Clause 6 - Charge and main rate for financial years 2022 and 2023

Finance (No. 2) Bill – in the House of Commons at 7:15 pm on 19th April 2021.

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Question proposed, That the clause stand part of the Bill.

Photo of Siobhain McDonagh Siobhain McDonagh Labour, Mitcham and Morden

With this it will be convenient to discuss the following:

Clause 6 stand part.

Clause 7 stand part.

Clause 8 stand part.

Amendment 11, in clause 9, page 3, line 35, leave out “130%” and insert “18%”.

This amendment would reduce the level of the capital allowance super-deductions to the current rate of 18%.

Amendment 79, page 4, line 2, at end insert—

“provided that any such company which has more than £1 million in qualifying expenditure must also—

(i) adhere to International Labour Organisation convention 98 on the right to organise and collective bargaining,

(ii) be certified or be in the process of being certified by the Living Wage Foundation as a living wage employer, and

(iii) not be liable to the digital services tax”.

This amendment would, in respect of companies with qualifying expenditure of over £1 million, add conditions relating to ILO convention 98, the living wage and the digital services tax.

Amendment 80, page 4, line 2, at end insert—

“provided that any such company which has more than £1 million in qualifying expenditure must also make a climate-related financial disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures within the 2021/22 tax year”.

This amendment would, in respect of companies with qualifying expenditure of over £1 million, add a condition relating to climate-related financial disclosure to the conditions that must be met in order for expenditure to qualify for super-deductions.

Amendment 66, page 4, line 6, at end insert “, except general exclusion 6”.

This amendment would remove leased assets from the list of assets excluded from the super-deduction and special rate allowance introduced by Finance (No. 2 Bill).

Amendment 67, page 4, line 21, at end insert “, except general exclusion 6”.

See the explanatory statement for Amendment 66.

Amendment 53, page 5, line 15, at end insert—

“(11) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons a report—

(a) analysing the fiscal and economic effects of Government relief under the capital allowances super-deduction scheme since the inception of the scheme, and the changes in those effects which it estimates will occur as a result of the provisions of this section, in respect of—

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland,

(b) assessing how the capital allowance super-deduction scheme is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland.”

This amendment would require the Chancellor of the Exchequer to analyse the impact of changes proposed in Clause 9 in terms of impact on the economy and geographical reach and to assess the impact of the capital allowances super-deduction scheme on efforts to mitigate climate change.

Amendment 78, page 5, line 15, at end insert—

“(11) Expenditure shall not be qualifying expenditure under this section if it is incurred by a member of a group which is required to publish a tax strategy in compliance with Schedule 19 of the Finance Act 2016, unless any tax strategy published in compliance with that Schedule after the coming into force of this Act includes any relevant country-by-country report.

(12) ‘Country-by-country report’ has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016.

(13) A country-by-country report is relevant if it—

(a) was filed or required to be filed by the group in compliance with those Regulations on or before the date of publication of the tax strategy, or would have been so required if the head of the group were resident in the United Kingdom for tax purposes, and

(b) has not already been included in a tax strategy published by the group.”

This amendment would require large multinationals accessing super-deductions to make their country-by-country reporting public.

Clause 9 stand part.

Clause 10 stand part.

Clause 11 stand part.

Clause 12 stand part.

Clause 13 stand part.

Clause 14 stand part.

Amendment 55, page 85, line 10, in schedule 1, leave out from “period if it is” to the end of line 30 and insert—

“a related 51% group company of that company in the accounting period as defined by section 279F of CTA 2010.

This amendment would prevent the introduction of a new definition of “associated companies” for the purposes of the small profits rate and uses an existing provision instead.

Amendment 56, page 93, line 29, leave out paragraph 11.

See the explanatory statement for amendment 55.

Amendment 57, page 94, line 5, leave out sub-sub-paragraph (a).

See the explanatory statement for amendment 55.

Amendment 58, page 94, line 14, leave out sub-paragraph (3).

See the explanatory statement for amendment 55.

Amendment 59, page 94, line 22, leave out paragraphs 15 to 17.

See the explanatory statement for amendment 55.

Amendment 60, page 95, line 5, leave out paragraphs 20 and 21.

See the explanatory statement for amendment 55.

Amendment 61, page 96, line 44, leave out paragraph 30.

See the explanatory statement for amendment 55.

Amendment 62, page 97, line 22, leave out sub-sub-paragraph (e).

See the explanatory statement for amendment 55.

New clause 1—Eligibility for super-deduction—

“(1) Only employers that meet the criteria in subsection (2) shall benefit from the provisions relating to capital allowance super-deductions in sections 9 to 14.

(2) The criteria are that the employer—

(a) recognises a trade union for the purposes of collective bargaining with its workforce, and

(b) is certified by the Living Wage Foundation as a living wage employer.”

This new clause would ensure that only employers that pay their staff the living wage and recognise trade union(s) would be eligible to receive the capital allowance super-deductions.

New clause 2—Commencement of super-deduction provisions (report on the benefits)—

“(1) Sections 9 to 14 shall not come into force until—

(a) the Secretary of State has commissioned and published a report that sets out the expected benefits of the capital allowance super-deductions in this Act, and

(b) the report has been debated and approved by the House of Commons.

(2) The report in subsection (1) must consider what the economic and social benefits would be of making the capital allowance super-deductions contingent on employers meeting criteria relating to—

(a) reducing their carbon emissions,

(b) tackling the gender pay gap,

(c) paying the right amount of tax and not using avoidance schemes,

(d) paying the living wage to all directly employed staff, and

(e) recognising trade unions for the purposes of collective bargaining.”

This new clause would mean that sections 9 to 14 could not come into force until the Government had published a report examining the economic, social and environmental effect of the capital allowance super-deductions and that report had been agreed by the House of Commons.

New clause 6—Commencement of super-deduction provisions (report on existing capital allowances)—

“(1) Sections 9 to 14 shall not come into force until the conditions in subsection (2) are met.

(2) The conditions are—

(a) the Public Accounts Committee has reported on the effectiveness of the existing capital allowances listed in section 2(3) of the Capital Allowances Act 2001, and

(b) at least one week after the publication of the report in paragraph (a) both Houses of Parliament have agreed that sections 9 to 14 shall come into force.”

This new clause would set the following conditions before clauses 9 to 14 of the Bill come into force: that the Public Accounts Committee prepares a report on the effectiveness of existing capital allowances, and then that both Houses of Parliament approve the clauses coming into force.

New clause 9—Equalities impact assessment of capital allowance super-deductions—

“(none) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons an equalities impact assessment of the provisions sections 9 to 14 of this Act, which must cover the impact of those provisions on—

(a) households at different levels of income,

(b) people with protected characteristics (within the meaning of the Equality Act 2010),

(c) the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010,

(d) equality in different parts of the United Kingdom and different regions of England, and

(e) child poverty.”

New clause 13—Review of impact of sections 6 to 14—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by sections 6 to 14 and schedule 1 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity,

(d) GDP growth, and

(e) poverty.

(3) A review under this section must consider the following scenarios—

(a) the United Kingdom reaches an agreement with OECD countries on a minimum international level of corporation tax, and

(b) the United Kingdom does not reach an agreement with OECD countries on a minimum international level of corporation tax.

(4) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland; and “regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require a report comparing scenarios in which (a) the United Kingdom reaches an agreement with OECD countries on a minimum international level of corporation tax, and (b) the United Kingdom does not reach an agreement with OECD countries on a minimum international level of corporation tax on various economic indicators.

New clause 17—Review of impact on corporation tax revenues of global minimum rate of corporation tax—

“The Chancellor of the Exchequer must within six months of Royal Assent lay before the House of Commons an assessment of the effect on corporation tax revenues in 2022 and 2023 of a global minimum corporation tax rate set at 21%.”

This new clause would require the Government to publish an assessment of the revenue effect of a global minimum corporation tax rate of 21%.

New clause 19—Review of impact of sections 6 to 14 (No. 2)—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by sections 6 to 14 and schedule 1 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity,

(d) GDP growth, and

(e) poverty.

(3) A review under this section must compare the estimated impact of corporation tax rate changes in this Act with the impact on investment from the changes to the corporation tax rate in each of the last 12 years.

(4) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland; and “regions of England” has the same meaning as that used by the Office for National Statistics”

This new clause seeks a review of the estimated impact of corporation tax rate changes in this Act with the impact on investment from the changes to the corporation tax rate in each of the last 12 years on various economic indicators.

New clause 20—Review of impact of section 7—

“(1) The Chancellor of the Exchequer must review the impact of section 7 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) the link between corporate profit rates and ownership, and

(b) the cost of re-introducing a small profits rate.”

This new clause seeks a review of corporation tax provisions on (a) the link between corporate profit rates and ownership, and (b) the cost of re-introducing a small profits rate.

New clause 21—Review of impact of sections 6 to 14 (No. 3)—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by sections 6 to 14 and schedule 1 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) progress towards the Government’s climate emissions targets, and

(b) capital investment in each of the next five years.

