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Rob Marris: Is my hon. Friend aware that a table is produced by, I think, the Organisation for Economic Co-operation and Development setting out the number of person hours or even days that an average business needs to expend to deal with the tax regime in a given set of countries? Some 190 countries are listed and the United Kingdom is very near the top of the list, the top being countries where people spend the least time dealing with such matters. The issue is not just to do with the number of pages in Tolley’s or whatever, but with how much businesses can use the legislation.
Mr. Flello: I am grateful to my hon. Friend for making that point. The code and the tax legislation are there for a purpose. As many Members have said in what has been an interesting debate, provisions are in the legislation for specific purposes. The hon. Member for Falmouth and Camborne (Julia Goldsworthy) is, sadly, no longer in her place; two is the maximum number of Liberal Democrats whom we have seen in the debate. At one point, I wondered whether they rotated to ensure that just one was here.
None the less, the point was made that we cannot have it both ways. We cannot aim to address a specific point through tax legislation without having the necessary clauses in the Bill. One has to make sure that the Bill does what it is required to do.
Mr. Redwood: Does the hon. Gentleman agree that if we had the same income and company tax rates as those in the best states in America, we might share their rather faster growth rates?
Mr. Flello: Our employment levels speak for themselves. When we take into account federal tax, state tax and county tax, we almost move into the realms of the Liberal Democrats’ proposal for a local income tax.
The point that has been made about skills and research and development shows the contradiction between what appears in the Bill and in the reasoned amendment. We need to ensure that my constituents and those in the wider UK have the skills needed to ensure that a manufactured product or service can compete in the global market. Given our labour costs, it is impossible to compete on price with some of the growing economies and, indeed, some of the extremely well developed economies around the world. We need to compete on skills.
For example, firms in India are doing tax return work extremely well. Information is sent to the firms, it is processed in India and completed tax returns are brought back to the UK ready to be signed off by clients. If a country is able to do such work at a cheaper rate, the only way we can compete is to ensure that the level of knowledge in the UK is much greater. We need to make sure—the Bill and previous Finance Acts have endeavoured to do this—that young people and all workers across the UK are able to acquire the skills they need.
Rob Marris:
Did my hon. Friend spot an apparent—and I think a real—paradox in the position expressed by the hon. Member for Hornchurch (James Brokenshire)? He said that the tax changes in the Bill might have an adverse impact on small businesses, but then went on to
talk about skills. As a generalisation, small businesses in the UK are not very good at training people or spending money on skills training. Therefore, that has to be done by the state, and the state needs tax revenue to pay for it. That tax revenue has to come from somewhere, and one place from which it will come will be small businesses.
Mr. Flello: My hon. Friend makes an extremely good point. If an organisation is not willing to undertake the training that the nation needs, we have to find alternative ways of funding the training through the tax system.
My right hon. and good Friend the Chancellor the Exchequer made an announcement about raising education spending to £90 billion over the next couple of years. Those improvements and changes are what Finance Bills and Finance Acts bring about and they are the backbone of British innovation. The proposed increase in the number of apprenticeships is fundamental to this country being able to take itself forward.
I chair a Staffordshire taskforce that works with people who have been made redundant in some of the traditional industries and, indeed, some more modern industries. I am a member of Unity, Amicus and the Transport and General Workers Union, and Unity acts as the umbrella on the taskforce for a number of other trade unions and organisations. Through its excellent work, the work force are given the opportunity to gain the skills that they require and the modern market needs. We must make sure that the competitiveness of the UK economy supported, and legislation such as the Finance Bill, can aim to push through provisions for that.
Those on the Opposition Front Benches said that the Bill could upset the economy. However, as other hon. Members have argued, we have an extremely stable economy. We have low and stable inflation. Yes, there are peaks and troughs within that, but overall the situation is extremely stable compared with— [Interruption.] I hear derisory comments from the Opposition Benches. During the 18 years before the Government took office in 1997, the situation could in no way be described as stable or level. There was no considered growth during that period, with two deep and damaging recessions, as has been mentioned, and with inflation and interest rates out of control and at times changing almost daily.
