Mr Richard Ottaway (Croydon South, Conservative)

I want a general debate on corporation tax in the remaining minutes of the sitting, but I am not sure whether it should be discussed under clauses 54, 55 or 56.

Mr Jimmy Hood (Clydesdale, Labour)

Order. I suggest that the hon. Gentleman finds out quickly, as I am about to put the question on clause 54.

Mr Richard Ottaway (Croydon South, Conservative)

I am grateful for your assistance and guidance, Mr. Hood.

On the face of it, the proposal is a planned announcement of the level of corporation tax levied on Britain's corporations. The Prime Minister repeatedly says that he is proud of the fact that he has reduced the headline level of corporation tax from 33 per cent. to 30 per cent. That appears to be a laudable claim; it is the sort of thing that Baroness Thatcher might be proud to say. But when one looks at the small print, and sees what is actually happening to the level of taxation on companies, the opposite is the case. The Chancellor's figures in table C7 on page 192 of the Red Book, show corporation tax rising by £5.7 billion from £32.1 billion in 2000-01 to £37.8 billion in 2001-02. The Chancellor could easily have chosen to moderate those vast increases by raising the corporation tax thresholds at least in line with inflation or by cutting other taxes for business, which is what the Government said they would do. The Labour party business manifesto in April 1997 stated:

``We will not impose burdensome regulations on business, because we understand that successful businesses must keep costs down''.

What absolute codswallop! What effort have the Government made to keep that pledge to the electorate? The manifesto continued:

``We will cut unnecessary red tape''.

In his speech at the Mansion House in February, the Secretary of State for Trade and Industry said:

``I guarantee that we will not allow regulation to stifle enterprise and innovation''.

At the annual dinner of the Confederation of British Industry, the Prime Minister said:

``Enterprise should be encouraged through a climate for business and a tax system which rewards success.''

The Chancellor was reported as saying that he wanted tax cuts for business, not tax rises.

The Government have singularly failed to keep any of those pledges; they have increased the burden on businesses and the level of taxation on companies. Members of the Committee need not take it from me, they can listen to the Confederation of British Industry—the voice of British industry. Commenting on the financial burdens that the Government have piled on business, Digby Jones, director general of the CBI said:

``Enough is enough. I really do say to the Government `no more'''.

What state have we reached when the director general of the CBI has to go to the Government and say ``Enough is enough'' after their pledges during the election campaign? Mr. Digby Jones also said:

``Ministers must do more to roll back the burden of business taxation, which has gone up £5 billion a year during this parliament''.

The CBI pre-Budget report submission complained of the

``hike in business taxation since 1997''.

It stated:

``We believe that several recent policy proposals are potentially damaging and must be amended.''

It is not only the CBI that holds those views. Ken Jackson, general secretary of the Amalgamated Engineering and Electrical Union said:

``We're not against taxation, but do you really hit business with new taxes when industry is already under pressure from the pound? Business should be treated more fairly.''

The Government are quiet when it comes to quotations like that from their own supporters. Those are the sorts of quotations that count, and the ones that they should be listening to. There is no doubt that the Government have done nothing but raise the levels of taxation and regulation on business. They cannot be proud of the burdens that British industry has to face today. It is a travesty for them to stand here quietly hoping that we would slip through the rise in corporation tax before 7 o'clock. The Minister should stand up and tell us what he is actually doing for business.

Mr Peter Kilfoyle (Liverpool, Walton, Labour)

Does the hon. Gentleman accept that many of us would like us to see corporation tax rise even more?

Mr Richard Ottaway (Croydon South, Conservative)

There speaks the truth. I respect the hon. Gentleman. There are not many hon. Members who have resigned from governments on points of principle. He speaks for the heartlands of the Labour party, and has seen that his party supporters are now paying more for their cars, cigarettes, and pint in the pub. He has seen tax rises on his supporters quite consistently over the past three years. The country's tax burden has been regressive and is hitting his supporters worst of all.

