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Finance Bill

In a rather nice yellow envelope, as I recall, for the birthday card. My godson wrote to me saying "Thank you so much. I am saving up for an iPod." I thought "What a strange phrase." I realised that I had not heard the phrase "saving up" for an extremely long time—certainly from the lips of the current Government. But it is a phrase that we should use rather more as a nation. I commend my godson's wisdom in saving up. I must give him more money to save up for future Christmases and birthdays. I do not believe that this Finance Bill encourages saving up. That is one of the many things that are wrong with it. Hints were dropped that it might provide such encouragement, but that has not happened. Nevertheless, there are good things in the Bill. I do not want to damn the whole Bill; that would be quite wrong of me. There are clearly good things in the Budget as well. It is a curate's egg with more bad bits than good bits, but there are good bits. For example, I am delighted that, after much agonising, the trade credit insurance scheme is up and running. It is one of the characteristics of the Government's support both in Finance Bills and in the measures announced in Budgets that they produce a great fanfare at an early stage and then take a very long time to introduce their measures, which subsequently help many fewer people than were expected to benefit. The trade credit insurance scheme should have been introduced earlier, but it is there now, and I will not look a gift horse in the mouth—although we are yet to see how effective it proves to be. One of the very good things in the Budget is the capital allowances arrangement. I know that the small business community is very pleased that capital allowances for firms that invest more than £50,000 will double to 40 per cent. That is quite an expensive measure—I believe that it is worth £1.64 billion this year—so well done: that is a good thing in the Budget. The Federation of Small Businesses is particularly grateful for the opportunity to defer tax bills, with loss-making companies able to reclaim tax on profits made in the last three years. There are good measures in the Bill, therefore, but some measures that I hoped would be included are missing. National non-domestic rates—business rates, as they are colloquially called—are a crucial issue. The Chancellor made a big concession before the Budget in terms of the increase due next year; it is to be phased in, which is very welcome. I hoped that the Budget would address the void rates issue, but it does not do so. I know of people in my constituency who put together a small property portfolio as a pension scheme for their old age. One of them has had to go bankrupt because every property in his portfolio is now empty. The portfolio was supposed to bring in a revenue stream in his old age; instead, it has just brought in void rates bills. Money was supposed to be coming in, but the properties ended up costing him money. As a result, he has gone into personal bankruptcy. The Government should also be taking a much more careful look at the implications of void rates, particularly for retail businesses, but also for manufacturing businesses. There is one measure that I particularly hoped would be in the Bill. It is only a small measure, but I attach some importance to it as I introduced a private Member's Bill on the subject: automatic rate relief for small businesses. A few years ago, the Government wisely introduced a small business scheme; it is fairly complicated, but the essence is that small businesses put in an application and then get back half their rates. About a month ago, I was persuaded by a very persuasive Minister to withdraw my Bill because it was very likely that the Budget would contain a similar measure. I was building up to making an attack on the Government—perhaps a rather disconsolate and aggressive one—about their failure to keep their promises, but in fact it is not entirely clear to me that they have finally decided not to keep their promise to me; we still have some measure of hope. Let me explain why I am so sad that this measure is not in the Finance Bill. For small businesses in particular, the odd £100, £500 or £1,000 can make a huge difference to the prospects for survival. We sometimes forget that. For micro-businesses, which I hope will be the macro-businesses of the future, small sums matter. I have received a number of words of encouragement from the Government in recent days. Although this measure is not in the Bill, as I hoped it would be, the Chancellor has kindly written to me. The letter is dated 27 April, and it says:""I can confirm that the Government is keen to continue to improve the administration of small business rates relief to make it easy to claim and increase its take up. I have therefore asked my officials to work with CLG officials to see what can be done to improve the take up of the scheme and to report back to me."" What the Chancellor does not say in that letter, but which I happen to know is the case, is that the Department for Business, Enterprise and Regulatory Reform is also closely involved, in the noble and impressive persona of Baroness Vadera. When she gets her teeth into a matter, she tends to make sure that things get done, so I am optimistic. I am not suggesting that the two very able and charming Ministers sitting on the Government Front Bench at present do not get things done, of course, but the baroness has a certain reputation in Government for outcomes. I was therefore particularly encouraged by a parliamentary answer I received very recently from the Minister for Local Government, who said:""The Department for Communities and Local Government has had a number of discussions with the Department for Business ""Enterprise and Regulatory Reform and Treasury on making small business rate relief automatic.""The Government are keen to explore ways in which we can promote, and improve the administration of, the existing small business rate relief scheme and increase its take up, including through automatic options. CLG officials will work with Treasury officials to see how the take up of the scheme can be improved."