Adam Afriyie (Windsor) (Con): I am grateful for the opportunity to speak in such an important debate. Despite the haste with which I think the Bill was drawn up, dissected and delivered to the House, it will affect many people in their working lives and many hard-working people in their later lives, as was pointed out by my hon. Friend the Member for Chipping Barnet (Mrs. Villiers). It will determine the competitiveness of British business both here and abroad. It will have an impact not just on the good will of charitable people, but on the good work that charities do. I shall say more about that shortly.
I thank the Paymaster General for her clear explanation of the Bill. I also thank my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) for raising the issue of charitable donations and gift aid. That is the issue on which I want to concentrate.
The Finance Bill is perhaps one of the most important Bills in the Queen's Speech. It is disappointing that there is so little time to debate such an important measure in this House. It is complex, as many previous speakers today have observed, and although it has been truncated it still runs to some 160 pages. I do not believe that four hours is enough time to examine all those pages. I am confident that, when it is considered in Committee, Members in all parts of the House will give the detail very serious consideration, irrespective of party politics. Indeed, it is in some of the Bill's detail that the devil lies.
I have chosen to contribute today because this Bill needs further fine-tuning and refinement. Although it contains some sensible measures on closing tax-avoidance loopholes, they are complex and I am concerned that they receive proper scrutiny. We must be sure that the Government do not drive through tax-avoidance measures that further erode British businesses' competitiveness, act as a disincentive for overseas firms to invest here, or create burdens for all businesses that undermine productivity and negate the benefits that will hopefully be gained from such tax-avoidance measures.
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Lest we forget, British businesses are the engine of our economy. They generate all the jobs, incomes and taxes that make for a good society. British businesses, in a way, are the golden goose of our economy.
Mr. Ellwood: Does my hon. Friend agree that the over-regulation imposed by this Government is stifling British businesses, which are calling for simpler and less regulation, rather than for more and more complex regulation?
Adam Afriyie: I agree wholeheartedly. My background is in business, and it is clear that the Government, via the European Union, have allowed in swathes of detailed regulations and guidance notes; indeed, there are some 100 pages on working time directives. The weight of that paperwork, regulation and red tape knocks out a whole layer of productivity in British businesses.
I turn to the charities, charitable giving and voluntary work that underpin our society. Giving is an expression of our humanity: it is an expression of the care that we have for others who may be less fortunate than ourselves. It is also an expression, for charities that focus on these areas, of our concern to preserve and promote our natural environment and heritage. Hundreds of charities are based in or operate in my Windsor constituency. The Windsor, Ascot and Maidenhead volunteers' organisation encourages voluntary work throughout the constituency. The friends of the King Edward VII hospital provide voluntary help to support our local hospitals. The Thames Valley hospice and the Paul Bevan hospicenow combinedwould cease to function without charitable giving and the work of hundreds of selfless volunteers and helpers. And of course, in terms of gift aid we should consider Windsor castle, to which clause 11 is particularly relevant.
Thousands of people work voluntarily for these charities and good causes. They give of their time freely and willingly to help others, to preserve our national heritage and to protect and promote our environment and historic buildings. Of course, thousands of people give to charities as a way of expressing their good nature and good will to others. Charities, voluntary organisations and trusts are the fabric of a healthy society. On this basis, I want to draw the House's attention to clause 11 of the current Finance Bill and, by way of background, to section 25 of the Finance Act 1990, which provided tax relief or gift aid for qualifying gifts from individuals making donations to a charity.
Broadly speaking, the 1990 Act defined a qualifying gift as a monetary gift that was non-refundable and was not used to buy an asset. Section 25(2)(e) made it clear that the person making a donation could not receive a benefit outside of prescribed limits. An individual donating up to £100 to a charity could receive a benefit of no more than 25 per cent. For a donation of up to £1,000, the benefit had to be no more than £25, and for donations in excess of £1,000, the maximum benefit to the individual concerned had to be no more than £250. In the Finance Act 2000, a special exemption for certain charities was laid down in subsection 39(5E), enabling them to bestow a right of admission to view certain charitable properties. Charities with that exemption are
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listed in subsection 39(5F). They consist of those whose main purpose is to preserve heritage property or to conserve wildlife for public benefit.
