Schedule 26 — Repeals
Amendments made: No. 102, in page 484, line 34, column 2, at beginning insert—
|'Sections 43A to 43G.'.|
No. 103, in page 485, line 5, at end insert—
|'Finance Act 2000 (c. 17)||Section 110.|
|Capital Allowances Act 2001 (c. 2)||In Schedule 2, paragraphs 11 and 12.'.|
No. 104, in page 485, line 6, column 2, at beginning insert—
|'In section 103(4)(a), the words "43A(1),".'.|
No. 105, in page 485, line 10, at end insert—
|'Income Tax (Trading and Other Income) Act 2005 (c. 5)||In Schedule 1, paragraphs 26 to 30.'.|
No. 106, in page 485, line 11, column 2, after 'paragraphs' insert '1,'.— [Dawn Primarolo.]
Order for Third Reading read.
Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I beg to move, That the Bill be now read the Third time.
I should like to take the opportunity to thank all hon. Members who participated in Committee of the whole House and Standing Committee. Our debates have again been detailed, ensuring effective scrutiny.
The Budget that my right hon. Friend the Chancellor presented to the House in March set out a vision for a strong economy and a fair society, with opportunity and security for all. The Bill delivers measures to enhance productivity, help create a fairer society, protect the environment and safeguard the revenues that are needed to deliver high-quality public services.
The Bill introduces two new tax regimes—the real estate investment trusts—REITs—and the film tax, which have been warmly welcomed by stakeholders. The real estate investment trusts, which clauses 103 to 145 introduce, will improve the efficiency of our property markets and allow smaller investors greater access to property returns. Clauses 31 to 53 introduce a new and generous film tax relief, which will provide better targeted and more direct support straight to film production companies.
The Government believe that, in a modern and fair tax system, we need to keep pace with a changing world. We need a tax system in which everyone pays their fair share of tax. To build a fairer tax system, we must take action against those who seek to avoid paying their fair share or set out to defraud the Exchequer. The Bill therefore takes action against tax avoidance, which distorts markets and adds no value to the UK economy. The vast majority of taxpayers do not engage in avoidance, and it would be inappropriate and unfair if the Government failed to act against it.
Disclosures have enabled Her Majesty's Revenue and Customs to become aware that a minority of employers are using highly contrived schemes to avoid paying income tax and national insurance contributions on their earnings. In 2004, the Government announced that they would take action against any such complex and contrived avoidance schemes, if necessary with effect from the date of that announcement. That is exactly what the Finance Bill does, and it is right to do so.
It should also be clear to anyone in this House and outside that paying tax should not be voluntary. Before the Budget it became clear that some wealthy individuals were using trusts as a way to shelter wealth from inheritance tax, and schedule 20 addresses that unfairness, bringing the tax regime for accumulation and maintenance trusts and interest in possession trusts in line with mainstream rules for the taxation of trusts and discretionary trusts.
Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
It is also important that our tax regime remains relevant in a changing world. The Bill changes the tax regime for the North sea oil companies to reflect the world as it is today, while continuing to promote investment in the North sea and to ensure fairness for taxpayers. The North sea is a national resource and it is important that the United Kingdom receives an appropriate share of the economic rent from its exploitation, and of course it is also important in this area and others that the tax system does not provide artificial incentives to indulge in non-commercial tax-driven behaviour.
Yesterday there was a very full debate on the importance of protecting the environment, a goal that the Government share, and measures in the Bill help to achieve that by introducing further reforms to vehicle excise duty and increasing the climate change levy in line with inflation from
The Bill introduces important measures that ensure that the United Kingdom has a modern and fair tax system which keeps pace with a changing world, with incentives for individuals to work, save and invest, supporting business and individuals, while ensuring that public money is used appropriately. I commend the Bill to the House.
Theresa Villiers (Shadow Chief Secretary To the Treasury, Treasury; Chipping Barnet, Conservative)
I shall try to match the Paymaster General for brevity, but I cannot guarantee that I will be quite as quick as she was.
Although there are a number of aspects of the Finance Bill that we support, we have grave concerns about a number of its provisions, and the Opposition will therefore vote against the Bill this evening. Before turning to the provisions—I assure the House that I am not going to take each one in turn—I echo the right hon. Lady's thanks to all the Members who have participated in what has often been a very constructive series of debates. I want also to put on record the debt of gratitude that my Front-Bench colleagues and I owe to many professionals and professional organisations that have given us impartial and very useful advice to aid us in scrutinising the Bill.
