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Rob Marris: The right hon. Gentleman mentioned earlier his personal views on certain taxation measures such as capital gains tax. He openly and commendably said that he thought that the policy review paper for which he was responsible may not embrace that in the short term. In respect of the Finance Bill, does he personally agree with fiscal incentives for the building of new nuclear power stations in the UK?
Mr. Redwood: No, I do not think that it could be done in this Bill because the homework on whether it would be wise and how much it would cost has not been done. The Government may need to organise a competition to find out what the effective subsidy is going to be. I am not persuaded that nuclear power can be done on an unsubsidised basis. The industry may tell me that it can be, but then state that the price of carbon needs to be reflected. I tend to look on that as a way of developing a so-called market-oriented subsidy. We need to tease out from the industry very quickly exactly how much it is talking about to establish whether it would be a good thing to spend that amount of money on this particular means of carbon saving or whether it is too expensive, so that the money could be better spent in other ways.
For the purposes of this debate, I am still an agnostic because I do not have all the information that I need. The Government have much better access to that kind of information, and they could trigger that information quickly if they were to license certain technologies as being acceptable from a safety and technical point of view, and if they would say that, in principle, they were prepared to give planning permission for the nuclear power stations. They could then ask the industry what it would need, and we could find out whether this was a wonderful deal that we should all accept or a lousy deal for the taxpayer that we would not want to accept. We could also tease out more information about the other risks that some of our constituents are worried about, such as how safe the technology is and how good the waste treatment systems now are. One cost that has to be wrapped up in the whole envelope is the long-term cost of closure and of handling the necessary waste. That could best be teased out by market competition, and I recommend that course of action to the Government to provide a basis of fact for determining these issues.
The Finance Bill invites us to legislate for three different years. This is a strange novelty. I presume that it is being done because this is the Chancellor of the Exchequer’s testimonial Finance Bill, and because he wishes to tie the hands of his successor in a number of ways and not expose himself to flak in others. For example, we are invited to settle income tax rates only for 2007-08. We know that the Chancellor is a very fair-minded man who likes to work closely with his colleagues, and we have been told what he would like the rates to be in 2008-09. Should the new Chancellor decide that he did not like the rates recommended by the outgoing Chancellor, he would presumably be free to change them. I would be happy to give way to the Economic Secretary to the Treasury if he knows something different, but I assume that that is why we are not legislating for those further rates. There is a degree of doubt; the new Chancellor might take a different view and decide that such rates were inappropriate.
We are being invited to legislate on corporation tax for the financial year 2008. We may legislate on small companies’ rates and fractions for 2007, but when it comes to inheritance tax, we can apparently legislate for the new Conservative Government, because we are invited to legislate for rates and rate bands for 2010-11. I do not know whether Ministers negotiated these proposals with my hon. Friend the shadow Chancellor, but perhaps they should have done so as a matter of courtesy, as it is quite a novelty to legislate so far ahead, long beyond the time when this Government could avoid a general election. While I am happy that we are being asked to legislate with a view to raising the threshold for inheritance tax, it would be more sensible to leave open until 2009-10 how high we should go. Perhaps £350,000 will not be enough by then. Perhaps we shall be able to afford a little more. That amount would not buy a one-bedroom flat in the centre of London today.
Paul Farrelly: Is the right hon. Gentleman implying that he foresees the economic boom and growth in the country continuing until 2010-11, and house prices continuing to rise?
Mr. Redwood: It is quite possible that house prices will be higher in 2010 than they are today, but I would not call the present economic conditions a boom. That illustrates the fantasy world in which some Labour Members live. They really must accept that an inflation rate of 4.8 per cent. is a disgrace. It is far higher than that of all our leading competitor nations. We must compare ourselves with the world as it is, not with the world as it was 15 years ago when everyone was performing rather less well than they are today. That inflation rate is too high. Our interest rates have been consistently higher than those of Japan, the United States of America and euroland throughout this Chancellor’s watch, and they are still at the high end world wide. When companies think about where to borrow, Britain is not the best place to go, by quite a long way.
David Taylor: The right hon. Gentleman mentioned Japan. Will he remind the House of Japan’s growth rate at the time when its interest rates were effectively zero?
