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Mr. Jack: Did my hon. Friend note that when this matter was first floated in the 2002 Red Book the figure for 200405 for the full-year effect of the changes in stamp duty was an increase of £450 million?
Mr. O'Brien: That was noted. Indeed, my right hon. Friend's powerful point is another reason why, if the Bill is given a Second Reading, that part of it will receive intense scrutiny. As is clear both from remarks made during our debate and what I have just been saying, stamp duty proposals are an additional friction for businesses, affecting their competitiveness.
The proposed changes to stamp duty will also dramatically affect sale and leaseback transactions. Such transactions provide a significant source of financing for business where an uncertain trading environment and depressed share prices, as we have seen recently, severely constrain companies' ability to fund growth. The proposed changes will reduce the attractiveness of sale and leaseback financing transactions and will be a further constraint on business. The Chief Secretary forlornly prayed in aid the fact that the British Retail Consortium, often representing the larger retail chains, said that stamp duty land tax was good for business. However, representing the smaller businesses in the sector, the Association of Licensed Multiple Retailers states that the tax
Not only business is affected. Individuals not seeking to avoid tax are also caught up in the burden of the anti-avoidance legislation, particularly through increasingly complex self-assessment calculations. For example, on employee securities and options, there are 73 pages of detailed anti-avoidance clauses. In the world of self-assessment, that places a significant burden on individuals. First, they have to understand the legislation and its impact, then they have properly to self-assess their tax position in their tax return. In many cases, detailed advice will be required.
The legislation is academically driven, and it contains a number of subjective elements. The cost of getting the judgment wrong is stark. If the share option is taxed as income rather than capital, the effective rate of tax can rise from 10 per cent. to 53 per cent. The business granting the option will be liable if it gets the judgment wrong. That means that a well-meaning company and an employee will both need extensive advice to ensure that they do not fall foul of the legislation. In some cases, the cost of getting it wrong could be so penal that the company will not be able to take the risk of running certain share option schemes.
The Bill increases the burden of excise duties. Hard-pressed farmers in my constituency and throughout the country will see the duty on red diesel increase by some 35 per cent. We will want detailed explanations from the Government as to why this year's tobacco duty increases will not simply compound the problems of smuggling and the legitimate cross-border market, thereby not tackling the key issue of reducing consumptiona point raised by the Liberal Democrat spokesman. We are glad to have his and, I hope, the rest of his party's support, and we look forward to their promised amendment to introduce a local income tax via the Bill, on which, in the run up to the local government elections, they said that they did not wish to be drawnno wonder, as it would hit worst and nastily on those who can least afford such a misguided tax.
The bingo industry has been moved to the gross profit tax system, but unlike the rest of the gaming industry it will still suffer VAT. The Chancellor has failed to meet the promises that he made for a level playing field and has introduced discrimination within the gaming industry, disadvantaging bingo despite the Chancellor's attempt at his only and extraordinarily weak joke in his Budget speech.
The Government will be taking £405 billion in tax this year. That is a 50 per cent. leap up on 1997 and the equivalent of £44 a week more in tax for every man, woman and child in the country. The Red Book shows taxes rising as a share of national income until almost the end of the decade. No longer is there any pretence of jam tomorrow. We are now on the road to higher taxes for the duration of this Government, however long or short a period that may be. By 200708, the Chancellor intends that 38.2 per cent. of national income will be taken in tax, compared with 34.9 per cent. in 199697. He plans to raise an extra £251 billion in taxes in
The Government claim to have placed reform of the welfare state at the heart of their strategy for promoting social inclusion. It is claimed that the new tax and benefit system will provide help for those who need it most, when they need it most. Why then has the Paymaster General, within weeks of the Budget, been forced to stand before the House apologising for the Chancellor's tax credit confusion and chaos, which has meant that some 300,000 applicants have not received the payments to which they are entitled? The Government's tax credit system is a shambles, resulting in distress and dismay.
