The
Chairman: Yes indeed. I am sorry. The hon. Gentleman was
not here a lot earlier this week, and I am afraid the understanding
that I had was that we would reach the conclusion of our debates at a
reasonable time. That will clearly not be the case. How the hon.
Gentleman can utter from a sedentary position what he has done, when he
has just spoken for 50 minutes on only one new clause, I fail to
understand. I have a responsibility to hon. Members on both sides of
the Committee and I am deeply concerned. I give notice that I intend to
suspend the Committee for a supper break at approximately half-past 7.
We have another nine debates on new clauses. That could take us until
11 o’clock tonight. That is not the way in which I
believe the Committee should
proceed.
Mr.
Hammond: On a point of order, Sir Nicholas, you have
referred to my comment from a sedentary position specifically. It was
my understanding that it is not usual to refer to discussions through
the usual channels, but as you have done so, I would like to say
something about the discussions that I have had. We on this side
understand that the Government’s requirement is that the
Committee stage of the Bill be completed today and we have given the
Government an undertaking that we will allow that to happen. We have
not at any stage, as far as I am aware, given any commitment about the
hour at which that will occur, and I have not been asked by any Member
on the Government side to give a commitment as to the hour. It was
merely that, for the convenience of the Government’s management
of the business of the House, it was necessary to have the Bill out of
Committee today, and I repeat our commitment to achieving
that.
The
Chairman: If that is the case, the spokesman for Her
Majesty’s Opposition might have had the courtesy to advise the
Chairman accordingly. I have sought to liaise with the Opposition Whip
and the Government Whip and I was led to believe on Tuesday that we
would complete our deliberations at a reasonable hour today. Clearly, I
am a servant of the Committee and I will remain here as long as is
necessary, but I give an indication that I have responsibilities. I
also have to have a meal. We have already instructed the House
authorities to keep the Tea Room open, so considerable costs are
involved in what is going on. I personally look in a rather bad light
at a gentleman member of the Committee speaking for 50 minutes on a new
clause, however important the
subject. Mr.
Brooks Newmark (Braintree) (Con): On a point of order, Sir
Nicholas, you have alluded to the fact that we said that we would
finish at 4. I just want to repeat the point that my hon. Friend the
Member for Runnymede and Weybridge made: we did not say that we would
finish at 4. Also, as you are well aware, we suggested, and agreed to
stay for, extra time on Tuesday, but that option was not taken up by
the Government. We gave the option. We gave an undertaking to give an
extra 45 minutes at least on Tuesday, but it was not taken
up.
Mr.
Blizzard: Further to that point of order, Sir Nicholas.
Forty-five minutes was offered, not 45 minutes “at
least”.
The
Chairman: We have had enough recriminations. I can only
say that I am very saddened by what has happened. Previously, there has
been a constructive attitude and a very happy and genuine mood across
the Committee, but that has certainly been undermined. I think that it
has disappeared today and I deeply regret it. I call the Financial
Secretary.
Jane
Kennedy: I, too, am disappointed that after seven weeks of
what I believe has been good-natured debate, in which we have covered
many serious and detailed topics, we have hit the rocks at the last
minute. I certainly recall the hon. Member for Runnymede and Weybridge
saying to me at 10.25 on Tuesday morning that the Committee would not
sit beyond 7 o’clock on Tuesday whatever else happened. However,
we shall return to new clauses 13 and 14.
My hon.
Friend the Member for Wirral, West is absolutely right about what
happened to pensions. The most significant downward effect on the
health of pension funds came from stock market falls during the boom
and bust years, which we were subjected to when the Conservative party
was in power; from decisions by many firms to take a contributions
holiday, despite facing a rise in liabilities; and from rapid increases
in life
expectancy. We
have a strong record of helping pensioners, with spending around
£12 billion more on pensioners than if all we had done was
uprate the policies in place in 1997. Half of that additional spend
goes to the poorest third of pensioners. Both the PBR and Budget
documents already provide full details on measures that impact on
pensioners. Another document would only repeat those details.
I shall move
on to new clause 14. Our strategy since 1997 has focused on getting as
many people back into work as possible. We believe that work is the
best route out of poverty and being a Labour Minister for work is the
best job in the Government. We are committed to making work pay,
through improving financial incentives to work.
As for
requiring reports on impacts, the Chancellor’s statement of 13
May, which increased the personal allowances for 22 million basic rate
taxpayers in 2008-09 and reduced the number of households that lost out
from the Budget 2007, made clear that our aim was to continue the
sustained support for those on lower incomes in the future. That is
what we will be returning to—
Mr.
Hammond: Will the right hon. Lady give
way?
Jane
Kennedy: I will not give way because I think that we have
heard quite enough of the hon. Gentleman during the
debate. Producing
a report would add little benefit to the aim of supporting those on the
lowest incomes. The new clauses would merely require the Government to
duplicate what we already produce. The hon. Gentleman can have had no
reasonable expectation that his new clauses would have been accepted.