—[Official Report, 5 May 2009; Vol. 492, c. 140W.]" That goes a little further than the Chancellor's letter, and I am extremely encouraged by that. I understand some of the Treasury's objections, but I believe that I have answers to all them, and I also believe that automaticity, to use a rather ugly word, would be welcome throughout the small business community and the local government world, and would have nothing but positive consequences for this Government and the economic activity of the UK. I therefore hope that, although this measure is not in the Bill as I had hoped, we might hear more about it later. I have talked sufficiently about the problems of debt and delay in the Budget, but may I emphasise one point? The Government say they are taxing the rich and that that is only fair. Well, we can discuss what rate of taxation on the rich is fair, but it is very important to remember that, on the Government's own figures, less than half of the £5 billion tax rises announced in the Budget are actually taxes on the rich; the majority of them are on the rest of us. Most of the tax rises that the Government are planning are on average earners; they include tax rises such as those on fuel and alcohol and, crucially, the increase in national insurance contributions announced in the pre-Budget report. The sad thing about the PBR is that the Government have got out of the habit of having debates on it. The PBR has become a surrogate Budget and contains Finance Bill-type measures. We had no debate on the increase in national insurance contributions announced in the PBR last year. There was a statement and Members could make one quick comment afterwards, but there was no debate, I believe for the second or third year running. I say to Ministers that if there is to be at least one more PBR before the election, I hope that this time we will have a debate on it, because the PBR contains important measures that should and could be scrutinised at the time. We also know that this Budget and Finance Bill enables reductions in capital spending—again, they will take place after the election—including a very large reduction in the capital budget of the health service. I find that interesting coming from a Government who have criticised the Conservatives for wishing to cut expenditure on sensitive areas of public services. I am particularly disappointed by the Bill's complete lack of activity on savings policy. It contains a rather complicated provision on individual savings accounts and something that I benefit from as someone who is now over 50, but it really is miniscule, footling stuff. Savers have been hit very hard by the consequences of the events of the past year or so; there have been very low interest rates and very low dividends. Of course, many savers are pensioners, who do not want to have to rely on pension credit for their welfare, well-being and survival; they want to have the dignity of relying on their own incomes. Thus, it would have been good to see the Government doing more, as they suggested they would, to help savers in this Budget. I wish to discuss the VAT scheme in a moment, but I should say that helping savers is one very good example of a way in which that £12.5 billion could have been better spent. We can discuss whether it was right to have a fiscal stimulus, but that was the wrong fiscal stimulus, and the money would have been better spent helping pensioners and savers. I do not think that, technically, the enterprise finance guarantee scheme is covered by the Finance Bill, so I shall simply say that I am looking forward to my Committee's study of the scheme—I believe that we are taking evidence from the banks on 2 June—and gently remind the Financial Secretary that I am waiting for an answer to a question that I asked in February. I have just tabled a reminder parliamentary question today, although I am sure that the lack of a reply was an oversight and was not deliberate, and I look forward to getting an answer about the take-up of the scheme. There are still issues relating to credit in the overall economy that this Bill could have perhaps done more to address. Let us briefly consider the VAT reduction. I am clear about the fact that I would not have done it. Leaving to one side the argument about whether to have the fiscal stimulus, this was a bad way to spend £12.5 billion. There are big questions about the timing of the ending of the VAT reduction—in the middle of the week during the sales period just after Christmas is a ridiculous time to end it. I pressed the Chief Secretary on this point at the beginning of the debate, but I regret to say that she was not flexible. I was chastised by the hon. Member for Edmonton (Mr. Love) for being hypocritical in some way—I am sure that he did not use that word, because it would be unparliamentary for him to do so, but he said something of that kind. What I am saying is that it would have been much better if the VAT reduction money had been spent in other ways and that I would end the reduction much sooner and use the money saved in other ways. Realistically, the Government are not going to do that, for reasons of realpolitik, so I point out that if they were to give the reduction another three or four weeks—the other alternative—that would help the retail