Previous Section Home Page

Column 931

Walley, Joan

Wardell, Gareth (Gower)

Watson, Mike (Glasgow, C)

Welsh, Michael (Doncaster N)

Williams, Alan W. (Carm'then)

Wray, Jimmy

Young, David (Bolton SE)

Tellers for the Noes :

Mr. Harry Barnes and

Mr. Terry Lewis

Question accordingly negatived .

Column 932

Points of Order

5.37 pm

Sir Hal Miller (Bromsgrove) : On a point of order, Mr. Deputy Speaker. I apologise to my right hon. Friend the Chief Secretary to the Treasury for interrupting the proceedings, but I am raising an extremely urgent matter on which we need a statement from a responsible Minister.

I have just been informed that Mr. Peter Mitchell, among others at Walter Somers, has been arrested and was initially denied access to his solicitor, who was procured only through the good intervention of his wife. I should like a Minister to make a statement on how this has occurred, as I have evidence which has been tested by a former Attorney-General and which stands up in court. I am very happy to go to court should they be charged. As they have not been charged so far, I understand that the matter is not sub judice and therefore it is proper and meet to have a statement before the close of business today.

Several Hon. Members rose --

Mr. Deputy Speaker (Mr. Harold Walker) : Order. Let me deal with one point of order at a time. I have received no request for permission to make a statement. Of course, the matters that the hon. Gentleman has raised are not directly for the Chair, but doubtless what has been said will have been heard. Certainly the Chair will take account of the hon. Gentleman's point about the application of the sub judice rule should these matters be referred to in subsequent exchanges.

Mr. Richard Caborn (Sheffield, Central) : Further to that point of order, Mr. Deputy Speaker. As you probably know, the case also affects my constituency. I understand that between Somers and Forgemasters 14 people are now being questioned, three are under arrest and six further executives at Forgemasters are at police stations giving statements. I concur with the request for an urgent statement in the House as the case is having a tremendous effect on both companies and we want to get the matter clear. The Government have a series of questions and a letter that I sent to the Prime Minister because I have had over the phone clearance on those contracts on which those people are now being questioned and which were cleared by the Department of Trade and Industry.

Mr. Deputy Speaker : I cannot usefully add to what I said in reply to the earlier point of order.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak) : Further to the point of order raised by my hon. Friend the Member for Bromsgrove (Sir H. Miller), Mr. Deputy Speaker. We have now reached a point where one British subject is languishing in a Greek prison and other respectable people are in the hands of the police or the Revenue. If the House is not about justice for individuals, it is about nothing. It is time that the Government made a proper and prepared statement about the matter. There is no justice if people can be made scapegoats for other people's inefficiencies or injustice.

Mr. Tam Dalyell (Linlighgow) : Further to that point of order, Mr. Deputy Speaker. If we are to have a statement, and whoever makes it, could we have a Defence Minister present to explain the role of the secretariat of the Defence

Column 933

Export Services Organisation in the matter? That has considerable relevance to the legal proceedings that have taken place.

Sir John Stokes (Halesowen and Stourbridge) : Further to that point of order, Mr. Deputy Speaker. As you will know, the excellent long- established and highly regarded firm to which my hon. Friend the Member for Bromsgrove (Sir H. Miller) referred is in my constituency. The moment that I heard about these difficulties, I tried to obtain information from several Government Departments. I have been given no help whatever. Surely one is entitled to receive an answer from a Minister. Ministers should not hide behind civil servants.

Mr. Frank Haynes (Ashfield) : Further to that point of order, Mr. Deputy Speaker. I am surprised that the Chair has not taken some action before now. I concur with the hon. Member for Bromsgrove (Sir H. Miller) about this affair. I suggest that the Chair seriously considers bringing the Secretary of State for Trade and Industry to the Bar of the House. Let us deal with the matter.

Mr. A. J. Beith (Berwick-upon-Tweed) : Further to that point of order, Mr. Deputy Speaker. Is it not usual, when the Chair is faced with problems such as this in the course of the day's business, for the Leader of the House to be on hand to intervene and perhaps to avoid the Chair becoming involved in matters that cannot be dealt with easily under Standing Orders? As several Conservative Members have raised legitimate points, has there not been sufficient time to send a message to the Leader of the House that a matter of genuine concern has been raised on which he should come before the House?

