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Mr. Geoffrey Robinson (Coventry, North-West) (Lab):
We can take it for granted that everyone wants to reduce taxes when they can, and no doubt we will come on to
how much the proposal would cost and how the Opposition intend to pay for it. On the point of comparison, however, does the hon. Gentleman agree that our present 28 per cent. rate is distinctly lower than the various forms of corporation tax in France or Germany, taken together? They are our principal competitors, so there is not a great deal to be gained from the comparisons that the hon. Gentleman makes.
Mr. Hoban: The hon. Gentleman has long experience of business, both in the UK and overseas. He will understand the importance of remaining competitive and of always being vigilant about what other nations are doing. Tax has become an increasingly important issue when it comes to the location of businesses and, given that both capital and labour are very mobile now, we need to pay attention to it. It is not good enough to say, “Okay, France and Germany have higher rates than we do.” We need to look at the broad perspective, because there are other countries that are happy to compete for inward investment and people to join their work forces.
Mr. Robinson: Will the hon. Gentleman confirm the fact that we have a more competitive corporation tax rate than France or Germany?
Mr. Hoban: But we have also slipped down the table: our rate used to be the fourth lowest, and now it is the 19th lowest. We can pick and choose our comparisons, but the reality is that we have moved down the league table. That is what we need to reflect on. I would not want always to benchmark myself against the performance of the French and German economies. The Prime Minister has always boasted about how we have performed better than other countries, but I do not think that that is a very fruitful route to go down.
David Taylor (North-West Leicestershire) (Lab/Co-op): Is it not potentially misleading to concentrate solely on the rate of corporation tax? We have to include comparators such as incentives, concessions, allowances and the regulatory frameworks in other nations. The headline rate of corporation tax may or may not be a significant factor in decisions to invest or relocate.
Mr. Hoban: The hon. Gentleman makes an important point. I do not argue that my proposal is a magic bullet—that all our problems would be dealt with overnight by reducing the headline rate from 28 to 25 per cent. Within the confines of the debate, I hope to touch on that briefly later in my speech. He is right: there are other factors that businesses bear in mind when thinking about the location of their business. They include the predictability and certainty of the tax system, which again are perceived to be weaknesses in the UK tax regime. Our tax system is not seen to be as predictable and as certain is it could be. In attracting businesses to the UK and keeping in the UK those that are already here, I am the first to accept that the amendment is not a magic bullet.
Mr. John Redwood (Wokingham) (Con):
Is my hon. Friend, like me, concerned to see Shell, for example, deciding to locate its headquarters and taxable operations in Holland rather than here, because the Dutch have a lower tax rate? Does he think that the Irish rate is
extremely attractive to many businesses thinking about an English-speaking location? Is he worried by the flight of much of our insurance industry out of this country for tax reasons?
Mr. Hoban: My right hon. Friend makes some important points. I shall discuss later some of the companies that have relocated from the UK to overseas jurisdictions because of tax regimes and rates. A number of Lloyd’s-based insurers have moved to Bermuda, in part for regulatory reasons, but in part because of the rate of corporation tax in Bermuda. Canada is setting a clear policy goal of having the most competitive rate within the G7, because the Canadians recognise how easy it is to move from one jurisdiction to another, particularly among English-speaking countries, and how important tax is—perhaps following the Irish example, where a very low corporation tax rate was set to attract businesses into the country.
Mr. Hoban: People regard such tax policies as a way to gain competitive advantage and we need to bear that in mind. When I first spoke on a Budget from the Dispatch Box, in 2006, when the right hon. Member for Normanton (Ed Balls) was Economic Secretary, the Government dismissed this issue as though it did not matter. I thought that that was a disappointing, short-sighted view of the importance of tax to attracting businesses to the UK. The present Financial Secretary is much more aware of these matters and I expect us to discuss some of the reforms to the taxation of foreign profits later. The Government have been slow on the uptake, however, which has damaged our competitiveness.
