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We made it clear that the PBR was not to be taken as an indication of all tax policy areas in which the Government might choose to act. The policy has been supported by the conclusions of a recent investigation by the Treasury Committee, and it was not opposed by Opposition parties when voted on during deliberations on the 1998 Act.
Mr. Philip Hammond: The theory sounds credible, but the announcement about non-doms, for example, was made as a set of final policy proposals in the PBR, and the lack of detail invited people to speculate about how the policy would impact on them. This Chamber is not always the best place for a constructive debate, given the party political sensitivities involved, but many of the concerns that most upset the people who would be affected turned out to be less serious than was at first thought. The lack of technical detail caused people to speculate, and in many cases they assumed the worst. That was how the damage was done.
Kitty Ussher: We shall deal with the non-doms issue later, and my right hon. Friend the Financial Secretary to the Treasury will no doubt comment in detail on the entire process, but it was precisely by introducing our proposals in the PBR that we allowed time for work with stakeholders to make sure that we got the matter right.
The code also sets out that publication or consultation on all tax changesbackground tax issues as well as ratesbefore their introduction carries significant risks. The Opposition accepted that when the matter was debated in the House, and those risks include the possibility of significant forestalling activity by existing or prospective taxpayers that could result in a damaging impact on public finances. That activity could also lead to significant temporary disruptions to the behaviour of taxpayers and markets, and to wider disruption in financial markets.
The publication of a report containing information about the technical content of any non-rate tax changes proposed for inclusion in the following years Finance Bill would have significant risks, as I have just mentioned. It would also prevent the Government from taking action to address any avoidance or evasion activity arising between the PBR and the Budget that could have further significant ramifications for tax revenue and therefore a negative impact on public finances. The general pointthat the Government should consult through the PBR, where possible, and then implement proposals in the Budgetis correct, but new clause 17 would be unduly restrictive and against the national interest.
That is not to say that we do not want to consult at all. Quite the opposite: we currently have 29 consultative tax groups routinely working through HMRC. We are consulting far more than in previous years, and I hope that Opposition Members agree that that is a good thing. We had 38 formal consultations last year, and 80 per cent. were for the full 12 weeks. Consultation is definitely a good thing, and we want to do as much as possible, but new clause 17 would constrain us in a damaging way.
I turn now to new clause 18. Simplification is of course a stated priority when designing and reviewing tax policy, alongside having sound public finances and fairness. After work with business and tax professionals,
there is already a significant rolling programme of tax simplification in place, and the Government continue to use PBRs and Budgets to simplify the tax system wherever they can.
The hon. Member for Runnymede and Weybridge is quite wrong to say that the length of the tax guide indicates how complicated the tax system is. We want to ensure that our legislation is accessible and simple to users, which can involve increasing its length. [ Interruption. ] I will give the right hon. Member for Wokingham (Mr. Redwood) a specific example: the tax law rewrite project, which is a good example of a consultative, collaborative project and has been widely welcomed by industry, has increased the physical length of legislation but successfully simplified it and improved its clarity for legislators, tax professionals and the public. For example, 150 pages of this years Finance Bill will simplify and modernise the tax system. So the hon. Member for Runnymede and Weybridge makes a slightly incongruous point.
The Government already make advance announcements of many proposed simplifications to the tax system. I shall give a few quick examples. We launched three tax simplification reviews last autumn, with the Treasury and the HMRC working in partnership with business and tax professionals, to evaluate how a range of tax policies can be simplified. We received 600 representations. The initial outputs of those reviews were announced in the 2008 Budget, with further updates to follow this autumn. A further review to consider how corporation tax calculations and returns can be simplified was also announced in this years Budget and is being progressed.
This open approach provides the opportunities for the users of the tax system to have genuine input, through consultation, in the shape of those changes and/or the way they are implemented. Taken together with other announcements already made in earlier PBRs and Budgets, there is a far more extensive rolling forward programme of tax simplification in the public arena than ever before, including under previous Governments, and there is greater opportunity than ever for business and others to become involved in shaping the tax system of the future.
