The test that I was going to give the Budget before I heard it was: “How does this help my constituents, particularly those who are still struggling the most with the cost of living crisis?” In fact, I think that was the priority for the Chancellor. We have seen inflation start to come back down to where we want it to be, interest rates have come back down from their peak, and the economy is probably performing slightly better than we had feared—although not as well as we might have hoped—so I was certainly hoping that he would not take any risks that might destabilise that position and would focus on what he could do for those who most need support. That is pretty much roughly what we saw: a steady-as-she-goes Budget that focused on those issues.
I certainly welcome measures such as the time extension for paying back universal credit advances and the extension of the household support fund, which are good ways of targeting funds at those who will need them most over the next six months. Clearly, the single biggest decision was the extra 2p off national insurance. That decision will help people to keep more of what they earn, make work pay and improve household finances, so I strongly welcome it. Like many, I would have preferred a change to income tax such as raising the personal tax allowance, which would have helped those earning the least quicker than a percentage change, but this is not a time to be picky. It is an expensive measure, but it is a welcome one that will really help people, and we should not ask for perfection.
In many a Budget speech, I have asked: “Can we have a sense of direction for what we are trying to do?” I welcome the increase of the VAT threshold to £90,000 after a long pause, but it would be helped if we pegged it to something. Are we trying to give a self-employed person a median income after incurred costs but without their being in the VAT regime? Is that what we are trying to do? Is that where we should try to peg the threshold? Otherwise, we are just plucking random numbers out of the air occasionally. It would be better to have the right starting position and to index it every year to give some predictability.
Having asked for that sense of direction, we actually have one on national insurance. It appears to be the Chancellor’s view that double-taxing income through two different taxes is the wrong thing to do, and he seems to want to phase out national insurance when we can afford it. That is a welcome sense of direction, but if he really thinks double-taxing is the wrong thing to do, he could stop it more quickly by abolishing national insurance, putting more on income tax and just having one tax. The revenue we would get from taxing more passive income at a slightly higher rate would probably pay for a lower rate on earnings, so we would not have to make it literally 28%—we could probably get away with a slightly lower rate in that situation. If we are being radical and that is the direction we want to go in, the Chancellor could perhaps look at dusting off the old exercises on whether we really need those two taxes to be separate.
If we really believe that it is wrong to tax work higher than other forms of income, it seems slightly incongruous on the same day to reduce the capital gains tax rate on the sale of second properties. That shows how hard it is to have simplistic views, because we finally have a dynamic assessment that shows that if we lower the rate, we get more activity and more revenue. It would seem rather perverse to reject that and want to have a principle that gives us less money, so I think I welcome that change, even though it looks slightly inconsistent on the face of it.
I will use my last couple of minutes to welcome a couple of other small things. The fuel duty freeze is hugely welcomed by my constituents, who rely on their cars quite significantly. I also welcome the alcohol freezes, which are largely welcome in trying to help the hospitality trade.
I have called for the abolition of the non-dom tax regime in about the past three Budgets, so I welcome the fact that the Chancellor has done so. I was expecting a little fudge this time—perhaps he would reduce the number of years that a person could claim it from 15 to 10, or increase the amount they have to pay to access that regime—but announcing a complete reform of how we tax temporary residents and non-residents is absolutely the right thing to do. Our regime is completely out of date. Resident, non-resident, ordinarily resident, settled, habitually resident, domiciled, non-domiciled—I do not think anybody understands what on earth all those things mean. Having one modern regime, where everybody who is a long-standing resident pays the same taxes, is absolutely right.
It is fair to say that if somebody comes here temporarily to run a business or start one, or on an exchange with an employer, we do not really want the hassle of working out their whole worldwide situation, because by the time we work it out, they will have left anyway. Having a short-term exemption and then a much clearer, more modern regime that provides certainty and fairness is the right way to go, and much more defendable than the historic regime, which depends on where a person’s father was born. How on earth could we defend that in the modern day? I welcome the fact that the Chancellor has grasped that nettle in a proper, coherent way, and I look forward to seeing the final detail of those changes when the consultation takes place.
In a similar vein, I welcome the reforms to the child benefit charge. I thought that when the Chancellor said that two people earning £50,000 would be exempt, he was hinting that he thought £100,000 was the right place to set the household income level, but he did not actually say that. I look forward to the consultation establishing where we think the long-term correct position is; I think £100,000 would be a fair place to put it.
