Corporation tax treatment of the oil and gas industry

Finance Bill – in the House of Commons at 6:36 pm on 5th September 2016.

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The Chancellor of the Exchequer shall, within six months of the passing of this Act, commission a comprehensive review of the corporation tax rates and investment allowances applicable to companies producing oil and gas in the UK or on the UK continental shelf, and publish the report of the review.—(Kirsty Blackman.)

Brought up, and read the First time.

Photo of John Bercow John Bercow Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Speaker of the House of Commons, Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee on the Electoral Commission

With this it will be convenient to discuss the following:

New clause 10—Review of the operation of the Patent Box

“(1) The Chancellor of the Exchequer shall, within six months of the passing of this Act, lay an independent report of the value for money provided by, and the efficacy of, the Patent Box legislation before both Houses of Parliament.

(2) The report shall—

(a) assess the size and nature of the companies taking advantage of the Patent Box legislation;

(b) assess the impact of the Patent Box legislation on research and innovation in the UK, including supporting evidence; and

(c) assess the cost effectiveness of the Patent Box legislation in incentivising research and development compared to other policy options.”

New clause 11—Assessment of taxation regime for securitisation companies—

“The Chancellor of the Exchequer shall, within six months of the passing of this Act, commission an independent assessment of the efficacy of the taxation regime to which securitisation companies are subject and lay the assessment before both Houses of Parliament.”

Amendment 177, page 87, line 6, leave out clause 44.

Amendment 162, page 87, line 8, ‘leave out clause 45.

Government amendments 152, 153, 1 to 29, 154, 31, 155, 33 to 59, 156, 61 to 113, 157, 115 to 117, 158, 159, 119 to 128, 160, 129 to 131.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

I rise to speak to new clause 5, which is in my name and the names of my hon. Friends, but I wish briefly to mention amendment 162, which has been proposed by the Labour party. I look forward to hearing from its Front-Bench Members. If they intend to push the amendment to a vote, we will join them in the Lobby.

New clause 5 is about the corporation tax treatment of the oil and gas industry. You will not be surprised, Madam Deputy Speaker, to hear me speaking on this subject as I have done so a number of times. What we want is a comprehensive review of the corporation tax rates and investment tax allowances applicable to companies producing oil and gas in the UK, or on the UK continental shelf. This is a timeous ask from us for a number of reasons. For a start, this Bill implements measures that were put in place and discussed first in February and March, before the EU vote, and there have not been any substantive changes by the Government to the Bill as a result of the Brexit vote.

Substantive changes to the Bill are needed because we find ourselves in a completely different situation as a result of the fall-out from Brexit. It is unfortunate that changes have not been made and that there have not been more announcements from the Government about how they intend to manage the financial situation going forward. We want to know about the impact on Aberdeen, which I represent, and on the UK’s tax take and the Treasury. It is important that we seriously consider making changes to the Bill.

We have repeatedly asked for changes to the tax rates and for a comprehensive strategic review. We appreciate that the Government made changes earlier this year, but we do not think they go far enough. Alex Kemp, a renowned petroleum economist, and his long-term research partner, Linda Stephen, are both at Aberdeen University, where they have been working on sophisticated modelling tools. If the Minister has not read the article that appears in Energy Voice today, it is worth reading, together with the report that accompanies it. The work that they have done suggests that corporation tax of 30% is too high, and it is far above the non-North sea rate. They said:

“From the analysis of the economics of new field investments and exploration in current circumstances in the UKCS it is clear that, at $50 and $60 prices, there are many ‘marginal project investment situations’.”

That is key. It is what we have been arguing, and now it is backed up by renowned experts.

The position in which the industry finds itself bears repeating. Estimates vary, but we have lost around 125,000 jobs—from 425,000 we are down to about 300,000. That implies a huge reduction in the tax take for the Treasury and it is a massive hit for the local area, particularly Aberdeen and across Scotland and other oil and gas-producing areas. Because of the reduction in the oil price, we have seen changes in the behaviour of companies. As well as making people redundant, they have changed shift patterns and terms and conditions. They have also managed to reduce production costs, which is a good thing.

Photo of Phil Boswell Phil Boswell Scottish National Party, Coatbridge, Chryston and Bellshill

Brexit casts further uncertainty over the oil and gas industry, which under this Conservative Government has seen the legislative goalposts moved almost continuously, thereby hindering vital investment. Does my hon. Friend agree that given that the Bill implements measures devised prior to the EU vote and, as such, fails to provide for an economy that is facing the harsh reality of Brexit, more must be done to mitigate investor uncertainty in the oil and gas sector?

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

Indeed. Brexit compounds the issues that we have seen in the oil and gas industry, particularly in the North sea, and affects investment. This year we are expecting less than £1 billion worth of new capital projects to be agreed. In each of the past five years we have seen an average spend of £8 billion. There has been a massive drop-off. Much of that is linked to the global oil price, but the Government have not done enough to increase investor confidence, especially in the light of Brexit. New projects are not being sanctioned because of companies’ negative cash flow. Jobs are consequently being lost all the way along the supply chain. We are losing contracts, expertise and people working in the industry in and around Aberdeen, Scotland and the UK.

