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7.29 pm

Mr. Ross Cranston (Dudley, North): A number of my hon. Friends refuted the intervention by the hon. Member for Banff and Buchan (Mr. Salmond), who has wandered in and out of the Chamber at various times this afternoon and this evening, but has not stayed around to hear our responses. He asked what the Finance Bill does for manufacturing, which is important to my constituency. Historically, the black country has been a great manufacturing area and manufacturing is an important part of the economy, although I acknowledge that it accounts now for only about one fifth of national income.

The Bill contains important measures to encourage manufacturing, industry and enterprise. First, it will reduce the rates of corporation tax. Secondly, it contains important provisions on capital allowances. Thirdly,

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it will change the company tax regime, which was an important feature of this Government's first Finance Bill--this Bill will continue to put that change in place.

Opposition Members raised all sorts of difficulties with the changes that we have made. Some of them still cannot accept the fact that we have put in place a corporation tax regime that will be more conducive to investment. Too often in the past people, institutions, pension funds and insurance companies tried to maximise the return on dividend income, to the detriment of investment in enterprises. Labour's two Finance Bills will put in place a corporation tax system that will encourage investment.

The move from the old to the modern system, which, incidentally, is a feature of such countries as the United States, creates certain transitional problems, but the Government have tried to deal with them, for example, through the phasing-in provisions to benefit charities. I raised certain problems concerning pensioner non- taxpayers, who will lose their tax credits under the Bill, with my hon. Friend the Paymaster General, who took that matter to heart. He and my right hon. Friend the Chancellor will deal with that in the coming months. The important point, which seems to be lost on the Opposition, is that the new corporation tax regime will be more conducive to an enterprise economy.

The fourth feature that the hon. Member for Banff and Buchan did not seem to take into account was the change in capital gains tax--the taper relief. Opposition Members raised a great deal of dust about the transitional problems that might arise due to the changes, but the taper relief system will encourage long-term investment holdings. The system works by reducing the proportion of capital gain that is liable to tax according to how long the asset is held. Different tapers will apply to business and non-business assets.

Members of the official Opposition--[Hon. Members: "They are not here."] Yes, as my hon. Friends remind me, there are not many Conservative Members in the Chamber at present. They did not acknowledge that the taper relief system would have any effect on investment. Unfortunately, they do not seem to know their own economic history. They do not seem to realise that when they introduced major changes in the 1980s, these had a significant impact on investment. The changes in 1984 resulted in a surge in investment, which fell off in 1986 when the changes were reversed.

A study by Stephen Bond of Nuffield college reached the conclusion, based on that experience, that a tax system can affect investment. In considering the changes after 1986, Bond concluded that a tax system that leaves the cost of capital permanently higher by one to two percentage points is likely to depress the level of company investment by up to 5 per cent. Conversely, the changes in this Bill ought significantly to affect investment in time.

Mr. Derek Twigg: My hon. Friend makes an excellent point. Labour Members have often been accused of not understanding business and investment, but is it not the case that the Government want to encourage long-term investment and sustainable help for business? If we had accepted the Opposition's arguments, the Bill would have

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done nothing to help business. Their arguments were about short-termism and other matters, but had nothing to do with helping business.

Mr. Cranston: I could not agree more with my hon. Friend. The Opposition focused on some specific points and did not seem to see the big picture.

In a recent summary of some 10 studies that assessed the impact of corporation tax and capital gains tax on investment, Mr. Jack Mintz states

Conservative Members did not seem to acknowledge that important point. The changes in the Bill will have a beneficial effect on investment and manufacturing, particularly in the long term.

Fairness is another feature of the Bill. My hon. Friends have mentioned the important inducement to altruism contained in the provisions on millennium relief. Another feature worthy of mention is the way in which we have closed provisions that were conducive to tax avoidance. In Committee, Conservative Members seemed to be in a world of large capital gains.

Mr. James Plaskitt (Warwick and Leamington): And even larger houses.

Mr. Cranston: Yes, as my hon. Friend reminds me, it was a world of great wealth--

Mr. Plaskitt: Auctions.

Mr. Cranston: Of auctions and large investments, and that is not the world of the average voter, who is more concerned with measures in the Bill aimed at introducing a fairer regime, which will benefit the average person.

No Conservative Member mentioned the important provisions on transfer pricing as regards the activities of transnational companies and there was little mention of the provisions to deal with inheritance tax and closing some of the avoidance mechanisms there. We heard some squealing about the bed-and-breakfast provisions, as if those were a natural feature of any tax regime. In fact, they were an important avenue for tax avoidance.

Mr. Love: Does my hon. Friend share my astonishment at the cynicism shown by Conservative members of the Standing Committee, who continually chided the Government for abandoning the poor, despite the fact that the Conservative Government created the greatest inequality since figures began? Does he agree that the Bill will help to heal society and to reduce the divisions that the Conservatives created?

Mr. Cranston: I agree. The figures demonstrate that inequality grew more in this country than in any other Organisation for Economic Co-operation and Development country, apart from New Zealand, which was a scandal.

In Committee, we heard a great deal from Conservative Members about the legislative process; they said that the Government did not listen. The Government do listen. There was extensive consultation about the changes in

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capital gains tax, for example, as a result of which the taper relief system was developed. Similarly, the Government listened to representations about individual savings accounts. There were no U-turns, as we said from the outset that we would consult people--something the Conservative Government never did--about what regime would encourage more saving.

Mr. Patrick Hall (Bedford): On the Government's willingness to listen, I wonder whether my hon. Friend heard, earlier today, the hon. Member for Sevenoaks (Mr. Fallon) describe a Government amendment, which was tabled as a result of listening to people and which will improve the Bill, as a climbdown? Does not that show that the Conservative party's attitude to government is completely different from the Labour party's?

Mr. Cranston: That is very good point. The Labour Government are responsible; they consult people and work with business. The Conservative Government did not do that--Conservative Members do not know what consultation is, which is why they cannot understand this Government.

Also on legislative form, I want to deal with the canard that we have heard from the Opposition about retrospectivity. People have all sorts of expectations, but, historically, those expectations have often been disappointed because of taxation changes. When the rate of personal taxation increases, as it has in the past, I am disappointed. That is not retrospectivity, but Conservative Members do not understand that concept--they have misdirected their fire on that, as they have on so many other matters.

We also heard a great deal from Conservative Members about the regulation-making powers in the Bill. As my hon. Friend the Paymaster General said in Committee, the Bill contains no more regulation-making provisions than were in the last two Finance Bills under the Conservative Government. Such provisions are a typical feature of legislation--that may be unfortunate, and it may be more desirable if everything were provided for in primary legislation, but, as Conservative Members have reminded us, the Bill already runs to 450 pages--[Interruption.]

Mr. Deputy Speaker (Mr. Michael Lord): Order. Conversations are breaking out all over the Chamber. Hon. Members must listen to the hon. Gentleman who is addressing the House.

Mr. Cranston: Thank you, Mr. Deputy Speaker.

In creating regulation-making powers, we have been consulting. The draft regulations are available for several months, so that the business community and professional bodies that will be affected by them can give their comments.

The Bill fosters enterprise; it introduces stability; it facilitates altruism in the way that I suggested; and it puts in place important measures to ensure fairness.

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