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The document was produced last year, and I went to TWT’s excellent reception in the Members’ Dining Room. Many other groups are also taking such steps, but they need some fiscal encouragement.

The VAT regime has been referred to indirectly, and perhaps ironically, from the other side of the equation
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by my hon. Friend the Member for Ellesmere Port and Neston (Andrew Miller). There has been some levity on Opposition Benches regarding changes in measures such as stamp duty land tax for low-carbon homes; Opposition Members chuckle to themselves about how many low-carbon homes there might be.

There is a fiscal measure in the Finance Bill to do with tackling climate change, which the reasoned amendment decries the Government for not doing. It is a measure to make a market and drive a market. In and of itself, it will not make or drive a market, and it is not equivalent to the situation with regard to unleaded petrol, but it is similar: it is a fiscal measure to try to kick-start a market.

Mr. Redwood: Under this part of the amendment, does the hon. Gentleman agree that the two most important steps that we must take to adapt—I agree with him that that is what we must do—are to collect more of the water that falls when it rains to use during the dry periods, and to have better coastal defences, especially to protect the 7 million people in the London area, because we are told that the Thames barrier will soon no longer be fit for purpose?

Rob Marris: I entirely agree. The right hon. Gentleman foreshadows remarks that I was about to make on building adapted homes—zero-carbon homes, for which there are fiscal incentives in the Finance Bill. However, I am not aware that there are any fiscal incentives—in this Bill, or previously—to deal with matters such as those that he refers to.

The drainpipes on older homes will need to be changed. In many parts of the country, people will need bigger drainpipes because of the increased incidence of sudden deluges. All Members will remember what happened in Boscastle in 2004, when 8 in of rain fell in a very short period. Lest any Member wishes to treat this matter with levity, let me say that I am not saying that bigger drainpipes would have prevented the disaster in Boscastle, but it is a graphic example of why we need adaptation to deal with heavy torrential downpours the like of which we have not hitherto experienced in the United Kingdom on a frequent basis. On present indications, they will become more frequent in winter. I am not aware of there being any fiscal incentives in this Finance Bill to address that.

I am not aware of any incentives for adapting the heating and ventilation of homes that already exist, in contradistinction to the low-carbon tax break for new homes. That is a health issue as well as a comfort issue, because a lot of people will die. It is estimated that 20,000 older people died across Europe in 2003, including in the United Kingdom but principally in France, as there was very hot weather in July and August. Homes will need to be adapted. There will need to be fiscal incentives, particularly through VAT—by lowering the VAT rate and, perhaps, going to the European Commission and saying, “All 27 countries face this, and we need to have powers to derogate in lowering the VAT rate for building adaptations to existing buildings.”

Similar points apply to land drainage and other issues. We need tax breaks with very strict compliance mechanisms for the water companies to get them to
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build more reservoirs. We will need more reservoirs. On all current projections, there will be an increase in drought in the UK, particularly in southern England but also in East Anglia, which most of us would not consider part of southern England, and further north——even, on current indications, in parts of lowland Scotland.

Mr. Flello: Does my hon. Friend agree that we need a fundamental review of our infrastructure in many areas? For example, a heavy downpour is lost immediately through the storm drains.

Rob Marris: That is certainly the case. I heard a claim the other day—I do not know whether it is true, but it is the typical sort of figure that one hears in the House—that we have less rain per capita than Sudan. We do not have much rain in this country, especially in England and, in particular, in East Anglia. Geographers count large parts of East Anglia as a desert, in terms of annual rainfall. We have to use that rain carefully.

We already do a good job in recycling water. People were shocked in Australia recently by a proposal to use grey water, but we found it extraordinary that that should be so new to them. To make the best use of such approaches, we need not only the regulatory and planning regimes, but some fiscal incentives. The Government are actively pursuing a policy of adaptation to climate change, but they should do more, including fiscal incentives.

If I may be allowed a personal advertisement, I proposed a private Member’s Bill on climate change adaptation, which was the first climate change Bill in this Parliament. It would have required the Government to report annually to Parliament on what had been done to adapt for climate change. I am pleased to say that, broadly, that has been incorporated in clause 37 of the Climate Change (Effects) Bill. However, annual reporting of adaptation is not by itself enough. It is part of greater transparency, but we need to make progress.

