My Lords, this Government have long demonstrated that we can deliver a stronger, more secure economy. The economy continues to grow robustly, employment is at a record high and the deficit has been brought down by almost two-thirds. Following discussions, the Bill before us is shorter than on its introduction in the other place. None the less, the changes it will make take significant steps in helping to create a fairer and more sustainable tax system.
Following the parliamentary vote on the general election, the Finance Bill is proceeding on the basis of consensus. At the request of the Opposition, the Bill has been amended to take out a number of measures originally included. There has been no policy change. The provisions before the House will make a significant contribution to the public finances and the Government will legislate for the remaining provisions at the earliest opportunity at the start of the new Parliament. These include: corporation tax restrictions on interest expense and on loss relief; the reduction in the dividends allowance; changes to the tax treatment of the non-domiciled; anti-avoidance changes, such as the new penalty for enablers of tax avoidance; and the primary legislation for the Making Tax Digital programme. The Government remain committed to the digital future of the tax system, a principle which has been widely accepted in extensive consultation. I want, in passing, to acknowledge the work that the Economic Affairs Finance Bill Sub-Committee has done on the tax administration aspects of the programme. The Government have decided to pursue this measure in a Finance Bill in the next Parliament, in the light of the restrictions on time which now apply.
I now turn briefly to the main provisions included in the Bill before us. The UK has one of the highest rates of obesity among developed countries. Soft drinks are a major source of sugar in children’s diets. Obesity drives disease and it costs our economy. The NHS incurs direct costs of over £6 billion each year from treating ill health related to obesity. The Bill legislates for a soft drinks industry levy to encourage producers to reduce added sugar in their drinks. I am pleased that this change has gathered a wide degree of support here and elsewhere. I am even more pleased that the levy is already working, with Tesco—once my employer, so that is good to hear—and the manufacturers of Lucozade, Ribena and Irn-Bru among those already committing to reformulate their drinks and reduce added sugar. That is good news for our children’s health and, although revenues will be lower, we will maintain the full £1 billion funding committed to the Department for Education to give children a better and healthier future.
There has been debate as to whether the levy should go further and, in particular, whether it should apply to milk-based drinks. Milk and milk products are a source of calcium and other nutrients. One in five teenage girls do not get enough calcium in their diet, and the same is true for one in 10 teenage boys. However, we want milk-based drinks to contain less added sugar, so Public Health England will challenge and support producers to reduce added sugar content by 20% by 2020, and will publish a detailed assessment of progress in that year. Yesterday, in the other place, my honourable friend the Financial Secretary, Jane Ellison, committed to review the exclusion for milk-based drinks in 2020, based on the evidence from Public Health England’s assessment of producers’ progress against their sugar reduction targets. I am happy to reaffirm that today.
The Finance Bill also legislates for increases in duty rates as announced in the Spring Budget and that took effect shortly afterwards. These increase tobacco duty rates by 2% above RPI inflation for all tobacco products, which also makes an important contribution to the Government’s wider health agenda to reduce smoking prevalence. A minimum excise tax on cigarettes ensures that the cheapest cigarettes will pay a minimum level of duty, making it less profitable to sell cigarette packs below this level. Alcohol duties will be uprated in line with RPI inflation, while producers will continue to benefit from the effect of freezes and reductions in recent years.
The Finance Bill makes an important contribution to securing the nation’s public finances, reducing the deficit while allowing the Government to support our critical public services. For that reason, we announced in the Autumn Statement an increase in the rate of insurance premium tax from 10% to 12%. The Bill provides for this increase, which will take effect from
Turning now to personal tax, the tax system needs to keep pace with the different ways in which people are working. As the Chancellor set out in both the Autumn Statement and in the Spring Budget, the public finances face a growing risk from the cost of incorporations. Indeed, the Government estimate that by 2021-22 the cost to the Exchequer from people choosing to work through a company will be over £6 billion. Part of this arises from people choosing to work through their own personal services company who would otherwise be classed as employees. The off-payroll working rules, also known as IR35, are designed to ensure that, where individuals work in a similar way to employees, they pay broadly the same taxes. However, non-compliance is high, costing an estimated £700 million each year. The Finance Bill therefore addresses this by transferring the liability for compliance with the rules in the public sector to the body for which the individual is working. We expect it to improve compliance significantly, raising revenue, while simply ensuring that the correct amount of tax is paid under the existing rules.
