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Sir Terence Higgins: That is the point that I was making. For pensioners and people in need, the amount of compensation in many cases, and perhaps even overall, has more than compensated for the tax.
Mr. Anderson: Of course, there is a compensation scheme for certain elements, but there are those at the margins whom, in other contexts, the right hon. Gentleman and his colleagues would seek to support, who will lose out as a result of the failure to reduce the current 8 per cent. to 5 per cent.
I shall not go over the missed opportunity on the windfall tax. But the way in which the leaders of the privatised utilities, doing largely the same jobs as they did before, imagine that their saleability, their market worth, in the private sector has been so mightily enhanced, must be an embarrassment to the Government. It is an affront to the great mass of reasonable people in Britain, and the Government are, in essence, doing nothing about it.
I end on this note. Historically, the Budget will be seen largely as a non-event. The Conservative party is really two parties. It is a highly divided party. The Government have been drifting ever since they were forced out of the exchange rate mechanism. We recall the bitter speech of the then retiring Chancellor, in which he talked of a Government in office but not in power. The Government have been in office, enjoying the fruits of office and exulting in the trappings of office, since that time, but they are not in power because of those divisions. The resulting drift is bad for the country. We saw that in the Queen's Speech in 1994. Once Post Office privatisation was taken out of the equation we, as legislators, had perhaps the easiest year in my memory in the House.
Sir John Cope (Northavon):
It would be nice at this stage of the Budget debate to be able to compare and contrast the proposals of my right hon. and learned Friend the Chancellor of the Exchequer with the Opposition's proposals. Unfortunately, we cannot do that, because there is none, apart from the windfall tax which, as far as I could gather from the speech of the hon. Member for
I welcome the Budget although, like my right hon. Friend the Member for Worthing (Sir T. Higgins), I was rather surprised by the press reaction to it. I read in the paper that Tory Members of Parliament were disappointed and thought that the Chancellor of the Exchequer should have gone further. In many conversations with colleagues around the House since the Budget, I have not found that to be the case. It was a steady Budget and right for the economy, and will help the country to continue the steady expansion that we are enjoying.
I welcome the Budget particularly from the point of view of small businesses. They are, as my right hon. Friend the President of the Board of Trade said, crucial to the country's economy. They are the dynamic sector of the economy, they fill niches all over the marketplace, they are generally very flexible and they are, crucially, where jobs come from these days.
There are some specific measures in the Budget for small businesses, to which my right hon. Friend the President of the Board of Trade referred, which I welcome--for example, additional relief for business rates. The right hon. Member for Derby, South (Mrs. Beckett) seemed rather to dismiss that, but it is worth £300 million over three years and so should not be dismissed. There were also retirement relief and inheritance tax measures and another small lift in the VAT threshold.
I would like to see the VAT threshold higher. I am glad to say that when I was in the Treasury the threshold was considerably increased by a large jump. We are inhibited in the amount by which we can increase it further as a result of our agreements in the European Community, but that is desirable.
The most important thing for small businesses is not so much the specific measures, important as they are, but the overall effect of the Budget. Small businesses need an increase in demand, in consumers ready to spend money in order to increase their turnovers. The Budget will help with that to some extent by encouraging growth.
But the Budget also looks as though it will mean lower interest rates. I gather that at least three building societies have lowered their interest rates and more are likely to follow. That too is important.
Crucially for small businesses, my right hon. and learned Friend the Chancellor also outlined in his Budget speech several measures aimed at simplification and deregulation. They are part of an important series of initiatives to which my right hon. Friend the President of the Board of Trade referred. I know well from my experience in government how difficult simplification of the tax system and deregulation are in practice. But they are of fundamental importance and so worth the great effort that is required.
Every business has to deal not only with the Inland Revenue and Customs and Excise, which we are mainly discussing in the Budget debate, but with a series of different Government and local government departments and agencies. I counted a total of 23 regulatory agencies covering one small ordinary business, not at all in a specialist line.
The Inland Revenue and Customs and Excise are only two of those, although a business often, indeed usually, has to deal with more than one part of, for example, the Inland Revenue. It has to deal with PAYE for its employees, and with corporation tax and the calculation of profits, and so on, which involves another part of the Inland Revenue. In effect, the Inland Revenue is two bodies.
