Corporation Tax

Oral Answers to Questions — National Finance – in the House of Commons at 12:00 am on 18th April 1991.

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Photo of James Paice James Paice , South East Cambridgeshire 12:00 am, 18th April 1991

To ask the Chancellor of the Exchequer what is the rate of corporation tax in the United Kingdom; and what is the average in EC countries.

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

The main rate of corporation tax will be 34 per cent. for 1990 and 33 per cent. for 1991, down from 52 per cent. in 1979. The European Community average, excluding the United Kingdom, for 1990 is 40.2 per cent. Germany's rate is 50 per cent.; Belgium's is 43 per cent. and France's is 34 per cent. Britain and Luxembourg now have the lowest main rate of corporation tax in the Community.

Photo of James Paice James Paice , South East Cambridgeshire

Does my hon. Friend accept that not only is that exceptionally good news for British business men, because it means that they can retain a greater proportion of their profits for reinvestment in their own businesses, but it ensures that the British Isles is a far more attractive place for overseas investment than anywhere else in the European Community?

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

That is correct. It is worth noting that 41 per cent. of investment by the United States in the European Community comes to Britain, that nearly 40 per cent. of Japanese investment in Europe comes to Britain and that there is more German investment in Britain than in any other European Community country. That shows that we have created an extremely favourable environment for business here in Britain, which is beneficial for this country. This year's Budget alone released £.1 billion which would otherwise have been taken by the taxman, but which is now left for businesses to use for investment, if that is what they think right.

Photo of Mr Patrick Duffy Mr Patrick Duffy , Sheffield, Attercliffe

Although cuts in corporation tax will undoubtedly produce an increase in investment by the mid-1990s, could not the Chancellor have chosen other measures if he wished to produce a surge in investment, which is presumably desirable at this point? Would not a more fundamental measure for boosting investment in the short term be the introduction of investment allowances?

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

We have had that before. Contrary to what the hon. Gentleman might suggest, the real surge in investment occurred immediately after we abolished 100 per cent. capital allowances. Between 1986 and 1989, investment increased by no less than 43 per cent. to record levels. That was at precisely the moment when investment allowances of the sort to which I believe that the hon. Gentleman is referring had been abolished.

Photo of Ian Taylor Ian Taylor , Esher

Does my hon. Friend agree that the corporation tax level in this country is a good reason for us not to try to harmonise around some mean in the European Community, but to set an example for others to follow? When they begin to follow, we shall have already got ahead of the game by attracting inward investment by companies which know that this is the best place for them to base themselves in the single European market

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

The record entirely supports my hon. Friend's point. We should be aiming for a tax system that is simple and has low rates. That is what people and businesses want; it is what makes for a successful economy and it is what we shall continue to seek.

Photo of Kate Hoey Kate Hoey , Vauxhall

Is the Minister aware that in no other European country are the national governing bodies of sport required to pay corporation tax? There has been a strong lobby in this country for our national governing bodies not to have to pay it either. Is the Chancellor considering removing that requirement?

Photo of Francis Maude Francis Maude The Financial Secretary to the Treasury

As the hon. Lady knows, we have given the matter careful consideration. She brought a group of representatives from the sporting bodies to talk to me about it earlier this year; however, we do not think that such a move will be possible.