Turning to the matters on which there is a degree of consensus across the House, we welcome the broad thrust of the Government's attempt to prevent the abuse of charitable reliefs. However, we share a number of the concerns of the charities tax reform group, particularly in relation to the paperwork and record-keeping requirements imposed on charities.
We welcome also the attempt by the Government in clauses 95 to 98 to provide a legal and tax framework to accommodate sharia-compliant finance arrangements of wakala and diminishing musharaka. I acknowledge the valuable work done by the Government on this issue, which is important not only for our international competitiveness in an increasingly important global market in Islamic finance but for tackling financial exclusion in Britain's Muslim community. I take the opportunity to pay tribute to one of the imams in Barnet, Mufti Barkatullah, for his work on this important matter.
We also welcome, as we have said this afternoon, the Government's framework for real estate investment trusts. We feel that the reform is long overdue, since such structures have been in place in other developed economies with great success for many years. We also feel that more could be done to encourage residential property in REITs, and we continue to believe that REITs quoted on the alternative investment market would be feasible and a sensible extension of the framework provided for in the Bill.
Although we welcome clause 19, on cracking down on missing trader fraud, we want to know when the Treasury will get the EU derogation that it needs to put the clause into operation. We are grateful for the assurances given on that point by the Paymaster General. I emphasise again the urgency of tackling this problem, which as we have heard again today is estimated to have lost the Exchequer about £1.9 billion in 2004-05. The problem is now so serious that it is undermining the accuracy of our trade figures, and it is high time the Government took effective action to tackle this organised criminal fraud, which is depriving the Exchequer of so much money.
I move on to more contentious matters. One of the main reasons for opposing the Bill is that we do not believe that it is a green Bill. We do not believe that it implemented a green Budget. The Red Book shows that the proportion of green taxes is falling as a proportion of tax revenue. It is lower than it was in 1997-98. The Chancellor's headline-grabbing scheme on car tax will have a minimal impact. Anyone who delves into the small print will find that schedule 8 abolishes tax incentives for leasing environmentally friendly equipment. We regret that the Government voted down the entirely reasonable demand that the Chancellor report to Parliament on the uptake of crucial microgeneration technology.
As for the climate change levy, sticking in the words "climate change" does not mean that the levy works to tackle climate change. It is a tax that does not do what it says on the tin. Yes, some of the climate change agreements that the levy has produced have been useful but the fundamental problem remains that it is a tax on energy and not on carbon. It needs to be converted into a genuine carbon tax that does much more to encourage and promote the uptake of clean renewable energy than it does at present.
The second key reason for opposing the Bill is that we believe that it will further undermine our competitiveness in an international world economy. The Chartered Institute of Taxation put the problem in measured terms as follows:
"We appreciate that the UK's competitive position depends on a number of factors and that potential investors in the UK will consider the whole business environment and not just the tax system in isolation. Our experience is that the UK is becoming regarded as a more difficult place to do business, with the complexity of the tax system being perceived as a disincentive to invest."
The institute describes the UK tax system as "spinning out of control".
It appeals for an end to
"excessive tinkering with tax rules."
The abolition of the zero per cent. rate of corporation tax and other changes to business tax relief are prime examples of chronic instability in our tax regime. Year in and year out, the Chancellor announces initiatives that make a good soundbite in the Budget. He is not in his place today but he turns up for the Budget. Businesses carry out the difficult, time-consuming and expensive task of adapting to yet more changes in the tax system. Just as they have become used to those changes, the Chancellor scraps them and his cycle of continuing revolution continues.
This pattern of volatility recurs in clauses 31 to 47, in introducing a new regime for the film industry. The Chancellor introduced major changes to film tax in the Finance Acts of 2000, 2002 and 2004-05. Yet still the reliefs haemorrhaged a staggering £560 million from the Exchequer in the past financial year. An entire industry has developed around the misuse of these reliefs. The Opposition certainly hope that the Government's latest attempt to focus tax breaks more accurately on people making films will provide better value for money than reliefs have proved to date.
We are not sorry to see the back of the sections 42 and 48 reliefs. We hope that the Government have at last got it right; otherwise, expect "Groundhog Day" this time next year with yet more changes to the film tax regime in the Finance Bill 2007.
