Previous SectionIndexHome Page

Mr. Davey: I happily admit that. The Financial Secretary made that clear in Committee. However, he should consider the change. The United Kingdom was in a tax-competitive position, which may have approached becoming a loophole and a matter of concern to the Treasury. I accept that it needed to ensure that its finances were not undermined; I imagine that hon. Members from

19 Jul 2000 : Column 408

all parties would accept that. However, admitting that a tax loophole requires tackling is different from deciding to throw away all tax competitiveness and to pick a rate that happens to be the equivalent of a United States rate plus Medicare and so on.

We must ensure that this country is internationally competitive, especially in the IT sector, and that it can attract mobile capital and labour. We are debating a Bill that contains many provisions that will hit the UK economy through mobile labour and capital, for example, IR35, which the hon. Member for Croydon, South (Mr. Ottaway) mentioned in his speech. One or two other provisions have the same effect. The Minister must address the change. Why did not the Government keep some advantage in tax competition for the UK?

The Financial Secretary developed his thinking in Committee when he compared the US and the UK from the point of view of a French company, the director of which he had met at a recent conference. The Financial Secretary said that the French director had considered and rejected the rest of Europe because the UK was the best place in Europe to set up an IT company. The French entrepreneur then compared the UK with the US. According to the Financial Secretary, the overriding factor for the French director was that the US skilled labour market in IT was rather tight and that he believed that there was a greater supply of such people in the UK. The Financial Secretary was trying to say that there were other considerations about location.

That was an interesting argument, which I do not believe that anyone would dispute. However, people locate in one place rather than another for many reasons. We want to make sure that Britain is best for all those reasons, yet the Government have chosen to throw away our tax competition advantage. Perhaps the relief needs to be only slightly greater than that for which clause 56 provides, and perhaps amendment No. 131 would be too generous. However, if the Financial Secretary had granted only a slightly higher level of relief, he would have received plaudits from the industry and been able to defend his proposal more effectively today.

I hold the Financial Secretary in high regard, and I hope that he will take account of the points that I have made. Many people have been pleased with the way in which he has taken seriously the issue that we are considering, listened to the industry and tried to devise an elegant solution. I am not sure whether it is that elegant, and I hope that he will, in all humility, reconsider that solution to ascertain whether it could be rather more generous next year to ensure that this country remains the world centre for doing business.

Mr. Fabricant: The hon. Member for Kingston and Surbiton (Mr. Davey) rightly points out that businesses need to be competitive in the world market and that there should also be some certainty about investment for future expansion. My hon. Friend the Member for Croydon, South (Mr. Ottaway) has already pointed out that the Government have not helped the position of new companies--or, indeed, mature companies--that operate in the UK market. The Institute of Directors has acknowledged that union recognition, maternity and paternity leave and the working time directive have added an extra £5 billion in regulatory burdens on such companies. Furthermore, fuel duty has not helped.

19 Jul 2000 : Column 409

I should like briefly to explore another area, which the Government have neglected, despite promises made before the last general election by the Secretary of State for Health when he was in the shadow Treasury team.

5.30 pm

Amendment No.131 has been designated by Madam Speaker, as is shown on the selection list, as dealing with "Employee share options: tax relief to employees". Employees benefit not just from share options but from profit-related pay to which the Government have not sought to restore tax relief. Dividend is not the only way by which the employee--

Mr. Deputy Speaker: Order. The matter that we are discussing relates to share options only; nothing else.

Mr. Fabricant: I am aware of that, and I know that the Clerk is aware of it, too. Clause 56 deals with tax relief to employees, as designated by Madam Speaker.

