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Mr. Nicholas Soames (Mid-Sussex): Does my hon. Friend agree with me that the Paymaster General, who has a distinguished record in business--he is a shrewd and capable business man--would not have taken kindly to Jaguar being subject to a windfall tax?
Mr. Davies: The hon. Gentleman would have been failing in his fiduciary responsibility to his company, its shareholders and employees who depended on him if he had not fought like a cat against the imposition of such an arbitrary, obnoxious and unjustifiable levy.
Despite our provocation, the hon. Gentleman is looking into outer space and is determined not to respond to our comments. He feels guilty, so he will not take issue with us on the principles of economics or financial theory. He
will not rewrite the textbooks, because he knows perfectly well that, if the prospective after-tax profit from any investment is reduced, the propensity to invest will be reduced. To justify any investment, the prospective yield will have to increase. Less investment will be undertaken, so there will be less growth and less employment generation in those companies in the future.
Those companies have risen like the phoenix from the ashes of the nationalised economy that we inherited in 1979. They have flown proudly like eagles around the world. They have made major strategic investments in North America, in the former Soviet Union and in the rest of the single market. That is an impressive record.
Sooner or later, any company that is successful under this socialist regime will be penalised. The privatised utilities are to be penalised for their pains because of their disproportionate contribution to the national wealth and their contribution to the technological, environmental and productivity gains in their own sector. Their contribution should justify some reward and recognition, but it is being met with an invidious penalty in the form of a windfall tax. They will have to reduce their investment plans and their potential growth prospects will be blighted. Their capacity to generate employment in those important industries will be significantly reduced.
We are told that the money will fund a welfare-to-work programme. Make no mistake about it: that shows that the concept of new Labour is a complete fallacy. There is no "new" about it; it is old Labour--old socialism. We had to fight it in the 1970s and, indeed, in the 1940s. We had to fight it in order to lay the basis of the successful economy that we now have, which has been so threatened by events on 1 May.
This is a sad day for the economy. We are not talking about small amounts of money. A significant precedent is being created--a precedent that will be regretted, not merely by those who work, aspire to work or might have hoped for attractive careers in the successful industries involved. Many of those industries are technology- intensive and many are at the frontiers of environmentally friendly business and therefore have much to offer similar sectors of activity around the world. Jobs and prospects will be removed and replaced by the prospect of subsidised jobs elsewhere in the economy. It is an extremely bad deal.
I happily give way to my hon. Friend.
Mr. Soames:
I do not wish to intervene. I am listening to my hon. Friend's speech.
Mr. Davies:
I am sorry. I must have misunderstood my hon. Friend's hand gestures.
We have heard many interesting speeches from hon. Members on both sides of the Committee but, during my speech and those of other Conservative Members, what has been notable is the silence of Ministers. They just sit there and listen to Conservative Members making what would, if they were not telling the truth, be deeply shocking allegations. We are saying, "Here we have a Government who are arbitrary, unfair and devoid of any sense of justice, introducing retrospective legislation and taxes that will damage the British economy." We can say all that without the slightest fear of contradiction, because Ministers clearly have no arguments to advance.
Mr. Davies:
I see a Labour Back Bencher gallantly rising to assist Ministers, but I think that my point has been made.
This is a bad day for the House of Commons, because a Finance Bill is being railroaded through. It is a bad day for tax law, because, if the Government carry the Division at 7 pm--as I fear they will--a sad precedent will be created: a retrospective levy will be imposed on taxpayers. It is an extremely bad day for some very successful industries, which, if we had a rational, responsible Government who cared about our economic future, would receive accolades for the success that they have achieved since privatisation. All that this socialist Government can do--I use the word "socialist" advisedly, because that is exactly the character that the Government's legislation displays--is say, "Ah, someone is successful, someone is making money, so we are going to grab it and take it away."
Mr. Ross Cranston (Dudley, North):
I am sorry that I was not present at the beginning of the debate, and especially sorry that I was not present when the shadow Chancellor opened for the Opposition. My hon. Friend the Member for Dudley, South (Mr. Pearson) and I were attending on our right hon. Friend the Home Secretary. One of my hon. Friend's constituents was presenting a petition to our right hon. Friend, who, as a result, has persuaded the West Midlands police to increase the number of policemen on the beat in Dudley. We are very thankful for that.
Let me begin by talking about the use to which the money raised from the tax will be put. It will be used primarily for the welfare-to-work programme. Some of my hon. Friends have eloquently described the justification for the tax--the new deal for young people--and the tragedy afflicting many of those young people, who have no hope and no jobs to go to. I was surprised when the hon. Member for Gordon (Mr. Bruce), opening for the Liberal Democrats, said that we should divorce the tax from the expenditure that might result from it. I had understood that the Liberal Democrats were keen on
hypothecation, and I see an analogy between that and our attempt to use the windfall tax to give opportunities to young people.
Mr. Malcolm Bruce:
Just for the record, what I said was that spending the money raised from a tax on good services did not make it a good tax if it was a bad tax to start with.
Mr. Cranston:
The hon. Gentleman still does not appreciate that the use of moneys can sometimes justify the tax from which they are raised. I shall say more about that in a moment, but I want to concentrate on the details of the windfall tax itself rather than on the use to which the money will be put.
As the Bill makes clear, this is a one-off tax on the excessive profits of privatised utilities--although Opposition Members have raised the possibility of further one-off taxes. There is no doubt that the appalling behaviour of those at the top of some of those utilities bolstered our case for the tax, but there were three principal justifications for it.
First, there was the undervaluation of the assets at the time of privatisation: that is why the formula referred to in the Bill mentions the price placed on the utilities at the time of sale. Secondly, many of the companies continued, and continue, to be monopolistic suppliers of essential services. That is why the Bill identifies the industries that will be subject to the tax in terms of economic regulation.
Thirdly, the original price controls set by the Conservative party on privatisation were excessively generous. There is no doubt that the companies made excessive profits: nearly every privatisation on which the Public Accounts Committee reported was said by the PAC to have involved excessive profits--and those profits were, of course, at the expense of consumers. The Bill identifies those justifications, which provide the case for the windfall tax.
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