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Mr. Flight: Germany has no long-term capital gains tax and the rate in the United States is lower. I certainly welcome the cuts, but my criticism was of the complications.
I turn to the change in the double taxation treaty. The last time that the issue was raised, I felt that the Chief Secretary cast an improper slur on Mr. Peter Wyman. It has emerged since that the mean of the forecasts of all the leading accounting firms is that the tax will raise at least £3 billion as it stands and make the United Kingdom the least attractive place among the main economies of the world to base multinationals headquarters.
Is the Paymaster General aware that a main story in The Times tomorrow is that Allied Zurich plc will be moving its headquarters from the UK and that there will be a loss of £100 million of taxation to the Revenue as a result? I would be interested to hear what the Government have to say to that.
More particularly, and following Dame Sheila Masters' comments, we would like to know whether the Government will stick with the proposals or whether, as virtually all industry, accountants and so forth have advised, they will be going back to the drawing board. If they do not do so, they will simply succeed in driving multinationals from this country. Indeed, almost as if we are returning to the days of Harold Wilson and the brain drain, this Government seem determined to drive small businesses out of the country with IR35, and large businesses out of the country with the double taxation proposals.
I turn to fuel duty and allowances. At the most recent Treasury Question Time, I asked the Paymaster General why the inflation indexation applying to fuel was 3.4 per cent. but for pensions and allowances it was only a 1.2 per cent. She responded--I felt slightly patronisingly--that as I had not been in government, I would not understand such things. The truth is that, right down to the last Conservative Budget, the same inflation base was used for both allowances and the fuel escalator. It is only as a result of this Administration increasing the duty on fuel four times over three years that they have moved the inflation index for fuel to the forecast rate. Indeed, I discovered another stealth tax in that, where the forecast has proved to be larger than the actual, no adjustment has been made in the following year's duty.
There have been four increases in stamp duty for properties worth more than £250,000 over the past three years. As my right hon. and learned Friend the Member for Rushcliffe pointed out, that is a virtual tripling and quadrupling of stamp duty. The Government no doubt like to think that that is a pleasant major stealth tax on the well-off, but I remind them that £250,000 is the average price for a normal, family semi-detached home in London. The duty is an unfair tax on people in the south-east, who may have to move because of their job. It will discourage older people from vacating larger properties, thus adding to the demand for more houses on greenfield sites. It is similarly a burden on business.
Mr. Love: Does the hon. Gentleman accept that the increase in stamp duty for houses worth more than £250,000 applies to only 4 per cent. of residential property?
Mr. Flight: The main point is that the tax covers businesses, but as I pointed out and as the hon. Gentleman is no doubt aware, the cost of an average, perfectly unfancy family home in London is now around such a price.
Opposition Members welcome the Government's proposals to increase the tax breaks on giving to charities. However, the value of those proposals is a good deal less than the full cost to charities of the abolition of advance corporation tax, which will come into effect in 2004. Additionally, the Government have failed to deal with the major problem of value added tax paid by charities.
We broadly welcome the Government's venture capital and enterprise measures. It is a pity, however, that the impact of those measures is substantially undone by measures in other spheres, particularly IR35.
I should like to tell the Paymaster General of the case of one of my constituents and the reason why IR35 is not merely a tightening-up on tax avoidance arrangements.
My constituent is typical of the 60,000 information technology subcontractors who have been persuaded to subcontract at the prompting of the main company for which they work. His complaint is that the limit on expenses will cost him an extra £5,000 annually. He has annual revenues of £60,000, and his legitimate expenses--depreciation, accounting, travel and supplies--amount to £11,000 per annum. At the 5 per cent. limit, he is permitted only £3,000 per annum of tax-deductible expenses. He will therefore have to find £8,000 of expenses out of after-tax income. That has to be wrong. No other business structure is obliged to meet bona fide business expenses out of after-tax income.My many right hon. and hon. Friends on both sides of the House--for Caernarfon (Mr. Wigley), for Wells (Mr. Heathcoat-Amory), for Rushcliffe, for Kingston and Surbiton, for Fylde (Mr. Jack) and for Barnsley, Central (Mr. Illsley)--have all criticised the crackpot climate change levy proposals. The crucial point is that the levy will tax energy, not carbon. The levy is not a necessary environmental tax, but simply an excuse for raising revenue.