The problem is that this exemption remains in place, despite the changes made to the gift aid scheme in the Finance Act 2000. This is perhaps an example of insufficiently far-reaching Commons scrutiny of an incoming Act. The result is that a payment for admission is now eligible for gift aid. To put it simply, certain charities can offer free admission to certain properties equal to the entrance fee, and then claim gift aid on that contribution. That was not the intention of the Act, and although it is legal it is certainly unfair that certain heritage and wildlife charities benefit in this way.
Clause 11 of the current Bill aims to stop this inadvertent tax benefit of gift aid, if that gift allows the giver entry to an establishment of a certain type. My concern is that removing the benefit without proper scrutiny and consideration might cause some valuable charities to struggle, perhaps to falter, and even to fail in certain cases. Insufficient consideration has been given to the immediate effect of closing this gift aid loophole. Many charities may depend on the gift aid generated by allowing free admission, and they may experience a sudden drop in income. Just as the gift aid loophole was an unintended consequence of past Finance Acts, so this sudden failure of charities could be an unintended consequence of the current Finance Bill.
The charities concerned are doing their law-abiding business in undertaking good work in society. I am sure that it is not intended that this good work and these charities fail, so I ask the House that consideration be given in Committee to transitional arrangements, or to delaying introducing the proposed change to the gift aid scheme, so that the charities affected can have time to re-work their finances and to continue their good work. Such work is enjoyed not only by Members of this House, but by people throughout the country. I would hate them to be deprived of the pleasures of heritage, or of the charities that deal with our natural environment.
Stephen Hammond (Wimbledon) (Con): You called me to make my maiden speech two and a half weeks ago, Madam Deputy Speaker, and I am extremely glad that you did. Compared with the eight or nine that I have heard today, it would have paled into insignificance.
Earlier today, the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) gave us his views on the principles that backed up the first Finance Bill and this one. I recognise one or two trends in this Bill that form part of the Government's taxation policy theme. The tax burden is falling increasingly on those who do not have votes, by whom I mean this country's business community. Most of the rules effected in this Bill will impact on the business climate. Moreover, an environment is being created in which decisions are being made for taxation reasons, rather than for those relating to economic and business decisions.
It is also clear from the first Finance Bill and this one that the tax burden is increasingly falling in such a way that other people can be blamed for tax increases. A good example, which several Members have already mentioned, is the council tax. As a former local councillor, I know that there is lower central
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Government funding, greater regulation and pressure for increased planning. We have also seen council tax rises. The Bill continues those themes of taxation. The other discernible trend that is coming through is complexity. The hon. Member for Wirral, West (Stephen Hesford) said that he thought that there were simple principles behind the legislation. There are over 250 pages of guidance on the Bill. It does not seem that it can be described as simple.
The increasing complexity of the whole tax system means that there are vast areas that no one can really understand. Small businesses and sole traders are spending increasing amounts of hard-earned income to get professional advisers to unravel tax legislation. Anything that is done by business now seems to require costly and detailed legal advice and that is starting to distort the economic basis in favour of larger firms. My hon. Friends the Members for Chipping Barnet (Mrs. Villiers) and for Surrey Heath (Michael Gove) mentioned the need to simplify the taxation process. That is something that we should all support.
The other general trend in the Bill is that quite a lot of the provisions are presented as anti-avoidance measures. Earlier, my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) mentioned what the shadow Chancellor said about part 1. We agree with the Government about the need to tackle avoidance, but clauses 24 and 31 do not necessarily do so. They are widely drafted clauses that potentially have significant consequences for our international competitiveness and inward investment, which is the key to future economic success and which could be damaged. A number of perfectly innocent transactions may be caught by the provisions. I am an economist by training and a financier by profession. I expect that I will struggle with the complexity of those clauses, should I have the fortune to be on the Committee.
Earlier, the hon. Member for Newcastle upon Tyne, North gave his wide-ranging views on the Bill and some economic history. He proved that economic history can be made to make any point one likes. As the Chancellor recognised in his Budget speech this year, we have had 50 quarters of growthit is 51 nowso it is highly likely that the macro-economic climate did not change on 1 May 1997. Those people who have had the fortune to read the exposition by the former chief economist of the Institute of Directors will know that the inflation-targeting process, the interest rate decision-making process and the process to bring clarity and transparency started well before 1997.
An interesting fact to reflect on is that although much is made of the success and strength of economic growth, a number of City reports recently have suggested that the huge increases in taxation since 1997 have raised Government expenditure, which has boosted the underlying growth rates by about 1 per cent. over eight years. Were taxation to be raised to fill the hole that my hon. Friend the Member for Runnymede and Weybridge mentioned, we would expect to see a drop in the underlying growth rate of the economy.
