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Mr. Deputy Speaker: With this, it will be convenient to discuss amendment No. 24, in schedule 6, page 80, leave out from beginning of line 22 to end of line 8 on page 86.
Mr. Heathcoat-Amory: Nothing displays the Government's muddled and incompetent policy in this entire Budget better than these two amendments and the clause to which they relate. Foreign income dividends can appear somewhat technical, and it is no disrespect to hon. Members if I say that some of them may not have followed the intricacies of the British corporation tax system. Most people have better things to do, but, luckily, the effect and purpose of the dividends can be easily stated in non-technical terms.
FIDs, as they are called, are a way of relieving certain multinational companies based in this country from paying excessive corporation tax. Without FIDs, important British companies with large foreign earnings would be unable to relieve their advance corporation tax payments. Therefore, they would be paying ACT and tax on their foreign earnings. That is unfair and excessive, as was recognised by the previous Government, who introduced foreign income dividends to relieve the situation.
Under the Government's proposal, British companies earning profits overseas but based in the United Kingdom, would be put at a disadvantage in relation not only to ordinary British companies, but to foreign multinational companies based here. We would have the absurd situation in which a multinational British company would suffer unfair competition from a foreign company, perhaps operating in the same markets, and would be vulnerable to takeover by such a foreign company.
Despite those well-known facts, in his Budget statement the Chancellor of the Exchequer announced with a flourish that foreign income dividends were to be abolished. Any first-year accountancy student or half-decent tax practitioner could have told him that that was daft. We do not know whether he received such advice. I imagine that he probably did, but, with that ignorance, combined with arrogance, that has been the hallmark of the entire Budget process, he went ahead and announced the abolition of foreign income dividends in two years' time. He wrote that into the Bill in clause 36, and in the six-page schedule 6.
When we reached clause 36 in Committee, we warned Ministers that the abolition of foreign income dividends would be extremely damaging, and we advised the Government to withdraw the proposals. As usual, the debate was guillotined, so we had no real opportunity to explore the subject at great length. All six pages of the complex schedule 6 went entirely unexamined because of the timetable motion imposed by the Government.
Luckily, however, we were not entirely alone in drawing attention to the damage that might be caused. When the companies affected heard the Chancellor's statement, they contacted the Treasury and made it clear that, if they were treated in the way set out in the Budget, they would simply leave the United Kingdom. They would prefer to remain here, but they do not have to be located here. They are, by definition, international companies, they operate in many different markets, they have investments in many other countries, and, if pressed, and if sufficiently damaged by the change, they would relocate. The Government would lose not only some important British companies, their headquarters and the employment that they offer, but all the tax.
Even this Government realised that something was wrong, so they eventually started to listen. Not only were they contacted by the companies themselves, but they received urgent representations from business associations and institutes, such as the Confederation of British Industry and the Institute of Directors. All pointed out to the Government how stupid the proposal was.
Drawing almost at random from the letters sent to me as a member of the Finance Bill Committee, I have here a letter from the Association of British Insurers. It says:
We now have a Liberal Democrat gracing our presence here this evening, but that is unusual, because they were seldom present in Committee. Perhaps one or two Liberal Democrats are present. I apologise to the hon. Member for Taunton (Mrs. Ballard), who comes from my county of Somerset. I particularly welcome her presence this evening.
However, their presence was highly unusual in Committee, and, during the debate on foreign income dividends, not one Liberal Democrat was present, despite the fact that they had been alerted to the damage that would be caused to important British companies, many of which operate in their and our constituencies. As usual, it fell to Conservative Members to take the entire burden of opposition to this particularly daft proposal in the Finance Bill.