Overall, I welcome a Budget that is probably about the best that could be done, given that our deficit in the next financial year is £87 billion. For those who think we could be spending more or taxing less, I ask them how big a deficit we can really be running, and for those who think that relying on five-year forecasts is a bit risky, I would say that I sense that relying on the one-year forecast would get us a very different Budget. I think the Chancellor has found the right balance and that we are going in the right direction, and I look forward to supporting the Budget resolutions next week.
]]>The other situation that frustrates me concerns when somebody has arrears and is sent the demand. I have seen cases where someone is sent five demands in a week, all with different numbers and vastly different by thousands of pounds. I naively assumed that when somebody is sent a demand with arrears, a calculation is made on the system to come to that number and that when somebody asks for it, CMS can just press a button and it will be emailed over, so the person can work out how it has come to that number. That is not the case. It takes weeks and weeks. The chief executive said before the Select Committee that it is a 12-week turnaround.
How can the CMS send a demand out for arrears without calculating it? When that person finally gets the calculation, they think, “I’m paid monthly, and there is a certain percentage I have to pay. I get paid two grand a month and pay 15%. That is £300. I have paid £200, so I owe £100”—a simple calculation. What they get is 16 sides of calculations and, for some reason, it is done by weekly income. It is totally unfollowable. I would seriously urge the Minister to look through some of these calculations, if he has not done so. There must be a better way of doing it, so that everybody understands what they owe and can check it to prove whether it is right. It cannot be that complicated.
Finally, will the Minister look at where child maintenance arrears sit in the universal credit deductions? They sit a long way down, and below debt owed back to the Department. If we really think this money is essential for child welfare, we should be letting the parent with care have that money before we take it back to pay debts owed to the state, and it should be much higher on the list.
]]>It is not too naive to say that we would all like parents who separate to reach an amicable arrangement on access and maintenance for their children, so the state does not have to get involved at all. However, I suspect that is somewhat unlikely to happen in every case, hence why we need to have this service. The problem is that the service is not sufficiently effective. It creates more need for itself because some parents think that they can get away with it and try not to pay, so we force the family through the system to try to fix the situation.
If there was a general feeling that a parent who did not pay their maintenance would get caught and have to pay more, we might actually push more parents to reach an amicable arrangement rather than try this route, and we would not end up having to be the referee or the battering ram that we were desperately trying to avoid in the first place. I remind the Minister that having a service that actually works is not inconsistent with the Government’s overall aim of not getting involved unless they really need to: that would stop some of the demand in the first place.
The cases that most frustrate me are the ones that are superficially easy. The parent who should be paying is in employment and has a relatively stable income, which we can see through a real-time information feed, and they either do not pay at all or do not pay regularly. It is incredibly frustrating to see how long it takes for any enforcement action to be taken in that situation. We see scenarios where that person does not pay for a bit, finally gets some threats and starts paying for a couple of months, and then stops paying again, and the whole process has to start again. It is effectively just a game that they are playing. We end up with huge arrears building up, the parent with care struggling financially and the child losing out.
I hope that, now we have administrative liability orders in place that can be brought in much more quickly, we can stop those situations from arising. I certainly hope the CMS can monitor how fast arrears are building up and how quickly the orders are being put in place, so that we can show real progress and so those arrears do not get to the stage they have been getting to in the past.
]]>I agree with the shadow Minister,
If any future Government want to do something different, they could just bring in a Bill, as George Osborne did in the early years of the coalition. The House would be required to give its assent to that change, but we would not have to go through the uncertainty and the annual campaign to get to where we all think we are going to get to anyway, which does not help anybody. It would spare the Minister this afternoon’s excitement and the confusion of what is in which of these orders, which he might appreciate. I will leave that one for the Minister and see whether he is remotely tempted by it.
With the crazy process we currently have, we have come to the right answer, but I still do not really believe that we are in a sensible position. We have to use September’s inflation for an April increase in benefits, and we have to have an uprating order quite a while after the Chancellor has announced it in the Budget. The Work and Pensions Committee recommended that the Government bring these orders before the House earlier than February, so I commend the Government—we are still in January. I suppose that is positive progress, although I do not quite know why we could not have done this in November, to get that certainty.
