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10.10 pm

Mr. David Heathcoat-Amory (Wells): This is not quite the worst Finance Bill that the Government have produced in the past three years, but it comes very close to it. It is certainly easily the longest Finance Bill. It is now a two-volume monster which has grown during our proceedings to 572 pages--most of which raise taxes in one form or another, and all of which make the British tax and benefits system a great deal more complicated.

Contrary to what the Paymaster General has just said, this is a tax-raising and tax-increasing Finance Bill. It comes as the last in a series of tax-raising Budgets. Taken together, this Government's Finance Bills have increased taxes on the hard-working families of Britain by £670 per year each. That is not just damaging to individuals, but involves piling taxes on to the business sector, which in itself undermines the competitive advantage that the previous Government built up during our period in office. The country and the Government will pay dearly for the mistake of eroding those advantages that our firms enjoy in international markets--in which, until fairly recently, they were comparatively lightly taxed and lightly regulated.

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The Government's instinct is to tax, to regulate and to intervene. They believe that their decisions are superior to those made by free people and free companies operating in a free market.

This two-volume Bill contains its full quota of stealth taxes. Stamp duty on more expensive properties has quadrupled since the previous general election. The Chancellor is fond of pretending that that increase is borne entirely by the private householder but, in fact, the great majority of stamp duty is paid by businesses. The Government's refusal even to contemplate removing stamp duty from share transactions is again threatening to cause an erosion of business--indeed, a migration of business from this jurisdiction to the continent.

There is another stealth tax that has not been introduced yet, but has been announced. Indeed, we spent many hours debating it in Committee. It is the energy tax, or climate change levy, which the Government now seek to put into law in the Bill and which will come into effect in April 2001. I declare an interest in that I have registrable interests in companies that will pay that tax. I am in fairly good company, however, because every single business of whatever size and in every part of the United Kingdom will pay that energy tax. It will be particularly damaging for the manufacturing sector, and most especially for those companies struggling to earn a living and make a return in international markets.

Mr. Timms: At an earlier stage in our consideration of the Bill, the right hon. Gentleman told the House that the companies in which he has an interest will--like the majority of United Kingdom companies--be better off because of the climate change levy package. Will he confirm that that is the case in the instance of the companies that he is involved in?

Mr. Heathcoat-Amory: No; not for the first time, I was misled by the Government. They told me that the sectors in which my companies operate would in fact be better off. On further investigation, however, I am assured by the management that we--along with most other businesses in the United Kingdom--will be substantially worse off.

What is particularly unfortunate is that the tax, although in the Bill and supposedly in its final form, is still undergoing an evolution. We are told by outside interests and the CBI, for instance, that certain companies will be eligible for rebates of up to 80 per cent., but that many other companies in the intensive energy sector will not. The reason for that is truly bizarre. In order to qualify for the rebate, a company has to be part of a polluting industry. It has to be regulated by the integrated pollution prevention and control directive. So a company such as British Oxygen, which separates air--a highly energy- intensive, but non-polluting operation--will not qualify for the rebates and will have to pay the full tax. British Oxygen operates in an intensely competitive environment and such firms will increasingly invest overseas and not here. At the same time, the Government talk about the need to improve productivity and promote competitiveness. They are good at lecturing other people about such things, but what they do undermines the very competitiveness that they urge on others.

The tax may also fall foul of the European Commission on grounds of state aid. Companies that are negotiating in good faith to try to obtain rebates are uncertain about

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whether the whole thing may be torpedoed by the European Commission. The companies have been told that they have to wait until the end of the year before they receive any assurances, and perhaps--even at this late hour--the Government could provide certain assurances. Above all, it is an unnecessary tax. We believe in meeting our Kyoto obligations, just as the previous Government met the Rio convention obligations, but there are many other ways to maintain the downward trend in carbon dioxide emissions, such as voluntary agreements, emissions trading and increased use of gas burning for electricity generation.