Mr. Deputy Speaker : This is a serious matter about which hon. Members are deeply worried. Undoubtedly what has been said in the Chamber will be communicated to the Leader of the House. I repeat that I have not yet received any request for permission to make a statement.

Column 934

Finance Bill

[Relevant document : Fourth Report of the Treasury and Civil Service Committee of Session 1989-90 on the 1990 Budget (HC314) ] Order for Second Reading read .

5.42 pm

The Chief Secretary to the Treasury (Mr. Norman Lamont) : I beg to move, That the Bill be now read a Second time.

The Bill implements the measures introduced by my right hon. Friend the Chancellor of the Exchequer in his Budget. As a background to today's debate, the House has the benefit of the report of the Treasury Select Committee on the Budget. The report is thoughtful and thorough. As my right hon. Friend said in his Budget speech, this year we have provided a longer and more comprehensive account in the Red Book of the operation of monetary policy. I hope that, as we intended, it has been useful to the Select Committee in its inquiry. This is not the time for me to comment on the report in detail. The Committee has made several recommendations, which we are studying carefully and to which we shall respond fully in due course. However, I shall refer to one or two points in the report.

I note with interest the Select Committee's view that reserve asset ratios are not, as is sometimes suggested, an alternative monetary instrument to interest rates. The Committee report suggests that reserve asset ratios do not serve as direct credit controls. I also note with interest the Select Committee's anxiety about the retail prices index as a reliable, or unreliable, indicator of inflationary pressures. To some extent, the Committee's comments echo remarks and observations made by the Government on other occasions. The Select Committee's remarks about statistics are also interesting. It is always tempting, although on the whole it is a temptation to be avoided, to blame any problem of economic management on misleading statistics. Harold Macmillan referred to the difficulty of trying to steer the economy on the basis of statistics. He compared it with looking up train times in last year's Bradshaw. More recently, the right hon. Member for Leeds, East (Mr. Healey), in his highly entertaining memoirs which I read at Christmas, said of economic forecasts :

"Like long-term weather forecasts they are better than nothing But their origin lies in the extrapolation from a partially known past, through an unknown present, to an unknowable future according to theories about the causal relationships between certain economic variables which are hotly disputed by academic economists, and may in fact change from country to country or from decade to decade." At the time of the 1988 Budget, we believed--on the basis of provisional estimates--that domestic demand had risen by 4 per cent. in 1987. The latest estimate is that demand increased by 5 per cent. In a situation where we think that the sustainable long-term growth rate may be a little under 3 per cent. a year, this makes the crucial difference between an economy growing at close to its sustainable rate and one growing well in excess of it. That was precisely the point that the Committee made.

The state of economic statistics has been a concern of the Select Committee for some time now, and there has been some interchange between the Committee and the Treasury on this. I am glad to see that the Committee believes that that has been fruitful. As the Chancellor told

Column 935

the Committee in his evidence on 3 April, it is both desirable and necessary to improve the general quality of economic statistics, and this is being pursued with the Central Statistical Office. We shall return to the Committee and reply fully to those points.

The debate on the Finance Bill usually becomes a debate on the tax measures and on the economy more generally. No doubt we are about to hear from the hon. Member for Derby, South (Mrs. Beckett) a long catalogue of gloomy prognostications, as we heard from the right hon. and learned Member for Monklands, East (Mr. Smith) the other day. The understandable anxiety about inflation, and the current account, should not be allowed to disguise the real gains and improvements that the British economy has made in the past decade.

I am not sure whether the Opposition really believe it when they claim that nothing has gone right and that there have been no improvements whatever in the past decade, but in my opinion they do no service to their party--let alone any wider interest--with that distorted view.

The Opposition seem content to point selectively to the fact, which is not disputed by the Government, that the British economy will grow more slowly than Germany or the EC average this year, without even so much as acknowledging that, on average, over the 1980s the United Kingdom growth rate has been significantly above that of Germany and the EC average. And even with the slower growth forecast for 1990, the United Kingdom will have grown faster since 1980 than Germany or France. The Opposition concentrate on one year at the expense of a decade. The fact that I mentioned is remarkable, but it is never mentioned. I wonder why.

