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The second thing that an economy needs to be attractive and competitive, and to take on the emerging might of China and India, is regulations that are not too complicated. This country is in danger, through regulations made by the House and by accepting a great deal of the regulation designed in Brussels, of over-regulating companies that are already here and
creating a framework of over-regulation that will deter companies from coming here.
Hon. Members have drawn our attention to the growing complexity of tax legislation on this Government’s watch. The great increase of the number of pages in Tolley’s tax manual is one indication of how the complications have increased. However, while the clauses before us make up a Finance Bill that is relatively slender by the Government’s standards, that is because in most areas the Bill just says that something will be done to a tax measure, and more of the detail is in the many pages of schedules. In due course, the Treasury will probably produce lots of secondary regulations that will have a direct bearing on business and lots of interpretative documents that tax lawyers, company directors and others will have to master to determine their legal due to the Government, and so that they can find out whether the regime is still sufficiently attractive to allow them to carry on their business here.
The Government should take on board the warning about the complexity of tax legislation—and I am delighted that the Economic Secretary to the Treasury is in the Chamber, because he has been carrying out interesting work with those in the City who are worried about how competitive our tax system is.
The third important issue is whether we still have a fair system that is properly and consistently enforced by a Revenue that does not regard everyone and every business as someone who is trying to break the law or get away without paying a reasonable amount of tax. Many businesses have become concerned in recent months because they feel that the reasonably fair-minded Revenue now goes on fishing expeditions and tries to reopen old years that the businesses thought had been honestly and honourably settled. There is a worry that too many people who have been successful and made money individually or through their companies are being challenged unreasonably.
Kelvin Hopkins (Luton, North) (Lab): Is not the right hon. Gentleman in effect condoning VAT fraud? There is a vast amount of such fraud in this country, which costs the Exchequer billions each year. Surely we want more tax inspectors so that we can get more of that VAT in.
Mr. Redwood: I was careful not to condone any kind of fraud. If someone is guilty of deliberately misleading Her Majesty’s Revenue and Customs by not giving the correct information, or any information at all, enforcement measures must be taken. My party has always said that and the Government always rightly do that—that seems to be a perfectly fair system. I am getting reports from people who are nervous about being named because they do not think that the system is entirely fair any more. They say that there is a feeling that matters that were thought to have been honestly and honourably settled can be reopened because the Revenue takes a different view of a measure in tax legislation than that which it accepted, and which the company’s tax lawyers and advisers put to it, when the figures were settled in the first place.
The Government need to be careful. Of course they wish to raise as much revenue as possible without apparently upping the rates, but if too much of the
philosophy and mentality of Customs and Excise is inserted in the Inland Revenue and operated against law-abiding businesses and people who just happen to be successful, the impact will be the opposite of that which the Government want. The country will merely be given a reputation as the kind of place in which people will not want to base their businesses or tax affairs because they fear that they will not be treated fairly, or where they will never know where they are, because something that was thought to have been settled with the Revenue will turn out not to be have been settled at all.
If the hon. Member for Luton, North (Kelvin Hopkins) does not believe me, he should talk to the people to whom the Government have been talking. They will confirm that the business side is worried. If that worry becomes more general, it will put big companies off coming to this country and encourage more big companies to do what Shell and some of the banks are doing: think of taking their headquarters offshore and going to a different tax jurisdiction that might not only have lower tax rates, but give a fairer response to their honestly filed tax returns, and a clearer answer.
Mark Tami (Alyn and Deeside) (Lab): Is it not right that people should pay the tax that they are due to pay? If they argue that they are paying too much, they can take that matter up. The right hon. Gentleman seems to be saying that people should be let off what they are due to pay to the Exchequer.
Mr. Redwood: On the contrary. Of course people have to pay the taxes that are due. However, we now have the combination of thousands of pages of extremely complicated tax law and a fear that those who interpret the law—the tax inspectors—can change their minds. For example, a company could have honestly settled its tax affairs for a particular year with a tax interpretation that has been signed off by not only their tax advisers and accountants but by the Revenue—and then the Revenue can come along and say, “Actually, we’ve changed our mind. We don’t think that that clause meant this; it meant something else.” I am not talking about companies that are trying to get away with something.