Finally, while some changes to address tax avoidance and evasion originally included in the Bill have been omitted and will be legislated for at the next available opportunity, the Bill includes a number of changes that advance the Government’s aims in this area. This Government are committed to tackling tax avoidance and evasion at all levels in order to ensure that everyone, no matter who they are, pays the right amount of tax at the right time. Since 2010, we have invested more than £1.8 billion in HMRC to tackle evasion, avoidance and non-compliance, helping to secure more than £140 billion in additional tax revenues. This includes more than £45 billion from large businesses and more than £2.5 billion from the very wealthiest. The UK also has one of the lowest tax gaps in the world, and the Government have announced more than 35 policies in this Parliament which are forecast to raise more than £18.5 billion by 2021-22. The Finance Bill extends that record by making changes to ensure that those who promote tax avoidance schemes cannot circumvent the rules by reorganising their business while continuing to use high-risk tactics in promoting avoidance schemes. It tackles abuse of the VAT relief for adapted motor vehicles and introduces a new charge on loans from disguised remuneration schemes that have allowed beneficiaries to avoid paying the tax that should have been due on their employment. The Government’s record on tackling avoidance and evasion and making sure that tax is paid fairly is one of which I am proud.
So to conclude, this Finance Bill supports our commitment to a fair and sustainable tax system, one that can support our critical public services and gets the country back to living within its means. I beg to move.
My Lords, I cannot remember speaking in such a select debate. It may be that other noble Lords were deterred by the 762 pages of the original Finance Bill, which I think made it probably the largest Bill ever. Fortunately it was cut down yesterday and it is hard to know what is left, so I thank the noble Baroness for telling us.
We debated the Budget Statement on
From what the Minister has said, the Bill avoids some awkward choices on things such as social care and national insurance for the self-employed. Indeed, since our debate last month, we have had more proof that the proliferation of low-paid and insecure work is strongly aided by the way the Government are still allowing companies to differentiate between people who work off a digital platform and those who work off a bricks-and-mortar platform. We now also know more about how this contributes to the lack of investment in raising productivity. In his Budget speech, the Chancellor called this our “number one priority”. Yes, the number of people in work is rising, but the disappointing growth in productivity continues. This indicates that much more attention should be paid in a Budget such as this one to the quality of jobs and whether they enable people to achieve an acceptable and rising standard of living. This is the social necessity that needs to be incorporated into the Bill, but it misses an opportunity to put that right.
We now know even better that the Bill’s indecision on adult social care is putting more of a burden on NHS finances. This Finance Bill is a lost opportunity to take the tough decisions on where public care ends and private care begins—an opportunity, perhaps, to introduce an insurance scheme whereby we all pay in and those who do not need care help to fund those who do. This is what would take pressure off NHS finances. This is a solution for those who are still at work, but for people who need care now, perhaps the Bill should have introduced some kind of loan scheme that would be repayable on death, but it is silent on that.
Since the Budget Statement, we now know that Brexit will cost us a lot more than we thought. The House of Commons Library tells us that up to 19,000 EU rules and regulations may have to be put on the statute book. EU statistics speak of 12,000. The CBI tells us that to avoid a race to the bottom we will have to create domestic versions of 34 regulatory organisations. The head of the Civil Service tells us that Brexit entails more than 1,000 new rules. Indeed, the Institute for Government speaks of 15 new Bills before we even exit. This is a tremendous undertaking.
Does this Finance Bill provide for the people and resources necessary? The National Audit Office tells us that over the last 10 years there has been a 26% reduction in the number of civil servants. It also tells us that Whitehall alone would need to recruit some 2,000 staff in digital roles. Perhaps the new Government will have to take note of the American system, whereby IT experts do a tour of duty with the Government as a kind of patriotic contribution. Yes, the Government speak of seconding people and hiring consultants, but we all know the limitations of this and how inefficient it is. The Minister will know this from her business experience. She will know that the real cost is the reduced efficiency and slower progress elsewhere in the departments from which these people are seconded. Maybe this is already happening. It was reported that because departments are short of staff, many—some say hundreds—of government contracts with the private sector which expire are being automatically extended instead of using the opportunity to find better ways of carrying out the services and reducing the costs. So much for raising productivity, our “number one priority”.
This Bill still speaks of apprenticeship schemes, funding them and how high standards will be maintained. That is great, yet a committee in the other place recently said that, to ensure these high standards, apprenticeships should not start until there is a clear way of measuring and ensuring these standards. In their response to that, the Government have said, “Yes, this could be a problem”. Is this because people were seconded from the Department for Education to the department for Brexit? If we are trying to reverse our dependency on immigration and rely more on the skills of our own people, we will have to do a lot better than that.
