Finance (No. 2) Bill – in the House of Commons at 4:45 pm on 6 April 2005.
This and the following clauses set the rates of corporation tax. In many ways, they are unexceptional. However, a number of issues are worth probing. The mainstream corporation tax rate of 30 per cent. has remained at that level for a long time. When it was brought down to that level, it was proudly boasted for a spell that it was the lowest in Europe. The small further fall took place after the main and very important reforms that were taken in the mid and late 1980s, which transformed the tax and the corporate environment in the United Kingdom. Incidentally, those reforms were vigorously opposed by Labour Members.
The current rate of 30 per cent. certainly is not the lowest in Europe. Ireland has a rate of 12.5 per cent., Germany is announcing plans to bring its rate below 30 per cent. and a good number of accession countries have extremely attractive rates that are well below 30 per cent. I am a little concerned that the Government do not appreciate that the UK's rate is beginning to look a bit high. In a few weeks, we will be on the other side of the Committee and will be able to sort that out and start pointing a way towards further reform of the tax. We have already outlined one or two suggestions. I am particularly concerned that the Government do not appear to have a clear view about where they want to take corporation tax. I would be grateful if they said something about that and the competitive environment.
Another concern is that corporation tax is only one of a number of tax burdens on business that companies are expected to pay. Its yield constitutes only about a quarter of the total yield that comes from businesses, and that excludes pay-as-you-earn, national insurance contributions, salaries and VAT.
Can the Financial Secretary say a little about the recent European Court of Justice decisions that are coming through? What is his estimate of the likely losses to the UK's yield from those decisions? It is an important issue that we will have to address when we are on the other side of the Committee, but I shall be interested to hear whether the Government have made an effort to think it through.
I shall be brief given the time constraints that we are under. Our corporation tax rate—at 30 per cent.—is lower than in any other major European country. The hon. Gentleman implicitly stated, and I shall make it explicit, that this Government reduced the rate to 30 per cent. from the higher rate that it had been under the previous Government. In addition, in the Budget of 2002, we cut the starting rate of corporation tax from 10 per cent. to zero, and the lower rate for small companies from 20 per cent. to 19 per cent. I have no doubt at all that that is one of the reasons that the World Bank in September last year ranked the UK first in Europe and seventh of the top 20 countries to conduct business in and why the Organisation for Economic Co-operation and Development last year put the UK's economic and administrative regulations among the lowest in the OECD.
It is important that we continue to maintain a competitive and attractive tax environment in the UK for businesses. The fact that we have such an attractive environment is the reason that we continue to be the most attractive destination in Europe for inward investment. We are determined that that should continue.
Question put and agreed to.
Clause 10 ordered to stand part of the Bill.
Clauses 11 and 12 ordered to stand part of the Bill.