We need your support to keep TheyWorkForYou running and make sure people across the UK can continue to hold their elected representatives to account.

Donate to our crowdfunder

Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 3:49 pm on 20th April 2004.

Alert me about debates like this

Photo of David Laws David Laws Shadow Chief Secretary to the Treasury 3:49 pm, 20th April 2004

It appears that the meeting will be needed. I think that the Paymaster General is trying to have her cake and eat it.

I am conscious that time is limited, but I have one more issue to raise. We have already discussed the unfairness of the tax system and highlighted the absence of any measures in the Budget and the Finance Bill to address the unfairness of the local government tax system. Our other perpetual complaint about the tax system, especially under this Chancellor, is its complication and the rapid introduction of a series of ill-thought-out subsidies, often without any calculation of whether they will have any economic advantage. There are examples in every Budget under this Chancellor, and in this year's Budget we witnessed the fiasco of the zero per cent. corporation tax rate. The Chancellor had to introduce a new 19 per cent. tax rate this year to try to deal with the problem of lost revenue that resulted from many people incorporating.

That fiasco was entirely foreseeable and, indeed, was foreseen by many people who gave evidence to the Treasury Committee a couple of years ago and by the Institute for Fiscal Studies. It was also widely discussed and debated in the House. A year or so ago, I attended an event in my constituency organised by local accountancy groups that were trying to encourage people to incorporate and pointed out the great advantages that the Government had opened up as a consequence of the zero per cent. tax rate. The tax accountants led, as one would expect, with an explanation of how the measure worked in practice and what their charges were. As a political representative, I was asked only one question—that surely the loophole was too good to last and that once the Government realised they were losing revenue they would close it and people who had paid their money to accountancy firms would be no better off. I am afraid that I naively said that even this Government would not be so short-termist and short-sighted as to end the tax relief within 18 months, particularly before a general election.

That is the last time that I shall defend the Treasury's long-termism, as business men now ask me how the Government could change their mind so rapidly. Under the Bill, the Government will raise almost £1 billion over the next couple of years by withdrawing all the reliefs that had previously been introduced. It would have been far too embarrassing, however, for the Chancellor to have to announce in the Budget that he was withdrawing the zero per cent. tax rate. That would sound like an anti-business measure, so he presented it as a further reform to stop tax avoidance. The introduction of a new 19 per cent. rate will further complicate the system and, as a result, the tax accountants who were at that meeting will earn even more money from people going back to them for advice.

It is not for me to suggest how the Government can get out of the mess that they have got themselves into, but I shall make a constructive suggestion before concluding my speech. The Government will issue a discussion paper on the tax rates paid by incorporated and unincorporated smaller businesses later this year, and it will lead to changes in 2006. We do not want people to adjust to the latest change in the tax regime, only to be messed around again in 2006 when the Government change the whole system. The Government should aim to put off that penal increase in taxation. They should accept that the loss of tax revenue is their fault and was entirely predictable. They should not introduce changes in the tax system for small businesses in 2006 until they have thought them through.

It was fair to characterise the Budget as somewhat dull and the Finance Bill as long. What is not in the Bill concerns us, and should concern the Government too. There is nothing about the fairness and simplicity of the tax system, nothing to address the public expenditure issues facing the Government, and there is complacency about the major macro-economic challenges facing them.