Since the election was announced, we all seem to agree on one thing: the mark of a civilised society is good public services and welfare funded by taxation. The Minister told us about taxation in the shortened Bill, but what a pity it was not reflected that, especially since our debate, we have learned that our economic prospects are less rosy and that spending cuts will make it even more difficult for many people. The Minister outlined the tax changes but not how we could civilise our society even more, perhaps by broadening the tax base with heavier taxes on activities that damage the environment, extending VAT to financial services, revaluing residential property, or fairly taxing inherited wealth. All this could go towards achieving the civilised society we seem to agree we want.
If the purpose of the Bill is to raise our standard of living and public services through economic and social growth working together, from what the Minister said it will need a lot more work by a new Government to achieve that. Perhaps another 762-page Bill is needed from the next Government.
My Lords, I rise briefly in the gap to congratulate the Minister on her magisterial exegesis of what is still 148 pages and a dozen schedules. However, her reference to the plan to proceed—in due course after the election if returned—with the proposals for making tax digital slightly worries me.
I think everybody would agree that making tax digital for business is a good idea. However, both the Treasury Committee in the other place under the leadership of the admirable Mr Tyrie and your Lordships’ Economic Affairs Committee under the leadership of the admirable noble Lord, Lord Hollick, made rather serious criticisms of some of the details of the proposals. They are very big proposals. If the 780 pages were in front of us today, we would be debating a proposal that 2.5 million self-employed people, 1.5 million companies and 1 million landlords, even if their annual turnover was as low as £10,000, should be required to go online and make their tax returns quarterly—every three months—not annually. That would be for all these companies, including very small ones.
Both committees support the principle but your Lordships’ committee recommended that this should be phased in and made optional for small companies and the Treasury Committee in the other place proposed that the threshold should be raised to be in line with that for VAT. That seems reasonable to me. I hope that, back in the Treasury and in the Revenue, people will not be idle in the next few weeks and months, and will take careful account of the reports from the two committees. Both support the principle that the Government propose to follow but find serious fault with some of the details of implementation and particularly phasing.
My Lords, I, too, thank the Minister for describing so fully the remaining sections of the Finance Bill to be considered today. We all recognise the constraint in terms of the general election’s imminence. She will anticipate that, as what is before us is an agreed position in the famous wash-up procedure, I am unlikely to add too much controversy to this debate. Well, we shall see. I appreciate the fact that she explained accurately what is in the measures. Of course, I have no debate with the measures at present.
I very much appreciate the contribution by my noble friend Lord Haskel. As ever, he has the ability both to identify the minutiae of a problem and to draw some general principles from it. It is a facility I wish I had to the same degree because it is important in economic debates that we understand the full implications of what is going on with discrete pieces of legislation.
I am also grateful to the noble Lord, Lord Kerr, who took from me the responsibility of analysing in particular the problems with regard to the controversial digital tax proposals. These are controversial, of course, because quite clearly a lot of people considered that their interests had not been taken sufficiently—if at all—into account. Both the committees to which the noble Lord referred indicated their views that the Government had made a pretty poor show of this.
In principle, we are in favour of the digitalisation of the taxation system but, pursued under a Labour Government, it will be after due consideration of the needs of business, particularly the categories to which the noble Lord, Lord Kerr, referred: businesses with limited resources being put under very substantial demands indeed. Meanwhile, of course, the Government have to wrestle with the fact that the intended taxation is not necessarily coming in at the rate they would have wished.
The Government have not been too lucky with Budgets in recent years. We all recall the rather embarrassing business of the pasty tax. We recall that the tax credit cuts were reversed by wiser counsel in this House. We remember the cuts to personal independence payments, which the Government had to rethink. Of course, we remember that in his Budget the Chancellor introduced a national insurance contribution proposal that turned out to be something of a fiasco. All the key features of recent Budget proposals have had more than their fair share of difficulty, to the extent that one can wonder whether one can trust a Conservative Chancellor these days to get the fundamentals of the Budget right.
It is the job of the Opposition to point out when the Government have got things wrong and we will continue to pursue that role, even under the constraints of this Bill. We are now considering a gutted Bill left with those parts which both the Government and Opposition agreed should become law.
