The Labour party supports all these grouped clauses except clause 42. I will not press amendment 21 to a Division because it has not been selected, but I will be inviting all Members, particularly in the Opposition, to vote against clause 42 on corporation tax.
Clause 41 is effectively a technical change. I appreciate that it is on corporation tax and it goes with clause 42, but I think it need not detain the House now. On the abolition of vaccine research relief, paragraph 15 of the explanatory notes on clause 43 helpfully say:
“The low level of take-up of the relief suggests it does not have a significant impact on a company’s research decisions. The government believes that direct spending programmes like the recently announced Ross Fund offer a more effective and flexible approach to the production of medicines and vaccines.”
The Ross Fund is £1 billion and was announced by the Chancellor of the Exchequer in November 2015.
I appreciate this is not directly the Minister’s departmental responsibility, but if we are looking at things such as the Ross Fund, where the Government are directly funding rather than encouraging research through fiscal levers, I would like him to indicate whether that Ross Fund money will count as part of the 0.7% of GDP commitment for overseas aid. I again salute the Government for reaching that 0.7% target. The Labour Government of whom I was a Back Bencher for many years moved significantly towards that target, but it was the coalition Government who reached it, and it is this Government who have maintained that in spite of some pressure on occasions from what might be called their natural supporters, who have reservations about that 0.7%. I do salute the Government for reaching that, and they have the complete support of Opposition Members on maintaining that commitment, but there are always potential difficulties in how one measures what goes into that 0.7%. Whether this would come under the Department for International Development or the Department of Health in terms of vaccine research and the Ross Fund I know not, but I hope the Minister will, as a Treasury Minister, be able to give some indication as to whether this kind of thing counts towards the 0.7%, because were it to do so, some of us would raise an eyebrow, and I think one ought to know.
It also appears that the Government have decided that direct spending programmes are more effective and flexible for research than funding through fiscal measures. For us socialists, it is a welcome conversion on the part of the Government that they agree that they have a role in direct funding, but in terms of clause 43 and the abolition of vaccine research relief, this must form part of a wider canvas. I found it a bit shocking when the National Audit Office said a few months ago that there were about 1,200 tax reliefs. From memory, it found about six different sorts of measures that are often commonly called tax reliefs, and that only about 300 of them were being monitored by the Government as to their efficacy or otherwise.
It appears that the Government have monitored the efficacy of vaccine research relief and decided that it is not very efficacious. As I understand it, fewer than 10 companies were claiming the relief. I can understand that if that is the case the Government might wish to remove it, although of course in terms of pharmaceutical research, they could be 10 extremely large companies. The Government monitored that, however, and I salute them for doing so and for coming up with some results from their monitoring.
Clause 44 updates aspects of the cap on research and development aid. Broadly, we on the Opposition Benches—Labour, certainly—support this, because it was a Labour Government who introduced R and D relief for small and medium-sized companies in the Finance Act 2000, and the large companies scheme was introduced in the Finance Act 2002—I believe I sat on the Committee of that Bill as well, Sir Roger. At that time there was cross-party consensus, as there was when we were in
opposition in 2013 regarding the introduction of R and D expenditure credits and their gradual replacement of the large companies scheme; we supported those measures in 2013. However, R and D tax credits have in very round terms led to £1 billion a year being claimed between the tax years of 2000-01 and 2013-14. That sounds very good and I have all kinds of figures here—helpfully supplied by the indefatigable researcher Imogen Watson, with whom the Minister will be familiar by now. I will not detain the House by reading them all out, but 33,800 different companies were claiming under the SME scheme and 7,800 were claiming under the large companies scheme.
Those figures are impressive: an average claim of £1 billion sounds impressive. However, since 2008 productivity has of course stalled in this country. One reason why successive Governments have given R and D tax reliefs of various different orders of magnitude and types is to encourage R and D, which will lead to newer products, goods and services and also to more efficient ways of doing things. Unfortunately, that has not been reflected in the productivity situation in the UK for many years, and I urge the Minister to reflect on that. In terms of the previous clause, he looked at the efficacy of the vaccine relief and decided to go in-house rather than carry on with the relief. I am not saying that the Government should take R and D in-house—I do not want to be misunderstood on that—but they should be looking at the efficacy, or otherwise, of it.