The Government claim to be committed to strengthening the savings habit of future generations. However, the Red Book reveals that the savings ratio has fallen by more than half since 1997. After two years, three separate consultations and numerous re-announcements, the Red Book provides some details about the proposed introduction of the child trust fund. But despite the hon. Member for Wimbledon (Roger Casale) hoping to explore that in detail, the Finance Bill makes no mention of it. The Red Book states that ISAs are the Government's primary vehicle for tax advantaged saving outside pensions, but the Finance Bill contains no provisions to prevent the removal of the 10 per cent. tax credit for ISA and PEP dividends from April 2004. As we well know, the removal of the dividend tax credit for pensions, a £5 billion a year tax, has resulted in a typical personal pension saver now retiring on half of what he or she would have received just five years ago.
This Government have brought us more spending, borrowing, promises, failure and excuses, and through this Bill, they have brought us more taxes, but still no results. How does this discredited Chancellor expect people ever to trust him on tax again? He decided to call his Red Book "Building a Britain of economic strength and social justice". Has a Red Book title ever been so inappropriate? Independent commentators have been queueing up to say that he has got his economic figures wrong yet again. So much for economic strength. Will not the families caught up in the tax credit shambles view his promises on social justice as another sick joke?
I urge hon. Members to vote for the amendment, reject the Bill and register their disgust about the fact that the Chancellor and his colleagues wish to impose a programme with a 12 June end date, allow only seven sitting days to scrutinise a Bill that adversely affects the lives of people and businesses throughout the country and stifle debate on a mean-spirited and unfair Finance Bill.
The Paymaster General (Dawn Primarolo): I welcome the opportunity to bring to a close this Second Reading of the Finance Bill in the sure knowledge that, along with all hon. Members of the House, I look forward to debates about the detail of the Bill both in Committee of the whole House and in the Standing Committee. Many hon. Members have contributed to this debate and I should like now to deal with the points that they made.
However, we recognise that more can always be done. In previous Finance Bills, we have shown in the measures that we have introduced the importance that we attach to dealing with market failures that prevent small and medium-sized businesses from achieving their full potential or hold back their growth. In order to maximise the benefit that those measures provide, we have announced that we will introduce new definitions of small and medium-sized enterprises that will raise the size limits to the maximum allowed under European legislation. That will enable many more businesses to benefit from the measures introduced by this Government and in this Bill, such as the 40 per cent. plant and machinery allowances, the 100 per cent. allowance for information and communications technology and less onerous reporting and accounting regulations. From this April, 650,000 small businesses will be able to opt for the VAT flat-rate scheme, cutting out the paperwork associated with accounting for VAT on every transaction.
We have long recognised the cost to our economy of the productivity gap between the performance of the UK and that of our major competitorsespecially the United States of America. We have already introduced key reforms to improve our productivity, including full independence for competition authorities and more capacity to tackle anti-competitive practices. We have reduced the corporation tax starting rate from 10 per cent to zero so that 150,000 small businesses pay no corporation tax on their profits. That is more than the previous Government ever did, but Opposition Members now have the cheek to complain about small businesses, despite all the opportunities that the Government have provided.
Although we have begun to make progress towards closing the gap, we still need to do more. The Bill is another important step in the productivity agenda for the private and public sectors. Clause 164 extends to March 2004 the 100 per cent. first-year allowance available to small businesses for spending on information and communications technology. Following feedback from business, the changes introduced in the Bill will improve the working of the research and development tax credit, allowing more businesses, especially small and medium-sized enterprises, and more types of expenditure, to qualify. This Government, not the previous Government, introduced research and development tax credits. This Government provided the means for companies to tackle the improvement of their productivity. These measures will help the UK to close the gap between American spending on research and development to around 2.8 per cent. of gross domestic product. We will
To ensure that growing businesses get the access to finance that they need, we are consulting on enhancing the enterprise incentive scheme, venture capital trusts and the small firms loans scheme. We have published a consultation document examining whether the adoption of a model similar to the United States small business investment companies could boost the supply of early-stage growth capital to enterprises in the UK. It is this Government who have taken that enterprise agenda forward, not the previous Government when they had the opportunity to do so.