The continual cycle of change has produced a huge amount of uncertainty in the film industry and has jeopardised some important projects. For example, the filming of the latest James Bond film has moved to the Czech Republic. Even the Government's most famous civil servant has moved offshore, partly as a result of the instability caused by changes in the film tax regime.
I move on to a rather less glamorous aspect of the Bill. Schedules 8 to 10 introduce what the Finance and Leasing Association describes as the biggest change to leasing taxation for a generation. A thriving leasing industry is crucial for business investment and productivity, both of which have performed poorly under Labour. We are not convinced that the Government have fully thought through the impact of these eye-wateringly complex new provisions, given their impact on business investment, on indirect investment and on the public sector. These areas face higher leasing costs as a result of the changes.
We are dismayed at the phenomenal complexity of pension provisions, supposedly adopted with a view to simplification. We believe that the Government's attempts to prevent recycling of lump sums could discourage people from saving for their old age. The provisions are incredibly widely drafted. The Economic Secretary tells us, "Don't worry, innocent transactions will be excluded by detailed guidelines." It is not acceptable to draft a hugely expansive statutory provision that catches many entirely innocent taxpayers and then to say, "It is OK because we will not tax everyone who falls within the statute. We will only tax the bad guys." This is suspiciously close to taxation by decree. That is why Opposition Members oppose the provisions. We regret that the Government have failed to address the injustices caused by the annuity rule.
We strongly oppose the Government's hare-brained proposal to bring forward the filing dates for tax returns to September. The Carter report would involve a huge amount of unnecessary hassle for taxpayers and would impose great pressure on their professional advisors, so we urge the Government to reject it.
The abolition of the home computing initiative is a major blow to the competitiveness of the economy. Thousands of low-income families, many of whom would find it difficult to obtain credit to buy a personal computer on the open market, have benefited from the scheme. The Government's decision to abolish a scheme that it recently relaunched does not help us to embrace the digital age or develop the highly skilled work force that we desperately need to compete with the new global economic giants of China and India. It does not help the Government Departments that were rolling out the scheme when the Chancellor's axe fell; nor will it help working people in Britain to develop a good work-life balance; nor does it help people striving to improve their skills and their lives.
In conclusion, the Opposition oppose the Bill, because it fails to equip us to compete effectively in the globalised world economy. It heaps further confusion, complication and instability on a tax system that the Chancellor has made one of the most complex in the developed world. It contains no effective measures to tackle climate change, and despite the Chancellor's ignominious retreat on a range of key issues, schedule 20 still imposes punitive new inheritance tax charges on a wide range of ordinary hard-working people whose only wrongdoing is to use a trust to provide responsibly and prudently for their family's future. Those iniquitous new IHT charges were introduced without consultation. They are deeply flawed, which is why the Government have tabled no fewer than 50 amendments to the schedule that brings them into effect. They are retrospective, and they penalise thrift and prudence. They hit the sick, the dying, the mentally ill and the vulnerable, as well as those struggling with the misery of divorce. They have caused needless anxiety to thousands of people across the country, and I urge the House to oppose them and the Bill this evening.
Julia Goldsworthy (Shadow Chief Secretary To the Treasury, Treasury; Falmouth and Camborne, Liberal Democrat)
We support certain parts of the Bill, but some of the serious concerns that we expressed on Second Reading remain on Third Reading. However, we broadly welcome the proposals on real estate investment trusts, which are a classic example of the way in which consultation can produce workable legislation. The proposals have been welcomed by industry, because the Government took time to consult, so we largely support them. By contrast, the Government did not consult professionals on their inheritance tax treatment of trusts, and the result was poorly drafted proposals that would have affected large numbers of individuals and called into question fundamental assumptions in IHT such as the spouse exemption. Dozens of amendments were tabled to improve the proposals. The spouse exemption has been safeguarded, but it is still not clear how many individuals will be affected by the changes.
Ministers continue to insist that a minority of a minority will be affected, but they have failed to produce evidence to back that up. The Select Committee on Treasury asked for background information before the Standing Committee considered the issue, but it was not produced. I asked for that information in written parliamentary questions, only to be told that it was not normal procedure to release it. There is a significant public interest in making that information available, as it would allay the fears of many people who are still concerned that they will be affected by the changes, so I hope that Ministers will reconsider their decision and publish the information. Despite the many amendments made in Committee and on Report, uncertainty remains, so I am sure that we will revisit the relevant clauses and schedules in future Finance Bills.
