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Steen, Anthony

Stern, Michael

Stewart, Allan

Streeter, Gary

Sumberg, David

Sweeney, Walter

Sykes, John

Tapsell, Sir Peter

Taylor, Ian (Esher)

Taylor, Rt Hon John D. (Strgfd)

Taylor, John M. (Solihull)

Taylor, Sir Teddy (Southend, E)

Temple-Morris, Peter

Thomason, Roy

Thompson, Sir Donald (C'er V)

Thompson, Patrick (Norwich N)

Thornton, Sir Malcolm

Townend, John (Bridlington)

Townsend, Cyril D. (Bexl'yh'th)

Tracey, Richard

Tredinnick, David

Trend, Michael

Trotter, Neville

Twinn, Dr Ian

Vaughan, Sir Gerard

Viggers, Peter

Waldegrave, Rt Hon William

Walden, George

Walker, A. Cecil (Belfast N)

Waller, Gary

Ward, John

Wardle, Charles (Bexhill)

Waterson, Nigel

Watts, John

Wells, Bowen

Whittingdale, John

Widdecombe, Ann

Wiggin, Sir Jerry

Willetts, David

Wilshire, David

Winterton, Mrs Ann (Congleton)

Winterton, Nicholas (Macc'f'ld)

Wolfson, Mark

Wood, Timothy

Yeo, Tim

Tellers for the Noes :

Mr. Irvine Patnick and

Mr. Robert G. Hughes.

Question accordingly negatived.

Clause 207

Residence : available accommodation

Mr. Nicholas Brown : I beg to move amendment No. 28, in page 160, line 24, leave out from beginning to end of line 4 on page 161. A Budget that raises taxes, extends value added tax to domestic fuel, readjusts advance corporation tax in such a way as to impose a substantial burden on charities and pension funds, places a 1 per cent. increase on employees' national insurance contributions, refrains from indexing allowances and, in particular, restricts mortgage tax relief and married couple's allowance to the new 20 per cent. tax band, especially when combined with significant increases in excise duties--most noticeably, duties on petrol and cigarettes--is a tax-raising Budget.

The House now has a rare opportunity to discuss a tax concession. Admittedly, it is one that will cost only some £10 million in 1994-95. Nevertheless, it is a reduction in the tax burden. Over and over again, the Chief Secretary has spoken about the need for deficit reduction, tax increases and public expenditure cuts. Admittedly, he says less about why we are in this position, and he did not make these points so forcefully before the last general election, but he makes them emphatically now.

Let us take the Chief Secretary at his word. Let us also take at his word the hon. Member for Southend, East (Sir T. Taylor), who said yesterday :

"If one's country is bust".-- [Official Report, 12 July 1993 ; Vol. 228, c. 757.]

We were also told by the hon. Member for Corby (Mr. Powell) that the Budget contains serious errors of judgment. If we are indeed in such difficult circumstances, as even Conservative Members seem to allege that we are, it must be extraordinarily difficult--I think that we understand the difficulty--for the Government to give a tax break to anyone. However, after careful consideration, the Conservative Government have found a group of people who, even in these difficult times, require a tax concession.

Who are these people? I know that the most compassionate of my hon. Friends, amazed at the

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discovery of a group of disadvantaged citizens so deserving of relief that even this Government have noticed their plight, will be wondering if enough is being done for those people. Suggestions of food parcels, perhaps, could well emanate from my hon. Friends. These people are not the poorest, most downtrodden in our society. This relief that the parliamentary Labour party is seeking to withdraw is to go to people who have substantial means, who are rich--people to whom the right hon. Member for Kingston upon Thames (Mr. Lamont), the former Chancellor, used to refer as the internationally mobile. This concession to them is being made at a time when the rest of the people of this country are being urged to tighten their belts.