Exploration and development activity is at an all-time low. Oil and Gas UK produced a report in February this year which predicted that if the current trajectory of low investment and new projects not being approved continues, we will see a fall in production in 2020. We are not ready for that. Our strategy has been to maximise income and recovery, and the Oil and Gas Authority’s main aim is to ensure that we get as much out of the North sea as we can. Because of the lack of investor confidence and the inability to sanction new capital projects, that is becoming increasingly difficult.

I have asked various Ministers about the Government’s intentions. We are not seeing investor confidence. We are seeing a major drop-off in investment, as the figures show. I welcome some of the changes that the Oil and Gas Authority has made. It is working on making it easier to transfer assets that have reached the end of their life. We do not want decommissioning to take place now. I understand entirely that if there is sufficient UK spend, there will be a financial benefit to UK companies from decommissioning, as long as we can ensure that the supply chain for decommissioning is based in the UK.

However, some of the assets that have been in the North sea for 30 years are at the end of their useful life and need to be decommissioned. I welcome the OGA’s push to ensure that as much of that spend as possible is in the UK, and I welcome its efforts to ensure that assets can be transferred so that as much oil as possible can be recovered from each of those fields. The OGA has been focusing on enhanced oil recovery, but the Government have not done enough in that respect. Changes are necessary to the tax regime to encourage companies to undertake enhanced oil recovery.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I hear the hon. Lady standing up doughtily for her constituency and for the oil and gas industry in Scotland. What bemuses me is that if the independence vote had gone through, in spring 2016, Scotland would have had income of £100 billion and expenditure of £120 billion— a structural deficit of 20%. Now the hon. Lady is advocating increasing that black hole. How would she bridge that gap?

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

We are under a Westminster Government; we do not have full control of our own economy. That is a damning indictment of the way that the Westminster Government are running the economy of Scotland. It is incredibly important that we get independence and that we are therefore able to make decisions, particularly in the oil and gas industry, where the Government have not moved quickly enough or been flexible enough in the changes they have made. It is important that we make the decisions and grow our economy, because the Westminster Government are failing to do so.

On the future for energy and for the North sea, Statoil produced a report entitled “Energy Perspectives”. It is important to consider the future for the North sea and the UK continental shelf in that context. Statoil predicts that up to 2040, total primary energy demand will grow between 5% and 35%. That is a wide range because a number of different scenarios have been analysed. In all scenarios there is an increase in total energy demand. Statoil predicts that energy demand in 2040 will be between 78 million barrels a day and 116 million barrels a day. We currently use over 90 million barrels a day. It is important to note that, as we think about the move towards renewables and different forms of energy generation, but by 2040, even if we have a huge number of renewables, we will still see a massive demand for oil and gas across the world. Oil and gas will still need to be produced in order to support the economies of the world. It is vital that we ensure that the UK continues to be involved in that and to benefit financially from it.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

On that point, is my hon. Friend aware that more than half of the oil supply and support companies in the UK are located in England, and that the amendment affects all oil companies across the UK, not just in Scotland?

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

I appreciate that point. I was not aware of the numbers. However, from talking to colleagues across the House who have been very supportive of companies and industries in their constituencies, it is clear that the number of companies is substantial. We are discussing UK spend and, whether we like it or not, we are part of the UK, and the tax changes will help all the companies in the oil and gas industry throughout the UK, whether they are in Aberdeen, Wales or the south of England.

The Oil and Gas Authority has been very good at talking positively about UK supply chain spend, which is one of the most vital aspects. Although I have talked about energy demand and oil and gas demand out to 2040, we will see, at some point, a reduction in the amount of oil and gas being produced by the UK. It is key to note that we are world leaders in terms of our oil and gas expertise. We are very good at what we do, and we are respected across the world. In sub-sea technology, for example, we are 20 years ahead of America. America has not done very much when it comes to Gulf of Mexico extraction. We will be there teaching the Americans how to use sub-sea technology and exporting that technology to them. Even when the oil and gas in the UK eventually run out, we will see that our expertise is able to be exported. It is really important that the Government act now to ensure that we keep that expertise base and do not lose it in the current downturn.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 7:30 pm, 5th September 2016

Is the hon. Lady saying to the House, then, that the Scottish National party’s position is to export the expertise of the Scottish hydrocarbon industry so that we can have more and more carbon dioxide going into the environment from fossil fuels because, for example, the Gulf of Mexico is producing more with Scottish expertise? If so, she is running counter to the direction of the world in the Paris talks.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

The hon. Gentleman should listen to what I said. Statoil’s “Energy Perspectives” report reckons that even if we have a huge push towards renewable technologies and towards reducing carbon emissions, we will still need between 78 million and 116 million barrels of oil a day—and that is while taking on board, and increasing, the very best of these technologies. We will still continue to need, for example, road surfaces that are made from heavy oil. We will still continue to need these things, so we will always need oil, or at least for a long way into the future until we come up with credible alternatives. It is not just about energy or about electricity generation; it is about all the different things that we use oil for, including plastics.

It is very important to make sure that we have a great future in exporting. I have never been to Houston, but I am told that one cannot go there without hearing an Aberdeen accent. That is because we have the links and we send our experts over there, and those experts are making money for companies here by whom they are still employed. They are devising the technology that is being spent on and used in America and in other places across the world. In the North sea, we are operating in a super-mature field. This is one of the first fields in the world that is reaching that super-mature status. We have a proud history of exporting, getting incredibly good at what we do and teaching the rest of the world how to do it.

