Author: johnredwood

Sir John Redwood (Wokingham) (Con):

It is difficult to come up with a good system that has the right balance, because the taxpayer’s interest is very much in favour of economies of scale and availability, while the small business struggles to meet the possible volumes of a successful bid for a contract and to satisfy all the criteria that the large company finds easy to manage. I am grateful for the fact that the Minister and the Government generally have been thinking rather more about how small business and the self-employed can make a bigger contribution and how contracts can be broken down into more manageable sizes, both in primary legislation and now in the detail.

John Spellar:

The right hon. Gentleman is absolutely right on that, but very often the primes get the contract and subcontract to the SMEs and put on a huge on-cost and profit margin. Those SMEs are therefore never able to grow properly, and they are stifled, because Whitehall prefers to deal with very large conglomerates.

Sir John Redwood:

There will be that bias. Sometimes it is right, and it is always understandable, but Ministers and, above all, the senior officials implementing this new policy will have to bear that in mind. They will have to try to correct for the ease of going for a large company solution, where all the boxes will be filled impeccably and all the right things will be ticked, although that can lead to a contract disaster, because getting the electronic responses right is not the same as delivering the right good at the right price in all the right ways.

I have another worry. We are in an era of exciting and rapid change. Technology is changing even more quickly than over much of our lifetimes so far, as the Prime Minister was mentioning in his remarks this morning. None of us can be sure what opportunities artificial intelligence will produce in wider digitalisation, but we know that digitalisation will make an increasing contribution to, and have an impact on, service provision. So much of government is about the provision of personal services and administrative services, and so much of that can benefit from the intelligent application of these exciting new technologies, but they need careful handling.

The big problem in public procurement is when the innovators are moving so quickly that the invitation to bid is about things that are out of date; they are what the system has been used to handling and the state feels comfortable with. The state can define the old products and old services perfectly well, because it has experience of them, whereas maybe what is needed in certain cases is the innovative product or service. I remember innovating in industry in the past. Often, we had to be willing to license a competitor of our own breakthrough, to give people comfort that there would be some competitive check on costs and availability. Such things are complicated to model and to build in to big procurement systems, such as the state. It means that the state tends to lag and the private sector makes much more rapid advances, because people take more risk and are prepared to change what they wish to procure when they see something better. In the case of the state things have to go through many committees and many memos, and it is probably easier not to bother or to wait a few years until something has happened.

I do not have any easy answers. I understand that the Government and the Minister have the best of intentions, and they have come up with rules that they think are more flexible, but the proof of this pudding will be in the eating. I just emphasise that we need a system that is flexible enough to understand that sometimes it does not know what it wants, or does not know what is available, or that something that is available might be better than the thing people thought they wanted.

My final observation is that we have lost a lot of the self-employed in recent years for one reason or another, but the issues over tax status are part of the problem, with the toughening of the rules over IR35. I worry that a lot of self-employed people will struggle to get any work from the Government, because it is much easier for those procuring just to say, “It’s too much hassle; we would be to blame if this person were taking liberties with the tax system, and although they say they are compliant and self-employed, we aren’t so sure.” Of course, someone can become genuinely self-employed only if they win enough independent contracts. If a big part of procurement is not allowing them to win state contracts, it is much more difficult for them to become genuinely self-employed.

Sarah Champion:

The right hon. Member makes a very good point. The self-employed have been telling me about the amount of administration they have to do even to be in the running. Also, they do not tend to find out about contracts. I hope that the regulations will extend their promotion and the length of time, and that the Government try to break down those contracts into smaller chunks, so that small British businesses can genuinely be in with a chance.

Sir John Redwood:

I entirely agree. That is where the more transparent and simpler system will be very good, and we should give that a good trial. I am concerned about someone who is genuinely self-employed struggling to prove that they are sufficiently self-employed, and whether the state would want to take less risk on that. Again, I would like the Minister to put a stronger case to the Treasury that, perhaps, to have more successful self-employed people working for the state under contract, we need to review how we enforce and police their tax status.