I thought that the right hon. Gentleman wished to intervene earlier. Does he wish to do so now?
Mr. Timms: I am grateful for the invitation. The hon. Gentleman was getting on to firmer ground when he talked about comparisons with other G7 countries. I think that he will acknowledge that, since 1997, the UK has had the lowest corporation tax rate in the G7.
Mr. Hoban: But Canada has stated a clear ambition in that respect, and our competitors are to be found outside the G7 as well. The very fact that we have had to expand to the G20 demonstrates the importance of other nations as competitors to the UK.
Let me give a few examples of countries with lower tax rates than ours. My right hon. Friend the Member for Wokingham (Mr. Redwood) referred to the Netherlands, where the corporate income tax rate is 25.5 per cent. Norway and Sweden are in line with us, but Canada—a member of the G7—has a rate of 19.5 per cent.; our position in the G7 is therefore under threat from Canada. Within the EU, the Czech Republic, one of the new accession states, has a rate of 21 per cent., and Portugal, Greece, Denmark and Austria all have a rate of 25 per cent. Although the rate in Germany is a central Government rate, clearly there are federal rates, too. The headline rate in Germany is 15.83 per cent. There are a range of views. We can pick and choose, but the general picture is that we have moved backwards, not ahead, in the league tables; that is the point that we want to make.
4 pm
Mr. Geoffrey Robinson: Surely the point is that when we make a judgment we have to take the most meaningful comparators. We could include whatever country we liked from across the world, if we took what the hon. Gentleman says literally and took it to its logical yet absurd conclusion. Surely it is therefore right to consider the members of the G7, which are our real competitors in such areas. Perhaps focusing on that at this point of time, when we are at a crossroads, is not the most relevant thing to do. He has to see the matter in that context.
Mr. Hoban: I think that this argument about the G7 is a bit sterile and a bit stale. It says that the G7 economies are the only ones that we should care about, yet we held the G20 summit in London just last month because we recognised that the global economy is changing. Countries that were previously of relatively little economic importance to the world are becoming increasingly important to the shape of the global economy. We cannot rest on our laurels by assuming that the G7 will always remain in pole position; we cannot take that view. If that was the view that the hon. Gentleman took when he was in government, I am disappointed and surprised at him.
Stewart Hosie (Dundee, East) (SNP): I agree that the G7 argument is spurious. Workers in my constituency have recently lost their jobs to Hungary and China. We will never compete with those countries on wage costs, but does the hon. Gentleman not agree that a reduction in corporation tax simply helps to create a competitive package? It would at least make it a tough decision, and not an easy choice, for boards of directors to move their businesses elsewhere.
Mr. Hoban: The hon. Gentleman makes an important point about his experience of jobs in his constituency moving to China and Hungary. There may be situations in which we cannot compete with such economies, but we should make sure that we have the best possible competitive environment—an environment that will encourage businesses to invest in the UK, and ensure that businesses based in the UK see our tax system as a reason for being here.
Kerry McCarthy (Bristol, East) (Lab): The right hon. Member for Wokingham (Mr. Redwood) drew a comparison with Ireland. During my time on the Treasury Committee, its Conservative members frequently made comparisons with Ireland; they said that its tax rates and deregulation were important pull factors for companies that chose to locate there, or that it was always a threat that they would locate there. Given the economic situation in Ireland—businesses are closing down and leaving that country—is it really a valid comparison? Is that really the model that we should look to? Does that point not shore up what my colleagues on the Labour Benches have been saying—that we should be making a comparison with members of the G7 and our real competitors, such as France and Germany, instead?
Mr. Hoban:
Labour Members say, “The Irish economy has collapsed, so we should throw out the idea that low tax rates and a proportionate regulatory environment are means by which to achieve economic growth.” I know that that is a seductive argument, but part of the
problem for the Irish economy, as I understand it, is that because of the euro there were low interest rates when the economy was booming. There was an asset price bubble in Ireland, which has burst, as it burst in the UK. Some of Ireland’s problems flow from that, rather than from the fact that it has a low corporation tax rate or a particular regulatory environment.
