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 7:23 pm on 20th April 2004.

Alert me about debates like this

Photo of Mark Prisk Mark Prisk Shadow Paymaster General 7:23 pm, 20th April 2004

The debate has been informed, surprisingly wide-ranging and extended. I welcome the Chief Secretary to his place. He began the debate in theatrical and entertaining style and it is nice to see him back on his old form. His speech was followed by a thorough and economically robust speech by my hon. Friend Mr. Flight. The Chief Secretary's speech was economically lacking but the entertainment is always worth it.

My hon. Friend's speech was followed by three excellent Back-Bench contributions from my hon. Friend Mr. Davies, my right hon. Friend Mr. Jack and last, but by no means least, the undergraduate on the Bill, my hon. Friend Mr. Bacon. I look forward to their contributions in Committee.

This year's Bill is longer than ever, if that can be believed. It includes 40 schedules and 310 clauses and extends to 574 pages. The explanatory notes alone stretch to more than 650 pages. As the Chief Secretary suggested, it will keep us busy, and I suspect that the undergraduate is beginning to wonder what he has let himself in for. Not only has the Bill got bigger, but the taxes that it covers will increase, too. Despite all the gimmicks and giveaways, and the spin and the gloss of the Budget day speech, the unvarnished truth is that, over the next 12 months, the nation's tax bill will rise by almost 8 per cent. The overall effect of the Budget and of the Bill will be an 8 per cent. rise in tax yield next year, and almost 8 per cent. more the year after. Indeed, the Red Book shows that the Government are planning for the burden of tax to reach its highest level for more than a quarter of a century by 2008. No wonder everyone is warning about Labour's third-term tax rises.

Our taxes had been rising steadily under Labour even before the Bill. The net effect of the previous seven Budgets and Finance Bills equates to an extra £5,000 per household per year. That is 60 stealth tax rises in seven Budgets, and this year, the Chancellor has slipped in six more stealth taxes. In this Bill, there is a new tax on small companies, a tax on UK businesses for transfer pricing, a tax rise on red diesel, a tax hike on other road fuels, a new tax on trusts and a sixfold tax rise on company vans.

The greatest act of stealth by the Chancellor came not in those specific changes but in his announcement of frozen tax thresholds and allowances. At the time, he made the tax freeze sound like an act of pure generosity, yet by freezing tax allowances and thresholds in the Bill, he is using the oldest stealth tax of all: fiscal drag. Let us take stamp duty land tax, a favourite of the Chief Secretary. When the Chancellor told the House that he was freezing stamp duty, Labour Members cheered; some even waved their Order Paper in support. But what they failed to understand—and what he forgot to mention—was that, as house prices rise, home buyers' tax bills will rise. To be more precise, the Chancellor expects people to pay £1,900 more in stamp duty next year. What Labour Members cheered on Budget day was a tax hike for first-time buyers. What they endorsed would mean thousands more key workers being priced out of a home. The Chancellor might be able to fool Labour Members, but he will soon learn that he cannot fool those whom they represent.

There will be tax increases, but there is another cost at the heart of the tax system under this Government. As the very length of this legislation shows, our tax system is now hideously complex. It has become an expensive burden in its own right. For example, the plan to impose strip stamps on spirit bottles represents a huge increase in costs for the industry, and we have heard Members on both sides of the House seriously urge the Treasury to think again about that proposal.

The complexity of our tax system stems largely—although not wholly—from a Chancellor who constantly meddles and tinkers with each and every tax, duty and charge. Every year we get a raft of new schemes, every Budget produces different rates and credits and every Finance Bill brings more and more rules. Let us take the new tax on small companies, as set out in clause 28. In 2002, the Chancellor cut the corporation tax starting rate from 10 per cent. to zero. Indeed, the Paymaster General actively promoted the change. She said in the Standing Committee that small businesses would not look a gift horse in the mouth. Thousands of businesses took her at her word and incorporated. Indeed, her encouragement was so magnificently successful that 300,000 firms incorporated.

Unfortunately, that was far more than the Treasury had budgeted for. Suddenly, the Paymaster General's gift horse was beginning to look a little lame. So, in the Budget last month, the whole policy was reversed, with a 19 per cent. tax rate being imposed on many of the smallest companies. Indeed, we are now told that this was not a gift horse at all, but a loophole. What remarkable genius. Only this Government—perhaps only this Paymaster General—could miraculously transform a gift horse into a loophole in 18 months. That is a remarkable achievement.

Yet the Government were warned of their error at the time. The recent Budget report by the Treasury Committee states:

"We are puzzled as to why, unlike other commentators, neither the tax authorities nor the Treasury anticipated that this would be the likely effect".

The Committee's report that goes on to say that the cost to the taxpayer was an estimated £670 million in lost revenues.

In a sense, the cost to business is probably far greater. There are the professional costs of accountancy advice and changing accounts, and the costs of the time lost in that process. But perhaps the greatest price to the UK economy is the uncertainty that this incompetent meddling has created. How are businesses meant to plan ahead when the tax system keeps changing? How can companies invest when they do not know how their investments will be taxed? Perhaps most important of all, what assurances can the Paymaster General give that some of the reliefs and many allowances in this Bill that she and her colleagues have applauded will not also soon be suddenly denounced as loopholes?

Conservative Members fully accept that seeking to evade legitimate tax liability is illegal and should be dealt with accordingly, but there is a world of difference between illegal tax evasion and tax avoidance or planning. Indeed, I understand that that was once the Labour party's view. Preparing for the debate, I came across a fascinating document, Labour's policy paper "Tackling Tax Abuses, Tackling Unemployment"—a snappy title. It was written when the Chancellor was still the shadow Chancellor. Under the heading, "How avoidance can be countered", it states:

"The taxpayer is entitled to take advantage of the law to minimise his or her tax bill."

It goes on

"as a matter of principle"

—not a phrase that we hear often from Labour Ministers nowadays—

"we believe that the citizen is entitled to know where he or she stands before the tax law."

It concludes:

"It is the complexity of the present system that has encouraged the growth of a flourishing avoidance industry."

For once, I agree with the stated policy—as it must have been then—of the Labour party and its supporters, but what is the Paymaster General's view? Does she agree with the Chancellor's view then, or with his actions now? Does she accept that people are entitled to ensure that they pay only the tax that they owe? Does she understand that ceaseless change leaves taxpayers unclear about where they stand? Will she agree in her reply that the more complex the tax law, the greater encouragement there is for tax avoidance?

The Bill represents a wasted opportunity, which is why I urge all Members to support the amendment. It could have presented a radical plan to help savers and reduced the complexity and burden of the tax system. Yet, instead of helping enterprise, it stings small companies and the self-employed. Instead of helping home owners, it increases the tax burden of first-time buyers. Instead of simplifying our tax system, it adds 574 pages of complex rules and regulations.

Never has a Finance Bill been so long, and said so little of substance. Long on words, short on vision: that is the reality of this Bill, and that is the record of this Chancellor.