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In that case, perhaps I may give the Chief Secretary an example of the ludicrous distortions that this particular relief will cause for continuing businesses.
There is one way in which continuing businesses can continue to obtain and hold the relief. That is to make sure that their stock at the end of the year is the same as their stock at the beginning. If it is, they are preserving the relief they have had. Any run-down of stock will result in claw-back. That is precisely the sort of nonsensical by-product that the continuation of current policy will produce.
I declare an interest in that I am connected with companies which have obtained a benefit. When one goes to meetings one finds that the discussion is "Now we must make sure that at the end of the year we are well stocked up so that we do not lose the relief." That is very sensible on the part of the companies but it is commercial nonsense, because what the companies are saying is "We must continue to have a lot of money tied up in stock, because if we do not we shall lose the tax relief."
That is a further example of the sort of ever more involved situation that the Government have achieved by their various measures since they came to power. First they boosted the rate of corporation tax. They said "There are too many profits. Companies are making too much money. That is where the money will come from to finance our activities." Then the Chief Secretary, once he had got used to the glories of office, suddenly started to remember his commercial background and to realise that a lot of those profits which the Chancellor said would be available to finance his gross overspending were stock profits which needed to be retained in the companies to finance stock.
What we see in the July measures is an attempt by the Chancellor to reverse a bad decision. The history of this Chancellor's term of office is that he does something in one Budget which is wrong, he refuses to admit it and then he introduces a very complicated measure in the next Budget to try to compensate for the damage which his earlier mistake has caused. He is never prepared to admit a mistake or reverse it. We therefore have nonsensical ideas. The Government put up taxes too high, they overspend, inflation is generated as a result of what the Government do and damage starts to be done. The Government then introduce a paraphernalia of measures—stock appreciation relief, Industry Acts, and capital allowances which are fantastically generous—to encourage people once again to do things that the other part of Government policies are encouraging them not to do.
In an unguarded moment tonight, the Chief Secretary said that that was absolutely right, that companies were being held back not by shortage of money but by lack of confidence. I am glad to see the right hon. Gentleman nodding his head in agreement. He and his colleagues have done more to destroy confidence than any other group of Treasury Ministers for many years.
The Government have dished out several thousands of millions of pounds by way of relief for companies which have stocks. They have said that com- panies which are overstocked deserve relief. But overstocked companies are not always the most efficient. The taxes have been taken from the profitable companies and relief has been given to the overstocked companies. But the only way in which the companies which are given the relief can keep it is to remain overstocked. The Government tell them "If you once start to run down your stocks, if you want to start to go liquid, to put yourselves in a position to invest, we shall claw back the relief." Companies have the money, but they cannot invest it because they know that it is not theirs long-term.
The Chief Secretary said that the Government would tackle the problem on a long-term basis, but companies have cash at present. They are saying that they dare not tie it up in machinery. It is silly for them to tie it up in stock, but they receive tax relief for doing the nonsensical thing and therefore they find it better to continue to be overstocked and not realise their cash. So we go on and on.
The Chief Secretary says that if the clause were accepted companies that went out of business would benefit. But what the clause would do is to help continuing businesses, which are the ones we are concerned about. If a company goes out of business it keeps the relief on its stock, but if the assets are distributed it picks up the tab in additional capital gains tax. Nobody will close down his business and walk away with the relief in his pocket, because at the end of the day if the assets are distributed—certainly in the case of companies—the shareholder will receive more than he would otherwise have received and he will pay capital gains tax on that additional sum.
Therefore, it is not true that in a business which is closing down the relief would be lost for ever and the Revenue would lose a great deal of money. There would be additional capital gains tax, and quite a large measure of the additional cash retained would be clawed back.
We say to the Chief Secretary "Please stop thinking about blocking loopholes and people going out of business to make money. Please think about the effect of the clause on continuing businesses." We think that stock appreciation was a rough-and-ready, profligate measure. It had to be overdone, because the Chancellor went in for over-kill in his first Budget and has been trying to make it up to industry ever since. The small benefits that might become available to people running down their businesses or going out of business are nothing compared with the injection of confidence that acceptance of the clause would give to business.