I hope, as the years go by, one year we will get some good news, and the Minister will say, “We have so many people on universal credit who we know we can uprate far more quickly, but actually we can use a much later inflation number because the amount of manual processing we have to do for the old benefits is much less of a work demand than it used to be.” We could then move to using December’s inflation figure to bring the benefit increase much nearer the actual cost of living and avoid the horrible situation we have currently where we are effectively six months behind, and, in the meantime, there has been a huge spike and people cannot afford to pay their bills. Perhaps the Minister could update the House on whether we are any nearer the prospect of a slightly more sensible process where we are not using out-of-date information to give people a rise in benefits that is already six months old, which exposes a load of risk in that situation.
There is also a lot of noise about the triple lock being unsustainable and suggestions that we will have to get rid of it because we cannot afford to give pensioners that level of increase. I cannot think of any justification for ever giving people who are reliant on a state pension and who have no possibility of going back to work an increase of less than inflation; it would be an intolerable situation to put people in. I think we have established over many long and painful years that giving pensioners less than earnings is not a very attractive position. We had that for a while, before the coalition Government quite rightly reversed it as one of the first things we did when we came to power 14 years ago.
I do not know why we have to have speculation around the idea of taking away the link to inflation or earnings—it is utterly impossible. I suppose we all wish that the 2.5% was a relevant consideration for us, but it looks like it might be a few years before we have to worry about that part of the triple lock kicking in. The problem is that the rise in earnings and the rise of inflation have got out of step and are in two different financial years. We are therefore effectively giving that increase twice, because we give it on inflation in year one, and then, when pay rises catch up in year two, we end up giving it again, and we have accidentally given a much higher amount over a period than either inflation or earnings. If that is what risks the long-term future of the triple lock, does the Minister think that a rolling two-year or three-year average would fix that? If that is the price of making the triple lock safe in the long term, I would pay it. I would not choose it, but if that stops the uncertainty over the whole thing being affordable, it would be better. Perhaps the Minister could help us with a better process for future years.
I fully support these orders and I will happily vote for them in the unlikely event that we get to a vote.
]]>This is actually quite a radical and expensive policy. We have, probably for longer than all our lifetimes, given companies relief for capital expenditure using capital allowances. That was originally quite a generous 25% in the first year—I suspect that most plant and machinery had a longer life than that when the rules were produced. We have chosen to do that for all these years, rather than just letting a business deduct its own accounting calculation of depreciation, because we did not want the manipulation of tax deductions by businesses doing their tax returns. We chose to do it this way.
The tool that Governments of all colours for decades have had when the economy hits trouble is to give first-year allowances and various enhancements. I remember a 40% first-year allowance and a 50% first-year allowance. We have had full expensing up to £1 million, as the shadow Minister referred to. That has been the way of incentivising investment in a period of economic recovery for probably as long back as there has been a toolkit.
Now we have landed on permanent full expensing, so businesses get full relief on plant and machinery spend in the first year. What are the Government expecting to happen differently here? Are we expecting capital investment by businesses of more than £1 million a year that otherwise would not be economically viable and would never have happened? Are we expecting investment to be brought forward and to take place earlier than it otherwise would have? That would be entirely welcome and would probably modernise businesses, protect jobs and give them a chance to grow in a way that they perhaps would not have had, which is not a bad policy aim at all. Or are we just giving business an earlier tax relief than they otherwise would have had, whereby they bank that and are happy but it does not change behaviour?
It is hard to get behind the numbers on this measure in the Green Book. As I said earlier, the estimate at the end of the five-year period, and probably the first full year that making this permanent will make a difference, is a tax cost of £10.9 billion just for this measure. If we run the numbers, bearing in mind that businesses will already have had 25% tax relief on that same expenditure in that year, that means we expect a £55 billion higher claim to get tax relief in that financial year than otherwise would have happened. However, the Minister said that only £3 billion of that is estimated by the OBR to be additional investment that would not otherwise have taken place at some point. It suggests that we have a lot of investment being brought forward with a lot of more generous tax relief that would have happened anyway. Will the Minister explain what the Government are aiming to achieve and what is being forecast? Is the OBR being unduly cautious? That would enable us to understand how we judge whether the measure has been successful.
Are we expecting to see whole loads of investment in plant and machinery that never would have been viable before, or are we expecting to see it brought forward? If what we are getting is brought forward, at some time the cost should start to taper down, because this is not a new tax relief that businesses would not have already had; it is just an acceleration of tax relief and businesses will pay more tax in all subsequent years, because they are not getting the relief they used to get. The measure could cost £11 billion in the first year and gradually that would level down and in the fullness of time there would be no more annual cost, in effect. Can the Minister clarify that?
