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excessive tinkering with tax rules.
The abolition of the zero percent rate of corporation tax and other changes to business tax relief are prime examples of chronic instability in our tax regime. Year in and year out, the Chancellor announces initiatives that make a good sound bite in the Budget. He is not in his place today but he turns up for the Budget. Businesses carry out the difficult time-consuming and expensive task of adapting to yet more changes in the tax system. Just as they have become used to those changes, the Chancellor scraps them and his cycle of continuing revolution continues.
This pattern of volatility recurs in clauses 31 to 47, in introducing a new regime for the film industry. The Chancellor introduced major changes to film tax in the Finance Acts of 2000, 2002 and 2004-05. Yet still the reliefs haemorrhaged a staggering £560 million from the Exchequer in the past financial year. An entire industry has developed around the misuse of these reliefs. The Opposition certainly hope that the Governments latest attempt to focus tax breaks more accurately on people making films will provide better value for money than reliefs have proved to date.
We are not sorry to see the back of the sections 42 and 48 reliefs. We hope that the Government have at last got it right; otherwise, expect Groundhog Day this time next year with yet more changes to the film tax regime in the Finance Bill 2007.
The continual cycle of change has produced a huge amount of uncertainty in the film industry and has jeopardised some important projects. For example, the filming of the latest James Bond film has moved to the Czech Republic. Even the Governments most famous civil servant has moved offshore, partly as a result of the instability caused by changes in the film tax regime.
I move on to a rather less glamorous aspect of the Bill. Schedules 8 to 10 introduce what the Finance and Leasing Association describes as the biggest change to leasing taxation for a generation. A thriving leasing industry is crucial for business investment and productivity, both of which have performed poorly under Labour. We are not convinced that the Government have fully thought through the impact of these eye-wateringly complex new provisions, given their impact on business investment, on indirect investment and on the public sector. These areas face higher leasing costs as a result of the changes.
We are dismayed at the
phenomenal complexity of pension provisions, supposedly adopted with a
view to simplification. We believe that the Governments
attempts to prevent recycling of lump sums could discourage people from
saving for their old age. The provisions are incredibly widely drafted.
The Economic Secretary tells us, Dont worry, innocent
transactions will be excluded by detailed guidelines. It is not
acceptable to draft a hugely expansive statutory
provision that catches many entirely innocent taxpayers and then to say,
It is OK because we will not tax everyone who falls within the
statute. We will only tax the bad guys. This is suspiciously
close to taxation by decree. That is why Opposition Members oppose the
provisions. We regret that the Government have failed to address the
injustices caused by the annuity
rule.
We strongly oppose the Governments hare-brained proposal to bring forward the filing dates for tax returns to September. The Carter report would involve a huge amount of unnecessary hassle for taxpayers and would impose great pressure on their professional advisors, so we urge the Government to reject it.
The abolition of the home computing initiative is a major blow to the competitiveness of the economy. Thousands of low-income families, many of whom would find it difficult to obtain credit to buy a personal computer on the open market, have benefited from the scheme. The Governments decision to abolish a scheme that it recently relaunched does not help us to embrace the digital age or develop the highly skilled work force that we desperately need to compete with the new global economic giants of China and India. It does not help the Government Departments that were rolling out the scheme when the Chancellors axe fell; nor will it help working people in Britain to develop a good work-life balance; nor does it help people striving to improve their skills and their lives.
In conclusion, the Opposition oppose the Bill, because it fails to equip us to compete effectively in the globalised world economy. It heaps further confusion, complication and instability on a tax system that the Chancellor has made one of the most complex in the developed world. It contains no effective measures to tackle climate change, and despite the Chancellors ignominious retreat on a range of key issues, schedule 20 still imposes punitive new inheritance tax charges on a wide range of ordinary hard-working people whose only wrongdoing is to use a trust to provide responsibly and prudently for their familys future. Those iniquitous new IHT charges were introduced without consultation. They are deeply flawed, which is why the Government have tabled no fewer than 50 amendments to the schedule that brings them into effect. They are retrospective, and they penalise thrift and prudence. They hit the sick, the dying, the mentally ill and the vulnerable, as well as those struggling with the misery of divorce. They have caused needless anxiety to thousands of people across the country, and I urge the House to oppose them and the Bill this evening.
Julia
Goldsworthy: We support certain parts of the Bill, but
some of the serious concerns that we expressed on Second Reading remain
on Third Reading. However, we broadly welcome the proposals on real
estate investment trusts, which are a classic example of the way in
which consultation can produce workable legislation. The proposals have
been welcomed by industry, because the Government took time to consult,
so we largely support them. By contrast, the Government did not consult
professionals on their inheritance-tax treatment of trusts, and the
result was poorly drafted proposals that would have affected large
numbers of individuals and called into question fundamental assumptions
in IHT such as the spouse exemption. Dozens of amendments were tabled
to improve the proposals. The spouse exemption has been safeguarded,
but it is still not clear how many individuals will be affected by the
changes.