The clause weakens the available accommodation test for residency. It is a relief that, were he to return to this country--if only to ask for his money back from the Conservative party--would be available to Mr. Asil Nadir. There are those who think that the Conservative party has already done enough to help Mr. Nadir, but that is clearly not the view of Treasury Ministers. Indeed, his plight--not his flight--and that of those like him was given extra special consideration by the Financial Secretary before the clause was inserted in the Bill. In Committee, I was able to make reference to the script for a first-rate Granada Television "World in Action" programme that dealt with tax avoidance and evasion. There was a scene in it--to which I did not refer in Committee but which, I am sure, will inform the debate on the Floor of the House--that included a very familiar landmark, and the commentator said that this was another of Asil Nadir's tax havens. You will be astonished to hear, Mr. Deputy Speaker, that this was a shot of the fountain in Trafalgar square. The commentary went on as follows :

"WORLD IN ACTION has discovered that UK tax rules allowed Nadir a privileged status known as non domicile. So although he was one of the richest men living in Britain he paid comparatively little tax here. But our tax laws allowed Nadir to acquire several homes in Britain. Through an offshore trust he owned a country mansion, Baggrave Hall in Leicestershire."

The commentator went on to quote a tax partner from Moores Rowland, a Mr. Eastaway, who said :

"To have a non UK domicile is one of the great secrets of turning the United Kingdom into a tax haven."

5.45 pm

I am not sure that the House wants to turn the United Kingdom into a tax haven. I am certainly not sure that, in this time of stringency, when substantial imposts are necessary for all our other fellow citizens, we should be making an albeit relatively modest relaxation in the rules to give money to people who already seem to have rather large sums of money available to them. I do not understand why we should do that, especially in the present economic climate. The Financial Secretary, in fairness to him, tried to explain it in Committee. As an explanation of why the clause was in the Bill, he said :

"It was represented to me, very persuasively, that"--

the clause--

"has dissuaded business men--and, indeed, tourists, though my principal concern is business men--from including this country in the range of options that they consider when making business decisions."--[ Official Report, Standing Committee A, 24 June 1993 ; c. 592.]

The words that stick in my mind from that speech are "very persuasively". I am not certain what the Financial Secretary meant by those words, but "Business Age"

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magazine draws our attention to some £71 million worth of unexplained money in the Conservative party's accounts. "Business Age" has provided a helpful guide to the big donors and their possible motivation, on the assumption that that motivation extends beyond disinterested public spirit.

The reason most frequently cited for giving these large donations to the Conservative party is that it is in recognition and support of the Government's retention of favourable tax breaks for United Kingdom overseas subjects. Those donors are just the sort of people who could benefit from the changes that we are now discussing. What sort of an argument is £71 million ? To borrow an expression from the Financial Secretary, it is a very persuasive argument. It is my contention that if, in difficult times, it is necessary to increase the tax burden on our fellow citizens, any concession has to be very carefully considered. This is a concession to very rich people who do not, in any event, pay their fair share of tax in this country. We make this concession at a time when we are being asked, in the same Finance Bill, to make the most regressive changes to the value added tax regime that it would be possible to devise. Let me make it clear that I would not give these tax-dodging scoundrels the benefit of this clause in any event. It is a handout from the public purse that cannot be justified. In the present circumstances, it is positively grotesque.

Mr. Beith : I share the view of the hon. Member for Newcastle upon Tyne, East (Mr. Brown) that this is a worrying aspect of the Finance Bill. Like him, I studied the "Business Age" list of a series of donors to the Conservative party and was very struck by the way in which the motives were listed. There appeared again and again the motive of supporting the maintenance of tax breaks for United Kingdom subjects overseas. There were one or two large donors whose motives were described as completely unexplained. But there was a very large group--it includes people who, I believe, would say this quite clearly, and probably publicly, if asked--who were grateful to the present Government of the United Kingdom for maintaining a situation in which they felt that they were relatively favourably treated under United Kingdom tax laws. The sort of concession which is at the heart of that is the ability to take advantage of the residence rules. It is difficult for Ministers to detach themselves from these issues when explaining them to the House. It is particularly difficult for the Paymaster General. When he was the Conservative party's vice-chairman and working at Conservative central office, I think that all these things must have passed him by. I cannot imagine that he was involved with any of the mysterious, undisclosed accounts that were published by river companies. I think that they just stuck him behind a desk, that it all passed him by and that it was handled by other people. I suspect that a lot of that goes on in Conservative central office.

