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Mr. Flight : The Bill is, to use the old cliché, something of a curate's egg. There are certainly some good things in it, such as the simplification of the VAT regime for small business, the modernisation of business taxation and, we hope, the capital allowance regime for larger companieswe hope that the one for smaller ones will not be too complex to be effective. I thank Treasury Ministers for their courtesy in Committee, where we underwent a useful process and some issues that we raised were noted for inclusion in the Bill.
However, some bad things remain, and some for which the case was not made at all in any of our debates. I do not intend to repeat the exhaustive debate that we had on increased taxation on North sea oil exploration yesterday, but we remain powerfully convinced of the view that it will damage Britain's interests and greatly reduce extraction of the oil that remains there, at a time when our current account position is already the worst it has been in our history. I noticed that there was no response to the crude point that the loss of output will add on average about $12 billion a year to our current account deficit, although I am not saying that the tax increase is the only cause.
Yes, we all like small business, which is the majority employer. A small tax will be popular, and we must all like it, but it is unwise of the Government to forget about the self-employed, because self-employment is crucial. The ability to make a living through self-employment has been one of this country's strengths, particularly in difficult economic circumstances. All measures tend to have contrarian effects if they are not thought through, but as we have argued, masses of modest self-employed people will have to queue up to incorporate, in order to gainpotentially£3,000 or £4,000 a year in tax terms. The costs will be a lot greater than the Government estimate, and it is not desirable for small self-employed businesses to incur yet more regulatory costs and hassle as a result of incorporation. It would have been better to balance fiscal incentives for small businesses between the incorporated and the unincorporated.
Mr. Edward Davey: Does the hon. Gentleman share my surprise that this is one tax cut for business that many people do not welcome? However, they do not welcome it because, as he says, it might distort choice in an unplanned and unstrategic way.
The Government may regret their approach to stamp duty. It is fine and correct to attack tax avoidance, but the basic issue is whether it is right and economically sensible for business to pay 4 per cent. stamp duty. That has not been a huge issue until now because there were many schemes through which to avoid such duty; indeed, many businesses believed that the Government regarded such schemes as an incentive for business. Whether there has been a change of policy or merely a waking up to it, the fact remains that a business's physical assets the propertyare just as much of a component as the machinery and the people. Taxing them more will lead to less mobility and greater costs.
We have debated the unfortunate principle of the alcopops tax, whereby it is okay to proceed with a tax based on data that prove bogus. On green fuels, green taxation and car legislation, I do not understand why the Government did not include liquefied petroleum gas in the incentives. Some of the fiscal arrangements, particularly those relating to company cars, may prove mind-blowingly complex.
We had a strong debate on mandatory e-filing. Of course, technology advances and we will all comply with it, but regardless of the intention, it must be wrong to begin by saying that we will force everybodybusinesses, little old ladiesto file tax returns electronically. The underlying mindset is unnecessarily authoritarian.
I apologise for not being present when controlled foreign company legislationthe Jersey clausewas addressed in detail. I strongly object to two aspects of CFC legislation. First, it is bad for the UK as a multinational base for business. Whatever the Government may think, we are becoming less attractive in terms of tax and regulations, and are slipping down the competitive league table. If multinational companies based here become subject to an arbitrary power to change the tax rules governing their international operationsin other words, if the Treasury suddenly has random power to decide that they would not get the CFC exemptionthey will face a disincentive to doing business. Arbitrariness of any sort is undesirable.
Secondly, I believe that one element of the legislation has been mis-sold, as there is widespread support for the savings directive. It was the alternative to the silly proposal that is the common EU withholding tax, and it was effective against tax evasion. However, the Opposition certainly do not like the notion of EU tax harmonisation, and elements of the EU unfair tax competition code lean in that direction. I want this country to retain its autonomy to set taxes as we wish, as a way of encouraging what we want to encourage. Competitive taxation is healthy: anything that compromises that rather invites a tax cartel.
The Prime Minister visited Jersey in June. I was amazed to read that he said Jersey had its own rights in this situation, that the Government would protect them, and that the Government were not trying to affect tax rates. Either the Prime Minister does not know what he is talking about, or he was being deliberately misleading.
Mr. Flight: Let me put it another way, Mr. Deputy Speaker. We are faced with 505 pages of taxationsurely it is possible to have tax rules that are simpler and more comprehensible. It is a question not merely of drafting tax law more simply, but of establishing bodies that would contribute to simplifying our tax system.