The second of my devolution questions trying to tease out why Wales and Scotland think imposing extra  taxes is good for the economy . The answer of course ducks the question. Wales gets more spending/grant per  head than England and the HS 2 supply contracts were open to the whole UK. Welsh school standards and NHS waiting  lists are worse than England despite the extra  spending.

Sir John Redwood:

Were a future Parliament to grant these tax powers to Wales, would the hon. Gentleman think that in order to promote faster growth in Wales he should cut taxes below English rates, or would he put them higher than English rates?

Ben Lake:

I am not one to make up policy on the hoof, but the review could look at that, and if the evidence shows that tax decisions could be made to promote growth and to level up, which I think the right hon. Gentleman is in favour of, we should follow that evidence and do so.

Our continued reliance on the Barnett formula to allocate funds between the UK’s nations is problematic not only due to its flaws, but because of its inconsistent application in recent years, which has meant that Wales has lost out on billions of pounds of much-needed public investment. Members will be familiar with the concerns raised by communities across Wales regarding the way in which HS2 spending has been classified. Although not a single inch of track or rail was to be laid in Wales itself, it was categorised as an England and Wales project under the statement of funding policy, thus depriving Wales of significant consequential funding that the Barnett formula would otherwise have provided. The latest estimates suggest that Wales has lost £4 billion in consequential funding—money that could have transformed the country’s public transport infrastructure.

I understand that there will be reluctance within Government to move away from the Barnett formula, not least because devising a needs-based formula is far from simple. However, if we are to retain the Barnett formula, the funding floor should at the very least be updated to use census data from 2021 rather than the 2001 data it currently uses. I am sure the Minister will agree that much has changed since 2001—when I was actually still in primary school. The needs and population of Wales have changed considerably, so it is only reasonable that the funding floor element of the Barnett formula is at least brought up to date.

Such a consideration could be included in the review that I propose, as well as a review of the implications of UK tax policy in Wales. Again, all of this analysis and information could help inform debate for future tax policy decisions and ultimately ensure that we have a tax system that is fit for purpose and meets the needs of people in Wales.

Sir John Redwood (Wokingham) (Con):

I rise to speak in support of tax-cutting proposals. We are not discussing the national insurance reductions in this group of clauses, but both previous speakers have spent some of their time discussing them because they are relevant. They are the other side of the issues related to the correct levels and thresholds for income tax, which are the proper matter of our current debate. I wanted any kind of tax cut in the Budget, because we are over-taxed. I want the right kinds of tax cuts that can speed up growth, which all the major parties in this House want, although there are some disagreements about the exact mix of policies that might create it.

The first thing we need from the Treasury is for its official forecasts and those of the OBR to have greater belief in the fact that if we promote more growth by cutting some tax rates, we may end up with more tax revenue. The best generator of more revenue to pay for our public services is a growing economy. The best generator of more growth is productivity improvements, and there is particular scope for such improvements in the public sector. The public sector was badly damaged by the covid experience. We lost a lot of productivity through the hasty and unnecessary reorganisation of public services during the pandemic, but we are finding it hard work and slow going to get the lost productivity back.

I welcome the fact that, in the latest set of Budget numbers, the Government have put in future productivity recoveries over the next few years, but it is slow progress, even to get back to the levels of productivity in 2019. I put it to the Government that they do not need to spend extra money on new technology, such as artificial intelligence, to get back to the levels of 2019. They may wish to recommend schemes for AI investment to get above 2019 levels but, by definition, we were able to get to 2019 levels of productivity without AI, because it had not been invented at that stage.

There should be more common agreement about the urgency of productivity recovery in public services. We are missing out on at least £20 billion due to the productivity problems that have developed since 2020 and the lockdown experience. However, there is also a source of extra revenue from lower taxes, because if we cut tax rates in the right way, we will generate more cash, rather than less. I think everybody now agrees that cutting certain taxes has that effect, because it is quite obvious that if we impose certain kinds of turnover or activity taxes, they will lower turnover and activity. Indeed, many taxes are imposed with a moral wish to lower activity or usage rates. For example, alcohol and tobacco attract higher taxes because the wish is that people buy them less or, in the case of tobacco, do not buy them at all. We get the same effect with things that we should be promoting.