industry considerably. As I say, I would end the reduction now and spend the money differently. My Committee heard evidence from the small business community about the great cost that the VAT reduction has imposed on it. The reduction has been a problem for small businesses, which have had to invest in new software packages and will have to do so again at the end of the year, when the rate goes back up again. The reduction has not benefited small businesses—quite the opposite; it has been a problem. Many big retailers have also encountered problems with it. I am not talking about the Tescos of this world, which have computerised systems and can adapt easily. Such businesses are not the kind of businesses that need help from a VAT reduction; although such businesses are expanding rapidly into other markets, a large proportion of their products are still VAT exempt. It is not the Tescos of this world that we need to help, but the smaller businesses, and they have not been helped by the VAT reduction. I would have spent the money on helping savers; on cutting corporate tax for small businesses, as my party suggests; on cutting payroll taxes for small companies—of course, this Government are planning to increase those taxes—on deferring small business VAT bills in a more comprehensive way than the Government have suggested; or on funding prompt payment by local authorities. The Government have a 10-day target on that, and I believe that my local authorities are meeting it. I am pleased about that, and I congratulate Worcestershire county council and Wychavon district council on what they are doing. I do not know what assessment the Government have made of the effectiveness of the target, but it is an expensive thing. I would also have spent the money to pay for the relaxation of void business rates, which should have been included in this Bill. I also might have used it to provide some sort of employment subsidy. I was very struck by the argument by a former Minister, Lord Digby Jones, that we should help when businesses, especially those with highly skilled workers, face a short-term drop in demand—such as in manufacturing businesses in the west midlands in the automotive sector—so that those workers are not lost to other less skilled jobs. With an employment subsidy, those businesses could keep the staff on. Baroness Thatcher's Government did that, so I would have thought that this Government could do so. I mentioned the 50 per cent. tax increase. It is a political device, used as a political dividing line by the Prime Minister and Chancellor. We are rightly not committing to repealing it as an early priority, because our first priority must be the taxes on everyone—the ordinary, hard-working families—such as the national insurance contribution tax hike that is coming in 2011. That is the right policy. We have said that the 50 per cent. tax must take its place in the queue of tax reductions that we would like to make as a future Conservative Government, but that does not mean that we cannot damn that tax increase for the extraordinary damage that it is doing. The Government just do not understand the impact that it will have on the international community and mobile entrepreneurs. A fascinating article, "Wringing the Rich", in The Sunday Times this week described that damage clearly. It said:""The worry is not so much the impact of the tax itself, but the signal it sends out. Entrepreneurs are not welcome anymore"." Whether the Government like it or not, that is how it sounds to business. The Government may not even have meant that—in fact, they meant it as a political device in UK politics—but that is its impact. Miles Templeman of the Institute of Directors has said:""The increase will have a damaging impact on the wider economy and undermine the UK's attractiveness as a place to invest."" Chris Sanger, UK head of tax policy at Ernst & Young, has said:""The key risk here is that such extreme rates will deter entrepreneurs and the most successful wealth creators from coming to the UK and encourage those here to leave."" Those are people we cannot afford to lose. If there is one provision in this Bill that is offensive, wrong-headed and ill-judged it is the package of the 50 per cent. tax rate and the changes to pension contributions and thresholds. It will create a bizarre range of marginal rates on higher rate taxpayers that could and should have been avoided—and it will probably not even raise any money. This was an entirely foreseeable recession. Only the scale might perhaps have surprised us. This Bill does many of the wrong things to address the problems that the recession has created, and does not do many of the right things that it could and should have done. My right hon. Friend the Leader of the Opposition has referred to the new age of austerity. We will hear a lot more of that in the next year or so, because it is what we now face as a result of the mistakes by this Government—not the problems created by the US sub-prime markets. The Government are not being straight with voters about how they will sort out the problem, but the voters have seen through that. The voters have worked out that if they do not have to pay for it until 2011, there is probably a catch. They are not to be taken for fools. I said that the Bill was characterised by four Ds—distraction, by using the rich as an alternative target; deceit, by pretending that ordinary people will not have to pay the tax bill for this Government's failures; delay, by putting hard choices off until after the election; and a deficit that is out of control. I shall conclude with three further Ds—this is a dishonest Budget from a discredited Government facing defeat, to which the Budget and this Bill will contribute mightily.