(3) A review under this section must include—

(a) the distribution of super-deduction claims by company size, and

(b) estimated tax fraud.

(4) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Scotland,

(d) Wales, and

(e) Northern Ireland; and ‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

This new clause seeks a report on the impact of the super deduction on (a) progress towards the Government’s climate emissions targets, and (b) capital investment in each of the next five years. A review under this section must include (a) the distribution of super-deduction claims by company size, and (b) estimated tax fraud.

New clause 24—Review of super-deductions—

“(1) The Chancellor of the Exchequer must review the impact of sections 9 to 14 and schedule 1 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act, and then annually for five further years.

(2) A review under this section must estimate the expected impact of sections 9 to 14 and schedule 1 on—

(a) levels of artificial tax avoidance,

(b) levels of tax evasion, reducing the tax gap in each tax year from 2021–22 to 2025–26, and

(c) levels of gross fixed capital formation by businesses in each tax year from 2021–22 to 2025–26.

(3) The first review under this section must also consider levels of usage of the recovery loan scheme in 2021.”

This new clause would require the Government to review the impact of the provisions relating to super-deductions and publish regular reports setting out their findings.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury

Clauses 6 to 14 and schedule 1 establish the charge and set the rate of corporation tax at 19% for the financial year beginning in April 2022, and establish the charge and increase the rate of corporation tax to 25% for the financial year beginning in April 2023. They also introduce a small profits rate at 19% for companies with profits of £50,000 or less, with marginal relief for companies with profits between £50,000 and £250,000; and they increase the diverted profits tax rate by 6 percentage points, in line with the increase in the main rate of corporation tax. Finally, they introduce a capital allowance super-deduction for investments in plant and machinery.

At 19%, the current rate of corporation tax is the lowest headline rate in the G20 and significantly lower than in the rest of the G7. However, given that the Government have used the full weight of the public finances to support businesses during the pandemic, protecting thousands of businesses with more than £100 billion-worth of support, it is right that, as the economy rebounds and businesses return to profit, they share in the burden of restoring the public finances to a sustainable footing. That is why the Chancellor announced at Budget that the rate of corporation tax will increase to 25% from April 2023, after the economy is forecast to recover to its pre-pandemic level.

While many businesses are struggling now and the Government are continuing to provide support for them, others are sitting on large cash reserves. To unlock those funds and support an investment-led economic recovery, from April 2021 until the end of March 2023 companies will be able to claim a 130% capital allowance super deduction on qualifying plant and machinery investments. This super-deduction makes the UK’s capital allowance regime truly world-leading, lifting the net present value of our plant and machinery allowances from 30th in the OECD to first.

Given the number of amendments and the number of speakers, I will try to keep my remarks relatively brief. Clause 6 sets the main rate of corporation tax at 25% from April 2023. The OBR forecasts that this will raise over £45 billion in the next five years. It should be noted that 25% is still the lowest headline rate in the G7—lower than in the United States, Canada, Italy, Japan, Germany and France. The clause also sets the main rate of corporation tax at 19% for the financial year beginning on 1 April 2022. That means the higher rate will not come into force until well after the point when the OBR expects the economy to have recovered to its pre-pandemic level.

To protect businesses with small profits from a rate increase, clause 7 and schedule 1 introduce a small profits rate for non-ring fence profits for the financial year beginning 1 April 2023. As a consequence, only around 10% of actively trading companies will pay the full main rate.

Clause 8 makes changes to increase the rate of diverted profits tax to 31% from 1 April 2023, along with apportionment provisions for accounting periods straddling the commencement date. This will maintain the current differential between the main rate and ensure the diverted profits tax remains an effective deterrent against profits being diverted out of the UK.

Clauses 9 to 14 make changes to encourage firms to invest in productivity-enhancing plant and machinery assets that will help them grow, and to make those investments now. Clause 9 introduces new capital allowances available for expenditure incurred by companies between 1 April 2021 and 31 March 2023. These include a 130% super deduction for new main rate plant and machinery and a 50% special rate first-year allowance for new special rate plant and machinery

Business investment fell by a record £12 billion between the first and second quarters of last year. Making capital allowances rates for plant and machinery investments more generous has the effect of stimulating business investment and enhancing productivity. As firms invest, they create new, or substitute better, assets for use in production. That increases labour productivity, as workers produce more output per hours worked through the use of new equipment that enables faster, higher-quality outputs.

The measure will greatly benefit British companies of all sizes, including those investing more than the £1 million annual investment allowance threshold, which are responsible for around 80% of total plant and machinery capital expenditure. The changes made by clauses 9 to 14 will allow all companies to reduce their taxable profits by 130%, or 50% up front, all in the first year—a cash-flow benefit powerful enough to encourage businesses to invest now. We expect the measure to cost around £25 billion over the scorecard period.

Opposition Members have tabled a number of amendments to clauses 6 to 14. Amendments 55 to 62 propose the removal of the associated companies rules that apply to the small profits rate. The rules will affect a small proportion of companies, but they are an essential feature of the regime to prevent profitable businesses from fragmenting in order to take advantage of a lower rate or creating unfair outcomes, and they were a feature of the previous regime on which these rules are based. In the absence of the rules, a consultant, for example, could provide his or her services through five companies with profits of £40,000 each and benefit from the small profits rate. I cannot believe that Opposition Members, or indeed any Member, would support that form of avoidance: restructuring in order not to pay the tax.

Several of the new clauses call on the Government to publish a review of the impact of these clauses and potential alternative policy approaches. The Office for Budget Responsibility considers the impact of policy changes in its fiscal forecasts and sets them out in its “Economic and fiscal outlook”, which is published alongside the Budget. Therefore, I can reassure Opposition Members that new clauses 17 and 20, which request reviews into the revenue impacts of a potential global minimum tax rate and the impact of the small profits rate, are not necessary.

New clauses 13, 19 and 21 request reviews into the investment and various economic impacts of clauses 6 to 14 across the UK. The economic impacts of the clauses have been reflected in the OBR’s forecasts published in its “Economic and fiscal outlook”, as were the impacts of reductions in the rate of corporation tax. The fiscal impact of any future agreement on international tax reform will be reflected in subsequent “Economic and fiscal outlook” documents.

Opposition Members have also tabled several amendments relating specifically to clauses 9 to 14. Amendment 11 would reduce the level of the super deduction to the current writing down allowance of 18% for main rate assets. That would have the effect of removing all the benefit conveyed by this groundbreaking new policy for shorter-life assets, while the benefit of a 50% first-year allowance for longer-life assets would remain. That would distort investment behaviour in favour of longer-life assets and reduce the positive benefits of the policy.

Various other amendments seek to restrict the relief only to certain companies, or require companies that claim the super deduction to meet more burdensome conditions than would be required for other first-year allowances. The super deduction is an intentionally broad-based tax relief, designed to ensure that as many companies as possible are able to benefit from this very generous policy, in order that they can invest in their own future to drive the economic recovery.

Regarding a new requirement for country-by-country reporting, I am pleased to say that this Government have championed tax transparency both at home and abroad. That is demonstrated by the requirement introduced in 2016 for large businesses to publish their annual tax strategy, containing detail on the business’s approach to tax and how it works with HMRC. However, the Government continue to believe that only a multilateral approach to public country-by-country reporting with wide international support would be effective in achieving transparency objectives and avoiding disproportionate impacts on the UK’s competitiveness, or distortions regarding group structures. The Government firmly believe that that should remain voluntary and that no further legislation is needed unless and until public country-by-country reporting is agreed on a multilateral basis.

New clauses 2 and 6 would have the effect of delaying the super deduction, but to delay the policy now would be highly irresponsible and would risk holding up the economic recovery that the policy will help to stimulate. The likely real-world effect of delaying the implementation of the super deduction would be that businesses would delay investment until they had certainty on whether the super deduction would be available. At a time when investment is most needed, delaying the implementation of the super deduction would thus have negative impacts on employment, growth and wages. Various other amendments would delay the measure, narrow its scope or replicate existing analysis and safeguards, and I urge the Committee to reject them.

The Government continue to provide unprecedented support for small businesses in response to covid-19, as evidenced by many new measures announced at this Budget. That includes over 350,000 business properties paying no business rates for a further three months, with the vast majority of eligible businesses receiving a 75% relief across the year. Many small businesses will also benefit from the freeze in fuel duty. The new small profits rate of 19% for businesses with profits of £50,000 or under means that around 70% of active trading companies will benefit from no increase in their corporation tax rate. These smaller companies will benefit from all the policies I have set out, as well as the super deduction, in line with the rules that operate regardless of the size of the business.

Clauses 6 to 14 and schedule 1 raise revenue by increasing the main rate of corporation tax while keeping that rate competitive relative to our international peers and supporting an investment-led recovery through the introduction of a super deduction that is unprecedented in its generosity, and they should therefore stand part of the Bill.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury) 8:00 pm, 19th April 2021

I rise to speak to the amendments and the new clause in my name, that of the Leader of the Opposition and those of my other right hon. and hon. Friends.

