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5.15 pm
Mr. Tim Smith: The amendments deal with an issue that I raised in the Standing Committee, which had to do with the 20p tax on savings and the concern that I raised on behalf of the Association of British Insurers that savings in insurance products should be treated in the same way as others and attract the 20p rate.
I thank my hon. Friend for making the change.
Amendment agreed to.
Amendments made: No. 2, in page 209, line 26, at end insert
No. 3, in page 209, line 41, leave out 'all its relevant' and insert 'its BLAGAB'.--[Mr. Jack.]
The Chief Secretary to the Treasury (Mr. William Waldegrave):
I beg to move, That the Bill be now read the Third time.
It seems quite a long time since the Budget and it is worth reminding ourselves of the important and interesting matters in the Bill. No doubt, everything that we discussed in Committee and on Report was important, but some matters are rather spectacular. The Bill increases personal allowances by £100 more than indexation.It widens the lower rate tax bands by £700, which is£500 more than indexation. It reduces income tax on savings income to 20 per cent. for basic rate taxpayers and cuts the basic rate of tax to 24 per cent.
The elite little band of my hon. Friends who are here for Third Reading outnumber the two faithful souls on the Opposition Back Benches, and they are wholly outnumbered by the right hon. Member for Lagan Valley (Sir J. Molyneaux). It is never a surprise to see the right hon. Gentleman in his place and contributing to our debates.
This important Bill makes significant reductions in capital gains tax and inheritance tax, the threshold of which will be increased by £40,000 more than indexation up to £200,000. That means that the number of estates paying that tax will be reduced by a third. The leader of the party to which the right hon. Member for Lagan Valley belongs, the hon. Member for Upper Bann(Mr. Trimble), has come to reinforce him, and that makes the proportionate representation even more spectacular.
The Bill's income tax changes will benefit 26 million taxpayers and 14 million savers. Some 220,000 people--low earners and pensioners--will be taken out of tax altogether and more than 6 million people--a quarter of all taxpayers--will pay tax at 20 per cent. The income tax bill of a family on average earnings will be cut by about £235 a year. Those changes will start to appear in pay packets the week after next at the start of the new tax year.
As the experts on the Committee know, the Bill is not just about personal tax reductions. It modernises--I hesitate to say simplifies--the tax system in several important respects and contributes to the Government's aim of a low-tax economy for business as well as for individuals, which is making Britain the enterprise centre of Europe. I shall give one or two quick examples, which will be familiar to hon. Members who are in the Chamber. The Bill legislates for the new landfill tax which, as the Chancellor memorably said, puts a tax on rubbish to enable the tax on people to be lifted a little. That is obviously an environmentally and economically sensible tax.
The Bill completely updates the arrangements for handling corporate loan relationships. Some members of the Committee will be dreaming about that subject, or perhaps singing about it, in the months ahead. I cannot claim that that is a simple subject but it is now better legislated for.
There are new measures to encourage participation in employee share ownership schemes, especially for lower-paid staff. That builds on our achievement of helping employees to acquire a true stake in their companies by owning shares in them. The members of the Committee put in a great deal of work and have improved the Bill. Hon. Members from all parties contributed to that but I pay tribute to my hon. Friends in
particular. Those who are in the Chamber tabled, and had accepted, amendments that improve the Bill in various ways. Some of those amendments were tabled on Report.
I shall mention a few of the improvements that the Committee made to the Bill. My hon. Friends, supported by some Opposition Members, made representations about the landfill tax. There were amendments to exempt dredgings from inland waterways and harbours, an issue that we debated yesterday, and to exempt naturally occurring waste from mining and quarrying operations. There were a number of other changes on definitions and on the coverage of that tax, and members of the Committee are to be congratulated on all those improvements.
I am a leading member of the House of Commons classic car club--I think that I may be the only member apart from its chairman--and I certainly pay a high subscription. Of special interest to me were the representations by Lord Montague of Beaulieu and by others. Lord Montague has pressed us more on this part of our heritage than anyone else, and made representations about historical lorries, fire engines, road rollers and other types of traction engines to which we have extended the Chancellor's exemption. That will bring a great deal of pleasure to many people and will help to conserve an important part of our national heritage.
On Report, the House debated loan relationships, which is not a subject that one enters into unadvisedly because it is complex and important. We listened to those who mentioned some flaws in the provisions and to more general comments that the anti-avoidance provisions went too far. We made some helpful changes in that area. We made further improvements in the self-assessment measures and adopted the suggestion by my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) on friendly societies to allow them wider access to life insurance policies.
I have given a selection of the improvements that were made in Committee. We were ably led by my hon. Friends the Financial Secretary and the Economic Secretary and my right hon. Friend the Paymaster General, all of whom worked very hard.