The Opposition are also prepared to point out that our relative inflation rate this year will be considerably worse than the European Community average, without so much as mentioning that for the past 10 years our inflation rate has been broadly the same as--in fact, only 0.1 percentage point above--the European Community average since May 1979. That is a considerable improvement on the previous two years. The Opposition are again content to point out that investment will fall this year, without acknowledging for one moment that business investment growth since 1980 has been faster here than in all the major seven countries except Japan.

Although it is much mentioned by independent commentators, the Opposition have never in my hearing mentioned the fact that United Kingdom manufacturing productivity growth was faster in the 1980s than all the other G7 countries. It will probably not be long before they mention that this year productivity will slow down as the economy slows down. Again, that is a statistic for one year which needs to be set against the progress of a decade.

Most remarkably, we never hear the Opposition mention that on a standardised basis United Kingdom unemployment is below that for the European Community as a whole. When have we ever heard from the Opposition about the remarkable transformation in profitability of British industry or about the remarkable improvement in industrial relations compared with those a decade ago? If the Opposition are as concerned about manufacturing industry as they profess to be, they should acknowledge those two factors because both are essential for the survival and growth of manufacturing industry.

These are solid achievements in the past decade. The Opposition may dispute them, but other less partisan

Column 936

observers are prepared to be more realistic. An article in The Independent yesterday by the director of the Institute of Fiscal Studies is a case in point. In that article, Mr. Bill Robinson drew the connection between the lasting supply-side improvements and the performance of our exports. He wrote :

"UK exporters have broadly managed to hold their share of world markets with no help from the exchange rate. This is an important change, for as long as we were losing market share, we were condemned to a slower rate of growth than our competitors. It is no coincidence that in the 1980s we moved from near the bottom of the world growth league to near the top.

The structural improvements in the economy which wrought that transformation are still in place. There is no reason why the 1990s should not be another decade of steadily improving economic performance."

Mr. John Battle (Leeds, West) : The Chief Secretary may be aware that the Engineering Employers Federation published its economic trends survey only last week. It pointed out that there are fundamental structural problems facing the engineering industry because the demand for engineering products outside the United Kingdom is falling rapidly and that will mean the loss of 19,000 jobs in the coming year. It does not paint such a rosy picture as the right hon. Gentleman does. That does not suggest that the Opposition have a partisan view.

Mr. Lamont : There has been a remarkable increase in engineering output in recent years and a remarkable increase in investment in the engineering industry. It has never been disputed that there will be a slow- down, but our point is that people should not look at that slow-down in isolation. They should look not at the statistics for one year, but at the dramatic progress that has been made over a decade.

The hon. Member for Leeds, West (Mr. Battle) might like to look at the annual survey of the United Kingdom economy last autumn by the Organisation for Economic Co-operation and Development, which again pointed to our improved supply-side performance and compared it both with past performance and with the progress of our competitors. It compared the improvement in the balance between output growth and inflation in the 1980s with that from 1973 to 1979 :

"suggesting that there have been policy induced improvements in supply performance the deterioration in performance in the 1970s has been reversed and compared with other Member countries, there has been a relative improvement."

Mr. John Townend (Bridlington) : Does my right hon. Friend agree that as the engineering industry is facing problems, its answer is to look abroad? It is essential that it keeps down unit labour costs. Does he agree that the unions were very unwise this year to press for a shorter working week, which increases unit labour costs and reduces competitiveness?

Mr. Lamont : I am sure that that is the last thing we can afford at the moment. My hon. Friend is right. Fortunately, exports of manufactured goods, including exports of engineering goods, have been doing extremely well.

Sir Peter Hordern (Horsham) : Conservative Members must concur with all that my right hon. Friend has said about the excellent record of British industry and of the economy in general over the past 10 years. Is it not the case that engineering companies are now complaining about

Column 937

difficulties ahead? Is it not also the case that wage increases are now rising fast? Is it not important for my right hon. Friend and the Government to make it absolutely clear that the Government will not bail out companies which award large wage increases by depreciating the currency against other major currencies? It would be most helpful for my right hon. Friend to say that.

Mr. Lamont : We will make that clear. We have repeatedly made it clear that excessive wage claims will not be accommodated by a relaxation of monetary policy and that if wage negotiators on either side insist on inflationary wage settlements, the main effects will be felt in the labour market.

