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Mr. Peter Brooke (City of London and Westminster, South): Since the publication of the Bill, has there been adequate opportunity for the Treasury to meet representatives of the property industry who, while sharing the Government's views about wishing to stamp out abuse, feel that perhaps they are not going about it as effectively as they could?
Mr. Waldegrave: I am grateful to my right hon. Friend and am aware of the issues raised by a number of property developers. I think that the Financial Secretary to the Treasury has already met some groups--I take this opportunity to congratulate him on his Privy councillorship. It was one or other of my colleagues. I am led to understand that the Exchequer Secretary has met groups to talk about the matter. We shall certainly listen closely to the points raised.
The Bill also contains measures to protect the income tax and corporation tax base. Schedule 11 makes a number of changes to the tax treatment of finance leasing arrangements. Leasing can be a sensible way for people to employ the assets that they need in their businesses--this is relevant to the point made by my right hon. Friend the Member for City of London and Westminster, South (Mr. Brooke)--but in some cases finance lessors have found a way of turning rental incomes into a capital payment for tax purposes and the Bill will prevent that.
In other arrangements, the rental payments are concentrated towards the end of the lease period, thus reducing the tax take. In both cases, the Finance Bill will bring the tax treatment of leasing more closely into line with the treatment in commercial accounts. The Bill will bring in the new rules that apply where companies buy
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As my right hon. and learned Friend the Chancellor said in his Budget statement, the Government will not tolerate tax abuse. These measures and a number of others like them, which together will yield more than £1 billion a year, are ample proof that we are serious in the battle against tax avoidance. In addition, we are making extra resources available to the revenue departments to counter tax evasion and avoidance and to ensure that everyone pays the proper amount of tax.
As I said, a successful tax system is one that operates across a broad base. The Finance Bill therefore removes or reduces certain reliefs and I shall pick out two. First, clause 62 provides for the phasing out of the tax relief for profit-related pay. The relief was introduced by my right hon.--now noble--Friend Lord Lawson in 1987 explicitly, as he said at the time, as a temporary measure designed to encourage firms to set up PRP schemes. It has been an outstanding success. Around a quarter of private sector employees are now in PRP schemes. PRP has become successfully established as part of the United Kingdom's business pay policy.
The time to phase out the tax relief over a period of years has therefore arrived, but it is important to remember that we are simply removing the tax relief. Firms can and should still relate pay to profits and can therefore continue to reap the rewards, including greater pay flexibility, increased employee involvement and higher productivity. I hope that many firms will continue to do so.
Secondly, schedule 13 reduces the rate of writing down allowances on long-life assets from 25 per cent. to 6 per cent. a year. The tax system treats investment generously, but 25 per cent. a year is too generous for assets with lives over 25 years. The new regime is a logical extension of the 1984 corporation tax reforms brought in by Lord Lawson. By bringing the tax treatment more closely into line with accounting treatment, we are ensuring that tax considerations enter as little as possible into companies' investment decisions.
Mr. John Butterfill (Bournemouth, West):
Does my right hon. Friend think that it is reasonable and appropriate for the regime that applies to aircraft to be different from that which applies to trains and ships? Are they not all now in fairly open competition for transport purposes, and is there not, therefore, an element of discrimination against the aircraft industry in my right hon. Friend's proposal?
Mr. Waldegrave:
I am aware of the representations that have been made by many in the aircraft industry. Once again, we shall take careful note of the legitimate point that my hon. Friend raises. It will doubtless be discussed further, and we shall listen to the arguments.
All the proposed measures will significantly expand the tax base and allow us to continue to reduce tax rates. The Bill takes another significant step towards our goal of a 20p basic rate of income tax. We believe that low direct taxes are the most effective way to encourage enterprise
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Since we came to power, we have repeatedly cut the basic rate of tax towards our 20 per cent. goal. In 1979, the rate was 33 per cent. From 6 April, clause 55 ensures that it will be fully 10p lower, at 23 per cent., the lowest basic standard rate of tax for almost 60 years. For more than a quarter of taxpayers--more than 7 million people--the rate of tax is already 20 per cent.
Once again, the Opposition's attitude is something of an enigma. They seek to defeat the Bill, so presumably they seek to defeat those income tax cuts. If, having listened to our arguments, the House carries the Bill, the Opposition will abstain, as they did last year, on the income tax cuts. It is all muddle and confusion. I suspect that the Opposition hope that they will not win the main argument, because they do not want to vote against income tax cuts, but they are not brave enough to say so, nor are they brave enough to criticise the tax cuts in the amendment that they have tabled. It is a muddle, as usual.
As my right hon. and learned Friend said in his Budget statement, we could have reduced the basic rate of income tax by 2p, thanks to the tough stance that we have taken on spending in the measures that I described to protect and expand the tax base. However, it is also important to maintain the real value of allowances. Clause 56 goes further than that. It increases the lower rate band by twice and the personal allowances by three and a half times more than required by statutory indexation. As a result, all income tax payers will pay less income tax--on average, £150 a year less. We do not know whether the Opposition are in favour of that or against it. Again, their attitude is a mystery wrapped in an enigma.
It is not just individuals and families who benefit from the measures in the Bill. Unincorporated businesses and small companies will also feel the benefit of lower income tax and corporation tax. The Government recognise that small businesses are crucial to the success of the economy. That is why clause 74 and schedule 8 help small companies to raise finance through relaxations to the venture capital trust and enterprise investment schemes. It is also why we are freezing business rates for small properties this year.
We may have found an area where Labour agrees with us--or has a policy--as there are two differences between its rather platitudinous amendment this year and last year's amendment. This year, the amendment contains a split infinitive and omits criticism of the Government regarding small businesses. Therefore, the Opposition presumably acknowledge that we have taken the right steps on small business. They would be wise to do so, as the Forum of Private Business called this Budget
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The Finance Bill crowns five years of economic achievement. Since our re-election in 1992, we have seen nearly five years of uninterrupted growth with unprecedented low rates of inflation. Under this Budget, a family on average earnings will have more than £20 a week extra to spend next year after tax and inflation than before the previous election. The last Labour Government could manage only a puny £1 a week.
"The best of the decade."
We have also made another significant down payment on our commitment to abolishing inheritance tax. Clause 91 raises the threshold by £15,000--£10,000 more than is required by statutory indexation. Combined with the big increase in the threshold last year, it amounts to a rise of almost 40 per cent. in two years.
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