Finance Bill, Second Reading
April 15, 2013
Mark Field (Cities of London and Westminster) (Con): If there is one small area where I would agree somewhat with the hon. Member for Nottingham East (Chris Leslie), it is that the Chancellor’s room for manoeuvre was incredibly limited as he delivered the Budget four weeks ago. There is no doubt that many of those constraints come as a result of global events. The latest stage in the eurozone debacle as Cypriot banks have been underpinned is a contemporary case in point, and we see ongoing problems in Portugal that I fear will deteriorate as the weeks and months go by.
However, it has become ever clearer that in the coalition Government’s first Budget in June 2010, they were, I accept, complacent about growth. The short pre-election boom following the 2009 VAT reduction and the very large early rounds of quantitative easing lulled the coalition, on assuming office, into believing that the growth that had come about in the two or three quarters before the 2010 election was baked into the system and would somehow do the heavy lifting when it came to deficit reduction. The coalition’s plans to eliminate the structural deficit required the gap between revenue and expenditure to be narrowed by some £159 billion by 2014-15. Tax rises were expected to contribute £31 billion and spending cuts £44 billion, and the remaining £84 billion was meant to come from compound growth of 2.7% throughout the Parliament.
Unfortunately, however, as we now know, the coalition ended up with possibly the worst of all worlds. It has received unwarrantedly relentless criticism from Labour Members for so-called harsh austerity measures when, in reality, it has too often lacked the political will to execute the levels of savings required. For all the rhetoric, we are still overspending by some £300 million every day. We are borrowing, not spending, that amount each and every day, and that means that we will continue to have to borrow to the tune of some £120 billion year on year.
Kelvin Hopkins: The hon. Gentleman seems to be saying that the Conservative coalition Government had the benefit of Labour’s reflationary strategy, which was implemented before the election, but then reversed it so that things have got worse ever since. Should they not simply have carried on with Labour’s strategy?
Mark Field: The hon. Gentleman makes a good case, I suppose, but we all know that the reality was that the short-term boost of VAT reduction and the early batches of QE was unsustainable. They were a pre-election boomlet, but, as I have said, the entire political class became rather complacent and thought, somehow, that the worst was behind us after the crash of 2008. We now know that that simply was not the case.
In 2010 the entire political class should have looked the electorate in the eye and been clear about the magnitude of the task that lay and, I am afraid, still lies ahead to rectify the public finances, but we are where we are. I personally take the view that talk of radical tax cuts from some on the Government Benches is perhaps unrealistic. I fear, for a start, that confidence is so low that until it is restored almost any tax give-aways are more likely to be squirreled away by individuals and companies than pumped back into the economy.
I also think we would run the serious risk of the markets losing faith if we were to play even faster and looser with public borrowing. In spite of the recent loss of our triple A rating from Moody’s, the Chancellor’s great achievement—it should not be underestimated—is that we are still able to borrow in international markets at such low interest rates. The lesson of both 1931 and 1976 is that once the markets turn, all is lost.
My main hope for the Budget and this Bill was that the coalition would take some of the longer-term decisions that the British economy requires. I am pleased that resource is being set aside for key, shovel-ready infrastructure projects. I had hoped that cash would be accompanied by decisions and leadership on aviation and energy infrastructure. We cannot let these sensitive political footballs be kicked once again into the next Parliament. I think that the UK, as a trading nation, requires certainty on those issues, not an endless parade of commissions and reviews.
I am pleased, however, that the Treasury has helped out small business. The march towards ever lower rates of corporation tax, as the Exchequer Secretary has pointed out, is highly welcome, as are assurances that small firms will be given a chance to bid for Government contracts under the small business research initiative.
The extent of capital gains tax relief to attract start-up capital for new limited companies is also very good news. Best of all, however, is the knocking off of the first £2,000 of employer national insurance contributions for small and micro-sized businesses. That will, I hope, begin to chip away at the worryingly high levels of youth unemployment by lifting some of the obvious disincentives to taking on new staff.
I am afraid that I am a little less sanguine about the Chancellor’s flagship Help to Buy plan. I appreciate its raw politics, underpinned as it is by a desire to help struggling younger people on to the housing ladder, many of whom are paying much more in rent than they would as part of a mortgage, if only they had a deposit. Nevertheless, I ask the Treasury to give considerable thought in the consultation period to what we are trying to achieve. Let us look carefully at supply rather than just finance, since I suspect that the latter will simply help keep prices out of the reach of the very people whom we wish to serve, as the hon. Member for Edmonton (Mr Love) has said. I do not wish the taxpayer to be on the hook for the consequences of a reinflated property bubble. Let us not forget the US experience that lay at the heart of the financial crisis.
I, like many other Members, am also disappointed that the Office for Budget Responsibility’s predictions for our economy as recently as the autumn statement on 10 December 2012 were proved, only 14 weeks later in the March Budget, to have been so considerably off beam. Few doubt that economic forecasting is an especially dismal science. However, the OBR’s intervention in December proved essential in buying the Chancellor crucial breathing space at a time when many commentators had assumed that we were about to flunk our plan to reduce the deficit year on year. To that extent I accept what the hon. Member for Nottingham East has said. Many even-handed people will regard that as a sleight of hand, but, more importantly, the scene was set for cynicism and deep disappointment when aggregate borrowing for the next four years was projected at some £49 billion higher only 14 weeks after the autumn statement.