Other changes that were made without any warning include the withdrawal of the home computer initiative, which is another example of the Government throwing the baby out with the bathwater. Indeed, they abolished the initiative without prior warning or consultation. Instead of tightening the definition of relevant equipment, they have removed the scheme altogether, even though it helped to achieve computer access for many households, including low-income households. Besides affecting those families, the scheme's sudden withdrawal has resulted in businesses losing their core work, and has disrupted Government Departments that were planning further roll-outs when the withdrawal was announced.
Confidence in any similar schemes that may be announced by the Government has been affected because, ultimately, businesses need to be certain of the stability of the systems that they use. Once again, however, that confidence has been undermined or eroded. One has only to look at the changes to corporation tax to see how further instability and complication have been introduced. Gordon Brown has introduced changes virtually every year, and although we welcome the situation that we are now in, why has it taken the Chancellor such a long and circuitous route to arrive back exactly where he started?
There have been many measures to tackle fraud and evasion, including missing trader fraud, which we discussed again this afternoon. Although the closure of loopholes in the tax system is welcome, considerable complexity has been added to the tax system by the Bill, and the concern is that it will result in a cat and mouse process, with further complication required every year to overcome further loopholes that have been created by further more complex legislation.
Fundamentally, we see the significance of the Bill in what it does not do, mainly in terms of green action. Limited changes are present in the Bill. We welcome the revalorisation of fuel duty and the climate change levy, but at best these measures will only halt the decline that we have seen in green taxes as a proportion of the total tax take. They will not increase the proportion that it represents. We are disappointed that the Government did not adopt the new clause tabled by Alan Simpson, as it would have helped make strategy, which is clearly lacking from the Government and the Treasury, very clear. I find it astounding that the Paymaster General can refer to the constructive debate that took place on the new clause yesterday, but refuse to support it.
What we see in the Bill is tokenism of the worst kind, which has been announced with fanfare but will do next to nothing to change behaviour. The clearest example is the introduction of a new band of vehicle excise duty for the most polluting cars, which introduces a differential in value to the next band down equivalent to less than a tank of petrol for the most polluting cars. I was glad to hear the comments of Mrs. Villiers about those proposals in her remarks on Third Reading, but we saw no proposals from the Conservatives for green measures. We have seen tokenism from those on the Conservative Benches, too.
To conclude, what we would like to have seen but in large part did not see is action to follow the rhetoric that is so often expressed by the Government on green issues and on many other important matters. We have not seen any significant simplification of our tax regime. We have not seen any changes to make the tax regime fairer. Inequalities are still growing, and the richest 20 per cent. are still paying less in tax as a proportion of their income than the poorest. We have also not seen any greater devolution of spending power in the Bill. The United Kingdom remains one of the most centralised states in Europe.
I would like to associate myself and my colleagues with the thanks expressed by the Paymaster General to all Members of the House. The Clerks have been very helpful in their assistance with amendments, as have many organisations, such as the Law Society, the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, PricewaterhouseCoopers and KPMG, among many others.
There have been some welcome aspects to the Bill, but we are disappointed by the lack of action on green issues and we therefore cannot support the Bill on Third Reading. There are still significant problems relating to trusts, inheritance tax and other matters about which I have expressed my concerns. I thank you, Mr. Speaker, for your patience in dealing with all of us.
George Young (North West Hampshire, Conservative)
It is 10 years since I last served on the Standing Committee on the Finance Bill, and it will be 10 years before I do that again. I mean no disrespect to my colleagues who served on the Standing Committee, or, indeed, to Ministers. On the contrary, it is a reflection of the increased length and complexity of the Finance Bill that only those with the most acute understanding of the country's tax system can play a useful role on the Standing Committee. It is rather like a soap opera. If one misses a few episodes, it is very difficult to catch up with the plot.
I shall make three comments. One must be ever alert to globalisation. There may be very good reasons for some of the tax changes that we make in this country, but one must be aware of the impact that they may have on the highly mobile capital industry, which can locate its investments anywhere.
Secondly, we must do all we can to remove the driver for complexity in the tax system, and we must do even more to get more people outwith the warm embrace of the tax system. We seem to be making slow progress towards the simpler tax system that we all want.