We also have a proud history of being respected around the world. Our oil and gas industry is respected throughout the world. If you say to somebody in an oil company in a different country, “This technology is used in the UKCS in the North sea”, it is automatically seen as a gold standard that is recognised around the world. In order for us to continue to generate tax revenues from this and to sustain jobs, we need to make sure that our companies have enough cash to innovate. Although the Government have been vaguely supportive in what they have done, they have not been supportive enough. Companies are still struggling to get venture capital and assistance from banks. I am aware that Ministers have spoken to banks, but it is still not enough. The confidence is still not there to the degree that we need it to be.

As I said, we are one of the first countries operating in this super-mature situation. What we really need now is a review of the taxes across the oil and gas industry. The system was devised many years ago in a totally different situation. It has had bits lumped on and bits lopped off, but it has never been looked at as a whole, and that is what we need to do now. I strongly urge the Minister to have a look at the entire tax regime for the oil and gas industry so that it can have a better future.

Photo of Mark Field Mark Field Vice-Chair, Conservative Party

Kirsty Blackman will be glad to know that she can also come to my constituency and hear a few Aberdonian accents from time to time, without having to go out to the middle of Texas.

I have a lot of sympathy for the situation that the hon. Lady finds herself in. Inevitably, there has been a lot of tinkering with tax rates in oil and gas. In my 15 years in the House, it has seemed that barely a year goes by without many paragraphs of any Finance Bill being part and parcel of this. Clearly, we are not yet to know whether the gas price and oil price will be stabilised at $50 to $60 a barrel or will go in different directions. I am sure that the Treasury has this whole issue under constant review.

Photo of Phil Boswell Phil Boswell Scottish National Party, Coatbridge, Chryston and Bellshill

Many believe that the oil and gas industry has been adversely affected by Brexit. Earlier this year, I asked this Chancellor, in his first Treasury questions, when the people of the UK could get an insight into the scale of capital flight following Brexit. He replied:

“a series of data publications during the late summer and autumn will inform a proper response at the autumn statement.”—[Official Report, 19 July 2016;
Vol. 613, c. 664.]

Many other hon. Members in this House asked similar questions to which the Chancellor gave a similar answer—that all will be revealed in the autumn statement. Does the right hon. Gentleman agree that the Chancellor, having now had a few months to think about it, should at least furnish us with the date of the coming autumn statement?

Photo of Mark Field Mark Field Vice-Chair, Conservative Party

I suspect we all know that the autumn statement will be coming up at some point in late November or early December, if precedent is anything to go by. As someone who was also very firmly in favour of Britain remaining in the European Union, I say to the hon. Gentleman that we have to make Brexit work, and this will take time. I understand the frustration of many who would like to see the Government put forward a template on these matters today, but I think they are right to recognise that we have to play our cards close to our chest. This is a diplomatic process that will take some considerable time. One of the great strengths that we have had as the United Kingdom in diplomatic affairs, going back many centuries, is the sense of being able to make something work for the interests of this country. We have to recognise what is going on in world affairs, whether in the oil and gas price or in prices in other areas. This is an incredibly volatile time, politically and economically, and the notion that we can have any direct template in place now, or indeed at any point during the course of this year, is wholly misleading.

Photo of Phil Boswell Phil Boswell Scottish National Party, Coatbridge, Chryston and Bellshill

The hon. Gentleman is being most gracious and I thank him for his time. Anna Soubry has mentioned real concerns expressed by the Japanese Government re investment in the UK. This concern was echoed when President Obama confirmed, post-EU referendum, that the EU is a much greater priority for US trade relations than the UK outside of the EU. Given US investment in oil and gas in the UK, does the right hon. Gentleman agree that this Government have had more than enough time to give the British people a definitive definition of “Brexit” and should be informing the public of urgent action they are taking now to support important industries such as the oil and gas sector?

Photo of Mark Field Mark Field Vice-Chair, Conservative Party

A huge number of actions are taking place now. It is far, far too early to have any definitive approach as to exactly what Brexit will entail. We have to ensure, to an extent, that we get as much of the benefit of being in the single market—I see that, obviously, in the context of the City of London and its passporting rights—as is compatible with the public’s clear view about free movement of people. I hope that in the months ahead we will begin to work on that. However, it is far too early, and it would be doing a disservice to all industries—oil and gas and others—that are so dependent on exports and on being global industries, with the expertise that they have across the globe, to be definitive about precisely what role Brexit has to play.

I wanted only to make a few brief comments on new clause 10 with regard to the patent box. I am sorry if I am moving slightly ahead of the observations of John McDonnell on this matter. There has perhaps been a danger that Governments of all political colours over the past decade or so have been rather too much in thrall to certain industries, whether financial services or the global internet technology industries. It is worth pointing out that the benefit—the very significant benefit—of the whole patent box plan that was put in place by the former Chancellor some years ago is that it has begun to enable intellectual property value to be quantified and used as collateral in many of the fast-growth companies in the technology sphere. It strikes me that the Treasury, any Treasury, will now need new sources of revenue to swell our collective coffers at a time when the deficits remain dangerously high. Indeed, in what might be regarded as normal peacetime conditions we have an unprecedentedly high rate of deficit.