Of course, the Government tend to avoid tough choices while at the same time pursuing tax cuts for the multinationals and the super-rich, to be paid for by the mass of our people, who have rather more limited resources. So we take it with more than a pinch of salt when the Government put their proposals before us and suggest that they have some concept of fairness.
The Government fail to realise the need for additional fiscal resources, even when the NHS is in crisis. There is not a person in this country who is not aware of the current privations of the National Health Service. The one that is often cited is that the NHS has been obliged to jettison its target of dealing with people requiring hip or knee operations within an 18-week period. This is evidence of the considerable difficulties that the health service is in, and it is not at all clear that the Government have shown the political will to resolve the issue.
Of course, the health service has also been acting as a proxy for the problems of the social care service. Hard-pressed local authorities have not been able to sustain their share of the resources in social care. The fundamental responsibility for this crisis in two absolutely critical public services rests with the Government, and there is nothing in this Bill which indicates that the Government are prepared to face up to these issues effectively.
The Government’s fiscal policy shows a ruinous performance on the public finances, as their target period for clearing the deficit has now been surpassed. It has gone from five years originally on to a further five years. It is now suggested that it will be a further seven years before the Chancellor can see his way to hitting the target, which between 2010 and 2015 dominated the then Chancellor’s objectives. There was never really a recognition of the extent to which failure was enjoined in that period.
The weakness is not helped by cuts in HMRC staffing. In 2011, when I first addressed this issue in the House, I could not understand how the Government could be serious about indicating that they wanted to improve their taxation collection capacities—they had that as a major issue on the agenda—while pursuing their clear ideological objective of reducing the size of the state. The HMRC began to suffer its significant cuts at that time. How can a Government be so committed to a philosophy that they cannot recognise that cutting the efficiency of a government department, which does not just pay for itself but brings in huge resources far in excess of the cost of that department, is surely a nonsensical position to take up? But of course the Government did not accept that argument in 2011 and are not accepting it in 2017. I have not the slightest doubt that if they were to continue in power, they would not accept the argument beyond 2017—but of course the electorate might have some say in that.
This weakness is not helped by the fact that over this period, the Government have misdirected their taxation targets in any case. The work of cutting staff resources in these terms is just emblematic of the fact that the Government are prepared to reduce their services, even when it is quite clear that the costs borne by the community are very significant. That is true not just in our health service and in social care but certainly in education. How can the Government waste resources on private schools when the state school system as a whole is crying out? The obvious fact is that every school is facing a reduction in the resources available to it.
The Government have a lot to answer to. They have at times paid lip service to one important feature of improving the economy: improvement in productivity. I well remember, and I welcomed, the appointment of a Minister who specialised in productivity and I regretted his departure after a very short time—too short for him to make any real impact on the issue. From what I can see, the Government have largely given up on this matter. They talk about certain areas in which there will be expenditure for contribution but the simple fact is that under their period in office since 2010, we have slipped crucially against the G7 criteria of productivity. We now have the largest gap since 1991 with the G7. How do the Government expect us to be successful in our trade negotiations with other countries if our productivity stays so low that our comparative costs are high, and we are not in a sufficiently competitive position with other countries?
This would be bad enough if we were in a relatively steady state, but of course Brexit has occasioned a complete convulsion in the country’s prospects with regard to international trade and earnings. That means that the Government are going into this election with a great question mark over whether they have the will and the capacity to tackle the fundamental issues of our economy that ought to have been addressed long since.
This Budget is consistent with the performance of the Government since the Conservative Party became the dominant force in politics in 2010. There has been a conspicuous failure to hit economic and fiscal targets, backed up by taxation and social strategies which on the whole reward those who are already well off and hit the average working family and those on lower incomes hardest. So much for fairness. What we are actually seeing is the ever-growing inequality in our society which is prompting a response which the Government will have to reckon with in the very near future.
As my noble friend Lord Haskel pointed out, the Government’s greatest failure is on growth. We have hit very low levels of growth ever since they have been in office. There has been a slight improvement in the past 18 months, but all forecasts show that within two to three years even those low growth levels will begin to subside. The Government cannot expect the country to be able to afford all that the public need in terms of personal resources and public provision if we cannot get growth in our economy.
I was grateful to my noble friend Lord Haskel and the noble Lord, Lord Kerr, for embellishing this debate with degrees of precision in areas on which the Minister should respond. Although she may think that, because I am trammelled to a degree by the fact that there is an agreement about the provisions in the Budget which should go ahead, I hope that at the very least the Minister will feel obliged to respond to their cogent points.