Companies want certainty about how much tax they should pay in a given year. They take advice from tax lawyers and accountants and put a proposition to the Revenue. If the Revenue accepts the proposition, that should be the end of the matter. It should not be possible for the Revenue to reopen the case later and say that it has changed its mind. If the Revenue were to think that a company’s original filing misunderstood the tax law, it would be its duty to say, “We think you’ve misunderstood this point. This is how we interpret it; will you ensure that your filing is in line with that?” The process is iterative and requires discussion, because these matters are not as pure and simple as the hon. Member for Alyn and Deeside (Mark Tami) implies. Incredibly difficult judgments must be made, because of the thousands of pages of opaque material that the House passes as successive Finance Acts; we are discussing several hundred rather difficult pages today. It is not easy for law-abiding,
decent citizens to know exactly what the legislation means, so they expect a bit of understanding from the Revenue.
Mr. Dan Rogerson (North Cornwall) (LD): Does the right hon. Gentleman agree that smaller enterprises are fearful of experiencing problems because of the changes in HMRC that are moving it towards more of a call-centre approach? The closure of more local offices is threatened, which will make it more difficult for people to access someone to address their concerns.
Mr. Redwood: Yes. I was going to come on to smaller enterprises, but so far I have been discussing very big companies of the sort that go to the Chancellor’s City forum, and large industrial companies. They are professional and want to pay their dues, but no more than their dues. They want to know where they stand, but there is a growing fear that that they do not.
The hon. Gentleman is right to say that for smaller businesses the problem becomes overwhelming. They cannot afford to pay for really good accountants and tax lawyers who understand all the complicated detail. They will probably have a general accountant to help them, to whom they can afford to pay a modest fee. They, too, need help from the Revenue. It would be better if they could have a face-to-face meeting, if they really needed one. There needs to be understanding on both sides. If a person is normally co-operative, and is clearly trying to make an honest account of their business activities, the Revenue should help them to get everything straight from the Revenue’s point of view. That is what it used to do, but our worry is that it is wobbling in that respect.
Ed Balls: I am sure that the right hon. Gentleman is sincere in his statements to the House that he is in no way attempting to condone tax avoidance. In fact, his position has tended to be more open and public than that: he has been an advocate of substantial cuts in business tax, and of the abolition of stamp duty and capital gains tax. Are those proposals likely to make it to the final version of his competitiveness report?
Mr. Redwood: The Economic Secretary will have to contain his excitement. My personal position is well known and was put into print some time ago. I can tell him that not all the things that I would like to do will be part of my economic policy review, because I do not think that it will be possible to do them all in the very early stages of a Conservative Government. However, I can assure him that I fully support my right hon. Friend the Leader of the Conservative party and my hon. Friend the shadow Chancellor when they say that a lower-tax economy is a more successful economy—a line that I could have written myself—and when they say that they wish to share the proceeds of growth between tax reductions and better public services. That is eminently achievable, because there is a lot of waste and unnecessary expenditure in public services.
If we root out some of that waste, as I know the Government are trying to do— although they are not yet very successful at it—and if there is a reasonable growth rate in the economy, the economy can be
reinforced, because if some of the proceeds of growth are given back to taxpayers, that will raise the growth rate. After five years, if all went well, we could be spending more on public services than if we had not cut tax rates, because we would be generating more through the economy as a whole; that is the wonder of tax reduction.
Ed Balls: And the right hon. Gentleman would expect the public spending share of national income to fall over that period, would he?
Mr. Redwood: If we had a faster growth rate, I would expect the amount spent on public services to go up faster than if we had a lower growth rate and operated under the Economic Secretary’s kind of model, so public services would not be short-changed. But yes, of course the proportion spent on public services would fall; his arithmetic is clearly as good—or as bad—as mine. The proportion would fall, but that would be in the context of a rising total of public spending. Ironically, the faster the economy grows, the more quickly the proportion spent on the public sector falls, but the better the increases in public spending. That, to me, is success.
