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The Government must be aware that there is a price to pay for playing such political gamesa yet more complex system of taxation. We will now have 16 different personal tax rates in the UK, including the rates levied on trusts and dividend income, and a top marginal tax rate of more than 60 per cent. Specifically, may I ask the Financial Secretary to tell the House this evening what the Governments response is to the concerns raised
about the trust tax rate? In aligning the trust tax rate with the new, higher 50p rate, HMRC made the assumption that all beneficiaries of trusts are people who are likely to be subject to the top rate of income tax. That is simply not the case. Although it may have been a broadly reasonable assumption when the top rate of tax was 40 per cent., it is an unreasonable assumption when the top rate of tax affects only those people with an income of more than £150,000.
There will be many beneficiaries of trusts with incomes far below the £150,000 threshold whose income will now be subject to tax at the 50 per cent. rate. That undermines still further the legitimate use of trusts, and should be carefully considered. May I suggest to the Financial Secretary that, as was the case with the initial stab at changing the non-doms regime, announced in the 2007 pre-Budget report, Ministers may have been the victim of long-standing HMRC agendas that are hostile to trusts per se?
Mr. Philip Dunne (Ludlow) (Con): My hon. Friend is making an extremely powerful point. Does he acknowledge that the types of people whose assets are held in trust and who might be caught would include victims of injuries who have been the beneficiaries of compensation arrangements? Many of them may be miners, and may suffer from appalling disabilities. Their assets are held in trust to protect their financial position. Most of them would not be higher-rate taxpayers.
Mr. Hammond: My hon. Friend makes an important point. I am scratching to the bottom of my memory; I seem to recall that we addressed the issue of trusts for disabled people in a previous Finance Bill, but I am sure that the Financial Secretary will want to clear up the issue when he addresses the broader point in his winding-up speech.
Rob Marris: I wonder whether the hon. Gentleman could clarify a matter for me. I understand that he decries the complications that the proposals will introduce. He makes the Laffer-curve argument that the 50 per cent. tax rate may be counter-productive in terms of tax revenues. I have to say to him that I support it for reasons of social equality, and because of what it says about our society. May I ask him to answer a question on behalf of his party? If he is concerned that the proposals will lead to a drop in tax revenues, and will over-complicate the tax system, is his party committed to dropping the 50 per cent. tax if it gets into government? If not, why not?
Mr. Hammond: As the hon. Gentleman well knows, we are not making any commitment to repeal any of the tax increases proposed by the Government, because of the extraordinary fiscal circumstances in which we find ourselves, with which any incoming Government or, indeed, any re-elected Government would inherit and would have to deal. Clearly, it would be absurd to say that any Government of the day would not look at the yield produced from a tax measure or a series of tax measures.
My hon. Friend the Member for Braintree (Mr. Newmark), quoting from the Institute for Fiscal Studies, suggested that the top rate of tax might produce a sum approximating to zero. In fairness, that comment was made before the suggestion that changes would be
made to the pension tax relief that was available. It is probably fair to say that the yield will be less eroded as a consequence of the closing of that obvious loophole, which will be readily available to all those on high incomes who are subject to the PAYE system.
Clause 7 sets the main rate of corporation tax at 28 per cent. and clause 8 holds the smaller companies rate at 21 per cent., postponing the Governments planned increase to 22 per cent. We on the Conservative Benches believe that British business needs a shot in the arm to stimulate investment in the recoverya psychological as much as a fiscal boostso we will put forward our revenue-neutral package of proposals to reduce the main rate to 25 per cent. and the smaller companies rate to 20 per cent., paid for by reducing complex allowances and reliefs.
In 1997 Britain had the fourth lowest rate of corporation tax in the European Union. Our rate has gone down since then, but we have been asleep on the job while all around us are busily sharpening their competitiveness, and we now have the 19th lowest rate in the EU. Part of the plan for Britains economic recovery must be restoring that tax competitiveness and sending a clear signal that the UK is determined to remain at the front of the pack of competing business locations, not bringing up the rear. That message should have been at the heart of the Bill, yet it is spectacularly missing.
