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Mr. Flight: My right hon. and learned Friend the shadow Chancellor made the position clear, and the electorate were not in any way impressed by the Chief Secretary or the Labour party's misrepresentations. In

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fact, they gave Labour a thoroughly negative vote, with the Conservatives gaining more than 550 seats. Even the BBC—the Government's propaganda organ—expressed surprise that the Conservatives had done better than expected.

Mr. Redwood: Did my hon. Friend, like me, experience many doorstep conversations in which people asked where all the money had gone? They have not seen it go to teachers, nurses or doctors, or for more operations. They are as upset as my hon. Friend about the waste and the nonsense from the Government, who rip us off but do not provide the service.

Mr. Flight: That is precisely the point. The public want to know where the 50 per cent. increase in taxes raised has gone, because it has certainly not gone on improved delivery of public services.

Let us focus on the Bill; 447 pages, 214 clauses and 43 schedules. Strangely, more than 50 per cent.—51.5 per cent. by volume, or 230 pages—deals with just two territories. The first is the new stamp duty tax and the introduction of the lease duty, and comprises 139 pages. The second is the issue of employee share schemes and the major changes to the law on employee share acquisition, and amounts to 91 pages. Both of those are massively complex proposals and reflect similar problems. The Government have endeavoured to increase tax takes substantially but have failed to draft effective legislation. On stamp duty, there is the issue of the favoured enterprise areas, where stamp duty does not apply. The Government are surprised that businesses react to that by endeavouring to minimise their stamp duty liabilities elsewhere. Similarly, in the area of employee share arrangements, the attractions of the business taper, with capital gains tax coming down to 10 per cent., have, not surprisingly, served as a motivation to others to construct share schemes that reduce their tax liabilities.

The proposals on lease duty were not included in the draft legislation on the reform of stamp duty. They amount to a major new stealth tax, and not the promised reform of stamp duty. The new tax should be called the land transfer tax. We believe that the Chancellor should have referred to it as a new tax in the Budget.

Roger Casale: The hon. Gentleman knows that the Government raise tax so that the money can be spent on public services such as health, hospitals and new schools. The hon. Gentleman criticises individual tax rises in the Bill. What other elements in the Bill would allow us to raise the money for that expenditure in a different way, or is he simply looking for ways to finance his cuts to public services?

Mr. Flight: I would not want to prejudge what the Standing Committee will do, but we have objected to taxes being raised that are not being spent effectively. The hon. Gentleman seems to miss the point that no benefit is achieved if taxation is raised yet public services are not improved. That is our criticism of the Government's return to Labour's old tax-and-spend policies. It is the same old failure that has been evident throughout most of my lifetime.

Kevin Brennan: Will the hon. Gentleman give way?

Mr. Flight: In a moment. I want to make some points about the new tax.

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Ministers promised reform, but then broke off consultations arbitrarily and without warning last February. That has been regarded as a breach of faith, and the Government have not explained their actions. The Government have missed the opportunity to reform stamp duty for home owners, and also to remove some of the iniquities in the market and the high rates of marginal taxation. Indeed, the new tax has some of the same iniquities as the old stamp duty. It retains some of the arbitrary price bands, and the new stamp duty lease tax applied to value added tax is a double tax—a tax upon a tax.

Because it includes leases, the new tax will hit many more people, especially many small and medium-sized businesses, and charities. Their tax burden could be between four and 10 times higher than at present. The new tax will serve to shorten leases, and thus could often reduce capital investment, which would not be economic on a shorter lease. All of that comes at the wrong time, in the wake of the national insurance contribution increases and with business rates and liability insurance costs rising dramatically.

What estimates have the Government made in respect of small business? Will the Chief Secretary say how many firms and jobs will be affected?

Kevin Brennan: The hon. Gentleman has criticised the Government's fiscal stance, and denied what was said earlier about his proposals for Government spending. Will he therefore say what he considers to be the appropriate proportion of gross domestic product that the Government should devote to public expenditure?

Mr. Flight: It is interesting that the hon. Gentleman should ask that. He will know that the Treasury Committee spent a considerable amount of time asking the Chancellor the same question, and he refused to give any answer. If the Chancellor refuses to answer that question, I do not see why I should answer it.