In the preceding debate, we saw how this Finance Bill will hit families, in all their many forms across the country, by making half of all people in the UK pay more tax from next year. As I made clear, the sense of injustice is made all the more acute by the fact that that increase in costs for families comes before any rise in corporation tax and that at the same time, through this Bill, the Government are letting tech giants stop paying tax altogether.

Clauses 6 to 8 make it clear that the proposed changes to corporation tax will come after increases to the income tax personal allowances, while clauses 9 to 14 centre on the so-called super deduction, a £25 billion tax break targeted at big corporations that the Chancellor has said represents

“the biggest two-year business tax cut in modern British history”.

That tax break forms the centre of the Chancellor’s strategy set out at the Budget, and it comes with a huge cost attached to it. We need to be absolutely clear who will benefit from it.

One thing is clear: that tax break is not targeted at small and medium-sized businesses. The truth is that such businesses can already benefit from the annual investment allowance, a 100% tax break on investment up to £1 million, which clause 15 extends to the end of this year. The Financial Secretary was very clear in his written statement of 12 November 2020, which announced the extension, that it:

“Simplifies taxes for the 99% of businesses investing up to £1 million on plant and machinery assets each year.”

Indeed, the Treasury Committee concluded in its report published in February, “Tax after coronavirus”, that the annual investment allowance

“appears well targeted to promote growth in small and medium-sized enterprises.”

The existing allowance is said to be well targeted at the growth of small and medium-sized businesses and, by the Financial Secretary’s own admission, it already benefits 99% of businesses, which will benefit only marginally from the new super deduction. Who does that leave? It is very clear who will be the main beneficiaries of the Chancellor’s new scheme. It will be a tax break for the 1%.

Photo of Sammy Wilson Sammy Wilson Shadow DUP Spokesperson (Treasury), Shadow DUP Spokesperson (Work and Pensions), Shadow DUP Spokesperson (Brexit)

Does the shadow Minister not accept, first, that large businesses are an important component of our economy and we need to increase productivity in those businesses as well as in small businesses, and secondly, that many large industries, such as the aviation industry, have been badly hit by the pandemic and would benefit from the kind of tax allowances proposed in the Bill?

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

I thank the right hon. Gentleman for his comments, but as I have set out, the annual investment allowance already appears to serve small and medium-sized enterprises well. The super deduction that we are debating now is designed to help companies such as Amazon, which do not need any help with their investment. It is important that we see this in the context of those companies that have done well throughout the outbreak and are already avoiding much of the tax they should be paying. It is no wonder that Tax Watch has nicknamed this the “Amazon Tax Cut”. This giveaway from the Chancellor could wipe out Amazon’s UK tax bill entirely.

Analysis of Amazon’s accounts from 2019 shows that the corporation’s UK operations made pre-tax profits of £102 million. In the same year, it spent £67 million on plant and machinery, £80 million on office equipment, and £15 million on computer equipment. The super deduction would have enabled Amazon to deduct £211 million from the calculation of its taxable profits— more than enough to wipe out its entire tax liability twice over. It is truly astonishing that, faced with all the challenges of this outbreak, the Government see their priority as giving Amazon a tax break.

Here and around the world, people agree with us that investment in jobs and growth is what is needed. A tax break for tech giants that already fail to pay what they should is not the answer. That is why our amendment 79 would explicitly prevent the biggest tech firms from taking advantage of the Chancellor’s tax break, as well as other big firms that do not support workers’ rights and the living wage.

The Government should be improving the lives of Amazon workers, who have helped so many people with deliveries throughout the pandemic, not giving a huge tax break to their bosses. Amendment 79 would prevent Amazon and other tech giants from accessing the super deduction by preventing firms from doing so if they are liable for the digital services tax. When the Government set out their plans for the digital services tax, they made it clear that it would apply to businesses that provide social media platforms, search engines, or online marketplaces to UK users. The detail of that tax means that businesses will be liable when the group’s worldwide revenues from these digital activities are more than £500 million, and when more than £25 million of these revenues are derived from UK users.

We are clear that those big corporations that should be caught by the digital services tax are among those that absolutely should not be benefiting from the Government proclaim as the biggest business tax cut in modern British history. We know that Amazon has brazenly made it clear that it will dodge the bill from the digital services tax by passing the cost on to its marketplace sellers. The fact that it is not even paying the tax that was designed for it to pay makes the prospect of a further massive tax cut from the Chancellor even more galling.

Furthermore, as well as excluding big corporations on the basis of their being liable for the digital services tax, we are seeking to use our amendment to stop those big businesses that do not support workers’ rights and the living wage from accessing the tax break. Both conditions would also catch Amazon and would also require other big businesses—those that are not liable for the digital services tax—to respect the right to organise and collective bargaining, and to be certified, or be in the process of being certified, by the Living Wage Foundation as a living wage employer.

When firms stand to benefit from what the Chancellor has called the biggest business tax cut in modern British history, the very least the Government should require of them is that they pay their workers the living wage and respect workers’ basic rights to organise. Alongside this, we propose in amendment 80 that the Government require big firms benefiting from the Chancellor’s tax break to make a climate-related financial disclosure, in line with the recommendations of the Task Force on Climate-related Financial Disclosures.

Beyond the specific issue of how the biggest corporations are set to benefit from this tax break the most, we have also tabled new clause 24 to reflect the widely-held concerns about the impact of the super deduction on levels of tax avoidance and evasion. As the chief executive of the Resolution Foundation has made clear, investment incentives have been abused for tax avoidance purposes in the past, yet the Government have failed to say or do anything to address widespread concerns that the super deduction is open to fraud and abuse.

As I mentioned on Second Reading, economists from the Institute for Fiscal Studies have said that the super deduction will

“create a risk of tax avoidance and even potentially fraud as companies essentially try to find ways to dress things up as plant and machinery investment”.

Minsters were unable to reassure us on this point when I raised it last week, so we are asking for the levels of tax avoidance and evasion arising from the super deduction to be reviewed and put transparently before this House.

It tells us everything about the Conservatives’ priorities that they are taking money from people’s pockets at the very same time as letting tech giants off paying tax altogether. This Government are proposing to wipe out some of the biggest corporations’ tax bills through a £25 billion boon, aimed at the biggest corporations, that the Chancellor has called

“the biggest two-year business tax cut in modern British history.”

In the face of a struggling economy, a tax break for tech giants that already do not pay enough tax should be the last thing on the Government’s mind. Instead, it is top of their list. They are wrong.

Photo of James Murray James Murray Shadow Financial Secretary (Treasury)

No, let me make some progress.

The Government are wrong, and that is why we will be voting to stop the Chancellor’s tax break going to the biggest tech firms or other big corporations that do not support workers’ rights and the living wage. We need a fairer tax system and we need investment in jobs and growth. This Government’s Finance Bill fails on both fronts. I urge Conservative Members to show that they understand this, support our amendments today and take a stand against the Amazon tax cut.

Photo of Felicity Buchan Felicity Buchan Conservative, Kensington

I speak in support of clauses 6 to 14 and against the amendments. This Finance Bill needs to be a delicate balancing act. It needs to give immediate support to businesses and individuals while setting a path to rebalance our books in the medium to long term. In my view, these provisions on corporate taxation and the super deduction get that balance exactly right. The Bill defers the increase in corporation tax for two years and applies to only one in 10 businesses at 25%, but at the same time it turbocharges the incentives to invest in business now.

This country has had a perennial problem with productivity. We need to incentivise and encourage business investment. That business investment will help productivity, growth and innovation, and that is exactly what we need. The OBR has said that it anticipates that business investment will go up by a massive 10% as a result of this measure and, as my right hon. Friend the Minister mentioned in his introductory remarks, we will go from No. 30 in the OECD rankings for attractiveness for business investment to No. 1. That is what we need over the course of the next two years as we turbocharge this economic recovery. We need the economic recovery to be strong.

Photo of Sammy Wilson Sammy Wilson Shadow DUP Spokesperson (Treasury), Shadow DUP Spokesperson (Work and Pensions), Shadow DUP Spokesperson (Brexit)

Does the hon. Lady accept that many of our large companies will lead the way in our export growth as we seek to capitalise on the new markets that will open to us as a result of Brexit, and that to capitalise on that we need new, competitive products and to be productive and competitive on the world stage, which is why we need to encourage investment in firms both large and small?

Photo of Felicity Buchan Felicity Buchan Conservative, Kensington

The right hon. Gentleman makes a very good point. We need to encourage investment across the board in large, medium-sized and small firms. Productivity has lagged and we need to correct that, so I absolutely agree.

Let me move on to corporation tax. As I have said, we will increase corporation tax but that is delayed for two years. Corporation tax, by definition, is paid only by profitable companies. I am a low-tax Conservative, so I do not normally advocate increasing taxes, but given the exceptional amount of debt that we have rightly accrued and taken on, we need to be fiscally prudent and look to balance our books in the medium to long term. The reality is that we are very sensitive to interest rates and inflation, given the debt we have; so yes, I do think we need to do this, although it goes against the grain. However, as my right hon. Friend the Minister has said, even with the increase to 25% we still have the lowest headline corporation tax rate in the G7.