I also think that it would be wise not to ignore the level of public anger at the wilful tax avoidance of a number of the digital disruptors that are potentially the beneficiaries of this patent box plan, and the influence of that on the western economies has at times been somewhat pernicious. The sobering truth is that the global technology and communications service providers’ stratospheric growth over the past two decades has been aided by their ability to avoid taxation. Whether it is Google, Uber, Facebook or Apple, to name but four, they have been able to squirrel away their profits in the most tax advantageous manner, and I hope that the Treasury will consider that, as well as issues around the patent box, not just in the next six months but in the years to come to ensure that we have a more equitable situation that will be accepted by the public at large.

I accept also that as regards creative industries and global technology players it would be wise to reflect that perhaps elements of this advantageous tax treatment, not just by the UK Government but by other Governments in the western world, have been the price that taxpayers have had to pay to secure the essential co-operation in the sphere of internet surveillance that western Governments believe—rightly, in my view—to be so vital to national security.

I do believe, however, that it is time to recognise that corporation tax as we know it is probably past its sell-by date as an appropriate means of capturing value in a modern globalised economy. A levy on turnover, rather than profits, might in time be the best way forward—[Hon. Members: “Hear, hear.”] I appreciate that the Floor of the House is perhaps not the place to be making policy, but I hope that the Treasury will at least give it some serious thought, particularly for these sort of industries. I always worry when “Hear, hear” comes from the wrong quarter, and I only wish there were a few colleagues on the Benches behind me to agree—but it came from Rob Marris and from elsewhere.

At the beginning of the year, Google made the headlines when it was revealed that despite employing some 2,400 people in the UK and harvesting a national estimated profit in excess of £1 billion—we obviously do not know exactly what that profit level was—it was able to pay corporation tax at a level of just 3%. Even before its recent travails, last year Apple declared foreign pre-tax profits of some $47.5 billion, on which it paid only $4.7 billion—some 9.9%—of tax, compared with group-wide income taxes of some $17.7 billion. That suggests that taxes on profits will not be the right way forward, particularly in these global industries where there is a risk that money can be squirreled aside. That said, it is important to say that the patent box, while purportedly and in some ways giving preferential treatment in this area at which we should look closely, has none the less brought some significant benefits.

One of the biggest problems that faces many internet businesses as they grow is the ability to quantify the value of their intellectual property rights. In many ways, failure to do that means that they do not get the opportunity to collateralise their book value to be able to borrow for the future. The patent box has made some successes in this regard.

I apologise for jumping the gun, as I know that we are slightly more interested in hearing the justification from the Opposition for their new clause 10. I do not feel that it would be the right way forward at the moment, but there are some important debates we need to have not just on the workings of the patent box-type legislation but on ensuring that we have a level playing field and a system that—more importantly—is understood and supported by the general public. Nothing has been more damaging for many of the big internet and technology service providers than the slew of bad headlines over the past few years about their avoidance of tax. In these difficult economic times, in particular, that is something that we can ill afford in this country.

Photo of Greg Mulholland Greg Mulholland Liberal Democrat, Leeds North West 7:45 pm, 5th September 2016

I can worry Mark Field a little more by telling him that there was a “Hear, hear” from these Benches as well—[Interruption.] Members will be surprised at how loud we can be, and they will see that in the coming months and years.

It is absolutely time to have the debate about the best way to tax our businesses and to do what the Government claim they are doing—but are actually insufficiently doing through the changes to corporation tax—and support business in this country better through taxation that works but that also recognises and incentivises business.

Amendment 177 is a probing amendment that would sweep away corporation tax altogether and is intended to try to trigger that debate, which we should be having as a country. The reality is that the Government will continue to argue that a cut in corporation tax will somehow boost growth, but the evidence for a cut below 20% is simply not there. The Government are failing to ask whether corporation tax actually works. As the right hon. Member for Cities of London and Westminster has said, it is only a matter of time before we hear the next scandal of a company managing to avoid paying corporation tax. Last week, it was Apple’s deal with Ireland, a few months before it was Google, before that it was Facebook and before that it was Amazon. Even the Labour party got into hot water for having managed to offset profits to reduce their corporation tax bill, so surely Government Members will recognise that there is an issue.

We have endless arguments about the morality of some of these large multinational corporations and how they operate. There is often outrage—sometimes faux outrage—in this place, but that is not good enough and it will not deal with the problem. We must also accept that while the Government are making unnecessary and damaging cuts to HMRC, it makes it harder to challenge these companies that are testing the limits of the law.

There is an underlying unwillingness to address corporation tax and its fitness for purpose regarding the reality of multinational corporations in the 21st century. As Martin Sorrell, the chief executive of WPP, said in 2013 during the Starbucks corporation tax scandal, for many multinational companies whether to pay corporation tax is simply a “question of judgment”, something to be decided according to PR perception and perhaps their own corporate social responsibility policies but not something decided by Her Majesty’s Revenue and Customs as it surely should be.

As the right hon. Member for Cities of London and Westminster made clear, this is not and should not be seen in any way as a left or right issue. It is an issue of practicality. Last week in the Telegraph, Allister Heath published a piece entitled “The Apple fiasco shows why corporation tax is an outdated anachronism”. As the right hon. Gentleman has already said, Lord Lawson famously called for corporation tax to be a tax on revenue rather than profit. There are flaws with that but at least he was seeking to challenge the status quo, which is surely outdated. On the other side of the spectrum, The Guardian, Oxfam and the excellent Tax Justice Network have all rightly highlighted the ease with which multinationals can avoid corporation tax altogether.

