Jesse Norman responds, on behalf of the Government, to a debate on the Finance Bill Report Stage with regard to tax reliefs.
I am grateful to everyone who has contributed to this short but interesting debate. As colleagues have noted, when we think about tax transparency, we are in what might these days be referred to as a niche area of taxation—technical, but no less important. In some respects, it is more important that we do not get lost in the detail but can come back and talk about the issues more widely. If I may, I will address the different clauses and then come to the specific points raised in the debate.
New clause 27 would require the Government to review all
“tax reliefs contained in this Act”.
It states that the review must contain
“the number of tax reliefs…the effect on taxation revenue of each of the tax reliefs…and…an assessment of the efficacy of systems for designing, monitoring and evaluating the effect of the tax reliefs.”
It asks the Government to publish the number of tax reliefs in the Bill and their effect on taxation revenue.
As the House may be aware, the Government already publish tax changes and estimates of the Exchequer impacts of policy changes in the Budget documents at each fiscal event. Moreover, Her Majesty’s Revenue and Customs monitors the effect on taxation revenue of tax reliefs after they are introduced and issues an annual tax relief statistics publication—I am sure that is closely scrutinised by all Members—which includes estimates of the costs of tax reliefs. Building on this, HMRC is also undertaking a project to expand its published costs information. I remind the House that in May HMRC published cost estimates for a further 47 previously uncosted reliefs.
New clause 27 also asks for an assessment of the efficacy of systems for designing, monitoring and evaluating the effect of a relief. As the House will know, the Government consult on new tax reliefs and proposed changes to tax reliefs, bringing in external expertise as part of the policy making cycle wherever possible. Officials are constantly working on ways to improve the policy on development, administration and continuing management of reliefs. As colleagues will know, the Government, and particularly the Treasury, keep all reliefs under review.
The Government also do evaluations of different forms. This work has included evaluations of a number of significant reliefs—some 15 since 2015. These include our R&D tax credits and entrepreneurs relief, on both of which I will say a few words later. In 2015, HMRC published an evaluation of R&D tax credits. In 2017, it commissioned an evaluation of entrepreneurs relief that led to a series of reforms, most recently the significant reduction of its lifetime at spring Budget 2020, which is legislated for in this Bill. The hon. Member for Aberdeen South (Stephen Flynn) picked up on the point about entrepreneurs relief, which he somehow regards as “the tail wagging the dog”. What he calls “the tail wagging the dog” other people would call consultation across Parliament and discussion with stakeholders. Since the measure resulted in a 90% reduction in the scope of the relief, I do not think he can claim that there is any lack of ambition in it.
HMRC will continue to monitor and evaluate reliefs and will bring forward a pipeline of further evaluations in due course. It will also consider a proposal to which I have already said I am quite sympathetic—I thank the hon. Member for Houghton and Sunderland South (Bridget Phillipson); we have discussed this before: a more systematic evaluation programme for reliefs. In the light of all this, the Government do not believe that the new clause is necessary.
New clause 2 would require the Chancellor of the Exchequer to review the impacts of the reduction in the lifetime of entrepreneurs relief that is being legislated for in this Bill within six months of Royal Assent, and specifically to review the impacts on business investment, employment and productivity in the constituent nations and English regions of the United Kingdom. I would first highlight to hon. Members that the Government have already conducted an internal review of this relief that built on the 2017 independent research commissioned by HMRC. That review considered the distributional effects and benefits of the relief against its cost in order to better understand the targeting of the relief. This, in turn, has been used to inform the reform that is being legislated for in this Bill. It ensures that the majority of entrepreneurs are unaffected. A lot of the concern about entrepreneurs relief historically has been that it is not well targeted, and this measure greatly improves the targeting. Unfortunately, the effects of the changes to the relief will not be visible in six months’ time, and for that reason I urge the House to reject new clause 2.
New clause 4 concerns the structures and buildings allowance. It would require the Chancellor to review the impacts of clause 30, which makes miscellaneous amendments to the SBA, within six months of the passing of the Finance Act. Specifically, it would require the Chancellor to review the impacts on business investment, employment, productivity and energy efficiency. Again, I reassure Members that both HMRC and the Treasury already monitor tax reliefs according to the level of risk that they are deemed to pose. It is in the nature of a structures and buildings allowance that it is configured to reflect the fact that it can take many years to erect new buildings. Claims under the SBA are ordinarily settled when businesses bring buildings into use and submit tax returns at year end. For that reason, it would be neither possible nor appropriate to try to draw conclusions on the productivity or energy efficiency impacts of these changes within such a short period.
New clause 17 would require the Government, within 12 months, to assess and report on the geographical effects of changes to business reliefs across a variety of areas. There is a concern, which I recognise, that there are geographical disparities that reflect the historical evolution of our economy in different areas. It is by no means a uniform picture, even outside London.
