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10.14 pm
The Paymaster General (Dawn Primarolo): This has been an interesting debate, in which Opposition Members have raised a number of detailed questions about the regulations. In the time left to me, I will try to deal with them.
First, companies which will not have to pay by instalments--the overwhelming majority of companies--will gain £1 billion in cash flow as a result of the abolition of advance corporation tax alone. After the transitional period is through, in the year 2003-04, companies will gain £1.6 billion a year from the combined effect of the changes.
The hon. Member for Rochford and Southend, East (Sir T. Taylor) raised a number of points, but I will deal first with the points raised by the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). His first point was the old chestnut that secondary legislation was undemocratic and the wrong way to make regulations. Other Opposition Members called for morality in the regulations. Essentially, they believe that it is unconstitutional to modify existing tax law through regulations made under the negative resolution procedure.
There is nothing in those allegations--as Opposition Members know full well. Regulations must be laid before Parliament before they come into effect. The previous Government made extensive use of tax regulations under the negative resolution procedure. The use of regulations facilitates consultation on the fine details of schemes, such as the instalments and the shadow ACT.
I wish to refer to the consultation. On 24 April last year, the Revenue published draft instalment payment regulations to give tax practitioners, business and others
an opportunity to comment. A further draft of the regulations was made available to members of the self-assessment consultative committee last autumn. Further comments were then taken into account. Many of the points raised by Opposition Members about the changes arise from that consultation.
The first point was that instalment payments give a tax rise. No company will pay more tax as a result of the regulations--they bring forward the time at which the tax is paid. There is no effect on the amount of tax to be paid.
Mr. Page:
Will the Minister give way?
Dawn Primarolo:
With respect, I will not. The hon. Gentleman spoke for quite a long time and I wish to answer the important points made in the debate. If I have time at the end of the debate, I will be happy to give way. As Opposition Members well know, the new instalment payments result from the abolition of ACT--not through some chaos, but through the Government's policy of moving to a position where we encourage investment and take the distortions out of the tax system.
The hon. Member for Bognor Regis and Littlehampton referred to the interest charge, which he said was penal--he can correct me if I have overstated his point--and somehow a penalty. It is not. It is to ensure that the correct use of the money is available either to the Treasury, if there has been underpayment, or as a refund to the company if there has been an overpayment to ensure that there is a proper result and no financial loss either way.
The hon. Gentleman referred to the right of appeal. There is a penalty power, which will be used in cases of flagrant abuse. The Revenue will determine the penalty to be properly applied and that companies have a right of appeal to the commissioners.
In the consultation, the companies felt that the ordinary meaning of the word "reckless" was better than "flagrant", so they suggested that amendment, and it was perfectly reasonable for the Government to have accepted that.
The hon. Member for Bognor Regis and Littlehampton said that our regime was more penal than that of other countries, and especially the United States. That is not the case: other countries apply a regime to companies with much lower profits; I will not cite them, because I know that the hon. Gentleman knows them and that, having spent a long time as an accountant, he knows the details full well.
Mr. Charles Wardle (Bexhill and Battle):
Will the Paymaster General give way?
Dawn Primarolo:
No. The hon. Gentleman has only just come in and, out of respect to hon. Members who made points in the debate, I really should try to deal with them.
Dawn Primarolo:
I will not give way to the hon. Gentleman, as I have not dropped my papers or lost my place, so I do not need any assistance.
Dawn Primarolo:
I will get on to what the hon. Gentleman has said, but I must show respect to the hon. Member for Bognor Regis and Littlehampton, the Front-Bench spokesman, by answering his points first.
Through the consultations, the Government have taken proper account of how the introduction of instalments will work, and we will continue to work closely with the companies.
The right hon. Member for Fareham (Sir P. Lloyd) made a thoughtful contribution, as always. He talked about the definition of companies and what counts as a large company. The regulations make it clear that a large company is one whose profits exceed £1.5 million for a 12-month accounting period ending on or after 1 July 1999.
The right hon. Gentleman asked about interest. He asked why there should be a differential rate between overpaid and underpaid. That was a feature of the tax system under the previous Government, of which I seem to remember that he might have been a member. It represents the difference between rates on borrowing and on investment: the same arrangement as in banks and other financial institutions. There is no skulduggery; it is straightforward. The system is finely tuned, so it can respond to changes in interest rates, unlike the previous system.
Dawn Primarolo:
Much as I appreciate the hon. Gentleman's interventions and little jokes, I will not give way at present.
The right hon. Member for Fareham went on to say that the interest rate regime was unfair to companies. In the consultations, we responded to companies' concerns about interest rates, and we have introduced a new regime for the instalment payments. There is a smaller spread on the charge on amounts overpaid and underpaid, and the system is more sensitive to changes in the base rate.
The right hon. Gentleman asked why the instalment for the current year should not be based on the previous year's payment. A good number of companies said in the consultations that they already produced profit forecasts in year and could manage the instalment based on their estimated current year corporation tax liability.
Some companies wanted a mixture. They wanted to pick and choose between current and previous year. They thought that one year it might be good to have a previous year calculation, and another year a current year calculation. We came to the conclusion that, if they can show such flexibility, they must be able to do current year calculations.
The hon. Member for Weston-super-Mare (Mr. Cotter) was in danger of losing the plot of the regulations. He talked about cutting rates on the one hand but taxing via the instalment regime on the other. I am sure that he has noticed the following point, but I shall point it out to him anyway. Small and medium companies, as I have already said, gained £1 billion in cash flow from the abolition of ACT. Only the 20,000 largest companies will pay by instalments.
Hon. Members asked a series of questions about the results of the consultation. Companies with profits between £300,000 and £1.5 million were removed from the instalment regime as a result of the consultation. Following discussions with business, penalty and information powers will focus more clearly on cases of
flagrant or, as business prefers to say, reckless abuse, and the anti-avoidance provisions were amended to help companies involved in a legitimate restructuring rather than a scheme designed to avoid the instalment regime.
Mr. Gibb:
Will the Paymaster General give way?
Dawn Primarolo:
No, I want to answer the questions of the hon. Member for Rochford and Southend, East (Sir T. Taylor). He made some generous comments and I hope that he will not be too disappointed with the replies. I have already covered his first point about the £1.6 billion a year gain as a result of the combined effects of the changes when the transition period is over. I also dealt with his second point when I said that no more tax will be paid, it is a question of when it is paid.
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