Therefore, one of the most valuable sentences in the Budget speech occurs, appropriately enough, in column 1066. My right hon. and learned Friend the Chancellor said:
The passage on parliamentary handling of such changes is of interest to us, but particularly to me because I am now on the Procedure Committee. The simplification that is required is partly of language, but it cannot be done without at least some changes to the substance of the legislation itself, and so our consolidation Bill procedures cannot be used as they are now in the Standing Orders of the House. In any case, of course, they were not designed for that purpose and would not really be appropriate. The volume of tax legislation is now so huge that to rewrite it would require a mammoth Finance Bill or, more realistically, a set of them. We need to think carefully about the parliamentary angle and desirable changes in the tax law before we get much further. The IFS report discusses it all and is most valuable, but it is important to keep up the momentum, so I welcome very much column 1066 of the Budget speech.
I wish to discuss another matter that is related in a sense. One way in which my right hon. and learned Friend might have gone--and was urged to go by many people-- was down the road of reintroducing investment allowances. There was a lot of prompting for him to do that, from many sources--indeed, I passed on some of it to Treasury Ministers myself--but I believe that it would
be a retrograde step and would not help investment. Investment allowances are a political flag to wave, a way to say that something is being done about investment without having a significant effect on investment itself, and with the great drawback of adding further complications to the tax system, which is something that I wish to avoid.
My generation of accountants was brought up on very elaborate capital allowances, which altered almost every year as Chancellors of the Exchequer--of all parties-- tried to encourage investment in particular assets. Over the years, we had initial allowances, investment allowances, free depreciation, investment grants and so on, all coming in and out of operation in different years. They varied between different assets: industrial buildings, plant and machinery, motor cars, ships with refrigeration equipment, ships without, all that sort of thing. Drawing offices counted as industrial buildings provided that they were attached to a factory, but not if they were not. Retail premises or showrooms were not allowable as an industrial building unless they were under 10 per cent. of the square footage. The rules always varied, not only from year to year but from place to place, as Chancellors tried to help the areas of high unemployment.
All that caused a great deal of activity for junior accountancy clerks like me, but I do not believe that it made a significant difference to the total investment, although it succeeded in moving the investment around the country in some cases. I believe that it also had some unintended side effects, for example, on the sale of agricultural tractors, which, for some years, was enormous and not really justified. The fact is that businesses invest when they can afford to do so, and in projects that they think worth while. I believe that they are the best judges of whether it is better to invest in a new machine, showroom, both, or something else. Interest rates and the examination of what they will be during the life of the asset or investment concerned have a big effect on whether they can afford it, because a lot of investment is done on borrowed money. In that respect, the Budget is helpful from the investment point of view as well as otherwise.
Expectation of demand is the biggest factor in whether the proposed investment is likely to be worth while. That, too, is helped by the Budget. Both factors mean that it is a good Budget for investment, and it is far better than it would have been if we had gone back to the complicated system of investment allowances, which would have been a big step backwards in the simplification of the tax system that I want to see.
Overall, I think that it is a good Budget, which I very much welcome.
"The Inland Revenue will shortly be publishing a report on tax simplification."
That was not news; it is under an obligation to do so next month, as we know from the last Finance Act. My right hon. and learned Friend added:
"We shall propose that the Revenue tax code is to be rewritten in plain English".
When I was responsible for Customs and Excise, I am glad to say that it won some plain English awards for some of its leaflets, which was very good. We also started a drive to make VAT more taxpayer friendly--if that is not an impossible task. My right hon. and learned Friend went on to say:
"We in the House will need to look at our procedures, to see how that tax rewrite can be sensibly handled."--[Official Report, 28 November 1995; Vol. 267, c. 1066.]
In that sentence I saw a reflection of the work that has been done by the tax law review committee of the Institute for Fiscal Studies, which published an interim report a few days ago. It is a most interesting report and it deserves the closest study. It reinforces strongly the complex web that constitutes our tax legislation now; I admit at once to having contributed to that as a Treasury Minister, with some of the longest Finance Bills that there have been. But I also know how difficult it is for the professions--let alone the small business man trying to understand what is required of him--to deal with the tax legislation. The report makes it clear how difficult the problem is, both in what it says and in the solutions that it proposes, but nevertheless that only increases its importance in my view.
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