I also want to point out that the measure applies only to the most profitable businesses, those that make £250,000-plus. A small business that makes profits of up to £50,000 will have no change whatsoever in its corporation tax, and businesses in between will have a tapered rate. I believe that this is an unavoidable increase in corporation tax, but it still leaves us incredibly competitive on the international stage, and it applies to only one out of 10 businesses.

Photo of Sammy Wilson Sammy Wilson Shadow DUP Spokesperson (Treasury), Shadow DUP Spokesperson (Work and Pensions), Shadow DUP Spokesperson (Brexit) 8:15 pm, 19th April 2021

Does the hon. Lady accept that, despite the impression being given tonight that we are going to tax firms less and take less money off them, the Red Book indicates that corporation tax take in the economy as a whole will escalate from £40 billion this year to £85 billion by the end of the Budget period? The result will be that we take more tax from firms. Hopefully, those firms will become more profitable and will therefore be paying more tax.

Photo of Felicity Buchan Felicity Buchan Conservative, Kensington

I completely agree with the right hon. Gentleman that all the forecasts show a very substantial increase in the tax take by virtue of this move in corporation tax.

I believe that we have the right balance. We are increasing corporation tax, but only for 10% of our businesses and only in two years’ time. Importantly, we are also accelerating and incentivising investment in businesses, which will be critical to our economic recovery.

Photo of Richard Thomson Richard Thomson Shadow SNP Deputy Spokesperson (Treasury - Financial Secretary), Shadow SNP Spokesperson (Wales), Shadow SNP Spokesperson (Northern Ireland)

I want to speak to the amendments and, in particular, the new clauses that have been tabled in my name and those of my colleagues.

First, I will start with the positives. We very much welcome the planned increase in corporation tax rates. For a number of years, there has been an orthodoxy that lower corporation tax rates are one way to economic growth. There was a period in the 1980s through to about the 2000s when it was possible to make the argument, as many did, that lower taxes could be a route to securing an increased level of foreign and direct investment, and that the resulting increase in economic activity could result in higher tax revenues than might otherwise have been the case. I would like to think that we are all just a bit wiser and more savvy now, given that, in the growth of that period, it is impossible to properly separate out the increase in corporation tax take and the general growth in activity that took place independently.

Given that we did not see conspicuously high levels of investment or wage growth over that period, except perhaps in boardrooms, and given the condition of our public finances and the importance of public goods as a driver of wellbeing and sustainable growth and prosperity, we consider that this increase, which will apply a new 25% rate on the top 10% of firms, is fully justified. We are relieved that firms will have until 2023 to plan for this move. We believe it was misguided for the Chancellor to try to increase it from 19% to 20% in September, ahead of any recovery starting, beyond the anticipated return-to-trend growth that we are seeing anyway.

The SNP firmly believes that it is important that our corporate citizens pay their share towards the maintenance and good functioning of the market and the public goods that allow them to flourish. However, domestic corporation tax is only part of that story. If re-elected—obviously, we have elections coming up in Scotland, which I am sure hon. Members are focused on avidly—the SNP Government will be looking to explore the possibility of levying a higher poundage on properties where the owner is registered in a tax haven. That is part and parcel of the package of measures that is needed to ensure that everyone who benefits from participation in the market is making a suitable contribution towards it.

Further, we believe that the UK must seize the opportunity that this moment presents to work closely with the Biden Administration in the USA. We must heed the call of that Administration’s Treasury Secretary, Janet Yellen, to set a global minimum tax take for companies to ensure the global economy can thrive, based on a more level playing field and the taxation of multinational corporations, and help spur innovation, growth and prosperity.

New clause 13 would oblige the Government to review the impact of the changes made by clauses 6 to 14 in all parts of the UK, particularly in respect of business investment, employment, productivity, GDP growth and poverty, and to compare the difference in actual and forecast outcomes between having a deal in place with other OECD countries on a minimum level of corporation tax and not.

Similarly, new clause 19 asks the Government to review these changes but in a way that looks both forwards and backwards. As I said earlier, orthodoxies may change in economics, and the Chancellor’s commitment to increasing the headline rate seems to mark the end of a protracted period of a race to the bottom on corporation tax rates. The Chancellor himself said on 3 March that cuts

“might not be the most effective way to drive capital investment up”.

On that basis, it is very important that the Government should compare the estimated impact of corporation tax changes in the Bill with the impact of the changes in corporation tax rates that we have seen in each of the past 12 years.

New clause 20 seeks a review of corporation tax provisions on the link between corporate profit rates and ownership, and the cost of reintroducing a small profits rate. We believe that the lower small profits rate introduces an unnecessary degree of complexity into the tax system. We were unable to find specific costings for the reintroduction of the small profits rate in the OBR policy costings. Instead, they appear to have been rolled into the costings for the overall rate increase. The Treasury should publish details of the revenue forgone through this measure for the purposes of proper scrutiny.

New clause 21 seeks a report on the impact of the super deduction on progress towards the Government’s climate emissions targets and capital investment in each of the next five years. It is important that we understand properly not just the impact that the super deduction is expected to have but the impact it actually has, because it is one of the most significant spending measures in the Budget and a very significant giveaway to big business.

The super deduction is poorly targeted, since it applies to physical assets rather than investments in software, for example, and seems to mostly benefit larger companies. Smaller investments are already tax-deductible under the annual investment allowance. OBR analysis suggests that some £5 billion of the super deduction will, in any event, be spent on previously planned investments. It is hard to avoid the conclusion that this measure will benefit larger companies in a way that does not necessarily drive growth in the way that the Chancellor would hope and certainly does not target the small and medium-sized enterprises that benefited from those deductions anyway and are the engine of growth in most parts of these islands.

When setting policy, it is always a good idea to know what we are doing and why and to have the most solid evidential base for doing so. The fact that we will not put these measures to a vote does not diminish the significance and importance of what we propose. I can assure the Minister that we will return to these matters and will look to the Government to act, even if these matters are not addressed in the final version of the Bill.

Photo of Andrew Jones Andrew Jones Chair, European Statutory Instruments Committee, Chair, European Statutory Instruments Committee

One of the biggest challenges that the UK economy has faced for many years is its productivity. The UK has some of the highest-calibre companies in the world, among the smartest and most productive on the planet, but outside the south-east, there are areas of the UK where productivity matches parts of southern Europe. For many years there has been a long tail of companies whose productivity is very poor. There are many causal factors in that, including skills—particularly digital—and infrastructure challenges, which I have focused a fair amount of my time on. One of the key issues is a lack of business investment, and one element of the Bill, which I shall focus upon in my few words, goes right to the heart of tackling that: the super deduction.

Until March 2023, companies can claim 130% capital allowances, which basically means that for every £1 a company invests, its taxes are cut by up to 25p. I have no doubt that this will prompt investment. Investment is a driver of economic growth. While the UK has performed well on growth over the last decade, it has lagged on investment, so if investment rates can be improved, the UK will do even better.

The Office for Budget Responsibility estimates that the UK will rise from 30th to first in the OECD world rankings for business investment. That is a very positive thing. Being a beacon for investment is a positive, not a negative; we should not listen to Opposition Members on this. However, such a rise in the world rankings will not be achieved unless there is real scale to this measure. For the two years that it is in place, it is estimated to amount to £25 billion. It would therefore be the largest business tax cut in modern British history, so there is indeed real scale to it.

When we talk about productivity in this place, there is a danger of speaking in jargon. What people could take away is the message that they will have to work harder, do 40 hours per week instead of 38, or work in a team of six rather than eight but still do the same work. What I know we mean, and what I am talking about, is working smarter, so that there is more economic output for the same input. Investment in new machinery and the latest technology is one way to increase productivity, and the super deduction will increase investment.

There are amendments ahead of us this evening about measuring the impact of those policies. Those amendments are not necessary as the Treasury always reviews the impact of its policies, but as the Treasury does its work it will be interesting to see the impact of the super deduction on different parts of the country. It will simply reflect the different economic mix that we have in different areas, and some will benefit more significantly than others. I think the policy will be very helpful in the levelling-up agenda.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

With the support of a wide range of Members from across the House, I tabled amendment 78. Although we will not put it to a vote tonight, we intend to return to the subject on Report. Sadly, I cannot look the Minister in the eye, but I strongly and sincerely urge him to give the matter proper and serious consideration. A knee-jerk rejection to a practical idea simply because it is proposed by Back Benchers from across Parliament would confirm yet again that the Government listens only to the few—the powerful corporations and influential tax advisers—and ignores the views of most taxpayers in Britain today.