I recollect the tables produced by the Inland Revenue when I had the great good fortune of working for that organisation in the early part of my career. Tables produced for calculating the interest on the late payment of tax would be amended with frightening regularity because of the fluctuations in interest rates. The derision from the Opposition Benches seems to have stopped.
Rob Marris:
My hon. Friend may be aware that when arguing for lower corporation taxes—and the Budget does cut corporation tax somewhat—the Conservatives often pray in aid the economy of Ireland, yet it has recently emerged that the economy of Ireland is not exactly stable, with personal debt at 190 per cent. of
GDP, and with Ireland being locked into the euro. Does my hon. Friend agree that it was a very wise decision, which I supported at the time and continue to support, that the United Kingdom should not enter the euro?
Mr. Flello: I am grateful once more for the wise words from my hon. Friend. In the extremely inspired piece of insightful thinking that produced the five tests, the Chancellor was absolutely right to make sure that we would consider such a move only if it were right and in the interests of Britain. Clearly, it has not been. I am sure that after their experiences, other countries wish that they had had our Chancellor and the skills that he would have brought to bear for them.
Stewart Hosie: What are the five tests that the Government set? What is the difference between those and the original five tests for EMU entry? With reference to the intervention from the hon. Member for Wolverhampton, South-West (Rob Marris) about debt in Ireland, will the hon. Gentleman comment on the £1.3 trillion worth of personal debt in this country?
Mr. Flello: I am grateful for the hon. Gentleman’s intervention. In answer to his first question, I recommend to him the Library services across the corridor. On personal debt, the level is high in most of the advanced economies, like our own. However, I agree that there is cause for concern where people are taking on debt that they are unable to sustain. My views on that are on record.
We can reject the first part of the reasoned amendment tabled by the Opposition, because it does not stack up. It does not make sense. As soon as one starts reality- checking, the wording falls away. I looked at the employment figures provided by the Library, which I again recommend to the hon. Member for Dundee, East (Stewart Hosie). The reduction in the number of people unemployed in my constituency, Stoke-on-Trent, South, is approaching 20 per cent. There is a huge amount of work still to do because I do not want any of my constituents to be without work, but the improvement has been incredible. That was made possible by provisions such as those in the Bill.
My hon. Friend the Member for Wolverhampton, South-West made some valid points about the real reasons why 125,000 people are in the financial assistance scheme. It is right and proper that Back Benchers of the governing party put pressure on Ministers whenever possible, and I take the opportunity to do so now. We need to ensure that every single one of the pensioners who were adversely affected gets whatever help we can give them. I shall not adopt the Opposition attitude and suggest that we can wave a magic wand and put everybody in the position that they wish they were in and that they were promised by the trustees of their schemes, but equally we are not seeking a proceeds of growth rule that would mean that the money was not available to back up the promises being made.
I hope that the review that is under way will ensure that the good provisions in the Bill, which I welcome, are built upon. Although the increase from £2 billion to £8 billion projected costs, the 80 per cent. payout and the increase in the cap are all good moves, we should do what is morally right and push for as much help as possible to be given to those 125,000 people.
Finally, I shall canter through the provisions of the Bill and how they will impact on my constituents. On the main rates of tax for financial year 2008 and the changes to the small companies rate, on which several hon. Members have commented, yes, there are concerns. There are small businesses in my constituency that will understandably be worried about the impact of future changes to those rates. However, the fall in the basic rate of tax to 20 per cent. must be welcomed. A large number of my constituents who receive tax credits will welcome both the drop in the basic rate and the increase in tax credits.
Every Member of Parliament regularly sees people in their surgeries who have problems with the tax credit system, just as we see constituents who have problems with speeding tickets or with housing. We only ever see the downside. We rarely have anyone coming to us and saying, “This works for me”, but when we are out on the doorsteps talking to people, we find time after time people who are being helped by tax credits. I welcome the proposals in that regard.
As a non-smoker I welcome anything that persuades smokers to relinquish the habit, but I note that the increases in tobacco product duty are broadly in line with inflationary measures. The work that has gone on, separate from the Finance Bill, to help people kick the habit of smoking is the right approach. It is time for much more carrot and less stick in future years to move people away from an addiction to tobacco.