The Bill does not address the pension crisis that we face and that is largely a result of the Finance Act 1997. I shall not repeat what was said in yesterday's debate, but I hope that the Government took note of the growing concern registered by the financial community, citizens and others at the growth in off-balance-sheet, Enron-style accounting.
People are also worried by what can only be described as the tangled web involved in getting public sector investment off the balance sheet. It seems that tax vehicles are being shaped to meet the rules rather than the substance, and I wonder whether the Government know the full extent of the liabilities that are lurking in wait. If not, given the difficult economic times, some extremely unpleasant things could happen.
Above all, the Budget in aggregate is bad for business, and it is bad for business at the wrong time. It will do some helpful things to encourage research and development, but it also imposes massive increases in employment costs on business, just when business and enterprise face considerable problems. At the root of the problem and the reason why the stock exchange has been collapsing is the problem of corporate profitability. If anything, corporate profitability is contracting. Companies are finding it increasingly difficult to sustain profits, let alone increase them. Continually adding regulatory and fiscal costs to business produces a downward spiral which will then reduce pension fund values and investments still further, and so forth.
The Chancellor thought, as ever, that he was very clever with his Budget. He went out to the focus groups who said, "Yes, we quite like the idea of hypothecating extra national insurance to pay for more health care." I think they also said, "We certainly agree with more spending but, like the Conservatives, we do not agree that more spending will be effective without the necessary reforms." The Chancellor sold the whole package on
There are £4.7 billion-worth of tax credits, bringing the total tax credit cost up to some £16 billion. As we have pointed out, those tax credits will discourage pension saving for many and are in danger of providing excess job subsidies, militating against skill training and increased productivity. It may be no accident that after four years of the working families tax credit we are now seeing productivity declining. We have not only the lowest productivity growth for some time, but falls in productivity when for five years the Chancellor has gone on saying that his Government will increase and improve productivity.
It is no use spending huge sums on health unless those amounts will be effective. As we have said again and again, a package of increased spending without the necessary reforms should not be supported. The crude fact that in Scotland, Northern Ireland and Wales, where spending as a proportion of national income is already above European levels, delivery is even worse than in England is straightforward evidence that reform is needed. We hear of more administrators than beds and only 17 per cent. of new expenditure going to front-line delivery. Those have all the hallmarks of the inefficiency of nationalised industries the world over. The risk is that all that expenditure will in reality go on wage increases.
In an entirely different area, the problem is becoming more apparent of the black hole in the Chancellor's planssomething like £7 billion. Indeed, it was heartening to find the Government's own new economic adviser at the Department of Trade and Industry, Vicky Price, warning publicly that the Government may be about to embark on too much spending which they will not be able to finance. The expectation is that quite soon taxes may have to increase again. Apparently the Chancellor said that he thought the statement was a spoof. Perhaps it is he who is out of touch and not the rather tough and honest speaking new economist at the DTI.
Productivity is falling. London job prospects are the worst since 1993. Tax receipts are declining for the first time in nine years. Corporation tax receipts are down 12 per cent. and Inland Revenue receipts down 7 per cent. Hearing the rosy picture which the Paymaster General described, who would imagine that we had a crashing stock market? Of course, it happens just like that. Stock markets are not at all predictive, are they? That is not their role. But what the stock markets are telling us is that corporate profitability is vulnerable and falling. That is the key point. The worst aspect of the Budget overall is that it will be bad for business, as business has made clear.
We have heard all the spin about the Government's wonderful finances. That is the point of raising the off-balance-sheet issue, because however one looks at itwhether one talks about sticking to the rules rather than the substance, or potentially breaking the rulesall that has been happening is that the capital expenditure side is being hidden off balance sheet. People know that. There may be several benefits in involving the private sector, but everyone knows that in reality the state of the public finances is not the rosy picture that is painted by the Chancellor.
Above allthis is why we are going to vote against the Billthere has been a foolish arrogance as regards the whole issue of North sea oil taxation. The resource of North sea oil is not the family silver in the Treasury, but one of nature's great gifts of good fortune to this country. The new tax measures mean that instead of managing it to make the most of it, we are going to under-exploit it. That will be to the country's disadvantage over the coming years.