The House will recall that IR35 was announced last year, not--typically--by the Chancellor or a Minister at the Dispatch Box, but in the 35th press release put out on Budget day by the Inland Revenue. It amounts to an attack on people who provide services through companies, especially in the high-tech sector that the Government say that they wish to encourage. The Government are obsessed by tax avoidance, but their approach in this case is hitting legitimate businesses that set up companies to help the companies that they serve. They are not avoiding tax and, what is more, they provide the very flexibility in the labour market that the Government say is an asset. The Government criticise other European Union countries for their lack of labour market flexibility, but domestically the Government are piling on more regulation and bringing out more tax measures that undermine that national asset about which they boast.

I turn to the saga of double taxation relief, which has been ably tackled by, among others, my hon. Friend the Member for West Dorset (Mr. Letwin). He spotted early on that the proposal was a tremendous own goal. The Government seem to recognise that we need to be a magnet for overseas investment and business, but in their attack on double taxation relief they are eroding that possibility. Companies based here do not have an advantage, because they are effectively on the same taxation basis as their counterparts in the United States and on the continent. By removing the existing double taxation provisions, the Government will put companies based here at an actual disadvantage compared with those based overseas.

After much bluster, the Government conducted a series of inelegant retreats during consideration of the Bill. First, they postponed the measures until next year. Then they tabled some highly complicated amendments to their own provisions which have gone a long way to reversing the damage and preventing the folly.

However, the damage had been done with the business sector. Last year and the year before, businesses consulted in good faith with the Inland Revenue about how to tackle issues of tax avoidance. The Government ignored that consultation, and brought forward their own clumsy provisions. They ignored the warning signals when they were published.

The Government and the Chief Secretary to the Treasury owe a particular apology to Peter Wyman, a senior partner in PricewaterhouseCoopers, who was the first to point out that the Government had got the matter wrong. Instead, he was insulted by the Chief Secretary, who told the House that the Treasury was entirely right and that the accountancy world had got the matter wrong.

It is now clear that Mr. Wyman was right--and not about that matter alone. One of the first of what has turned out to be a series of leaks from officials at the centre of

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government came from Andrew Fraser, head of the Invest in Britain Bureau. A memo from him to the Secretary of State for Trade and Industry found its way into the popular prints. It stated:

Mr. Fraser was referring to three measures--the climate change levy, the imposition of national insurance contributions on share options and the changes to double taxation relief. All of them in their various ways are damaging, and a Government servant told a Minister the truth about that.

In addition, the Bill does nothing to reverse the decline in savings in the economy. The problem is getting worse. When the Conservative Government left office in 1997, the savings ratio--the proportion of national income being saved rather than spent--was 11 per cent. That has fallen in every year since the election--to 7, 5.75, and 5.5 per cent, respectively. In the last quarter, it fell to 3.8 per cent. Yet the Government say that they want to promote self-reliance and long-term savings. They say one thing, but do another.

Finally, I turn to indirect taxes. We debated yesterday at some length the Government's pick-and-choose attitude to indexation and uprating. They uprated pensions by 1.1 per cent., and fuel duty and other indirect taxes by 3.4 per cent. In Committee, we debated the fact that the tax on tobacco has risen relentlessly in every Budget. Those rises represent failures in the Government's health, crime and fiscal policies. The yield from tobacco duty fell last year, so it is just as well that we were not relying on that for national health service funding. Moreover, there has been an explosion in smuggling.

All that was set out in a report that the Government commissioned from Mr. Martin Taylor. Where is that report? It is secret. We are not allowed to see it, even though we paid for it, because Mr. Taylor made the rather obvious observation that it is no good being tough on the crime of smuggling without being tough on the cause of that crime--the large and growing duty differential between Britain and the continent. That is getting worse, and it increases smuggling and encourages criminality. It encourages drink-related crimes, which the Government now say that they are worried about: when drink from smuggled sources is sold in uncontrolled outlets, it increases the danger of criminal behaviour following excessive alcohol consumption.

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