Some great work is being done by the Oxford-based UK Climate Impacts Programme, which gets a paltry £800,000 a year from the Government. I have visited the programme, been to its conference and talked to the staff, and it does great work, but we need to produce the big changes in behaviour and adaptation before it is too late. As the right hon. Member for Wokingham said, 7 million people will be at risk of flooding in London, although those who built the Thames barrier were far-sighted and it is being used much more frequently now. As I understand it, a new Thames barrier will be needed, although I am not an expert on London and the south-east, because I am a west midlands MP. I pick up such information because it is the capital of our country and we cannot let it drown, even though—or perhaps because—that would make Birmingham the capital of England. Seriously speaking, we cannot let London drown, so we need to push forward adaptation measures.

As we saw with the change to unleaded petrol, measures in the Finance Bill have a big role to play in change. They could have a big role to play in emissions and their causes, and mention has been made of vehicle excise duty, although the Bill does not go far enough. Such measures as are included are very welcome, but we need more to encourage adaptation to climate
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change, because that is the one thing that the UK can control, whereas the level of emissions is subject to the winds of change in the world.

6.33 pm

James Brokenshire (Hornchurch) (Con): It is always a pleasure to follow the hon. Member for Wolverhampton, South-West (Rob Marris), who made a wide-ranging contribution. I intend to confine my comments to a narrower issue: the treatment of small businesses and, in particular, the introduction of the provisions to increase the corporation taxation rates for small businesses to 22 per cent. from 19 per cent.

We have heard much debate in the House, today and previously, about the fact that that increase in taxation on small businesses is intended to be neutral. The argument is made that the annual investment allowance of £50,000, intended for businesses to invest to grow, will counteract the increase in the headline rate. That certainly has not been the impression gained by small businesses. The chairman of the Federation of Small Businesses said:

That comment reveals the concerns felt by small businesses across the country about what the changes will mean. The British Chambers of Commerce has talked of

The head of taxation for the Association of Chartered Certified Accountants said:

The CBI, which does not necessarily focus on smaller businesses, has suggested that the changes will lead to “some significant losers”.

The changes certainly give the impression that rather than being simplified for smaller businesses, the tax system is being made more complex. It also comes against a background of change in the way in which tax is levied on smaller businesses. In 1997, the Chancellor cut the rate of taxation for smaller businesses from 23 per cent. to 21 per cent. He cut it to 20 per cent. in 1998. In 1999, he introduced the new 10 per cent. rate and in 2002 he cut the 10 per cent. rate to zero and the small companies rate to 19 per cent. In 2004, he reversed the zero percentage rate on distributed profits and in 2005 he abolished the zero rate altogether. In this Bill, the tax rate has gone up again, this time to 22 per cent.

Such fluidity—so much change in a comparatively short period—makes it very difficult for small businesses to plan and work out a strategy. It is therefore interesting to consider the rationale advanced for the changes in the Bill. Paragraph 1.18 of the Red Book says that the change has been introduced

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In other words, it is an anti-avoidance measure, although we have not had the precise rationale explained at any point. I hope that when the Minister winds up the debate we will get some clarity about why such a draconian measure was felt necessary to combat that pattern of behaviour.

The issue was recognised and debated when the zero rate band was introduced in the first place. Many businesses were actively encouraged to incorporate as a consequence of the prevailing tax regime. It is interesting to look back at the consideration of the Finance Bill in 2002, when that point was raised. It was argued that the zero rate would force companies into incorporation. The Paymaster General said in response:

That may be true, but the Paymaster General seemed to recognise that the possibility of small businesses taking advantage of the incorporation measures had been actively considered. It was understood that the changes in the tax regime might have that implication. I hope that the Financial Secretary may be able to comment on what went wrong and whether it was contemplated that companies that incorporated as a result of those changes might be in an uncomfortable position if the measure were reversed. Companies incorporate for legitimate reasons. The action is not necessarily driven by taxation reasons, and that factor should be understood in the context of such a big change to tax rates for smaller businesses.

My fear is that some small businesses that incorporated under the earlier regime—in many ways, the Government encouraged them to do so—will be trapped now that the tax regime is changing completely, with the implication that tax rates will be higher. As a former corporate lawyer—no longer practising—I know that changing from incorporated to unincorporated status is not without cost. Lawyers and accountants are required so that the company can break out of the incorporated mechanism. Many small companies that have legitimately incorporated, for whatever reason, will be in the difficult situation of having to decide whether to accept higher taxes or higher professional costs to change from an incorporated to an unincorporated structure—possibly their former status.

Reference has already been made to small service companies. It will obviously be difficult for them to take advantage of the new tax breaks proposed by the Government as an offset mechanism. There is a strange irony in the fact that the Government are saying, “We shall increase your tax but you can take it back from us”. The proposals underline the complexity of the Government’s mindset.

