To claim that a million jobs have been created by the minimum wage is a rather large step to take. Other jobs may well have been lost. The minimum wage was set at a sufficiently competitive level, so a number of our concerns did not come to pass. Like many people in the mid-1990s, I ran a small business, albeit one in central London that paid even the lowest paid employees considerably more than any projected minimum wage. However, it is clear that jobs have not been lost. It is also well established that the Conservative party has changed its position on that.
With effect from
The United Kingdom Offshore Operators Association, which represents some 30 of the largest 70 licence holders that are active in the North sea, said that the new surcharge
"could undermine investor confidence in the long-term viability of the North Sea."
The policy comes at an especially crucial time, given the difficulties in the middle east. It will be interesting to see how oil supplies are affected by those difficulties in future years.
Shell Expro, the second biggest company in the North sea, which combines the operations of Shell and Esso there, said only a couple of weeks ago that although it welcomed the increased capital allowance and the possible phasing out of royalties—as I said, the latter affects only the older oilfields—they were
"not expected to come close to offsetting the supplementary charge" that would be put in place. A number of people have also been very concerned that the higher tax rate will result in fewer discoveries being commercially viable in the years ahead.
I should like to say a few words about globalisation, as financial and business services remain the powerhouse of the City's economy. They account for some 6.6 per cent. of the UK's gross domestic product and 600,000 new jobs are likely to be created in London in the next 15 years—if the Mayor of London is to be believed. On this matter at least, I have no reason to disbelieve him. More than 500 foreign banks will be active in the City and we would obviously wish those circumstances to be maintained.
The City relies on technology and massive labour mobility. The great worry is the flip side in a high-tax economy. We can attract the best workers world wide and, indeed, the crème de la crème of our graduates, but we must accept that work done in London can be done elsewhere increasingly easily, and will be relocated if the City ceases to be such an attractive place in which to do business.
Many hon. Members have spoken on a number of occasions about the severe infrastructure issues that central London faces. I spoke only a fortnight ago in an Adjournment debate on the future of Bart's hospital, which is obviously close to my heart. Likewise, there are transport issues relating to crossrail, the tube and the proposed congestion charge. There is a great worry that too many foreign banks that employ a highly skilled work force are fast reaching the end of their tether. The Bill contains measures that may tip some of them over the edge.
We have discussed controlled foreign companies—companies that are not resident in the UK, but are controlled by individuals who are resident here. Clause 88 provides for a reserve power to make regulations specifying overseas jurisdictions to which the exemptions from CFC rules would not apply. As a result, all CFCs located in those jurisdictions could be taxed under the controlled foreign companies rules. As many hon. Members know, Conservative Members voted against Budget resolution 41, which relates to that new measure. We are concerned that the measure will increase substantially the powers of the Inland Revenue. It is directed especially at the Crown territories of the Channel Islands, including Jersey and Guernsey, and at the Isle of Man, and concerns subsidiaries of groups whose headquarters are situated in the UK.
I believe that that matter has nothing to do with money laundering—a red herring that various Ministers and others have referred to—and relates solely to tax competition. The uncertainty that will result from the legislation will put at risk the UK's position as a future location for the headquarters of multinational companies.
There is also an issue in relation to UK branches of multinationals. I had wanted to deal in some detail with foreign companies that operate in the UK through a branch, as the matter obviously has a strong effect on the City of London. Such companies have long been able to debt fund their branches and thus obtain tax deductions for payments of interest to their foreign head offices. However, those rules are set to change. For accounting periods beginning on or after
That could have a major effect. I know that Ministers will be aware of the concerns that have been expressed and will have received a great number of representations in that regard, but as well as hitting the banking sector, which is clearly a big issue for the City, the measure will also add complexity to the tax affairs of a great number of multinational groups that have UK branches. Indeed, I understand that the Association of British Insurers said:
"There is a concern that the measure could also disincentivise foreign firms from being established in London, given the sums involved."
Given the precarious nature of the insurance market and of Lloyd's in particular, that would be a great problem.
A number of hon. Members mentioned growth, on which the Government's proposals seem unduly optimistic. In a sense, time will tell, but as my hon. Friend the Member for Buckingham pointed out, figures released only last Friday suggested that first quarter growth this year was only 0.1 per cent., which is much lower than the expected 0.4 per cent. and the projected growth of more than 2 per cent. this year and 3.5 per cent. next year, on which many of the Bill's spending plans were predicated.
I shall draw my remarks to a close, as I know that other hon. Members wish to speak. On the generality of the financial position in which the country finds itself, I accept as a relatively new Conservative Member of Parliament that it would be graceless not to recognise that the Chancellor often commands the Exchequer with great stature. I suspect that he may well be judged in the long term to have been in the upper ranks of holders of that office. Indeed, not to acknowledge that would be as graceless as many of the Front-Bench Treasury team have been in not acknowledging that they were bequeathed a golden economic legacy by the outgoing Government in 1997. They have built on that legacy. Many of us had great concerns in 1997—they were genuine, given the track record of many former Labour Governments—that things would fall apart very quickly. It is only right that a certain amount of credit should be given to the Government for having been able to marshal the economy as well as they have done in the past five years.
One must also accept, however, that the inheritance that the Government received in 1997 was the product of 15 years of often thankless domestic economic performance. Similarly, the work of the current Chancellor and the results of some of his much-vaunted changes to public finances in the past three Budgets—as well as the ones proposed in the Bill—will not become fully apparent until the first half of the next decade. While I am quietly confident that, by then, it will be my party that is sitting on the Government Benches, I am less sure that we shall not have to untangle an unholy mess in our country's finances by that time.