My Lords, the Finance Bill before us today covers a range of measures of real importance to the strength and growth of our economy. Broadly, they fall into three main categories: our work to help more people to save; our support for businesses; and the additional action we will take against those who avoid or evade taxes.
We consider the Bill against a very sound record of the Government’s economic achievement. The economy is now 7.7% larger than at its peak before the financial crisis. Employment has risen remarkably, up by 2.7 million since 2010, and the fiscal deficit as a share of GDP has been reduced by almost two-thirds.
The Bill was introduced in the other place before the referendum on our membership of the European Union. It is still too early to tell what the economic impact will be. While we are well-placed to take advantage of the opportunities that Brexit creates, there will be some difficult times ahead. Undoubtedly the consequences of the referendum will influence the context for economic policy in future years. I am sure that the Chancellor will take this into account in the Autumn Statement on 23 November, taking decisions in the light of the information that will be available at that point.
Before outlining the main measures in the Bill, I thank the Finance Bill Sub-Committee of the Economic Affairs Committee of this House. The sub-committee scrutinised the draft Finance Bill that the Government published in December, and its findings have been very helpful in a number of areas. I turn to some of the specific issues that the report raised. Noble Lords on the sub-committee may well wish to discuss these or others further, and I may return to some of these points at the end of the debate.
First, the report noted some concern over the consistency of the consultation processes. It is entirely appropriate and right that we are held to account for how the Government develop tax policy, but I note that the Government’s overall record here is actually quite positive. In 2010, we introduced the new tax policy-making process, which includes a cycle of consultation following Budget announcements and the publication of a draft Finance Bill following the Autumn Statement, before final legislation is brought forward. This has very much become the norm for most measures. It will never cover all measures—for example, when action against evasion necessitates announcements with immediate effect, or when government is responding rapidly to the fiscal and
economic situation. None the less, I reassure the House that we share a belief in the benefits both to government and to practitioners in enabling better tax law.
The sub-committee also put forward the case for a road map for personal and savings tax. Officials noted in their evidence the constraints on this specific proposal. However, I hope that the business tax road map published at the last Budget, the approach taken to communications for the Making Tax Digital programme and the commitments on the headline rates of taxation all demonstrate the Government’s desire to provide clarity where feasible.
Finally, I note the sub-committee’s support for the Office of Tax Simplification and interest in its resourcing and arrangements. Since its introduction, there have been further discussions on these issues, and the Financial Secretary noted in the other place that agreement had been reached with the Treasury Select Committee on new arrangements for appointing future chairs. Therefore, I hope noble Lords will be reassured that we consider very seriously the points that were highlighted through their scrutiny.
Turning to the issue of personal tax, the Finance Bill takes another major step to reduce tax burdens on those in employment by raising the personal allowance to £11,500 in 2017-18. As a result, 1.3 million individuals will have been taken out of income tax altogether since 2015-16. The Finance Bill goes further by increasing the higher-rate threshold by £2,000 to £45,000 in 2017-18. By that date, a typical higher-rate taxpayer will pay over £1,000 less tax than they did in 2010-11.
Alongside supporting workers through lower taxes, the Government also want to reward savers. In the 2016 Budget, we announced a new lifetime ISA to give savers the flexibility to save towards a first home and retirement at the same time. This Finance Bill introduces a new personal savings allowance from April 2016 so that a basic-rate taxpayer will pay no tax on their savings income of up to £1,000 and higher-rate payers on up to £500. As a result, 95% of taxpayers will pay no income tax on savings. To ensure that support for savers remains well targeted, the Finance Bill reduces the lifetime allowance for the wealthiest pension savers to £1 million from April 2016. Taken together with the changes to the annual allowance and lifetime allowance over the last two Parliaments, the Government will save over £6 billion a year, while delivering a fair and sustainable system.
As part of the Government’s commitment to supporting home ownership and first-time buyers, higher rates of stamp duty land tax will be introduced on purchases of additional residential properties and £60 million of additional receipts will be provided to enable community-led housing developments where the impact of second homes is particularly acute.
Let us also look at how the Bill will support our businesses. It now well known that improving the UK’s productivity is a long-standing interest of mine, and one I am in a position to pursue in government as Commercial Secretary. Of course, a range of measures are needed to support productivity. A tax system that encourages business investment and growth is one, and the Finance Bill takes a number of important steps to secure this. Between 2010 and 2015, the
Government cut the main rate of corporation tax from 28% to 20%. The Bill goes even further by cutting corporation tax to 17% in 2020, giving the UK the lowest rate of corporation tax in the G20. A decreasing corporation tax rate means that the Government must address the growing incentive for some people to set themselves up as a company to lower their tax bill. The Government are therefore modernising and simplifying the tax system by abolishing the dividend tax credit and replacing it with a new £5,000 tax-free dividend allowance. They will set the dividend tax rates at 7.5% for basic-rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers. These changes will reform an outdated and complex system, while ensuring that 95% of all taxpayers will either gain from, or be unaffected by, the changes.
Supporting business also means encouraging investment into companies to help them access the capital they need to grow and create jobs. That is why the Bill cuts the higher rate of capital gains tax from 28% to 20% and the basic rate from 18% to 10%. It also extends entrepreneurs’ relief to longer-term external investors in unlisted companies.
An apprenticeship system which equips people with the quality of training that they and business need can make an important contribution to improving productivity, and addresses an area where the UK has historically underperformed, perhaps significantly. The Bill introduces an apprenticeship levy of 0.5% of an employer’s pay bill, where it exceeds £3 million from April 2017, to deliver 3 million apprenticeship starts by 2020. Employers will receive a 10% top-up to their monthly levy contributions in England for them to spend on apprenticeship training. In England, funding will be ring-fenced and put in the hands of employers to ensure that it delivers the training they need.
The Finance Bill delivers a radical package of reforms to provide £1 billion of support to the oil and gas industry. This sector supports around 375,000 jobs and has paid over £330 billion in production taxes to date. To ensure that the UK has one of the most competitive global oil and gas tax regimes, and to safeguard jobs and investment, the Finance Bill zero-rates petroleum revenue tax, halves the supplementary charge, and extends the investment and cluster area allowances.
Lastly, I will comment on the number of measures the Finance Bill contains to tackle tax evasion and avoidance—a priority for this Government that is rightly shared by many noble Lords, as well as the general public as a whole. First, the Government are stopping multinationals avoiding paying their fair share of UK tax. This Bill will introduce new rules to address hybrid mismatch arrangements whereby cross-border business structures are used to avoid tax or gain multiple tax deductions for the same expense. It will also tackle contrived arrangements relating to payments of royalties from the UK to countries with no tax treaties.
Secondly, the Finance Bill targets key areas of rapidly growing online VAT evasion by overseas sellers, online marketplaces and UK warehouses, which, alongside other measures in this area, will raise £875 million in tax over the next five years.
Thirdly, the Bill legislates to ensure that profits from the development of UK property are always subject to UK tax. This ensures that UK and overseas developers are on the same footing, and will raise £2.2 billion over the next five years.
Finally, the Bill introduces a new, tougher anti-offshore tax evasion regime. This includes a new criminal offence for tax evasion, new civil penalties for offshore tax evaders and new civil penalties for those who enable offshore tax evasion.
In conclusion, the Finance Bill before us will help more people to save, support businesses and take action against those who avoid or evade taxes. I beg to move.
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