I turn to clause 9, which extends the failed VAT reductionthe fiscal stimulus which, despite what the Chief Secretary said, has stimulated no onefor a further month, to 1 January 2010. The right hon. Lady quoted Tesco stating that the VAT reduction had been beneficial, especially to small businesses. My hon. Friends will know how much small businesses appreciate the concern that Tesco normally lavishes on their welfare.
My hon. Friend the Member for Bournemouth, East (Mr. Ellwood) tried in vain, as did other Members, to get this question across to the Chief Secretary. It has nothing whatsoever to do with fiscal stimulus; it has to do with the practicalities of changes in the tax regime. We genuinely cannot understand why the Government have not listened to the universal view of retailers that, regardless of the merits or otherwise of the VAT reduction, changing it back at midnight on 31 December, in the middle of a public holiday and in the middle of the busiest sales period of the year, would be a disastrous mistake.
The change could be made on 1 December or 31 January. Of course there will be fiscal implications arising from either of those dates, but have the Government not taken on board the simple practical point that retailers cannot manage the change in the middle of a public holiday, in the middle of the busiest sales period of the year?
Mr. Jeremy Browne: The hon. Gentleman makes a fair point, to which I hope the Treasury Minister will respond, but there are fiscal implications, even if the delay is a few days. Currently, the cost of the VAT reduction to 15 per cent. is about £1 billion a month, so were we to defer by only three days, as suggested by the hon. Member for Bournemouth, East (Mr. Ellwood), the approximate additional cost would be £100 million. Of course, with new year sales, it might be even higher.
Mr. Hammond: The hon. Gentleman makes half the point. The date could have been left as 1 December, as the original legislation provided, without the intervention of clause 9. This is a practical point. There is no party politics involved and it is not an issue of great principle. It is the kind of point that the House of Commons ought to be able to sort out in a Committees considerations of such a Bill. It means listening to what practitioners in the outside world are saying, and finding a practical solution.
There is a more substantive question that I would like to put to the Chief Secretary. If, despite the horrendous fiscal position that the country is facing, the Government are determined to borrow and spend the extra £7 billion or so that the scheme will cost between now and 31 December, does she, in her heart, believe that at a time of impending price deflation, a VAT cut is the best way of transmitting that sum into the economy? The hon. Member for Chorley (Mr. Hoyle), the right hon. Member for Birkenhead (Mr. Field), the hon. Member for Taunton (Mr. Browne) and the right hon. Member for North Tyneside do not believe it. I am fascinated to know whether the right hon. Lady genuinely believes that that is the best way of using a given sum of money.
Clause 11 brings in the increased duties on alcohol, but in the form of an across-the-board hike. Since the last Budget, tax is up on beer by 8p a pint, on wine by 28p a bottleand as almost all wine consumed in this country is imported, Labours devaluation has added a 30 per cent. premium on top of thatand on a bottle of spirits by 47p. During the Bills Committee stage, we shall attempt to force the Government again at least to consider and evaluate a smart alcohol taxation regime, focusing on the greatest burden associated with problem drinking, such as alcopops, high-strength beers and ciders, and using the proceeds to reduce duties [Interruption]. I appreciate that the hon. Member for Taunton represents a constituency where any attack on cider may be unwelcome, but perhaps he should look at what has happened in Australia and Germany, where that approach has been used to good effect. The Government should seriously consider introducing such a system here, instead of using health concerns as a cover for a blanket tax rise on responsible drinkers.
Clauses 15 and 16, which the Chief Secretary did not mention, set the fuel duty rates for this year, with a two-stage increase [Interruption.] I am sorry; the right hon. Lady did mention them, but she did not give them the kind of prominence that she afforded to the increased taxes on higher earners. Perhaps that is not surprising because, according to the polls, the fuel duty increase was the single most unpopular measure in a generally pretty unpopular Budget.