It is worth saying, however, that that is part of a tradition during all my 12 years in this House. Every single Budget between 2001 and 2007 forecast that public finances would move back into surplus in about three or four years’ time. Instead, as the hon. Gentleman will remember, debt and the annual deficit rose inexorably while the Treasury conjured the illusion of fiscal stability. Similarly, at every autumn statement since June 2010, the OBR has, I fear, been forced to downgrade growth out-turns while continuing to hold somewhat optimistically to the notion that the public finances will be transformed by robust growth in two years’ time.
The establishment of the OBR was meant to herald a fresh era of forecasting credibility, but it now seems all too reminiscent of the previous Administration’s discredited financial projection. I think that observers are beginning to wonder whether we should have any regard for the OBR’s latest set of predictions or, indeed, take with anything more than a pinch of salt assurances that recovery is only around the corner.
Sheila Gilmore: Will the hon. Gentleman clarify his position? Is he suggesting that the OBR—which was hailed as a great independent organisation that would keep us right—has somehow gone wrong, rather than that it is his Government’s policies that have lead the OBR constantly to downgrade its predictions?
Mark Field: I am expressing the concern that the OBR was somehow seen as a panacea of independence in a lot of its projections when it has got things uniformly wrong almost every time. As I have said, that is partly because of international events that one cannot exclude. We live in a global economy and are a great global trading nation. The problem is that we have not been able to get the export-led growth that we all want and as a result there has been constant downgrading.
There was some good news in the Budget, as the Exchequer Secretary has said, about the co-operation between the Treasury and our Crown dependencies of Jersey, Guernsey and the Isle of Man on new financial disclosure agreements. As an adviser to the law firm Cains, I am pleased that our Crown dependencies have led the way with the FATCA—Foreign Account Tax Compliance Act—arrangements. That is to the Treasury’s credit. We saw at ECOFIN only last weekend that we are also looking to bring on board the Cayman Islands and the British Virgin Islands to ensure that there is more transparency. It is very easy to berate a lot of the international financial centres—many of which have long-standing historical links with not just the City of London, but the UK—but the importance of the liquidity that they bring into play should not be underestimated. It made a big difference in the immediate aftermath of the crash of September 2008 and might yet do so at some point in the future.
I am a little more concerned that the Treasury is not making entirely clear what is considered abuse and avoidance when it comes to tax arrangements. The earlier exchange between the hon. Member for Burnley (Gordon Birtwistle) and the Exchequer Secretary brought that to mind. [Interruption.] I apologise: it was the hon. Member for Redcar (Ian Swales)—my view of the hon. Gentleman means that it was an all too easy mistake to make. Without clarity about what amounts to avoidance as opposed to abuse, we risk throwing a veil of uncertainty over the UK’s business environment.
I speak to firms large and small in my own constituency. I say to those on the Treasury Bench that, suddenly, for the first time ever, global corporations are beginning to consider the almost unthinkable prospect of a certain amount of political risk being attached to the UK. Foreign direct investors would be right to feel aggrieved if legitimate tax-planning activities suddenly were deemed by Her Majesty’s Revenue and Customs to be aggressive tax avoidance, with punitive fines and damaging public relations to follow.
On that note, I should like to raise a specific instance of retrospection that is causing financial hardship among some of my constituents. Section 58 of the Finance Act 2008, brought in by the previous Government, was designed to close down certain tax-planning arrangements with retrospective effect. I am afraid that it has left some residents in my constituency with demands for huge amounts of back tax, which in some extreme cases is leading to threats of bankruptcy.
The Exchequer Secretary is aware of those concerns, because he has responded to my correspondence on them. Unfortunately, however, some of those affected by section 58 are not convinced that he is properly listening to the argument. One constituent advised:
“The tax arrangements I used were not only legitimate and openly declared, but expressly considered, debated and approved by parliament back in 1987. This means that according to the HMRC’s declaration, I was not engaged in aggressive and abusive tax avoidance but simple, legitimate tax planning.”
Although I accept that HMRC wants to bring more money in and to close down aggressive tax avoidance schemes, if it has known that arrangements or schemes have been in place for 25 years and has made no move to close them down, it cannot be right for retrospective activity to take place. My constituents therefore request the repeal of section 58.
I would be grateful if the Treasury gave serious consideration not only to the arguments of the campaigners, but to the message that retrospective legislation sends to business people who are trying to act in a lawful and transparent way in planning their taxes. The Exchequer Secretary rightly pointed out that we should be proud of being a country that is open for business, but we must ensure that what we do and what we say in that regard coincide.
To conclude, if I have one message for the Treasury as we consider the Finance Bill in the days ahead, it is to forget about the pressure for quick fixes and transient boosts, and instead to focus relentlessly on delivery and longer-term measures to make the UK an ever more tempting prospect as a place in which to do business. If the UK economy is not to get substantial growth before the 2015 election, let the coalition at least get some credibility for doing the right thing for the nation and giving our people a genuine sense of hope for the future.