There are ways in which we could better support business and could have a tax system that works. Businesses of all sizes are crying out for changes in the tax system. I know many businesses that say that the first thing they would like to see reformed is business rates and the second is VAT. There are industries that provide a huge amount to the British economy and pay a significant amount of tax that are not being listened to because they are not large corporations. For example, a change to VAT would have a much greater impact on the tourism and hospitality industries than tinkering with corporation tax in an attempt to grab headlines for being supposedly supporting business.

As the right hon. Gentleman has said, there is no obvious solution, but surely it is time to find a solution to properly, fairly and sensibly tax businesses in the 21st century. My hon. Friend Tim Farron has already appointed Sir Vince Cable, the former distinguished Business Secretary, to lead a review of corporation tax and business rates for my party. That will make a contribution to the debate. Instead of claiming that the Government are standing up for business, surely it is time to acknowledge that yet more cuts to corporation tax over the next year will not truly deliver that and will not deal with the reality, which is that we are not collecting tax efficiently from companies that are now run in a very different way.

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Chief Secretary to the Treasury, Member, Labour Party National Executive Committee

I rise to speak to amendment 162 and new clauses 10 and 11, which stand in my name and those of my hon. Friends the Members for Hayes and Harlington (John McDonnell) and for Bootle (Peter Dowd). I also support new clause 5, which has been explained articulately by Kirsty Blackman, and confirm the Opposition’s support for amendment 177, which has just been spoken to articulately by Greg Mulholland.

Amendment 162 would remove clause 45 from the Bill, thereby halting the Government’s cut to the rate of corporation tax to 17% by 2020. The Government claim that cutting the corporation tax rate would make Britain even more attractive to inward investors and more competitive, and that it would support growth and investment. I would be grateful if the Minister elaborated on the evidential basis for those claims.

We all know the theory that states that if we cut tax on profits there is more cash for companies to invest in expansion, research and development and labour, and, theoretically, we become more attractive to foreign businesses. The problem is that, somewhere in the development of that theory, the Chancellor forgot to check the reality, as the figures do not support that age-old Conservative mantra.

Figures provided by the House of Commons Library show that in 1998 business investment as a percentage of GDP was 10.8%, and that in 2000 it was 10.6%. The rate of corporation tax in those years was 31% and 30% respectively. In 2015, business investment as a percentage of GDP was 9.7% and the rate of corporation tax was considerably lower than that in 2000, at 20%. Why, therefore, were businesses not in a state of investment frenzy in 2015, if, indeed, slashing corporation tax is a golden ticket to investment? Of course, I appreciate that there are many factors that affect the level of business investment in the economy, but a comparison of the figures seems to suggest that a lower rate of corporation tax does not correlate with a higher level of business investment.

Let us look at a different variable, namely foreign direct investment. The level of FDI in the UK has been steadily falling since 2005; there have been a few anomalies along the way, but the trend is most definitely downwards. That has coincided with a steady reduction in the rate of corporation tax. In 2005 the level of FDI flows into the UK was £96.8 billion and corporation tax was 30%. In 2014 FDI was £27.8 billion and corporation tax was 21%. Again, there could be many factors at play, but the figures demonstrate that there is no strong correlation between low rates of corporation tax and higher rates of investment and FDI.

I appreciate that, to a degree, low corporation tax rates may attract some companies to locate here, because they will want to pay less tax, but attracting them to truly invest in the development of industry here, as well as encouraging our UK companies to flourish, is another matter entirely, and that requires much more than just a tax break.

According to the Government’s own analysis, this cut is expected to cost the Exchequer almost £1 billion in 2020-21, in addition to the £2.5 billion cost in the same financial year of cutting corporation tax to 19% from 2017. The Institute for Fiscal Studies has also calculated that the Government’s cuts to corporation tax have cost £10.8 billion a year. That gives rise to the question of whether the money could be better spent to incentivise much-needed investment in the UK. The Minister will not be surprised to hear that the Opposition most definitely think it could.

Many businesses already have cash. The House of Commons Library has provided figures showing that the total amount of currency and deposits, or cash reserves, held by non-financial companies in the private sector is currently at a 20-year high, at £581 billion. The problem, then, is not that businesses need more cash, but that other factors in our economy need improvement, including skills, infrastructure, innovation and productivity.

The £10.8 billion estimated by the IFS is a large sum that would be better invested in filling the gaps in our economy that are failing business. We should not be engaging in a race to the bottom to become the world’s next big immoral tax haven, but providing the building blocks to make business actually succeed, and with that comes more revenue in taxes as businesses flourish and well-paid jobs are created.

The Minster would do well to take notes at this point, because Labour has committed to such investment, through a national investment bank and the bank of the north, to address specifically those areas left behind after decades of regional decline. Our national and regional development banks would help unlock £500 billion of investment and lending to small and medium-sized enterprises, including £250 billion of capital investment in the infrastructure that we urgently need and to help prevent economic slowdown. The regional focus of development banks would enable the Government to make sure that investment and lending is spread around the country, not just siphoned into the south, and that it benefits from local knowledge and expertise, thus ensuring that no area in Britain is left behind. Our bank of the north would also unlock the potential of the north of England, with a push to deliver the sort of infrastructure and investment that it has been deprived of for far too long.

