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Susan Kramer (Richmond Park) (LD):
May I congratulate the hon. Member for Surrey Heath (Michael Gove) on his maiden speech. To have so fluently managed to combine poetry, darts and the Finance Bill is a rare feat. We are not really surprised by his abilities, but we were very much impressed. May I also congratulate all the other maiden speakers today? I must say, however, that the new hon. Member for Beverley and Holderness (Mr. Stuart) intimidated me greatly by suggesting that the Prime Minister might try
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to emulate Henry V. May I suggest that that is not an example that we wish to put forward to this or any other Prime Minister.
I hesitated to speak in this debate today, on the ground that just about everything had been said, if not yet by everybody, but there are two issues on which I want to touch briefly.
First, I want to return to the issue of the new capacity under the Bill, presuming that it becomes law, to hold in self-invested personal pensions residential real estate—with various safeguards, I understand. The issue for me is not so much tax avoidance, although that, and the possible impact on tax revenue, worries me, but the potential for pension mis-selling. When we consider pension mis-selling, we tend to focus very much on single instruments and on whether the risk associated with a particular instrument has been declared to people. We are all aware, however, that risk refers to the whole portfolio of assets that people hold.
One only needs to look in today's newspapers, and yesterday's newspapers, to see that many of those who will try to sell those new pension products are gearing up to take advantage of the preference of many people in the UK for holding real estate, especially residential real estate, and to buy into property as the safest and most secure type of investment. Many of those people will already be exposed to the real estate market through their mortgages, and their families in turn will be exposed through their mortgages, and they will now be encouraged strongly, because of such opportunities, to expose themselves through their pension funds to the mortgage and housing market, without necessarily being given the appropriate kinds of advice. Can we have some assurance from the Government that real care will be exercised to make sure that we do not enter into another round of significant pension mis-selling as a result of those expanded opportunities?
Secondly, on an entirely separate and broader issue, I was very disappointed that neither the first part of the Finance Bill prior to the election nor the second one after the election addressed one of the key financing issues in this country today—funding for major infrastructure projects. There has been a lack of success in terms of delivering major infrastructure projects—I speak with a London hat on as well as with my constituency hat on. It seems to me that the Government have missed the opportunity in the Bill to bring forward mechanisms that would allow public authorities to finance new and vital forms of infrastructure through taxes on the windfall increases in land values and rental that occur near new public works.
Everybody in the House will be aware of the history of developers obtaining about £13 billion as a consequence of public investment in the Jubilee line—the initial investment was about £3.5 billion. That was a huge gain to the private sector, to which it contributed relatively only a few pennies—£180 million would be the exact figure. Raising finance for Crossrail, a much-needed project in London, is now proving exceedingly difficult—an experience repeated for projects all over the country. I am sad that the Bill has failed to seize the opportunity to take advantage of the potential gains that I have identified.
I hope that those issues can be addressed when the Minister winds up the debate or on another occasion.
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7.35 pm
Mrs. Theresa Villiers (Chipping Barnet) (Con): I address the House with a degree of trepidation on such a difficult and technical matter as a Finance Bill. I might not be giving my maiden speech today, but I assure Members that maiden speech plus one is still an intimidating task to face.
Yesterday, I had the privilege of extolling the beauties of my constituency to the House, and of regaling the House with some obscure facts about it. I therefore decided to start in a similar vein on this matter—with the obscure. If Members will forgive my pronunciation of Latin, I will talk first about what is known as the Societas Europaea—the European company statute. It is covered by clauses 51 to 65 of the Bill, and is a scheme that has been in operation since October 2004 to allow people to set up pan-European companies. It is useful for the House to examine how the scheme has been operating, as it is an interesting case study in how things get done in the European Union and the problems that have occurred with single market legislation.
The scheme starts out as an inoffensive and even fairly good idea to allow companies to cut costs by having a single incorporation that will operate throughout Europe, rather than having to have different companies incorporated in different member states. A positive aspect of the scheme is that it is voluntary—it is an option for business to take up if it wants to do so; it is not compulsory. The less good news is that it took nearly 40 years to agree in the European Union—even longer than the notoriously long-drawn-out chocolate directive—which shows that decision-making processes there still leave a lot to be desired.
Another aspect of the scheme covered by the Bill is that the end result is cumbersome and bureaucratic, as one might expect of a scheme that took 30 years to agree. As a result, few companies have taken the opportunity to opt into the scheme. The EU legislative scheme has failed to produce an attractive framework for business to use, and companies are currently voting with their feet—the Economic Secretary will correct me if I am wrong—and opting for national corporate registration rather than this new EU-wide scheme, reinforcing the practical advantages of national decision making and national jurisdiction.
There is another lesson to be learned from this long-running saga, however, which has direct relevance to the Bill that we are considering today. If we examine the debates on the European company statute in the European Parliament, we see that almost every speaker called urgently for a European system of corporate taxation to match the European company statute that they had just created. In that, as in many other areas, measures introduced on the basis of trade and the single market are being used as vehicles to drive forward tax harmonisation and an expansion of the EU's role in tax. I fundamentally oppose that, as does everyone on the Conservative Benches. In pushing forward EU political integration and tax harmonisation by a series of such small, technical steps, that integration is disguised from public scrutiny. It has been described as a salami-slice approach—by a series of different technical measures, the EU seeks to enlarge its role in all sorts of areas of our national life, including tax, without drawing the attention of the people to what is happening.
