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Mr. Tim Loughton (East Worthing and Shoreham) rose--
Dawn Primarolo: We immediately had to set about tackling the problems that we faced. Within days we established a new monetary framework, and as soon as possible after that, we established a new fiscal framework. The country needed a platform of long-term stability, and an end to the cycle of boom and bust that has held our economy back for so many decades, against a backdrop of mounting uncertainty and instability in a global economy.
Mr. Nick Gibb (Bognor Regis and Littlehampton): Will the Paymaster General give way?
Dawn Primarolo: I want to make progress. The hon. Gentleman will have plenty of time to speak.
One of the building blocks necessary for the creation of the economy that we need--an economy with high levels of growth and employment--is the reversal of the legacy of under-investment. The corporation tax system has an important part to play in our strategy for tackling that legacy. The system that we inherited was outdated and in need of modernisation. It involved damaging distortions, which encouraged companies to distribute their profits rather than reinvesting them for future growth and prosperity.
Mr. Gibb:
Will the Paymaster General give way?
Dawn Primarolo:
No, I will not. I should like to make some progress. When I have done so, I shall be happy to give way first to the hon. Member for East Worthing and Shoreham (Mr. Loughton)--who has also been trying to intervene--and then to the hon. Gentleman. In any event, he will have a chance to comment when he winds up the debate, as he presumably will.
Encouraging high levels of investment is vital if we are to break out of the cycle of boom and bust that has afflicted our economy for so long. We want a more stable and prosperous economy to benefit everyone in Britain. That is what the Opposition fail to understand or recognise. Since coming to office, the Government have
introduced an important package of measures to reform corporation tax. First, we cut both the main and the small companies rate of corporation tax by 2 per cent., in July 1997--
Mr. Sayeed:
On a point of order, Mr. Deputy Speaker. The title of the motion is "Pensioners and Dividend Tax Credits". That has nothing to do with corporation tax.
Mr. Deputy Speaker:
The Paymaster General is perfectly in order, because the Government amendment mentions such matters.
Dawn Primarolo:
If the hon. Member for Mid-Bedfordshire (Mr. Sayeed) does not understand the context in which the reforms were made, I do not think I can help him. It just goes to show how little he recognises the devastation that his Government left behind for us to clear up.
As I was saying, we cut 2 per cent. from the small companies and main corporation tax rate in July 1997, and a further 1p in the March 1998 Budget. That means that the main rate of corporation tax will be 30 per cent., while small companies will pay just 20 per cent. The rate of corporation tax is now at its lowest level ever, and is lower than that of any of our major international competitive partners. The hon. Gentleman must understand that. He must also understand that we have given an unprecedented undertaking to guarantee the same rates for the duration of the present Parliament.
Mr. Soames:
In explaining the background, will the Paymaster General explain how the loss of £800 for my constituents Mr. and Mrs. George will encourage long-term investment by companies?
Dawn Primarolo:
I will answer the hon. Gentleman's question when I reach it in my speech. [Interruption.] The hon. Gentleman asked me whether I was prepared to answer the question, and I am. The answer is that his constituents were provided for, in terms of alternatives for investment. The proposition that his party seeks to advance is that there is no alternative, and that the Government have left such people high and dry. I intend to demonstrate to the hon. Gentleman and the House that is not the case.
Mr. Loughton:
I am interested to note that taxing the poorest pensioners is now described as modernisation by the Government.
Will the Paymaster General give me a reference--in an election manifesto, for instance--that suggests that the last Government had anything to do with removing tax credits from the poorest pensioners? That is the point that we are debating. What has it to do with everything that the Paymaster General has come up with so far? Is she trying to pin it on the Conservative party?
Dawn Primarolo:
I think that, in his impatience to intervene, the hon. Gentleman forgot the point of his intervention. I am trying to explain to him why reform of the corporation tax system was necessary for the encouragement of long-term investment, in the context of what happened to tax credits. I shall then demonstrate that
Sir Robert Smith (West Aberdeenshire and Kincardine):
Will the Paymaster General give way?
Dawn Primarolo:
I will, but then I must make progress.
Sir Robert Smith:
What concerns me about the line that the Paymaster General is developing is that it would have been available to the Government in June and July, when I wrote to them about the issue on behalf of a constituent. However, they were not able to produce it until January of the following year. I should have thought that the Government would have accepted that there was a serious concern to be considered, that they wanted to find a way of reforming the position, and that they failed to do so. Why can they not accept that the Opposition have a case, and deal with that case?
Dawn Primarolo:
The point of my speech is to demonstrate that there is not an issue in that regard. The hon. Gentleman appears to be criticising the Government on the basis of a series of complaints, suggestions, observations and urgings for reconsideration.
Certainly, the point at issue is important. We are talking about poor pensioners. However, we subsequently reflected on the issue, and made certain that our views were correct as originally stated. That is what we are doing now. That is what I did on 10 December when I made my announcement, and that is what I am explaining to the House.
We have abolished advance corporation tax. We have solved the problem of surplus ACT once and for all, whereas the last Government could only tinker and come up with a partial solution. If Opposition Members want to talk about cutting tax credit, we can produce many quotations from the time when they were in government and pursuing a certain policy.
Earlier, the hon. Member for Mid-Bedfordshire asked about the connection with corporation tax. Here is the explanation that he sought. We have withdrawn payable tax credits for pension funds and companies, and are withdrawing them for individuals from April this year.
Mr. Gibb:
Will the Paymaster General give way?
Dawn Primarolo:
I have been very generous. I have given way a number of times. I wish to make some progress now; then I shall be happy to give way again. [Hon. Members: "Give way."] It is not for others to tell me when I should give way; it is for me to decide. I have been very generous in taking a number of interventions, and I now wish to make progress.
The withdrawal of payable tax credits has removed the distortion that encouraged large institutional investors such as pension funds to press for higher dividends, rather than allowing companies to retain profits and reinvest in business. [Interruption.] Opposition Members do not want to hear this. They would rather shout insults than deal with the issue.
Our move has created a more level playing field for business and business decisions.
Dr. Lynne Jones (Birmingham, Selly Oak):
Will my hon. Friend give way?
Dawn Primarolo:
I hope that my hon. Friend will give me time to make some progress, given the number who wish to speak and the fact that I need to get the Government's view on the record so that hon. Members understand the context in which the decision has been made.
Payable tax credits for individuals will be withdrawn in April. We announced the change in July 1997, giving people nearly two years to consider their investments and, if necessary, to switch them before the rules take effect. The vast majority of shareholders will be unaffected, but we have given the others time to react to the changes, and to plan to protect their income. Of course, they still have a further three months.
The House will note that the motion that the Conservative party has tabled does not call for the reintroduction of ACT. Conservative Members accept its abolition and reform, but ask for a longer period of phasing-out, so the pensioners whom they talk about will be faced with exactly the same decisions, except in the future. So Conservative Members are not saying that they want a different strategy. It is just a way in which to use pensioners and to try to make it sound as if the Government have not provided for an alternative.
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