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9.15 pm
The Inland Revenue reworked about 200 double taxation relief claims from the companies that would most obviously be affected by the changes. Those claims involved £1.5 billion of relief from underlying tax. The Inland Revenue calculated what the effect of the changes would have been on the claims, and then applied the calculation. The Revenue has explained the methodology at meetings with business and tax advisers, and it has been agreed that that is the correct way in which to proceed.
Mr. Letwin: Will the hon. Lady give way?
Let us now consider the effect of widely varying high tax rates. We have not been allowed to see some of the calculations, or the assumptions on which they were based. We do not know where those concerned got their figures. I can, however, reveal some interesting facts relating to how much relief we already provide, which will put the amount that companies might lose into context.
We suspect that those making the calculations are doing some double counting. Some companies may appear on the top ten client lists of more than one firm of accountants. We believe that the groups involved are deliberately adopting a worst-case scenario by assuming that they will in one fell swoop bring back to the United Kingdom all their past years' low-taxed profits, when they would never have done so in other circumstances. That is totally unrealistic. We also believe that they assume that the companies will bring back to the UK the entirety of
their offshore profits every year. That is another improbable scenario, as was pointed out in an article in The Economist as long ago as 1 April.It also appears that some companies are including in their projections tax that they would have expected to save as a result of schemes into which they had planned to enter, but which have not yet been established. We have seen examples of that over the last few weeks, and it confirms that the Government are right to act now.
Some people's forecasts of the extra tax that companies will pay fail the most basic credibility tests. About £4 billion of relief for underlying tax is allowed each year. The figures in some estimates are reaching the truly absurd. I am not sure whether this has been repeated, but an estimate of between £8 billion and £10 billion has been attributed to PricewaterhouseCoopers, although it denied that quickly when challenged. The restriction on the use of mixer companies would take away more double taxation relief than is allowed in the first place, which is nonsense.
PricewaterhouseCoopers claims to have identified 20 companies which, between them, will lose £2 billion a year as a result of the changes relating to controlled foreign companies and double taxation relief combined. As usual, we have not been told which companies are involved, or what assumptions were made in the calculations. Suffice it to say that the list alleges that five of the companies will lose £300 million each. That is remarkable given that, according to the latest figures available to the Inland Revenue, only two companies in the country--which may not even be clients of PricewaterhouseCoopers, and on its list--receive more than £300 million of double taxation relief in the first place. Alleging which will be the biggest losers and how much will be lost by referring to 20 companies when we know of only two that are receiving the relief puts the figures into perspective.
Mr. Edward Davey: Will the hon. Lady give way?
Dawn Primarolo: No, because I think it important for the figures to be put into perspective, so that hon. Members cannot distort the debate.
On Second Reading, the hon. Member for Arundel and South Downs (Mr. Flight) said that the mean of the forecasts of all the leading accounting firms was that the change relating to mixer companies would raise at least £3 billion. I am not sure whether the hon. Member for West Dorset repeated that figure today, but it, too, defies belief. It is fanciful to say that the change can take away three quarters of the relief for underlying tax that is currently allowed each year.
The fact is that the figures that have been quoted have not been substantiated. No methodology has been advanced. The figures that we have for companies claiming relief do not match those figures; a simple, straightforward attack is being made on the Inland Revenue and the Treasury.
The clause makes it clear that the Government have an active policy of encouraging competitiveness, of ensuring fair relations in our tax system and, moreover, of ensuring that companies, national or multinational, are free to take decisions about their structures according to commercial
viability, and not tax. For those reasons, clause 102 is the right place to make the changes and this is the right Bill for them to be in. Hon. Gentlemen simply have not got their facts right.
Mr. Edward Davey: That was one of the most defensive speeches that I have heard from a Treasury Minister. The Government realise that they are on the ropes on the issue. The U-turn that they have published tonight in the embargoed press release, from which the hon. Member for West Dorset (Mr. Letwin) read earlier, is only the first of the U-turns that I think they will be forced to make when they look at the damaging effects that the provision will have on British industry. If hon. Members sitting behind the Treasury Bench were taken in by the Paymaster General's arguments, let me throw some of those arguments back at her.
For example, the Paymaster General said that Mr. Troup, the adviser to the previous Chancellor of the Exchequer, told the Treasury Select Committee that the proposals were sensible, but she quoted selectively from his evidence. As a member of the Select Committee, I was there. I do not recollect that he was as supportive of the Government's position as she tried to make out. He said:
- As far as the policy is concerned, there clearly was a mischief in what were called "mixer companies", which allowed companies with tax bills overseas effectively to buy in low-taxed income to shelter their profits,
- Whether it is the right way of doing it I think is more questionable. I think that this can be characterised as a sledgehammer.
- The change in the behaviour is likely to be a reduced remittance of dividends to the UK--
- I am concerned as to the effects on investment decisions and on location decisions and I am concerned about the way this policy has been brought through.
Mr. Davey: I give way because I believe that this is a debate.
Mr. Letwin: In contradistinction to the Paymaster General, the hon. Gentleman has no reason to fear giving way. Does he agree that it is not remarkable that she misquoted Mr. Troup, because she misquoted her own Inland Revenue consultation document?
Mr. Davey: The hon. Gentleman is exactly right. There were many mistakes in what the Paymaster General said. We will look at Hansard, just as he looked at the Second Reading debate. Later, we will use her arguments against her and prove many of them to be totally fallacious. Again, the example that she gave with respect to the amounts of money that could be taken out of British
industry seemed to be deliberately misleading, or perhaps I should say unintentionally misleading, Sir Alan, to keep within your constraints.
Mr. Beard: Will the hon. Gentleman give way?
Mr. Davey: I will when I have made the point, if the hon. Gentleman will bear with me.
The Paymaster General suggested that only two companies currently get the relief at an amount above £300 million per annum, but presumably she was using past data--data on tax returns for 1989-1999. Presumably, tax accountants are not using past data. They are examining the current tax year and future tax years, understanding their clients' business. That is why there are likely to be different estimates and, indeed, why those accountants cannot share that information with the Government; that would break the confidences of their clients. The Government must decide whether they will work with industry, consult properly and trust industry--which, they claim, they are trying to work with elsewhere--to build the economy, or whether they are trying to punish it.
Mr. Beard: My right hon. Friend the Paymaster General has dealt with that point in detail. She said that the Inland Revenue undertook an exercise involving all companies to which the legislation would apply and that it had worked through half of those 400 companies to try to work out the implications of the legislation. That is the source of the figures that my right hon. Friend gave, which are orders of magnitude lower than those that have been quoted elsewhere. The Government have used a perfectly respectable method of approach to the problem. We have heard nothing of anybody else's approach and no reason why that approach should be objected to.
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