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Mr. Mark Field (Cities of London and Westminster): It is a great honour to represent the City of London and to be speaking today for the first time on a Finance Bill. Times have changed from a bygone era, even on this day when many of us have dressed in our best suits for the event in Westminster Hall earlier today. Back in the post-second world war era, it was apparently de rigueur during Budgets and Finance Bill debates for Members of Parliamentin those days there were two representing the City of Londonto wear large black top hats. My association deputy chairman, Jacob Rees-Mogg, the son of Lord Rees-Mogg, offered to borrow such apparel, but I decided that discretion was the better part of valour, at least on this occasion.
The more disparate nature of financial services in this era, certainly since the big bang in 1986, means that the City can no longer be said to speak with a single voice. In any event, my duty is to the residential populationthe 6,000 residents within the square mile of the City of London. None the less, it is a great honour to be able to say a few words tonight on the Finance Bill as it affects the financial services and the business community.
My own record is as a small business man and I probably express the view of many who have a background in business in lamenting the detachment between the business and political classessomething that has been mentioned many times in recent years. I wish to speak briefly on two main aspectsenterprise and globalisation. It has been a much-vaunted if somewhat overspun goal of this Government to promote enterprise. Those words were used by the Chancellor of the Exchequer, and by the Chief Secretary earlier this afternoon.
I serve on the Standing Committee considering the Enterprise Bill, which is why I could not be here throughout today's debate, for which I apologise. That legislation is flawed in its rather overbearing regulation on merger controls and cartels, as well as in its somewhat simplistic analysis of the reform of insolvency law.
The Chancellor's instincts, as manifested in the sheer size of the Finance Bill, are all too often to complicate and meddle in taxation. As my hon. Friend the Member for Buckingham (Mr. Bercow) made clear, the Bill is 488 pages long with 140 clauses and 39 schedules. It is a Budget for the most enterprising among the accountancy profession, but perhaps not for many more.
It would be unfair and churlish not to recognise that the Budget contained a number of positive changes, which manifest themselves in the Finance Bill. I support the cut in capital gains tax, from which I have benefited, having sold a business within a few months of entering the House. I also support many of the venture capital trust changes, which allow a merger and wind-up without losing the tax benefits. My hon. Friend the Member for Arundel and South Downs (Mr. Flight) has become something of an expert on that issue, and I am sure he will refer to it in his comments later. The hon. Member for Wolverhampton, South-West (Rob Marris) rightly identified the credits that will be available for research and development, which are also to be supported.
Equally, there has been a downside for British business. All in all, we have had a tax-raising Budget and those taxes have been on jobs, making people more expensive to employ, with an attack on the oil industry and on
Mr. Tom Harris: We have heard many warnings from Conservative Members about measures contained in this and previous Budgets impacting on the number of jobs. The hon. Gentleman may recall that the Conservative party claimed that the national minimum wage would destroy a million jobs, but in fact a million jobs have been created. Is not that a worthy point to take on board?
Mr. Field: To claim that a million jobs have been created by the minimum wage is a rather large step to take. Other jobs may well have been lost. The minimum wage was set at a sufficiently competitive level, so a number of our concerns did not come to pass. Like many people in the mid-1990s, I ran a small business, albeit one in central London that paid even the lowest paid employees considerably more than any projected minimum wage. However, it is clear that jobs have not been lost. It is also well established that the Conservative party has changed its position on that.
With effect from 17 April, a new supplementary charge has been introduced on 10 per cent. of the profits of oil companies for the production of oil and gas in the UK and the UK continental shelf. Given the seat that he represents, the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) probably has deeper day-to-day concerns, but the City of London and the great number of international oil businesses based there will also be heavily affected by the provisions. It is a tax in addition to the standard 30 per cent. rate of corporation tax; it has rules similar to corporation tax, save that the financing costs will not be deductible. I suspect that the Financial Secretary will point out later that, as a sweetener, the Government have increased oil capital allowances from 25 to 100 per cent. and intend the matter to be subject to some consultation. However, the abolition of royalty payments does not appear to be taken into account in the Red Book, and the payments themselves are pretty small and affect only the older oilfields.