What is becoming increasingly clear, however, is that a large number of people overseas are now prepared to put very substantial sums of money in the way of the Conservative party, if it is considered appropriate to do so, by way of accounts held overseas whose purposes are unidentified. Some people and some groups are prepared

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to do that because they like the tax treatment that is afforded to United Kingdom subjects who are resident abroad.

There are other motives. There are those who want a favourable regulatory regime for their companies. Others are concerned about foreign policy issues. The single largest group, however, appears to be those who find this kind of tax treatment advantageous to them. When the Minister seeks to explain this, he will be judged not simply by his explanation but against the background of the substantial donations that have been made to his party by people who like this sort of thing.

Mr. Dorrell : The hon. Member for Newcastle upon Tyne, East (Mr. Brown) and the right hon. Member for Berwick-upon-Tweed (Mr. Beith) sounded more than mildly implausible when whipping themselves into a synthetic fury over this question. If it were true that the Government were interested in finding ways of safeguarding nefarious activities of the kind about which they are both concerned, it is profoundly improbable that it would have been this Government who tabled a proposal in 1988 to revise precisely the rules that apply now to the taxation of United Kingdom residents who are not domiciled in this country.

The issues that the hon. Gentleman and the right hon. Gentleman have hinted at are on the table and in the public domain at least in part because the Government published a consultative document in 1988 that launched public discussion of exactly the issues that they raised. Neither of them, however, chose to tell the House about the results of that consultation. Virtually with one voice, the representations to the Government on that subject, from those of all political persuasions, were that it would be damaging to Britain's interests to go down the route that had been suggested in the consultative document, a document tabled on the authority of Ministers of this Government in 1988.

Mr. Nicholas Brown : Most of the representations--not all of them, I accept--were from people who would be disadvantaged if the changes were made.

Mr. Dorrell : That hardly distinguishes this representation from any other representations in which the Government are engaged. My point is that the overwhelming majority of the representations were hostile to the ideas that Ministers of this Government had tabled. Arguments were advanced in principle against the proposals. The arguments that were advanced--by, I stress, people of all political points of view--were precisely from the perspective of the disadvantaged citizen, the perspective that was espoused so eloquently by the hon. Member for Newcastle upon Tyne, East. The argument was--I find it persuasive--that to go down the route envisaged in the 1988 consultative document would make this country a less attractive place in which internationally mobile business men, whom the hon. Gentleman correctly identified as a legitimate target for consideration, could do business.

It was for that reason that the proposals in the consultative document were dropped. The announcement was made in 1989. As far as I know, there was no great

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outcry from either the Labour party or the Liberal Democrats when the decision was announced, because it was recognised to be in response to public concern.

The clause is motivated by precisely the same perspective and the same thought processes as those that led to the dropping of the 1988 proposal-- that when considering who should pay tax in this country, the Government ought to pay regard to the proper priorities if we are to attract internationally mobile business activity to the United Kingdom. It was for that reason that we dropped the 1988 proposal. We did so in response to public consultation. Precisely the same reasons led us to table the clause ; therefore, I oppose amendment No. 28. I want tax to be raised fairly from people who are resident in this country. I also want there to be a tax system that is friendly to internationally mobile businesses. The hon. Member for Newcastle upon Tyne, East made it clear that he regards that as a secondary objective. I regard it as a primary objective.

Amendment negatived.

Schedule 2

Value added tax : penalties etc.

Amendment made : No. 16, in page 167, line 13, leave out and' and insert--

(aa) in paragraph (b) of subsection (5) of that section, for the words from "have power" to the end of that paragraph there shall be substituted "have power under section 15A below to reduce a penalty under this section," ; and'.-- [Sir John Cope.]

Schedule 5

Removal Expenses and Benefits

Mr. Beith : I beg to move amendment No. 12, in page 200, line 26, leave out 6th April 1993' and insert 4th April 1994'.

Mr. Deputy Speaker : With this, it will be convenient to discuss the following amendments : No. 13, in page 200, line 28, leave out 6th April 1993' and insert 4th April 1994'.

