxembourg and Ireland have increased their market share of domiciled funds dramatically in comparison with the United Kingdom. In fact, the UK’s share of EU domiciled funds has dwindled to less than half that of Luxembourg and has been overtaken by Ireland.

What is the reason for that? It cannot be because the reputation of British fund management has declined, as many of the funds domiciled elsewhere in Europe are in fact managed remotely by fund managers within the UK. It cannot be because the fundamental competitiveness of UK financial services has declined, because we have maintained, and very often increased, our market share in other parts of the financial services industry. For example, twice as many euros are traded in the UK than in the entire eurozone. One of the principal reasons for this competitive decline is a consequence—unintended, I am sure—of a change in the tax system that was made in 1999, and whose effect everyone agrees has been deleterious.

Schedule 19 of the Finance Act 1999 imposed a special stamp duty reserve tax—SDRT—on the investment management industry when fund managers match investors leaving a fund and surrendering their units with those joining the fund and purchasing the units. Because the fund manager is not buying any UK shares, no stamp duty reserve tax is payable, but schedule 19 imposes a tax of 0.5% on the fund manager, as if the shares have been bought. Of course, whenever a fund manager buys UK shares within a fund, full stamp duty is paid. As well as being complex and burdensome—requiring frequent tax calculations and returns to be sent to HMRC—there is a major flaw with schedule 19. Anyone who does not wish to pay schedule 19 can simply invest in otherwise identical funds, have them managed by a UK fund manager, but have them domiciled elsewhere, and that is what has happened in recent years. Such a non-UK fund could hold exactly the same equities as a UK fund, and that is happening in large numbers. It could be managed by a UK fund manager, but the investor would—by investing in a fund in Luxembourg or Ireland, for instance—not need to pay schedule 19.

Why should this matter? [Interruption.] I think the shadow Chief Secretary should take an interest, since he was not aware of the problem to which this is the solution. What are the advantages of having funds domiciled in the UK? First, there are advantages in terms of jobs, particularly in the regional economy. While fund managers can operate from anywhere, most jobs in fund management come from ancillary services and the professional services associated with them. These are high-value jobs in IT, legal services and accountancy support, and they are typically in the jurisdictions in which the funds are domiciled.

Secondly, there are advantages in terms of tax revenue. Although schedule 19 imposes SDRT on fund managers matching investors for UK funds, the Exchequer would be advantaged by having more funds domiciled in the UK, as that would involve the paying of income tax, national insurance, VAT, business rates and other taxes by people who would be employed here, rather than in Luxembourg, Ireland and other countries, and corporation tax by the companies supplying ancillary services.

Finally, who pays? It is pensioners who pay. Schedule 19 does not come out of the pay of fund managers. It is a cost of business that is invariably passed on to UK investors. It comes out of the returns and lessens the funds that are otherwise available.

Photo of Andrew Selous Andrew Selous Conservative, South West Bedfordshire

My right hon. Friend is making an excellent speech and I am listening with great interest. Is there not a further point in that, given that the Government have just started rolling out auto-enrolment, many lower paid workers across the country have a real interest in the health of the fund management industries for their pensions, and probably want their money managed in the UK rather than Luxembourg?

Photo of Greg Clark Greg Clark The Financial Secretary to the Treasury

My hon. Friend makes an excellent point. He is absolutely right. Already 81% of investors in UK funds are pension funds or insurers, meaning that people’s income in retirement is impaired and fewer funds are available for investment in the real economy. Two-thirds of individuals approaching retirement are contributing to a pension fund from where these charges are taken, and the introduction of automatic enrolment will mean that many more ordinary working people will be saving into a pension for the first time and will be affected.

So there is a double imperative to act now to correct this situation in which funds are moving from being domiciled by choice in this country to overseas. First, any continuing loss of competitiveness by the UK fund management industry risks destroying, possibly for ever, the critical mass and prominent global position that the industry has had. Secondly, we are on the cusp of a once-in-a-generation opportunity for the UK fund management industry, and, with it, the UK economy, because in July the EU’s alternative investment fund managers directive comes into force, creating a much more effective single market across Europe in fund management. It is estimated that €250 billion of funds may be available for the UK, and other competitors, to play host to. That is to say nothing of the significant growth shown in the emerging economies, where a burgeoning middle class is looking to make investments for which the EU is an attractive home.

The opportunity for the UK to attract those funds depends on the abolition of schedule 19. That is why the Budget proposed, in pretty high-profile terms, the abolition of schedule 19. The measure will be included in next year’s Finance Bill. The draft legislation, including a tax information and impact note, will be published for consultation in the autumn, to inform the consideration of next year’s Finance Bill—that never happened under the previous Government; this is totally transparent. The costs that have been included very prudently in the Red Book represent a conservative case; they do not include any of the effects or any assumption of what would happen if we reverse this relative decline compared with jurisdictions such as Ireland and Luxembourg so that we have an increasing tax take from people being employed there. The included costs do not reflect the potential boost to stamp duty reserve tax revenue— empirically, investment funds tend to have more active investment strategies than direct investors and are more likely to incur it. Those aspects will be further elaborated during the consultation and the tax information and impact note during the next six months.

Photo of Greg Clark Greg Clark The Financial Secretary to the Treasury

I want to conclude now. I hope that the House will welcome, as commentators universally have, a significant boost to the competitiveness of a very important sector for jobs in every part of the United Kingdom. I hope that, having had the explanation, the hon. Member for Nottingham East will feel willing to withdraw the new clause and await the formal consultation, which will accompany next year’s Finance Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

You have to hand it to the Financial Secretary, because he managed to keep a straight face throughout that, but I can almost hear the thumping of those trading desks across the City of London as people are delighted at the largesse of a £150 million tax giveaway to those poor, downtrodden investment managers, who really need that helping hand just now. That £150 million is the same amount as the Government saved when they abolished the health in pregnancy grant—that was not a priority; making sure that they abolish stamp duty reserve tax on unit trust transactions is where that £150 million had to go. That is completely crazy. They cannot even agree to a distributional analysis because they know that it is the wealthiest in the society who benefit from this. Therefore, we shall be pushing new clause 11 to a Division.

Question put, That the clause be read a Second time.

The House divided:

Ayes 212, Noes 274.

Division number 42 Justice — New Clause 11 — Stamp duty reserve tax

Aye: 211 MPs

No: 274 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.