| Previous Section | Index | Home Page |
Mr. Jack: I have listened carefully to the hon. Lady. She envisages that the new clause would maintain the existing registration mechanisms for schemes but would rule out a certain type of scheme. If the existing registration mechanism is to be maintained, how would the schemes to which she has referred be ruled out? The new clause is deficient in that detail. Could she supply it?
Ms Primarolo: With respect, the Financial Secretary could make that point when he responds to the debate. Frankly, if we were in government, I am sure that we
would find a way. The principle in the new clause is clear, so surely to goodness the Government can find a mechanism to achieve it.
Mr. Denis MacShane (Rotherham): I support the new clause, which my hon. Friend the Member for Bristol, South (Ms Primarolo) moved in a moderate and ministerial way. I shall be interested to hear how on earth the Minister manages to justify what is, by any honest examination, ministerial incompetence. The profit-related pay blunder, which my hon. Friend has examined in some detail, was identified as such in previous statements by the Chancellor. This is not a new discovery or the result of earnest research by the Labour party. It has been a matter of concern to Chancellors and to the Treasury, as shown by speeches reported in Hansard.
Having discovered the loophole, the Government have made no effort to close it. The new clause is the first concrete proposal to save the taxpayer what is potentially a serious loss of revenue, and to signal to companies that are rushing to take advantage of that tax loophole that the game is up.
Following that, we all waited--or, at least, Opposition Members waited--for the Chancellor to announce that, with effect from his Budget statement or perhaps a week or two thereafter, as is the norm when such loopholes are closed, no more schemes would be accepted for registration, or, at best, the loophole would be closed once the Finance Bill became law. In fact, the opposite happened. Massive publicity was directed at firms, suggesting that here was a wonderful tax avoidance dodge, and that, although it was going to be phased out, any company that chose to register a scheme could do so in the meantime.
My hon. Friend the Member for Bristol, South mentioned a company in Bristol. I know of companies in the engineering and metal-bashing sphere--as one whose constituency contains Britain's, indeed Europe's, largest engineering steel plant, I have nothing but respect for the craft and industry of metal bashing, steel making and engineering generally--that have been rushing to set up PRP schemes. They have offered their employees an absolute guarantee of no loss of income, thus invalidating the very principle--a sensible principle--that underlies all profit-related pay: the idea that those who make that extra effort and put in that extra commitment will cause the company's profits to increase, and will be paid more as a result.
I do not know what package is described in the fancy words of accountants in letters to the Treasury, but, on the ground, employees being offered such schemes are
being told that there is no way in which they will suffer any reduction in pay. Instead, they are told, they will pay less tax. As my hon. Friend the Member for Bristol, South pointed out, the clear implication is that they can moderate their pay demands, because they will gain the advantage of the tax break that the Chancellor will be able to offer for a number of years.
The very concept of profit-related pay has been nullified by the schemes that are being set up. They amount simply to a subsidy by the taxpayer to firms whose accountants and finance directors were able to read the business pages in September, and to follow the Budget speech. The Government waved an immense flag in front of their noses, saying, "Here is a way in which you can cut your company's overall tax burden."
The answers given to my parliamentary questions, which my hon. Friend mentioned, show that, between September, when the first massive publicity about the phasing out of PRP was leaked to the press--the breaking of the purdah--and the end of January 1997, the Treasury received 7,500 applications to register schemes, more than in the full 12 months of 1994. I do not have the figures for last month. The tax relief given since the Chancellor first said, through leaks to the press, that he was intending to take PRP out of our fiscal system amounts to £1.1 billion, more than the £1 billion in revenue forgone throughout 1995.
In the five months from the first Treasury-inspired publicity about phasing out PRP, through the Budget, to the end of January, schemes have been registered whichthe Treasury estimates will cost the Inland Revenue£1.1 billion. That money, which the Chancellor has lost through his incompetence, could be used to build 15 medium hospitals or 70 new schools with 1,000 pupils, to employ 60,000 new teachers or to put 30,000 extra police officers on the beat.
Opposition Members are concerned not just about the overall ideology of the fiscal regime as practised by the Government in the past five years, but about the incompetent handling of important technical issues. It is complete and utter nonsense to announce that a scheme is to be phased out, when that announcement is followed by a tidal wave of people rushing to join the scheme in order to profit from it, with a consequent massive loss of revenue to the Treasury in ensuing years. That is the point of the new clause to which my hon. Friend the Member for Bristol, South spoke so ably.
This is the real saga of the black hole. We know about the various other black holes--losses of revenue owing to serial ministerial incompetence in recent years--but this is the cherry on the icing of the black hole cake, if I may mix my metaphors. Conservative Members laugh at that, but I can tell them that constituents of mine in Rotherham who have been invited to join the Gadarene rush to help their firms to reduce their overall tax burden would much prefer a new hospital or a few more bobbies on the beat.
I do not know whether the Financial Secretary has seen the recent interesting report from Lloyds bank, which examines in broad terms the whole way in which Ministers managed to render the economy so unstable between 1980 and 1986. The bank's economists have drawn up headings for output, inflation, interest rates and exchange rates across the Organisation for Economic Co-operation and Development. The United Kingdom, as governed by Treasury Ministers, lies at the bottom of
nearly all the stability indices. That issue of stability--which means people knowing what their regime will be for tax planning, pay planning and personal savings planning--is essential, but it has been denied to those people by the recent incompetence of Ministers.
The Financial Secretary is an honest and an honourable man, with whom we enjoy engaging in debate. I hope that he will take this final chance to apologise, on behalf of the Chancellor, for this last example of Government incompetence. I believe that the Chancellor is in Beijing, giving weird interviews about statements that he made to a conference of grocers; I do not know whether the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) is with him to discuss the problems of the grocery trade. I hope that he will apologise for this last £1.1 billion that the Chancellor has managed to lose the Treasury since September last year, and apologise to the British people for the lack of the hospitals and schools that they could have had, the teachers who could have been in those schools and the bobbies who could have been on the beat. All that has been denied them because of the mishandling of the scheme--the profit-related pay fiasco.
I urge hon. Members on both sides of the House, irrespective of party allegiance, to vote for the new clause, to give the new Government a fresh start to close this loophole and to ensure that such tax fiddles never again disgrace Conservative Members.
Mr. Stephen Timms (Newham, North-East):
As Labour Members have said, it is absolutely clear that, since the Budget announcement and the suspicion leading up to the Budget, there has been a stampede into profit-related pay to take advantage of it in its closing years. I pay tribute to my hon. Friend the Member for Rotherham (Mr. MacShane) for extracting from the Minister the information that he has referred to, which puts the scale of the problem into context.
What has emerged is that, in the past few years, the growth in the use of the PRP scheme has been almost exponential. The cost to the Treasury of the schemes registered in 1994 is expected to be just over £0.5 billion, in 1995, £1 billion and in 1996 nearly £1.7 billion. As my hon. Friend has said, in the five months from September to January alone, the cost is more than £1 billion. He also said that there were about 7,000 new applications in that period. According to Inland Revenue statistics, there were only 12,740 schemes at the end of 1996, so there has been a huge increase just in the past few months.
The new clause that was moved by my hon. Friend the Member for Bristol, South (Ms Primarolo) ensures, first, that any employee currently in a PRP scheme that has been successfully registered and is tax favoured will continue to benefit from that scheme and, secondly, that employees in bona fide new schemes will be able to enjoy the benefits, until the Government phase those schemes out. However, we surely need to prevent, as the new clause proposes, employers from using the scheme simply to cut their pay bill by cutting income tax payments, with little or no benefit to employees.
| Next Section
| Index | Home Page |