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I beg to move, That the Bill be now read the Third time.
I wish to thank all the right hon. and hon. Members who participated in the Committee of the whole House and the Standing Committee, and whose contributions produced lively exchanges, constructive debate and some improvement in the content of the Bill.
In March, the Budget set out the Government's determination to take the right steps to meet the challenges and pressures that face the nation now and in the future. This Finance Bill introduces the measures through which we shall take these steps by strengthening stability, supporting enterprise and ensuring fairness. In doing so, modernising the tax system and the protection of tax revenues go hand in hand with greater investment in public services and improvements in efficiency.
Promoting enterprise and productivity have long been key aspects of our economic policymaking, alongside introducing measures that will create a platform of stability for business, and ensuring that the UK keeps pace with the global economy. The Bill takes those objectives forward through some specific measures.
In the past, we have cut corporation tax. The Bill freezes corporation tax rates at their current level, and clauses 38 to 46 will take forward our continuing reform of the corporation tax system. To provide enterprise incentives, clauses 93 and 94 will amend the enterprise investment schemes and the venture capital trust schemes. The Bill confirms the Government's commitment to allow investments in venture capital trusts to secure tax relief of up to £200,000 a year—not at the lower rate of 20p, but at the higher rate of 40p.
Clauses 138 to 139 provide particular reliefs to business. To increase the incentive to invest in research and development, a new definition of research and development tax credits came into effect on
Promoting enterprise and competition is important, but it must be underpinned by fairness. Our objectives for stable public finances and world-class public services require a tax system that is fair—one in which everyone pays or claims what is due. To protect the revenue for investment in the public services that this country wants, we are determined to tackle tax avoidance and evasion. To do that, we have brought in a number of legislative changes to close loopholes that have been exploited for avoiding tax. Most importantly, through clauses 298 to 311, we have introduced disclosure rules to ensure that we find out about new loopholes earlier and can announce changes in the law to protect the Exchequer and the generality of taxpayers.
Throughout consideration of those proposals, concerns have been raised—they were raised again yesterday, especially by Mr. Flight—about the possible impact of the rules on normal, bespoke tax advice. I repeat my assurances that those rules will not target straightforward tax planning, such as the advice that companies necessarily seek when planning a takeover or merger. The revised draft regulations will ensure that the rules target arrangements that present a significant risk to the Exchequer. Having carefully reconsidered the points made by the hon. Member for Arundel and South Downs, I shall go further by saying that a number of points will be taken forward.
The Revenue has been working with tax advisers and industry representatives during the consultation to refine the rules in two key areas. First, the definition of a promoter will be restricted to ensure that only those at the heart of a scheme are required to disclose. Broadly, that will exclude anyone who is not directly responsible for designing those parts of the scheme that give rise to the tax advantage. Secondly, the final published regulations will contain more narrowly targeted rules that should be relatively easy to apply. In particular, the financial products test will be limited to arrangements where it would be possible for the promoter to obtain a fee attributable to the tax advantage achieved by the scheme, where the tax advantage arises from elements of the arrangements that a promoter might wish to keep confidential or where a promoter is party to a financial product on terms that are significantly different from open market terms.
In explaining that approach to the House, I stress to the hon. Member for Arundel and South Downs and other hon. Members that we are in absolute agreement on the questions that they have asked about filtering out ordinary, ongoing and bespoke tax advice and bespoke planning advice on commercial transactions where the tax arrangements are unremarkable. We will continue to watch such things closely and consider the views of the House on them.
Under clause 19, we will also introduce new requirements to disclose the use of VAT avoidance schemes. The Bill confirms our commitment to tackle complex tax avoidance schemes using trusts. Clause 84 will introduce an income tax charge on pre-owned assets to ensure that people use trusts for legitimate transactions, not to achieve unfair tax avoidance. Together, those and other measures are intended to seek to safeguard fairness in the tax system to ensure that everyone pays their way and that as little as possible is wasted through avoidance and fraud.
The Bill takes forward some of the key steps that we are taking to ensure that the country has the means to meet the challenges of the future. It is however important that individuals can do that as well. That will be delivered and driven by our pension simplification measures, which are the most radical changes to pension tax for a generation and are encompassed in clauses 146 to 278. Simplifying the taxation of pensions is the cornerstone to making pensions easy for everyone to understand, thus enabling everyone to prepare for their future. By replacing the previous rules with a single regime for tax-privileged pension saving, the Government will reduce complexity, cut regulation and introduce more flexibility for those who save or wish to save for retirement. We are introducing a simple system that enables people to plan and save for their retirement. In that way, the Bill renews and reaffirms the Government's role in the UK's pensions partnership.