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In the tax area, the real threat is posed by the European Court of Justice. There is every danger, as we have heard already in this debate, that the proposals in the Bill on the taxation system to be applied to the European company statute might not be worth the paper on which they are written. The European Court of Justice might simply choose to overturn them, as it has done in a number of instances in relation to UK tax measures. I remind the House that that means instant, immediate tax harmonisation: no debate, no elections, no scrutiny and no referendums. It means instant EU involvement, and expanding involvement, in our taxation.
Her Majesty's Treasury has repeatedly, especially in recent years, expressed its opposition to further EU involvement in tax harmonisation. I should like to hear what the Minister and the Government propose to do to curb the power of the European Court of Justice. Will they take action if the Court continues to strike down British tax laws such as the one that the Government are presenting to the House today? What will they do if the UK Government lose the Marks and Spencer case, and the many others that await judgment in Luxembourg?
Labour loves to say that it is extreme to criticise the remit of the European Court of Justice and extreme to call for curbs on it, but I cannot believe that Her Majesty's Treasury is not concerned about the inroads into its revenue that are increasingly being made by the many cases finding their way through the Court in Luxembourg. As we heard from my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), the problem involves not just the European company provisions in the Bill but a number of others.
Let me turn from one rather low-profile topic to another. Clause 37 and schedule 6 are fairly obscure and technical, but they are part of a bigger and more important project: the implementation of international accounting standards in this country. I welcome the fact that, in this draft, the Government have responded to many of the concerns of the securitisation industry—which, while not enjoying a high profile, plays an important part in our financial markets, and consequently in the economic health of the nation.
I supported the international accounting standards project, which represents a move towards a single global accounting standard. I consider it desirable because it will hopefully cut costs for business, and enhance transparency for investors by allowing them readily to compare the accounts of different companies and different investments in different countries. The real value of the scheme, however, can be realised only if it becomes a global and internationally accepted standard. It has been adopted in theory in the European Union, although the implementation process is slow. What we really need to do is ensure that there is a transatlantic consensus on international accounting standards.
At one stage it seemed that it would be impossible to reach such an agreement. The United States was perfectly happy with its accounting system, and was not interested in anyone else's. Recent corporate scandals have caused it to look at its systems afresh, and to adopt a positive approach to international accounting standards. That gave rise to a political opportunity, but following such a promising development it seems that the wheels are in danger of falling off the IAS project. Given the controversy over IAS 39, the standard on
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derivatives, there is every danger that the EU will dilute the international standard that it has only just adopted. In departing from that gold international standard, it risks creating a European gap and an IAS lite, and losing its political opportunity to build the transatlantic convergence that could save businesses many hundreds of thousands of pounds: they would no longer have to compile separate accounts for their branches in north America and in Europe. I urge the Government to press that important issue in both Brussels and Washington.
Let me now deal with the more high-profile issues relating to the way in which our economy is working. Many speakers have touched on them already today. Clauses 16 to 23 deal with taxation of investment funds. I share many of the anxieties expressed by my hon. Friend the Member for Runnymede and Weybridge about the extent of delegation to secondary legislation. Over the past 30 years, there has been a massive increase in the amount of such legislation. We need only visit a law library to see that the number of slim volumes containing secondary legislation, such as statutory instruments, covering most of the century has expanded massively over the past 20 or 30 years. I believe that that is bad for our democracy. In taxation matters above all, we should maximise democratic scrutiny and maximise transparency. I believe that delegation to secondary legislation is particularly dangerous when it involves measures to remove money from people's pockets.
I cannot contribute to a debate on finance, especially one that covers taxation of investment even in this technical way, without referring to what I consider to be the most important financial and economic issue facing the country: the crisis in savings, investments and pensions. I am profoundly concerned about the collapse in saving and the crisis in our pensions system. Like my hon. Friend the Member for Beverley and Holderness (Mr. Stuart), I believe that a number of the Government's economic decisions have been correct and could not be opposed by anyone. The Government have displayed a degree of common sense, most notably in giving independence to the Bank of England. However much we might debate aspects of the Government's record, one thing seems clear to me. When Labour was elected, Britain had some of the strongest pensions in Europe; now we have some of the weakest. In this country, we are saving about a third less than we were when Labour was elected in 1997. Estimates of the shortfall vary, but it seems likely that Britain should be saving about £27 billion a year more to be sure of a safe and secure old age for its people.
I am afraid that this Government must take their share of responsibility: responsibility for the extra £5 billion annual tax that they have imposed on pension savings, for the abolition of personal equity plans and tax-exempt special savings accounts, for their refusal to abolish the annuity rules, and above all for the massive increase in means-testing—a subject dealt with in a number of today's maiden speeches.
For every £1 of income from savings, a pensioner can lose up to 90p in means-tested benefits. Given such an excessively high level of marginal taxation on savings income, is it any wonder that savings have collapsed in this country? I return to the subject of our debate, the taxation of investment and arrangements for taxation. I strongly believe that the only way in which to tackle the
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current crisis effectively is to encourage people to save by giving them a tax incentive: not more obfuscation, not more complexity, but real, substantial tax rewards for those who are responsible, who do the right thing, who save and provide for their old age.
As I have said, in some respects the Government have made the right decisions for the economy. I have even been known to make common cause with the Treasury in my former role as a Member of the European Parliament. When it comes to savings and pensions, however, I genuinely believe that the Government are failing, and failing badly. Pensioner hardship is a serious problem today, but it is set to become infinitely worse unless we take action now. The Government are building poverty into the DNA of our economy, and creating a pensioner underclass for the future. Whatever the content of this Bill, I urge them to take serious action in their next Finance Bill to remedy what I see as the gravest and most serious economic threat facing us today.
7.48 pm
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