The United Kingdom economy has been growing steadily for nearly four years, and the recovery over that period has been the most robust of any major European economy. Far from slipping down the world prosperity league, as the Labour party likes to claim, the United Kingdom has closed the gap on many of its competitors. Over the last European cycle, which is the proper measure, United Kingdom income per head grew as fast as that of Germany and faster than those of France, Italy or the European Union average.
The fundamentals for strong and continuous growth with low inflation remain in place. We are enjoying the longest sustained period of low inflation for almost50 years and, of course, in the period before that statutory controls and all kinds of wartime controls were in place. The Bank of England's latest inflation forecast shows that underlying inflation in the United Kingdom is more likely than not to be somewhat below 2.5 per cent. in two years' time, which is our target.
Company profits and the health of corporate Britain have rarely been better. Profits, which are already high, rose by another 6 per cent. in 1995. Investment in plant and machinery manufacturing had a further year of strong
growth, and that is very satisfactory. Research that was commissioned by the Treasury shows that our better performance in manufactured exports in the 1990s is likely to come from better quality as well as from price.
That is an encouraging trend and it is reinforced by the further good news that, although there has not been much investment in new buildings, Britain is doing well in investment in the latest manufacturing machinery. There is a good article in today's edition of the Financial Times about the British machine tool industry, which is a good indicator that firms are investing in the latest machinery. That is good for the future.
Labour's response to all that is a little confused, because, for an Opposition, it is always pleasant to have bad news to point to so that they can blame their opponents. It is genuinely difficult to argue that there is much wrong with the British economy now or that there will be in the foreseeable future. That was confirmed recently by Lord Desai, professor of economics at the London school of economics. He had an enjoyable exchange by remote control with the hon. Member for Oxford, East (Mr. Smith), in which Lord Desai said:
the latest interest rate reduction--
For greater clarification, he concluded:
That is not the place from which to attack one's opposition.
The response of the hon. Member for Oxford, East to that was a little ungracious. He did not try to attack Lord Desai's economics--he would have been unwise to do so: Lord Desai is a Labour party member who is an extremely distinguished man--so the hon. Gentleman accused him of being a peer, and said that he is "an academic economist". Using the word "academic" as an insult is not becoming for someone who represents part of my former university town, but worse than that, the hon. Gentleman said that Lord Desai is a peer, so we need not pay any attention to him.
The trouble is that it is not Lord Desai's fault that he is a peer; it is the Labour party's fault. It made him a peer, so it is jolly bad luck on the hon. Gentleman to say of Lord Desai, "Well, he's an old fogey. He's not only an academic, but he's a peer. Terrible fellow--you can't pay any attention to him." Lord Desai, not for the first time, has inconvenienced Opposition Front-Bench Members by saying something that is absolutely on the button, which is that the British economy is strong and looks as though it will remain strong and that it is unwise of the Labour party to attack it.
'or
(c) the policy holders' share of the company's relevant profits is more than the company's BLAGAB profits,'.
Amendments made: No. 51, in page 218, line 12, after 'If', insert--
'(a)'.
No. 52, in page 218, line 14, after 'accruing,', insert
'and
(b) credits representing the full amount of the interest are not for any accounting period brought into account for the purposes of this Chapter in respect of the corresponding creditor relationship,
then'.
No. 53, in page 226, line 29, after 'period', insert ("the relevant period")'.
No. 54, in page 226, line 32, leave out from 'security' to end of line 35 and insert
"is available to another company at any time in that period;
(c) for that period there is a connection between the issuing company and the other company, and
(d) credits representing the full amount of the discount that is referable to that period are not for any accounting period brought into account for the purposes of this Chapter in respect of the corresponding creditor relationship.'.
No. 55, in page 226, line 38, leave out from 'that' to end of line 42 and insert
'every debit relating to the amount of the discount that is referable to the relevant period is brought into account for the accounting period in which the security is redeemed, instead of for the relevant period.
(2A) References in this paragraph to the amount of the discount that is referable to the relevant period are references to the amount relating to the difference between--
(a) the issue price of the security, and
(b) the amount payable on redemption,
which (apart from this paragraph) would for the relevant period be brought into account for the purposes of this Chapter in the case of the issuing company.'.
No. 56, in page 226, line 49, leave out 'at any time' and insert 'for the relevant period'.
No. 57, in page 227, line 1, leave out from beginning to 'one' in line 2 and insert--
'(a) there is a time in that period or in the period of two years before the beginning of that period when'.
No. 58, in page 227, line 4, leave out
'at that time, or at any time in those two years'
and insert
'there is a time in that period or in those two years when'.--[Mr. Jack.]
Amendments made: No. 35, in page 234, line 35, leave out 'sub-paragraph (5) above' and insert 'this paragraph'.
No. 36, in page 234, line 51, leave out
'the company's expenses of management deducted'
and insert
'any deductions'.