Boosting investment to stimulate growth is a vital and shared objective, especially as we emerge from the shadows of the pandemic, but the super deduction is both hugely expensive and poorly targeted. With a cost of £25 billion over two years—nearly half the total annual defence budget—the Government must ensure proper value for hard-working taxpayers. Our amendment seeks to target taxpayers’ money more effectively. Every new tax relief, as the Minister well knows, provides a new opportunity for the unscrupulous to identify loopholes and then to shirk their responsibilities and avoid paying their fair share of taxes. Capital allowances have long been fertile ground for tax avoidance. Anybody looking online will find an army of people advertising expertise in classifying expenditure to help companies to exploit the eligibility criteria and so avoid tax.

With a super deduction, the opportunities for exploitation are obvious. The tax relief will last for only two years, so it is unlikely to fund the aviation industry or genuinely new capital investment, which takes time to plan and to implement. It will mainly be used to cut taxes for companies that were investing anyway, and those that will benefit most are those that have prospered the most during the pandemic. They are the companies with oven-ready capital investment plans, benefiting from the increased demand that they have enjoyed over the last torrid year—companies such as BT, whose share price rose by 7% on the day the super deduction was announced, or, as others have mentioned, the notorious tax avoider Amazon.

In 2019, Amazon’s UK turnover was £13.7 billion, but by claiming that its UK sales took place in Luxembourg it exported its profits and avoided corporation tax. It declared only a bit of profit in the UK, as the shadow Minister said, on its warehousing and logistics activities. Its corporation tax contribution was less than 0.1% of its turnover. Analysis by TaxWatch shows that even that miserly contribution would be wiped out with super deductions. It would write off its investment in IT equipment and machinery against its deliberately understated profits. 8.30 pm

Does the Minister really intend to fritter taxpayers’ money away on bungs for global companies that do not pay fairly into the system? Jeff Bezos, whose personal fortune rose to $200 billion during the pandemic, and his $1 trillion company are pocketing money from the British taxpayer and flagrantly refusing to pay back into the system. Does the Minister really think that taxpayers support this sort of daylight robbery? Our amendment would provide a straightforward way for the Government to ensure that this did not happen. It would require proper transparency, with multinational corporations showing where they undertake their economic activity and where they make their profits as a condition of eligibility for super deductions.

The House voted in favour of country-by-country reporting in 2016, as the Minister said, but that power has never been enacted. Our amendment urges the Government to use that power to ensure that this egregious behaviour by companies is visible for all to see, and to ensure that taxpayers’ money is not wasted on those who greedily grasp the nation’s money and assiduously avoid contributing to the public purse. Accepting our amendment would achieve two important objectives. First, it would stop taxpayers’ money being squandered. Secondly, with President Biden pioneering a new global settlement for corporation tax and the EU reaching agreement on country-by-country reporting, it would ensure that Britain played a leading role in developing a fair and responsible global system of taxation.

Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington

Following on from my right hon. Friend Dame Margaret Hodge, I find it almost incredible that we are having this debate at all, given what we know about the track record of abuse of this type of tax deduction, as she so eloquently pointed out. The Minister is right to suggest that amendment 11, tabled in my name and those of other right hon. and hon. Friends, would have the effect of removing the provision of capital allowance super deductions.

There has been considerable evidence, and concern, from economic think-tanks and Committees of this House that tax reliefs have failed to deliver their stated objectives and, worse, that they have often had unintended consequences through the creation of perverse incentives. Members have raised example after example in recent years, including the entrepreneurs allowance, the patent box and the tonnage tax, all of which have not only failed in their objectives but lined the pockets of company directors and shareholders, exactly as my right hon. Friend said. Accountants, lawyers and others have been using them effectively for tax avoidance. The scope for perverse incentives and unintended consequences is even greater with these super deductions. If the Chancellor wants a sweetener to go alongside his corporation tax rises, surely at a time of rising unemployment it is more urgent to incentivise job retention through a temporary cut to employers’ national insurance contributions rather than introduce what has been described as this dog’s dinner of untargeted super deductions in clauses 9 to 14.

Unlike Ministers, in dealing with business, I do not believe in a something-for-nothing culture. If the Government are giving tax breaks to businesses, the Government, as guardians of the public purse and the public interest, should demand something in return. New clause 1, in my name and those of other hon. and right hon. Members, asks simply that, in return for companies being eligible for these super deductions, they should pay their workers the real living wage and should recognise trade unions for collective bargaining purposes—two simple things that reflect that they are responsible employers.

I regret very much the Minister’s reference to these as “burdensome” requirements. Paying a decent wage and recognising trade unions are not a burden, but actually things that enhance the role of an individual company. As has been said in debate after debate, even by Government Ministers, in many instances the greater involvement of the workers in a company increases productivity. These are just low barriers for companies to pass. It does not take long to recognise a trade union or to be accredited as paying the living wage. Companies that do not currently meet these extra criteria could easily do so during the passage of this Bill and its enactment.

I also back the Front-Bench amendments in the name of the Leader of the Opposition, and I pay tribute to my hon. Friend James Murray. He is right that companies such as Amazon that dodge their taxes and evade their responsibilities to their workers should not be given tax breaks on top. The Chancellor of the Exchequer made much of his compact with unions and business groups over the furlough scheme. This modest new clause 1 puts in legislation the approach I am putting forward. I believe that it is within the spirit of that relationship between Government, trade unions and employers, and I just urge the Government to think again about accepting it.

New clause 2, in my name and those of other hon. and right hon. Members, combines a request for an evidence base for super-deductions in respect of capital allowances and to explore what economic benefits could be derived from attaching social and environmental conditions to the receipt of super deductions. I heard one hon. Member in this debate say that the Treasury monitors these policies and does indeed review them; unfortunately, it does not.

Historically, tax reliefs have been introduced, and over the years an accumulation of tax reliefs have never been reviewed and never really been tested for their effectiveness in the way they should be. The Office for Budget Responsibility stated in its March “Economic and fiscal outlook” that the super deductions, as others have said, are expected to cost at least £25 billion in total between 2021-22 and 2023-24. This is a huge commitment, and it is surely in the public interest that we have an assessment of policies’ effectiveness and also ensure they deliver on social and environmental goals.

In new clause 6, I seek to create an evidence base on which this House can assess the merits and drawbacks of the super deduction policy. The Public Accounts Committee has previously looked into the operation of UK tax reliefs, and its findings painted a worrying picture. These reliefs already cost more than £100 billion a year in forgone tax, and HMRC does not even know how many reliefs exist or monitor their cost, let alone their effectiveness. Let me quote my right hon. Friend the Member for Barking, who is the former Chair of the Committee. She said:

HM Treasury and HM Revenue and Customs…do not keep track of those tax reliefs intended to influence behaviour. They do not adequately report to Parliament or the public on whether reliefs are working as intended and what they cost and whether they represent good value for money.”

She went on:

“HMRC does not effectively monitor changes in the cost of tax reliefs so is slow in identifying instances where a relief is being exploited for a purpose” beyond what Parliament intended. I think that is an accurate but damning indictment and one that should concern the whole House, but especially Treasury Ministers.

New clause 6 specifically recommends that the Public Accounts Committee is tasked with reviewing the effectiveness of existing capital allowances and that this House then votes on the clauses that provide for super deductions in the light of that evidence. I urge the Government to get a grip on the whole process of tax reliefs. We have seen how they can be abused. We have seen how ineffective they can be. We have also seen an industry develop, with accountants and lawyers who have profiteered from tax reliefs that the Government have introduced over decades. To add now to that abuse of taxpayers’ money in this way, I deeply regret. I urge the Government to think again. I give the Government this warning: in a few years’ time, if the Bill goes through as it is now, I bet we will be returning to this debate with example after example of how this system has been abused, to all our cost.

Photo of Miriam Cates Miriam Cates Conservative, Penistone and Stocksbridge

I wish to speak to the numerous amendments and new clauses relating to corporation tax changes and the new super deduction.

As the previous speaker, John McDonnell, will no doubt keenly remember, raising corporation tax was one of the pillars of Labour’s 2019 manifesto. We frequently hear Labour Members expressing the view that big businesses should pay their fair share of tax. I completely agree, and that is why I fully support the Government’s proposals to increase corporation tax with a new maximum rate of 25% for those businesses with profits of over a quarter of million pounds from April 2023. Unlike a rise in income tax or national insurance, which affects taxpayers in a blanket way regardless of personal financial circumstances, corporation tax is only paid when profits are made—no profit, no tax due. And where profits are made, it is of course absolutely right that a proportion of those profits is returned to the taxpayer, because without the infrastructure, education, security and health services that the state provides, those businesses would clearly be much less profitable.

