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The Financial Secretary to the Treasury (Mr. Stephen Timms): I beg to move, That the Bill be now read a Second time.
We have come through a very difficult time in the world economy. It has required difficult choices and Governments around the world intervening in unprecedented ways to rescue the financial system, and initiatives to support the economy, businesses and families. But we made the right calls, as the latest survey from the British Chambers of Commerce and the sharp upwards revision of the OECD's UK growth forecast have underlined this morning. The damage to families and businesses has been much less than if we had let the recession run its course, and much less than the actual damage when that approach was applied in the 1980s and 1990s.
We are committed to all the tax measures that my right hon. Friend the Chancellor set out in the Budget, but we have published a much shorter Finance Bill than usual and it is focused on the key Budget measures. Some two thirds of the measures in the Bill have been aired for comment and consultation already. We are proceeding today on the basis of consent, and to be helpful to Opposition Members, I will not be moving the landline duty in clause 23 and schedule 2; clause 58 requiring financial securities from employers at serious risk of pay-as-you-earn or national insurance contributions not being paid; or clause 65 and schedule 21 on furnished holiday lettings. Those will all be in the second Finance Bill at the start of the new Parliament.
I have also tabled amendments to clause 9 that will limit the increase in cider duty to 2 per cent. above inflation, with effect from 30 June this year. That change will come at a cost to the Exchequer, and leave cider taxation out of step with other drinks. So again we will legislate after the election to confirm the existing new rate.
Mr. John Redwood (Wokingham) (Con): Before he sits down, will the Minister please supply the House with the figures showing what difference those measures will make to the revenue forecast for the immediate year?
Mr. Timms: I can give the right hon. Gentleman some of those figures, and we can perhaps return to individual figures when we consider the amendments that I have tabled. The total gain to the Exchequer from the higher rate of cider duty in a full year would be £15 million. The landline duty will start in the course of this financial year, but in a full year it is estimated to raise, from memory, £175 million, to be used in ways that he will know about. I am not sure whether there is a score against clause 58, but there is a score against clause 65 and schedule 21, which deal with furnished holiday lettings. Again from memory, if the provision was left unamended, the impact for the Exchequer in a full year would be in the order of £30 million.
Mr. William Cash (Stone) (Con):
The Minister has just said, in answer to my right hon. Friend the Member for Wokingham (Mr. Redwood), that there "would be"-in
fact, he said "will be"-a certain amount, but does he not accept that he is making an enormous assumption? Not only is his Finance (No. 2) Bill, which would carry those proposals forward, not a Bill, but we are discussing the Finance Bill that is now before the House. He is stretching the bounds of imagination a bit, in assuming that the second Bill will come into effect in the way that he was suggesting.
Mr. Timms: I do not think that I am, although I may have slightly misled the hon. Gentleman: the figures that I have just quoted are given on the assumption that the Bill-with the amendments that I have outlined-is enacted and nothing further happens. I have said that if we are re-elected, we will change that, and then the numbers that I have just given will not apply.
To secure recovery, the Bill builds on the success of the measures that we have introduced so far. Our stamp duty holiday on all transactions under £175,000 gave support for the housing market when it needed it most, helping 260,000 home buyers. However, many first-time buyers still struggle, so clause 6 increases the stamp duty threshold for first-time buyers from £125,000 to £250,000. Nine out of 10 first-time buyers will now pay no stamp duty at all. To fund that change, clause 7 announces an increase in stamp duty to 5 per cent. for residential property over £l million. Some 850,000 companies will benefit from the deferral of the rise in small companies rate. Clause 3 maintains corporation tax for small companies at 21 per cent. for 2010-11. As my right hon. Friend the Chancellor announced in the Budget, we are staging the fuel duty rise over the coming year. Under clause 12, it is up by a penny this month, which is less than inflation. Clause 13 provides for a further 1p rise in October, with the remainder in January.
The Bill helps to underpin strong and sustainable growth. Clause 5 doubles the annual investment allowance to £100,000 for expenditure incurred from this month. Some 99 per cent. of businesses will now be able to deduct all qualifying purchases of plant and machinery from their taxable profits, so we are encouraging investment and helping to support profits. Clause 4 doubles the limit for entrepreneur's relief for capital gains tax, extending the 10 per cent. rate from £l million to the first £2 million of gains over a lifetime. Among other benefits, serial entrepreneurs and business angels will retain more of their gains in order to fund new investments and support further growth. Those are important measures, providing support for small and growing businesses. To help pay for them, the 50 per cent. levy on the excessive bonuses of bankers provided for in clause 22, which was announced in the pre-Budget report and quite widely supported in the House, has raised £2 billion-more than twice what was forecast. Clause 2 maintains corporation tax at 28 per cent.-the lowest rate in the G7-maintaining the UK's position as one of the best places to do business in the world.
