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Offshore Tax Havens

3. Mr. Colin Challen (Morley and Rothwell): What steps are being taken to prevent the loss of tax revenues through the use of offshore tax havens. [53545]

The Chancellor of the Exchequer (Mr. Gordon Brown): We are determined to tackle tax evasion and tax avoidance, including the use of tax havens, on as wide an international basis as possible. As we made clear at the European Council in June 2000, we believe that greater international co-operation—in particular, the exchange of tax information—is the key to tackling cross-border tax evasion and avoidance.

Mr. Challen: I thank my right hon. Friend for that reply. I also applaud the Government for the measures they are proposing in the Finance Bill to deal with tax evaders abroad. There are principally two kinds of people who use offshore tax havens: terrorists, such as al-Qaeda, who seek to destroy government by violent means; and multinational corporations, such as News Corporation, which seek to undermine government by not paying for it. Is my right hon. Friend satisfied with the international co-operation that he has received on this matter? We need to do a lot more about both those groups.

Mr. Brown: My hon. Friend is right. Progress is being made in international co-operation against tax evasion. The OECD issued its conclusions in June 2000 and asked all countries to agree to produce information where tax evasion was an issue. Since then, most countries, including all our dependent territories and our overseas territories, have agreed to produce that information. Seven countries remain unco-operative, and they were named in April this year. In addition, we want to ensure not just information on request, but the exchange of information as the basis of future tax policy. That is why we are making progress with the savings directive, among other things, in the European Union. We will continue, as we did in the Budget, to take further measures as necessary to tackle tax evasion.

Mr. John Wilkinson (Ruislip-Northwood): Will the Chancellor give an assurance that Her Majesty's

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Government will maintain the fiscal autonomy of the Isle of Man and the Channel Islands—if need be, against the European Union? May I remind him that the Isle of Man balances its budget by law and has a rate of unemployment of less than 1 per cent.? Were it not to have fiscal autonomy, it would be a drain on the British taxpayer, rather than the contrary.

Mr. Brown: I am surprised that the hon. Gentleman refers to the Isle of Man and the Channel Islands under a question that is about offshore tax havens, because the Isle of Man and the Channel Islands have brought themselves into line with the OECD recommendations. As for the savings directive, however, which requests the automatic exchange of information, I hope that all the dependent territories and all the overseas territories that are affected will agree to play their part in exchanging information on an automatic basis so that we can make progress on the directive. In case they do not, I have taken measures in the Budget announcements last month whereby we will take action if they remain unable to help us.

Mr. Harry Barnes (North-East Derbyshire): How far has international co-operation extended since 11 September on offshore tax havens? Does that co-operation bring nearer the date when it will be possible to operate an international tax on currency speculation?

Mr. Brown: Those are two separate issues. On tax havens, because of the events of 11 September, many countries are very keen to move forward with the exchange of information as the basis on which we can reach agreements about how we deal with tax evasion, as well as money laundering and tracking terrorists' finances. The United Kingdom has agreed that it would be the first country to be subject to international surveillance of the measures that we have taken in that area. I hope that other countries will agree that international surveillance of what they do is very much part of an international system of co-operation to deal with tax evasion. We are taking action on those matters.

On the issue of tax on speculation, my hon. Friend knows well that the proposals put forward by Professor Tobin were in an era when there was not the liberalisation of currency markets that exists now. Most people would find that while it is worth looking again at whether Professor Tobin's proposals could have a beneficial effect, it is very difficult to implement them. The key question on international aid is whether we can raise the money that is necessary with or without a Tobin tax, so that we can deal with the problems of the third world, particularly education and health. The Government's proposals for a new deal in this matter, involving £50 billion extra in overseas aid, are the best way forward. At the end of the day, national Governments must make the decisions about what they are going to do.

National Insurance Contributions

4. Tim Loughton (East Worthing and Shoreham): What discussions he has had with the Department for

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Health about how the increase in class 1 national insurance contributions announced on 17 April will affect costs in the medical profession. [53546]

6. Dr. John Pugh (Southport): What estimate he has made of the impact of the proposed change in employers' national insurance contributions on services' company profitability for financial year 2003–04. [53548]

13. Patrick Mercer (Newark): What discussions he has had with ministerial colleagues about how the increase in class 1 national insurance contributions announced on 17 April will affect workers in the public sector. [53555]

The Chief Secretary to the Treasury (Mr. Andrew Smith): It is estimated that the changes to employer national insurance contributions announced in the Budget will add around 0.7 per cent. to pay costs on average next year. The cost to the public services will be just over £1 billion, which compares with a planned rise in spending on public services of nearly £20 billion. The changes will, of course, help to fund improvements in public services and a real-terms increase in spending on health over the next five years of over 40 per cent.

Tim Loughton: Will the Chief Secretary confirm that, according to the House of Commons Library, within those figures £217 million of the increase in national insurance contributions relates to the national health service? On the public sector generally, does he expect that higher employers' national insurance bills in the public sector will be financed by Departments or passed on to public sector workers in the form of lower pay settlements? Can he explain to me specifically how hospices up and down the country will cope with the big increases in national insurance contributions, given that they are run by the voluntary sector and largely on voluntary contributions? They will not, therefore, be the beneficiaries of his supposed NHS largesse.