We have set out our commitment to supporting business and to introducing more effective measures to deal with market failure, but we must also maintain a fair tax system. Taxpayers who contribute their fair share have a right to expect that others will do so, and the Government will take action against those who abuse the system, ensuring that we provide for a level playing field. Loopholes giving scope for unfairness and economic distortion will be closed. Clauses 17 and 18 provide for a package of measures to tackle VAT fraud, especially missing trader fraud, which has become a serious problem across Europe.
The Bill also includes specific measures to close down several avoidance schemes that certain businesses or individuals were using to avoid paying their fair share of tax. The right hon. Member for Fylde (Mr. Jack) and the hon. Member for Yeovil (Mr. Laws) touched on that. With regard to clause 18, the anti-fraud measure is targeted at serial abusers of the tax system, imposing a joint and several liability for payment of unpaid VAT on specific commodities on anyone in the same supply chain. The in-built safeguards will ensure that innocent businesses are not unwittingly caught in the measure, which will be applied only to those businesses that Customs and Excise can demonstrate knew, or had reasonable grounds to suspect, that the VAT in their supply chain was at risk of not being paid. The right hon. Member for Fylde asked how that will be decided. I can tell him that businesses that exercise care in their business activities and make reasonable checks on those with whom they deal will not be caught; and that we will consult people on what those reasonable checks should be to ensure that they reflect normal commercial practice.
The right hon. Member for Fylde also asked about tax planning. He made it sound as if once we had closed a tax planning opportunity, it would never reopen. He knows that the worlds of tax and commerce are far more complex than that and that it is a constant game of chess to maintain the balance between fairness and pressure on individuals and the Government's right, on taxpayers' behalf, to ensure that the correct amount of tax is raised.
In the Budget, the Chancellor allocated £66 million to the Inland Revenue to support the implementation of the new compliance and enforcement package for direct tax and national insurance. It is expected to produce at least £1.6 billion over the next three years. The National Audit Office audited those assumptions.
In the Bill, the Chancellor confirms his commitment to a comprehensive modernisation of stamp duty. The Bill introduces a modernised tax on the modern business environment, with enforcement and compliance powers commensurate with other Inland Revenue taxes. It is a robust response to widespread tax planning and avoidance, which has distorted business decision making and given rise to complex and artificial vehicles to transfer property tax.
The hon. Member for Arundel and South Downs (Mr. Flight), like several other contributors, referred specifically to the stamp duty changes. The measures are designed to be as simple as possible while protecting revenue. Introducing blocks of new legislation rather than a host of detailed amendments is a much preferred approach. In the stamp duty reforms and the share scheme measures that other hon. Members mentioned, the approach adopted is the tax law rewrite and the Government need to move forward on that basis.
Matters that affect stamp duty are twofold. The first set covers avoidance on commercial property transactions. Half all large commercial transactions are worth more than £10 million and pay 4 per cent. on property purchases, whereas the other half pay nothing by using a variety of complex avoidance techniques. That is clearly unfair and I cannot understand why hon. Members believe that the position should be allowed to persist. We are modernising the tax, making it e-compatible and introducing modern enforcement mechanisms to close the loopholes.
The second set of issues involves stamp duty on new leasehold transactions. The current tax is based on upfront payments for a lease, paid at 4 per cent. and a payment based on an average annual rent. It is highly distorting and there are large cliff edges. It does not work properly and there is no level playing field. The proposals in the measure tackle all those matters and provide for further consultation about dealing with the avoidance mechanism.
The hon. Member for Boston and Skegness (Mr. Simmonds) asked several questions about stamp duty. If he reads the Red Book, he will realise that it acknowledges that future Governments will consider the rates of stamp duty on residential and commercial property in relation to the conditions in each market. We make no apology for tackling the use of corporate wrappers to avoid the charge. Almost £500 million of tax a year is avoided. That cannot be fair to taxpayers who pay their taxes.
The lease duty reform tackles the differential in tax charge between freehold and leasehold, which has an unsustainable driver of tax-distorting business. The proposals in the Bill make it clear that, on consultation, if a better way of dealing with the distortions is produced, the Government will consider it. We will not leave the distortions in place. The Finance Bill implements that intention.
My hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) asked specific questions about tackling regional, economic and social inequality. Stamp duty on non-residential property transactions will be removed altogether in 2,000 enterprise areas to reduce the cost to business of locating and investing in disadvantaged areas and to support the regeneration of brownfield sites. That measure, in clause 57, is part of a wider package of measures to encourage business investment in our most deprived and disadvantaged communities. Without fail, Members speaking today have welcomed those measures and the way in which they can take forward the important steps of generating economic development in our disadvantaged areas. The Bill introduces changes that represent a major reform of a badly outdated component of the tax system. There has been consultation with business on the main provisions, and consultation will continue in other areas, particularly in regard to the lease duty, giving business further chances to feed back on our proposals.
We have shown that we are determined to build a tax system that supports families, particularly those on medium and low incomes, through the working tax credit and the child tax credit, making work pay and giving those seeking work the support that they need. Hon. Members' assertion that that is not an efficient system is simply not true. That money is being paid to millions of families in this country. There are 3.35 million in payment or ready to be paid, and 1.3 million who are on income support and jobseeker's allowance are receiving that money now. The Opposition parties would deny that money to families in the first place.
Alongside those reforms, clause 136 provides support for those who regularly work at home and have flexible working arrangements. Employers will be able to meet some or all of the incidental costs incurred by employees who work at home, without giving rise to a tax charge. The right hon. Member for Fyldeif I dare compliment him, he seems to be the only Opposition Member actually to have read the Bill, and therefore made his comments with regard to its contentmade the point that £2 was not enough. I have to tell him that £2 a week is not the upper limit; employers can meet the full amount of additional household expenses incurred by their employees. We settled on the amount of £104 a year£2 a weekbecause employers who are already supporting their employees recommended to us that that should be the starting rate. We consulted, we listened, and we acted on it. Those are precisely the mechanisms that the Conservative Government never applied. This Government consult on more of their tax legislation more frequently and more openlyand listen to what has been saidthan the Conservatives ever did when they were in government.
Many Members raised the issue of consultation on corporation tax reform, and the prospect of replacing capital allowances with depreciation. It was suggested that that would harm investment. The objective of the corporation tax reform is to remove tax distortions to
The hon. Member for Yeovil (Mr. Laws) raised many of those points. He also raised the issue of the tax treatment of depreciation of stocks, and of how that might harm the whisky industrythe Scottish whisky industry in particular. I would say to him, and to the hon. Member for Angus (Mr. Weir), who also raised this issue, that I am aware of the concerns of the Scotch Whisky Association about the changes in corporation tax treatment of depreciation of stocks following recent tax cases, and we are discussing the issues with its representatives. The measure was not designed to achieve such outcomes, and we recognise that the spirits industry makes an important contribution to the UK economy.
The hon. Gentleman asked about the deduction for pensioners in hospital. Pensioners currently enjoy full benefits for their first 13 weeks in hospital. Changes to be introduced during May will mean that all pensioners who entered hospital from Budget day onwards will receive the full pension, as my right hon. Friend the Chancellor said.
The hon. Member for Angus said that there was never anything for Scotland. I cannot believe he has not noticed the low inflation, low interest rates and low unemployment in Scotland. I cannot believe he has not noticed that employment in Scotland has risen by 146,000 since 1997. I cannot believe he has not noticed that by 200506 spending in Scotland will be £4.1 billion higher than in 200203, enabling the Scottish Executive to deliver their priorities. I cannot believe he has not noticed that Scotland will benefit from 135 enterprise areas, which will help the most deprived parts of the country.
The hon. Gentleman is completely wrong to suggest that economic stability and the Government's priorities in terms of tax reform, growth, interest rates and inflationcreating an environment that is good for the economies of all the British communitiesare somehow passing Scotland by. He is wrong, he is wrong, and he is wrong.
Our policy objectives, reflected in this Finance Bill, will help to build a more flexible and dynamic economy. They will provide greater fairness through job creation, more investment in skills and greater regional flexibility, and will distribute growth more evenly throughout the regions and nations of the United Kingdom. This Finance Bill underscores our commitment to investment in public services, to maintaining our hard-won economic stability, to encouraging enterprise, to achieving full employment and to tackling child and pensioner poverty, to build a Britain with economic strength and social justicesomething that the Conservative party never did when it was in power. I commend the Bill to the House.