It is not immediately clear how the Government plan to assess whether the measure has worked or is working. I assume that from electronic corporate tax returns we can track down to the pound the amount of investment claimed for full expense relief every year. We could have a report within six months of the end of a calendar year on how much of these 100% allowances has been claimed and compare that with the total amount claimed for capital allowances in whichever preceding years we like. We could see whether full expensing was driving behaviour change. Will the Minister talk us through what he expects to happen and how he will assess whether this has been an effective way of boosting productivity and increasing investment for £11 billion a year? It is probably one of the most sizeable line entries we have seen in a Finance Bill in my 14 years here. Normally we expect the big number to be a tax cut for individuals, and this measure is significant.
As we are making this measure a permanent feature of our tax system, it shines a light on what we are trying to get from our corporation tax system. There will not be any kind of compliance saving. The Minister made a brave attempt at saying there might, but effectively all that will change is that the number that a business currently puts in its additions to its writing down allowance pool will now be put in the 100% first-year claim box. It is the same number in a different box; that is the only compliance change we have here. It throws into question some previous policy decisions we have made, because for a business to get full benefit from this, it needs to be paying enough tax to use the full relief in that first year.
If a business cannot use the full relief, the incentives are not as powerful as they would otherwise be, because then the option is effectively to carry that excess deduction forward, but we introduced rules a few years ago that are strict on how many losses a business can use in a year. If we really think that giving people the earliest possible cash tax benefit for capital investment drives investment, we should probably take away that restriction on using losses, so that businesses can get the benefit as early as possible and not have it spread over a number of years going forward. Will the Minister explain whether the Government will look at that and make sure we are not accidentally undoing some of the benefit we are seeking to get?
My second question is: what do we do with the legacy writing down allowance pool that relates to plant and machinery expenditure for God knows how many past years? On a reducing balance basis of 25%, it takes many, many years to get full tax relief for expenditure, so every business will have a large pot of money that it has not yet had tax benefit for. Are we expecting them to run that down at 25% reducing balance a year and still be doing so in 23 years’ time, by which point no one will have any idea what on earth that balance ever was? Or should we say, “That is a bit of a nonsense. Why do we not just let you take the whole balance at 20% a year over the next five years and finish that problem off, because we do not need to be focusing on that?”? We could find any number we like there, but it would draw a line under that past expenditure in a way that genuinely simplifies things.
We then have the question of, “What do we do with capital expenditure on items that are not plant and machinery?” The tax relief we give on structures and buildings is not generous, but if we are trying to drive an increase in productivity and large businesses to invest in new gigafactories to build batteries for electric cars or for electricity storage or whatever, do we not want to incentivise them to build the factory building as well, rather than either giving them no relief or giving it over a long time? If we are spending £11 billion a year to encourage investment in plant and machinery, should we not spend a little money on trying to encourage other things that are key for industrial investment to take place, by being a bit more generous on buildings and structures? Has the Minister any thoughts on that?
The Government did a capital allowances review only a year or two ago, which did not look at permanent full expensing as one of the options, but it would be interesting to see whether they have had any further thoughts on that. We are now asking every business to go through and track every item of capital that they spend and treat it differently in their tax return from how they treat it in their accounting records. Then we have all manner of different laws depending on whether it is a long-life asset, a short-life asset, a car or an environmentally friendly car—I could go on. For the amount now at stake, and given that we have given full relief for plant and machinery, which is the biggest amount, do we really need all that cost and complexity? Or should we just say for all those other items, “You can just have your accounting calculation”? Okay, businesses might take it a bit quicker than we would like, but in actual fact the cost of that is not all that material in the grand scheme of things.
We could move to a system where the only adjustment someone has to make to their tax return is to claim a very generous tax relief on plant and machinery, and they would not have to touch anything else. That would be a more coherent corporation tax regime, now that we have spent all this money incentivising plant and machinery. It would then genuinely be a compliance saving for a business in that situation.
I support the measure and truly hope that it works, but, as a significant amount is being spent, it would be helpful to understand what we are trying to achieve and how we will know whether we have been successful. I hope that the Government will move on to think about how we can slightly recast our tax system so that it makes sense, having made this radical and generous change.
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