Mr. Smith: If the Conservative party is suggesting that the public sector should somehow be exempt from national insurance contributions, that is an extraordinary proposition. When the Conservatives increased employees' contributions 10 times and employers' contributions five times, I do not remember them ever addressing the question of the impact on the public sector. The money will be found from within the additional resources that we are making available—departmental expenditure limits are increasing by £19.5 billion.

The hon. Gentleman makes a fair point about hospices, which make an invaluable contribution across the country and in many of our constituencies. As part of the spending review, there will be a cross-cutting review of the role of the voluntary sector in the delivery, and in assisting the delivery, of public services. I shall ensure that that examines the position of hospices.

Dr. Pugh: The service sector of industry employs a huge number of people. As the service sector is not made more profitable by an increase in employers' national insurance contributions, is it fair to say that this sector is

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one of the major net losers? If not, which business sectors are the major financial losers, or is this the first Budget in history when absolutely everyone is a winner?

Mr. Smith: As we have made clear on many occasions since the Budget, we believe that the national insurance increase is a fair way to fund the much-needed improvements in the national health service, which even the Conservatives claim they recognise are necessary. On the impact on the service sector, I remind the hon. Gentleman that for the average small business, the rise in national insurance contributions is substantially offset by cuts in corporation tax.

Patrick Mercer: I wonder how the Chief Secretary would reply to public sector workers in my constituency to whom I have spoken recently. First, I spoke to two policemen in Newark who doubt that, with the increase in national insurance contributions, they will be able to continue serving in the police force. Secondly, I spoke to nurses in Tuxford—not surgeons or doctors but the lowest-paid of the national health service workers—one of whom said to me that the Chancellor's catchphrase should not have been "Enterprise and fairness" but "Physician heal thyself".

Mr. Smith: The nurses, doctors, police officers, firefighters and other public service workers to whom I have spoken recognise the crucial importance of the extra investment in the national health service. They recognise that that has to be paid for, and national insurance is a fair way of doing that.

Mr. Jim Cousins (Newcastle upon Tyne, Central): I represent one of the largest groups of NHS workers outside London. They all say, "Yes, we will pay more national insurance but, for goodness sake, get on and tackle the health inequalities that mean that people in the north-east of England live seven to 10 years less than people in the south-east of England." The direct and indirect costs of those health inequalities far outweigh the direct costs of 1 per cent. on national insurance. Is my right hon. Friend the Chief Secretary getting that message too?

Mr. Smith: I certainly am. It is already a well-established commitment of the Government that health inequalities are a key priority. Indeed, analysing those factors featured large in the Wanless report. It is therefore crucial that resources go into prevention, community health and primary care, as they will do as a consequence of the extra £40 billion that we are making available over the next five years. In addition, we have the benefits of the working families tax credit, the child tax credit, the new deal and our other policies for sustaining high employment. As we all know, unemployment and poverty have long been a big factor in the health inequalities to which my hon. Friend refers. The Labour party is committed to tackling them while the Conservative party, which is unable to come here with any credible policies on health, would allow them to get worse, just as they allowed inequalities to worsen when they were in government.

Roger Casale (Wimbledon): My right hon. Friend will be aware that my constituency of Wimbledon has one of

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the highest proportions of professional and managerial people in the work force. There is a high degree of support for the Budget measures, because people understand and support the fact that money will be spent on rebuilding the NHS. Is it not the case that, even with the increase in national insurance contributions, Britain is still in a much more competitive position than some of our major competitors such as France and Germany? Is it not also the case that we are taking a number of measures to boost productivity and competitiveness? Finally, is it not the case that when we see the changes that the investment in the NHS will bring, we will find even more support from people in the work force for these measures than we find today so soon after the Budget?

Mr. Smith: My hon. Friend is right. The CBI pointed out that ill-health costs business in this country £10 billion a year. Even after this increase in national insurance contributions, business in this country will contribute on average £10 a week towards health care, compared with £60 a week in France and £30 a week in Germany. The contributions in this country are fair and, as my hon. Friend said, they will be welcomed by people in the business community. Anthony Stone of the British Chambers of Commerce said about the Budget:

I believe that that message is well understood in business.

Mr. Michael Howard (Folkestone and Hythe): Does the Chief Secretary recall the words of Labour's 1997 election manifesto, which said:

What economic activity do the Government think will be encouraged or discouraged by their tax on jobs?

Mr. Smith: In our manifesto for the election in 2001, we made our position very clear. The manifesto said:

We also pledged that we would put schools and hospitals first and that we would put investment in our public services ahead of the cuts in taxation for which the right hon. and learned Gentleman and his colleagues were arguing. They cannot have any credibility in the House when they say that the national health service needs more resources but oppose our measures to raise them. We have introduced reforms to match those resources, but they say that they have no alternative. The right hon. and learned Gentleman and his colleagues are not advancing a politically or intellectually credible proposition.

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