Members across the House like to champion small and local businesses, and rightly so. These businesses will, in the vast majority of cases, continue to pay the lower rate of corporation tax. In my constituency, we have 2,890 registered businesses, with 88% having fewer than 10 employees. These are not the kind of companies that generally make profits exceeding a quarter of a million pounds a year. The corporation tax rise will only affect the very largest and most profitable businesses. In fact, only 10% of businesses will pay the new higher rate. The Government are right to delay the increase until 2023, as it gives companies time to plan as we emerge from a period of uncertainty, but it is wrong to say that the impact of the pandemic means that the change should not take place at all. Yes, many businesses have struggled during the pandemic, but some businesses have prospered hugely, often due to circumstances for which they can take no credit. Online traders and the big supermarkets have seen their revenues increase substantially purely because other retailers have been legally forced to close. It is therefore right for the Exchequer to recoup some of those additional revenues through taxation. These measures must therefore pass without the proposed amendments, some of which could allow large businesses to restructure to avoid the high rates of tax.

We all want UK businesses to be profitable, but we also want those profits to result in higher wages, better training and reinvestment in our economy so that profits can be shared fairly across society and not just concentrated among shareholders or the most highly paid executives. In other words, we need businesses to be more productive. Low productivity has been a thorn in the flesh of the UK economy for some time. The proposed super deduction is therefore exactly the measure we need to encourage the reinvestment of profits through large-scale investment, turning crisis into opportunity and setting UK businesses on a new path to innovation, productivity and growth. The OBR has predicted that this will increase business investment by 9% and lift us from 30th in the OECD’s world rankings for business investment to first. This is the right moment for this incentive, when many businesses have been forced to pivot or have seized opportunities presented by the pandemic, and now is the time to invest. That is why I oppose the amendments to the super deduction clauses, which would ultimately delay and reduce its effectiveness.

Our economy is an ecosystem, with the private sector, the public sector, our communities, individual employees and employers existing interdependently in a multitude of symbiotic relationships. Each element of this ecosystem has obligations and responsibilities to the other parts. For businesses, these responsibilities include paying fair levels of tax and making investment decisions in the best interests of our whole society. It is the Government’s role to encourage businesses to act for the common good. The unamended measures in this Bill will be successful in doing just that.

Photo of Sarah Olney Sarah Olney Liberal Democrat Spokesperson (Business, Energy and Industrial Strategy), Liberal Democrat Spokesperson (Transport) 8:45 pm, 19th April 2021

I wish to speak to clauses 6 and 7 relating to the rates of corporation tax and also to the super deduction.

Businesses everywhere, of all sizes and in many different sectors, have had an extremely challenging year. As we hopefully move into a time when business as usual can return, I know that Members in all parts of this House are united in wanting to support businesses to flourish once more. But this has also been a year of unprecedented demand on the public finances. Much of that money has been directed towards households in the shape of our furlough and SEISS schemes to ensure that incomes can be sustained and, in turn, to maintain revenue for those businesses providing essential services. Many businesses have seen increases in revenue this year as indirect competitors have been forced to close or prevented from making their goods and services available. Any business that provided a digital or delivery service found an unexpected increase in demand compared with those that provided an in-person service.

Why should the businesses that have profited from the pandemic not pay their share in restoring the public finances that have been expended on supporting us all through this difficult time? The Liberal Democrats have called for an excess profits, or windfall tax so that those businesses that have done well can contribute their share to the recovery. This could most easily be done by an immediate increase in corporation tax whereby only those companies that have remained profitable would pay it. Instead, the Government propose a sharp rise in corporation tax in 2023. This delayed increase will give larger companies time to rearrange their affairs, potentially limiting the amount of revenue that can be captured by the planned rise. It will create an artificial boost to the economy in the short term as profits are brought forward, to be reported against the lower tax rates of the next couple of years.

The Government’s changes to corporation tax rates come when the global nature of trade presents a major challenge to national autonomy on tax rates. The Liberal Democrats are in favour of higher corporation tax rates to ensure that businesses are paying their fair share. The challenge to implementing this has always been that we are in competition with other countries attracting investment by setting lower tax rates. I am interested to hear how the Government plan to react to the plans by the new Biden Administration in the United States to set a global floor for corporation tax rates. This is a fantastic opportunity to introduce a fairer and more progressive tax regime in all nations and reduce the options for corporations to reduce tax. I very much hope that the Government will sign up to the Biden plan and set an example to the rest of the world.

The Chancellor’s most eye-catching announcement in the Budget was the super deduction available to businesses over the next two years to get back 130% of the cost of new plant and machinery. I know that this will benefit many businesses, but I fear that the impact will be more limited than at first appears. First, it creates a cliff edge in investment, especially when coupled with the tax increase in the third year. Secondly, many manufacturing businesses invest for the long term and plan their capital expenditure in 10-year cycles, so a two-year incentive will not make a big change to investment plans. Thirdly, a great deal of equipment is leased rather than bought outright, so investment incentives like these will make no difference.

It would have been a better policy if the expenditure recovered could have included measures to get our economy to achieve net zero carbon emissions or have included expenditure on training and development to help us to build the high-skill economy that we need. These expenses could then have been claimed by a far wider number of businesses in many different sectors and made a genuine contribution to future prosperity and green growth.

The Government need to be clear about their business tax policy so that businesses have time to plan and an understanding of how tax policy interacts with an overall strategy to support enterprise and productivity. Many of our business owners feel a real loyalty to their communities and will maintain those connections regardless of the tax rates, but they need to know that this continues to be a country that welcomes entrepreneurs and supports small businesses. Much more can be done in our tax system to support small and medium-sized enterprises, and I regret that the Government have not taken the opportunity to do this. The Liberal Democrats would introduce a tax cut for SMEs and quadruple the annual employment allowance to allow small businesses to employ up to five people without paying any national insurance contributions. The Government have shown a lack of commitment to small and growing businesses in this Bill and no strategy for private sector growth.

The Liberal Democrats oppose the corporation tax clauses in the Bill because they mean that profitable corporations are not paying their fair share as we recover from this pandemic and the overall provisions do not provide the support we need for small businesses.

Photo of Bell Ribeiro-Addy Bell Ribeiro-Addy Labour, Streatham

I shall speak in favour of new clause 9 in my name, and the amendments and new clauses in the names of my right hon. Friend John McDonnell and the Labour Front Bench.

The thread that weaves through these amendments and new clauses is utter outrage at plans for big corporations, including big firms that do not support trade union rights, that pay below the living wage or that avoid tax, to benefit from the Chancellor’s astonishing super deduction tax break giveaway. In particular, new clause 9 would require a meaningful equality impact assessment of capital allowance super deductions that must cover the impact of those provisions on households at different levels of income; people with protected characteristics; the Treasury’s compliance with the public sector equality duty; and equality in different parts of the UK and different regions of England.

For most of us, one of the key consequences of the pandemic has been to illuminate far-reaching health and socioeconomic inequalities in many countries. However much this Government try to conjure otherwise, it is just a statistical and factual truth that, as a result of years of cruel Conservative austerity followed by the callous Conservatives’ handling of the covid crisis, the pandemic’s impact has fallen disproportionately on the most vulnerable individuals and along gendered, ethnic, occupational and socioeconomic lines.

Inequalities in people’s protection from and ability to cope with this pandemic and its tremendous societal costs have stressed the importance and urgency of the societal changes needed to protect population health and wellbeing. According to the statement issued by independent experts of the special procedures of the United Nations Human Rights Council, condemning the Commission on Race and Ethnic Disparities’ report:

“The reality is that People of African descent continue to experience poor economic, social, and health outcomes at vastly disproportionate rates in the UK.”

Women—particularly the poorest women, black, Asian and minority ethnic women, disabled women, lone parents and young women—not only have been badly hit by the pandemic, but have suffered for years under this Government’s brutal austerity onslaught. Yet, coming in at an enormous £12 billion for 2021-22, the Chancellor’s announcement of a super deduction on purchases of capital goods by businesses was one of the largest spending items in the spring Budget. In fact, some argue that it is one of the largest single-year tax giveaways ever enacted by a Government. And who will it benefit? Although the Chancellor claimed in his speech that the Government’s response to covid had been “fair”, women, those on low incomes and those from BAME backgrounds stand to benefit the least from the untargeted tax breaks for large companies through the super deduction. We know that more businesses—and larger ones—are owned by men than by women. As such, it is important to recognise there are many potential equalities impacts to business taxation.

Incentives such as the super deduction are biggest for large firms and the Financial Secretary to the Treasury has admitted that only 1% of firms will benefit this year, as the rest are within the annual investment allowance. How can the Government justify the fact that under this Bill the rich and big business will be treated to mouth-watering tax giveaways and reliefs, despite unclear evidence about whether that will actually create the investment needed?

The Women’s Budget Group argues that this provision is likely to have “substantial deadweight costs”, bringing forward investment rather than generating new investment. The group also raised the point that it is unnecessarily limited to investment in “plant and machinery”, thereby excluding training and other human capital investments, and missing opportunities regarding the transition to a lower-carbon economy that recognises the economic benefits of spending on the social infrastructure that our public services provide. This goes to the crux of the problems with this Finance Bill, and with the Government’s lack of vision for a green recovery based on intersectional socialist economics and progressive taxation.

