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Mr. Robinson: I am grateful to you, Sir Alan. We can take it, then, that the Opposition could not table an amendment that was in order, but still intend to offer some sort of latter-day attack on the windfall tax.
Clause 1 heads a group of provisions that together introduce the windfall tax, thus meeting the commitment that we made in our election manifesto to introduce a windfall levy on the excess profits of the privatised utilities. Those companies were sold too cheaply, so the taxpayer got a bad deal. Their initial regulation in the period immediately following privatisation was too lax, so the customer got a bad deal.
As a result, the companies were able to make profits that represented an excessive return on the value placed on them at the time of their flotation. We are now putting right the failures of the past by levying a one-off tax. The
yield of around £5.2 billion will fund our welfare-to-work programme, and the new deal that we have announced for the young long-term unemployed and schools.
Clause 1 provides a one-off charge, set at a rate of 23 per cent. It also gives effect to schedule 1, which will be debated in Standing Committee. It may be helpful if I set the clause in context by explaining briefly how the windfall tax works.
Windfall tax is charged on the difference between the value of the company, calculated by reference to the profits made in the initial period after privatisation, and the value placed on the company at the time of privatisation. The value of the company is calculated by multiplying the average annual profit after tax for, normally, the first four financial years after flotation, by a price-to-earnings ratio of nine. That ratio approximates to the lowest average--
Mr. Lilley:
Will the Minister give way?
Mr. Robinson:
In one second. I shall just finish this point.
If the shadow Chancellor wants to intervene on the ratio, it may be helpful for him to know that the ratio approximates to the lowest average sectoral price- to-earnings ratio of the companies liable to the tax. The value placed on the company at flotation is calculated by multiplying the number of ordinary shares by the price at which shares were offered to financial institutions.
Mr. Lilley:
I think that the Minister has kindly answered the question that I was about to ask, which was simply: whence did he pluck the figure nine? On reading Hansard, I shall be able to investigate exactly where he got the figure from.
Mr. Robinson:
I am grateful to have so easily assisted the shadow Chancellor. May that ease continue as we proceed into more difficult waters during proceedings on the Bill.
Tax will be charged on that amount at 23 per cent. The tax will be payable in two instalments, due on 1 December 1997 and 1 December 1998. The companies liable to the windfall tax are those that were privatised by flotation and subject to economic regulation. That links with the rationale of the tax; the companies were sold off too cheaply when their shares were offered under value on flotation, and were regulated too loosely in the initial period after privatisation.
We have wasted no time in introducing the legislation and in fulfilling our electoral pledge. I commend the clause to the Committee.
Mr. Lilley:
That was hardly a ringing endorsement of clause 1, and I can set the Minister's mind at rest: we have every intention of opposing this and subsequent clauses vigorously, both today and in Standing Committee. We have tabled amendments which, by definition, were in order because they are on the amendment paper. However, you have rightly decided, Sir Alan--all your decisions are right--not to select the amendments and that we can cover this ground under clause stand part, and that is what I intend to do.
Clause 1 introduces the only tax, out of the 17 tax increases imposed by the Budget, which does not breach promises in the Labour party's manifesto. If the House
recalls, Labour promised that it had no need for any taxes over and above the windfall tax; it did tell the nation that there was to be a windfall tax, and it was in the manifesto. However, even that tax was based, essentially, on a deception: the pretence that it would not be paid by ordinary people. It was to be a sort of victimless crime, or rather a fine on the guilty--the so-called fat cats and the speculators--or on some abstract entity, the utility companies.
We have four major criticisms of the clause and the windfall tax that it initiates. First, the clause makes it clear that the tax will not be borne by the so-called fat cats and speculators, criticisms of whom justified its introduction. Secondly, it makes no meaningful attempt to define what is a windfall and should therefore bear the tax. Thirdly, it increases instead of reduces cost to customers; any improved profitability should be passed on to customers in the form of lower prices. Finally, it is retrospective, arbitrary and symptomatic of the Government's belief in arbitrary government, rather than in government by known and predictable rules.
The first issue, therefore, is who will pay the tax in the first instance. I should like the Minister to confirm that next to nothing will be paid by the people whom Labour spent many years vilifying--the so-called fat cats. How much of the tax will be paid by directors of privatised utilities? Next to nothing, I venture to suggest. How much will be paid by the notorious Cedric Brown? Not a penny, I suspect. Nor will it fall upon the so-called speculators, if the definition referred to in the clause is incorporated in the Bill. Virtually no one who subscribed early and sold immediately--who stagged the market--or sold within a brief period afterwards will pay any of this tax. Yet those who bought the shares after flotation, for long-term investment--on behalf, usually, of pensioners--will pay the tax in full; unless, of course, it is passed to their customers.
Mr. George Stevenson (Stoke-on-Trent, South):
Would the shadow Chancellor care to comment on the obscene procedure that applied when National Grid was given away, when regional electricity companies received windfalls of hundreds of millions of pounds at public expense, without lifting a finger?
Mr. Lilley:
My recollection is that that resulted in £50 being knocked off every quarterly electricity bill in the country. The hon. Gentleman may think that that is obscene. We think that that is what privatisation is all about--reducing costs and prices and passing the benefits to consumers.
Mr. Dale Campbell-Savours (Workington):
May I ask the shadow Chancellor a simple question? Has it dawned on him that one of the reasons why millions of people changed their vote at the election was that they believed that the Conservatives represented and condoned greed? Does not this debate derive in essence from that greed, which the Opposition failed to control when they were in government?
Mr. Lilley:
This may surprise the hon. Gentleman, but there is undoubtedly an element of truth in what he says. That is why I have no doubt that he will share my
The clause says:
How can it be meaningful in the clause to describe shareholders on 2 July 1997 as "benefiting from a windfall", which may have arisen years before and which may have been paid out in dividends to a previous generation of shareholders? Will not the clause be open to legal challenge, as it is internally contradictory? Will the Paymaster General explain why he did not put that benefit in the past rather than the present tense, when clearly the definition in the schedule relates to alleged excess profits arising many years before?
That brings me to my second set of concerns. What do the Government mean by a windfall? No serious attempt is made to define anything that could be meaningfully defined as a windfall. Most people would assume that it referred to the rise in the share price soon after flotation. Previously, informed sources--who appeared to have the ear of the Labour party--made it clear that Labour intended at that time to relate the tax to movements in share prices after flotation.
"Every company which, on 2nd July 1997, was benefiting from a windfall from the flotation . . . shall be charged with a tax . . . on the amount of that windfall."
The company, of course, is the shareholders at any point in time, but the so-called windfall arose in many cases a decade or more ago. If there was a windfall, it may have been paid out in dividends to the shareholders who held the shares in the intervening period.
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