Mr Peter Kilfoyle (Liverpool, Walton, Labour)

I thank the hon. Gentleman for his warm words, but will he take it from me that what the people that I represent have seen is the establishment of Tory-free zones, simply because they have no faith in the Opposition's plans to deliver anything material in their lives?

Mr Richard Ottaway (Croydon South, Conservative)

What the hon. Gentleman needs is a few Tories around the place. It is the Conservative party that stands up for lower taxation, that voted against the tax rises and stood up for his supporters. Unless he breaks ranks and votes against this wretched Government, he will be replaced by a Conservative Member of Parliament. That is the consequence of the Government's levels of taxation.

I return to corporation tax. We are not happy about the levels of tax on business. The Minister should be announcing a whole raft of proposals that will relieve the burden of taxation on business. He should be seeing cuts on the motoring costs of business. [Interruption.]

Mr Jimmy Hood (Clydesdale, Labour)

Order. Hon. Members should listen a little more, and speak a little less.

Mr Richard Ottaway (Croydon South, Conservative)

The Minister should be announcing business rate relief; reforms of capital gains tax, share options, and venture capital; the abolition of the ridiculous double taxation relief proposals. He should repeal IR35 and replace it with more appropriate regulations. Those are the proposals of the Conservative party manifesto for the next general election. We are the party that believes in business, fights for business and stands up for business.

Mr Michael Jack (Fylde, Conservative)

My contribution on corporation tax will not match the wonderful and aggressive speech of my hon. Friend.

Mr Jimmy Hood (Clydesdale, Labour)

Order. I suggest to the right hon. Gentleman that if he wants to make a speech on corporation tax, he relates it to clause 56.

Mr Michael Jack (Fylde, Conservative)

On a point of order, Mr. Hood. I seek your guidance. I understood that we were speaking to clause 54, and that we were to debate the main rate of corporation tax at 30 per cent. Is my assumption correct?

Mr Jimmy Hood (Clydesdale, Labour)

The right hon. Gentleman is welcome to pursue his line, but he indicated that he was going to trespass into clause 56. I was trying to assist him.

Mr Michael Jack (Fylde, Conservative)

I am not going to make a speech about the starting rate at 10 per cent. of corporation tax, the subject of clause 56. I want to look at the consequences of clause 54, which confirms that corporation tax will be charged for the financial year 2002 at a rate of 30 per cent. Intriguingly, the Red Book estimates corporation tax income for the financial year 2000-01 at £32.1 billion. The figure is £37.8 billion for the present financial year ending in 2002. Unfortunately, although the Government are inviting the Committee to confirm the rate at 30 per cent. for 2002, we have no idea what the economic consequences of that will be, because the Red Book does not appear to have a number against it.

I make that point in all seriousness, because we have seen a large number of profit warnings from British industry as it tries to cope with the downturn in world markets. Despite the Chancellor of the Exchequer's almost saying that the United Kingdom is insulated from developments in the world, the Committee is being invited to agree clause 54 in an information vacuum. We have no idea of the effects on the Revenue of a 30 per cent. main rate for corporation tax in the light of a worsening corporate financial situation. Will the Economic Secretary give the projection for corporation tax that will be raised in the financial year 2002-03 as a result of the 30 per cent. rate? How does it compare with the figures that I have given.

It is revealing that, on non-North sea corporation tax as a percentage of GDP, the Treasury is prepared to be a little more adventurous, in that table C9 of the Red Book gives an indication of the tax burden on business. In the financial year 2002-03, which is the subject of the clause, the tax burden on industry will remain constant at 3.4 per cent. Intriguingly, it will drop to 3.2 per cent. in the following financial year but rise thereafter. In the light of my query about the effect of the downturn in profitability, what assumptions lie behind those calculations? Assuming that the contents of clause 54 are maintained, the longer-term prospect—business likes to plan for the long term—is that business can look forward to a rising burden of taxation.

I apologise to the Committee for not declaring an interest as a non-executive director of a public limited company that pays corporation tax—[Interruption.] I remind those who question that that I declared my interests at the beginning of the Second Reading debate. I declare them again now. There is no material interest, because it says that there will be no change, and I propose no change.