We need to address the valid concerns about companies that may be in financial difficulty. An increase in the tax rates applied to them might tip them over the edge if they were already in a precarious financial position, because they would certainly not be
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able to take advantage of the new mechanisms and benefits for companies that can invest. Evidently, they cannot invest because they are already in a difficult financial position. Given the problems that may arise, the neutrality of the measure is not as straightforward as has been suggested.

The provisions on corporate taxation are complex—like the Budget itself. I was struck by a comment made by Andrew Tenon, a tax director at Tenon advisers, in an edition of Taxation. He said:

If even learned tax advisers find it difficult to assess the effect on smaller companies of the changes in the Bill, it will be tricky, to say the least, for the companies themselves to work out what the impact will be and how to take advantage of the investment regime to ensure that the benefits are effectively applied. That comment and others clearly show the problems that arise from the complexity of the provisions and their application to small businesses.

There seems to have been a complete reversal of the Government’s approach to the treatment of small businesses over the 10-year period. We have almost come full circle in the latest Finance Bill. There is real concern that the Government are turning their face against small businesses, notwithstanding the fact that 99 per cent. of all enterprises are small. A huge number of small companies contribute a large amount to our economy, ensuring that it is vibrant and strong and continues to employ people and generate wealth in this country.

Andrew Miller: The hon. Gentleman is making an interesting point, but what does he think is in the best interests of small businesses? Is it the environment now or the environment when we had two major recessions, interest rates at 15 per cent., inflation in double figures and unemployment at 3 million? Perhaps he thinks that unemployment at 3 million will be beneficial to small businesses. Was the environment better when his Administration were in control or is it better now?

James Brokenshire: The hon. Gentleman is drawing false parallels—perhaps understandably, to assert his case—but I certainly do not understand his comment that I support high unemployment. Obviously we want to generate employment and get people into work. One of the problems at present is the structure of the system, which means that labour is immobile. Too many people are trapped by social immobility, without the skills or opportunity to realise their potential to change their lives and make the most of their assets. I am passionately against that and it is highly unfortunate in many ways that growth in our economy has had to be driven by the importation of labour and that people do not have the opportunity to obtain skills, as Lord Leitch found in his report. There is a structural problem in our economy and it is not in the hon. Gentleman’s interest to suggest otherwise. We need urgently to deal with those skills issues to ensure that people can realise their potential and get into the employment that is denied them at present.

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Rob Marris: Will the hon. Gentleman give way?

James Brokenshire: Not on this occasion—I am just about to finish.

Small companies face huge uncertainty: rising inflation, rising interest rates and, in the Bill, rising taxation. My fear is that the Budget will make things worse and that companies already in a precarious situation will be tipped over the edge. I hope my assessment is wrong, but I have real concerns about the consequences of those taxation measures for small companies.

6.48 pm

Mr. Robert Flello (Stoke-on-Trent, South) (Lab): I want to take a few moments of the House’s time to go through a few points in the Bill that relate to my constituents. My hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) made some good points on the wider general implications of the Bill, but I want to look at its impact on my constituents and others in Staffordshire and to focus the debate more locally.

The reasoned amendment refers to increasing competition from countries such as China and India and suggests that the Bill will cause difficulties and problems. Perhaps it is because I am a fairly straightforward and humble chap, but that argument confuses me somewhat. China, India and the far east have had an impact on the work that was done for many years in the mines in my constituency before they were closed—

Rob Marris: By the Tories.

Mr. Flello: Indeed, closed by the Tories. Those countries also had an impact on the Shelton Bar steelworks, which were just outside my constituency before they were closed under the previous Administration, and on the Michelin factory, which employs many thousands fewer workers than it did 20 or so years ago and has changed the emphasis of its work. However, it is still a very valued employer in the constituency. Furthermore, the pottery industry employs a fraction of the people it once did. None of those job changes was the result of the Finance Bill.

Let us consider specifically the situation at Trentham Lakes, the site of what was the Hem Health colliery. More people are now employed on the site, albeit in completely different jobs, than when it was a colliery. Many people who work in the distribution centres used to be employed in the pottery industry and have acquired different skills.

The reasoned amendment asserts that the Bill’s complexity will somehow kill off or stifle the opportunity for businesses to grow. A few years ago, I did some work with the United States tax code and advised and assisted employees from the US working in the UK and employees from the UK going to work in the US. The US tax code is horrendously complicated. Indeed, one could almost say that ours is an open, brief and simple tax code by comparison. However, has the US suffered for years from a crippled economy that is unable to compete on a global stage? Are its businesses unable to do well? The facts on that speak for themselves.

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