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The Paymaster General (Mr. Geoffrey Robinson) rose--
Mr. Deputy Speaker: Order. If the hon. Gentleman wishes to speak, he will have to be quick.
Mr. Woodward: I apologise for being so slow, Mr. Deputy Speaker. In considering the amendment, I find myself questioning the rationale behind it and the rest of the Budget. Why, when there seems to be so much
evidence to support the need for consultation and a review, do the Government wish to proceed with the clause? The amendment is sensible, given the sheer body of opposition to the proposals.8.30 pm
Let me remind the House what the Paymaster General said in Committee:
There is no question that FIDs were introduced to benefit the United Kingdom. The purpose of the current FIDs system was to provide a means by which companies with foreign operations could avoid double taxation. I hope that Labour Members do not support double taxation, despite their addiction to taxation as a means of living. Double taxation should always be resisted. The reasons for the introduction of the system are extremely important.
The amendment seeks to remove the distortion that the clause will introduce. It is yet another example of the Government's desire to proceed with precipitous haste. They have been in government for only three months and yet they are throwing out this proposal. Has their policy really been thought through?
There is now evidence from so many companies which earn a great deal of money for the United Kingdom. They are clearly extremely worried. The Paymaster General said in Standing Committee that he could not understand what we were on about. It is very simple: we are expressing the concerns of businesses up and down the country that earn money for this country. We are at a loss to understand, if the right hon. Gentleman knows that a review is necessary, what is the point of proceeding with the clause. Of course, withdrawing it might involve some loss of face, and we know that the Minister without Portfolio would be extremely upset with his colleagues were they to do that, but is the measure right for Britain?
The Government spend hours every day constructing reviews and appointing business leaders from all over the City to join various projects. Would it not be better to withdraw the clause and then to draw in experts from some of those companies to review the matter properly and look in detail at the consequences of what the Government wish to achieve?
The Association of British Insurers has been perfectly explicit. It states:
The Association of British Insurers points out:
The Government spend a great deal of time talking about the need to create certainty and stability. The Chancellor claimed that his entire Budget was predicated, as he claimed, on the need to create certainty. Yet declaration after declaration by company after company is that the proposal will create uncertainty and instability.
Only a few weeks ago, the Chief Secretary to the Treasury said that there would be "no U-turn" on FIDs. He also added that the Paymaster General was in talks with companies to find an alternative. Where is the certainty when on the one hand the Government say that they will do something but on the other hand realise the need for consultation? What is gained by their precipitate haste?
Some of the companies are issuing warnings. The chief executive of Lasmo wrote to the Chancellor as follows:
Time after time, we hear sermons from Labour Members about why the Conservative party failed to understand. In speech after speech and sermon after sermon in Committee we heard that our knowledge was not relevant because we lost the election. But the warnings are not from Conservative Members: they are statements from the companies that will be affected by the proposals.
Burmah Castrol, the oil company, said that it would lobby the Chancellor, and stated:
The consequences of the proposal are serious. SmithKline Beecham, which earns more than 90 per cent. of its profits overseas said:
The Chancellor said that, to stop the yield from ACT being eroded by greater use of foreign income dividends, the Government were ending foreign income dividends from 6 April 1999. Yet expert after expert tells us that that defence is a fig leaf. The change is an arbitrary revenue-raising mechanism. The Government should not take my word for it. I know that Government Members will simply respond to the words of Opposition Members by saying that they are, in their eyes, the words of a discredited Tory party. They do not have to accept our words. They should take the words of Paul George, tax adviser with the accountants Coopers and Lybrand. He said:
Why do the Government not listen to some of the bodies that I have mentioned? Why do they not have the humility to recognise that in this Finance Bill, which has been put together at extraordinary speed, covering a wide range of areas that were never anticipated in the Labour party manifesto, it would be better to hold back, review, involve all groups who have expressed concern, accept the amendment, and withdraw clause 36?
Mr. Geoffrey Robinson:
I shall not need to detain the House for very many minutes as we approach the final moments of the Finance Bill debates. What we have heard has, sadly, been nothing more than a rehash of what we heard on Second Reading and in Committee. Much though we welcome the right hon. Member for Hitchin and Harpenden (Mr. Lilley) to the Opposition Front Bench, he, too, had nothing to bring to the debate.
I shall deal with the core question first to get it out of the way. The simple reason why we had to introduce clause 36, which puts an end to foreign income dividends in two years' time, was that, if we did not, there would be a rising net cost to the Exchequer of almost £1 billion. That is simply because, having removed one element of distortion--the tax credits--in the arrangement that the previous Government had rightly struck between shareholders, companies and the Exchequer, there was every incentive for multinational companies to move much more heavily into FIDs.
"There will be two years in which we can not only ask but consult them, and we have made it clear that we will do so."
He then referred to my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton):
"What is the hon. Gentleman on about? I cannot understand the sense of his remarks."--[Official Report, Standing Committee A, 22 July 1997; c. 387.]
I should like to make some sense of the remarks that the Paymaster General found so difficult to draw together. They were ably and simply expressed by my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke), who suggested that the right thing to do would be to withdraw the clause altogether, rethink it and come back with some better proposals.
"The measure should be withdrawn and any changes in this area should be the subject of full consultation."
The Government are in love with consultation and working parties. They prefer a review, when a decision would be more appropriate. In case after case, they have
a review or set up a working party. Yet when business says, "Let us have a review and full consultation," what happens? In the most arrogant, high-handed way, the Government say, "No, we know best: we will introduce the legislation and if there is a problem, we will try to clear it up in the next two years."
"The purpose of FIDs is to ensure that British based multinationals are not at a tax disadvantage in respect of trading income and dividends received from abroad. The withdrawal of the FIDs regime will place such groups at a disadvantage."
What is the point of that? The Association of British Insurers recognises:
"Foreign-owned groups will not be affected by this change because they will be able to set up International Headquarters Companies to remit dividends overseas without paying ACT."
What do the Government have against British-based multinationals?
"The very independence of Lasmo, and all British companies which have had international success, is put at risk by your proposals, as we will simply be worth more to a foreign acquirer than we can be on our own."
Is that not a significant warning that the Government might wish to heed?
"It seems a shame that successful groups are being penalised in this way. We need to review our options. Moving offshore is not high among them but remains a possibility."
Rio Tinto, the world's largest mining company, is also understood to have written to the Government expressing its opposition. Glaxo Wellcome and BAT have also said that they intend to make known their opposition to the change as they are worried about double taxation on profit. We are talking about big money. Brokers estimate that it represents up to 5 per cent. of United Kingdom dividends.
"This is a disappointment. If London is going to be a centre for raising capital, this is hardly the thing to do."
29 Jul 1997 : Column 222
So why is it being done now? The purpose of our amendment is to ask the Government to have a little humility. The Chancellor, the Paymaster General and the Chief Secretary lecture the Conservative party on the need for humility. Is there not something for them to learn, too? Should they not show a little humility in recognising that, when company after company clearly express not minor concerns but grave, serious concerns about the proposals, it might be better to amend the Bill and take the proposals out pending further consideration?
"The abolition of Fids will bring back a distortion in the tax system which can penalise overseas investment by UK multinationals. The logic for the change is not clear."
We are searching for the logic, the rationale behind the fact that, although the Government are claiming that they are removing distortions, company after company and adviser after adviser are telling them, "Hold back: this may be a mistake." Yet the Government are proceeding with extraordinary haste in their concern to, in their eyes, tidy up the distortions that they see.
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