Ministers continue to insist that a minority of a minority will be affected, but they have failed to produce evidence to back that up. The Select Committee on Treasury asked for background information before the Standing Committee considered the issue, but it was not produced. I asked for that information in written parliamentary questions, only to be told that it was not normal procedure to release it. There is a significant public interest in making that information available, as it would allay the fears of many people who are still concerned that they will be affected by the changes, so I hope that Ministers will reconsider their decision and publish the information. Despite the many amendments made in Committee and on Report, uncertainty remains, so I am sure that we will revisit the relevant clauses and schedules in future Finance Bills.
Other changes that were made without any warning include the withdrawal of the home computer initiative, which is another example of the Government throwing the baby out with the bathwater. Indeed, they abolished the initiative without prior warning or consultation. Instead of tightening the definition of relevant equipment, they have removed the scheme altogether, even though it helped to achieve computer access for many households, including low-income households. Besides affecting those families, the schemes sudden withdrawal has resulted in businesses losing their core work, and has disrupted Government Departments that were planning further roll-outs when the withdrawal was announced.
Confidence in any similar schemes that may be announced by the Government has been affected because, ultimately, businesses need to be certain of the stability of the systems that they use. Once again, however, that confidence has been undermined or eroded. One has only to look at the changes to corporation tax to see how further instability and complication have been introduced. Gordon Brown has introduced changes virtually every year, and although we welcome the situation that we are now in, why has it taken the Chancellor such a long and circuitous route to arrive back exactly where he started?
There have been many measures to tackle fraud and evasion, including missing trader fraud, which we discussed again this afternoon. Although the closure of loopholes in the tax system is welcome, considerable complexity has been added to the tax system by the Bill, and the concern is that it will result in a cat and mouse process, with further complication required every year to overcome further loopholes that have been created by further more complex legislation.
Fundamentally,
we see the significance of the Bill in what it does not do, mainly in
terms of green action. Limited changes are present in the Bill. We
welcome the revalorisation of fuel duty and the climate change levy,
but at best these measures will only halt the decline that we have seen
in green taxes as a proportion of the total tax take. They will not
increase the proportion that it represents. We are disappointed that
the Government
did not adopt the new clause tabled by the hon. Member for Nottingham,
South (Alan Simpson), as it would have helped make strategy, which is
clearly lacking from the Government and the Treasury, very clear. I
find it astounding that the Paymaster General can refer to the
constructive debate that took place on the new clause yesterday, but
refuse to support it.
What we see in the Bill is tokenism of the worst kind, which has been announced with fanfare but will do next to nothing to change behaviour. The clearest example is the introduction of a new band of vehicle excise duty for the most polluting cars, which introduces a differential in value to the next band down equivalent to less than a tank of petrol for the most polluting cars. I was glad to hear the comments of the hon. Member for Chipping Barnet (Mrs. Villiers) about those proposals in her remarks on Third Reading, but we saw no proposals from the Conservatives for green measures. We have seen tokenism from those on the Conservative Benches, too.
To conclude, what we would like to have seen but in large part did not see is action to follow the rhetoric that is so often expressed by the Government on green issues and on many other important matters. We have not seen any significant simplification of our tax regime. We have not seen any changes to make the tax regime fairer. Inequalities are still growing, and the richest 20 per cent. are still paying less in tax as a proportion of their income than the poorest. We have also not seen any greater devolution of spending power in the Bill. The United Kingdom remains one of the most centralised states in Europe.
I would like to associate myself and my colleagues with the thanks expressed by the Paymaster General to all Members of the House. The Clerks have been very helpful in their assistance with amendments, as have many organisations, such as the Law Society, the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, PricewaterhouseCoopers and KPMG, among many others.
There have been some welcome aspects to the Bill, but we are disappointed by the lack of action on green issues and we therefore cannot support the Bill on Third Reading. There are still significant problems relating to trusts, inheritance tax and other matters about which I have expressed my concerns. I thank you, Mr. Speaker, for your patience in dealing with all of us.
Sir George Young: It is 10 years since I last served on the Standing Committee on the Finance Bill, and it will be 10 years before I do that again. I mean no disrespect to my colleagues who served on the Standing Committee, or, indeed, to Ministers. On the contrary, it is a reflection of the increased length and complexity of the Finance Bill that only those with the most acute understanding of the countrys tax system can play a useful role on the Standing Committee. It is rather like a soap opera. If one misses a few episodes, it is very difficult to catch up with the plot.
I shall make
three comments. One must be ever alert to globalisation. There may be
very good reasons for some of the tax changes that we make in this
country, but one must be aware of the impact that they may
have on the highly mobile capital industry, which can locate its
investments
anywhere.
