Click here to go to the Parliamentary TV website and see Bim speaking in the house in regards the Finance Bill and taxes.
Bim Afolami: What is my hon. Friend’s view of the fact that many economists, notably the American economist Tyler Cowen, have recently discussed how innovation has been slowing down not just in Britain but in America and across the developed world? Not disregarding his point about taxation, I think that points to something more fundamental about western economies and how the economic system is working.
Kit Malthouse: That is a very good and broad point, and I could talk for a long time about it—[Hon. Members: “Go on.”] I wish. It is definitely my perception, and the evidence certainly shows, however, that the operation of capital is becoming more and more sluggish across the western world.
As I said earlier when I mentioned those top 500 companies, capital is incredibly sluggish, particularly in the EU. In this country it has long been said that that is partly the fault of the housing market, in which so much private capital is tied up because we like to own our homes. In other countries, such as Germany, where that is not the case, capital may be more dynamic, and there may be more capital for investment. Whatever the problem—and we think there is a problem—Governments have a role in unlocking and lubricating the capital that is out there.
I think that both the enterprise investment scheme and the small enterprise investment scheme are good and worthy. Over the last couple of years, however, I have been pressing for them to be deregulated so that it becomes easier for people to invest, and they will not need an accountant, a lawyer and pre-approval from the Revenue to achieve—in the case of the EIS—modest tax reliefs and benefits in the future. We need a scheme that recognises the quasi-charitable nature of giving. I would like to see a system in which people who invested in a business would receive 100% tax relief up front, and then, if they ended up owing capital gains tax, would pay the tax. That would be a nice problem to have. When I have started my businesses, the last thing on my mind has been whether there is any capital gains tax to pay. What has been mostly on my mind has been raising the money, getting going, paying the staff, finding an office, and all the rest of it. I think that such a system would be simple, easy and understandable, and would encourage a great deal more investment in the drugs, therapies and technologies that we need for the future.
The Government have a patient capital review on the cards. It kicked off about a year ago under the chairmanship of Damon Buffini, who, as Members will know, is one of those much benighted private equity guys, and I shall be pressing the Government, hopefully, for its conclusion quite soon.
The second thing that we must bear in mind about the signal that we send with the change in dividend taxation concerns young people. We have talked a good deal about home ownership for young people, but their ability to access assets in general is something that should trouble us all. Those assets include shares. It might be a good idea to give young people an incentive by suggesting that it would be beneficial for them to build up small share portfolios. The Government will say, quite rightly, that they can start individual savings accounts, and of course they can. Dividends are tax-free in an ISA, and given that the ISA allowance rose to £20,000 a year in April, it is possible to accumulate huge amounts of money. The problem with ISAs, however, is that most people hold significant amounts of cash in them. There is no limit to what can be held in a cash ISA, and far too much money in ISAs is held in cash rather than being invested in the productive economy. People should be sent signals that they should be investing in companies.
Bim Afolami: It is a pleasure to follow so many important, thoughtful and eloquent speeches from both sides of the House. I will refer to some of them, but start by considering where the British economy is today and by recognising, as my hon. Friend Alex Burghart has just made clear, that a lot of our discussions in this debate on productivity, on trying to increase median earnings, on trying to raise wages and on getting more money into people’s pockets are predicated on the lowest unemployment rate since 1975. They are predicated on the Conservative Government since 2010 finally taking action to address the deficit and the debt. We should not forget that fact, and we should realise that we stand on the shoulders of successful Conservative economic policy as we enter this debate.
This Finance Bill, as many of my hon. Friends and other hon. Members have already made clear, addresses many important issues and should be welcomed on both sides of the House. In particular, it addresses fairness. In what ways does it address fairness? It clamps down on aggressive tax avoidance and tax evasion. In particular, it makes sure that large multinationals pay their fair share of tax, which enables us to keep taxes on SMEs and ordinary individuals lower.