We are not here dealing with a few odd British companies with highly unusual tax positions. We are dealing with companies such as BAT Industries, Burmah Castrol, Coats Vyella, Glaxo Wellcome, Reckitt and Colman, RTZ, SmithKline Beecham and Taylor Woodrow, to name just a few. The damage caused caught the eye of the London Chamber of Commerce and Industry in particular, and it wrote in strong terms to, I think, all members of the Committee, certainly to the Government, in a release headed "Planned tax changes 'could drive firms out of UK'". Its chief executive said:
Mr. Heathcoat-Amory:
The discussions between the companies concerned and Ministers were presumably confidential. The companies do not want to issue threats. They prefer to make the threats in private.
I have spoken to representatives of the companies concerned, and they have made it clear to me that they do not have to put up with a hostile tax regime in Britain. They would prefer to remain in the United Kingdom. We are a magnet for these companies. They like our low costs, our flexible labour market and our business-friendly environment, all of which are very much the achievements of the previous rather than the present Government; but they have made it clear that, if they run up against a tax regime that does not understand their particular requirements, and effectively subjects them to double taxation, they will relocate.
If the hon. Gentleman does not think that that was a consideration, will he explain why the Government capitulated and agreed to look again at the matter? They realised that they had made a mess of this, and finally listened to the entreaties. In other words, the penny finally dropped. The Chancellor, and the Paymaster General in particular, realised that a major mistake had been made, and they went into a frenzy of back-tracking, side-tracking and general confusion.
Of course we welcome the rethink--we welcome it when a sinner repents--but the fact that the Government are thinking again does not stop some of the damage. There is still a great deal of uncertainty around about the Government's intentions.
During the debates on the timetable motion, we heard how important it was to get the Bill through in order to give taxpayers certainty. Do my hon. Friends remember that? We heard a lot of that, particularly from the Financial Secretary, who said that certainty and stability were crucial, so the Bill had to be put on the statute book without any delay. But that rush has created the very uncertainty we now see.
The Government have withdrawn the original damaging proposal to abolish foreign income dividends, but they have not replaced it with anything else. Many companies are highly uncertain about what sort of tax regime they will face in future. They do not know where they stand, and the Government still not have told them.
We listened with great interest in Committee when we reached clause 36, when the Paymaster General was due to tell us the result of his deliberations. Although we laboured under the timetable motion, we were careful to give him plenty of time to expand on his plan to give taxpayers the certainty that the Government deemed so important.
What a terrible disappointment that all was. The Paymaster General admitted that a great rethink was going on. Remarkably, he started with the suggestion that it was the companies themselves that should come up with a new arrangement. He seemed unwilling to do any of the work. However, a little later he said that he had four options. They were sketchily set out in his remarks. The first is clearly completely dotty. He suggested that he might restrict foreign income dividends to companies mainly in foreign ownership. To discriminate even more transparently against British companies in that way does not solve the problem; it makes it worse.
As we proceeded with the non-explanation of the conclusions to the non-consultations, we became more and more depressed, because it was apparent that the Government were in a terrible muddle, and were really a victim of their own guillotine. They wanted to bring forward some alternative proposals, but the timetable motion that they have imposed on the Bill and on the House made it impossible to consult fully and table proposals in time for consideration in Committee and by the House.
"The measure will have very detrimental effects for Britishbased international groups. There has been inadequate time for consideration of the measure. In these circumstances I ask you to press the Government to withdraw the measure."
29 Jul 1997 : Column 211
I believe that that letter was sent to all members of the Committee, but, as usual, Labour Members showed no interest in standing up for British business. They remained entirely silent about the matter, and it fell to my hon. Friends on the Committee to make the appropriate noises.
"We are concerned that these proposals will drive many companies out of the UK as they will object to having to pay a tax 'double whammy' in Britain and abroad."
He urged:
"the decision to scrap FIDs was over-hasty and unjustified."
Dr. Rudi Vis (Finchley and Golders Green):
Will the right hon. Gentleman list those companies which have said that they will be leaving the United Kingdom, rather than mention a long list of companies which we all know about? Which ones have said that they will be leaving the United Kingdom if what the right hon. Gentleman says takes place?
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