The Government aim to maintain the UK as a low-tax environment. The Bill enshrines that ambition. It will build on and develop the macro-economic stability that is essential for our future productivity, growth and prosperity. It will support business, while ensuring fairness. It will enable this country to match its new-found economic stability with the confidence to excel in the future. The Budget laid down the measures that will enable the UK to respond to and meet the challenges of the global economy, and the Bill will set them in statute. I commend it to the House.
We have not had last year's problem of having a timetable for our proceedings, which resulted in a lack of time for adequate scrutiny, but such was the lack of consultation on some key areas of the Bill and the Government's failure to understand the knock-on effects of their major changes, that we have considered a deluge of amendments and new clauses on Report. The Government's failure to get to grips with several complex aspects of the Bill and their unfair—and, I trust, unintended—effects needs to be addressed, so I was pleased to hear the Paymaster General commenting on their willingness to do so. That will inevitably mean that the Inland Revenue will have to sort out the problems through Revenue guidance later on, but it is wrong and undemocratic for our system to be governed increasingly by Inland Revenue fiat.
The Bill will create more than 600 pages of complex legislation with which businesses and citizens must cope. I described it as "dull" on Second Reading, but perhaps "depressing" would be a better word. It contains nothing positive for the productive economy, and it will do nothing to relieve citizens and businesses from the burdens of big spending, big borrowing, big taxes and the inefficient big government that is failing to deliver promised improvements to public services. It will add to the command and control culture that is inevitably expensive and bears down on our economy's competitiveness. The impact of the Bill will go well beyond the Government's estimates on Revenue staffing and cost, yet the resultant additional tax-take is unlikely to be significant.
At the present stage in the economic cycle, with zero slack capacity, any prudent Chancellor would have tried to increase the savings rate, but the Bill contains no incentives for savers. Contrived outside the Bill itself, individual savings accounts are becoming less attractive to the 15 million ISA savers.
Although there is common support for the measures that will require the reporting of marketed tax avoidance schemes, and notwithstanding the Government's climbdown in response to some of the criticisms from the legal profession, the reporting requirements in the Bill extend well beyond such schemes. The failure to draw a line is likely to result in the Inland Revenue being snowed under by the reporting of regular corporate tax planning arrangements. I repeat that I welcome the Paymaster General's intention, but I am not sure how she will achieve her aim.
The Government have similarly committed overkill with their retrospective charge to income tax on pre-owned assets. They promoted those measures as an attack on past aggressive inheritance tax planning to avoid the gifts with reservations rules. However, as they have chosen to adopt an entirely new catch-all tax with only a limited number of exemptions, the new system goes much further. The new income tax will apply to situations accepted previously by the Revenue as being outside the gifts with reservations rules, and within the statutory gifts with reservations exemptions that the Government introduced. A greater concern is that while the new income tax is technically retroactive, it is in principle retrospective. It changes the tax rules that are applicable to transactions entered into as far back as 18 years ago, which were legal at that time. The Government are effectively introducing a major and unacceptable new doctrine that retrospective legislation is legitimate if there has been tax avoidance.
The Bill also includes the new and complicated 19 per cent. non-corporate distribution tax on small incorporated businesses. The problem that exists is wholly of the Government's making, as we warned at the outset. Those measures, together with clause 86 and the Jones section 660 case, on which the ruling of the special commissioners is awaited, constitute an attack on small manager-owned businesses that will burden them with unnecessary complexities. Clause 86 undermines the basis of independent taxation as set out by the Chancellor at the time of its introduction. It meant that husbands and wives were free to organise their tax affairs to benefit from the new independent taxation rules.
The new simplified tax regime for pension saving turns out not to be so simple after all. Although many of the reforms have been generally welcomed and the increased flexibility was badly needed, the changes were supposed to reduce eight regimes into one, but as we pointed out, in reality there will be six sub-regimes. The transitional arrangements will be highly complicated and retrospective for those who were specifically grandfathered when the original pension cap was introduced in 1989. The most unfair aspect is that the 20:1 pension formula for valuing a final salary scheme pension is significantly more generous than the fixed £1.5 million limit for money purchase pensions.
The Government have remained deaf to the probability that clause 20, which tightens up on VAT group relief, will be a major incentive to banks and other large service organisations to subcontract their back offices overseas.
The Government have failed to convince anyone that the costly and complex strip stamping regime for spirits will work, or that the cost to the industry will be proportionate to the benefit of the strip stamp.
This is a bad Finance Bill with ever more complexity and costs, adding nothing to the productive part of the economy. The overkill on anti-avoidance and the retrospective nature of the pre-owned assets legislation alone are sufficient grounds to vote against it. The once prudent Chancellor has contrived to seek to create a pre-election boom by massive increases in public expenditure and borrowing, at the cost of creating a large structural deficit and an unsustainable increase in personal borrowing, to more than a trillion.
