Clause 34
Finance Bill
11:30 am
Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)
I am grateful to both Opposition spokesmen for their support for the principle of what we are doing and the approach we have taken. Consultation has been broad, and as the hon. Member for Fareham pointed out, the proposals have been substantially modified in the light of our discussions. As we go through this part of the Bill there will be several technical discussions on the details, which will be important, but I am glad that the principle has been so strongly supported. The hon. Member for Southport was right to highlight the importance of our ability to continue to bear down on avoidance, and we will debate the issue later.
The hon. Member for Fareham asked about the costs involved. He is right to say that our initial intention was to make the change in a fiscally neutral way. As he indicated, there is a degree of uncertainty about precisely how companies will react to the changed framework introduced by the clause, so one cannot be too definitive about exactly what the fiscal impacts will be. However, as discussions have developed and as we have listened to the concerns that have been raised, we have relaxed the requirement that the change should be fiscally neutral. Consequently, while the initial intention was for the package to be revenue-neutral, it now has a cost.
On next year’s expectation, dividend exemption will lead to a tax reduction of £500 million and we expect that to be offset by £200 million from the impact of the debt cap, which we will discuss in relation to the changes to the controlled foreign companies rules in clause 36. We also expect a loss of revenue of £50 million as a result of the abolition of the Treasury consents rule. All of those changes mean that we expect an overall loss of revenue of £150 million, which will grow as time goes by and companies increasingly reorganise their activities in the light of the changes.
The big difference is that, whereas we initially envisaged the debt cap as centring on a company’s net debt, it now centres on gross debt. That is the big change both in the structure of our proposals and in the fiscal impact.