We believe that these new clauses are unnecessary. They would add little to an extremely extensive process of tax simplification. They would carry significant risks, associated with an absolute, definite requirement to publish or consult on every tax change before its introduction. I therefore ask the hon. Member for Runnymede and Weybridge to withdraw the motion.
Mr. Philip Hammond:
I have listened to the Economic Secretary, and I am afraid that I will disappoint her. She says that the Government have 29 consultative tax groups and that they have had 38 formal consultations. One is tempted to wonder how they got it all so wrong if they have so much consultation going on and so many experts apparently at their disposal. The experts whom we talked to knew that it would all go wrong. They knew about the non-doms thing and that the capital gains tax regime needed to be amended. They saw the problems with the 10p tax changes. They understood that the proposed income-splitting rules were unworkable and that the foreign profits consultation could have led to something that was disastrous for Britain. Indeed, we
have already begun to see the early effects, with the exit of one or two key companies from this country, as mentioned by my hon. Friend the Member for Billericay (Mr. Baron).
The Economic Secretary said that simplification was a priority for the Government and that a significant rolling programme of simplification was in place. We understand how easy it is for Ministers to be briefed by civil servants and to read out what they are told, but as we now have the longest tax code in the world, and given the complexity of our tax code, does she really believe that an effective simplification programme is in place? She says that longer means simpler and easier to access. I wonder whether the Treasury has bought a share stake in Tolleys tax guide; I can think of no other reason for her to believe that statement. I urge my right hon. and hon. Friends and right-thinking Members in all parts of the House to vote in favour of new clause 17.
In respect of qualifying business disposals within section 169H(2)(a) and (b),.
4A For paragraph 15 of Schedule 7D (taper relief on disposal of qualifying shares) substitute
15 For the purposes of claiming entrepreneurs relief on a disposal of qualifying shares, in applying sections 169I and 169S(3) the shares are treated as if they had been acquired when the original option was granted..
Mr. Hammond: This is a technical but important group of amendments relating to the detail of entrepreneurs relief. The abolition of taper relief in the capital gains tax changes that were announced in the pre-Budget report sent a very negative signal to business and, as I said in the previous debate, provoked a ferocious response from business organisations. Indeed, it created what I think is a unique coalition of all the business organisations: the CBI, the EEF, the British Chambers of Commerce and the Federation of Small Businesses. I apologise to any others that I have missed, but they all coalesced in an unusual wayperhaps not surprisingly, given that they represent disparate types of business. Faced with that wall of opposition, the Governments tactics were, to put it bluntly, opportunistic. They decided to try to buy off the most numerous but least expensive group of opponents. I am thinking of very small businesses, which are largely represented by the Federation of Small Businesses.
Let me be unambiguous: small businesses play a crucial role in our economy. Businesses that employ no one other than the principals or one or two people deliver a major part of the economic activity in our economy. Beyond that, small businesses play a crucial part in the social fabric of our society, and we support them entirely. However, the great majority of them are not going toindeed, have no aspiration togrow into large businesses. Many people establish small businesses as an alternative to other employment; running a small business gives them a different lifestyle and working style and the opportunity to succeed in a way that suits them.
Some people, of course, want their businesses to become the next Microsoft, but many do not want that. For the economic future of the country, we do not need only small businesses, which provide the bedrock of our economy; we also need to foster small but scaleable businessesthose that have aspirations to grow, create substantial employment and raise ever larger amounts of capital. We need to be concerned about those businesses because of their importance in creating jobs and prosperity and because the entrepreneurs who establish themsuch businesses are often in high-tech industriestend to be more mobile, so the option of relocating overseas tends to be more realistic for them.
When this debate first broke, I met a group of serial entrepreneurs. They had established successive businesses, built them up, sold them on and then started again. Some of them were quite youngin their 30s or early 40sbut already had a chain of business successes behind them. We have to encourage such people if we are to have a future in the globalising economy.
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