In the forthcoming spending review the Chancellor will not tell us by how much he will increase taxation if Labour were to win another election. He will not be telling us either that when he knows that he should be putting the brakes on out-of-control public expenditure, he cannot do so because he has refused to backtrack on the overbearing and inefficient micro-management big state that he has created. The Government have not only been wasting taxpayers' money by mistake, but they have on purpose developed a command-and-control regime that has bloated the cost of government itself.
The Chancellor knows that he has already lost the confidence of much of the business community. As the recent elections showed, Labour is losing the confidence of the voters.
As Mr. Flight hinted at the beginning of his comments, we have at least this year had a good opportunity to debate all the elements of the Finance Bill, notwithstanding one or two late amendments. That is by contrast with last year. I think that last year we had one extended day for the last stages of the Finance Bill. It is to be welcomed that this year the Government listened to some of the concerns and criticisms that were expressed about the amount of time that we have.
The hon. Member for Arundel and South Downs is also correct to say that this is perhaps one of the less memorable Finance Bills of recent years. When we examine the costings of all the different measures that the Government have put forward in the Bill, we can see nothing of any great size. I leave it to others to decide whether the Chancellor has run out of money to give away this year, or whether he has run out of ideas for new policies.
We have had a good opportunity to debate in detail many of the issues that arise from the Bill, so I want only to pick out some of the salient points in summary, both those where the Government seem to have made some progress and those areas where we have continuing concerns about the Government's policy.
On the simplification of the pensions tax regime, we largely agree that it is an improvement on the previous situation, and we welcome that. We have continuing concerns about duty stamps for spirits, not least because we question whether there is evidence to justify the measure that the Government are bringing forward in terms of its potential cost for the industry. However, we accept that the Economic Secretary has made some important progress in recent weeks behind the scenes with the industry in considering how the Government's policy can be introduced in a way that will reduce the burden on the industry. We hope that those discussions will continue so that a more workable scheme can be developed that will not have the bad effects and the high cost burdens on the industry that the initial proposals in the Bill were to have.
We welcome many of the proposals in the Bill on the issue of tax avoidance. The Paymaster General is right to say that it would be of concern to any Government given the potential leakage of revenue. We have heard not only of large tax avoidance schemes that have taken effect over the past couple of years, but about how effective the industry is in developing new tax avoidance schemes even during consideration of the new Finance Bill. We therefore welcome many of the measures in the Bill, and the Government are sensible to introduce more general anti-avoidance legislation, including the pre-notification requirements for artificial schemes.
We have only two concerns about the Government's proposals on tax avoidance, and they relate to bespoke advice and de minimis limits. The Paymaster General was slightly more constructive about those issues on Third Reading than she was on Report, and I hope that behind the scenes the Revenue will work with the industry to make sure that the proposals are workable and reduce the burden on business and the tax industry if the Government insist on notification of everything that moves. I am pleased, however, that the Paymaster General has softened her position a little. If we are to get to grips with tax avoidance, the Government should not only close loopholes but resist the opportunity to open others that can be exploited. When we discussed charity taxation reliefs, we saw how easy it is, even when there is well meaning and apparently well thought-out Government legislation, to develop artificial schemes and contrivances that can be immensely expensive.
The Government have a responsibility not to introduce complicated new schemes that can be open to abuse. As the hon. Member for Arundel and South Downs said, the Government were warned at the time that their proposals on the zero per cent. rate of corporation tax would open a huge tax loophole, leading to a loss of revenue, which is exactly what has happened. The contrivance of the 19 per cent. rate on non-corporate distributions will impose a big burden on small businesses that lack a sophisticated appreciation of taxation matters, not least because they will find it hard to understand how it affects them. They will have to purchase more complex and costly tax advice, but they should not be put in such a position. I very much hope that after the further review of the corporate tax system which, the Government say, will take place in the next couple of years, a more settled tax regime for small businesses will replace the system of four or five different rates that has been in operation over the past few years.
The Finance Bill is disappointing not so much because of its provisions, some of which are sensible and deal with matters that require reform, but because it is detached from the concerns of ordinary taxpayers around the country, in middle Britain and in middle England. Our debates on issues such as pension tax reform demonstrate, as Mr. Davies said, how far removed we are from the concerns of the average taxpayer on an average income. We discussed how people would be affected by a £1.5 million or £1.8 million pension pot—sums which are way beyond the income of the average taxpayer, who is concerned about the increasingly aggressive nature of the tax system, not least the huge 80 per cent. increase in council tax since 1987; the way in which more and more people are being pulled into the tax net following the failure to index the personal allowance in line with earnings; and the fact that stamp duty on residential property catches most first-time buyers, although it caught only 18 per cent. of them 10 years ago, since when it has not been indexed. The Bill's biggest weakness is its detachment from the tax concerns of average taxpayers, who want a fairer, simpler tax system. Instead, they have had more fiddling and unfairness, so we hope that the Government will learn that lesson when they introduce Finance Bills in future.