Oil prices are significantly lower now than they were at their peak, and we believe that the Government have missed an opportunity not just to impose an extra tax on motorists, but to consider a fair fuel stabiliser, as proposed by my hon. Friend the shadow Chancellor. The Government are proposing to increase taxes now, when oil prices are somewhat lower. They have presented no mechanism for protecting the motorist against the effects of pump price increases if oil prices rise again. [Interruption.] I do not know why the hon. Member for Wolverhampton, South-West (Rob Marris) finds this so amusing.
Instead of a flat increase, as the Government propose, it is a perfectly sensible proposal to introduce an increase now that is linked to a set baseline price of oil, so that as the price of oil increases the Government moderate the level of tax and mitigate the increase in price at the pump that the motorist and the business user paychanged perhaps every six months. [Interruption.] I do not think that the Chief Secretary is in a position to start talking about regular increases in fuel duty, when she has two pencilled in for the next six months in her Budget.
On the other side of the coin, the Government would receive higher revenues from North sea oil taxation as the price of oil rose. That is a mechanism for stabilityless volatility in the price of petrol at the pump, less volatility in Government revenues as oil prices fluctuate.
Rob Marris: I am grateful to the hon. Gentleman for his usual generosity. What I find amusing is this kind of groundhog day; we sat through the Conservative party making the same proposal, or what sounded very much like it, 12 months ago with the fuel duty stabiliser. There was a kind of shock-horror among Conservatives a few months later when they realised that as a result of their fuel duty stabiliser proposals, certainly as put forward last year, a marked drop in the price of oil on world markets would have left motorists in a far worse position. If the hon. Gentleman is outlining a different fuel duty stabilisermark IIthis year, perhaps he could put a little more flesh on the bones, because it sounds awfully like last years disastrous proposal.
Mr. Hammond: It was not a disastrous proposal last year and it is not a disastrous proposal this year. It is a long-term proposal and, yes, the hon. Gentleman is absolutely right: as oil prices fall, the duty at the pump will increase; as oil prices rise, the duty at the pump will decrease, protecting families from fluctuations in the price of oil at the pump and the Exchequer from fluctuations in revenues. It is a perfectly sensible proposal, and we shall go on making the case for it until the Government finally give up, go to the polls, move over and let someone else sort out these problems. We are consulting on the details of its implementation, and a great deal will depend on the level at which one fixes the baseline oil price. I absolutely concede that point to the hon. Gentleman, but I urge the Government at the very least to consider the proposal. I am certain that the Treasury has in fact considered something similar. If the hon. Gentleman wants to make a submission to our consultation, I guarantee that it will be given VIP treatment when it is received by the shadow Chancellors office.
Clause 20 deals with bingo duty, to which my hon. Friend the Member for Beverley and Holderness (Mr. Stuart) has already referred. It increases the duty by almost 50 per cent., which is a blow to an already beleaguered industry, although the Government say that the increase is offset by the impending removal of VAT as a result of a VAT tribunal decision that is in the final stages of resolution in the High Court. The industry has long campaigned for the removal of VAT, which is not levied on other forms of gambling, but Ministers, facing defeat in the courts, appear to have pre-empted the legal process and neutered its likely result. The industry is horrified, and they were even more horrified to hear the Financial Secretary on 23 April describe the package as welcome to the industry. I assure him that
it is anything but. If that is indicative of the level of communication between the Treasury and the industry that it regulates, we have a bigger problem than I thought. I hope that in his winding-up speech he will confirm that he is now under no illusion whatever about how wrong he is on that count, and that he will set the record straight. I know that Members from all parts of the House will want to say more on the issue during the course of the debate.
I hope that the Exchequer Secretary, since she is present, might also take this opportunity to intervene and explain what has changed since a Westminster Hall debate on 25 February in which she told the House that
tax regime would not be appropriate.[ Official Report, 25 February 2009; Vol. 488, c. 130WH.]
