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Mr. Tyrie rose--

Dawn Primarolo: I shall give way to the hon. Gentleman before I move on to his points about climate change.

Mr. Tyrie: Does the Minister accept that the most intelligent thing to do is to accept that the Government are creating a criminal class through the huge differential? The answer is to reduce the differential and kill off the smuggling. The Government would probably get an increased yield in the long run as a result.

Dawn Primarolo: I do not think that the hon. Gentleman heard what I said, so I will repeat it. The problem is with goods on which no duty has been paid, smuggled in from beyond the European Union, at a price that we simply could not compete with, by systematic, organised criminals, not Jack-the-lads. The hon. Gentleman does the cause no good by continuing to peddle a simplistic answer to what is a very serious problem in all our communities.

Several hon. Members have spoken about the climate change levy. The hon. Member for Arundel and South Downs (Mr. Flight) seems a little confused--I hope that he will not take that as patronising, as I would not dream of patronising him--about exactly what happens with the levy. The levy package will cut CO 2 omissions by at least 5 million tonnes by 2010. He said that it raised taxes, but in fact it is revenue neutral. All the proceeds will be recycled back to business. The package will be broadly neutral for the manufacturing sector, too. There will not be a transfer to the service sector, as some have suggested today.

The hon. Gentleman should say whether, in opposing the climate change levy, his party is opposing the employers national insurance contribution cut that will result from these measures.

Mr. Paterson: Will the Minister give way?

Dawn Primarolo: No, because I want to answer the points made by others who have been in the Chamber for the whole evening.

The hon. Member for Arundel and South Downs should be clear about what is in the Bill. He referred to the aggregates levy, as did others. They are wrong in thinking that it is in the Bill. It is a future consideration.

My right hon. Friend the Member for Llanelli talked about group relief, the European Court of Justice rulings and the changes in the Bill. There are two separate rulings: ICI-Colmer and another case, the name of which has just slipped my mind. The ECJ ruled, in relation to the single market, that double tax relief had to apply to branches. That means that it would be backdated for six years in the case referred to, because the ECJ has ruled that it would apply for the whole time.

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I will look closely at what my right hon. Friend said. He also referred to profit and loss for branches. That was not covered in the ECJ ruling and would not be backdated for six years. That is a change that the Government have chosen to make.

Mr. Denzil Davies: My point--my hon. Friend has half answered it--was that it is possible to claim back for six years, but will the claiming back be restricted to residents within the European Union?

Dawn Primarolo: It applies not to residents but to companies. We are talking about branch relief. There is a difference, and my right hon. Friend spoke very particularly about the difference of residence and whether one must be in the European Union to qualify. The changes that we have made are part of the package of improvements that we are making in this year's Budget.

I want to speak about double taxation relief and the controlled foreign company measures to which several hon. Members have referred. Budget 2000 introduces changes to the corporate tax rules covering the treatment of foreign profits, including limiting the use of so-called mixer companies to shelter low-tax foreign profits from UK tax. Multinationals will no longer be able to use offshore structures to mix foreign tax rates of, say, 60 per cent. and 5 per cent. when they bring foreign profits into the UK as dividends. Currently, they do that to shelter low-taxed foreign profits from UK tax. That means that the Exchequer underwrites the cost to business of investing in countries that have not reduced their taxes to the UK level. Companies would not be able to get relief for higher foreign tax if they held overseas subsidiaries directly from the UK.

The reality is that companies have been attracted to the UK in recent years primarily as a result of the climate of economic stability that the Government have fostered through the low corporate tax rates and, most recently, by the abolition of advance corporation tax, which has made the UK a much more attractive location for companies that have activities outside the UK. The problem for international business and UK companies investing abroad is not the abolition of mixer companies, but that the tax rates in countries in which they are investing, including Germany, the US and Japan, are higher--

Mr. Flight: Will the Paymaster General give way?

Dawn Primarolo: No. The hon. Gentleman can sit down to allow me to make my points. He will have plenty of time to debate these points with me, in Committee and in the House again.

In some cases, the taxes are much higher, but changing the rules for mixer companies will get rid of the subsidy that the UK taxpayer provides for those other tax systems. The use of mixer companies has made UK investors more or less indifferent to the high tax rates in countries in which they invest, and we need to change that focus to ensure that we receive the correct amount of tax.