Photo of Ben Lake Ben Lake Shadow PC Spokesperson (Treasury), Shadow PC Spokesperson (Environment, Food and Rural Affairs), Shadow PC Spokesperson (Education), Shadow PC Spokesperson (Digital, Culture, Media & Sport), Shadow PC Spokesperson (Health and Social Care), Shadow PC Spokesperson (Housing, Communities & Local Government), Shadow PC Spokesperson (The Constitution and Welsh Affairs)

It is a pleasure to speak in this debate, Sir Charles. I rise to speak in support of amendment 53, which I hope will encourage the Government to bring some rigour and meaning to their rhetoric of levelling up and the use of taxpayers’ money.

In a Budget that confirmed £17 billion of spending cuts, relative to March 2020 plans, the Chancellor’s decision to announce the super deduction, equivalent to forgoing approximately 20% of the UK’s corporation tax revenues, was certainly a bold one, particularly as the Financial Secretary noted in November 2020 that the existing annual investment allowance already covers 99% of all UK businesses. The House has heard this evening that the super deduction is a major tax break for the top 1% of UK businesses. We have also heard many concerns that it is a blunt tool in need of significant refinement if its perceived benefits are to be targeted to those in greatest need of support. I also point to concerns that the super deduction will disproportionately benefit London and the south-east of England and that it flies in the face of the Government’s commitment to level up the UK economy.

I draw the House’s attention to a finding from the Centre for Progressive Policy, which has calculated that, although the super deduction could amount to a tax break worth up to £513 for London residents, it would be worth only half as much in Wales, whose sum benefit is the second lowest of the UK nations and regions, with only Northern Ireland benefiting less on this measure.

I am afraid that I disagree with other hon. Members who have suggested that the super deduction might, on the contrary, actually benefit and address regional inequality. My fear is the opposite—that the super deduction will, at best, lock in existing regional inequalities and, at worst, exacerbate rather than address the UK’s geographical economic imbalance. That is why Plaid Cymru wishes to amend the Bill to require that the Chancellor considers the impact and geographical extent of the super deduction across all the UK’s nation and regions and would support calls made by other hon. Members this evening that measures should be introduced to establish a deeper evidence base for these changes. Similarly, given the urgent need for climate action and the retooling of the economy for a net zero future, this amendment also requires the UK Government to consider the super deduction’s impact on efforts to mitigate climate change.

I hope that the Government will incorporate guarantees such as these into the Bill to ensure that we truly do rebuild back better from the pandemic, rather than resuscitate the UK’s deeply flawed pre-pandemic economy. Failure to do so would make it clear that their rhetoric of support for all nations, for the levelling-up agenda and for climate action are no more than fine words and lofty intentions.

Photo of Richard Fuller Richard Fuller Conservative, North East Bedfordshire

It is right, as our hard-working business leaders emerge from the most torrid 12 months, that the Government set a clear course for their understanding of how those businesses will be taxed in future. I would have hoped that it would have been heartening for the people who have been running businesses through these most difficult times to listen in to this debate to hear what Members of Parliament have to say on their behalf. However, personally speaking, I think that most people who run businesses will be rather saddened by what they have heard—largely, a perspective that it is wrong for people to run businesses that are profitable, that there is sin in becoming rich by creating a business that creates products that people want, rather than virtue, and a complete lack of understanding that businesses that make profits are a sign of success, rather than a sign of failure.

Personally, I am rather in favour of us increasing taxes. When this or any Government seek to increase tax on corporations, I wonder whether they realise that, essentially, they are putting a tax on success—that every pound that we take away from a business, from its profits, is a pound taken away from things that the business owner may do him or herself. They might be radical things, such as investing in and expanding the number of people who work for the businesses, investing in machinery that will make their business more competitive in terms of exports, or lowering their debt so that they are on a more substantial and more stable footing for the long term. Every time a state takes away money from enterprise it is putting at risk the resources those companies have to do those things, and the future success of this country. Therefore the Government were right to consider carefully how to balance a change in corporation taxes, and given what has happened subsequently to the Budget, the Chancellor deserves a bit of a pat on the back for understanding what would be going on in the global realm of corporation tax, as well as the crucial importance of providing some short-term incentive for businesses to invest as we emerge from the recession.

I always like to be as honest as I can, particularly having been a Member of Parliament on and off for the past 10 years. I have stood on a platform where we have argued for a reduction in corporate tax rates, saying that if we reduce corporate tax rates the corporate tax take will go up; and now I am looking at measures in this Budget that say that as we increase corporate tax rates the overall corporate tax take will go up. It is a miraculous tax that goes up whether we cut it or increase it, but such are the vagaries of public finances.

I listened with great interest when the shadow spokesman James Murray was speaking, and then I looked at the number of amendments that have been tabled. It seems that his boss’s predecessor, John McDonnell, has a much greater active understanding of Labour party policy on corporation tax than the current Opposition Front-Bench team, and I was just wondering why the name of the Leader of the Opposition was not attached to the former shadow Chancellor’s amendments. Is it because there is somehow a loss of radicalism on the Labour Front Bench—have they got frit in terms of some of the policies that their Back Benchers or former leadership wanted?

On our Benches, it is important for us to respond to the proposals that the United States seems to be putting forward for a global minimum tax. That is not in essence completely wrong in principle, although I would be interested if my right hon. Friend the Minister could say if there is any precedent for UK tax policy, in this case providing for a minimum tax, to be struck in international treaties, and whether the Treasury has assessed what the implications of that would be.

I also urge the Treasury to realise that the crux of our approach to relations with the global multinationals, particularly the digital multinationals, is that a substantial amount of the wealth created and the profits generated is not directly associated with or tied to the sales in any one country. Therefore, there is a bit of bait and switch with the US proposing a global minimum tax as somehow a solution to the need for a digital sales tax. For example, Google makes tremendous amounts of profits from having access to how people look at things online. It does not necessarily sell that in terms of ads, which could be taxed locally, but it can derive products and innovations from that which are profitable for it, yet we will never see any tax coming to this country from that practice. I therefore say to the Treasury that it is time that we started looking at how we can place ownership of data, like we place ownership of land and other assets, so that it is located within the realm of this country; only then will there be an effective answer as to why a global corporation minimum tax from President Biden is on the same basis as modern digital taxes.

My final point is on an issue raised a number of times in this debate: the environmental goals we rightly wish from our corporations. The Department for Business, Energy and Industrial Strategy and the Treasury are leading in the country so that the United Kingdom can be a centre for green finance and green investment, and that is entirely correct. Parliament has passed a law to achieve net zero within a certain time frame, but we have not really been explicit with the public about what the costs of that may be, although I think we understand that substantial investments will be required to achieve it. I gently prod my right hon. Friend the Minister: in the longer term, beyond the five-year frame that we have right now, my expectation is that there will be a need to provide additional incentives in the form of capital allowances or other allowances to enable the private sector to achieve the net zero goals and the investments required for that if we proceed with the increase, as we will, in overall headline corporation tax. I leave him to mull over that point.

Photo of Antony Higginbotham Antony Higginbotham Conservative, Burnley 9:00 pm, 19th April 2021

I agree with almost everything my hon. Friend Richard Fuller said about corporation tax. It is a tax on success, and on this side of the House we are all naturally low-tax Conservatives—we believe fundamentally that businesses are most successful when they are left to innovate and grow, and can keep more of the money they earn. However, we also have to accept that that is not the only thing that drives businesses. Globally adaptable businesses that look around the world at where they are going to locate their next manufacturing plant or innovation look at myriad factors: the support available; the skills of the local population; and the infrastructure in place. All of those things cost money. As we have seen during the past 12 months, the Government have gone to great lengths to support businesses. In my constituency, 11,000 jobs have been supported by the furlough scheme. That is money that has helped businesses across Burnley and Padiham prepare and stay ready for when the economy reopens. We are also talking about £20 million in grants so that those same businesses can restart as soon as the economy opens up. All businesses understand that; they understand that responsibility comes with this and the taxation they pay enables them to take part in society in a meaningful way.

With all that in mind, I agree with the measures my right hon. Friend the Chancellor set out on corporation tax, as a low-tax Conservative. I do so because the Chancellor has struck exactly the right balance in making sure we secure the economic recovery first: we do not look at businesses now as they are just starting to reopen and get trading again and say, “Just because you are profitable, we are going to increase your tax rate immediately”; we look ahead and say, “When the economy has recovered and you are trading as you were pre-pandemic, that is when we will look for you to make a fair contribution to repay some of the support we have been able to put in place.”

In Burnley and Padiham, we are heavily reliant on small and medium-sized enterprises—those small innovators. As we recover from the pandemic, we often see the most SMEs and new businesses start up; people who used to work for one company and who may have been made redundant—something may have happened—then start their own businesses. That is why the small profits rate of corporation tax is so important, because it is the incentive those innovators and entrepreneurs need to start their business, to grow, to employ someone else.

