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Five years ago, the Government's first Budget set out our objectives, our plans for reform, and the disciplines to achieve economic stability, higher employment and sustained prosperity. On 17 April, my right hon. Friend the Chancellor was able to report in his Budget speech that Britain had enjoyed the lowest inflation and the lowest interest rates for 40 years. For the first time for half a century, unemployment in Britain is lower than in America, Japan and Europe. In the year just ended, Britain had the highest growth of any of our major competitors.
Last year, the main economies of the industrialised world started a synchronised slowdown. In the past, during such slowdowns Britain entered weaker and suffered longer, unable to act because of higher inflation and higher borrowing. Britain has faced this world downturn with low inflation and sound public finances, both delivered by our new monetary and fiscal frameworks. This time, the Bank of England has been able to adjust policy at the right time and in the right way. Last year, it cut interest rates seven times.
With the support of fiscal policy, we have been able to safeguard economic stability and growth, and last year Britain was the fastest-growing G7 economy. The challenge for British industry and investors at this time is to build on hard-won stability and to accelerate productivity improvements, thereby increasing output, employment and prosperity. The economy has been stable, but it can and must grow stronger.
Mr. Edward Davey: The Paymaster General is giving a eulogy on the Government's macro-economic performance. Will she say a few words about manufacturing? In the last four quarters, output has fallen; in the last six, manufacturing employment has fallen.
Dawn Primarolo: As the hon. Gentleman knows, expectations are rising and output was improving in the last quarter. As he rightly acknowledges, the long and hard position of the manufacturing industries is improving[Interruption.] It ill behoves Opposition Members to make jests or to laugh from a sedentary position about the serious issues and considerations for the British economy.
I was stating the current position to the House and putting the Bill in that context. Clearly, it is important that we build on that increasing output, employment and prosperity, and there is a clear role for the Government in establishing the conditions necessary for that development, which must take place. The UK is
The UK is, and will remain, a low-tax environment, and the Bill introduces important measures to modernise tax, keep pace with real-world developments and the global economy, promote enterprise and cut red tape.
Adam Price: I am grateful to the Paymaster General for giving way. She knows, of course, that manufacturing output is down 6 per cent. over the last year whereas retail spending is up 6 per cent. Is that not a case of simultaneous boom and bust?
Dawn Primarolo: It is necessary that the Government establish the right framework and the stability for that growth. Of course, investment, which is very much part of the Bill, is a key driver of growth. To encourage more investment, we have, in past Budgets, cut corporation tax from 33 to 30 per cent.the lowest rate in our history. To enable investment in high-growth, high-technology industries, clause 53 and schedule 12 extend and enhance the research and development tax credit to all companies. That means a £400 million boost for innovation and research.
Clause 44 and schedule 8 specify an exemption for companies disposing of substantial shareholdings. That will enable them to restructure without an essential business decision being constrained by the tax system. The new relief forms part of the Government's commitment to reforming and modernising the corporate tax system, and ensuring that the United Kingdom remains a good place in which to do business.
The Bill establishes a new regime to provide relief for the cost of intangible assets, including intellectual property and goodwill. The relief proposed in clause 84 and schedules 29 and 30 will encourage business to take advantage of opportunities in the knowledge-based economy. That is another important step in our programme of corporate reform, ensuring that our tax system supports, encourages and reflects the change in the business environment.
Mr. John Redwood (Wokingham): When the Government imposed their big windfall licence fee on the telecommunications industrya very big one-off taxI warned that it would lead to job losses and slashes in the investment programmes of our lead sector. The Government said it would not. Will the Minister now apologise and explain what went wrong?
Dawn Primarolo: The right hon. Gentleman has made many forecasts that turned out to be wrong. If there is a list of apologies that need to be made to the House, we may be here for a long time hearing members of the last Government apologise for all their errors.
In clause 91 and with the reforms of North sea oil taxation, the Government recognise the need to strike the right balance between a fair share of profits for the nation from the exploitation of a scarce resource and the encouragement of investment. The 100 per cent. first-year allowances on capital expenditure, along with the commitment to abolish North sea royalties and the supplementary 10 per cent. charge, strikes that balance.
Small businesses account for 55 per cent. of all private sector jobs, more than 10 million, and for nearly half the economy's output. Small firms are important drivers of growth and support for them is an important theme of
Clause 32 proposes a fall in the starting rate for corporation tax from 10 per cent. to zero. That means that companies with profits of up to £10,000 will pay no corporation tax, and that the tax regime for small companies is more favourable than those of any of the other advanced industrial countries.
To fund the growth of our young companies, we need to increase business investment. Private equity investment has doubled since 1997, which is an important contribution to an entrepreneurial economy. But there is more to be done, and to maintain the momentum the Bill cuts capital gains tax to 20 per cent. in respect of business assets held for a year or more. In the case of business assets held for more than two years, it cuts the tax to 10 per cent. That means that, overall, Britain's capital gains tax regime is more favourable to enterprise than that of the United States.
I know that for many small businesses the cost of compliance is important. The Budget set out proposals to reform the administration of VAT, to help smaller firms comply with PAYE, and to remove unnecessary regulation. Clauses 23 to 25 set out the steps we are taking to simplify and streamline the VAT regime.
In disadvantaged areas too, however, businesses can be a catalyst for community regeneration. In recognition of that, in 2000 we designated enterprise neighbourhoods. Small business tax cuts will be supported by further measures to encourage social entrepreneurs. We introduced the community investment tax credit, creating an incentive to invest in disadvantaged communities.
The emerging consensus on the idea of sustainable development is also an opportunity for British companies. Investing now in energy-saving technologies and techniques is the best way of getting ahead of the game and gaining an important advantage over our foreign competitors. Investment in energy-saving technologies will qualify for enhanced capital allowances at a rate of 100 per cent., strengthening our economy as we move towards our Kyoto targets. Incentives will also be introduced to drive cleaner vehicles, with a reduction in the licence fee of £30 for the most efficient cars, £55 for the least polluting vans and £35 for the least polluting motor cycles. This is a balanced approach, taking into account the needs of the economy and our communities and the need for secure employment.
To ensure fairness for taxpayers and for business, we must act swiftly to close tax loopholes and be vigilant against tax avoidance. We have decided to act with immediate effect on the avoidance of stamp duty on property and to put an end to artificial schemes for VAT avoidance.
The United Kingdom remains a low-tax environment, favourable to business and enterprise. That has been acknowledged by a wide range of surveys and reports from business management. The Institute of Management development study, published recently, states that the United Kingdom has better withstood the uncertainties of the global economy. The Government have put in place a comprehensive set of measures aimed at raising competitiveness and closing our productivity gap with our major competitors.