Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 9:31 pm on 6th July 1983.

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Photo of Hon. Nicholas Ridley Hon. Nicholas Ridley , Cirencester and Tewkesbury 9:31 pm, 6th July 1983

Not at the moment.

On 11 May, I said: At a suitable opportunity we intend to bring forward proposals to change the law so that those carrying on a business of furnished holiday lettings will, in general, be able to claim capital gains tax retirement relief and relief on replacement of business assets, and to have their incomes from such a business treated as earned income, whether or not they are carrying on a trade,"—[Official Report, 11 May 1983; Vol. 42, c. 841.] I have to tell my hon. Friends that this involves long and complex legislation and that there was insufficient time to prepare it for inclusion in the Bill. There may even he a need for consultation. However, I assure the House that the legislation will appear in the 1984 Finance Bill and that it will become active from April 1983 as was originally announced. The Revenue will have regard to the statement that I have just made when considering cases in the current financial year. However, cases in the years before April 1983 will have to be considered in the light of the present law.

The original 1983 Finance Bill contained provisions designed to nullify the tax advantages that some United Kingdom companies gain by accumulating surplus cash balances in overseas tax havens. Those provisions—clauses 44 to 52 and schedule 7 to 9 of the original Bill — were the product of three rounds of wide-ranging consultations with the international business community. They would have enabled a charge to corporation tax to be imposed on certain companies resident in the United Kingdom with interests in companies under United Kingdom control in low tax areas. We intend to return to this problem in the 1984 Finance Bill, although we remain open to further consultation on the details of the provisions. To that end, we shall publish revised draft legislation in the summer or the autumn. The draft legislation will incorporate the various changes which were announced by the present Chief Whip on 30 March but which had not been tabled at the time the election was called.

The five main provisions of the Bill are the 14 per cent. increase in the thresholds for the higher rates, the investment income surcharge threshold increase, the increase in mortgage interest relief, the provisions relating to capital transfer tax bands and small changes to CTT, and the corporation tax small profits rate bands. I cannot quite see why the Opposition objected to the final two provisions. I suppose they thought that to do so fitted in with the former Chief Secretary's definition of "mean, vindictive and petty", but I do not know why the Opposition objected to the corporation tax small profits bands. The effect of raising the lower limit from £90,000 to £100,000 and the upper limit from £225,000 to £500,000 is to reduce the marginal rate between the upper and lower limits to 55·5 per cent. In 1978 it was 67 per cent.; last year it was 60 per cent. Without the clause it would be 61 per cent.; with the clause it is 55·5 per cent. That meets a case that has been made by many hon. Members—the hon. Member for Stockton, South (Mr. Wrigglesworth) is among those who have urged help for industry — that we should pay attention to the high marginal rate between the upper and lower levels. That is exactly what we have done.

The cost of the capital transfer tax provisions is only £5 million this year over straight indexation. The main increase is the increase from £58,000 to £60,000 in the threshold for paying the tax. That change is of the greatest benefit to the smallest estates, but the benefit is very small. An estate of £100,000 taxable value that would have paid £13,600 before the clause was enacted will now pay £13,000—a drop of only £600. An estate of £1 million that would have paid £549,650 will now pay £547,250 —a drop of £2,400. Those tiny figures have :0 be set beside the fact that, if we were to go back to the rates that the right hon. Member for Leeds, East (Mr. Healey) introduced in 1974, the tax would raise £75 million less. There is therefore no need for hon. Gentlemen to believe that we have been lax on this tax. Indeed, my hon. Friends could criticise the Government for having extracted more by higher rates than—