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I hope that in the course of his speech this afternoon the shadow Chief Secretary will answer the many concerns that I have outlined, which have been voiced by his right hon. and hon. Friends on the Conservative Front Bench. The nation is entitled to hear where his cuts will fall.
I am most grateful to the Chief Secretary for interrupting his passage of self-congratulation. Will he confirm that it is the Chancellor's intention to cut
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expenditure on the civil service by some £20 billion over the next few years? If things have been so splendidly managed, how is it that the Government are having to remove 40,000 civil servants from the payroll?
Mr. Boateng: The right hon. Gentleman is absolutely right to point to our commitment to raise public sector efficiency and to release extra resources to the front line of our priority public services. Our ambition is to deliver some £20 billion of annual efficiency gains by 200708 through a 2.5 per cent. annual efficiency target for the whole of the public sector. That has been identified for us through the work taking place under Sir Peter Gershon, which will be reflected in due course in the outcome of the spending review. What we do not see is any exercise on the Conservatives' part that is comparable with the work into which we have entered in the Gershon efficiency review.
Perhaps this afternoon all will be revealed and the Conservatives will unveil their plans. [Interruption.] The shadow Chancellor says, "Wait and see." We are in for an interesting afternoon if we are to have sight of the Conservatives' spending plans. What we know is that they propose an immediate cut of £18 billion. We know what that would mean. The number of police officers would be cut. The effect on our armed forces would be devastating: a cut in defence spending of £1.5 billion is equivalent to cutting armed forces personnel by 40,000.
If that is not the Conservatives' policy, we are entitled to hear what is. We reject the plans of the Opposition, who would fail to invest in employment opportunities by scrapping the new deal. They favour deep spending cuts year on year, regardless of the needs of public services. Their dogmatic plans to cut spending by £18 billion would weaken the economy and put at risk its hard-won stability. The Government recognise the need to introduce measures that would create a platform of stability for business, and enable the UK to keep pace with the global economy. Promoting enterprise and productivity has long been a key aspect of our economic policy making, and the Bill introduces specific measures to advance that aim. I know that it is tedious for the shadow Chancellor, but I fear that I must take him through those measures. After all, that is the purpose of Second Reading.
Since 1997, we have taken a number of steps to reform the business tax system and reward entrepreneurship, including cuts in corporation tax and the introduction of targeted measures such as research and development tax credits and measures to reduce the administrative burden of VAT. We have already cut long-term capital gains tax for business assets from 40p to 10p. This year, rates of corporation tax and capital gains tax will both remain frozen. To assist small businesses' cash flow and provide enhanced funding for new investment we have
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increased the first-year capital allowances for small business investment in plant and machinery from 40 to 50 per cent., and that increased allowance will be available for 12 months from April 2004.
The VAT threshold has been raised to £58,000, the most generous VAT threshold in Europe. In addition, up to 13,000 businesses will be eligible to benefit from simplified VAT accounting. From next year, in 2,000 enterprise areas, we will further increase the tax incentives to invest. To increase the incentive to invest in research and development, a new definition of research and development tax credits will come into effect on 1 April 2004, extending the tax credit to power, fuel, water and software costs, totalling a further £35 million-worth of support.
Mr. Atkinson: I thank the Chief Secretary for giving way. The moment, however, has passed, as I wanted to point out that he had been speaking for 10 minutes about our policies. I would rather hear my hon. Friends do so. I was going to ask him when he was going to discuss the Bill, but he has begun to do so.
To encourage the incentive to invest in new businesses, and following consultation with industry, the Bill confirms the Government's commitment to allowing investments in venture capital trusts to secure tax relief of up to £200,000 a year, not at the lower rate of 20p but at the higher rate of 40p. Promoting enterprise and competition is important, but it must be underpinned by fairness. Our objective continues to be ensuring stable public finances and world-class public services, which are served by a fair tax system in which everyone pays or claims for what is due. To protect revenue for investment in the public services that the country wants and needs, we are determined to tackle tax avoidance and evasion. I hope that in Committee that theme will find support among Members from all parts of the House.
Mr. Boateng: No doubt the hon. Member for Yeovil (Mr. Laws), who speaks so well for the Liberal Democrats when he is allowed to do so, will express his support for the measures that my right hon. Friend the Paymaster General will discuss in detail in Committee.
Mr. Laws: I am delighted to give my support to measures to clamp down on tax evasion and avoidance. Such measures can have unintended consequences, and the Chief Secretary will be aware of concerns over the weekend that many people who ran in the London marathon will have to pay VAT on the money that they are seeking to raise for charity. Do the Government intend to see whether they can remedy that?
If the hon. Gentleman casts his mind back to debates on the previous Finance Bill, he will agree that we are concerned to avoid unintended consequences. Customs and Excise have issued detailed
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guidance to charities helping them to avoid such consequences. I hope that charities follow that guidance so that they can avail themselves of the generous concessions available. I am sure that the hon. Gentleman acknowledges that since 1997 there has been an unparalleled increase in such concessions under this Government.
Mr. Prisk: On Saturday, I wrote to the Economic Secretary on this very issue. Could the Chief Secretary tell us whether the Government will ensure that the charities are not out of pocket? That was done after the death of Princess Diana in relation to the charitable returns from the record, "Candle in the Wind". Will the Government repeat that gesture, or do they intend to ignore charities' genuine worries?
Mr. Boateng: As the hon. Gentleman knows, that is a different matter. He is aware of the considerable contact that the Inland Revenue and Customs and Excise have with the charitable sector and voluntary and community organisations to make sure that they avail themselves of the available concessions. That contact will continue, and I hope that he welcomes the steps that the Government have taken through gift aid and a variety of other measures to ensure that voluntary and community groups and charitable organisations take full advantage of the available concessions.
To protect the revenue for investment in the public services that the country wants we are determined to tackle tax avoidance and evasion. We have therefore introduced a number of legislative changes to close loopholes that have been exploited for tax avoidance, and we are taking steps to target low rates of corporation tax on small businesses that are reinvesting to ensure that distributed profits are subject to a minimum corporation tax rate of 19 per cent. We are protecting the zero rate as an incentive for businesses to invest for growth, enterprise and productivity.
We have also introduced new requirements to disclose the use of direct tax and VAT avoidance schemes. As a result of the continued high level of spirits duty fraud, we will legislate to implement the Roques report recommendation to stamp spirit bottles. Recognising the costs to the trade, however, we will assist it with cash-flow costs and defer payments for tax stamps. In addition, spirits duty will remain frozen for the seventh successive year and, as my right hon. Friend the Chancellor made clear, for the remainder of this Parliament. My hon. Friend the Economic Secretary has spent many hours in discussion with the industry, and has made himself available to right hon. and hon.
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Members in all parts of the House in order to make sure that we get this right. Considerable progress has been made in ensuring that we tackle the evil of the illicit trade in spirits.
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