The Bill provides the key tax measures to halve the deficit over four years. Clause 1 provides for the new 50 per cent. additional rate. Clauses 24, 49, 50 and 71 provide for the restriction of tax relief on pensions for those earning over £130,000 a year, as well as for further anti-forestalling. In drawing up the clauses on pensions, we have balanced certainty-and giving people time to prepare for the changes-with the need for
additional consultation. Further work is still needed on what is done for individuals in special circumstances, on contributions for members of defined benefits schemes, and on obligations on scheme administrators. Whenever we can, we will publish draft regulations and primary legislation early to give people a chance to comment. In particular, we will discuss further with pension providers how schemes would pay the recovery charge on behalf of the individual, so that the details can be in place in good time for 2012-13.
Mr. Mark Hoban (Fareham) (Con): Can the Minister explain why the one-off cost of implementation for the Government's pension changes has trebled in the space of two months?
Mr. Timms: The hon. Gentleman will be aware that we have been in discussions with the industry, and that there has been extensive consultation on these measures. The estimate to which he refers has been revised as a result. Ensuring the widest possible consultation and discussion is the right way to proceed in order to ease any difficulty that might otherwise arise from implementing these changes.
Mr. Hoban: But can the Minister explain how he got it wrong by a factor of three? The amount has increased from £300 million to nearly £1 billion.
Mr. Timms: I do not have the figures in front of me but, as I said, we have been consulting people, as we should, and talking to them in a very open way. The Exchequer Secretary to the Treasury has been leading this work, and that has resulted in changes to the estimate.
The reforms to income tax and pensions will affect only the top 2 per cent. of earners. They have benefited the most from strong growth in recent years, and we think that it is right that those with the broadest shoulders should carry the greatest burden in funding the recovery.
Mr. Cash: On the question of national insurance, will the Minister be kind enough to explain to us where the relevant measures are? They might be in the Bill and I have simply not seen them. The whole process of dealing with national insurance, which is one of the hottest issues in the election, does not appear to be in the Bill. Is he proposing to table an amendment later in the proceedings today, or will this be dealt with under some other procedure?
Mr. Timms: No; national insurance cannot be dealt with in a Finance Bill alongside other tax measures. It will require a separate piece of legislation, which we will be introducing later in the year.
Clause 9 confirms the planned increase in alcohol duty of 2 per cent. above inflation. Clause 69 allows us to amend the duty definition of "cider" so that particularly high-strength ciders are taxed at a more appropriate rate. Clause 10 increases tobacco duty by 1 per cent. above inflation. Increases of 2 per cent. above inflation will be made in each of the next two years. Clause 8 freezes the inheritance tax threshold until 2015.
Mr. Greg Hands (Hammersmith and Fulham) (Con):
Just in case we do not get on to debate tobacco, will the Minister reassure the House that a proper study has been made of the likely impact of retail prices index
plus 2 per cent. increase in tobacco duty on smuggling and counterfeiting? The lessons of the past are that raising tobacco duty too sharply and too quickly can have certain side effects.
Mr. Timms: The hon. Gentleman raises an important matter. We have indeed reflected carefully on that point, as we do each year. He will perhaps be aware of our significant success in bearing down on tobacco smuggling over the past decade. That has significantly supported the revenue from tobacco taxation, and we are confident that the measures that we are enacting in the Bill will indeed have the scoring set out in the Red Book alongside them.
Clauses 25 to 59 are an important part of the Bill and are part of a big package to tackle tax avoidance, non-compliance and offshore evasion. The package protects around £18 billion worth of yield and will raise a further £1.5 billion in total between now and 2013-over three financial years. The disclosure regime we introduced in 2004 has transformed the battle against avoidance and has protected over £12 billion of revenue since it was introduced six years ago. We have been consulting since the pre-Budget report, in which we set out proposals for strengthening the disclosure arrangements, and clause 57 is the result of that consultation and discussion. It does indeed strengthen and enhance the disclosure regime further still.
Stewart Hosie (Dundee, East) (SNP): Before the right hon. Gentleman moves on, he will remember that there was a debate last week about retrospective legislation in relation to tax avoidance. The amendments and new clauses before us today bring an introducer into play, as well as a promoter of the scheme. At this stage, will he tell us a little more about why he believes bringing an introducer into the legislation would benefit in the fight against evasion and avoidance?
Mr. Timms: The key benefit of the changes we are making lies in providing to Her Majesty's Revenue and Customs earlier information about the kind of schemes that people are being provided with. We are confident that if we have that information earlier, we will be able to address those schemes more effectively and so bear down on the scale of the problem.
In last year's presidency of the G20, we led the global clampdown on tax havens and offshore evasion. I am pleased that since the G20 summit in London last April, more tax information exchange agreements have been signed around the world than in the whole of the previous decade. Clause 36 sets higher penalties, up to 200 per cent. of the tax due, for those who fail to declare income and gains from jurisdictions that do not exchange information automatically with the UK.
Mr. Hoban: On that last point about the information exchange agreements and the jurisdictions that are not covered by them, how will the right hon. Gentleman ensure that taxpayers who are not represented-for example, a nurse from a West Indian nation that does not have a tax information agreement-are protected, while ensuring that we catch the people who are using these jurisdictions to avoid paying tax?
Mr. Timms: It is important for everybody to comply with their tax obligations. Anyone who is in doubt about what they might be can, of course, contact HMRC for information-and I am pleased to say that many people do, including people in the sort of circumstances that the hon. Gentleman describes. Encouraging news of which I think he will be aware is that we have indeed recently signed a number of tax information exchange agreements with Caribbean jurisdictions, including Belize and Dominica, and we are keen to sign more.