My Lords, I thank noble Lords for their valuable contributions to this select debate. In his wide-ranging speech, the noble Lord, Lord Haskel, mentioned the importance of social measures and, as usual, made a number of interesting suggestions, including the point he often rightly makes about the importance of digital. On this occasion he not only referenced the workplace generally but the importance of getting it right in Whitehall.
On care and the NHS, to which he referred and which was also tackled by the noble Lord, Lord Davies of Oldham, we announced at the spring Budget an additional £2 billion for social care. This will help to ease pressures on the NHS by supporting more people to be discharged from hospital and into care as soon as they are ready. We are giving the NHS the funding that it needs. The Five Year Forward View plan asked for annual funding to rise by a minimum of £8 billion above inflation by 2020-21 and for investment to be frontloaded. The Government have delivered what the NHS asked for on both counts: the NHS’s annual funding will increase by £10 billion above inflation by 2020-21 and £6 billion of this £10 billion will be delivered by the end of 2016-17, which is particularly important. I was pleased that to help manage demand on A&E we have committed to provide £100 million of new capital investment in A&E departments because that will help to ensure that patients access the most appropriate care as quickly as possible by improving the space for assessing patients and providing on-site GP facilities. This can help with bed blockers and is a good example of how things can be improved through management and efficiency, which I always regard as extremely important.
The noble Lord, Lord Haskel, talked about business investment and growing consumer debt. The OBR forecast business investment to grow by 15% over the forecast horizon period to 2021 and to rise as a share of GDP. Households’ financial positions are certainly stronger than they were before the financial crisis, and debt interest as a proportion of income is at a record low.
The noble Lord also talked about productivity, a subject that we have often debated here. At the Autumn Statement, we announced £23 billion of extra investment through the national productivity investment fund, and tackling the UK’s productivity challenge is a priority. To respond to the noble Lord, Lord Davies: the Chancellor mentions it often, it has pride of place in the Prime Minister’s industrial strategy consultation and I agree that it is important. The Government are taking targeted action to invest in important things such as innovation, infrastructure and digital, to promote skills, to improve management and—I see my noble friend the Minister for Trade here—to encourage firms to export, which always tends to be associated with strong productivity growth. There is work to do, as has been said, but productivity as measured by output per hour grew by 0.4% in Q3 of 2016 and by 0.4% in Q4 of 2016.
The noble Lord, Lord Haskel, asked about Brexit resourcing. The Treasury is working with all departments to understand the work required to prepare for a successful exit from the EU. Although aggregate spending plans for this review period remain in place, I can assure the noble Lord that the Treasury continues to engage with departments to ensure the right resources are allocated to the right places. I would add that I know from my own experience in dealing with Brexit for financial services that there is very high-quality Civil Service and external support, both in the Treasury and in DExEU.
The noble Lord, Lord Davies, asked about HMRC resourcing. The Government have always ensured that HMRC has the resources it needs. It makes sense to do so, and since 2010 we have invested over £1.8 billion in HMRC, and steps have again been taken to improve its effectiveness and efficiency.
I, too, was grateful to the noble Lord, Lord Kerr of Kinlochard, for joining us in the gap to share his view on making tax digital and for referring to the two recent parliamentary reports on the subject—particularly the one that was done in this House by the Finance Bill Sub-Committee, which I mentioned in my opening remarks. I am always very grateful for the work that is done on Treasury areas in the House. It really helps us to improve policy formation. Although there has been no change of policy, I entirely accept that time is needed for proper debate and scrutiny of the provisions for making tax digital. The Government remain committed to the digital future of the tax system—it was good to hear support for that from the Opposition Benches—and it was of course, in principle, accepted in the extensive consultation we held. But more time is needed for parliamentary scrutiny, and that will be made available at the earliest opportunity in the next Parliament.
I am grateful to noble colleagues for their contributions. We will debate some of the wider issues in the country, when we will demonstrate that we have a programme for a stronger, more secure and more productive economy under a Prime Minister who is also determined to lead a country which works for all people and for all regions.
I have this evening outlined the benefits that the finance Bill, in this form, will bring in advancing our aims for a fair and sustainable tax system. I take this opportunity to thank Treasury officials for their high-quality support on the Bill and for getting it quickly into a state in which it could be considered today. On that basis, I invite the House to give the Bill a second reading.
Bill read a second time. Committee negatived. Standing Order 46 having been suspended, the Bill was read a third time and passed.