We also have to recognise that one thing we have suffered from historically in the UK, for many, many years, is low productivity, and that has come from a huge lack of investment from businesses. If we are really going to level up across the country, we need to drive investment in growth and utilise the power the private sector has through whatever means are available to us. We know that since 2007-08 there has been a systemic lack of investment, driven by the uncertainty we have had, so that there is a pot of money that so many businesses are sitting on, waiting to be unlocked. That is where the super deduction will prove so important, because it encourages those businesses that have had a stockpile—that have lived with uncertainty for the best part of a decade and so have not been able to invest, as they have not had that confidence. As we emerge from the pandemic, the super deduction gives them the confidence to invest.

In Burnley, we are talking about aerospace manufacturers, automotive manufacturers and textile makers. The super deduction will help businesses transition to green technology, as we have spoken about. It will help aerospace businesses to move into HS2 and textile companies to move into weaving—we do still make textiles here in the UK.

All of these things will result in a high-skill, high-wage manufacturing economy here in the UK. So, yes, we need to keep the UK attractive to investment, job creation and new businesses, but we do that through a fair corporation tax system, lower rates for new businesses and using schemes such as the super deduction to drive investment into manufacturing jobs, which are going to be so vital for our future.

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Labour, Salford and Eccles

I will limit my comments to the super deduction which, as we have already heard today, will be one of the largest single-year tax giveaways ever enacted in the UK. Arguably, some companies’ corporation tax bills will be wiped out entirely for a couple of years.

My right hon. Friend John McDonnell has already said that the Public Accounts Committee found that tax reliefs cost more than £100 billion a year in forgone tax, but HMRC does not know how many reliefs exist; nor does it monitor the efficacy of such reliefs. That is staggering. Can we be confident that HMRC will know what effect the super deduction will have, and who will actually benefit from it? Many of my small and medium-sized enterprises in Salford would love a super deduction, but sadly it will not benefit them. The Financial Secretary to the Treasury told the House last year that the enhanced annual investment allowance of £1 million already covers the capital expenses of 99% of businesses in the UK, so it seems that this super-relief will overwhelmingly benefit only 1% of extremely large businesses.

I would have no problem if such businesses desperately required the relief in order to protect jobs or to invest in our local economies, but let us look at some of the potential beneficiaries. Amazon has benefited from the pandemic, seeing its sales jump by 50%. According to TaxWatch, the company’s latest accounts show that they spent £66.8 million on plant and machinery, £80.4 million on office equipment and £15.3 million on computer equipment in the same year, so the 130% super deduction could entirely account for the pre-tax profits of the company even before any deductions of staff pay awards.

Similarly, many energy and water companies find themselves also able to wipe out their tax bill. United Utilities spent £1.275 billion on property, plant and equipment in the past two years, compared with a current tax liability of just under £89 million. Electricity North West stated that covid has had a limited impact, and it had a tax bill of £45 million for 2019-20 while investing £449 million in property, plant and equipment. For both companies, it would only take a small proportion of the capital investment to be spent on plant and equipment to use the super deduction to eradicate their tax bill, too.

Do these buoyant companies really need a super deduction? The answer is no. In the absence of any clear conditions specifying the use of such savings or providing a wider social benefit, such as increasing salaries for workers, investing in decarbonisation or reducing costs for end consumers, I struggle to see the benefits being passed on to anyone other than shareholders.

I hope that the Government support amendment 11 and new clauses 1, 2 and 6 in the name of my right hon. Friend the Member for Hayes and Harlington and others, as well as the Labour Front-Bench amendments, because there are companies that do need support to help them recover from the pandemic. There is a real need to support long-term, patient investment by industry, but the untargeted nature of this relief, without conditions, is not the best use of public money. In fact, it borders on the obscene.

Photo of Rachel Hopkins Rachel Hopkins Labour, Luton South

I shall speak in support of the amendments in the name of the Leader of the Opposition and those in the name of my right hon. Friend John McDonnell. The Budget and Finance Bill represent the Government taking steps towards further structuring our economy on insecure, precarious work and deregulation, which will widen income and wealth inequality.

The Government’s unambitious plan provides neither a foundation for rebuilding our economy nor a plan to tackle the climate emergency that my constituents have called for. They have announced a future cut to social security and a real-terms pay cut for public sector workers at the same time as introducing a super deduction tax cut for big businesses, allowing firms to write off 130% of the value of qualifying capital investment against their taxes.

When we look across the Atlantic to the US, we see a stark contrast. The Biden Administration have committed to fast-tracking a $1.9 trillion Government-led stimulus package, which is about 10% of the annual output of the US economy and which contained no promises of future deficit reduction. That is alongside a forward-looking plan to spend a further $2 trillion on infrastructure. Biden’s spending plan, in proportion to GDP, is three times the size of the UK’s.

The economic consensus is changing, but the Budget shows that the Government have not caught on. Instead, they have made it clear that low pay and increasing inequality are central parts of the UK’s future under the Conservative party. The so-called super deduction tax cut will completely wipe out the corporation tax bill for big businesses. It will cost £12.2 billion and £12.7 billion in the 2022 and 2023 financial years, the equivalent of giving up 20% of the UK’s corporation tax revenues, and it comes after a year in which many of these companies have profited hugely.

The policy’s rationale is fundamentally flawed. It will make no difference to investment in the long run. It just influences when businesses decide to invest, rather than encourages them to invest more, and it relinquishes tax revenue in doing so. Treasury Ministers have openly admitted that only 1% of businesses will benefit fully from the super deduction this year. So a small number of businesses, including Amazon, will get a tax giveaway that could result in rebates being handed out for investing in, say, swimming pools or jacuzzis. The policy also flies in the face of any credible levelling-up strategy, as it will exacerbate regional inequality. As we heard, the Centre for Progressive Policy has found that the super deduction tax cut will benefit London the most, with a tax break of £513 per head compared with £371 per head in the east of England.

The policy is wasteful and wide open to abuse, and fails to understand the rebuilding challenge before us. Even the US is moving away from this under Biden, and the public agree with us. We need Government investment in jobs and growth, not tax giveaways. The Government must publish a report examining the policy’s economic, social and environmental impact. While it is unlikely the Government will change tack, at the very minimum there must be strict criteria for access to the scheme. Workers need a cast-iron commitment that only employers that recognise a trade union for the purposes of collective bargaining and that are certified by the Living Wage Foundation as a living wage employer can access the scheme. It is not a big ask to expect big businesses to be decent employers, and it would at the very least ensure that workers receive some benefit from this giveaway scheme.

We need a Government who are on the side of working people, not on the side of big businesses enforcing low pay and poor working conditions. I hope the Chancellor and Ministers will seriously consider the super deduction tax cut and instead ensure that increased public spending directly benefits workers, who are the driving force of our recovery.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury 9:15 pm, 19th April 2021

I am grateful for the contributions that have been made to this debate. It saddened me, however, that Labour Members seemed to be reading off a single piece of paper in so many of their speeches. I encourage them not to follow the script slavishly but to actually think about what they say.

Rebecca Long Bailey put the matter at its most plain when she argued that because 99% of businesses benefit from the annual investment allowance, it meant the super deduction benefited only the remaining 1%. Of course, that is completely wrong. The super deduction benefits all businesses that are in a position to take advantage of the eligible deduction it provides, and that is better than the annual investment allowance. The whole premise of the arguments advanced by the Opposition is wrong. The fact is that tax reliefs are an understood and established part of tax policy; they are not to be thought of merely as giveaways. A raft of international authorities have testified to the benefits of greater investment allowances, including full expensing, and our proposal goes some way beyond that. We need to see it in that context.

The UK already has a rather competitive intangibles regime, and the productivity challenge that we face as a country is focused on the tangible assets and therefore it is on those that this super deduction is aimed.

The hon. Member for Ealing North repeated the line about small businesses, but also asked whether the super deduction was somehow extremely vulnerable to exploitation by malfeasant tax actors. I can tell him that the deduction has been very carefully assessed and includes important exclusions, including as to related party transactions and second-hand assets. It also includes a new anti-avoidance provision, which is designed to give it additional protections.

It is true that this is a country that takes the question of tax avoidance and tax manipulation extremely seriously. Dame Margaret Hodge, who has been a great campaigner in this area, focused on that. Of course I cannot discuss individual taxpayers. No one knows what an individual company’s taxpaying arrangements are. She purported to know—that is her privilege—but I am not in a position to discuss that. None the less, I can tell her that it would be very bad policy indeed for any Government to base tax policy on a single employer or taxpayer. If she thinks that this country has been soft in any respect on tax, let me remind her that we have led the international charge on base erosion and profit shifting, on diverted profits taxes, and on the corporate interest tax restriction. We have put into law a digital services tax and are consulting on an online sales tax. That is not the action of a Government who take these things in any way other than very seriously.

I join my hon. Friend Richard Fuller in emphasising, as he rightly did, that we need businesses to be as productive, effective and successful as possible, because they are the anchors of successful and effective employment and of the profit generation on which our tax base, and therefore the funding we need to support public services, rely. It does not follow from the fact that the Labour party is confused on corporate taxation that we should not have a policy that supports business in developing, investing and building our collective economic future.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clauses 7 and 8 ordered to stand part of the Bill.