On vehicle excise duty, I shall not detain the House by rehashing the enlightening discussion that took place between the hon. Member for Falmouth and Camborne and my hon. Friend the Member for Wolverhampton, South-West. I would not want to revisit an exchange that was at times, I think, painful for the hon. Lady.
On energy-saving houses, it is a little rich—to quote the phrase again—of Her Majesty’s loyal Opposition to be critical of the provision relating to zero-carbon homes simply on the grounds that there are not any, or that there are very few. The point was made earlier that when there was a reduction in the rates of duty on unleaded petrol to persuade people to go down that route, we heard comments that only a handful of garages in particular areas sold unleaded petrol. But as a result of measures in the then Finance Bill, people were persuaded to change their habits. They moved to driving vehicles with unleaded fuel. I hope that the relief for new zero-carbon homes will persuade people that it is right to move towards having zero-carbon homes. Any assistance in that regard has to be positive.
Criticism was made about domestic microgeneration. Given that the Leader of the Opposition has or had a wind turbine— [ Interruption. ] I understand that it has been removed. That is a great pity. That would otherwise have been a good example.
I do not want to detain the House by rehashing the arguments and discussions about managed service companies. We need to make sure—the Finance Bill moves in the right direction—that there is fairness and that we do not have a situation in which somebody
decides to adopt a particular corporate or non-corporate structure purely for a tax advantage rather than because it suits their business. I am sure that most businesses in that situation would not dream of using the tax system for pecuniary advantage, but the provisions make sure that that is so. I hope and expect that in Committee some of the corners will get knocked off and things will move forward.
I do not want to detain the House by exploring what has already been debated in a good and positive fashion this afternoon. I hope that a lot of the points that have been made by me and other right hon. and hon. Members will be taken on board by the Minister when looking at the issues.
I want to close with a plea about the regional impact—something that was mentioned by my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson). With my wider Staffordshire hat on as chair of the taskforce, as well as my constituency hat on as the Member of Parliament for Stoke-on-Trent, South, I think that we need to make sure that when the Finance Bill and wider provisions—designed to help, guide and promote different industries—are brought in, stronger direction is given to regional development agencies to make sure that there is a much greater focus on the types of business that they are promoting in different areas.
A number of potential large employers wished to come to Stoke-on-Trent, but unfortunately, the office space in the city was not sufficiently large to accommodate them. So a large number of extremely well-paid, high-skilled jobs were not able to come into the city. That was a terrible loss for an area such as Stoke-on-Trent, which has fantastic people who are able to learn specialist, complicated and creative skills. The lack of office space meant that we did not get those jobs. However, the regional development agency had been in place for some time and did not hesitate to ensure that distribution sheds were built. It pushed that aspect. It is just a pity that the opportunity was not taken some years back to make sure that some large office space was built quickly. I make a plea to the Minister to turn his eye in that direction.
All in all, it is a good Bill. As has been mentioned, it could perhaps go a little further in some areas. I do not take the point that the Liberal Democrats made about its being an over-burdensome, over-complicated Bill—particularly given that they then contradicted that point by saying that the Bill could do with more clauses relating to aircraft flying over rural areas of their constituencies. I certainly commend the Bill and I hope that it will receive support from both sides of the House.
7.14 pm
Mr. John Redwood (Wokingham) (Con): I am a non-executive director of companies and I am also a trustee of a pension fund, as declared in the Register. I would like to begin by speaking to the amendment in the name of my right hon. and hon. Friends, beginning with the most important case set out in that amendment: that the Finance Bill fails to equip the UK to compete in the globalised world economy in the face of ever-increasing competition from India and China.
Whenever Opposition Members venture criticisms of the current state of economic policy and tax policy with respect to competitiveness, we hear from the Labour party—as we did again this afternoon—that things were worse during the worst period of the exchange rate mechanism. That is not only ancient history, it is agreed ground across the Floor of the House. It ill behoves those on the Liberal Democrat Benches to join in. They should understand that they strongly recommended that this country join the exchange rate mechanism and link its currency to the Deutschmark. It is even worse for those on the Government Benches constantly to throw this back at us, when the Chancellor of the Exchequer was a keen advocate of linking our currency to the Deutschmark and has never yet apologised for the mistake that he made.