My hon. Friend the Member for Horsham (Sir P. Hordern) referred to industry. It was interesting that yesterday the director general of the Confederation of British Industry in a speech again referred to the progress that has been made in manufacturing industry in the past decade. He referred to the period before 1979 as one of relative decline and social disintegration and then said :

"That era ended thank goodness in 1979. The new era could perhaps best be labelled the era of free market competition'."

That is the considered view of the director general of the CBI. He went on :

"We enter the 1990s with the supply side of the British economy in incomparably better shape than at any time in our history." The view that there has been a fundamental transformation of our underlying competitiveness is the view taken by the director of the Institute of Fiscal Studies, by the OECD in its survey of the British economy, and by the director general of the CBI. Apparently everybody is out of step except the Labour party. Who should we believe--the OECD, the CBI, the Institute of Fiscal Studies or the Labour party? Which is the dispassionate observer and which has a vested interest? Perhaps the director general of the CBI had the Labour party in mind when he said :

"We must believe in ourselves. Too many damaging myths have gained currency --myths which if unchallenged will prejudice our ability to build on what has already been achieved."

I believe that a constructive Opposition would recognise that there have been tremendous improvements in the past decade and that that is an opportunity on which they should be seeking to build, and to suggest a way ahead and improvements rather than attempting to make us believe that there has been no progress.

Mr. Alex Salmond (Banff and Buchan) : I hope that the Chief Secretary will tell the House what implications he feels that the coming changes in the poll tax will have for the Budget projections. When the changes are introduced, will they be backdated for Scotland to cover the year in which the Scottish people have borne the full brunt of the poll tax unamended? Will the retrospective changes, if introduced, be funded from the Treasury or merely recycled from Scottish Office funding?

Mr. Lamont : The hon. Gentleman gets 10 out of 10 for ingenuity, but that has nothing to do with the Finance Bill and he will not tempt me.

Our present concerns stem from the excessive growth of 1987 and 1988. That lies behind current concerns about inflation and the current account. That period was one

Column 938

when, incidentally, the Labour party continually claimed that we were not growing fast enough, continually described the economy as being in recession and called continuously for even larger stimuli to be given to the economy.

The fact is that, precisely when the Labour party was calling for further expansion, we had a period of too rapid growth when demand for goods both from companies and from consumers outstripped even a much improved supply- side performance. This has produced an inevitable reappearance of inflationary pressure although the underlying rate is still below the best achieved by the Labour Government and the percentage rise in underlying inflation since 1986 is not out of line with the increase in the United States, Japan or Germany.

We have tightened policy considerably. A tight monetary policy--high interest rates--has been backed by a tight fiscal stance with large budget surpluses. There is clear evidence that the economy has slowed considerably. The evidence can be seen in the housing market, in retail sales and in motor car registrations. Real domestic demand is forecast to fall slightly this year following growth averaging 5 per cent. over the previous three years. Although the monthly trade figures for March were disappointing, the underlying trend suggests that exports are growing far faster than imports.

In the past six months, exports have been up by 11 per cent. compared with a year earlier, whereas imports have risen by only 1 per cent. in the same period. The CBI quarterly trends survey provides further evidence that the decline in domestic demand has been broadly offset by continued expansion in export orders. The evidence is there to suggest that firms are switching from the home market into export orders on a considerable scale.

The Budget was designed to maintain our tight policy stance. Some have complained that it was not tough enough and some have suggested that taxes should have been raised. To have had any real impact, we should have needed a substantial increase of, say, £5 billion, which in our judgment would have risked pushing the economy into an unnecessary recession and damaging our improved supply-side performance. The Government's expectation is that the current policy will prove tight enough to bring down inflation.

Mr. A. J. Beith (Berwick-upon-Tweed) : The Chief Secretary is fond of referring to a consensus of commentators. Does he accept that a consensus of commentators--even the same ones as he has been quoting--would not agree that the Government's policies enable them to get inflation down to their forecast level of 3 per cent. by 1992?