The Budget's measures on transport expenditure are likely to prove inadequate, especially with the approval to introduce 44-tonne lorries, and particularly in the south-east.
My right hon. Friend the Member for Wells and my hon. Friend the Member for Ludlow (Mr. Gill) rightly criticised the tobacco duty increase, which will simply increase bootlegging. I commend to the House, in the recess, a read of Parson Woodforde's diary, which described an entirely similar phenomenon in the 18th century, when coffee was overtaxed and people's integrity was undermined by coffee smuggling.
More seriously, the tobacco duty increase bears hardest on the least fortunate members of society. I should perhaps declare an interest in the matter and in the Bill as a whole, both personally as a smoker and as a director of companies. Hon. Members will know that, although some people can buy cigarettes or wine abroad, single parents and many others who smoke and are at the bottom of society will suffer most from the increase.
Rarely has a Chancellor been in such a strong position to present his last Budget, or last Budget but one, before a general election. It is surprising that this Budget has been a relative flop. It has been criticised by business and by the International Monetary Fund. It has also been resented by ordinary citizens, who are now aware that their mortgage interest relief at source and married couples allowance are going as their new tax codes are being introduced. People are increasingly aware that they are paying £670 a year more in tax.
As the director general of the Confederation of British Industry commented:
- This is not the Budget for Business that we were hoping for.
- Overall this was a Social Budget and a lost opportunity for small business.
The real criticism--this is where my right hon. Friend the Member for Wells and I began--is that the Government have loaded taxes and regulations on the economy. Their regulations cost business £5 billion per annum and there will be £30 billion of extra taxation on business over the Parliament, as well as higher taxation on average families. But the Government have failed to deliver in the key service areas of health and education for which they were elected. That is why the House should refuse to give the Bill a Second Reading.
9.40 pm
The Paymaster General (Dawn Primarolo): This has been an interesting debate. I congratulate my right hon. Friends the Members for North Durham (Mr. Radice) and for Llanelli (Mr. Davies) and my hon. Friends the Members for Wimbledon (Mr. Casale), for Shipley (Mr. Leslie) and for Erewash (Liz Blackman) on their contributions, which I shall attempt to cover, as well as those of the right hon. and learned Member for Rushcliffe (Mr. Clarke), the right hon. Members for Fylde (Mr. Jack) and for Caernarfon (Mr. Wigley), and the hon. Members for Kingston and Surbiton (Mr. Davey), for Ludlow (Mr. Gill) and for Chichester (Mr. Tyrie).
My hon. Friend the Member for Shipley dealt effectively with the comments of the right hon. Member for Wells (Mr. Heathcoat-Amory) about Government spending on administration. My hon. Friend made it clear that administrative costs last year accounted for 4.1 per cent. of total Government spending, compared with 4.4 per cent. in 1996-97.
The purpose of the debate is to deal with the measures in the Bill. I shall try to respond to the concerns that have been expressed. My hon. Friend the Member for Wimbledon talked about fairness in the tax system and the need to create a platform of economic efficiency and success on which to build social progress and stability. He highlighted the enterprise agenda in the Bill and echoed again that full employment is possible and we can deal with the structural unemployment that we inherited from the previous Government.
My hon. Friend the Member for Barnsley, Central (Mr. Illsley) made several points, some of which I shall return to. He will not be surprised to hear that I did not always agree with him. I shall deal in particular with his points about the smuggling of tobacco and alcohol. I remind him and the House that the Government have announced that we will spend another £209 million over three years and that there will be nearly 1,000 more staff tackling the issue. We are dealing with smuggling on three fronts: first, we are improving our intelligence collection and targeting those who finance smuggling; secondly, we are targeting those who transport the goods into this country; thirdly, we are targeting the gangs who distribute the products. My hon. Friend focused on duty, but the problem is far worse than that. The systematic criminal activity of smuggling goods into this country that do not carry the cost of duty means that whatever we do with our duty rates, we will still
have to tackle the serious problems of smuggling. Hon. Members should not underestimate the problems of that systematic criminal activity.
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