On that basis, I finish my comments.
Mr.
Hammond: The Minister did not reply substantively at all,
which is her privilege. She did not answer the question as to whether
the distributional analysis is
available and undertaken by the Treasury, and the Committee will note
that accordingly. Of course, we cannot force her to give us an answer
unless we pursue it with written questions or a freedom of information
request, but it would have been helpful if we had known the answer.
Having listened to the Minister’s response, and in view of the
hour, I beg to ask leave to withdraw the motion.
Motion
and clause, by leave, withdrawn.
New
Clause
15Report
on exemption from taxation of foreign
profits ‘(1) The Treasury
shall, before the publication of the 2008 Pre-Budget report, prepare
and lay before the House of Commons a report on the effects of
introducing a measure to exempt from corporation tax all dividends from
non-portfolio investments paid to UK resident
companies. (2) For the purposes
of this section, a non-portfolio investment is one where the UK company
holds at least 10 per cent. of the ordinary share capital of the
investee company. (3) The
report under subsection (1) shall include consideration of the effect
of such a measure
on— (a) the public
finances; (b) UK
companies; (c) the
competitiveness of the UK
economy; (d) the attractiveness
of the UK as a location for multinational
headquarters; (e) the impact on
repatriation of foreign profits back to the UK and the likely effects
on investment; and (f) the
extent to which special measures would be needed to protect against
diversion of profits through countries with a low rate of corporation
tax.’.—[Mr.
Hoban.] Brought
up, and read the First
time.
Mr.
Hoban: I beg to move, That the clause be read a Second
time.
The clause
covers an important issue in the context of the future direction of tax
policy. I know that the Financial Secretary is engaged in the debate to
see a way forward as chairman of a working party of businesses—I
think that there is a trade union member as well. I am grateful that
the Government have taken the issue seriously. When I raised it two
years ago in a Finance Bill debate, the reaction from Treasury
Ministers was that the companies were crying wolf, and that they were
not raising a genuine and serious concern, but seeking to put pressure
on the Government. I thought that the Treasury was unwise to draw that
conclusion, having learnt, from conversations with businesses and tax
advisers, that that issue had been on their agenda from an early stage.
Having renewed those discussions recently, I understand that businesses
are seriously considering relocating their headquarters owing to the
uncompetitive nature of the corporation tax regime in this country and,
in particular, the way in which it deals with foreign subsidiaries of
UK
companies. 6.30
pm Earlier
this year, Shire and United Business Media, which owns The Daily
Telegraph, The Sunday Telegraph and others, announced that
they would move their tax domicile from the UK to jurisdictions more
favourable
to multi-national companies with significant offshore interests. That
triggered a widespread debate in business circles, and a number of
companies indicated that they were seriously considering relocating
their tax domicile to other more favourable jurisdictions. That
announcement also triggered renewed interest in the Government and the
working party that the Minister chairs. The Government started a
consultation on the taxation of foreign profits and the participation
exemption, and debate in general revealed some of the complexities of
the issues involved in moving towards a participation exemption, where
UK tax is not charged on dividends remitted from overseas subsidiaries
to the UK. Of course, once the Treasury removes that tax, there is an
incentive for companies to move their operations to jurisdictions with
lower tax rates. Both we and the Government recognise that
concern. We could go
down one of two routes. First, we could build on the existing structure
under the control of foreign companies legislation, which has worked
relatively well, despite some of the challenges that it has faced from
the European Courts and companies seeking to use the provisions of
various European treaties to attack and undermine it. I shall not
rehash debates from previous Finance Bills, but the Committee will be
aware of cases involving Marks and Spencer, and Cadbury Schweppes,
which are symbolic of the way in which people have used European
treaties to undermine that regime. The concern of companies such as UBM
and Shire was triggered by the Government’s consultation
document, which relates to subsection (3)(f) of my new clause, which
deals with
“the extent to
which special measures would be needed to protect against diversion of
profits through countries with a low rate of corporation
tax.” We
could go down a second route: the Government’s consultation
document mooted the idea of controlled income, which we touched on in
an earlier debate on partnerships. Control of foreign companies rules
focus on entities, whereas the Government’s proposals looked at
income streams and distinguished two different sources: the first was
passive income such as dividends, interest, annuities, royalties and
rents. That was because of the recognition that they are often sources
of income with operations more susceptible to being structured—I
do not want to use the word manipulated—in offshore low-income
jurisdictions. The other income stream is active income, where the
income arises from trading activity. Of course, that is a much more
difficult source of income to structure, and move into a low-tax
environment. There are many more issues in deciding where to locate
trading operations. Whether one is talking about factories, offices, or
plant, there are a whole host of considerations that one might want to
take into account. It is more likely that decisions on active income
are taken in the much broader context of a genuine commercial decision,
rather than in relation to a form of tax structuring.