Clause 65 extends the capital allowances to designated assisted areas within enterprise zones for up to eight years. Of course the Labour party supports that. It is designed to encourage the purchase of energy-saving technologies. Again, I have a long list of qualifying technologies, which I will not read out.
I do want to ask a technical question, however, which I hope the Minister, with his usual omniscience, will be able to reply to. Pipework insulation is a qualifying technology, as are things such as high-speed hand air dryers and solar thermal systems, but I do not see on the list—it may be a lacuna on the list, or my fault—other forms of insulation other than pipework insulation. This is all part of the programme, which broadly has cross-party support from, I think, all parties in this House, that the UK should cut its CO2 emissions and greenhouse gas emissions, and one way to do that is by using fiscal levers. It would appear on the fact of it that it would be good to have on that list insulation generally, in contradistinction to just pipework insulation. If it is not on the list, no doubt the Minister can explain why in his reply.
The second point that I want to make on the extension of capital allowances, the eight-year period and so on was raised by my hon. Friend the Member for Leeds West (Rachel Reeves) in a written question on 26 April this year to which the Minister helpfully replied on 5 May 2016 when he said:
“The government has carefully considered the case for exempting plant and machinery from business rates. However, there would also be fundamental operational challenges to delivering an exemption on account of the way in which the plant and machinery is embedded in the premises concerned”.
I ask the Minister to look at that again. It is a long time since I practised property law—I do not know whether the Minister ever did; that may have been a good few years ago as well—but there used to be things called fixtures and fittings, and indeed I believe that
they still exist. They are often set out in commercial, rather than residential, leases. I am not sure why the issue of the embedded plant and machinery to which the Minister referred in his written answer is so difficult. I may be missing something, but I should have thought that if commercial lawyers can do it for fixtures and fittings in commercial leases, HMRC could do it for plant and machinery, embedded or otherwise, and that it would be worth the Government’s looking again at the issue raised by my hon. Friend.
Clause 66 is entitled “Capital allowances: anti-avoidance relating to disposals”. I wonder whether the Minister might be able to supply figures showing how much has been lost to the Exchequer through such avoidance schemes, but of course we support a clampdown on them.
3.30 pm
Clause 67, entitled “Trade and property business profits: money’s worth”, confirms that trading income received in non-monetary forms is fully accountable in calculations of taxable trading profits for income tax and corporation tax purposes. The fact that trading income received in non-monetary forms is assessable for those purposes would seem fairly obvious to many of us. Indeed, paragraph 12 of the explanatory notes on clause 67 refers to a 1948 decision to that effect, made by what was then the judicial Committee of the House of Lords; it would be called the Supreme Court now. I hope that the Minister will be able to tell us what has happened in the intervening 68 years to require that fact to be included in legislation, given that, presumably, there was formerly reliance on the case law precedent cited in the explanatory notes.
Furthermore—this is just a curiosity of mine, in which I hope the Minister will, with his usual patience, indulge me—if trading income received in non-monetary forms is to be thus assessable, what about the barter economy? Some people trade through barter. It is not simply an agreement between neighbours; there are trading arrangements which have traditionally been considered not to be susceptible to income tax and the like. Might it be an unintended consequence of clause 67 that such arrangements would in future be assessable?
Labour broadly supports clause 68, entitled “Replacement and alteration of tools”. However, I want to raise an issue that was raised with us by the Association of Taxation Technicians, to whom we are grateful. The clause would repeal legislation providing tax relief for expenditure incurred by a business on replacement or alteration of trade tools. We are talking about an important, although small, corner of the economy, and the proposed repeal could cause small businesses book-keeping problems. The association helpfully provided an example, and, if you will indulge me, Mr Howarth, I will read it out. It is not very long.
“One of our members has given an example of the use of the provision by a carpenter”—
one of the association’s clients—
“who has to replace a saw almost every week. Treating expenditure on saws as if it was on consumables (in the same way as screws, nails and glue) makes perfect sense. If the provision is repealed”—
which, of course, is what clause 68 would do—
“each of the saws will have to be capitalised and then written off for capital allowance purposes. Such repeal would make no difference at all to the trader’s actual tax position. It would simply complicate record keeping, add administrative burden and increase the risk of computational error.”