No Labour Member can possibly be satisfied with the extent to which the Government have raised taxes. Taxes have gone up 50 per cent. since the Government came to power, yet there has been a complete failure to deliver improvements in services. The electorate gave the Government the benefit of the doubt at the last general election, but I suggest that the local election results made it clear that the population is fed up with more and more tax and no delivery. The new stamp duty tax occupies about one third of the Bill, and the compliance costs are likely to be high and to add to already high UK property costs, reducing our international competitiveness. How will that help inward investment? In our view, the proposals are the wrong way to tackle tax avoidance. What is needed is genuine reform and a collaborative approach to business.

The Chartered Institute of Taxation is dismayed by the abrupt termination of the consultation process without effective explanation at a time when several major issues require further consultation. The institute believes that any decision to go ahead without further discussions and to implement in December could produce unworkable legislation that might adversely affect the property market. The particular worry is the impact on smaller and middle-sized companies. The

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tenants of pubs may find themselves facing up-front bills for £6,000. A modest London-based service business leasing 4,000 sq ft in the Victoria area would be likely to face an increase from £3,000 to more than £12,000 under the new tax proposals. The measure will have damaging effects, particularly on small and medium-sized service businesses.

Mr. Boateng: If what the hon. Gentleman has just said is true, why did Bill Moyes, director general of the British Retail Consortium, describe the measures as especially good news for small retail businesses? Why did he also say:

Mr. Flight: I suggest that the Chief Secretary to the Treasury awaits further evidence at the Committee stage. He will find that there has been some major misunderstanding about what the Government propose.

Mr. George Osborne : Perhaps the Chief Secretary is unaware of the comments made by the director general of the CBI, who said:

Mr. Boateng: Bill Moyes says different.

Mr. Flight: I gently advise the Chief Secretary, who is commenting from a sedentary position, not to indulge in such complacency. The arithmetic, as he knows, is such that tax applies on the present value of leases above the figure of £150,000, and not on the value per annum. When the Chancellor first made his announcement, in language that was not entirely clear, a number of people misunderstood what he was saying. Most reaction since has been similar to the example that I quoted a moment ago, to the effect that the tax will bear hard on smaller and medium-sized businesses.

Mr. Mark Simmonds (Boston and Skegness): May I assist my hon. Friend in answering the comments made by Mr. Moyes by saying that many members of the British Retail Consortium, of which Mr. Moyes is chairman, are deeply unhappy and dissatisfied with those comments?

Mr. Flight: I thank my hon. Friend for that.

My final quotation on the proposals comes from the head of stamp tax at Deloitte and Touche:

Schedule 22, made effective by clause 139, is the second major lump of this lop-sided Bill, with 72 pages that completely rewrite the law on employee share acquisition. We welcome attempts to stem avoidance, but the Government should examine why avoidance is happening. In this case, it is because national insurance contributions have been increased and capital gains tax reduced to a level where the incentive to arbitrage has been rendered that much greater. Like other schemes that the Labour Government have introduced, the

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10 per cent. business asset capital gains tax rate is welcomed by those who benefit, but it inevitably risks incentivising distortions in behaviour.

It is not sufficient for the Minister to say that the Government wish to stem avoidance; a clear statement of policy is needed. When is a share gain capital and when is it to be taxed as income? What about equity incentives, which are given in management buy-outs or venture capital transactions and which typically feature performance-related enhancement to management's share rights? We have, in aggregate, 82 pages of legislation, published a week after some of it has come into effect, without any warning or consultation, which is widely regarded as unacceptable unless, first, there is a major revenue loss, and secondly, legislation can deal with the problem unambiguously. Neither of those two tests has been passed.

The rushed and unsatisfactory nature of the Bill is illustrated by the fact that I have spotted yet another mistake in the Treasury's advice. In at least one instance, the explanatory notes contain a contradiction. On page 281, new section 446L(6) refers to non-commercial increases; the explanatory notes refer to non-commercial reductions.