Many
businesses raised concerns about that. The issue goes back to how
effective we need to be, and what we need to do to prevent a diversion
of income. Many businesses felt that the rules proposed by the
Government were intrusive and expensive, and went against the grain in
relation to how businesses structure their operations and how they
report income from overseas entities into the UK. That potential
administrative or compliance
burden prompted a number of UK companies to decide to move their
operations overseas in advance of what they saw as being the direction
of travel in Government policy. When we
debate the issue of participation exemption and the taxation of those
companies, we need to think carefully about how we put in place the
right structure to prevent the artificial diversion of profits to
low-tax jurisdictions. That is an important aspect of thinking through
these changes. I am sure that it is something that the Minister and the
members of her working party are thinking about. If we get the measure
right, it will strengthen the UK as a place to do business.
In thinking
about the right reforms to introduce, we need to address the important
issue of the impact on public finance because, in the current
conditions, we do not want to introduce a series of reforms that cannot
be funded from tax revenues. It is difficult to think about the matter
carefully and understand what the likely costs will be. The challenge
is to understand what the cost of a participation exemption will be. A
few years ago, one firm of accountants estimated that it was about
£1 billion. That would clearly be a significant loss to the
Exchequer. It has also been said that that cost has fallen to about
£0.5 billion, and could fall further without Government
intervention. As the rate of corporation tax falls, the cost of the
participation exemption itself will also fall. It would be helpful to
hear the Government’s explanation, as it is one of the issues on
which they must be able to report when they consider the impact of
moving to a participation exemption. There are other interactions, too,
in relation to how they intend to tax foreign
profits. There
are two more matters that we would like the Government to address in a
report before the publication of the 2008 pre-Budget report are. I
shall draw them together for the ease of the Committee, and they appear
in subsections (3)(b) and (e) of the new clause. One concern that flows
directly from subsection (3)(e) is what is happening at the moment when
people choose not to remit foreign profits into the UK? If a company is
not prepared to pay the additional corporation tax on that remittance,
the profits it has made in overseas jurisdictions are in effect
stranded there. They are not necessarily used to benefit the operations
of the group as a whole. They may be stuck in a low-tax jurisdiction
where there are no investment opportunities to warrant the profits
remaining there, but the company is concerned that it will have to pay
an additional charge on that remittance, so it is not prepared to pay
the dividends into the holding company. The company will receive enough
dividends from other group companies to have sufficient reserves to pay
a dividend to its shareholders, but it will not go any further than
that. In
overseas jurisdictions that have gone down that route, there has been
an unlocking of those stranded funds, which have flowed back into the
parent companies. If my recollection is correct, that was tried in the
States. It was a temporary relaxation, and within a year something like
$1 billion flowed into the parent companies. In the case of the UK,
what would those parent companies do with the dividends? Would they
choose to invest them in UK operations, which would be a good way to
seed the growth of the UK economy? Would they feel able to use them to
expand in other jurisdictions? Would they decide, if the investment
opportunities in the UK were
already covered by their funds and they could not make better returns
with the remitted profits from overseas, to return the dividends from
overseas subsidiaries to their shareholders, in the form of the share
buy-back or a special
distribution? It
is important when looking at the changes that we understand their
impact on the behaviour of parent companies in the UK, because that
would provide a broader macro-economic backdrop against which to
consider them. In this country, we do not look at the dynamic modelling
of tax changes on tax revenues, and a static analysis is undertaken.
However, it would be helpful to understand what that macro-economic
backdrop is when justifying any decision to scrap the participation
exemption. I
want to touch on subsections (3)(c) and (d), which deal with the
competitiveness of the UK economy and the attractiveness of the UK as a
location for multinational headquarters. On both sides of the
Committee—and in the discussions and meetings that I have
participated in with the Economic Secretary—there is a
recognition that business is mobile, and that people, capital and
business can be moved around. The Economic Secretary and I see that
particularly in the context of the financial services sector, where
businesses can quickly move outside the UK, or into the UK. It is
therefore important that we have a tax system that reinforces our
competitive position and gives people a reason to come to the UK. Some
of that is about the headline rates, and some of it is about the
certainty, predictability and stability of the system. We have
elaborated on those themes in
Committee. We
also need to focus on the structure of taxation for multinationals. In
many of our constituencies, the bedrock of the business base is small
and medium-sized enterprises; all our constituencies have a long tail
of small companies. However, we are dependent on multinationals’
help in growing our economy, and if we are able to produce a
participation exemption that helps to keep headquarters of
multinational companies here, that is to our benefit. It is easy to
dismiss companies moving their headquarters overseas as only a few
people and a couple of offices, but it changes the mindset of the
company. The company then thinks about where to locate operations.
Perhaps its preference would instinctively be the UK, but if the
company locates its headquarters in Ireland, it might think that that
is not a bad place to do more business. We then start to see an erosion
of our tax base. Part of the challenge is to broaden the tax base, by
getting more companies into this country and ensuring that those that
we have do not go
overseas. 6.45
pm
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