HMRC does not routinely require businesses to provide geographical information about where expenditure is incurred as part of claims for the R&D expenditure credit, structures and buildings allowance or intangible fixed assets. To do that, changes would be required that would create additional burdens on businesses. Those claiming the reliefs, of course, could only provide information after the year end. For that reason, it would not be possible for HMRC to have information within the 12 months stated in the amendment, even if the amendment were passed. It is not capable of being fulfilled.
HMRC does, in fact, already publish annual statistics on many tax reliefs, including a detailed breakdown of R&D tax relief claims, that analyse both by region and by sector the number of claims and the amount of relief received. That said, this regional analysis is based on companies’ registered offices, not necessarily where expenditure is incurred, and although HMRC will publish the next set of annual R&D relief statistics in the autumn, companies can claim R&D tax relief for up to two years after the end of their accounting period. For that reason, the 2020 release will only include claims up to 2018-19 and therefore will not include claims for the increased 13% rate.
As the House will know, the Government remain firmly committed to levelling up across the regions and nations of the UK, and the spring Budget provided a £1.14 billion increase to block grant for the devolved Administrations to spend on their own priorities, in addition to £2.7 billion invested in city deals, of which £800 million will support four deals in Wales alone, and a further £1.4 billion provided for 10 deals in Scotland. We fully recognise the importance of supporting regional and devolved Administration growth.
Finally, on the enterprise investment scheme, amendment 1 to clause 36, would require the Government to review the economic and geographical impact of the existing EIS. We considered this in Committee, of course, and I appreciate the intention of hon. Members to use the EIS more strategically, but it has been specifically designed to address a market failure for young innovative UK companies that seek to obtain patient equity finance in order to grow, and we would not wish to pull it away from that important national function. Companies that use the EIS can register wherever they please in the UK, and again the registered office does not need to be in the same place as where the bulk of the staff are employed.
With permission, Madam Deputy Speaker, I will spend another minute or two addressing the specific points. The hon. Member for Houghton and Sunderland South described the tax relief system as unwieldy. It is a view I would share. It is unwieldy. I think more work needs to be done. It has grown up over time. Certainly no one in government would regard the position as rosy. The House will know that we received many billions of pounds, including one just recently, in requests for VAT relief alone. Everyone seems to be terribly keen on improving tidying up reliefs, but they are also terribly keen on increasing the number of reliefs in their particular area or sector—for perfectly good, democratic reasons, we understand, but it does create a natural tension. As relief costs rise, of course, that is sometimes a very good thing—for example, with R&D expenditure credits, which we know support high value for money investment—but sometimes it might not be such a good thing.
I will just pick up on the point made by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake)—[Interruption.]—before he intervenes. He has jumped the gun a little bit on me, because we will be discussing new clause 22 in the next debate, so if he really wishes to land his point, he only has to hang around a little bit longer. I can give him a sneak preview, though, by saying that new clause 22 makes sure that people who have made investments under EIS or SEIS schemes do not lose reliefs on those investments. Recapitalisation is an important issue that the Government are closely attending to, and my hon. Friend is right to focus on it.
Finally, the hon. Member for Ceredigion (Ben Lake) made a point about the importance of greater equity investment in the regions. I very much agree with him.
Will the Minister give way?
With permission, Madam Deputy Speaker, I will give way to my hon. Friend.
I declare an interest as somebody who has benefited from entrepreneurs’ relief in the past. Is the Minister considering extending the reduction in entrepreneurs’ relief, which I support, to investors’ relief, which currently stands at the same figure as entrepreneurs’ relief used to stand at—£10 million?
If my hon. Friend is asking questions, he ought to stay for the next debate, because he is abusing the privilege of this debate. I thank him for his suggestion of a revenue-raising possibility for the Government; we take all those in great heart.
Could the Minister say a little more about the social investment tax relief? I am not aware that he responded on that point.
The hon. Lady is absolutely right. Let me address that. As she knows, the relief remains in place until next year. Even its doughtiest supporters would agree that so far it has not been anything like as effective as anyone would have liked or as had been projected or anticipated. Only £11.2 million has been raised under it in the period 2014 to 2018-19.
We are looking at it closely. As I mentioned in Committee, I am in discussions with leading figures across the social investment world about whether we can get some more visibility on the sources of funds that would use such a relief and the sources of projects that those funds would support. If we do not get that and we cannot have that in a slightly more concrete form, it looks like quite an empty request, but there may be other things that we can do to support social investment. As the hon. Lady knows, I have written a book on the big society. It is an area that I care deeply about, so I am happy to respond and I am grateful for her question.