No. 11, in page 200, line 30, leave out 6th April 1993' and insert 4th April 1994'.

Mr. Beith : This group of amendments is all about relocation expenses and their tax treatment. The amendments would delay the implementation of the new regime for taxing relocation expenses. The issue was dealt with fairly extensively in Committee, but we were unable then to persuade the Government to raise the cap that they have placed on those relocation expenses that are non-taxable. We proposed that that tax threshold should be very much higher to reflect the real relocation costs. We propose in the amendments that there shou they have failed to accept the case put to them by British industry that there should be more favourable tax treatment of those who are forced to move if business in this country is to be successful and efficient.

We are talking about firms that need to relocate people, if they are to succeed. We are referring to firms that have

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to cope with major changes in their industry and in their markets. We are referring also to firms that are having to adapt and to firms that are feeling the consequences of the recession, yet they are trying to keep people in employment. Often, the only way in which they can keep people in employment and avoid redundancy is by relocation. They may relocate a whole plant to another site, or they may strengthen, through importing skilled people, a plant that would otherwise go to the wall. Relocation of this kind is important if businesses are to be flexible and able to adapt.

Relocation is difficult to achieve in the United Kingdom context, because of our housing problems. The rented housing sector is largely dominated by local authority housing, which makes it very difficult for people to move from one area to another. The private housing sector has been severely affected by the consequences of the recession. When, therefore, a company says to somebody, "We want you to move," he is likely to reply, "I can't afford to move on my wages." The company then has to construct a package that makes it feasible for that person to move.

The package will often involve help with removal expenses, but that is only the beginning of the story. It may be some time before the person concerned can sell his house or buy a house in the area where he has been relocated. All sorts of additional ancillary costs that affect families may be involved. Most of the firms involved--for example, Barclays bank, which does a great deal of this, estimate that the cost of relocation is between £20,000 and £30,000. That is the average cost of many of these removal and relocation packages. The Government, however, have set their face against accepting that that is the average cost of relocation packages. We seek to persuade them at least to make provision for a transitional period. I have said that the Government have set their face against relocation expenses at this level. That is not quite the case. Among people in the public sector, there has been considerable concern about how, given the provision, they will relocate. Several Government Departments are involved in substantial relocation activity. Indeed, hon. Members of all parties have been trying to persuade the Government to relocate some of their work--to transfer it from the south-east to the areas of highest unemployment, for example.

6 pm

Other factors are involved in the relocation of Government Departments. Am I right in thinking that the Treasury has approved the grossing up of relocation expenses above the £8,000 limit paid to civil servants? Is it true that Departments know perfectly well that £8,000 is well below the real figure? I believe that they know perfectly well that much larger relocation packages will be necessary. It seems to me that Departments have been told by the Treasury that £8,000 is a figure plucked out of the air to be put in the Finance Bill. It appears that the Treasury is saying, "If you find that it is necessary to pay people £15,000, £20,000 or £25,000, you must gross up the amount. You must pay that amount plus what is necessary to bring it up to the amount originally intended." It is nonsensical if the Treasury itself--the very Department responsible for the Bill--has already admitted that the amount is too small and if Departments are already being told to get around the rules so that people may receive the much larger amounts that they know are involved.

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It is likely that the Government's proposal will be harmful to industry. Firms will have difficulty with relocation packages unless they adopt the strategy that the Treasury is suggesting to Government Departments. Labour mobility will be harmed and relocation costs will be increased. Firms will have to gross up, as the Treasury suggests. There may be even harm to inward investment, which often involves foreign firms in the relocation of personnel in order to have key people at a new plant. Firms already struggling with relocation because they must concentrate operations on a single site will face higher costs. Training will be undermined as firms lay off partially trained people and re-employ to save on the expenses of relocating skilled people.

