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Mr. Quentin Davies: My hon. Friend will correct me if I am wrong, but is it not the case that in the United States there is no suggestion under any regime that chargeable gains would be included in the estimate on which quarterly tax payments had to be made? However, the new Labour Government appear to have included that in their proposals.

Mr. Gibb: I defer to my hon. Friend's expertise on that issue and I hope that the Paymaster General will note his comments, albeit that the regulations appear already to have been published.

It may be asked what difference will it make if a company underpays or overpays based on an inaccurate estimate as it can always increase or decrease subsequent payments accordingly. However, there is a penalty in that interest will be charged on any underpaid tax. Of course, it will also be paid on any overpayment, but there is a difference between the rates.

The consultation document originally referred to a gap of 3.5 percentage points. That gave rise to widespread criticism and the notes on clauses now say that


However, I understand that the interest charged on underpaid tax will still be 2 per cent. above base rate, which is very high, particularly for large companies that can usually borrow much more cheaply. Of course, the proposals apply to large companies. I hope that the Government will reconsider the issue and announce a more realistic commercial rate of interest, although the regulations have been published.

Mr. Geraint Davies: I have two quick questions for the hon. Gentleman. First, is he suggesting that it would

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be better to base the taxation of a company on the figures for the previous year than on the forecast figures? If so, under the hon. Gentleman's proposals, a company facing declining profitability due to exchange rates, for example, would face penal taxation. Secondly, does he agree that an interest rate differential is a good idea as it encourages large companies to make accurate returns instead of giving them an incentive to underestimate their profits and, therefore, gain cash flow benefits from the taxpayer?

Mr. Gibb: I am grateful to the hon. Gentleman for that intervention. If a company's profits were less than those of the previous year, it could opt for the current year basis. The Government's proposals are uncompromising as they are based on current year profits and that is the end of the story. As for the percentage gap between the two interest rates, there will be a tendency for companies to overpay their corporation tax as a cushion against penal rates of interest. That will provide more revenue to the Government and put more of a cash flow burden on industry.

Basing quarterly payments on current year profits will clearly be unworkable and cumbersome for many companies. It will involve considerable uncertainty. The experience of jurisdictions that have a quarterly payment tax system is that companies tend to cushion the payments by paying more than they would otherwise to avoid penal rates of interest. The Government should avoid that.

Why are the Government so determined to go ahead with a system based on current year profits? Is it because they want to raise more revenue from the cushion, or is it because Treasury Ministers simply will not stand up to the Inland Revenue?

6.15 pm

The Financial Times says that tax experts believe that the Inland Revenue's large company anti-avoidance division has been instrumental in resisting pleas from companies not to shift to the current year basis. It goes on to explain:


In other words, the determination by the Government and the Inland Revenue to base payments on current year profits rather than the previous year's figures is driven by convenience. All the burdens and cash flow problems it will impose on British industry are simply to make the job of the Inland Revenue that much easier.

Mr. Gardiner: Will the hon. Gentleman give way?

Mr. Gibb: No. I have given way a number of times and I want to finish my speech.

We all want tax avoidance clamped down and companies to pay their tax according to the legislation, but there must be a balance between facilitating Inland Revenue inquiries and placing burdens on business. Requiring a quarterly payment to be calculated on the basis of current year profit is too great a burden.

One of industry's main concerns about the use of current year profits is that of market sensitivity, and calculating quarterly payments on the basis of estimated and unpublished future annual profit figures may well

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result in information leaking into the public domain and increase the scope for insider dealing. Companies may not prepare taxable profits estimates except to calculate their quarterly payments. Giving such figures to outside bodies such as the Inland Revenue may well have that result. That is not my concern but that of British industry, including the British Retail Consortium.

There is enormous concern right across industry about the proposal to use current year profits and I hope that the statutory instruments will take that into account. I hope that the Government will listen to the Institute of Directors, which points out that a small underestimate of profit can lead to a failure to pay instalments because a company did not regard itself as large. When it eventually reaches the year end, it suddenly finds that it has made more than £1.5 million in profit. If it is a large company and does not make the quarterly payments, it is liable to pay a very large amount of interest. That view is echoed by the Institute of Chartered Accountants which states:


I wish to make one final point on the proposals that I hope will be borne in mind when the regulations are drafted. Although the Chancellor gave a commitment during the Budget statement that he would not raise corporation tax above the new 30 per cent. rate, we are all aware of the commitments that he gave before and during the general election campaign and the ease with which they were breached, rewritten and reinterpreted. "We have no plans to raise tax" became a commitment not to raise income tax when the July Budget revealed a £5 billion a year pensions tax. A commitment not to raise income tax became a commitment not to raise the basic and higher rates of income tax once a decision had been made to reduce the value of the married couple's allowance which increased millions of people's income tax bills.

The commitment on the rate of corporation tax is hardly worth the paper on which it is printed, particularly in view of the Treasury's surreptitious decision not to fight the European Commission's proposals to harmonise business taxes. The only commitment that Treasury Ministers now give is to harmonise personal tax rates. They have dropped any reference to business taxes.

My concern, which is shared by the Institute of Chartered Accountants, is that calculating quarterly payments is rendered uncertain not only because it is based on future results but because, under the current proposals, its payments on account could be rendered insufficient retrospectively if an increase in the tax rate is announced that affects all or part of the current accounting period. Other changes in tax law could have the same effect. Will the Paymaster General confirm that if an under-payment is a result of a change in the rate of corporation tax or a change in the law, no interest, overdue tax or other penalties will be charged? Will he ensure that that is incorporated in the statutory instruments?

I have raised one or two concerns that are shared by those outside the House. It is wrong that a major change should be introduced through secondary legislation.

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I hope that the Paymaster General will confirm that the regulations will be debated on the Floor of the House, as proposed in the amendment, or, at the very least, in Standing Committee. I hope that the concerns raised by me and others about the proposals set out in the consultation document will be reflected in the statutory instruments.

Mr. Geoffrey Robinson: I fear that I shall be unable to reply to all the points that Opposition Members have raised, although if such a wide-ranging debate on the amendment means that we are not to have a clause stand part debate, I could range more widely.

The Temporary Chairman: In view of the wide-ranging speeches that we have heard, it would not be appropriate to have a clause stand part debate.

Mr. Robinson: In that case, I can reply more widely. I am grateful for your guidance, Mr. Butterfill.

The right hon. Member for Hitchin and Harpenden(Mr. Lilley) bemoaned the fact that amendment No. 1 has not been selected. I congratulate him on tabling an amendment on this occasion. When we started proceedings on our first Budget and were debating the windfall tax, it was beyond the competence of the Opposition to table even one amendment.

The hon. Member for Gordon (Mr. Bruce) made the point, which was reiterated several times by other Opposition Members, that there is something surreptitious about the way in which we are introducing the measure.


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