Companies must pay mainstream corporation tax on a quarterly forecast basis. Will the Economic Secretary say how the revenues from corporation tax are projected with quarterly forecasting? Has the reality of today's estimates from companies shown to the Inland Revenue and therefore the Treasury started to move away from previous estimates that it had? I am anxious to know whether there will be an effect on the public purse of the declining profits on which the 30 per cent. corporation tax will be levied.

Mr Edward Davey (Kingston & Surbiton, Liberal Democrat)

The right hon. Gentleman is advancing an interesting argument, but I am not sure whether, in the cold light of day, he would agree with the ultimate logic of what he is saying. Is he really suggesting that corporation tax rates should go up and down over the cycle if the yield of corporation tax to the Exchequer goes up and down in relation to that cycle?

Mr Michael Jack (Fylde, Conservative)

No, I am certainly not suggesting that, because business requires a stable tax environment to undertake its planning. I asked my questions because we are being asked to agree a tax rate for 2002-03 in an information vacuum. Given that corporation tax is projected to yield £37.8 billion in the current financial year, I am interested in the effect of a diminution of revenue on the overall public finances. The Chancellor has said that they are robust; I want to probe and establish how robust they are in the light of reality.

Will the Economic Secretary be kind enough to comment on the relevant mainstream corporation tax issues raised by the CBI in its February 2001 report, entitled ``Business priorities for Budget 2001''? Paragraph 16 says:

``There have been a number of unwelcome surprises with regard to corporation tax since Labour came into office''.

It goes on to list those surprises and then comments:

``The CBI would argue very strongly that there is now a clear case for avoiding further shocks and giving some breathing space to take account of the impact of all these changes on the UK's international competitive position.''

It is clear that the CBI has taken into account such factors as previous changes on double taxation relief, controlled foreign companies taxation and the abolition of dividend credit taxes, and that it is feeling the pinch in competitiveness. It is all right for the Government to say that we should stick at 30 per cent., but business feels that its competitiveness, notwithstanding the proposal, has been adversely affected by the way in which the Government have dealt with corporation tax. I will be grateful if the Economic Secretary responds to those representations.

Miss Melanie Johnson (Economic Secretary, HM Treasury; Welwyn Hatfield, Labour)

I welcome you to the Chair, Mr. Hood.

We will maintain the corporation tax rate at the present 30 per cent. but we have reduced it twice since taking office—from 33 to 31 per cent. in 1997 and from 31 to 30 per cent. in April 1999. Our record on that is good.

I doubt that I will be able to address in the time available all the points that have been raised, but I will start with international competitiveness. The right hon. Member for Fylde has many concerns about that, but all Labour Members can be proud of our record. If we examine the tax paid by businesses, the UK compares extremely well with other Organisation for Economic Co-operation and Development and European Union member countries. We have reduced corporation tax to the lowest levels in UK history, and the total savings to companies from our tax cuts will be worth more than £3 billion per annum. Our top rate is just 30 per cent., while Germany, France, Japan and the United States of America all have effective top rates of around 40 per cent. That is based on additions of local taxes; for example, depending on the regions, corporation tax varies between 36 and 41 per cent. in Germany, between 35 and 36 per cent. in France, more than 40 per cent. in Japan and 35 per cent. in the USA—although there are a number of state taxes on top of that.

Mr Andrew Tyrie (Chichester, Conservative)

Will the Economic Secretary give way?

Miss Melanie Johnson (Economic Secretary, HM Treasury; Welwyn Hatfield, Labour)

I shall, but I have only five minutes in which to respond.

Mr Andrew Tyrie (Chichester, Conservative)

Does the Economic Secretary agree that we should take into account not only rates, but reliefs and allowances? Will she say whether she thinks that competitiveness should be defined by rates or by overall yield?