I asked the leading lawyer on employee share schemes to comment on schedule 22. He said it is massively complicated and impossible to explain, even to a highly sophisticated person. He said that it is scandalous that schedule 22, in all its Technicolor complexity, is being introduced without any consultation or draft legislation. He also said that it imposes many new charges and burdens, some of which are retrospective. Those two lumps of legislation make up over half of this unsatisfactory Finance Bill.

There are, of course, some welcome items in the Bill. We welcome the fact that, at last, the Government are making some attempts to crack down on VAT fraud and missing trader fraud. We welcome the anti-avoidance VAT measures dealing with property, although we understand that the loophole of which the Labour party made use in respect of its party headquarters has not yet been addressed, but perhaps there will be an opportunity to tackle that in Committee.

We welcome the reduction in the minimum expenditure threshold for research and development tax credits to £10,000, but this country is fast becoming uncompetitive in the area of R and D incentives. The UK regime is already materially less favourable than those of Spain, Portugal, Australia and Canada.

We welcome the increase in the qualifying threshold ceiling for capital allowances for small and medium enterprises up to £20 million, and we welcome the increase in the VAT exemption ceiling on turnover up to £56,000, although, as others have pointed out, the Government persist in their unwise anomaly of having a nil corporation tax rate for small businesses that are incorporated but no matching or evened-out arrangements for unincorporated businesses. The Government are then surprised when that leads to a massive and unnecessary incorporation of small traders trying to benefit from that anomaly.

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We welcome the abolition of petroleum revenue tax on new business contracts involving third-party use of pipelines in the North sea, which will apply from next January, but we remain of the view, as expressed in debates on the previous Finance Bill, that petroleum revenue tax will have a net negative effect in terms of overall revenues and costs and will severely damage the continuing exploitation of North sea reserves.

We welcome the clarification of tax relief for adopters and foster parents and we welcome the climate change levy exemptions. Finally, we welcome the fact that National Savings is about to introduce cards to facilitate withdrawals and deposits—arrangements for savers who have lost their passbooks have hitherto been highly unsatisfactory.

What has happened to the child trust fund—one of the stars of the Chancellor's announcement? There is nothing about it in the Finance Bill and no announcement has been made about when legislation will be introduced. There has been a statement to the effect that something will be said in the summer, but will the Paymaster General kindly let the House know when such legislation is likely to be introduced and when citizens will be able to avail themselves of the child trust fund? I understand that the fund may not now go live until early 2005, so precisely what has happened?

The reality is that the Finance Bill adds as much additional stealth tax as the Chancellor dares without risking pushing the economy into recession. The Chancellor's growth forecasts have been branded as wildly optimistic by the much-revered ITEM Club think-tank, which uses the Treasury's model. This year, ITEM forecasts 1.9 per cent. growth, whereas the Chancellor forecasts growth of 2 to 2.5 per cent. ITEM forecasts 2.6 per cent. growth next year, whereas the Chancellor forecasts growth of 3 to 3.5 per cent., and it expects the Chancellor to be forced to raise £10 billion a year more in tax until 2006.

This is the first year for 20 years in which real household disposable incomes will fall. Indeed, the UK's growth potential and the UK's productivity growth potential are both declining, with the transfer of resources to the public sector, where productivity growth is now negative.

Extra public sector spending is not delivering extra output. At least the Office for National Statistics now measures real output, not just increases in public sector employees. The 2002 ONS figures showed inflation in the public sector rising to more than 5 per cent., and on a rising trend. The ONS figures for the last quarter of last year—the latest available—showed public spending up 9.2 per cent., but net public sector output up only 0.2 per cent. Last year, a 22 per cent. increase in health spending produced only a 1.6 per cent. increase in hospital cases treated. Indeed, public sector inflation is running at nearly twice the Government's targeted figure.

The Government's spin on the Finance Bill and the Budget was that they would build a stronger and more flexible enterprise economy. Ernst and Young's 2003 survey revealed that entrepreneurs' view of the Government and Whitehall is at rock bottom. Since 1997, there has been a continuing run-down—a managed decline—in the UK economy's growth and productivity growth.

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