Both main Opposition parties have referred to new sunrise businesses; such as, high-tech companies. For all sorts of reasons, many of those companies are unable to offer share options at an early stage of their existence. Instead, they offer profit-related pay. Similarly, such companies as the John Lewis partnership--which employs 45,000 people--have a bona fide profit-related pay scheme. Before the election, the Prime Minister, having visited the John Lewis store in Oxford street, described John Lewis as an example of a stakeholding company. I simply want to ask the Minister this--

Mr. Deputy Speaker: Order. I am sure that the hon. Gentleman will accept some guidance. It is not a question of the selection of amendments; we are talking about clause 56, to which the amendment relates. The clause clearly deals with provisions for share options.

Mr. Fabricant: Thank you, Mr. Deputy Speaker.

I conclude by saying that I hope that, in future Finance Bills, the Government will decide to honour their promise, made before the election, to extend the provisions of clause 56 not only to share options, but to bona fide profit-related schemes, such as that operated by the John Lewis partnership and many sunrise companies.

Mr. Edward Davey: Is the hon. Gentleman aware that the previous Conservative Government did not propose tax advantages for share options that might apply to people working for John Lewis and, indeed, took away tax relief on profit-related pay?

Mr. Fabricant: I am aware of that. I am aware also that the present Secretary of State for Health said that this would be restored within the first year of a Labour Government. That was yet another Labour lie made before the last general election.

Mr. Timms: The hon. Member for Croydon, South (Mr. Ottaway) was misinformed about a number of his points. He asked whether we had fixed the technical problem. The answer is yes; we have entirely resolved the technical difficulty.

19 Jul 2000 : Column 410

The hon. Gentleman was mistaken about other matters as well. There is a new spirit of enterprise abroad across the UK, fostered precisely by the measures that the Government are taking. Helpfully, he listed a number of them, to which I would add a number of other changes that we have made, such as the cut in capital gains tax. The hon. Member for Kingston and Surbiton (Mr. Davey), who is well informed on this matter, will know that the 10 per cent. rate of capital gains tax after four years is significantly less than the comparable rate in the US. On that front, we have made good progress--which the hon. Gentleman will welcome--in terms of competition in attracting investment relative to the United States.

Mr. John Burnett (Torridge and West Devon): Does the Minister regret that the Finance Act 1998 took away the complete exemption for the first £250,000 chargeable gains on retirement?

Mr. Timms: On retirement! We are now on rather different territory. The answer is no.

Let me draw attention to our reductions in corporation tax rates. We have cut both the main and the small business rates, and have introduced a 10p rate. We now have the lowest-ever small business corporation tax rates, and the lowest in the industrialised world. Since 1997, small companies have received an average corporation tax cut of nearly 25 per cent. That is why there are now 100,000 more small companies than there were at the time of the general election.

Those developments were created by the new spirit of enterprise fostered by all the Government's measures. That is why we are making such excellent progress, and that is why there are 1 million more new jobs than there were at the time of the election.

Mr. Fabricant: The Minister has told us how many new companies had been founded since the election, and the figure was impressive. Will he now tell us how many small companies have gone into receivership since the election?

Mr. Timms: There has been a net increase of 100,000 in the number of small enterprises. That is my point: there are significantly more, in total, than there were at the time of the election.

As we have heard, clause 56 gives relief to the employee in respect of the cost of bearing the secondary national insurance liability, either through an agreement allowing the employer to recover the contributions or by means of an election whereby the liability is transferred. The clause allows a deduction from the amount of the share-option gain that will be chargeable to income tax. In effect, it moves to the employee the corporation tax relief that would have been due to the company if it had borne the cost.

As the hon. Member for Kingston and Surbiton pointed out, that means that the total tax and national insurance charge will be, at the most, 47.32 per cent. As the hon. Member for Croydon, South said, 47.32 per cent. is very similar to the rate that would be paid by a United States employee exercising an option when the uncapped US Medicare contributions and state income taxes are included. It is also a lower top rate of tax than that

19 Jul 2000 : Column 411

applying in many other European countries. France, Germany, the Netherlands, Spain and Sweden all have higher top income tax rates.

Next Section

IndexHome Page