We have to be careful to understand correctly the causes of success in Ireland, and the cause of its current economic problems. I would argue that its problems have to do with the macro economy, and the way in which the euro does not necessarily meet the needs of every economy in the eurozone—a point that my right hon. and hon. Friends would very much recognise. I suspect that even the Government recognise that point from time to time; that is probably why we are not in the euro. The convergence criteria have yet to be met, even if they are still being measured over in the Treasury.
Kerry McCarthy: Is the hon. Gentleman saying that the regulatory environment in Ireland is not a factor in its economic problems?
Mr. Hoban: I am not sure that it is the main cause, which is the asset price bubble that built up because credit was cheap, thus enabling people to borrow, pushing up prices in the housing market. That is exactly what has happened in the UK. We have a solution in macro-prudential regulation and in giving the Bank of England greater control over the amount of debt in the economy, which will tackle issues relevant to the asset price bubble at a time when inflation rates are lower. The hon. Lady may be right to identify the lack of macro-prudential regulation as a weakness in the Irish economy, but it is a weakness, too, in our economy, which is why reform is needed.
Rob Marris (Wolverhampton, South-West) (Lab): I am grateful to the hon. Gentleman for his usual generosity in giving way.
These are difficult issues, but from looking at the figures in the Red Book, I would imagine that the Treasury has taken corporate relocation into account, so if the amendment were accepted, tax revenues in the United Kingdom would drop by £3.7 billion, as a rough estimate. Why is the hon. Gentleman not pursuing the logic of his position in going for the OECD average of 22.5 per cent. corporation tax which, again on those figures, would cut corporation tax revenues in the UK by £6.8 billion? Where is the money coming from?
Mr. Hoban: I am grateful to the hon. Gentleman for raising the issue of costs, and I shall tackle it within the narrow confines of our debate. I think that that was his first contribution to the Committee of the whole House, but he has featured in previous Finance Bill Committees, bringing his detailed knowledge of explanatory notes to the fore. I hope that he will be tempted by the usual channels to serve on the Public Bill Committee again, because we missed him last year. It would be nice to see him again this year, taking part in debate on probably the last substantive Finance Bill before the general election.
It is important that we have a competitive rate of corporation tax. One of the great strengths of the UK is that we have an open economy, which is the basis on which the City of London, the global financial centre,
has grown. There has been a free flow of capital and people into London, which has made it a successful centre. The fact that businesses are prepared to move to this country means that—
Mr. Jeremy Browne (Taunton) (LD) rose—
Mr. Hoban: Perhaps the hon. Gentleman wishes to add his support to the point I am making.
Mr. Browne: I share the hon. Gentleman’s enthusiasm for the notion that the hon. Member for Wolverhampton, South-West (Rob Marris) should serve on the Public Bill Committee, but I would be interested to hear him develop his response to the intervention. Even if we were minded to support the amendment, there would be cost implications, so given that we have a budget deficit of £175 billion, is the hon. Gentleman confident that that cost gap can be bridged, and does he anticipate that the extra industry of the type that the right hon. Member for Wokingham (Mr. Redwood) often describes in these debates will be sufficient to generate the extra revenue to make up the shortfall identified by the hon. Member for Wolverhampton, South-West?
Mr. Hoban: I had forgotten that we had the voice of fiscal conservatism to the left of our Benches.
I will, as I said earlier, return to the issue of costs. However, I have not yet addressed the issue of whether we are dependent on an increase in tax revenue flowing from a reduction in corporation tax to fill the gap. We have not factored that into our costings—that would be a windfall to accounts. My right hon. Friend the Member for Wokingham is a great proponent of the Laffer curve, but I am a bit more cautious than him about its impact and banking those gains, as it were, at this point. I would rather have a cost-neutral package of reform—and I will explain how we will fill the gap in a minute—than presume that we would get an instant flow of tax revenues. As the fiscal environment improves, I hope that that means that more companies will want to come to the UK, which will strengthen the flow of tax revenues to the Exchequer. Goodness knows, we need it at the moment.
