“(3) The Government must lay before Parliament within six months of Royal Assent a review of current corporation tax rates which must contain an assessment of the following—
(a) the effect on taxation revenue of maintaining the level of corporation tax rates for 2020-2021; and
(b) the impact of the corporation tax rate structure on businesses of different sizes.”
This amendment would require the Government to assess the impact of the corporation tax rates in the Bill on businesses of different sizes and on tax revenues.
It is a pleasure to serve under your chairmanship, Ms McDonagh. These clauses, which maintain the corporation tax rate at 19%, represent the culmination of a five-year U-turn, painfully drawn out over three successive Conservative Governments and, by my count, at least four Conservative Chancellors.
Over the last decade, successive Conservative-led Governments have cut the headline rate of corporation tax from 28% to 19%, giving the UK the lowest headline rate in the G20. In the 2015 Budget, the Government announced a reduction in the corporation tax rate, from 20% to 19%, for the financial years beginning
Circumstances have obviously changed significantly since the Prime Minister made that commitment to freezing corporation tax to make sure that funding was available for the NHS. What impact does the Minister believe that maintaining the corporation tax rate at 19% will have on Treasury revenues, in the light of the immediate impact of covid-19? We know that many businesses are already struggling to pay their taxes and that the tax burden they face is one of many considerations, which may include the viability of jobs, of commercial activity or even of the businesses themselves. Will the Financial Secretary tell us whether the Government plan to produce corporation tax revenue forecasts that factor in this new reality and that subsequently re-evaluate the projected tax revenues for the period covered by the Bill?
The anxiety is that, without sufficient forecasts and projections in the light of the circumstances through which we are living, revenues generated by those decisions will not necessarily deliver the funding that the Prime Minster intended for the national health service. Given that he has drawn a clear link between that policy decision on corporation tax and funding for the NHS, we want to ensure that he stays good to his word and commits to funding the NHS to the extent that was promised. All of us living through this miserable period in our history and our national life are particularly grateful to the national health service for the support it provides to all our constituents in the best of times, let alone the worst. I am sure that the Financial Secretary will agree that it is absolutely necessary to maintain NHS funding at the level required to see us through the pandemic and into brighter times, and that he would like to give us a commitment to ensuring that the forecast evidence base is made available.
In any event, building a stronger evidence base for corporation taxation rates is long overdue. We do not believe that the 19% tax rate goes far enough to ensure that corporations in this country pay their fair share of tax, particularly as the responsibilities on us all will increase throughout this crisis. Although there are significant pressures on the Treasury as a result of the immediate response to covid-19, we know that the long-tail effect—the recession that we are in and will be living through —will have a significant impact on decisions taken in the Treasury.
We have just endured a decade of cuts to our public services and, as we heard from my hon. Friend the Member for Houghton and Sunderland South, we know that the broader shoulders have not borne the greatest burden. Poverty in our country, particularly child poverty, has increased, and those who have felt the pain in their pockets have noticed the significant reduction in the provision of the public services upon which we all rely. Therefore, as we think about how to balance the books and take the country forward beyond this crisis, it is important that we get back to the principle that those with the broadest shoulders should bear the greatest burden, and business, which has benefited enormously from Government support during the crisis, should pay its fair share.
The Association of Accounting Technicians notes that while a 19% rate may put us slightly ahead of the likes of Albania, Andorra, Bermuda and Kyrgyzstan, those nations are not our international competitors. Will the Financial Secretary tell us why the Government insist on maintaining a corporation tax rate that, as the Resolution Foundation highlights, sits well below the European average and that of our equivalent advanced economies? Does that show the Government’s lack of faith in the UK’s ability to attract business to this country while maintaining a robust and fair tax system?
We all value the contribution that business makes to our society. As this is a fairly early opportunity for me to speak to this issue since my appointment to the shadow Treasury team, let me say on behalf of me and my colleagues that we think business has a contribution to make to our country beyond that which it makes to the ability of Labour Governments to raise revenues for spending on public services—important though that is. During the lockdown we have seen how people are missing not just their friends and family, but many of the businesses that are currently shut down. Businesses provide not just tax receipts for Labour Governments to spend, or even jobs and opportunities, which are really important; they innovate, create and provide products and services that enhance everyone’s quality of life. I am proud that this country remains an attractive destination for businesses to locate themselves and have their global operations, and that many people feel able to take the plunge and start up their own businesses.
