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Mr. Shaun Woodward (Witney): Will the hon. Gentleman explain the parallels he sees with the 1981 legislation on bank deposits?
Mr. Cranston: The hon. Gentleman has missed the point. The point that I was making was about retrospective taxes, and there is an example of the Conservative party imposing such taxes.
Mr. Woodward: Will the hon. Gentleman explain in what way the 1981 bank deposits legislation was
retrospective, as my recollection is that it imposed a levy on the banks' very large profits at that time, based on changes that we had made to monetary policy? Perhaps the hon. Gentleman would like to elucidate and explain his comparisons and the retrospective nature of that legislation.
Mr. Cranston: I do not want to be diverted from my main argument by the hon. Member for Wigan.
The First Deputy Chairman of Ways and Means (Mr. Michael J. Martin): Order. The hon. Gentleman will not intervene in that manner.
Mr. Cranston: I apologise for misnaming the hon. Gentleman's constituency. The point is that that legislation was retrospective in effect.
Conservative Members have raised various points about the unfairness of the tax. They have said that it is unfair to some utilities rather than to others. The regional electricity company in my area has put that argument to me. It has pointed out that other such companies have engaged in expensive diversifications. Money was wasted, but the effect is that the company's profits are higher than those of the companies that diversified. The Institute for Fiscal Studies made the point, which was repeated by Conservative Members, that many of the people who gained immediately after the privatisation have moved on, and that is true, but Conservative Members have to take into account that, in imposing a tax, there is a need for simplicity.
In tax law, there is always a tension between simplicity and producing absolute fairness. The Government have rightly taken the approach of a simple formula, as set out in the schedule. Any other approach would open opportunities for avoidance. In this morning's Financial Times, the former tax adviser to the right hon. and learned Member for Rushcliffe (Mr. Clarke) makes this point:
Having listened to the contribution of the hon. Member for Grantham and Stamford (Mr. Davies) to the debate, one would think that the sky had fallen in. There is much hyperbole. He said that there had been a decline in the economy. I am not sure that anyone else has seen that. The fact is that the windfall tax is water under the bridge. It is a popular tax. Its imposition has been legitimised by the country as a whole. The movement in utility share prices demonstrates that the utilities accept the tax as a fact of life. Frankly, it is not as high as was expected. Most important, uncertainty--inasmuch as there was uncertainty--about its impact has been removed. As we predicted, balance sheets are strong enough to cope with the tax. Informed commentary is that it will generally not have an impact on future dividend plans.
My right hon. Friend the Chancellor of the Exchequer has said that the tax should not have an impact on prices, and that must be the case: consumers must not suffer
twice round. I made that point on Second Reading and I reiterate it. I hope that the steps taken by my right hon. Friend the President of the Board of Trade will ensure that the tax does not lead to price increases for consumers.
Conservative Members have generated much hot air. There is much hyperbole. The tax is legitimate, and I support its introduction.
Mr. Mike Hancock (Portsmouth, South):
I am delighted to be given the opportunity to contribute to the debate. Like the hon. Member for Workington (Mr. Campbell-Savours), who has unfortunately left the Chamber, I had not intended to speak, but I was prompted to do so by some of the things that he said, particularly in relation to the way in which the windfall tax would be spent. I hope to devote some time, as he did, to the benefits that Labour says people in all the constituencies of the United Kingdom will enjoy from the windfall tax.
My hon. Friend the Member for Gordon (Mr. Bruce) spelled out the issues concerning the tax itself and why we do not support it. The way in which the tax has unleashed expectations that will never be fully realised is another issue. Over the past couple of years, I have looked on at debates in this place. Once the Labour party had confirmed the policy that it would go for a windfall tax, I was surprised by two or three major things.
First, I was surprised that the then Conservative Chancellor of the Exchequer did not grab the money with both hands in his last Budget and attempt to use it, as Tories have traditionally done, in local government at least, to buy the Tories out of a political hole just before an election. In the past, they have raided whatever balances they have had and used whatever money was at their disposal to buy votes, but he chose not to do that. That other thing that surprised me and, I am sure, many of the people I represent in Portsmouth, South, was that the money was still there. Companies had not made greater efforts to dispose of it, as most reasonable people would have imagined they would. It was there to reinvest and reduce the high charges for their services.
The overwhelming majority of people have embraced the tax because most think that they were ripped off in the first place when the companies were sold. The companies were sold at hopelessly undervalued prices at a time when most people felt that the companies were better and safer in the hands of the public sector. The legitimacy of the tax among the general public is that they feel that they are getting back what they should have had in the first place. But most people are not privy to the debate about who is to pay.
Mr. Tim Loughton (East Worthing and Shoreham):
I am intrigued by the hon. Gentleman's point, because the whole point of our opposition to the tax is that there is no pot of gold in these companies. Having spoken to my local utility company, I can say that the result of the tax will not be the company writing a big cheque from its surplus cash, but that it will borrow an increasingly large amount of money. That will have an impact on the regulatory formula, which will determine the pricing for consumers and comes up in 2000. Is the hon. Gentleman making the same mistake as Labour Members in believing that there is a pot of gold from past excess profits in the
Mr. Hancock:
The squeal of anguish from the privatised utility companies has been about as loud as the engine purr of a Jaguar when it is switched on for the first time--very muted indeed. There was a ready acceptance on the part of the privatised companies that the tax would be introduced and that they were able to afford it. But that does not make it right, and that is why my hon. Friend the Member for Gordon made his telling point.
There will be claims that manifestations of great goodness will come from this tax, and that the welfare-to-work programme will deliver measures which will be welcomed by a lot of people. That relates to my point about creating expectations which cannot be achieved. I represented Portsmouth, South 10 years ago at the height of the Thatcher Government. I lost count of the number of times that the young people of Portsmouth, South and the country were offered golden opportunities to get retraining, a longer stay in education or a chance to get back to work.
The programmes changed virtually monthly, yet few people succeeded in getting back into long-term employment. The regularity of the changes bewildered the young people concerned, and the depression which many of them felt deepened as they struggled to find a job. That depression is there today. Very few of us will not have experienced the pain and anger of a generation of young people who have left school, or are about to do so, and face a bleak future.
Many young people have grasped enthusiastically what was said before and during the election--and in the months since--as something that will offer them salvation, and the welfare-to-work programme might, in the short term, solve the problems of that group. Some, if not all, may get the job they desperately need. But the windfall tax is not a visionary tax to fund a programme to deliver opportunities for the length of this Parliament. Such a system would mean that those young people coming on-stream in five years' time would be the beneficiaries of some of the measures.
Most reasonable people do not believe the Chancellor's comments about where the on-going money will materialise from, and one would have to be a super-optimist to believe him. He believes that people who are currently unemployed will be retrained, gain employment, generate tax and come off benefits to clear a path for the next generation. But the figures do not add up. The rhetoric is similar to that of the 1980s about promises of good things to come.
"Successively more complex sets of rules have been created, which in turn provide opportunities for exploitation. A simpler tax system, with fewer reliefs, exemptions and discontinuities would, in the long term, frustrate most of the tax avoiders' ploys."
The Government have taken the view that the simple formula is the right approach, and I agree.
5.45 pm
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