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However, as a result of the three Budgets, the difference in the duty rates between that applicable on assets and that applicable on shares has been increased to 3 per cent. That is a significant cost, and it is likely to distort market decisions when companies choose whether to raise finance from asset sales or from the issue of shares.
That distortion will be increased even further if the Government decide to abolish stamp duty on shares. Although, as far as I am aware, there has been no hint that that will happen, the Minister will be very much aware of the huge concern about the effect of stamp duty on the competitiveness of the City of London.
The alliance between the London and Frankfurt stock exchanges is just the first step towards the creation of a pan-European stock exchange. The Minister knows that, in Germany, no stamp duty is payable on share transfers.
There is a real danger that business will be lost if the differential between the rate applicable in this country and that applicable abroad continues.
The issue is very serious. Those in the City regard the increase as a considerable threat. I hope that the Minister will carefully consider what help might be given to ensure that the City of London remains the greatest financial centre in the world.
The cumulative effect of all those increases will be to encourage the avoidance of duty altogether. A rate of 2.5 or 3.5 per cent. obviously makes it far more worth while to execute documents offshore, so that no duty is payable. I am aware that clause 97 attempts to address that, by increasing the penalties and interest payable if documents are stamped late. However, for most transactions, there will never be cause to bring documents back to the United Kingdom. The one time when it might be necessary would be if one of the parties wished to take legal action under the terms of the contract. However, the £300 penalty that the Bill introduces seems a relatively small price to pay, given the likelihood of that happening.
Two senior managers at KPMG, the Government's favourite accountancy firm, writing in The Tax Journal, say:
I have stated many reasons why I feel that the increases will be especially damaging to business. They are, of course, punitive on numerous people and I certainly would not wish them to be introduced to affect those involved in residential property transactions either. That is why I told the hon. Member for Halton (Mr. Twigg) that we would vote against clause stand part. However, I believe that the increases impact especially heavily on businesses. It is for that reason that we have tabled the amendment, the aim of which is to exempt business properties from the increase.
Mr. Leslie:
Will the hon. Gentleman give way?
Mr. Whittingdale:
I am just about to finish--well, all right.
Mr. Leslie:
The amendment would exempt commercial businesses from stamp duty. Does the hon. Gentleman want to exempt just the increase? If he could, would he exempt businesses from all stamp duty, or perhaps just the increases above 1 per cent?
Mr. Whittingdale:
The hon. Gentleman will recall, because I believe that he was present, that, last year, we moved an amendment to the Finance Bill which would have prevented the increases imposed in that Budget from affecting businesses. I can assure him that if, as we fear, the Government continue to introduce further increases in stamp duty in future Budgets, we shall oppose those, too.
I tell the Minister that, if the Government's rhetoric about wanting to help business means anything at all, they should accept the amendment.
Mr. Derek Twigg:
I was very interested in the speech of the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale). I pursued the line of intervention questioning that I did because I thought that the Conservative party's approach tonight was interesting. Conservative Members have decided that they want to exempt business and commercial properties from the operation of the clause, and that such properties are more important than domestic properties. They have made it all too clear that they do not really care about the domestic side of this tax.
The Conservatives say, "We want to do this because it is very important and we want to ensure that something happens," and they try to identify themselves as friends of business and commercial property; but, when they are asked what they would do if the amendment were passed, they say that they would vote against the clause anyway. That means that they would vote against the clause as amended by their amendment.
Mr. Whittingdale:
Given the size of the Government's majority, I suspect that we shall not succeed in carrying the amendment or in persuading the Government that they should not proceed with the clause. If, by some chance, we had persuaded the Government to accept our amendment, exempting business, then, for the reasons that I have explained, we would still have objections to the clause. However, given the size of the Government's majority, I think that we may assume that the clause will probably be passed, and we might at least have distinctly improved it by removing from businesses the obligation to pay the increase.
Mr. Twigg:
I simply gained the impression that perhaps the Conservatives had not thought this one through enough, and that, instead, they were going to waste our time by speaking and voting against clause stand part. Perhaps they were a bit stung by previous accusations that they were not going to table amendments because there might be a difference of opinion among them, given the latest state of affairs.
The debate went from the sublime to the ridiculous. I am happy to be corrected if I misheard, but I thought that the hon. Member for Maldon and East Chelmsford said that the stamp duty increases were a threat to the future of the City of London as the premier financial place in the world.
Mr. Whittingdale:
I am grateful to the hon. Gentleman for giving me the chance to correct him on that point. On the issue of the future of the City of London, I was highlighting the danger--which the City believes is extremely real--that arises from the fact that, in this country, we charge 0.5 per cent. on share transactions, whereas in Germany there is no stamp duty on share transactions. Because of the technological developments that are leading to the integration of stock exchanges across Europe, there is a significant danger that business will move to where costs are lowest; in that case, it would
Mr. Twigg:
That reply is very interesting in the context of the amendment.
There is some suggestion that the stamp duty increases will cause bankruptcies throughout the country, that businesses will collapse and that stamp duty is the single most important factor in people's considerations when setting up businesses, continuing them or buying larger premises. That is nonsense. There is no evidence to support that contention. I cannot recall from any discussions that I have had with business men in my area that they have seen stamp duty as a major problem. The hon. Member for Maldon and East Chelmsford may quote any figures that he wants, but I am talking about my conversations with business men and women in my constituency, and I have never found stamp duty to be a major issue. It is interesting that the Conservatives are trying to make an issue of it tonight.
Mr. Michael Jack (Fylde):
In the hon. Gentleman's extensive preparation on the amendment, has he had time to read the report produced by Arthur Andersen and written on its behalf by David Currie and Andrew Scott of the London business school?
Mr. Twigg:
I will be open and honest: I have not--but just because Arthur Andersen says something does not mean that it is right. In fact, given some of the work that Arthur Andersen has done on information technology systems around the country, I wonder about its competence and success.
Mr. Twigg:
Let me continue. I am pleased that people find my contribution interesting.
Obviously, one may quote whatever example or avenue one wants and use it for whatever purpose one wants, but I am saying that, in my constituency, the issue has never been raised with me as a concern. Among the issues that were continually raised were the policies by which the previous Government clobbered small business, and the various policies that created a difficult economic environment. We cannot separate the issue of stamp duty from that of the general economic climate and economic stability. However, it seems to be suggested that this issue is out on a limb and is the main cause of problems.
Mr. Woodward:
Even though the hon. Gentleman has not read the Arthur Andersen report, can he tell the Committee what value to a company its loans represent in terms of its borrowing money against the value of its property? I think that this information is generally known. What percentage of the outstanding loans of an average company is based on commercial property?
"Provided that the interest rate charged on late paid stamp duty is not considered penal, it may still be attractive to leave documents off-shore and unstamped. Provided the document doesn't subsequently need to be brought onshore, the stamp duty charge is deferred permanently"--
so, by increasing duty rates to such a level, the Government are encouraging tax avoidance, and it seems to me inevitable that that practice will increase.
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