Mr. Cash: In the context of his consideration of Finance Bills over the last year or so, will the Minister explain whether he believes that the legislation is now getting so complicated that it is becoming a burden on the British people? Has he given any serious consideration to the idea of having a flat tax, for example, in order to remove that burden? Having been a member of the Committee considering the Income Taxes Consolidation Bill, I know how complex the legislation is and I just think it has got so out of control that it is a real drain on British business and on people who work in industry.
Mr. Timms: I do not support the proposal for a flat tax. I know that the shadow Chancellor once dabbled with that idea, but I think he quickly abandoned it-for sensible reasons. The hon. Gentleman made a perfectly fair point about complex legislation. He will know of our strong support for the tax rewrite project, which I believe has been more or less been concluded and which has made a helpful contribution, but he may not be aware that a number of simplification reviews are under way. He may be encouraged to learn that according to the World Bank's assessment of taxes paid around the world, the United Kingdom is-I think I remember rightly-the easiest country in Europe in which to pay tax. Of course it is important for us to maintain those advantages as the tax system develops further in the future.
Our choices throughout this turbulent period have proved to be the right ones-
Mr. Timms: I will give way one last time.
Mr. Redwood: I cannot allow the Minister's last observation to go unchallenged. How does he explain the extraordinary decisions first to starve the money markets of funds in 2007 and weaken the banks, and then to publicly demand that the banks raise more capital too late-when they could not do it-and to jeopardise them or bring them down? How can that be described as calling the shots correctly?
I refer the right hon. Gentleman to an experience that he will remember very well-that of the recessions of the 1980s and 1990s. In both those recessions, when the global circumstances were much less difficult than those that we have experienced in the last couple of years, the number of people claiming unemployment benefit rose to 3 million. At present it is a little over 1.6 million: it has fallen over the last few months. During the recession of the 1990s, business failures were running at about twice the rate at which they have been running during the current recession. At its peak, the number of home repossessions was 75,000 during
the 1990s recession. At the beginning of last year, the Council of Mortgage Lenders predicted that it would be 75,000 again, but I believe it was 43,000.
I think it is clear that the approaches we have adopted to the problems encountered around the world have been the right ones, and have greatly limited the damage that would otherwise have been suffered. Indeed, much less damage has been suffered than was the case in the 1980s and 1990s. The Finance Bill keeps us firmly on the right track, and I commend it to the House.
Mr. Mark Hoban (Fareham) (Con): "Four hours for all the stages of the Finance Bill from start to finish...is...a most extraordinary precedent...due not to accident or misfortune but to the sheer incompetence and mismanagement of the Government".-[ Official Report, 13 March 1992; Vol. 205, c. 1140-41.]
Those are not my words but those of the right hon. Member for Newcastle upon Tyne, East and Wallsend (Mr. Brown), spoken from the Opposition Benches about the passage of the Finance Bill in 1992. He considered four hours to be an unacceptable period in which to debate 11 clauses, and perhaps he was right. It is far from ideal. But now that the right hon. Gentleman has risen to the rank of Chief Whip, and is principally responsible for the incompetence and mismanagement of the Government's business programme, he thinks that three hours is enough time in which to debate 70-odd clauses.
In view of the shortness of the debate, it is probably just as well that the Government broke with precedent and arranged for the Financial Secretary to the Treasury rather than the Chief Secretary to the Treasury to open it. Given his performance last week, it is unlikely that the Chief Secretary would have made it to the Chamber for the end of the debate, let alone the start. I also note that the hon. Member for Twickenham (Dr. Cable) has maintained his fine record for not taking part in discussion of the detail of the Finance Bill. Although he has been nominated for delegated legislation Committees and been selected to serve on Committees dealing with many Treasury Bills, he never seems to arrive on time.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): Will the hon. Gentleman give way?
Mr. Hoban: I will happily give way to the hon. Friend of the hon. Member for Twickenham.
Sir Robert Smith: Let me return the hon. Gentleman to his complaint about the amount of time allotted to the Bill. When the House had a chance to vote on the issue, his party whipped its members through the Lobby to endorse the allotted time and force it on the House.
Mr. Hoban: The point is that even four hours would not have been enough to cover 72 clauses-yet back in 1992, those who are now in government complained that that was not enough time in which to debate 11 clauses.
I have made my point about the lack of time. The people who look at Finance Bill proceedings-the outside interest groups-are concerned that this Bill is being rushed through and that insufficient time is being given to consider it. I do not know what the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith)
thinks a reasonable period would be. I do not believe that he has served on a Finance Bill Committee, although perhaps he will have that pleasure in the next Parliament, should he be returned. I can tell him that many days of detailed scrutiny are required, and even if every hour between now and Prorogation tomorrow evening had been available to us, I do not think that we would have made as much progress through the Bill as people would have wanted us to do.
The danger is that the Bill will receive poor scrutiny. The Institute of Chartered Accountants in England and Wales said of the 2005 Finance Bill:
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