There was a period when the current Chancellor of the Exchequer followed exactly that kind of model; he kept public spending under some kind of control, and public spending fell as a percentage of national income because there was some growth in the economy. If he had reinforced that with more competitive tax rates, we would now face a very different position. We would be able to afford the public spending level to which the Chancellor has moved, but it would be lower as a proportion, because the economy would be bigger. It is a great pity that we missed that opportunity.
The Chancellor’s work has fallen into three parts. The first part was perhaps a bit tight on public spending, but it was very good in getting borrowing down, and in getting the public finances into good order. We could have used that as a launch pad for faster growth. The second phase was a pity; he overdid public spending and did not get value for a lot of the extra money that he injected into public services. The third phase will be the least pleasant, because all sorts of clamps will have to be placed on public spending, including the control on nurses’ pay. Obviously, that is not popular with nurses, and it will cause tensions within the labour movement.
Ed Balls: To summarise, the right hon. Gentleman is saying that the proceeds of growth rule will mean an acceleration in the fall in spending as a share of gross domestic product, and that will pay for the medium-term business tax cuts that he has talked about. Will he expect a fall in the share of spending in GDP over the medium term to pay for the tax cuts that he is proposing?
Mr. Redwood:
The Economic Secretary is moving from being sensible to playing silly crude politics of the kind that he and his boss always play, and it does not do him justice. I was very clear; I said that the proportion would fall faster only if the amount spent on public services was rising faster because the overall growth rate had accelerated—and that is the statement
with which I will leave him. I can tell him that I do not envisage a Conservative Government cutting the share of public spending in national income as quickly as the Chancellor did at the beginning of his period in office—but who knows? If growth were really fast, it would be possible to do that safely, and to give people back some of the proceeds of that faster growth; that would reinforce the growth rate. However, as the Economic Secretary well knows, one can play all sorts of tricks with compound arithmetic and percentages. If he now rushes out a press release saying that I have signed up to massive cuts, it will be another typical piece of misinformation, and will bear no relation to what I have just said to the House.
I am strongly of the view that we will need to increase spending on nurses, teachers and doctors, as the current Government did, and as the Conservative Government before them did. We will argue about the percentages and proportions nearer the time when we come into office, when we can see how big the need is, and how much resource there might be. There are lots of other areas in which we will not need to spend so much. When we come into office, we will be able to cancel the identity card scheme and the wasteful centralised computer schemes, if they are still running. We will be able to get rid of a lot of regional government; I recommend that to the Economic Secretary as a good cut to make.
Ed Balls: I assure the right hon. Gentleman that I have no intention of rushing out a press release. I was just interested in his views; as he will know, I have been a close follower of them for many years, and we have always enjoyed our debates. I am just worried that his position may be shifting. He previously supported a steady fall in spending to 35 per cent. of GDP. Is that no longer his medium-term objective? He has not been persuaded to back off from his previous positions, has he?
Mr. Redwood: I do not remember ever being so incautious as to name a figure as a proportion of GDP. The amount of spending depends entirely on the state of the cycle, the growth rates, the public spending needs and so forth, and those judgments have to be made from year to year, much as the Government are trying to make them this year, for the economy in its current state of play. I have no idea what judgment it would be appropriate to make for 2011, which may be the first Budget year for an incoming Conservative Government. It would be wise for my right hon. and hon. Friends on the Front Bench to continue to be a little cautious about making pledges on such matters until we are nearer that point, when we will have more information, as the Government do.
Ed Balls: I am slightly worried that the right hon. Gentleman is backing off from his previous positions. His principled approach has always been to advocate cuts in business taxation. For example, he has advocated the abolition of capital gains tax and stamp duty. I am worried that his radicalism is being blunted by external pressures. I hope that he can reassure us that he will continue to hold his previous principled positions.
Mr. Redwood: I have been crystal clear with the House: my personal position is that I would like to get rid of all those taxes that I have often argued we should abolish. I am asked to listen to all the different strands of opinion within and outside the party, and all the people who are giving evidence, and then to produce a policy report making recommendations to an incoming Conservative Government. In due course, I will publish that report. I assure the Economic Secretary that the report will be true to my principles, which are that lower taxes generate a more successful economy and that we need to move to lower taxes. He will have to wait for the final detail, as will I, because it is not only I who am involved in the production of the report. It has to be well judged and it has to speak to the wider nation. It will not recommend doing, in the short term, everything that I have personally pledged myself to do, but it will not rule out doing those things if the world turns out to be a really exciting and good place.