We have also committed to ensuring that our workforce have the skills that business needs in a modern economy, through reinstating the education maintenance allowance and maintenance grants for poorer students, which would be funded by a corporation tax rate of 21%. That is the kind of intervention businesses are looking for—policies with a substantive impact on a company’s ability to do and develop business, not simply cuts to the headline rate of corporation tax.

The cut to corporation tax brought about by clause 45 is not the best use of public money to support businesses in the UK. I urge hon. Members on both sides of the House to join us in the Lobby to vote in favour of amendment 162.

Mark Field made some fantastic comments earlier on new clause 10, which relates to the patent box. The new clause would require the Chancellor to publish an independent review of the efficacy and value for money of the patent box legislation. The report would have to make an assessment of, first, the size and nature of the companies taking advantage of the patent box legislation; secondly, the impact of the patent box legislation on research and innovation in the UK, including supporting evidence; and, thirdly, the cost-effectiveness of the patent box legislation in incentivising research and development compared with other policy options. My hon. Friends and I are, of course, supportive of Government action to incentivise R and D, but we are not convinced that the patent box legislation has been efficient thus far in achieving that. We are not alone. Many commentators criticised the patent box, even before its introduction in 2012. The IFS has stated that the

Patent Box is poorly targeted at research as the policy targets the income which results from patented technology, not the research itself…to the extent that a Patent Box reduces the tax rate for activity that would have occurred in the absence of government intervention, the policy includes a large deadweight cost.”

Furthermore, respected economist Mariana Mazzucato, who strongly believes in Government intervention to support R and D, made the rather damning assessment that the patent box is a

“scam with no effect on innovation”.

Let me be very clear. The Labour party wants to incentivise research and development—indeed, my hon. Friend the shadow Chancellor has repeatedly called for more intervention in this area—but we are not convinced that the patent box is the most effective way of doing so. The patent box costs the Exchequer approximately £1 billion a year, and there has been no evidence from the Government that I am aware of to demonstrate its effectiveness. If the Minister were able to provide details of any such evidence, I would be most grateful.

Interestingly, a new study from King’s College London and the Medical Research Council shows that for every £1 extra spent on public medical research, long-run private research increases by 99p. So an increase in public medical funding by £500 million—half the cost of the patent box—would boost private medical research by another £499 million. That compares quite staggeringly to the so called dead-weight loss of the patent box. That is interesting research; I am sure the Minister will agree.

I will not divide the House on new clause 10 today, but I hope that the Minister will agree that an independent assessment of the efficacy of the patent box with an examination of other policy options would clarify, for both the Government and the Opposition, the best way to achieve our shared goal.

I move on to new clause 11, which would require the Government to review the regulation of the taxation of securitisation companies in the UK. We do not oppose the Government’s proposals in the Bill in relation to the power to make regulations about the taxation of securitisation companies. However, we do think it timely for the Government to conduct a review in relation to current regulation present in the industry, so that any loopholes and destructive practices can be eradicated.

I am sure hon. Members know that the non-existent regulation of securitisation structures magnified a medium-sized crisis in the US real estate market into a fully-fledged banking crisis by 2008. There is real worry, in all parts of the House, that it has been a case of back to business as usual for our banking sector, and that the lessons learned from the 2008 crash—if indeed any were learned at all—have long been forgotten.

We heard earlier this year of a surge in the credit default swaps market, where there has been large-scale repackaging and rebranding of the potentially toxic securitisation products that arguably caused the crisis—a crisis, I must add, that was not truly paid for by the banking sector and financial operators who caused it. No, it was shored up on the backs of the people of this country, and, worst of all, on the backs of the poor and vulnerable. Furthermore, it was used as an excuse by this Government to slash and burn our public services.

Securitisation structures operate by transferring assets—sub-prime mortgages, credit card receivables or similar cash flows—into off-balance-sheet special purpose vehicles. Usually, the profits or cash flows received from those assets pass through the special purpose vehicle to the investors who have acquired bonds in that special purpose vehicle. The residual amounts that are left in the special purpose vehicle are small compared with the sums that are paid through to the investors. However, as with all such artificial financial structures, it is possible to manipulate those amounts for tax purposes. Indeed, credit default swaps, which are the most famous of the securitisation family, are deliberately flexible so as to manipulate the tax outcome. If we do not regulate the sector carefully now, we will quite simply become the drain through which the world will launder its dirty transactions. Especially in view of our exit from the EU, we must ensure that our financial our regulations are gold-plated.

New clause 11 deals with a review of the regulation of taxation on securitisation companies specifically, because we are limited by the scope of the Finance Bill. However, we would like the Minister to go much further and provide for an assessment of all aspects of the regulation of securitisation companies, thereby showing unequivocally that the Government are committed to ensuring that the tax arrangements of securitisation structures are adequately regulated. We will not divide the House on new clause 11, but I hope that the Minister will make a commitment in relation to those points.

