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9.29 pm

Mr. Howard Flight (Arundel and South Downs): I declare my interests as set out in the register.

This has been a surprisingly good and valuable debate on a Finance Bill that is rather irritating, as it does not cover the Budget's main tax-raising measure and cannot cover two important proposals that are still out to consultation, relating to domicile and residence and the taxation of overseas banking branches in the UK.

However, some interesting political points have been made. The hon. Member for Kingston and Surbiton (Mr. Davey) made it clear that, in principle, the Liberals would be prepared to tax and spend more. They are certainly committed to a 50 per cent. top rate of tax. I was surprised to hear their confidence in the unsubstantiated

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assumption that greater NHS spending would improve delivery, but they agreed with the Opposition that the Finance Bill is not good for business.

The hon. Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Committee, gave an extremely balanced and decent review of the Committee's report. In essence, he made the point that it was very much on the basis of evidence given by the professionals who appeared before the Committee that the report questioned whether growth assumptions were too optimistic and whether the Finance Bill would add to, rather than correct, imbalances in the economy. He also made a valuable suggestion about adopting in the UK an arrangement such as the United States green card system to enable people coming from overseas to attend university in this country to add their skills to our economy by working here subsequently.

My right hon. Friend the Member for Fylde (Mr. Jack) made a full and thoughtful contribution. He stressed that the difference between the Opposition and the Government was about how to achieve better quality public services and not about the objective. He welcomed—as we do—the measures that will simplify VAT, help sports clubs and moderate the climate change levy proposals. He also made a very valuable comment on clause 37, addressing schedule E changes. He said that he would like the capital gains tax regime for life assurance products to be addressed in Committee and brought into line with changes to capital gains tax for individuals.

My right hon. Friend was also the first to address in detail criticisms of the proposed 10 per cent. additional tax on North sea oil extraction. In essence, he pointed out that the Government risked causing a major contraction of the North sea oil industry, given the marginal nature of operations in the North sea compared with other parts of the world.

Mr. Connarty: Has the hon. Gentleman taken the trouble to consider the Royal Bank of Scotland's analysis of the impact of the changes, which says that there will be no diminution in the attraction of investment in the North sea? It also said that the assets are so profitable that if anyone wants to divest themselves of them, there are plenty of takers who want to get into the North sea and make money, despite the tax.

Mr. Flight: I thank the hon. Gentleman for his comments, but perhaps he was not present when the hon. Member for Waveney (Mr. Blizzard), chairman of the all-party group on the offshore oil and gas industry, very strongly criticised many of the proposals and set out in a balanced and measured way precisely why they were a threat to the North sea oil industry. As he may be aware, the industry does not agree with the Government's assertions that the capital allowances will offset the additional taxation.

My hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) contrasted the Chancellor's previous phase of prudence and popularity in the City of London with the Budget measures. He drew attention to the compulsive meddling aspect of much of the Bill, and agreed with my right hon. Friend the Member for Fylde that it might be sensible to consider a Standing Committee on the tax system that could make use of expert witnesses.

The hon. Member for Wolverhampton, South-West (Rob Marris) rightly stressed the importance of skills training. My hon. Friend the Member for Cities of London

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and Westminster (Mr. Field) referred to the damage that could be done to enterprise and the dangers of the oil tax, while giving credit to the positive measures in the Bill.

The hon. Member for Caerphilly (Mr. David) explained how the Budget might help Wales, and the hon. Member for Cardiff, West (Kevin Brennan) reviewed the different options that had been available to the Government for increasing tax revenues.

The hon. Member for Angus (Mr. Weir) noted that the Budget was negative for small innovative companies, of which there are many in Scotland. The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) pointed out that the aggregates tax issue has still not been adequately resolved and stressed the risks associated with additional North sea oil taxation.

My hon. Friend the Member for Fareham (Mr. Hoban) drew attention to the major bias in favour of incorporation that the Bill introduces in relation to small businesses. The hon. Member for Yeovil (Mr. Laws) gave a useful and balanced review of the Treasury Committee's conclusions and why it had reached them.

At the beginning of the debate, the Chief Secretary said that through the Bill the Government aim to build a stronger enterprise culture. Clearly, that has not been the perception of business, and I do not believe that it is likely to be the main effect of the measures in the Budget and the Bill. Conservative Members and business welcome many specific modernising tax measures in the Bill, including, self-evidently, those that are helpful to business. Overall, however, the Budget is manifestly bad for business and has attracted near universal criticism and hostility from that quarter.

