Clause 24
Finance Bill
2:45 pm
David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)
I do not know whether you are able to enlighten us, Sir Nicholas, as to whether it is easier to chair a Finance Bill Committee or call the numbers in a bingo hall. I do not know whether anyone has done both, but I expect that if anyone has done, it is probably your good self.
Clause 24 is the first of four clauses relating to research and development relief and vaccine research relief. Clause 24 incorporates schedule 8, which makes changes to the rates of those reliefs. Given that the Government are changing the rates, I would like to probe their policy in that area. I am sure that there is common ground across the Committee on the belief that research and development are an important element of our economic policy and the way in which the UK will prosper in the coming years. The question is how we go about ensuring that that happens. The context in which the Government seek to increase the rates of research and development relief is one in which manufacturing is not having the best of times. I recently became aware of OECD figures that showed that in manufacturing growth in the past 10 years, the UK comes second from bottom, above only Norway. All other countries have done better.
I mention that, because if manufacturing is to prosper in the years ahead, it will do so in the highly developed value-added area. That will not be achieved by doing things on the cheap because of increased international competition. Research and development play an important role. The question I want to probe—I stress, “probe”—is how effective the Government’s approach to research and development is, and how effective taxation incentives are in developing research and development in the UK, given that manufacturing industry, which is presumably its ultimate objective, has not grown substantially.
We should be aware, and I do not want to digress, other than very briefly, that many other aspects of the taxation system have an impact on manufacturing. We have already debated the fact that the likes of Shire Pharmaceuticals appear to have been driven out of the UK by taxation matters and the headline rate. The Committee has already debated the balance between exemptions and reliefs, and the need for a lower headline rate. We all have to address that matter, but I should be grateful if the Minister told us what assessment the Treasury has made of the effectiveness of research and development reliefs and credits, as opposed to a policy of lowering rates.
There are a number of reasons why research and development reliefs and credits have not been as effective as they might have been, including administrative costs involved in making a claim. We will come back to this point in other clauses, but I am conscious that there are always issues of state aid in this context, which limit the actions that the Government may take. Do they consider that an impediment to the action that would be necessary for a more effective regime? To give one example, in the Finance Act 2007, we legislated for an extension of the small and medium-sized enterprise definition so that it would incorporate more companies. As of a few weeks ago, that had not come into effect. Has agreement now been received from the European Commission to do that? There are other examples too. In 2006, I think, we legislated so that payment to clinical trial volunteers was eligible for these reliefs and credits. Again, I should be grateful for an update from the Minister. I should like to hear what assessment the Government have made as to the effectiveness of this area, given that we are going to increase the rates available to businesses.
I wish to make a specific point about the circumstances in which large companies pay mainstream corporation tax. It perhaps relates to the detail in schedule 8, but it would prevent my having to make any further comments. We have seen a reduction in corporation tax from 30 per cent. to 28 per cent., yet for large companies, the relevant rate has gone up from 125 per cent. to 130 per cent. To save time, I shall not set out all of the numbers of a worked example, but an example I have seen suggests that to have retained the position regarding the amount of tax relief available for a large company, the rate would have had to increase to 133.5 per cent., because corporation tax has been reduced. I would be grateful for confirmation from the Minister that that is the case.
It is always necessary to consider these reliefs and credits critically, by which I mean assessing sensibly whether they are working. I wonder, given that UK businesses appear to be very critical of the tax system and a number of them are seeking to move abroad, because our headline rates are not as low as those of some of our competitors, particularly Ireland, whether the Government have looked at reducing some of these reliefs, which would enable them to fund a reduction in rates. I should say for the sake of clarification that I do not particularly advocate that policy. It was set out—and no doubt the Minister will refer to this—by the tax reform commission led by Lord Forsyth. It is a recommendation that he made, but it is not one that my party has adopted as such, and our policies will become clearer nearer the time of the next election. It is a legitimate area for debate, whether for the Opposition or the Government, to keep these matters under review and I would be grateful for the Minister’s assessment of where we are.