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Mr. Bercow: I suspect that the hon. Lady probably knows that her explanation of differential interest
payments is nonsense on stilts. In light of her comments about listening to consultation, will she explain why the British Chambers of Commerce, the Confederation of British Industry and the Institute of Directors are uniformly hostile to the proposals in their present form?
Ms Keeble: That might be so. During the consultation process, particular points were made about the difficulties that companies would face, some of which were taken into account in the final arrangements. I do not claim to be able to do things that I cannot and I made it clear at the outset that I am not a tax expert or an expert in company law. The Whip has not told me what to say: I have had long and genuine experience in this area and received many constituency letters about the issue. Many of my constituents have investment income and have shifted their affiliations away from the Conservative party. I am sure that the Opposition know the income levels and particular political interests of that community. I am extremely interested in ensuring that I can respond fully to my constituents' arguments.
Opposition Members demonstrated clearly that they are using the measure to attack the Government's economic and welfare proposals, and their implications for pensioners.
Mr. Brian Cotter (Weston-super-Mare):
I am glad that the regulations have come before the House tonight, because that gives us another opportunity to debate what amounts to a major change in the country's tax regime and denies the Government the chance to slip the change through quietly.
The taste that the Government have developed for secondary legislation should be discouraged. The Liberal Democrats will oppose the regulations, not because we oppose the principle of advance payments--we have conceded that the previous system needed reform--but because we harbour significant doubts about the manner of their introduction.
The Chancellor has trumpeted long and loud in his Budgets about his reduction of the rate of corporation tax, but we all know that the regulations will result in a considerable net gain to the Exchequer, something to which attention has been drawn tonight. The Paymaster General has recently claimed that the Treasury has estimated that the long-term effect of the changes will be a net reduction in companies' liabilities. If the Chancellor is not concerned about that and if he does not intend to hit businesses, why are the regulations framed so that they will increase the short-term liability of businesses so dramatically?
The transition period allowed by the regulations is insufficiently generous if the Government's primary intention is indeed to move towards a fairer tax regime.
The transition arrangements seem concerned only with the changes to companies' cash-flow arrangements. However, it seems likely that the regulations will require an extremely substantial change in accounting procedure in affected companies. To cope with the new system of estimation, it would surely be wise to give a far longer time to adjust than the brief period allowed by the regulations.
The Government seem instead to have arranged the regulations to maximise their incidental increase in revenue from the transition. If the Chancellor wants to increase his net gain from companies, does he not owe it to them to be open and honest about that? The regulations are central to the Chancellor's public sleight of hand, which makes him appear to be giving while secretly gathering.
I am further concerned that some of the undertakings given in a debate last April by the previous Paymaster General, the hon. Member for Coventry, North-West (Mr. Robinson), do not appear to have been given any house room in the regulations. In the face of an amendment concerned with companies whose profits were subject to seasonal fluctuation, he undertook carefully to consider the matter.
The regulations are complex and thorough on the punitive arrangements put in place for non-compliance and error, but do not have a crumb of comfort for those companies whose cash flow could be severely compromised by the new arrangements. Is the House to conclude that the Paymaster General thought carefully, as promised, about the unfortunate position of those companies, but then decided to do nothing about them?
Mr. John Townend (East Yorkshire):
Unlike most Labour Members, who have never run even a small corner shop, I have had 35 years' experience of running medium businesses, so I understand the problems of businesses and business men, and I have a slight knowledge of accountancy. I do not have to declare an interest tonight because, regrettably, my companies make less than £1.5 million.
I approach the regulations by asking whether the proposed changes in the payment of corporation tax are aimed at benefiting industry or the Inland Revenue. When we hear the Government continually trumpeting that Labour is the new party of business, there should be only one answer--the changes should benefit industry. However, as in so many cases, Labour says one thing and does the exact opposite. The proposals will result in industry having its cash flow reduced. As my colleagues have said, beginning in 1999-2000, that reduction will be a modest £100 million. The next year, the figure rises to £1.6 billion, then it is £2 billion, then £3 billion and then £2.3 billion. Only after that does the figure start to turn positive. The Inland Revenue will benefit for five years, by more than £8 billion, out of industry's cash flow. That will have to be paid for with jobs and it will affect investment.
Mr. Geraint Davies:
He has dropped his papers.
Mr. Townend:
Indeed, I seem to have lost my papers.
The Government's answer is that they have reduced corporation tax, but they have reduced it in those years by only £2.8 billion. That leaves £5.2 billion, which the taxpayer has been left to pay, but the proposals really worry me in respect of the administration. As the hon. Member for Weston-super-Mare (Mr. Cotter) said, there will be a considerable increase in the burden on industry. There is a fundamental flaw in the proposals: as has been mentioned, tax will not be assessed on the previous year's profits, as in the past, which made for certainty for industry. Tax will be based on a guesstimate for a year, and that guesstimate will have to be made when only six months of that year have passed.
I suggest to the Minister that, considering what has happened over the past 18 months and considering the enormous, sudden changes in the world economy--the crises in Asia and Brazil, the debt default in Russia and the speed at which currency and interest rates change--it is difficult to estimate profits. With the best will in the world, industry can get it wrong--without trying to defraud the tax person. As my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) has said, when we consider what will happen, we realise how appalling the proposals are.
First, industry is faced with paying interest, but there is no justice in that, because the interest that has to be paid if someone underestimates is more than that which has to be paid if someone overestimates. How can anyone justify that? It is no good saying--
Mr. Davies:
Will the hon. Gentleman give way?
It is no good saying, "That was the practice before," because before, we were dealing with the previous year's profits so we knew what we were doing. If the hon. Gentleman can justify that, I will be delighted to give way to him.
Mr. Davies:
Did the hon. Gentleman work in any business that did not project trading and profitability on a monthly basis for the year ahead? If he did not, he could not have worked for any serious company. Are not differential interest rates obviously rational because, otherwise, there would be an incentive to industry to underpay? What is more, because of what the previous Government did, are not we talking only about the levels, not the principle? This is hogwash.
Mr. Townend:
Certainly not. Our Government never produced legislation in which taxation was based on estimates. I do not know what the hon. Gentleman did before he was elected to the House, but he clearly--
Mr. Davies:
I ran a number of companies, which I started myself--they all had monthly projections of profit and sales--after a very successful career in multinational companies. I think that the hon. Gentleman was in wine and spirits, which he shows by the way that he drops his papers.
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