Mr. Redwood:
It is true that, at the beginning of the period when Japanese rates were zero, Japan had no growth and that, once or twice, it was even going backwards, but that is not true today. Japanese interest rates are still only a fraction above zero, yet Japan is growing quite quickly by the standards of the advanced countries. The hon. Gentleman should not be so complacent. We have heard much complacency from Labour Members in this debate. They have consistently made two claims. The first is that everything is now wonderful, thanks to this Government, yet they have refused to look at how we are doing against the international background. The second is that the Conservatives are not allowed to say anything, because things went wrong in 1992. I have gone over that subject endlessly: yes, we know that, we have said sorry, and Labour Members should learn from those mistakes as well. They shared those mistakes, yet they have never had the courage to admit in this House that they got it wrong in exactly the same way. It did not
happen on their watch, so of course they have not paid the price that we paid, but we have paid that price. Would they really like us to spend all our debating time going on about the winter of discontent, which happened on the watch of a previous Labour Government? I do not do that, because there is no point. It was a long time ago.
Paul Farrelly: I might have missed it—it might not have been reported—but will the right hon. Gentleman remind us of when the right hon. Member for Witney (Mr. Cameron) said sorry? As I recall, he was a special adviser to the Chancellor of the Exchequer in 1992.
Mr. Deputy Speaker (Sir Michael Lord): Order. Historical background to a debate is always interesting, but I think that we ought to come back to the Bill before the House.
Mr. Redwood: I agree, Mr. Deputy Speaker. Of course, a previous Leader of the Opposition made such an apology, but it is no longer relevant because the world has moved on.
John Bercow: In suggesting that some tax rates might be particularly short-lived, my right hon. Friend raises the enticing possibility that the decision to scrap the 10p rate might be reconsidered. Can he readily envisage a time when people existing—I use the word advisedly—on the minimum wage and perhaps earning less than £10,000 a year might pay no tax at all?
Mr. Redwood: That would be a very enticing prospect, but I do not think that it is about to happen any time soon under this Government. There is a serious problem for the incoming Chancellor of the Exchequer. If he or she meekly accepts everything that has been laid out for next year’s Budget in this year’s Budget, people will say that this man or woman is not a serious Chancellor of the Exchequer, that they have no independent judgment and that they are just a lackey of the Prime Minister. If, however, the new Chancellor were to go next door and say, “I’ve been thinking hard about this. Too many Labour Members don’t want the 10p band abolished. We’re going to have to keep it”, they might get a very frosty answer from the person who has just given them the job.
The present Chancellor has unwittingly made life difficult not only for his successor but for himself, because it will become a test of whether the new Chancellor has any bottle, substance or depth: whether they meekly accept all the measures that we have been told about—some of which will not have been legislated for—or whether they will see the need, in the probably different circumstances of next year’s Budget, to make changes.
I put that forward as an analyst; I am not making a party political point. It is not my problem but one created entirely by the Chancellor. What he thought was a clever move—doing two Budgets in the same year—will turn out to be one of his mistakes. It will place his successor in an impossible position and the journalists will soon start to say, “Surely this is a test of whether the new finance team at the Treasury have any independence of judgment and can adjust these
things.” It is unusual in a system based on annual judgments about the state of the economy and taxation, to make judgments a year ahead—or several years ahead, in the case of the judgment on inheritance tax.
I have been clear in saying that we need to set a course and stick to it without chopping and changing. We should not offer a tax incentive one year and withdraw it the next, because that is difficult for people to follow. But I have also said that I do not want our Front Bench to set out detailed tax proposals for three or four years hence. That would be too difficult to gauge because the world is too uncertain. It is surprising that, in the case of at least one tax in this Budget, we are being asked to legislate for the next decade. That seems premature, even though the movement is in the right direction and very welcome.
I shall conclude my brief remarks— [ Laughter. ] My brief remarks have been slowed down by many interventions. I conclude with this summary. Labour Members are far too complacent. It no longer serves proper debate to go back over things that happened 20 years ago—Attlee was not very good either, but we are too polite to mention it—and we now need to discuss the current state of the British economy. Interest rates are too high, inflation is too high and taxes are still too high. We are not competitive when compared with the best countries around the world, and some patient work now needs to be done, in the way that I have suggested, to put those things right.