In these circumstances, the very least we must ask of the Government is that they provide a little more time for industry to adapt to the new and very restrictive regime. The proposals extend to a 12-page schedule, so they will clearly be quite complicated to implement. A period of grace would at least be of some help. If a new system were started on 6 April, there would be a period of notice of only two weeks--the interval between the Budget and the beginning of the financial year. No business plans relocation on the basis of a two-week period. Relocations are planned on a time scale of months or years. Many relocations already in progress have been planned long ago. In some cases, employees will be liable to tax on, say, £25, 000--or £25,000 minus £8,000--while in others they will not, depending on the removal date. Some people in a firm will be adversely affected. If there were a period of notice--if this provision did not have to be implemented until next April--firms could plan around the scheme ; thus, we could avoid a situation in which some people involved in a particular relocation exercise were much more favourably treated, from a tax point of view, than others. Industry ought to be given some time to adapt. I hope that the Chief Secretary to the Treasury will not further distract the Financial Secretary as this is a matter that industry regards as very important. A period of grace would at least help us through the worst of the aftermath of the recession. The Government's view--we all hope that they are right--is that recovery is under way. A further year before the falling of the axe on tax-free relocation expenses would give a little more opportunity to firms still adapting as a direct consequence of recession, so that they would not have to abandon relocation packages on the ground that they could not afford them, or gross up at considerably greater cost.

It is clear that Departments recognise that the Government's £8,000 is inadequate. Obviously, the Treasury is aware of that fact. Industry feels very strongly about the matter--I have in mind the Confederation of British Industry, the Engineering Employers Federation and many other organisations. This is a last chance for the Government at least to provide a little more time before implementation of their proposal.

Mr. Dorrell : The right hon. Gentleman has made it clear that he favours a system that encourages flexibility where it is necessary for a business to move its operations. He agrees that unnecessary obstacles should not be put in the way of such mobility. I agree. It is important that the system be sufficiently flexible to facilitate mobility where it is clearly in an employer's interests to move an activity from one part of the country to another. But that is rather

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different from the notion that mobility is a public good, that employers should receive tax treatment to encourage them to make some of their activities mobile. When an employer decides to move an activity from one area to another, he should not have to deal with unnecessary obstacles. However, the tax system should not in any way encourage such a decision. In this regard, the system and the public interest should be entirely neutral.

The changes that we are introducing remove what has amounted to a mild tax subsidy for a particular type of activity. The right hon. Gentleman has suggested that some people regard £25,000 removal packages as the norm. I simply do not believe that that is the normal cost of moving an individual from one part of the country to another. If it is the average, how is it that anybody ever moves house other than when paid by his employer to do so? Hon. Members ought to bring their critical faculties to bear on questions that we debate. Representations from interested groups to the effect that the average removal cost is £25,000 should be subjected to critical analysis. If they were analysed critically, they would be found to be wanting. The right hon. Gentleman asked me about grossing up in the case of public sector employees. That is not unknown, although we examine cases critically. When grossing up takes place, whether in this or in any other context, it is for Departments to decide what they need to do within the resources available to them. My right hon. Friend the Chief Secretary made the position very clear in the Standing Committee : he said that he would not entertain a suggestion that extra resources should flow to a Department that wanted to move people and to pay individuals' tax associated with the removal. Indeed, this flows from the policy stance that the Government have consistently adopted in respect of grossing up in the case of civil servants' tax bills.

Mr. Beith : I accept that no additional resources will be provided to enable Departments to gross up, but I should like to ask the Financial Secretary to confirm that Departments are examining, or have had to examine, relocation packages of more than £8,000, for which grossing up must be considered.

Mr. Dorrell : If a Department chose to gross up, it would be because it had decided that it needed to make a payment to a civil servant in respect of a removal in excess of £8,000. It is not a question whether the figure in excess of £8,000 includes an amount that is properly defined as betterment and, therefore, properly taxable. Spending Departments make payments to civil servants all the time, which are subject to tax. The question is not whether the payment is exceptional but whether it should be subject to tax. Against that background, we recognise that in order to move civil servants, or to encourage people in other walks of life to move, grossing up payments will be made. The principle is that the payment includes an element of betterment which is properly subjected to income tax. That principle underlies the provisions.

The Government have tabled what we believe are sensible proposals for transition. I cannot commend the amendment. The House should be aware that its practical effect would be not to extend the transition period but to abolish it. The Government have already withdrawn the extra statutory concessions with effect from 5 April this

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