Secondly, we must do all we can to remove the driver for complexity in the tax system, and we must do even more to get more people outwith the warm embrace of the tax system. We seem to be making slow progress towards the simpler tax system that we all want.
Finally, we were particularly fortunate to have the hon. Member for Wolverhampton, South-West (Rob Marris) in the Standing Committee, because he was able to give us the ministerial rebuttal of our amendments minutes before the Minister. I hope that it will not be too long before his energy and talents are recognised and rewarded.
Stewart Hosie: Some of the measures in the Finance Bill are welcome, as was the Governments willingness on some occasions to listen and make changes. Of those changes, the inclusion of those with parental responsibilities for vulnerable children in the trust regime was particularly helpful, although a number of other helpful suggestions made by hon. Members on both sides of the House were not taken on board in such a positive manner.
The Bill provided an excellent opportunity to debate the supplementary charge in the North sea, which we believe is a damaging change to the regime. Likewise, the Governments change to the blended oil regime was subject to detailed debate and correspondence.
We had a useful debate on REITs, which we welcome. Although we believe that the regime, with its stock exchange listing element, is still rigid, we welcome the commitment to review the matter on an ongoing basis, which we too will do.
We also had a useful debate on the high cost of fuel. However, it was disappointing that the Government still failed to recognise the requirement to introduce a fuel tax regulator both to provide specific assistance for the road haulage industry and to help those in sparsely populated rural areas who need a car.
The Finance Bill was the result of a Budget that one commentator described as heavy with light measures. Chief among those light measures was the abolition of the home computer initiative. The Paymaster General said on a number of occasions that alternatives would be put in place, and today she discussed proposals to provide computers in community centres and by community education departments. However, if someone on a low wage wants to educate themselves and to improve their IT skills, they need a computer in the home. Following the abolition of the home computer initiative, I suspect that a similar initiative will have to be reintroduced in the future.
The Bill is a missed opportunity. Although there was talk about additional assistance for research and development, expenditure on R and D in the UK is half that of our major European competitors, and the rate in Scotland is about half that of the UK. The position is deplorable, and the Bill includes very little to improve the situation.
Our
key difficulty with the Finance Bill is the changes on the North sea.
The Bill takes billions more out, and makes unnecessary changes to the
supplementary charge
and the blended regime system, yet it offers nothing in return for new
exploration and for the development and extraction of heavy oil in the
central North sea, the fields west of Shetland and the fields in the
very deep water west of Scotland. For that reason, if no other, we will
oppose Third Reading
tonight.
Mr. Gauke: Unlike my right hon. Friend the Member for North-West Hampshire (Sir George Young), this was my first experience of the Finance Bill, and I want to make one or two observations. [ Interruption. ] I know that hon. Members are keen to watch France play Portugal.
As we have progressed through the Bill, I have been surprised by how frequently the European Union has cropped up. On Second Reading I addressed the question of why we are substantially changing group relief as a consequence of an European Court of Justice judgment. That is usually an important issue, yet the UK Government have little scope for manoeuvre given the existing constitutional position. Several times during the Bills passagefor example, when we attempted to tackle missing trader inter-Community fraud, leasing rules or film taxationwe found that the motivation for changing the law was that it was required by an ECJ judgment or potential judgment.
I echo the remarks made by my right hon. Friend the Member for North-West Hampshire as regards the sheer complexity of the tax system and, as a consequence, the need for outside expert advice. [ Interruption. ] The Economic Secretary anticipates my point. An error or oversight by Treasury officials was spotted by an eagle-eyed professional adviser[Hon. Members: Name her!] Her name is Mrs. Rachel Gauke, a lawyer at Travis Smith. It would be fair to say that other errors have been spotted by professional advisers who are not necessarily as eagle-eyed as my wife.
The Government got themselves in a bit of a muddle on their initial drafting with regard to trusts. They attempted to tackle it without consultation, so that professional advisers were unable to provide their input, although they did when the draft Bill was published. To be fair, I must add that the Government have made a substantial number of amendments in that area, for which I am grateful. We now have a better Bill than we did initiallybetter, but not good enough. The complexity in the tax system remains considerable. Speaking as a non-tax lawyer, it is always difficult to grasp even the relatively small elements that we cover in the course of a Finance Bill.
As my right hon. Friend the Member for North-West Hampshire said, we live in a globalised world where capital flows from one jurisdiction to another, and we have to be careful to ensure that we have a fair system that not only deals with evasion but is manageable for individuals and for businesses. Conservative Members are deeply concerned that that balance is increasingly being got wrong, which is of major concern for the long-term competitiveness of the British economy.
Question put, That the Bill be now read the Third time:
Bill read the Third time, and passed.
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