The Budget will further reduce our international competitiveness. Over the past five years, we have fallen from ninth to 19th place in the league tables. Since 1997, business taxation has increased by £6 billion a year.

The Economic Secretary to the Treasury (Ruth Kelly): Has the hon. Gentleman noticed that results out today show that we have leapt up the international competitiveness league tables?

Mr. Flight: I think that the Economic Secretary will find that the tables merely show that we have crept back to the levels at which we stood in 2000, and that we are still well down on 1997 levels. In any case, I assure her that if the Bill is enacted unamended we will drop considerably, because to the £6 billion per annum of additional taxes levied on business since 1997 it will add between £4 billion and £5 billion per annum of additional taxes through a mixture of higher national insurance contributions and the extra £1.1 billion raised by the Finance Bill. UK corporate taxation is 13.2 per cent. of gross domestic product, whereas it is 12.7 per cent. in Germany and 9.5 per cent. in the USA. The measures in the Budget will take the UK proportion considerably higher than 13.2 per cent.

I want to make a specific point about encouraging entrepreneurship. As Ministers know, the limited nature of approved share option schemes and the complexities of the management incentive scheme for small businesses mean, in an overwhelming number of cases, that unapproved share option schemes have to be used to incentivise management. One of the effects of the Budget is that the tax rate will go up to more than 52 per cent.,

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as individuals will not only pay additional national insurance contributions themselves, but, under legislation passed in the previous Parliament, will almost always also pay employers' NICs. The UK share option incentivisation situation is wholly unattractive, and it is particularly unfavourable by comparison with that of the United States.

The Chancellor deliberately put the maximum spin on the corporation tax reduction measures for small business. The Red Book shows that they are worth approximately £265 million in the first year, increasing to about £350 million in the second year. It does not make the point that the national insurance contribution costs to small businesses are £1.3 billion. It is hardly surprising that the Federation of Small Businesses objects strenuously to the total package and is lobbying many Members of Parliament throughout the country.

Some 455,000 incorporated small businesses will benefit from the lower corporation tax rates, but there are 3.5 billion unincorporated, self-employed business activities. They will have a 14 per cent. increase in their NIC charges, from 7 to 8 per cent. Why do the Government want to encourage sole traders to incorporate? That is a waste of money and anti-consumer. To put it crudely, there is less transparency in incorporation than in being a sole trader. It is also likely to lead to loss of tax revenue. I should like to know the Government's motivation for encouraging mass incorporation of small businesses.

Hon. Members may have seen the Inland Revenue package for small businesses, complete with employer CD-ROMs and some 200 pages. Representatives of small businesses in my constituency that employ three, four or up to 10 people have thrown up their hands in horror. Again, the Federation of Small Businesses rightly objects to the complexity of PAYE administration that small businesses must now undertake.

My hon. Friend the Member for Buckingham (Mr. Bercow) rightly criticised the length and complexity of the Bill, which does not even cover the main ingredients of the Budget. Although tax measures need to be kept up to date with changing business practice, it is crucial that the rate of change be manageable, especially for smaller businesses. It must be less complex for smaller businesses. The amount of time that people with a small business have to spend simply understanding everything is far too great when they should be concentrating on their business.

Let us consider specific provisions in the Bill. As my hon. Friend the Member for Buckingham made clear, we have strong reservations about the 10 per cent. oil supplementary tax. As I said in an intervention, we would like to know how it will work out in relation to double taxation treaties, and whether it will be treated as corporation tax or whether it will be excluded and disadvantage multinationals with UK operations.

The Bill includes several anti-avoidance measures, the motivation for which is understood and justified. However, many accounting firms have pointed out a danger of overkill and unfairness. That applies especially to the new rules for foreign exchange, which have a lack of definition for "unallowable purposes". I hope that we will sharpen that up in Committee.

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The stamp duty proposals run the risk of unfair treatment for genuine transfers of business. The vehicle excise duty on cars that are not on the road constitutes yet another burden on loss-making farmers. The proposals for taxing company cars and fuel, when provided, contradict the incentives for companies that provide lower-emission vehicles. I hope that we shall also sort that out in Committee.

The lower duty for one-man breweries carries the risk of helping them but damaging small regional breweries.

Clause 88 is unnecessary. The Treasury needs to agree fair arrangements with the Crown territories in relation to the Primarolo proposals on EU unfair tax competition. It is unwise to add to the tax regime items that contribute uncertainty to multinationals that are based in this country. Doubtless we shall discuss that in more detail.

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