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7.15 pm
Mrs. Liddell: I oppose the amendment. I do not wish to keep repeating myself--although why should I change what has been happening for the past couple of hours? The amendment goes over old ground and was discussed at length in Committee. It would stop the second stage, in 1999, of the abolition of payable tax credits for all UK shareholders.
I am not clear whether the amendment is also intended to allow pension funds to claim payment of tax credits again from 1999, although that may be one of its consequences. It comes to mind, given the comments of the right hon. Member for Hitchin and Harpenden (Mr. Lilley) on a previous set of amendments. I do not want to go over old ground. We have explained again and again why we have taken action to remove a distortion in the corporation tax system, which was affecting company behaviour and investment.
The entitlement to payable tax credits is removed from pension funds from Budget day and from others from 6 April 1999. The amendment would stop the second element of that change, leaving in place a permanent anomaly and distortion whereby some people would be entitled to a payable tax credit while others would not. That would simply not be sustainable.
As I have said repeatedly, it was not easy to decide whether we should move to abolish tax credits, because we recognised that it would be a complex measure and that we would have to take into account many knock-on effects. Clause 35 relates to charities, which was the subject of one of the best debates in Committee. Hon. Members on both sides recognised the great work done by charities and were unanimous on wanting to protect them. This measure, however, seeks to get rid of a distortion.
If we simply wanted to get rid of the distortion and completely ignore the long-term needs of ordinary savers--the Aunt Berthas, Aunt Agathas and Aunt Ursulas--the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) would be right to criticise us. If we sought simply to draw the line in 1999, he would be right to condemn us for saying that ordinary taxpayers
would not suffer. However, that is not what we are doing. We are taking a two-year period to allow people to adjust their portfolios and savings requirements.
By 1999, we hope to have in place individual savings accounts. I have already made it clear to Opposition Members how anxious we are to include them in discussions about the future of individual savings accounts.
That is why, if the hon. Gentleman quotes what I said in Committee and does not match it with our intention to introduce individual savings accounts, he is right. However, through individual savings accounts we are seeking to develop a savings vehicle that suits all low-income savers, and is transparent and easy to understand. For many people, savings are as complex as the taxation system. We now have an opportunity to introduce a savings account that Aunts Agatha, Bertha and Ursula would find easy to comprehend and which would benefit them.
Mr. Gibb:
The hon. Lady used the word "protected" with regard to charities. She said that charities need to be protected. I asked her from what. Perhaps I can suggest an answer: protected from the damage that clauses 30 and 19 do to charities. If she believes that charities should be protected from those devastating measures, what about pensions and non-taxpayers? Do they not also need protecting?
Mrs. Liddell:
If the hon. Gentleman wants me to replay all the arguments of the Bill, I will happily do so, and it will take up the time until 9 o'clock, which will mean that hon. Members will not have an opportunity to debate other matters.
We took action to protect charities because they do not have the freedom of manoeuvre that other investors have. That is why we have given seven years. It is interesting to see the extent of the selective amnesia of Opposition Members. It was the previous Conservative Government who reduced the level of ACT. In doing so, the right hon. Member for Charnwood (Mr. Dorrell) said clearly:
I challenge the hon. Gentleman. Here is an opportunity for him to channel his undoubted talents into helping to create a savings vehicle that takes into account those who do not even have the modest competence about which the hon. Member for Daventry spoke. The hon. Member for Bognor Regis and Littlehampton belongs to a profession that is not known for hyperbole. He should remember that. He speaks about the measure as the most damaging and regressive change in the history of creation. That is wrong. We are getting rid of a distortion so that we can improve matters for the future.
It does no good to attack officials. The hon. Gentleman may think that in attacking me, he is attacking only me, but when he attacks the Revenue, he attacks the officials who construct the explanatory notes, and they do so with the best intentions.
We had a lengthy discussion in Committee about self-assessment. Hon. Members spoke about the complexity of the tax system. May I point out that the tax system did not become complex just from 1 May. The previous Government had 18 years to demystify the taxation system and the legislation surrounding taxation. What we propose to do with corporation tax and ACT is to remove yet another complexity from the taxation system.
There will be plenty of time to adjust the forms that must be filled in for self-assessment, to take the change into account. When taxpayers receive dividends, their dividend voucher will show, as now, figures for the dividend and the tax credit. They will have to copy those over to their tax returns, just as they do at present. They will not have to do anything more when completing their tax returns. The hon. Member for Daventry and I discussed in Committee the need to make all the procedures as straightforward as possible.
We had our usual foray into geography with the hon. Member for Daventry. I always learn new phrases from him. I had never heard the one about Paradise by way of Kensal Green. In Airdrie and Shotts, I may have difficulty explaining that to the people of Bonkle and Newmains, who do not even know where Kensal Green is. I am grateful to the hon. Gentleman for the information that it was an allusion to G. K. Chesterton. It is some years since I last read Chesterton, but perhaps we can have a conversation about it some time. I have some comments to make, but I will not take up the time of the House.
The Government have been honest and open about the decision to enhance the neutrality of the taxation system. We have tried to have a full and wide-ranging debate. A number of hypothetical cases have been used. The hon. Member for Daventry spoke about the 80-year-old widow; the same example was used by the Institute of Chartered Accountants. She will not save more through 1999. However, she will be able to switch to tax-favoured individual savings accounts during 1999. The decision about whether she saves more is entirely up to her.
Let me take up the issue of Aunt Bertha from Boulogne, vis-a-vis Aunt Ursula from Uxbridge. Neither UK nor French individuals will generally be able to obtain payment of tax credits from 1999. Credits will not generally be available to portfolio investors such as Aunt Bertha. The notion that Aunt Bertha would be more severely disadvantaged than Aunt Ursula is wrong.
Mr. Boswell:
I should be grateful if the Economic Secretary would clarify the point. If there is provision for relief for foreign shareholders under double tax agreements, why should it not be available for the individual portfolio investor?
Mrs. Liddell:
Individual portfolio investors have two years to adjust their portfolios. The question of tax credits for non-residents under double taxation agreements was fully discussed. The hon. Member for Bognor Regis and Littlehampton began the debate on double taxation agreements in the Standing Committee. Some agreements
That follows the spirit and the letter of our agreements with foreign Governments. We are not overriding those agreements. We are keeping tax credits at a certain level, to try to avoid any question of disadvantage to UK-based groups with US subsidiaries and some US investors, mainly individuals in US-dollar-denominated preference shares issued by UK banks and others.
There is an interesting assumption that the Labour Government are suddenly homing in on ACT. In reality, the previous Government began eroding ACT in 1993. Only a few weeks ago, the special adviser to the former Chancellor referred to the distorting impact of ACT. It is wrong to suggest in the extreme phrases that we heard from the hon. Member for Bognor Regis and Littlehampton that the change represents the end of civilisation as we know it.
"I did not seek to disguise the fact that the measure is revenue-raising. It is intended to raise revenue from a part of the economy where it can be raised, in the context of the Budget, with minimum damage."--[Official Report, Standing Committee A, 15 June 1993; c. 387.]
We have acknowledged that charities will encounter difficulties. We recognise that if we take away something that has benefited certain groups of savers, we must put something in its place. That is why we are moving to the introduction of individual savings accounts.
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