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Mr. Ian Taylor (Esher and Walton): As I reflect on the Chief Secretary's investment calculations, I wonder what effect changes in the economic background since the Budget will have. For example, cuts in capital expenditure in the telecommunications industry are leading to considerable job losses, and there will be a knock-on effect from the United States. Does he have any post-Budget feel for the outcome in the UK over the year?

Mr. Smith: Yes. Information available since the Budget could not, of course, have influenced the figures in the Financial Statement and Budget Report. It is interesting and instructive, however, to examine the average of the independent forecasts, the most recent of which have been published since the Budget. Their growth predictions for the UK average 2.6 per cent., which is towards the upper end of the Budget prediction of between 2.25 and 2.75 per cent. To that extent, we have had some reassurance from the independent forecasters.

The hon. Gentleman mentioned external circumstances, and any slow-down in the United States would be a matter of concern. That, too, could not have been factored into the Budget predictions, but the general estimate is that a 1 per cent. slow-down in the United States would affect the UK export market by about 1 per cent. and would affect GDP by around 0.25 per cent. I hope that that answers his question.

Mr. Oliver Letwin (West Dorset): Unless I misheard my hon. Friend the Member for Esher and Walton (Mr. Taylor), he was asking about investment rather than growth. It would be interesting to hear the Chief Secretary's latest analysis of that.

Mr. Smith: Prospects for investment are sound and in line with our forecasts. Recent trends have also been encouraging. We are not complacent, but the soundest basis on which we can attract and sustain investment is the platform of stability that the Government have put in place by applying and sticking to sound fiscal rules, by

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having sound money, by hitting our inflation target and by investing in skills and improving competition so that we have a successful and dynamic enterprise economy.

We are carrying that work forward in the Finance Bill. For large firms, for example, there will be the changes in double taxation to which I have already referred. We shall consult on a widely welcomed measure: the possible extension of the research and development tax credit to larger firms. We are also consulting in detail on relieving tax when companies sell substantial shareholdings. Since 1997, enhanced capital allowances and new tax credits to encourage research and innovation have already saved business more than £1 billion. Increasing research and development by large companies can have a big impact on the UK's long-term productivity.

The Bill will also improve the environment for small and medium-sized enterprises. Clause 62 doubles the value of share options that can benefit from tax relief through enterprise management incentives to £3 million. Clause 61 extends the right to benefit from that relief to all employees. Alongside the measures introduced in the Bill, we are reducing the burden of tax and regulation on small firms with a package of measures to cut the administrative burden of value added tax, and that, too, has been widely welcomed. We are simplifying small business corporation tax by making companies' annual accounts the basis for calculating tax, cutting at a stroke the need for a parallel paper chase.

The Bill will make the tax system more responsive to specific needs to benefit businesses, communities and people throughout Britain. In particular, it will help to ensure that areas left behind by rising prosperity are helped to catch up, with a package of six tax cuts, totalling £1 billion over five years, targeted on enterprise in our poorest areas.

We are also giving a boost to the British film industry by extending tax relief for British films for a further three years, under clause 72. We are reforming betting duty. In recognition of the importance of our national heritage, we are bringing in a scheme to reduce VAT on church repairs and making refunds available to national museums and galleries that allow the public free admission.

Mr. Michael Jack (Fylde): The right hon. Gentleman mentioned further support for the British film industry. What rate of return has so far been received for the taxpayer's investment in that industry, and does it justify the additional help that will be given?

Mr. Smith: The industry's recent success--in awards as well as rewards and returns--fully justifies the steps that we have taken. Moreover, the fact that the extension was made possible was warmly welcomed not merely in the industry, but by commentators and more generally.

We are also initiating consultation on tax relief for community sports clubs, acknowledging their invaluable contribution to recreation and a strong society.

On skills, we recognise that today's economy demands more workers with higher skills and qualifications to fill new jobs. However, up to 30 per cent. of all employees do not have basic level 2 qualifications so, as well as the extensions to the new deal and the provision of training to people on benefits, we want to encourage companies and employees to upgrade their skills. To back up the tax relief that we already offer on employee training, we shall

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consider a new tax credit to support training. We are launching an independent study to enhance the supply of highly skilled scientists and engineers, who are also an important part of the work force for productivity and future growth.