Mr. Robert Syms (Poole) (Con): I thank my hon. Friend for his generosity in giving way. Clearly, our financial problems are spread over more than one year, so a lower rate sends a signal. One would hope to keep companies in the UK, or encourage them to relocate to the UK, so that they would pay tax over three or four years. One year, if the figures are out, will not make much difference, but it will make a difference if a company is here for three or four years.
Mr. Hoban: Indeed. A big part of the issue is sending a clear signal about what a tax regime’s direction of travel should be. One of the criticisms that people could make of the Government is that, at times, there has been a lack of clarity about that direction of travel. I shall touch on that in my remarks on clause 8.
Mr. Jeremy Browne:
I am grateful to the hon. Gentleman for giving way once more, and I am sorry for interrupting his flow. He said that the additional location or additional output of businesses were not factored into his financial calculations, so he has still not answered the hon. Member for Wolverhampton, South-West (Rob Marris), who
made two points. The first was that, in his estimate, the cost would be £6 billion and he asked where the Conservative party would find that money; the second was to ask why the hon. Member for Fareham (Mr. Hoban) did not follow the logic of his own argument and reduce the rate to 22.5 per cent. I am thinking particularly of the first point: if there is not going to be extra industry and growth to bridge the gap, how does the hon. Gentleman propose to finance it?
Mr. Hoban: I am just getting going on the amendment. I have said to both the hon. Member for Wolverhampton, South-West (Rob Marris) and the hon. Member for Taunton (Mr. Browne) that I will come to that point. I am not using a debating or rhetorical device to avoid answering the questions, but I want to deal with the issue in sequence. I ask them both to be patient; the day is still young.
Rob Marris: We’ve got all night.
Mr. Hoban: Indeed—we literally have all night. Let me continue to make the case for why it is important for us to deal with the issue.
As I was saying, our economy is an open one. Businesses choose to locate here; we have few barriers to prevent them from doing that, and few that prevent them from moving offshore. Because we are so open, we cannot tax businesses on the basis that they have no choice but to stay here. The evidence has shown that businesses move. During the period covering the last Finance Bill, when we debated the same issue, companies such as United Business Media, Shire, Kraft, Experian and Google had moved outside the UK. To pick up on the point made by my right hon. Friend the Member for Wokingham, since then, Beazley, a Lloyd’s of London insurer; WPP, the advertising giant; Regus, which provides office services; Henderson, a major fund manager; and Charter, an engineering company have all done the same. The fact that they constitute a broad spectrum of businesses from a wide range of industries is telling.
We have had warnings. Richard Lambert, the director general of the CBI, said:
“In today’s world of global markets, companies have many more choices to make about where to invest their capital and their talent than they did in the past. Business tax is one of the most important considerations that firms have to take into account, and it is easily measured...business leaders believe the UK’s corporate tax regime is more burdensome than it was five years ago, and that this is making the UK less attractive as an international business location.
The worry is that on current trends our position relative to other developed economies will deteriorate further over the next two or three years.”
Mr. Lambert made that statement in 2006. Time moved on, but the CBI returned to the same point last year in its publication “UK business tax: a compelling case for change”, which concluded:
“Comparatively high tax rates, increasing complexity and a lack of certainty are all contributing to declining tax competitiveness.”
The report called for a more strategic approach to corporation tax. So the voices making the point are not only those of Conservative Members; people in industry are also making it. Richard Lambert touched on the point raised by the hon. Member for North-West
Leicestershire (David Taylor): the issue is not only the rate but other aspects of the tax regime. I remind Members of what Mr. Lambert said:
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