Mr. Lamont : I do not accept that. The hon. Gentleman may have noticed in the Financial Times last week that a range of outside forecasts were placed alongside Government forecasts and published in tabular form. There were about 30 in all. The difference between those outside forecasts and the Government's forecast was not all that great. Indeed, some of the outsiders were even more optimistic. The years leading up to 1988 and 1989 saw a remarkable increase in confidence and profitability, combined with the freeing of financial markets. These factors provided both the incentive and the means for a huge boom in business investment--perhaps the biggest

Column 939

since the war. Between 1986 and 1989, companies and public corporations increased their fixed investment by more than 40 per cent. in real terms. Over the eight years to 1989, investment has grown twice as fast as consumption. But although investment has grown rapidly, personal saving has been falling. Individuals, enjoying steadily rising real incomes, have had the confidence to borrow more and save less. As a result, private saving overall has been insufficient to match the high level of investment ; indeed, the excess of private investment over private saving has been quite unprecedented in the post-war period.

The need to restore the balance between savings and investment is especially important for the current account. Just as a company which invests more than it saves via retained earnings has to borrow from elsewhere, so a nation which invests more than it saves must borrow the balance from abroad. In other words, the current account will be in deficit. The public sector has been in substantial surplus, but this has been more than offset by the private sector's borrowing from abroad to finance the investment boom. Higher interest rates are already boosting saving, but the Budget and the Finance Bill also contain further measures to bring saving and investment back into balance, which is important for the current account.

The Budget was a Budget for savers, and the Bill contains a whole range of tax incentives which will help to improve the climate for saving. Conservative Governments have always made it their business to support the saver. Anyone who put his money in a building society in 1979 will have seen the value of his savings rise by a half in real terms before tax. Savers are getting a much better return, and rightly so. Under the last Labour Government, a punitive tax system made saving a worthless activity. Inflation was high and interest rates low in comparison. The real return on savings was negative and the post-tax return was fiercely negative.

Nor was the investment income surcharge, as Labour Members often imply, confined to the so-called super-rich. When Labour left office in 1979, the surcharge was payable on savings income above £1,700 a year. Investment income surcharge was payable on sums as small as that.

Mr. Eric Martlew (Carlisle) : Does the Chief Secretary agree that, when the Conservative party took office, inflation was running at 10.3 per cent. and that it is likely to have been running at more than 10 per cent. this April? Does not that mean that we have had 11 wasted years of Conservative Government?

Mr. Lamont : I thought that the statistics were so well known that it was hardly necessary to rehearse the average rates of inflation under this Government and under the Labour Administration respectively. Even now, at the high point of the cycle, the underlying rate of inflation is below the lowest level ever achieved by the Labour Government. But that is a slight digression from my main point about savings. Given the situation that we inherited, it is small wonder that one of our first priorities was to reduce marginal rates, and this we have done. Successive cuts in income tax and the abolition of the investment income surcharge mean that for many savers--not just higher rate taxpayers but basic rate taxpayers, too-- marginal rates have been halved.

Column 940

We have made saving worth while. One of the welcome results has been the rise in pensioners' average net incomes, which between 1979 and 1986 went up by more than 30 per cent. in real terms.

Mr. Giles Radice (Durham, North) : If the Government's policy on saving is so good, how come the saving ratio is at an all-time low whereas when the Labour Government were in power the savings ratio was about double what it is today?

Mr. Lamont : Perhaps I did not make myself sufficiently clear. As I tried to explain, the problem has not been that people have not been saving in the sense of putting money aside from their earnings. The problem has been that net savings, measured after borrowing, have fallen. The trouble is that people have had confidence and have been borrowing more than ever before. That applies not just to individuals but to companies, and companies do not borrow unless they have great confidence in the future.

Our next priority has been to ensure that the choice in different savings instruments is less distorted by the tax system. For example, if one transfers money from a bank to a building society, no tax charge is incurred, whereas if one transfers it from a bank into equities one has to pay a surcharge in the form of stamp duty. In 1979, the surcharge was as high as 2 per cent. It was hardly surprising that direct share ownership was going out of fashion. My right hon. Friend the Member for Blaby (Mr. Lawson) halved the rate in 1984 and again in 1986. This year we have gone one step further. Clauses 91 to 95 will finally put an end to a duty which was introduced in 1714, the year of Queen Anne's death. I regret to say that the tax was introduced by a Tory Chancellor of the Exchequer, so this change represents something of a delayed U-turn, although my hon. Friends will welcome it none the less.