Britain is already one of the best business environments in the world. We shall continue to look at new ways to help Britain's companies raise their productivity. The reforms that we are making through the Bill will make the environment for all businesses better still.

Moreover, following on from previous Budgets and the steps that we have taken to tackle climate change, improve air quality, promote lower emission fuels and renewable energy, and regenerate rundown areas, the Bill carries forward the Government's commitment to a sustainable environment. Clauses 1 to 3 effect our cuts in fuel duties for ultra-low sulphur petrol and ultra-low sulphur diesel and enable the Government to provide reliefs for pilot projects to develop more environmentally friendly fuels.

Clauses 8 to 14 increase to 1,549 cc the engine size below which the lower rate of car vehicle excise duty is paid, reform VED for goods vehicles, and implement the new exemption for tractors and agricultural machinery. Altogether, those measures are worth £1.6 billion a year to motorists--equivalent to a 4p per litre cut in fuel duty for motorists--and £660 million to the haulage industry, which is equivalent to a 7p per litre cut in fuel duty for hauliers. The measures also promote less environmentally damaging fuels and vehicles.

The introduction of the aggregates levy in clauses 16 to 49 seeks, in a revenue-neutral way, to promote the use of recycled aggregates and other alternatives to primary aggregates to reduce environmental impacts of quarrying such as damage to biodiversity, visual intrusion and nuisance to nearby communities.

Mr. David Heath (Somerton and Frome): I am sure that the Chief Secretary is aware of the useful talks between his colleagues in the Department of the Environment, Transport and the Regions and the major quarry producers about creating a rebate scheme for companies that introduce environmentally friendly measures. Given that that is on-going, that it is referred to in the Red Book and that there is now no incentive for companies to introduce measures that would make their activities more environmentally responsible, would not it be more sensible to delay the introduction of the aggregates levy until the rebate is ready?

Mr. Smith: It would not be sensible to delay the levy, for the logical reasons that I am about to give, but the hon. Gentleman makes a good point about introducing more environmentally responsible quarrying methods, and we are attracted in principle to the approach that he advocates. Of course, some difficult definitions and criteria will have to be sorted out, but we shall continue to discuss that possibility.

It is important that we go ahead with the levy to provide an incentive to use more environmentally sustainable alternatives and, in a revenue-neutral way, to use the funds from the levy to cut employers' national insurance contributions and to establish the new sustainability fund, which will come into operation at the same time as the levy in April next year. As announced in the pre-Budget report, £35 million a year will be allocated to the fund and we shall consult further on the details of its operation.

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The climate change levy and the landfill tax, dealt with in clause 102, together with the aggregates levy, demonstrate our readiness to provide incentives for the environmentally sustainable use of scarce resources. By bringing actual market costs more in line with real economic costs, economic instruments that allow those involved in environmentally damaging activities to respond according to their circumstances meet the public good as well as helping the environment. Attaching a price to environmental detriment creates a permanent incentive for innovation and investment in less polluting methods of production and encourages the consumption of cleaner products.

Revenues from new environmental taxes are being used to cut the rate of national insurance, rather than to boost the income of the Exchequer. That is not only economically rational, but environmentally responsible. Those Opposition Members who delight in opposing such measures are simply refusing to face up to the tough choices that are necessary if we are to take our environmental responsibilities seriously.

The Bill sets out a clear choice for Britain's future. This Government have built a platform of economic stability as a basis for future prosperity. The choice that we have made is to build on that stability. We have chosen more investment in our public services, not less. We have chosen sensible tax cuts for hard-working families, not underinvestment and cuts in our public services, which are the undeniable consequences of the policies--such as they are--of the Conservative party.

This is a Finance Bill for families and children, and it tackles poverty and unemployment in our poorest communities. It will help Britain's businesses grow. It will carry forward stability as the basis for a strong economy and a strong society. It represents the way to deliver opportunity and prosperity for all, and I commend it to the House.

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