8.19 pm
Mr. David Gauke (South-West Hertfordshire) (Con): It is a great pleasure to follow my right hon. Friend the Member for Wokingham (Mr. Redwood), who gave a splendid speech. He tried valiantly to remain in order and discuss the subject matter of the Finance Bill, despite frequent interventions tempting him in other directions. Indeed, it was a pity that his speech came to an end just when he was getting into his stride.
This has been a curious debate because, in my limited experience in the House, debates on Finance Bills are often closely related to the Budget debate. Finance Bills usually implement the key measures in the Budget but, on this occasion, that is not quite how it has worked, because many of the controversial headline measures in the Budget will be implemented not in this Finance Bill but in future ones. Although the Chancellor joked in his Budget statement that he did not have any intention of performing the roles of Chancellor and Prime Minister simultaneously, as Mr. Gladstone did, it appears that to some extent he has done his successor’s job in advance, as he has already written large chunks of the next two Finance Bills. It is clear—and my right hon. Friend the Member for Wokingham alluded to this point—that he will take the role of First Lord of the Treasury extremely seriously. Indeed, I wonder whether the term, “Chancellor of the Exchequer”, will fall into disuse and, for the next two or three years, the occupant of No. 11 Downing street will be known as the “Second Lord of the Treasury”.
It is customary for the Select Committee on Treasury to produce its report on the Budget on the day on which the Finance Bill receives its Second Reading. As
the only member of the Treasury Committee to attend today’s debate, I believe that it is worth drawing the attention of the House to that report, as the hon. Member for Falmouth and Camborne (Julia Goldsworthy) did. There is one part of the report to which I should like to refer—the Chief Secretary referred to it, as did the right hon. Member for Birkenhead (Mr. Field)—as it deals with the evidence that the changes announced in the Budget will result in 5.3 million households being worse off, principally because of what is often referred to as the abolition of the 10 per cent. band but which, perhaps, we should refer to as the doubling of that band to 20 per cent.
In evidence to the Committee on the Wednesday, the figure of 5.3 million was more or less confirmed by a Treasury official, who said that it was in the right region. I suspect that the Chancellor did not appreciate that answer a great deal, because the next day that official, Mr. Mark Neale, was due to join him in giving evidence to the Committee but, at very late notice, he was withdrawn. It would appear that that answer, along with one or two others which, at the time, the Committee thought were helpful, were rather too open and transparent. I hope that Mr. Neale is well and has not damaged his career prospects in any way.
The Chancellor made two arguments against the 5.3 million figure used by the Institute for Fiscal Studies, the first of which concerned the impact of increases in the minimum wage. Having looked at the figures, I understand that the number of people earning the minimum wage who are likely to be losers under the Budget is, on the basis of a parliamentary answer that I received earlier this week, 171,000 at the absolute maximum. Clearly, that is not a substantial number, given that 5.3 million households will be worse off. The Chancellor’s second argument was that there would be an increase in the take-up of working tax credit. No particular evidence was provided as to why that should be the case, and we will obviously watch that figure very closely to see whether there is evidence of increased take-up.
I want to concentrate on the issue at the heart of the Finance Bill: corporate taxation, which has been touched on by right hon. and hon. Members. Government policy in that area is, to some degree, inconsistent and incoherent. First, there is inconsistency in the Government’s approach between mainstream corporation tax and small business corporation tax. There will be a cut in the rate of mainstream corporation tax not this year, but next year, as well as the abolition of certain allowances. It would be churlish to be entirely critical of that, as there are arguments for doing so. Greater simplification is an important objective in our tax system, and I think that I have heard Government spokesmen say that they were doing so partly for simplification reasons. I do not know whether the Government consider that simplification is an important matter in taxation policy. If they do, they have not been successful in achieving it in the past 10 years. None the less, I welcome that change.
While the Government have moved in one direction on mainstream companies, they have moved in the other direction with small companies, as the rate has been increased and allowances have been reduced.
Before turning to that in greater detail, and although, as I said, I welcome the proposal on mainstream companies in principle, I should like to ask the Financial Secretary a couple of probing questions. Some of the evidence that the Treasury Committee received suggested that some companies will clearly benefit—services will generally benefit—whereas other companies that rely on capital allowances will not be favoured and will in fact suffer, including manufacturers, farmers to some extent and, as was particularly highlighted, property infrastructure providers, who will lose out. It is worth asking one or two questions in that context.