Shell Expro, the second biggest company in the North sea, which combines the operations of Shell and Esso there, said only a couple of weeks ago that although it welcomed the increased capital allowance and the possible phasing out of royaltiesas I said, the latter affects only the older oilfieldsthey were
I should like to say a few words about globalisation, as financial and business services remain the powerhouse of the City's economy. They account for some 6.6 per cent. of the UK's gross domestic product and 600,000 new jobs are likely to be created in London in the next 15 yearsif the Mayor of London is to be believed. On this matter at least, I have no reason to disbelieve him. More than 500 foreign banks will be active in the City and we would obviously wish those circumstances to be maintained.
The City relies on technology and massive labour mobility. The great worry is the flip side in a high-tax economy. We can attract the best workers world wide and, indeed, the crème de la crème of our graduates, but we must accept that work done in London can be done elsewhere increasingly easily, and will be relocated if the City ceases to be such an attractive place in which to do business.
Many hon. Members have spoken on a number of occasions about the severe infrastructure issues that central London faces. I spoke only a fortnight ago in an Adjournment debate on the future of Bart's hospital, which is obviously close to my heart. Likewise, there are transport issues relating to crossrail, the tube and the proposed congestion charge. There is a great worry that too many foreign banks that employ a highly skilled work force are fast reaching the end of their tether. The Bill contains measures that may tip some of them over the edge.
We have discussed controlled foreign companiescompanies that are not resident in the UK, but are controlled by individuals who are resident here. Clause 88 provides for a reserve power to make regulations specifying overseas jurisdictions to which the exemptions from CFC rules would not apply. As a result, all CFCs located in those jurisdictions could be taxed under the controlled foreign companies rules. As many hon. Members know, Conservative Members voted against Budget resolution 41, which relates to that new measure. We are concerned that the measure will increase substantially the powers of the Inland Revenue. It is directed especially at the Crown territories of the Channel Islands, including Jersey and Guernsey, and at the Isle of Man, and concerns subsidiaries of groups whose headquarters are situated in the UK.
I believe that that matter has nothing to do with money launderinga red herring that various Ministers and others have referred toand relates solely to tax competition. The uncertainty that will result from the legislation will put at risk the UK's position as a future location for the headquarters of multinational companies.
There is also an issue in relation to UK branches of multinationals. I had wanted to deal in some detail with foreign companies that operate in the UK through a branch, as the matter obviously has a strong effect on the City of London. Such companies have long been able to debt fund their branches and thus obtain tax deductions for payments of interest to their foreign head offices. However, those rules are set to change. For accounting periods beginning on or after 1 January next year, the rules will be changed, as UK branches will be dealt with on the basis of the equity capital that they would need if the branch were an independent free-standing company.
That could have a major effect. I know that Ministers will be aware of the concerns that have been expressed and will have received a great number of representations in that regard, but as well as hitting the banking sector, which is clearly a big issue for the City, the measure will also add complexity to the tax affairs of a great number of multinational groups that have UK branches. Indeed, I understand that the Association of British Insurers said:
A number of hon. Members mentioned growth, on which the Government's proposals seem unduly optimistic. In a sense, time will tell, but as my hon. Friend the Member for Buckingham pointed out, figures released only last Friday suggested that first quarter growth this year was only 0.1 per cent., which is much lower than the expected 0.4 per cent. and the projected growth of more than 2 per cent. this year and 3.5 per cent. next year, on which many of the Bill's spending plans were predicated.
I shall draw my remarks to a close, as I know that other hon. Members wish to speak. On the generality of the financial position in which the country finds itself, I accept as a relatively new Conservative Member of Parliament that it would be graceless not to recognise that the Chancellor often commands the Exchequer with great stature. I suspect that he may well be judged in the long term to have been in the upper ranks of holders of that office. Indeed, not to acknowledge that would be as graceless as many of the Front-Bench Treasury team have been in not acknowledging that they were bequeathed a golden economic legacy by the outgoing Government in 1997. They have built on that legacy. Many of us had great concerns in 1997they were genuine, given the track record of many former Labour Governmentsthat things would fall apart very quickly. It is only right that a certain amount of credit should be given to the Government for having been able to marshal the economy as well as they have done in the past five years.
One must also accept, however, that the inheritance that the Government received in 1997 was the product of 15 years of often thankless domestic economic performance. Similarly, the work of the current Chancellor and the results of some of his much-vaunted changes to public finances in the past three Budgetsas well as the ones proposed in the Billwill not become fully apparent until the first half of the next decade. While I am quietly confident that, by then, it will be my party that is sitting on the Government Benches, I am less sure that we shall not have to untangle an unholy mess in our country's finances by that time.