Abolition will coincide as far as is possible with the introduction of paperless share transactions by the stock exchange, probably at the beginning of 1992. It will ensure that the City of London enters the European single market in as competitive a position as possible. It will also ensure that share ownership continues to widen and deepen. One in four adults in Britain now owns shares ; in 1979, the proportion was just one in 14. That has been a remarkable change. But the benefit of abolition will not just be confined to direct shareholders. Most of the full year cost of £800 million will go to benefit the tens of millions of people who save indirectly through the institutions--in life assurance, pensions and unit trusts. As well as removing distortions, we have in recent years created new savings media which allow people to accumulate capital, unencumbered by demands for income and capital gains tax. Nearly 4 million people have now taken out personal pensions ; 2 million employees have been given shares or options to shares through employee share schemes, again showing that the benefits are not confined to a few rich people ; and 700,000 savers have taken out personal equity plans. The number is likely to grow further in the year ahead as savers take advantage of the 25 per cent. increase in the PEP limit announced in my right hon. Friend's Budget. The success of the schemes has surpassed expectation. And the Government have decided that it is time to extend similar tax treatment to saving through banks and

Column 941

building societies. That is how most people- -34 million of them--save. That is why we are introducing tax exempt special savings accounts under clause 23.

The attraction of the tax exempt special savings account is essentially its simplicity. It is necessary only to deposit money and leave it there for the full five years of the account and the saver gets his or her return tax free. Savers can withdraw interest as it accrues, albeit on a net of tax basis, or they can leave it to roll up. In either event, they will be entitled to the tax paid at the end of the five-year period. I believe that that is a considerable break-through and much to be welcomed.

The tax exempt special savings account will suit a wide variety of savers. The pensioner with a small capital sum will be able to put up to £3,000 in his account in the first year and £1,800 in subsequent years up to a total limit of £9,000. The younger person, perhaps saving for a deposit on a flat, will be able to put an annual bonus into a TESSA or, if it is more convenient, enter a contractual arrangement saving up to £150 a month.

Of course there have been contractual savings schemes in the past, but they were largely designed to raise money for the Government. The TESSA scheme is completely different. The banks and building societies will be free to offer competitive interest rates. I have no doubt that the scheme will prove immensely popular when it begins in January 1991. As the marketing manager of one of the clearing banks said :

"This is what the banks and building societies have wanted for years. It will do a lot to encourage the small saver and we will be aiming to introduce the TESSA account as soon as possible." Complementing those measures will be the abolition of the composite rate tax which will be the seventh major tax to be abolished by the Government. When composite rate tax was first put on the statute book in 1951, it affected fewer than 3 million building society depositors. It could be justified on the grounds that it was simple, easy to administer and that there were alternative savings media which attracted interest gross of tax.

The composite rate tax system may have had its administrative attractions for the Government, and for the Treasury in particular, but the advent of independent taxation weakened the case for it considerably. As a result, the number of non-taxpayers paying composite rate tax rose to 14 million and the Government decided that it was time to change the system. From April 1991, non-taxpayers will be able to receive their building society or bank interest free of tax. Five million married women, 4 million pensioners, 2.5 million children and 2.5 million other depositors with low incomes will benefit by an average of £1.40 a week. The relevant clauses will be introduced in Committee.

Mr. Michael Stern (Bristol, North-West) : Does my right hon. Friend agree that one of the most admirable aspects of that abolition is the element of self-certification for tax-free status, which shows a greater-- and justifiable--trust in the taxpayer than many Governments have dared to show in the past?

Mr. Lamont : I am grateful for my hon. Friend's observations. Obviously abolition also has administrative

Column 942

advantages. I believe that it is better to put the compliance obligation on the taxpayer. I wholly concur with my hon. Friend's point.

Mr. Denzil Davies (Llanelli) : Will the right hon. Gentleman confirm that of those paying CRT, although a minority will not pay tax, most depositors will pay more because they will pay at the standard rate? The Government will raise quite a substantial sum of money next year as a result of that change.

Mr. Lamont : We cannot abolish the CRT and expect people who ought to pay the basic rate of income tax not to pay it. That was the whole theory of CRT. There was a weighting between the non-taxpayer and the taxpayer. It was a subsidy to the better off and enormously unfair on the less well off. I am surprised that the right hon. Member for Llanelli (Mr. Davies) intervened on behalf of the better off.

Mr. Jeremy Hanley (Richmond and Barnes) : With the standard rate of taxation, personal allowances can be taken into account, which reduces the rate very much lower than the rate to which the right hon. Member for Llanelli (Mr. Davies) referred.