To conclude my remarks, Labour cannot support the cut to corporation tax that we have debated today and we will, therefore, divide the House on amendment 162.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 8:00 pm, 5th September 2016

Thank you for your indulgence, Madam Deputy Speaker. I will seek to be brief. On new clause 10, I am in favour of evidence-based policy making. Mark Field says that the patent box legislation and tax break have been helpful. That may be true, but we do not know. What we do know is that the National Audit Office looked at something like 1,200 tax reliefs and found that the Treasury was only monitoring the efficaciousness of fewer than 300 of them. I do not think that the patent box was part of that, so I support new clause 10 because it might tease out the evidence.

Photo of Mark Field Mark Field Vice-Chair, Conservative Party

I think there has been some misunderstanding about exactly what the patent box was designed to do. It was not designed solely to promote research and development, as many similar incentives that come through, year on year, in Budgets are designed to do. It was very much an attempt to incentivise companies at the second stage—in other words, companies that already had some intellectual property that was difficult to quantify—as opposed to directly at the research and development side. I think it is slightly unfair to suggest that there is no evidence that that has worked, and I think that the patent box is being looked at in a different light to that which was intended by those who put it into play.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I agree that it is designed to help some companies in their early stages, but with the effluxion of time, those companies should pass through the pipeline and we should see the fruit of their endeavours, helped indirectly by taxpayer support. The evidence should be coming through now. We could not have looked after one year to see whether it had been effective, but now that it has been around for a few years, we can.

I move on to amendment 177. I was amazed to hear the right hon. Gentleman say that he would be prepared to examine the question of having a turnover tax instead of corporation tax. Greg Mulholland said the same thing. I absolutely agree, and I have long advocated looking at that, precisely because of tax avoidance. If it turns out to be the case that Apple has been avoiding tax in the United Kingdom, it would not have been able to do that so successfully if we had had a turnover tax rather than a corporation tax.

I have to say to the hon. Member for Leeds North West that I am a bit bemused. He said tonight that the leader of his party had set up a review of corporation tax, but the leader of his party has also tabled amendment 177 —supported, as far as I can tell, by the hon. Gentleman—which would abolish corporation tax completely for the financial year 2017, without bringing in a turnover tax instead. It seems a very strange amendment to table.

Photo of Greg Mulholland Greg Mulholland Liberal Democrat, Leeds North West

As I think I made clear, amendment 177 is a probing amendment, which is designed entirely to make that point. We share the view that the reduction of corporation tax is flawed, but through this amendment we are saying that it needs to be done in a better way. It is a probing amendment and we will not be voting on it, but it is time that we had that debate and put something better in place.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

It is a strange way to do a probing amendment. I am not saying that it is wrong; that is not for me to say. However, it is common for the Opposition to table new clauses or amendments—as with those that we are considering tonight, such as new clause 10—that are designed to produce evidence. Presumably, the hon. Gentleman’s party will be looking at such evidence in its review. If the House could produce that evidence, it would speed up the process and help all of us towards evidence-based policy making.

On new clause 5, interestingly, I think that the Scottish National party reveals its hand; it is not much concerned about greenhouse gas emissions from oil production, let alone from burning oil. We saw the same thing last year in the debate on air passenger duty, when the SNP was all in favour of loads more people flying, despite what it does to the environment. The tenor of the remarks made by Kirsty Blackman was that she wants the taxation of oil and gas cut. Essentially, she is advocating indirectly, yet again, for another bung for Scotland from English taxpayers. The SNP Government have the power to put up taxes in Scotland and fail to do so, but they want English taxpayers to give them a bigger bung.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

The hon. Gentleman may have heard my hon. Friend George Kerevan say that 50% of the supply chain companies that would be affected are actually based south of the border. This would benefit companies across the UK. The Scottish Government have been incredibly good at reaching their climate change targets. They have worked very hard on renewable electricity. The only problem is that the Conservative Government are getting in our way.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I did hear the hon. Gentleman say that, and I also heard the hon. Lady say, when she was moving new clause 5, that she did not even realise that that was the case. Paradoxically for them, I support the new clause and I hope it is agreed to. It looks attractive to me because such a review could lead to a situation in which taxation on oil and gas is increased appropriately. We will not know until we have the evidence, so let us have the review.

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

I will start by responding to the Opposition’s amendments and new clauses, before I turn briefly to those tabled by the Government.

Amendment 162 would require the Government to remove clause 45 from the Bill. That would stop the cut in corporation tax going ahead, because the clause will cut the rate of corporation tax to 17% with effect from 1 April 2020. Lower corporation tax rates enable businesses to increase investment. We cannot agree with Rebecca Long Bailey, who speaks for the Opposition on this matter. Lower rates enable businesses to take on new staff, increase wages or reduce prices. That is borne out by receipts data. The House may be interested to know that onshore corporation tax receipts have risen by more than 20% since 2010, despite the lowering of corporation tax rates. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010 and those announced at Budget 2016. The modelling suggests that the cuts could increase long-run GDP by more than 1%, or almost £24 billion in today’s prices.

The hon. Lady asked whether business investment has grown. It has increased by 30% since 2010. She mentioned foreign direct investment. In fact, only last week, the Department for International Trade reported a record number of inward investment projects in 2015-16, with over 80,000 new jobs created by more than 2,000 FDI projects. Again, we cannot agree with her criticism.

Photo of George Kerevan George Kerevan Scottish National Party, East Lothian

The Minister mentions that the Treasury has modelled the impact of tax cuts. Is this the same Treasury model that predicted the collapse of the UK economy in the hours after Brexit?