Businesses are the lifeblood of our communities and high streets, and we value them and their contribution. That is not in doubt. However, the Government could easily increase the rate of corporation tax and raise additional revenues from those corporations without making us uncompetitive. Ministers ought to bear that in mind not just as they make unenviable decisions throughout the current crisis but as they look ahead to future fiscal events.
There is also the issue of equity. The Institute for Public Policy Research noted in its excellent work through its commission on economic justice that cuts in the principal rate of corporation tax over the last decade have occurred alongside an increase in national insurance contribution rates. That has resulted in a system whereby the burden of taxation is placed on businesses with lower profits that happen to have more staff, while more profitable businesses that employ fewer staff pay less. The Government’s policy of maintaining the present rates is therefore fundamentally a commitment to inaction and does not address some of the disparities in how the business taxation burden falls. That is the point that our amendment fundamentally seeks to address, and I hope the Financial Secretary will address it.
The Opposition want to establish a stronger evidence base not just for the Treasury but for Parliament, looking at corporation tax rates and the impact of decisions taken in the Bill on the revenues generated. I hope that would prompt a more wide-ranging review of corporation tax and business taxation, looking at how the burden is felt by businesses of different sizes and types, and with different levels of profitability. I look forward to hearing the Minister’s reply.
I will speak to the amendment and the clause. I would also like to touch on some of the themes raised by the Opposition Front Bench team and by the Scottish National Party, because those important issues need a proper interrogation.
Clause 5 sets the corporation tax main rate for this financial year beginning on
At Spring Budget 2016, the Government announced that they were going to cut the rate further to 17% in April 2020 and legislated to deliver that in the Finance Act 2016. It is important that cuts to the corporation tax rate, and the benefits that they can provide to business growth and investment, are balanced against wider objectives. The Government’s commitment to sustainability in public finances reflects that.
With that balance in mind, the Government announced at the Budget that the corporation tax main rate would remain at 19% in April 2020, rather than being reduced to 17%, and clauses 5 and 6 legislate for that change in rate for this tax year and the next. At the Budget, the Office for Budget Responsibility forecast that that would raise about £33 billion in additional tax receipts across the forecast period. That will enable the Government to further support the vital public services on which we all rely, including the NHS.
The Government remain committed to supporting investment in innovation through the business tax system. While the corporation tax main rate remains at 19%, the UK continues to offer the lowest headline rate of corporation tax in the G20. The Government also announced a series of generous capital release for business at the Budget, which are being legislated for in the Bill, including an increase in the R&D expenditure credit from 12% to 13% and an increase in the rate of relief for business investment in non-residential structures and buildings from 2% to 3%. The Government have also provided an unprecedented package of support for businesses in response to covid-19, as has been recognised.
Before I turn to amendment 6, I will pick up some of the helpful and interesting themes that the Opposition Front-Bench spokespeople have raised. The hon. Member for Houghton and Sunderland South thanked Treasury officials and the hon. Member for Glasgow Central thanked the Clerks. I echo those thanks. I am sure that they would also join me in thanking the officials at Her Majesty’s Revenue and Customs, who have done an astonishing job in the last few months, especially in response to covid-19.
The hon. Member for Houghton and Sunderland South said that her key priority will be a focus on accountability with an emphasis on responsibility. The hon. Member for Ilford North highlighted that the Labour party is pro-business in a more generous and inclusive sense than had perhaps been understood by regarding business as merely a source of revenue to support public services, which I welcome. I encourage the scrutiny, which I think increases the authority of the power that is being scrutinised, so it is a good thing in general. I welcome them both to what is an evidently responsible and highly competent shadow Front-Bench team.
I have a couple of further points. In relation to equity, hon. Members on both sides of the Committee know that many of those distribution analyses do not include the full welfare and benefit changes but focus on tax changes, which is one reason why it is hard to model them. It is important to be aware, however, that spending on public services was significantly increased in the spending round last summer. On the tax side, something like 29% of income tax is paid by the top 1% of earners.
On the question raised by the hon. Member for Glasgow Central about the status of women and equalities, which is an issue extremely near the hearts of Government Ministers—[Interruption.] I am delighted to hear the Exchequer Secretary behind me, fresh from her triumph in the urgent question, echo that. I am sure that hon. Members on both sides of the Committee know that 15.8 million women are in work at the moment, which is a record high that I am delighted about. The wages of the lowest earners have risen by 11% more than inflation over the four years from 2015 to 2019. The poorest 60% of households receive more in public spending than they pay in tax, and the lowest income decile will get more than £4 in benefits and public services for every £1 they pay in tax. It is important to see that those norms of equity and fairness that the Opposition rightly highlight are reflected in policy and shared by Government.
