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9.21 pm
Sir Peter Lloyd (Fareham): I found the regulations difficult to follow. I realise that effective drafting invariably produces impenetrable prose. There have to be complicated references to other legislation and draftsmen have to cater for every eventuality that their ingenuity can envisage. I tried to understand paragraph 3--the crucial regulation--which defines the large companies that will be affected. I could not make sense of it. If you read it, Mr. Deputy Speaker, you will find several sub-paragraphs stating what a large company is not, but none stating what it is. I turned hopefully to the explanatory note, which clearly states and I quote in full:
- "Regulation 3 defines a 'large company' for the purposes of the Regulations."
It would have been useful if, accompanying the regulations, there was an explanatory note that really explained that, not merely for hon. Members but for interested parties outside--not least the managers of the companies affected. Perhaps it would be even better, as my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) said, if matters of such moment were included in primary legislation, so that they could be fully debated and amended.
I hope that the Paymaster General will tell us, as her personal contribution to open government, that she will ensure that, in future, subordinate legislation from the Treasury will always come with reasonably full explanations for the layman.
As my hon. Friend the Member for Bognor Regis and Littlehampton said convincingly from the Opposition Front Bench, the Government have stumbled into these changes. They started by abolishing tax credits for pension funds and others, found that they created anomalies and a cash flow difficulty for themselves and had to go further, hence the regulations. No one would mind the stumbling too much, if only the outcome were reasonable and fair. It is not. Instead of the potential cash flow reduction for the Government, they have contrived a hefty cash windfall for themselves for the next four years because payment of corporation tax by large companies will be brought forward. That will be handy for the Chancellor, and the Exchequer will get a substantial bonus, peaking at £3 billion in 2001-02, which may well be election year.
The Government could have organised a neutral system, but they did not. Despite the reduction in the nominal rates of corporation tax, for the next three years they will be collecting more. That additional cash flow, which the Government find so useful and which creates confidence in their accounts, is exactly matched by a reduced cash flow in the large companies from which it is taken. Their finances are weakened, with an obvious consequent reduction in their ability to invest and create jobs. With these regulations, the Government are hurting the large businesses that they claim to support and encourage. They are raising the burdens on them stealthily when profit margins are likely to be under pressure from subdued world trade.
Moreover, the Government seem to have made their arrangements far more complicated and uncertain than they needed to. Companies will have to estimate their profits for the whole year and pay the appropriate fraction quarterly. That will make error inevitable and create unwelcome opportunities for honest companies whose forecasts prove unreliable to be accused of bad faith by the Revenue. It would surely save much time, trouble and misunderstanding if we adopted the procedures used for individual taxpayers and based forward payments on the previous year. There would be no argument and no extra work; it would be eminently straightforward. I hope that the Minister will explain why the Government chose a more difficult and complicated method when a simple one was readily available.
My hon. Friend the Member for Bognor Regis and Littlehampton made an important point about the interest rate at which overpayments and underpayments are charged. In all good faith, forecasts are often bound to be overestimated and underestimated. However, as I understand it, the Treasury will give a lower rate of interest on overpayments made in good faith by large
companies than it will charge on underpayments made in equally good faith. I realise that that is merely a continuation of current practice, but that can perhaps be justified under present arrangements because payments are made in arrears; companies should get it right each time. It is unfair and unreasonable to make the distinction under the estimate-based system that the regulations introduce. I hope that the Minister will say whether the Government are prepared to reconsider.
Ms Sally Keeble (Northampton, North):
I am grateful for the opportunity to speak on this matter. I speak neither as a tax expert nor as one with huge experience in private companies, but the matter is of concern to my constituents because, behind what look like technical regulations, lie several issues about the Government's approach to the tax regime and welfare state changes that have been constantly raised by the public. That was recognised by Opposition Members because they spoke not only about technical issues, but about the factors behind them and some of their consequences.
A consequence repeatedly raised by the Opposition and by my constituents is the impact of the changes on the income of pensioners, particularly those who are partly reliant on investment income. It is important to recognise that, to such people, the prospect of losing some of that income as a result of the changes is a substantial concern. The loss for the average person will be about £75 pounds a year, but that must be offset against the many other changes that the Government have made that will increase pensioners' individual incomes by more than that sum. In addition, whatever changes are made to tax regimes, pensioners, including the ones in my constituency who have investment income, will be far better off if there is a healthy economy, created in part by the sort of measures included in the regulations.
Mr. Bercow:
What is the ethical basis on which the Government propose to charge more interest on underpayment than they propose to pay in cases of overpayment?
Ms Keeble:
I shall come to that point, which was raised by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). However, first, I shall finish my remarks on the impact that the regulations will have on pensioners' investment income. I am sure that Opposition Members recognise that, as a result of their repeatedly raising and debating the issue, considerable concern has been aroused within the pensioner community and Members' postbags now contain quite a lot of correspondence on the subject. Having considered the facts of the matter and the long-term interest in having a sound economy that will ultimately be of far greater benefit to pensioners, I have no difficulty in justifying the proposed regulations.
Sir Robert Smith (West Aberdeenshire and Kincardine):
I cannot quite understand how the hon. Lady
Ms Keeble:
The regulations are not the only measure that the Government are taking to build a sound economy; they are one set of proposals, which affect companies in one particular way but, when talking about a sound economy, we have to consider the full range of Government actions. Those measures will build a sounder economy and so benefit pensioners.
If one wanted to look at one of the most direct measures of confidence in the economy, where one might expect to see any shaking of confidence resulting from the changes, one might look at the stock exchange. That is currently at record levels, so if companies have felt any qualms and investors' confidence in companies has been shaken, that has not yet shown up.
The Opposition have made much of the assertion that the proposed regulations would be profoundly damaging to companies and long-term investment. In fact, the regulations form part of a range of proposals to encourage investment. I am no expert, but I ask Opposition Members to consider the impact of the Conservative Government's decision to abolish the 100 per cent. tax relief on capital allowance, and to change the arrangement for the writing down of assets from 25 to 4 per cent. Those measures had two effects: first, to increase the tax base and secondly, to discourage investment and encourage other uses to be made of the money.
Much has been made of the reasons why the Government have decided to make changes, rather than leave matters as they were. There are two main reasons: first, to encourage investment and secondly, to deal with anomalies in the existing structure of corporation tax, especially some of the pressures on British companies that have substantial interests abroad.
The Opposition have also made much of the arrangements for differential interest rates on penalties paid. In looking at those issues, the Government responded substantially to representations made during the consultation process.
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