Of course, it was the Conservatives who made the mistake in office. The Conservatives have long apologised for it, moved on and learned from the mistake. I hope that the Government have learned from the mistake as well. There are some indications that they may have learned from it, because at the moment they do not wish to take us into the euro currency. The ERM was a stepping stone towards the euro, and had we gone the full way we might have had boom and bust—high interest rates and then low interest rates or inappropriate interest rates—because we would have been committed to the euro.
I just wish that the Government would learn the full lesson of those bad periods in the early ’90s. Surely the full lesson is learned only when a party comes out and says that it must be no to the euro—just as it must always be no to the exchange rate mechanism. We tried it. All three parties wanted it. Some of us disagreed. It failed. Now it must be no to the euro, as the hon. Member for Wolverhampton, South-West (Rob Marris) quite rightly said. I would feel happier if the Chancellor of the Exchequer ruled it out in principle for all time, instead of constantly going through this nonsense that there have to be five tests, and that there might be circumstances in which the euro would be a good idea.
If we wish to compete successfully in the world economy, we need to understand the weaknesses of our current position, as well as its strengths. My party and I have been the first to admit that it is not bad news that we had growth continuously during the last years of the Conservative Government and that we have had growth continuously during the Labour period. My party is delighted that we have had, on average, worldwide, low interest rates over the last decade. That climate has been extremely helpful. My party is glad that China and India have emerged as economic titans. They are so competitive that they are now helping growth in the world, because as well as producing good-quality cheap exports, they need imports, and their cheap exports enable us to keep inflation down at a less penal cost in terms of interest rates and money control than we would need to incur were it not for that Indian and Chinese competitiveness.
However, the Government must understand that it is now 2007 not 1992, that an awful lot has changed since 1992, and that although some things are better—many
of them because of the world background although some of them because of decisions made by Governments since 1992 and the exit from the ERM—there are still many things that are not ideal, and are limiting our ability to compete with the extremely competitive world economies emerging in Asia.
I asked a Labour Member if he was happy debating the Finance Bill and the tax incentives and changes for business against the background of the recent news that a large British shipyard is going to be literally unbolted and transported to Asia so that advantage can be taken of the better organisation and lower labour rates, and use can be made of the capital equipment that once fuelled a mighty British industry. I am sure that Labour Members are not happy about that. I am sure that they are not happy that Rover went bust on their watch, and that some of the equipment from the Longbridge plant was taken to pieces and exported to China so that Nanjing Auto can now make cars in China instead of in the United Kingdom.
We in this debating Chamber should ask ourselves collectively whether such accidents can be avoided in the future. Are there things that we could do through the Finance Bill that would create a more favourable climate for business here in the United Kingdom? The answer is yes. Things could be done to make it easier for manufacturing businesses to survive and flourish in the United Kingdom and to make it less likely that those businesses would go bankrupt, have to sell up, or have to sell some of their prime assets or capital equipment to companies in China and Asia that would use that plant and equipment to compete against us and undermine other countries in the United Kingdom.
The Government understand part of the argument. I am delighted that the Bill and the Budget show that the Government see the need to lower the corporation tax rate in the United Kingdom. There is abundant evidence from throughout the world that countries that set a tax on profits markedly lower than the world average do a great deal better than the rest of the world at attracting new investment, encouraging new company formation and attracting large enterprises to choose that country to establish new plants to undertake their activity.
The single most important reason why Ireland has grown rapidly over the past decade or so has been its attractive corporation tax framework. The United States is far richer per head than we are, and despite starting off as a richer country, has grown faster than us for nine out of the 10 years for which the Chancellor has had responsibility. Again, lower tax rates on personal incomes and company profits—if one is established in the right state of the Union—have been an important influence on the United States of America’s better competitiveness. The countries in Asia that are doing best usually have a tax regime that attracts investment in the sectors and industries that they are keenest to attract.
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