My hon. Friend the Member for Windsor (Adam Afriyie) talked about gift aid. Like Windsor, Wimbledon has many small charities, some small museums and charitable premises containing exhibitions. I think particularly of the Wimbledon Society museum and the
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Wandle industrial museum. Many of those organisations have used the current rules that allow gifts to be equal to admission fees and to be taken as gift aidthe charity offers free admission and reclaims the gift aid tax relief. That will now be altered. That is probably correct in that that was not the original intention of the gift aid legislation, although a number would argue that the rules should be relaxed so that small museums and small premises showing these artefacts can survive.
Having read the legislation, it seems that there will still be allowable donations for the right of entry to qualify for gift aid if the donation is generally available, if the donor takes in one or more members of his family, if the right of admission is for over one year and if the gift is the fee plus 10 per cent. I am sure that there will be support for widening the measure to include charities that display plants, works of art and other artefacts. When the Bill is considered in Committee, I hope that the Government will consider making amendments to that clause. The legislation refers only to viewing those artefacts. In the 21st century, a number of museums, including small museums, have interactive and hands-on displays for young children. The way the clause is drafted would exclude them.
I wonder why the provision is limited to the donor plus one or more members of his family. Like a number of hon. Members, I have children. We sometimes take groups of children that are not members of my family to local museums. Perhaps the Government will consider widening the provision to include such groups. I accept that there should be a limit, but I hope that they will consider that matter. I am not entirely clear why the right of entry should be for the whole year. Three months would cover that adequately. I hope that the Government will look at that in Committee.
As I said, I spent the whole of my professional life in the financial world. Obviously, I approve of the City, which is a major source of investment wealth and funding. Therefore, I am particularly interested in some of the clauses in chapter 3. Much of that will be examined in detail in Committee, but, like my hon. Friend the Member for Chipping Barnet, I have noted the huge increase in the number of statutory instruments that are coming through. Many of the changes in the Bill will be dealt with by statutory instrument, not primary legislation.
There are concerns that the changes in clause 16 will have little revenue impact. There is due to be a reform of fund taxation within the next two or three years. It seems that these are interim changes. However, there are some huge cost implications for the industry. It would be easy not to bring clause 16 forward.
Clauses 24 to 31 fall into the category that I mentioned earlier: presentationally, they are anti-avoidance measures. There are a number of ways in which they could be enacted but, having read the Bill, and I am sure I will be corrected if I am wrong, it seems that the rules will apply in this way. If an American or other multinational company decides to build a factory in this country and create jobs, that could be financed by a bank and it would attract tax relief for the interest paid to the bank. However, if the Americans, or whoever, choose to finance the investment through lending from their own US parent company and in that way receive a subsidy from the American taxpayer for the investment
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in the UK, UK tax relief is unchanged. The only difference is that the American taxpayer is helping to finance the investment in Britain.
I believe that the new legislation and the guidance suggest that, in that case, UK tax relief will be denied. That seems to be simply because there is a subsidy from the American taxpayer. Without that subsidy, the loan might not be granted and the factory might not be built. Should we be concerned that the American taxpayer is providing that subsidy? I do not think so. I am not sure of the economic rationale behind that. The stance being taken on tax arbitrage in all circumstances must be bad. The effect of the new rules is to create uncertainty for UK multinationals, as some hon. Members have mentioned.
The legislation will affect the UK as the international policeman on the funding of debt through hybrid entities. Other tax authorities may gain revenue at the expense of UK investors. Those who choose those entities may then choose a different location to take their tax deduction. We may therefore see an expense to the UK investor and some gain in revenues for tax authorities abroad. That further hinders the prospects of inward investment.
The anti-avoidance clauses give huge discretionary powers to the Inland Revenue to give notices to taxpayers. They seem to be arbitrary, which is understandable, but they create uncertainty. As my right hon. Friend the Member for Charnwood (Mr. Dorrell) said, he wants to see certainty and an appeal process. He also wants a clearance process initially. It seems to me that that is only fair. Notices are, by their very nature, individual and one cannot necessarily guarantee the same treatment to two identical taxpayers. I hope that we shall examine that further in Committee. When we debate the Bill in Committee, I hope that Treasury Ministers will be able to provide some clear interpretations as to the manner in which the clauses will be enacted, along with some practical examples of how they expect them to work.