One of my proposals to the Government is that they should be extremely worried about the large decline in the number of self-employed people since 2019. Some of that is the inevitable consequence of lockdown, which led to older people who were working for themselves being unable to work and deciding to retire a bit earlier, but quite a lot of it is not. Some of it is due to people of younger ages being deterred by their experiences, and some of it is because young people are not coming forward to replace those who were self-employed. It was not just lockdown or the disruptions around that time that caused this problem; it was also the IR35 tax changes, which went through in two tranches, culminating at about the time we experienced the problems of lockdown.

We have lost more than 800,000 self-employed people, partly through a self-inflicted tax wound. The decision was taken in two stages to introduce the idea that a person acting as the customer of a self-employed contractor has a duty to satisfy themselves about their tax status, and can be liable if they have made a mistake in their tax status. That meant it became extremely difficult for quite a lot of self-employed people to get contracts from both smaller and bigger businesses, because why would the executive take the risk that they could, in the end, be tied up in a dispute with His Majesty’s Revenue and Customs that they did not want? It was simpler not to allow a self-employed person to win a contract, because there was tax bureaucracy and an investigation that could put them both on the wrong end of a tax bill and on the wrong end of a moral issue where it looked as if they were helping someone to fiddle their taxes.

HMRC has always had issues with how to define someone as a genuinely self-employed person. There are lots of obvious requirements, because none of us wants to see people who are effectively employed by a single employer taking advantage of tax breaks that were designed to deal with the extra risk of being self-employed, including the lack of benefits that someone gets if they are genuinely self-employed. If they are not getting sick pay and paid holiday, they are in a rather different category from those of us who are employed, who get such benefits from our employer built into the overall package.

The normal sorts of tests include whether someone is working for more than one employer. Do they have a contract for services or an employment contract? Do they have sick pay? Do they have holiday entitlement? Do they have other benefits? These are the tests that we would normally apply to decide whether someone is genuinely self-employed. We have got too tough from the revenue side, and we have lost a lot of self-employed people. We are not recruiting the extra self-employed people we want, who are vital to the growth and vitality of an economy. If we had a few hundred thousand more self-employed people, they would be the innovators, the price cutters and the people who go the extra distance to provide an additional service. They would find customers and be useful challengers to the big businesses. They would not destroy the big businesses but would keep them on their mettle and make them understand that they, too, have to listen more to what customers want, because customer service improvement is often generated first by the self-employed or a small business.

I turn now to small businesses themselves. If a self-employed person takes the giant bureaucratic step of taking on an employee or two, they will have all the bureaucracy and the extra tax that goes with that. We need to make it as easy as possible for them to grow their small business, and I am very pleased that the Government have now said that they can raise the VAT threshold, because registering for VAT is a colossal additional commitment that a small business has to make. It means diverting a lot of energy into tax compliance, rather than finding more customers and serving them better, so we should seek to delay that until the business is rather bigger than the level that is currently recommended. I urge the Government, who I know are interested in a growth strategy, to allow people to put off the day when they have to register for VAT, so that they can concentrate rather more on that period of growth.

Turning to the issue of national insurance versus income tax, which we are about to vote on, I began my remarks by saying that I was happy to support the national insurance reduction. It will help those in employment and promote higher real incomes and more spending, which is what we need for a growth strategy and to cheer the country up a bit. However, we need to hear a bit more of the Government’s thinking before we turn the wider proposal—it is not yet proper policy, because it has not been given a budget or a timetable—into a firm manifesto pledge on our main priority for future tax changes. For example, we need a statement from the Government on how people will earn their entitlement to the state retirement pension if there are no longer any employee contributions, because our current entitlement to the state retirement pension is based on the number of years of contributions we have made through NI. We can change that; this Parliament can do anything it likes on those sorts of issues, but it has not changed it yet.

I think this needs some kind of Green Paper or White Paper—some kind of thought-through model of what the state retirement pension scheme will look like if we want to end up with no employee national insurance contributions at all. It might require the abolition of the national insurance fund and having just a payroll tax on employers in the future, because the fund would not look quite the same without the employee contributions. At the moment, broadly speaking, the fund pays for the state retirement pension, with a little balance on top. Long gone are the days when it paid for the health service and many of the other benefits. If we read the details, we can see that there are just a few rather modest residual contributory benefits left. We need some kind of new presentation or analysis of what might happen to the fund.