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

Given the SNP’s track record on predicting the oil price, the hon. Gentleman should think carefully before digging—

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

No, I will continue because I want to move on to the points made by the hon. Member for Salford and Eccles.

On amendment 177, I note the comments made by Rob Marris. He was quite correct in his analysis of what the amendment would do. I accept the point made by Greg Mulholland that it is a probing amendment, but it would indeed cancel the charge for corporation tax in the 2017-18 financial year, depriving the Government of over £45 billion of corporation tax receipts in that year alone. I of course take the point that he wants support for small business and so on, but we are doing a great deal—for example, the business rates package, which will come into effect next spring. For fairly obvious reasons, we cannot support such a loss to the Exchequer.

New clause 5 was tabled by Roger Mullin, but moved by Kirsty Blackman. It calls on the Government to publish a review of corporation tax rates and investment allowances applicable to oil and gas-producing companies in the UK. The UK Government remain 100% behind the oil and gas sector and the thousands of workers and families it supports, but a further review into oil and gas taxes would not serve any useful purpose at this time because the Government have recently carried out such an exercise. In 2014, the Government published “Driving investment: a plan to reform the oil and gas fiscal regime”. It set out the Government’s long-term plan to ensure that the fiscal regime continues to support the objective of maximising the economic recovery of oil and gas, while ensuring a fair return on those resources for the nation. The Government have remained consistent in their approach.

Photo of Callum McCaig Callum McCaig Shadow SNP Westminster Group Leader (Energy and Climate Change) 8:15 pm, 5th September 2016

One of the things to support the oil and gas industry that the Government have talked about is offering loan guarantees to companies experiencing financial stress. Will the Minister tell the House how that process is going and how many companies have received loan guarantees?

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

That issue was explored in some detail in Committee, so I will not respond on it now.

I want to make the important point that the changes introduced by the Finance Bill will provide the right conditions to maximise the economic recovery of the UK’s oil and gas resources by lowering sector-specific tax rates, updating the current system of allowances and expanding the types of activity that can generate financial relief. Another important point often stated—indeed, it has been made by many people who work in the sector and by investors in it—is that stability and certainty in the tax regime are major factors in making investment decisions. For that reason, we do not think it is right to have another review. Such a review could create further uncertainty at a time when it is not right for the industry, and it could delay investment. I therefore urge Members to reject new clause 5.

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

No. I am sorry, but I want to move on to new clause 11, tabled by the hon. Member for Salford and Eccles. It proposes an independent review into the efficacy of the taxation of securitisation companies. The Government do not consider that necessary. Regulations introduced under a Labour Government in 2006 applied specific corporation tax rules to the profits of securitisation companies. The regulations contain several anti-avoidance tests. As announced in the Budget, HMRC is reviewing these regulations to reflect recent changes to accounting standards and market developments. A consultative working group, made up of independent professional advisers specialising in securitisations, HM Treasury officials and HMRC technical specialists, has met four times since September 2015 and is looking carefully at a range of issues. Revised regulations developed with the group are expected to be published in draft for public consultation later this year or early next year. As this review is already under way, a further assessment is not required.

On Government amendments 152 and 153, clause 63 and schedule 9 make changes to ensure that the patent box operates in line with the newly agreed international framework resulting from the OECD’s base erosion and profit shifting action plan. As currently drafted, the changes in the Bill could result in different definitions of the term “qualifying residual profit” applying to the same parts of the patent box legislation. The amendments address that problem by providing a coherent and consistent definition for that phrase.

I will comment briefly on Opposition new clause 10. The new clause would require the Chancellor of the Exchequer to publish within six months of the passing of the Bill an independent report giving an assessment of the value for money and efficacy of the patent box. The Government do not support the new clause. We only now have full data for the first year of the patent box, and as such the report required by the new clause would not take into account the revisions to the regime made by the Bill. The proposed one-off publication would also fall short of the plans the Government already have in place to publish annual official statistics on the patent box.

The hon. Lady mentioned that she wished to see more evidence of the impact of the patent box. It is worth noting that, for example, GSK recently attributed a £275 million investment to the UK’s competitive tax regime and specifically mentioned the patent box as a reason to invest.

A number of Government amendments have been tabled to clause 65 and schedule 10, which legislate to counteract avoidance involving hybrid mismatches. The amendments make changes to the legislation to ensure that it works as intended and does not create unintended impacts in terms of its interaction with other areas of the UK tax system. The amendments are necessary to secure the forecast yield from the measures.

My right hon. Friend Mark Field made a typically thoughtful intervention. He mentioned turnover tax versus profits tax—I suspect that is a theme to which he might return. It is worth noting that a turnover tax can produce unfair outcomes, such as penalising businesses that make a loss and those in competitive markets. As I say, I am sure it is an issue to which he may well return.

The Government are committed to making our tax system fundamentally fair, ensuring that people and businesses pay what they owe and contribute to our nation’s success. I therefore once again urge the House to reject the amendments and new clauses tabled by the Opposition.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

I will press new clause 5 to a vote.

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

The House divided:

Ayes 249, Noes 304.

Division number 53 Finance Bill — Corporation tax treatment of the oil and gas industry

Aye: 249 MPs

No: 304 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

Clause 45