I wonder whether the Minister would have a look at that again and establish whether some kind of de minimis threshold could be introduced for businesses of that kind. Let me give an example of my own; I do not know whether it would be caught. A hairdresser who needed to replace his or her scissors every month might then have to account for that in capital terms, which would involve an awful lot of paperwork for a small business.
Clause 69 is coupled with clause 70: they are twins. In a sense, clause 69 introduces an alternative version of what clause 70 removes, namely the way in which those in the property business can claim tax relief for wear and tear. The amount was, across the board, 10%. I understand that the arrangement was fairly rough and ready and no records had to be produced, and there was a thought that some landlords were abusing it. Clause 70 gets rid of that regime, and clause 69 introduces a new regime specifying actual expenditure. It sounds fairer that someone cannot claim 10% across the board if they have not spent the money, and that they have to demonstrate what they have spent. Clause 70 gets rid of the 10% allowance, and clause 69 requires records to be produced to prove that money has been spent. The difficulty is that we are talking about small businesses, and the dilemma for any Government is the trade-off between accurate, fair accounting and taxation, and something that is a bit rough and ready but much less onerous for small businesses.
The Chartered Institute of Taxation, to which I continue to be grateful, has expressed its concern that there is no definition in statute of what constitutes a dwelling house. That is a bit worrying. I tried on two occasions to meet representatives of the Residential Landlords Association to discuss this matter, but unfortunately they had to cancel on both occasions so I am none the wiser. If the Minister could say a little more about the Government’s thinking on the rough and ready 10% rule versus the accuracy required by clause 69, and about the definition of a dwelling house, that would be helpful.
Clause 71 deals with transfer pricing applications, but I will not say a great deal on that matter because we ventilated those issues, albeit from a somewhat different angle, when we discussed amendment 1 earlier. However, there is a quote on transfer pricing that I quite like from the Tax Justice Network. In quoting Lee Sheppard, it stated:
“Transfer pricing is the leading edge of what is wrong with international taxation…The purpose of the OECD model treaty was to make life comfortable for American, British, German, and French multinationals by ensuring that the taxation of their operations by host countries is limited by separate company accounting and the permanent establishment concept. Treaties accomplish this task very well—so well, in fact, that many multinationals pay tax nowhere”—
but those treaties are
“clumsy tools that affluent developed countries have used among themselves, to their collective detriment, and seek to impose on developing countries.”
I have quite a lot of sympathy with that. We read of large companies such as Apple appearing to pay almost no tax anywhere, although we can never be sure about that because of the lack of transparency. I can understand the practice of transfer pricing and I can understand multinationals acting within the law in shifting stuff—legitimately if not ethically—to the lowest tax jurisdiction, but paying no tax at all seems a bit bizarre. The UK
Government should continue to take the laudable steps that they have been taking over the past 16 years, including the past six years, to clamp down on that activity.
Clause 42 deals with corporation tax. The official Opposition—and, I hope, all MPs—will be voting against clause 42 stand part, because it would lower corporation tax. The Institute for Fiscal Studies is a fountain of considerable wisdom. It is not always right, of course—no one is—but it is worth listening to. It has calculated that the Government’s cuts to corporation tax have cost £10.8 billion a year. The Minister has said, and I do not doubt him, that overall receipts are up, despite the rates being lower. However, that is not the only yardstick. We also have to look at how much higher the receipts would have been, had the rate not been slashed to the lowest in the G7 and the joint lowest in the G20.
Of course my party wants a competitive tax rate, but we also want a fair tax system. My understanding is that in 1999-2000, corporation tax as a percentage of total HMRC receipts was 11.67%. By 2015-16, that percentage had crashed to 8.31%—a huge drop. The Minister has referred to the efforts of this Government and the Government that immediately preceded them to rebuild the British economy, which he referred to as being fundamentally strong. It will not surprise him that I beg to differ. However, there are definitely good points.