It is also important to ensure balance and fairness in the distribution of tax reductions, so I think there have to be some tax reductions for those who have completed their working lives and are no longer in receipt of employment income. It would be wrong for the Conservative party to rule out tax reductions that help those who have retired—those who now have investment income because they saved hard and worked hard during their working lives. There needs to be some balance in how we allocate those reductions.

I would also say to the Government that, as they think forward to their next fiscal event, as I think we now have to call them—an autumn statement, a mini-Budget or whatever the latest terminology is—there is more scope in the numbers to have a better return of money to taxpayers than this quite cautious Budget we are voting on tonight gives us the opportunity to do. I do not think we can afford the incredibly expensive habits of the loss-making Bank of England. I fully understand that the Bank of England is completely independent in setting the base rate, setting out its inflation forecasts and conducting its monetary policy through the Monetary Policy Committee, and nothing I am suggesting would in any way interfere with that.

However, we have a parallel policy, which began under Chancellor Darling and the Labour Government and continued under successive Conservative Chancellors. It was always a joint policy of the Treasury and the Bank to create money to buy bonds and to create a jointly held portfolio. Successive Chancellors of the Exchequer needed not only to give their authority to do that—proving that it was not an independent Bank policy—but to give an indemnity to the Bank against all losses. I say to those on the Treasury Bench that we, as a country, have now paid the Bank of England, I believe, £49 billion for losses over the last year and a half or so, and if we believe the OBR numbers, there are many tens of billions in losses to come over the next five years. Those losses come from three different sources, and some, although not all, are avoidable.

The Treasury and the Bank need to discuss those colossal losses and to understand that the United Kingdom and the Bank of England are now very much out of line with the practice of, say, the European Central Bank, which followed a similar policy of creating money and buying bonds in the bad days, but which is not trying to get rid of them all as quickly as the Bank of England. The ECB is not selling them in the market at colossal losses, particularly the long bonds that are sitting on very large losses, because there is no need to sell them. Also, the ECB is not paying its full overnight rate on bank reserves, which would create a bigger running loss. The Bank of England never used to pay any money on reserves prior to 2006. The ECB has reinstituted zero interest on minimum reserves and has a lower deposit rate than the base rate. So I think there are things to learn from the European Central Bank so that the Bank of England could come back without such huge losses that substantially distort our fiscal policy.

The principle of independent monetary policy setting the base rate and forecasting inflation is important, but so too was the independence of fiscal policy from Bank and other outside interference. Now, however, the Bank of England is a dominant influence on our fiscal policy because its losses are so enormous, and that obviously affects what is available to spend or to offer by way of tax reductions. I hope that those on the Treasury Bench are in listening mode on these matters, because if sensible changes were agreed, we could look forward to a little bit more tax reduction and flexibility, and maybe a little more spending where we are hurting—on some features of the health service, perhaps—so that we could reinforce our growth policy with appropriate policies that were eminently affordable.

Members of the House who are interested will know that I am critical of the current control mechanism. I do not think it is very good. It would be much better to have something more like the American system, which has both an inflation and a growth control over the economy. I am suspicious of an economy that is effectively guided by a single five-year forecast by the OBR. I do not believe that the OBR or anybody else has much idea of what the budget deficit is going to be in five years’ time, because there are so many different things that can come along to change it. So, far from that being an iron rule, it is an arbitrary rule. Almost the only thing we know about that number is that it is likely to be wrong.

We need rather more concern about how much we are borrowing in-year and in the next year, because those two things are much more forecastable. I am not in favour of any expansion in the amount of borrowing planned for this year or next year. We have quite a lot of debt, which is why I have tried to identify ways in which the budget arithmetic and the fiscal arithmetic could look rather better if we cut the taxes that can generate more revenue and those that have a cost, but balance that with reductions in expenditure. I have looked at two big pots: Bank of England losses and productivity shortfall.