What is the Conservative Government’s record in this area? The tax gap is now only about 6.5%. For those Members who are unaware, the tax gap, to which many Conservative Members have already referred, contrasts the amount that a fiscal measure should yield to the Exchequer with what it actually yields. Our tax gap is one of the lowest in the OECD and is this country’s lowest for many, many years.
This Finance Bill ends permanent non-dom status for the first time—that definitely never happened under a Labour Government. There are a couple of other more technical measures on interest deductibility for certain companies and on offsetting losses for large multinationals. The Bill makes it harder for certain large businesses—by all means, not all—not to pay their fair share.
It is important that we consider what the Conservative approach to the economy has been. My right hon. Friend John Redwood made a powerful speech at the beginning of the debate in which he eloquently set out how, as Conservatives, we believe in a higher tax take, not higher tax rates for individuals. The higher tax take is what is significant. Following up on what my hon. Friend Kit Malthouse said, high tax rates on certain people or companies just to make ourselves feel better can often yield lower tax revenues for the Exchequer, which presumably is not a wise economic policy, although it seems to be the one pursued by Labour.
As we have heard many times, including just now from my hon. Friend Rachel Maclean, the top 1% pay between 27% and 28% of all income tax, which is one of the highest levels this country has ever seen. The corporation tax rate has been reduced significantly since the Conservatives came into government in 2010. In the financial year 2009-10, this tax yielded £37 billion, whereas in the financial year 2016-17, it raised £50 billion. That is the impact of Conservative economic policy, and we should not forget that our approach is about raising the tax take, rather than raising tax rates.
We should also consider where fiscal policy is now and how we should think about it in the future. It is important that the Government seek to be a little more flexible in some of their actions on fiscal policy. It is important for business confidence that they present the positive, forward-thinking growth agenda for the 21st century that we all want to see. We need to expand opportunities and incentives for people to invest in this country and for people who run businesses, or who want to set them up in Britain, to expand them and grow. My hon. Friend the Member for North West Hampshire spoke eloquently and at length about the importance of this country’s difficulty in growing medium-sized companies into large ones. Let us be more ambitious in fiscal policy so that we can encourage more of that activity.
We all want to see Britain lead the world in every sector, be it tech, manufacturing or finance. I welcome the announcement at the March Budget about the Treasury looking at how to tax tech multinationals, which are currently not taxed as much as they might be, and working internationally to do so. By doing that, we can reduce some of the taxes that hurt SMEs, such as business rates and comparatively high payroll taxes. If we can think and work internationally with our global partners on how we tax big multinational internet businesses, we might be able to bring down the level of tax for individuals and SMEs in this country.
Conservative Members have made it clear that we want to make Britain an even more exciting, attractive place in which to invest, and my hon. Friend Robert Jenrick made an incredibly powerful speech about the importance of simplifying the tax code. I urge the Minister and the Government to look again and more seriously at that. Many Members have referred to the fact that the Finance Bill is heavy and thick. I am sure the Minister has drafted it with absolute care and dedication, but is it not a shame that it is so thick and that we cannot have a simpler tax code? I urge the Government to look again at more proactive ways in which we can simplify our tax system to make it easier for everybody, both individuals and businesses, from across the world and within this country.
Let me finish by making a few remarks on a subject that has been raised many times in this debate, productivity, which is the missing piece in our economic miracle over the past few years in this country. So many incredibly intelligent people, economists from across the country and across government, have examined the issue, yet our productivity has stubbornly been stuck below that of some of our leading European partners. We all know some of the ingredients—they include skills, infrastructure and, in certain respects, the tax system—but one thing that is not considered enough is business confidence in our fiscal policy and economic future. I urge the Government to present a more positive vision: show us how we are going to become a 21st-century economy in a more productive way. Let us show the world that we are the place to be for leaders in tech, finance, manufacturing and all the other areas of our economy. If we can do that more effectively, we will improve the capital investment from all over the world that inevitably aids productivity.
I fear that I may be wearing away Members’ patience, so I shall finish. The Government have made significant strides in sorting out the country’s economy; the Finance Bill builds on that work, I am proud to support it, and I commend it to the House.