Miss Melanie Johnson (Economic Secretary, HM Treasury; Welwyn Hatfield, Labour)

We can examine the problem from a number of points of view, but, if we use company taxes as a percentage of expenditure based on gross domestic product in 1998, UK costs compare extremely well with those of France and Germany. Our overall position with those figures, which include corporate taxes, employers' social security contributions and other payments, is 9.4 per cent., compared with 17.5 per cent. in France and 9.2 per cent. in Germany. The EU average is 11.5 per cent.

Mr Richard Ottaway (Croydon South, Conservative)

The Minister is praying all those figures in aid of Britain's competitiveness position. Will she explain why we have just slipped from 15th to 19th in the competitiveness league, behind Taiwan and Israel?

Miss Melanie Johnson (Economic Secretary, HM Treasury; Welwyn Hatfield, Labour)

That is a ridiculous assertion. In the hon. Gentleman's opening remarks, he disregarded entirely the extraordinarily favourable environment that we have created in the UK for businesses to flourish and the fact that we now have the lowest—[Interruption.]

Mr Jimmy Hood (Clydesdale, Labour)

Order. Hon. Members must calm down.

Miss Melanie Johnson (Economic Secretary, HM Treasury; Welwyn Hatfield, Labour)

Thank you, Mr. Hood.

We now have the lowest inflation and interest rates, and the best tax levels for companies for decades. We have increasing employment and company profitability in the UK, as demonstrated by the statistics that I have given. It was interesting that the hon. Member for Croydon, South quoted barely any statistics in advance of his rant about the position of business in the UK. The right hon. Member for Fylde is right; stability is the key element that allows businesses to plan ahead and know where they are. The Government have provided such a framework for British industry, which was entirely disregarded by the hon. Member for Croydon, South. We have a record of which any Government would be delighted to stand in support.

Our aim is to do more than just cut corporation tax to its lowest ever levels. Our policies also aim to reinforce the fundamental advantages of investing and producing in the UK.

Mr Michael Jack (Fylde, Conservative)

I hope that the Economic Secretary will answer my questions about the revenues on corporation tax in the remaining few minutes.

Miss Melanie Johnson (Economic Secretary, HM Treasury; Welwyn Hatfield, Labour)

If the right hon. Gentleman keeps intervening, he will make it much harder for me to do so.

The profits limit was mentioned. A company will get the full benefit of the small companies rate on profits of up to £300,000, but raising the profits limit, so that a company would benefit from the small companies rate on profits of up to £1.5 million, would benefit a relatively small number of businesses. It would not target the smallest companies, which we are keen to ensure are fully supported. The right hon. Gentleman also mentioned projections and forecasts in the Red Book. On page 196, at paragraph C 44, there is a projection of non-North sea corporation tax profits and the expected revenue. Profits are projected to rise by a further £1.5 billion in 2002 and then to fall by almost £0.75 billion in 2003-04. So there is a projection, despite the right hon. Gentleman's suggestion that there is not.

We are again setting the main rate a year in advance, to give notice to the small minority of companies that would otherwise have to pay one or two instalments of tax before the rate was set. I return to the point that I made a few minutes ago—that is all about helping British companies to plan ahead and know where they will be and creating a framework that provides stability and certainty. Once the transition to instalments is complete, our cuts in the main rate of corporation tax will have benefited large companies by more than £3 billion a year.

Our policy is to promote enterprise by keeping corporation tax low. That allows companies to make long-term investment decisions with confidence and to increase the post-tax returns on investments. Conservative Committee members appear to be objecting to the level of revenue being received, but that is largely a result of the fact that, having cut the corporation tax rate, we are benefiting from the fact that British industry is doing so well at present. Internationally competitive rates of corporation tax also help to maintain this country's position as an attractive location for inward investment. I strongly commend the clause to the Committee.

Question put and agreed to.

Clause 54 ordered to stand part of the Bill.

Clauses 55 and 56 ordered to stand part of the Bill.

Further consideration adjourned.—[Mr. Allen.]

Adjourned accordingly at Seven o'clock till Tuesday 1 May at half-past Ten o'clock.