Mr. Lamont : My hon. Friend is absolutely right and I am grateful to him.

I have said that the relevant clauses on CRT will be introduced in Committee. I must state, as I have indicated to the Opposition, that that is not the only measure announced in the Budget which will be tabled in Committee. That reflects pressure on parliamentary counsel, the need to consult interested parties and, of course, the need to get complex and far- reaching measures absolutely right.

An improved environment for savers will in time also feed though to an improved environment for investors. That is the recipe for balanced growth. However, the Bill contains a number of measures designed to have a more immediate effect on businesses. For example, clause 19 will increase the small companies' tax thresholds to £200, 000 and to £1 million and will reduce the tax burden for 20,000 companies. That means that no company with profits of less than £1 million will pay the full rate of corporation tax.

Since the Government took office, the lower threshold has increased by more than 60 per cent. in real terms and the higher threshold almost fivefold-- and that is on top of a reduction in the small companies corporation tax rate from 42 per cent. to 25 per cent. As a result, we can now fairly claim to have one of the most favourable tax regimes for small firms anywhere in the world. Even though the economy has been slowing down, new businesses are still being created at the rate of about 1,500 a week after netting off failures. That is a dramatic change from the time when the Labour party was in office and there was a net fall in new business creation.

Small firms will also benefit particularly from the VAT changes. The VAT changes in clauses 9 and 10 will reduce burdens on business and they represent a major package of deregulation. By allowing VAT relief on all bad debts, those clauses end an anomaly whereby companies in effect pay tax on money that they did not receive. Registration for VAT will also be easier. The vast majority of firms will no longer be subjected to three complicated turnover tests.

Column 943

Instead, there will be just one simple test based on turnover in the previous year. That should be of particular benefit to new businesses.

Employee share ownership trusts were given a statutory basis in last year's Budget with support from hon. Members on both sides of the House. My hon. Friend the Member for Esher (Mr. Taylor) has been a veteran campaigner on that issue and the hon. Members for Newcastle-upon-Tyne, East (Mr. Brown) and for Pontypridd (Dr. Howells) have also strongly supported that principle. I believe that support for ESOPs is strong among Conservative and Opposition Members.

If ESOPs are to become widespread, they need further encouragement. At present, if a proprietor sells shares in his company to his work force he incurs an immediate capital gains tax charge. If, on the other hand, he sells them to a quoted company--a point that was brought to my attention last year by my hon. Friend the Member for Esher--in exchange for shares, he qualifies for roll-over relief. That is an enormous disincentive to creating an ESOP and clauses 25 to 32 will ensure that that position is changed. The owner who sells shares in his company to an ESOP will now qualify for roll-over relief. The Bill also contains a small but useful measure to help training. Training and enterprise councils will give the private sector new opportunities to determine its own needs and to help meet them. The Government believe that employers are best placed to decide the training needs of their businesses and to organise appropriate training. Clause 68 will ensure that contributions by businesses to support TECs are tax deductible. That new relief will give a further incentive to businesses to make donations to TECs.

Clause 20 will ensure that nurseries provided by employers will no longer be treated as a benefit in kind for income tax purposes, as has been the case since 1948. We have always taken the view--and previous Governments have also taken the view--that it is not for the Government to encourage or discourage women with children to work through the provision of artificial tax incentives or disincentives. We remain of the view that, in general, benefits in kind should be subject to income tax. However, it was becoming increasingly apparent that the tax treatment of workplace nurseries was difficult to collect and functioned as something of a disincentive both to people wanting to return to the labour force and to employers.

The measure has been criticised by some as not going far enough, but general child care relief would cost hundreds of millions of pounds and would run counter to the dominant thrust of tax reform in recent years-- that is, to achieve a wider tax base with much lower marginal rates.

We have instead opted for a limited relief, which in my view represents a sensible balance between the needs of the tax system and widespread demands for change. The new exemption will involve only a small deadweight cost and, with its focus on the place of work, is consistent with the tax treatment of other benefits in kind such as canteens provided at the employment location.

The final business measure that I should like to mention relates to banks' sovereign debt. Tax relief is, as it should be, available to banks, as to other lenders, for bad and doubtful debts. That includes debts owed to banks by foreign Governments. Clause 66 tackles the thorny problem of the tax treatment of the writing off by some

Next Section

  Home Page