Finally, we were particularly fortunate to have Rob Marris in the Standing Committee, because he was able to give us the ministerial rebuttal of our amendments minutes before the Minister. I hope that it will not be too long before his energy and talents are recognised and rewarded.
Stewart Hosie (Spokesperson (Chancellor of the Exchequer; Home Secretary); Dundee East, Scottish National Party)
Some of the measures in the Finance Bill are welcome, as was the Government's willingness on some occasions to listen and make changes. Of those changes, the inclusion of those with parental responsibilities for vulnerable children in the trust regime was particularly helpful, although a number of other helpful suggestions made by hon. Members on both sides of the House were not taken on board in such a positive manner.
The Bill provided an excellent opportunity to debate the supplementary charge in the North sea, which we believe is a damaging change to the regime. Likewise, the Government's change to the blended oil regime was subject to detailed debate and correspondence.
We had a useful debate on REITs, which we welcome. Although we believe that the regime, with its stock exchange listing element, is still rigid, we welcome the commitment to review the matter on an ongoing basis, which we too will do.
We also had a useful debate on the high cost of fuel. However, it was disappointing that the Government still failed to recognise the requirement to introduce a fuel tax regulator both to provide specific assistance for the road haulage industry and to help those in sparsely populated rural areas who need a car.
The Finance Bill was the result of a Budget that one commentator described as "heavy with light measures". Chief among those light measures was the abolition of the home computer initiative. The Paymaster General said on a number of occasions that alternatives would be put in place, and today she discussed proposals to provide computers in community centres and by community education departments. However, if someone on a low wage wants to educate themselves and to improve their IT skills, they need a computer in the home. Following the abolition of the home computer initiative, I suspect that a similar initiative will have to be reintroduced in the future.
The Bill is a missed opportunity. Although there was talk about additional assistance for research and development, expenditure on R and D in the UK is half that of our major European competitors, and the rate in Scotland is about half that of the UK. The position is deplorable, and the Bill includes very little to improve the situation.
Our key difficulty with the Finance Bill is the changes on the North sea. The Bill takes billions more out, and makes unnecessary changes to the supplementary charge and the blended regime system, yet it offers nothing in return for new exploration and for the development and extraction of heavy oil in the central North sea, the fields west of Shetland and the fields in the very deep water west of Scotland. For that reason, if no other, we will oppose Third Reading tonight.
David Gauke (South West Hertfordshire, Conservative)
Unlike my right hon. Friend Sir George Young, this was my first experience of the Finance Bill, and I want to make one or two observations. [ Interruption. ] I know that hon. Members are keen to watch France play Portugal.
As we have progressed through the Bill, I have been surprised by how frequently the European Union has cropped up. On Second Reading I addressed the question of why we are substantially changing group relief as a consequence of a European Court of Justice judgment. That is usually an important issue, yet the UK Government have little scope for manoeuvre given the existing constitutional position. Several times during the Bill's passage—for example, when we attempted to tackle missing trader intra-community fraud, leasing rules or film taxation—we found that the motivation for changing the law was that it was required by an ECJ judgment or potential judgment.
I echo the remarks made by my right hon. Friend the Member for North-West Hampshire as regards the sheer complexity of the tax system and, as a consequence, the need for outside expert advice. [ Interruption. ] The Economic Secretary anticipates my point. An error or oversight by Treasury officials was spotted by an eagle-eyed professional adviser—[Hon. Members: "Name her!"] Her name is Mrs. Rachel Gauke, a lawyer at Travis Smith. It would be fair to say that other errors have been spotted by professional advisers who are not necessarily as eagle-eyed as my wife.
The Government got themselves in a bit of a muddle on their initial drafting with regard to trusts. They attempted to tackle it without consultation, so that professional advisers were unable to provide their input, although they did when the draft Bill was published. To be fair, I must add that the Government have made a substantial number of amendments in that area, for which I am grateful. We now have a better Bill than we did initially—better, but not good enough. The complexity in the tax system remains considerable. Speaking as a non-tax lawyer, it is always difficult to grasp even the relatively small elements that we cover in the course of a Finance Bill.
As my right hon. Friend the Member for North-West Hampshire said, we live in a globalised world where capital flows from one jurisdiction to another, and we have to be careful to ensure that we have a fair system that not only deals with evasion but is manageable for individuals and for businesses. Conservative Members are deeply concerned that that balance is increasingly being got wrong, which is of major concern for the long-term competitiveness of the British economy.