First, if we are looking at major infrastructure projects, the Olympics immediately spring to mind. Will companies that have been contracted to develop infrastructure projects in the next few years for the 2012 Olympics lose out as a consequence of the changes to capital allowances? If so, is that something that they must bear or is it possible that contracts will be renegotiated? Indeed, could the financial stability of those companies be put at risk? Certainly, part of the evidence that the Select Committee received suggested that there was a potential problem.
Secondly, there are concerns about private finance initiative projects. Lawyers have put it to me that some of the contracts—by no means all of them—entered into for PFI projects contain terms whereby, if capital allowances are changed, the consequence would be borne not by the contractors but by the Government, which may have an impact on the public finances.
Adam Afriyie (Windsor) (Con): Decisions to invest in capital equipment are made over a fairly long time scale, whereas the allowances are introduced from 1 April for the following year, and some are extended. Does my hon. Friend share my concern that it will therefore be fairly difficult for many small businesses to take advantage of those allowances?
Mr. Gauke: I shall turn to the position of small businesses in a moment, but my hon. Friend raises a legitimate concern: where allowances exist for 25 years or so, long-term decisions are made; any change causes a certain amount of disruption and uncertainty, and there will be losers who may not have anticipated such change. I was raising the issue of changes in allowances that may have been anticipated, which may impose an additional contractual obligation on the Government. I would be grateful to know from the Financial Secretary whether that is a matter of concern.
John Mann (Bassetlaw) (Lab): The value of the hon. Gentleman’s contribution would be increased were he to give specific examples of the companies to which he refers, both in relation to the Olympics build and PFI contracts.
Mr. Gauke: I suspect that such contractual matters are, to a large extent, confidential. I have been told by lawyers who specialise in such matters that the concern exists. I am not making these remarks in a hostile or aggressive way, but further inquiry by the House about such costs would be worth while. At this point, one cannot realistically say that a particular contract will incur a liability, but I would be grateful if the Government were to shed light on that.
John Mann: Many of the documents, especially PFI documents, are in the public domain, and I have studied large numbers of them, as they happen to be more concentrated on my constituency than any other in Britain at the moment. Is not there a danger that the hon. Gentleman is putting up an argument that he cannot substantiate with precise examples? Is not he putting up an Aunt Sally and knocking it down with vague generalisations rather than specifics? As this is a Finance Bill, would not it be better to give specific examples on both the Olympics build and PFI contracts?
Mr. Gauke: The hon. Gentleman is missing my point. I am making inquiries of the Government about concerns, which have been raised, first, with the Treasury Committee, and secondly, in private, that certain aspects of the policy need to be examined. As I said, I am not being particularly critical of the Government on that point, but merely inquiring whether the policy has any downsides that have not previously been revealed.
Stewart Hosie: The problem with PFI is not simply the £169 billion-worth of payment liabilities, up from £142 billion 12 months ago, but that the PFIs themselves are not clear. The Red Book says:
“These contracts contain periodic reviews every 7.5 years and therefore the service payments are not fixed after 2009-10”.
Is not the problem that those are dreadfully expensive, and in some cases extraordinarily so, and yet there is no clarity whatever about the outstanding total liability or the capital cost that leads to that liability?
Mr. Gauke: The hon. Gentleman is leading me in the direction of a wider discussion of PFI, and he makes his point well. My intention, however, was to raise a specific point in the context of the changes to corporation tax allowances announced in the Budget.
The issue of small businesses is more controversial, and there is an incoherence in the Government’s approach to distinguishing between incorporated and unincorporated businesses. Admittedly, the Government face a difficult problem: incorporated businesses can distribute profits either through dividends or salaries. If they do so through dividends, the taxation system for companies will apply; if they do so through salaries, income tax will apply. That issue has become more substantial and difficult for the Government in recent years, as corporate taxes have fallen relative to personal taxes. That is partly because of cuts in rates. My right hon. Friend the Member for Wokingham said how the international climate has changed substantially for corporation tax rates. We have also seen increases in national insurance contributions. However, the differential between the two systems has increased substantially in recent years.
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