When Ministers are considering these issues in response to the pandemic, may I ask that they look at evidence as it emerges? While the Opposition welcome and have supported the creation of, for example, the furlough scheme, our concern is that we know women are more likely to be furloughed than men and women risk losing their jobs in bigger numbers during the crisis. I welcome the Minister’s comments about understanding the impact on the economy and within different groups, but I urge him to consider this issue as a Treasury priority.
The hon. Lady is absolutely right that as we work through this crisis and, as we all hope, come out the other side, there will need to be a more detailed understanding of the implications in data terms, how it has affected different groups and its distributional impacts. We have well-established procedures within existing frameworks, as she will know.
The question was touched on more generally by the hon. Member for Ilford North in relation to corporation tax, but we have a whole procedure of making updates to Parliament and a procedure for forecasting that is now independent, thanks to the decision taken in 2010 to create the Office for Budget Responsibility. That includes a fiscal sustainability report on the overall benefit of measures, which goes to his question about corporation tax revenues. Needless to say, the Government’s support for the NHS is not contingent on the revenues from corporation tax; it goes much deeper than that.
The hon. Member for Glasgow Central raised many of these issues. She touched on a question in relation to the Scottish tax system. Of course, it is for the Scottish Government to review the effects of their decisions on income tax and the benefits for which they are responsible. At the same time, they can review their own progress on equality and inequality.
Turning to the hon. Member for Ilford North, I noted with support his inclusive approach towards business. That is very important. He asked about the impact of maintaining the tax rate at 19%. I have indicated that that is estimated to raise several tens of billions over the course of the spending round. What the effect of covid-19 will be on that we do not know, but, as I say, we have processes for evaluating and forecasting on that basis.
Amendment 6 would require the Government to conduct a review of current corporation tax rates, including the effect on tax revenue and the impact of the corporation tax rate structure on businesses of different sizes within six months of the Bill receiving Royal Assent. As I have mentioned, the OBR-certified Exchequer impact for this measure was published in table 2.1 of the Budget Red Book.
We recognise that the economic disruption created by the pandemic will have an effect on the tax revenue forecast at Budget. That will be monitored and changes will be made through the OBR principle and process to the forecast and reflected at the next Budget. HMRC also publishes corporation tax statistics annually, alongside a report that includes a breakdown of the amount and proportion of total corporation tax receipts paid by businesses at different levels of profitability. Therefore, the Government already publish the information called for in the amendment and the separate review legislated for in amendment 6 is, in our judgment, not necessary. I ask the Committee to reject amendment 6 and move separately that clauses 5 and 6 stand part of the Bill.
Corporate taxation is not within the power of the Scottish Parliament. We have to live with the decisions that Westminster makes on this, but I am glad the Government have realised the error their ways in originally aiming to cut corporation tax. Given the money that would have been lost to the economy, that is wise.
The Minister mentioned the impact on women in work. Findings from various women’s organisations suggest that coronavirus will have an impact on women’s employment, and that employment will not recover unless there is significant investment in childcare to redress that as we come out of this crisis. If we were to take evidence from groups such as the Women’s Budget Group, we would have a lot more detailed evidence on the impact of the proposed measures on women. I encourage him to look at that evidence and engage with the Women’s Budget Group to consider how better we can have evidence brought from groups who have expertise in this area. Such groups have pointed out that women are more likely to be furloughed and more likely to lose their jobs. As the furlough scheme is wound up, they will face unemployment sooner than they would have anticipated as employers look at the scheme and say, “I can’t afford to pay these wages. I’m just going to sack my staff.” None of that necessarily relates to the amendment on corporation tax, but I want to make sure those points are on the record.
May I respond briefly, Ms McDonagh? The hon. Lady talks about the Government recognising the error of their ways, but there is a misunderstanding encoded in that view. The Government’s goal had always been to set out a direction of travel because forward guidance has economic value in guiding private investment decisions, but of course all tax rates are constantly kept under review by the Treasury. As has been recognised and discussed in Committee, many considerations go into the decisions on what rate to charge, so I do not think it is fair to describe it as she has done.