There is a third area to look for savings, which I know the Government are actively pursuing: getting people back into work and helping, supporting and encouraging those who feel that they cannot return to the workforce to be able to do so. I trust that this is generally supported around the Committee. It could enrich those people’s lives and raise their standard of living, but it could also add to our tax revenues and therefore make lower taxes or better public services that much more affordable. My only criticism of the Government’s efforts on this is that I would just like them to speed up. This needs doing more quickly and on a bigger scale.

The ideas that we have heard and the work that has been put in are, on the whole, very sensible, but we need better results, because a large number of people do not feel that they can be part of the workforce at the moment, and I am sure that some of them could be better off if they felt they were getting the right support. Working has to be worth while, and that also requires the policy changes that are now going through to say that we are not always going to invite people in legally from abroad to do low-paid jobs when what we want is better-paid jobs in Britain and more jobs that engage the potential British workforce who are definitely out there.

I do not think we need the two new clauses kindly proposed by Labour, which probably already has quite a lot of the knowledge that the new clauses seek, as the hon. Member for Ealing North (James Murray) implied. If we do not increase the thresholds, of course more people will end up paying tax. I do not want too many more people paying the higher rate of tax, but to get an upward shift in the thresholds in due course, we will need to go over the issues to see where we could free up some cash. The Government should look at the losses, the employment situation and productivity to find their crock of gold, and then we can all be happier.

Sir John Redwood (Wokingham) (Con):

Is there any indication of how the thief wanted to use the data, if they have actually got it? Have all the staff been advised to change accounts, passwords and internet access in every way, so that no further harm can occur?

Grant Shapps (Secretary of State for Defence):

In answer to the first point, no, there is no indication. On the second point, our regular approach—I speak as someone with an MOD account—is that passwords have to be changed regularly in order to continue to use the system, so those security measures are in place. People do not need to change their bank accounts as a result of this incident. Apart from anything else, using someone’s bank details to make a payment somewhere else would be technically difficult, as a new account would need two-factor authentication, so it is not necessary for people to change their accounts. The monitoring service will provide an overlay of additional reassurance to them.

Sir John Redwood (Wokingham) (Con):

The Secretary of State is making a good case. Does he agree that, as this extra money is available, we should ensure that more of it is spent on procuring weapons and military requirements here in the United Kingdom, because we cannot be properly defended unless we can make our own military vehicles, our own steel and our own explosives? We are short of capacity.

Grant Shapps (Secretary of State for Defence):

I absolutely agree with my right hon. Friend. It is incredibly important that we develop—or, rather, further develop—our own domestic defence industrial base. That is one of the reasons why we have spoken about putting that industrial base on a war footing, and it is one of the reasons why—this is not, as has been suggested, some sort of cheap gibe—it is important that the Government, or indeed the Opposition if they want to be the Government, set out the path in order that that investment can take place. That base will not be able to invest unless it knows what is happening on a multi-year basis.

It is most disappointing that the government has not replaced  the EU economic controls with better ones, has not removed or improved much EU law and paid so much to the EU over a long transition. All this has served to hide two large wins that we are now benefitting from.

The main feature of the  EU over the years has been an aggressive law making activity designed to take control of more and more areas of life away from member states into EU hands. To pull off this power transfer in so many areas the EU also often finds new reasons to extend government power over business and people. People find that they have not just experienced a transfer of government power from national government but also an increase in government power. They face ever more laws and regulations in total.

Now we are out this feature stops. We can now control the pace of new laws and subject them to democratic debate  and vote in Parliament. There is more scope to stop a bad or unwanted law in the UK Parliament than one passed by qualified majority pressed through by the Commission in private in the Council.

Since we left we have avoided 71000 new Directives and Regulations  already along with many amendments and decisions that are also binding on members.. That is a big saving in costs and some protection of our freedoms.

We are also now enjoying most of the savings of the annual £12 bn tax we had to pay into the EU. We have increased NHS spending by much more than these welcome savings.

Best of all we have ducked any share of the massive new debts the EU has decided to take on now we have left. As they borrow 900 bn euros our share would have been 150 bn.