The fundamental point is that the Government do not believe that companies should be able to roll up profits offshore, in many cases out of the reach of any normal tax system. This is not about competitiveness, but about

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fairness. Opposition Members wish to focus only on that one issue. They do not wish to consider the wider issues of double taxation relief, but that is only one of the considerations that companies take into account when considering where to set up their groups. The changes to the double taxation relief need to be considered with the other elements of the tax and non-tax environment.

Other elements within the tax environment consist of taxation of capital gains made by companies on selling their subsidies and the tax relief for interest on loans to fund overseas investment. The changes made to the double taxation relief system may tighten the rules in that area, but when the proposals in the Budget are taken into account, the UK will remain competitive in the future in the international arena.

The background is simple. The relief for foreign tax extended to overseas companies mergers is part of the double taxation relief. Allowing foreign tax to be carried backwards and forwards for use in another year is also part of the double taxation relief. The Government are legislating for a number of practices to improve the transparency and certainty of the relief, as companies requested. The other changes, to which Opposition Members never wish to refer, make up the complete package, including the reduction in the corporation tax rates, the abolition of advance corporation tax, the extension of the group rules, and the abolition of stamp duty on sales of intellectual property to boost research and development to create an environment favourable to the innovation and invention of our companies. These provisions represent a broader rationalisation and modernisation of the double taxation reliefs, and Opposition Members should look at them carefully before making wild accusations about how much money is going to be saved. The hon. Member for Arundel and South Downs could not even tell the difference between £900 million and £900 billion--but I am not surprised at that.

I shall turn briefly to the question of what is known as IR35, which covers people using service companies. The House must be clear that we are not talking about entrepreneurs or employers. We are talking about employees who want a better deal from the tax system than their status says they are entitled to. Opposition Members must say why a nurse should pay more national insurance on her income than an IT specialist who uses a service company to reduce his income before making those payments.

Our intention is not to prohibit service companies--nor to touch those who work legitimately through them. We want to make it clear that people who are really employees but who seek to disguise their employment status through a service company should pay the correct amount of national insurance and tax. That is what every hon. Member in the Chamber does, and all the 26 million employed people in the tax system do.

Opposition Members continue to try and make it sound as if the people at whom the Bill is targeted are to be denied what other people get, but it is not possible for people simply to say, "I want to be self-employed." The rules on terms and conditions in the tax system dictate whether a person is categorised as self-employed or as an employee. Opposition Members argue for a 5 per cent. reduction in payments for training costs. The implication is that only employees in service companies are so entitled, and that ordinary employees are not.

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There have been endless statements in support of the Government's action in bringing forward these proposals. There has been a vocal and effective campaign against them but, as The Daily Telegraph stated on 3 April:

That is what IR35 seeks to deal with.

An article in Scotland on Sunday on 2 April stated:

a personal service company. Such practices cannot be allowed to continue.

As I said to the hon. Member for Kingston and Surbiton, the Liberal Democrats advocate that everyone else's tax must go up by 1p in the pound; he must therefore explain why he believes that those few people who use service companies should be allowed to pay less tax than anyone else simply because that is what they want to do.

The Bill is about business and jobs, which will benefit from our commitment to enterprise. The Bill contains a number of measures to promote enterprise and help business--cuts in capital gains tax, research and development tax credit, the permanent 40 per cent. allowance for small and medium-sized companies, the new all-employee share ownership plan, the enterprise management incentive and the corporate venturing proposals.

The Bill promotes enterprise and fairness. It looks to the future, whereas the Conservative party is still locked in the past. Conservative Members have put forward no coherent proposals this evening: there is no indication that they have an understanding of what the problem is, let alone a glimmer of what the solution should be.

The Bill shows that this Government are keeping their promises where the previous Government broke theirs. Labour is standing for the many, as we deliver sound public finances, lower inflation, high living standards, help for poorer families and pensioners, and employment for opportunities for all, while the Conservative party continues to make reckless pledges that sacrifice future security. I commend the Bill to the House.

Question put, That the amendment be made:--

The House divided: Ayes 136, Noes 342.

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