The Financial Secretary to the Treasury (John Healey): The right hon. Gentleman is whetting our appetite. Will he tell us when his report will be published?
Mr. Redwood: No, that is one thing that I cannot tell the impatient Minister, because the publication of the report is not in my control. The timing of the publication will be decided by my right hon. and hon. Friends in the shadow Cabinet, who will publish it when they see fit. They may, by then, already have considered it and thought about their response, or they may wish to publish some of it in advance; clearly, there is a good audience out there, and I am happy, in the remainder of my speech, to give the Government some advice on the Finance Bill.
John Healey: The right hon. Gentleman has been very kind in giving way, and I thank him for that. May we assume that it is not a question of when, but if, the report is published?
Mr. Redwood: No. I am sure that the report will be published; the issue is whether it will be published as a serial or in one glorious complete whole. Who knows? There may be so much demand that we need to publish it chapter by chapter, which might delight the audience and allow Ministers more time to read each piece and deal with it as they see fit. They could go through it and decide, “Those two ideas we will adopt; those three are rubbish.” I might recommend to my right hon. Friends that to make the Government’s life a bit easier we should give them more time by publishing it in bits and pieces. We have already published one or two things, which I am sure Ministers have already read and are deciding what to do about.
Having dealt with global competition, the Opposition’s reasoned amendment goes on to talk about our dislike for penalising small companies with higher tax rates and a more complicated tax system—an issue that Liberal Democrat Members tried to draw me into a little prematurely. My hon. Friend the Member for Chipping Barnet (Mrs. Villiers) has already made a powerful speech about how unfortunate it is for small businesses that under this
Chancellor there have been so many changes in rates and so many different signals over whether small businesses are welcome.
In the middle phase of the Chancellor’s period in office we felt that he was keen to raise the rate of small business formation, which is a very good thing to do. He sent strong signals by offering the zero rate—one cannot send a clearer fiscal signal than that—and it clearly started to work. It was miserable of him then to start saying, “Gosh, we didn’t expect that people would actually incorporate,” or, “Look at this—so many people are incorporating that here’s a wonderful source of revenue.” Step by step, including in this Bill, he has gradually upped the rate until it is no longer attractive as an incentive, as was originally intended.
That is a great pity. It is incumbent on us, as tax legislators, to send strong and consistent signals, and if the Chancellor wishes them to work and get companies and individuals to respond as he chooses, they must be applied over a period of years. It is no good putting in an incentive in one year and then ditching it in the following year— [ Interruption . ] Do Ministers wish to intervene again, or are they just having a private conversation?
Ed Balls: I am happy to take the opportunity to continue this most enjoyable debate. The right hon. Gentleman says that we are raising the small companies rate to a level that is no longer attractive, but it is still one percentage point lower than what we inherited in 1997. Did we inherit an unattractive tax regime for small businesses?
Mr. Redwood: The world was very different in 1997. Taxes around the world were a lot higher in our competitor nations then than they are today. The Government have got to live in the modern world. That is why I said that we are in 2007, not 1992 or 1997. The world has much lower interest rates and, in the better countries, much lower tax rates. Our leading competitor nations are cutting tax rates to send exactly that kind of signal on incentives to enterprising companies and individuals. The Government should understand how quickly the situation is moving. The threat of India and China—although in some ways their success helps us—is very real. The Government must understand that if we wish to compete successfully we must move with the times.
We bequeathed to the Government an economy that was performing very well and was well down the table of high-tax regimes. We had one of the lowest-tax regimes among the serious countries. Under this Government, we have crept right up the table of high-tax regimes. That is not because the Government have increased business tax rates—on the contrary, in some cases they have cut them—but because other countries have cut theirs far more, so we are not nearly as tax-competitive as we were in 1997.
David Taylor (North-West Leicestershire) (Lab/Co-op): While the right hon. Gentleman is in reminiscent mode, could he remind the House—perhaps this is part of the leaden legacy—of what proportion of gross domestic product was public debt when this Government came to power in 1997?
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