No. 37, in page 235, line 7, at end insert--
'(10A) In sub-paragraph (10) above, the references, in relation to a claim under sub-paragraph (3) above ("the relevant claim"),to deductions by virtue of section 76 of the Taxes Act 1988 for a set-off period are references to the deductions by way of management expenses that would have fallen to be made by virtue of that section for that period if--
(a) no account were taken of either--
(i) the relevant claim; or
(ii) any claim under sub-paragraph (3) above relating to a deficit for an accounting period after the deficit period;
but
(b) there were made all such adjustments required by virtue of any sum having been carried back to that set-off period--
(i) under the Corporation Tax Acts, but
(ii) otherwise than in pursuance of the relevant claim or of any other such claim as is mentioned in paragraph (a) above.
(10B) Where--
(a) in pursuance of a claim under sub-paragraph (3) above any amount is set-off against the eligible profit of a company for any set-off period, and
(b) there is a section 76(5) amount for that period which is attributable to that claim,
that section 76(5) amount shall not be carried forward by virtue of section 75(3) of the Taxes Act 1988 but, if that set-off period is the first or second set-off period, sub-paragraph (10C) below shall apply to that amount instead.
(10C) Where this sub-paragraph applies to a section 76(5) amount for any set-off period, the amount available in accordance with sub-paragraph (5) above to be carried back from that set-off period to be set off against eligible profits of previous set-off periods (or, as the case may be, against the eligible profit of the previous set-off period) shall be treated as increased by an amount equal to the amount to which this sub-paragraph applies.
(10D) In relation to any claim under sub-paragraph (3) above, the amount which for any set-off period is, for the purposes of this paragraph, to be taken to be the section 76(5) amount attributable to that claim is the amount (if any) by which the amount specified in paragraph (a) below is exceeded by the amount specified in paragraph (b) below, that is to say--
(a) the amount that would have fallen to be carried forward by virtue of section 75(3) of the Taxes Act 1988 if the claim had not been made; and
(b) the amount which, after the making of the claim, would have fallen to be carried forward to a subsequent period by virtue of section 75(3) of that Act if sub-paragraphs (10B) and (10C) above, so far as they relate to that claim, were to be disregarded.'.--[Mr. Jack.]
Amendments made: No. 66, in page 251, leave out lines 47 and 48 and insert--
'23.--(1) Where this Chapter has effect in relation to any accounting period in relation to which section 434A of that Act (computation of losses and limitation on relief) has effect without any of the amendments made by paragraph 2 of Schedule (Life assurance business losses) to this Act, subsection (2) of that section of that Act shall have effect in relation to that period with the following amendments, that is to say--'.
No. 38, in page 259, line 1, leave out 'and (4)' and insert ', (4) and (4A)'.
No. 59, in page 259, line 23, at end insert--
'(4A) The Treasury may by regulations provide for subsection (3) above to apply--
(a) in the case of trading credits as well as in the case of non-trading credits;
(b) in the case of any credit ("an insurance credit") in the case of which, by virtue of subsection (4) above, it would not otherwise apply.
(4B) Regulations under subsection (4A) above may--
(a) provide for subsection (3) above to apply in the case of a trading credit or an insurance credit only if the circumstances are such as may be described in the regulations;
(b) provide for subsection (3) above to apply, in cases where it applies by virtue of any such regulations, subject to such exceptions, adaptations or other modifications as may be specified in the regulations;
(c) make different provision for different cases; and
(d) contain such incidental, supplemental, consequential and transitional provision as the Treasury think fit.'.
No. 40, in page 259, line 25, at end insert
'and
'trading credit' means any credit falling to be brought into account for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships) in accordance with section 76(2) of that Act.'.'.--[Mr. Jack.]
Amendment made: No. 41, in page 338, line 9, after 'England' insert 'and Wales'.--[Mr. Jack.]
Amendments made: No. 11, in page 416, line 14, leave out 'Section 21 (2)(b).'.
No. 67, in page 431, line 9, at end insert--
Chapter
Short title
Extent of repeal
1988 c. 1.
The Income and Corporation Taxes Act 1988.
Section 436(3)(aa).
Section 439B(3)(b).
Section 441(4)(aa).
1995 c. 4.
The Finance Act 1995.
In Schedule 8, paragraph 16(4) and (5).
These repeals have effect in accordance with paragraph 10(2) of Schedule (Life assurance business losses) to this Act.'.
No. 64, in page 433, line 34, at end insert--
Chapter
Short title
Extent of repeal
1990 c. 1.
The Capital Allowances Act 1990.
In section 33C(2), the words "to be", in the first place where they occur.
No. 61, in page 434, line 36, column 3, leave out '"or (c)" and'.
No. 62, in page 434, line 40, column 3, leave out from '8' to end of line 47 and insert
', paragraphs 5 to 7.'.--[Mr. Jack.]
Order for Third Reading read.5.19 pm
"I have talked to people and they are beginning to feel a reduction in the mortgage payment already and what happened today"--
"is going to increase that. We just have to be aware, in the Labour party, that these things are happening and it's no good denying them."
"All I am saying is the economy is going to look very good."
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