Mr. Ellwood: I am very grateful to my hon. Friend for allowing me to intervene on this important subject. Some 8.5 million people play bingo every year, one third of bingo operators or companies are under threat due to the 46 per cent. tax increase, and I urge the Minister, through my hon. Friend, to reconsider what is happening. This is not just about dear old ladies who go out, although it is their one evening out all week. If such places shut, the social fabric of many communities will change, and the Government ought to reconsider the matter.
Mr. Hammond: My hon. Friend articulates the case passionately, and many Members from all parts of the House look at the challenges to the bingo industry and pubs in the same way: a vital piece of the communitys infrastructure is in jeopardy, and that will change for ever the nature of the towns, villages and communities in which we live.
Clauses 23 and 24, I am pleased to say, introduce a welcome if limited carry-back of losses for an extra yearrestricted to £50,000and the accelerated first-year capital allowances for one year only. Those measures are welcome, but because of the lack of available credit, many small and medium-sized enterprises will be unable to take advantage of the incentive to invest, even if they see market conditions improvingsomething that yesterdays CBI figures suggest is still a way off. I say to the Chief Secretary that fiscal incentives are fine, but the plight of many, if not most, of those companies is rooted in the credit squeeze, and until they and their customers can secure access to normal lines of credit on normal terms, we will not see a recovery. It is true that quantitative easing is forcing money into the system, but a massive public debt issuance and the continued solvency crisis in the financial sector ensure that very little of that easing is getting past the Government and the banks and out there to the SMEs in the real economy that so desperately need it.
Clause 27 makes some minor changes in respect of venture capital trusts. The Government will be aware of calls for a more radical approach, expanding the scope
of such trusts to allow them to invest in a wider range of companies and in the secondary market, and helping to provide the liquidity that is currently absent. Despite the rhetoric, the Government have not resolved the crisis in credit markets, and they have failed to get normal bank lending to SMEs flowing again, as banks unsurprisingly focus on rebuilding their balance sheets over supporting their customers.
However, here is a suggestion from industry to improve access to a source of equity capital for SMEs, especially those listed on the alternative investment market, and to deepen the market in such equity capital by including secondary market activity in the scope of VCTs. I raise the issue because the European Union recentlyI think it was only last Wednesdayapproved venture capital trusts for state aid purposes, and the Governments position to date on VCTs may have been partly driven by an uncertainty about whether any different approach would be permitted under state aid rules. I therefore hope that the Financial Secretary can this evening clarify whether the Government are able to consider going further to support SMEs in that way.
I welcome, too, clauses 34 and 35 and the schedules that they introduce, finally delivering the foreign profits exemption regime and the associated cap on interest deductibility that has been promised or threateneddepending on which way one looks at itfor some time. We believe that the measure will broadly help British-based international businesses in the recovery; it is just a shame that the context for that positive mood on corporate tax is a Bill that contains a raft of measures on other areas of the tax regime that is bound to make Britain less attractive and thus dilute that positive impact.
Business is generally satisfied with the proposals in clauses 34 and 35. The CBI has, none the less, laid down a marker whereby it thinks that further details could usefully be discussed before the interest cap regime comes into force, but the delay to its enforcement allows for that possibility. There is a lesson that we should learn from the package, because the initial proposal was vigorously opposed by business, which considered it to be damaging to Britains international competitiveness, but the end result has been broadly welcomed. That is an example of how proper consultation and debate between business and Government can deliver what this country needs both to make its tax regime competitive and effective and to allow us to maintain our prosperity in a globalising market economy.
The Financial Secretary should take an important lesson from that example. In future, Government should tell business well in advanceat least at the pre-Budget report preceding a Finance Billthe outcome that they require of a measure. However, the Government should not be prescriptive about how the measure is delivered; they should sit down with business to establish the best, least damaging and most competitiveness-enhancingif I can say thatway of achieving their objective.
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