Amendments made: No. 30, page 293, line 17, leave out 'the words ", or as a business transfer-out," and'.
No. 31, page 295, line 44, leave out '84(2) to (6)' and insert '84(2), (3), (5) and (6)'.
No. 32, page 296, line 14, leave out '17(5)' and insert '17(4A) and (5)'.— [Mr. Timms.]
Order for Third Reading read.
I beg to move, That the Bill be now read the Third time.
It is a pleasure to begin by thanking all those who have contributed to the consideration of the Bill in the Committee of the whole House, in the Public Bill Committee and over the past couple of days on Report. We have missed my right hon. Friend the Paymaster General—I believe she has been missed on all sides. This would have been her 13th Finance Bill, and I know that the whole House would want to join in paying a tribute to her.
The major changes in the corporate and personal tax systems in this year's Budget have been possible because of the unprecedented stability and growth that the Government have delivered over the past decade—record levels of employment, low inflation, and the second highest GDP in the G7 per head, as opposed to the lowest when we came to office. This is the longest expansion among the entire Organisation for Economic Co-operation and Development and the longest on record for any G7 country, so it is no surprise that the International Monetary Fund praised the UK in February for our
"decade long record of strong and steady macroeconomic performance".
The Bill continues that progress. It enhances competitiveness, supports investment and innovation, increases fairness, including safeguarding the revenues to deliver world class public services, and addresses the growing challenge of climate change. Clause 2 reduces the main rate of corporation tax from 2008 to 28 per cent., a lower rate than any of our major competitors. Clause 3 phases in necessary increases to the small companies rate, with the proceeds recycled to businesses that invest.
To support investment, clause 36 extends the enhanced 50 per cent. rate of first year capital allowances for small businesses for another year, and next year a new annual investment allowance will provide 100 per cent. first year allowances for the first £50,000 worth of expenditure on most plant and machinery—a big cash flow benefit to companies that reinvest their profits, so offsetting the small companies rate increase for investing small companies.
Changes announced this year, which will be legislated for next year, include a big simplification of the income tax system, with just two rates at 20p and 40p, and measures to take 200,000 children out of poverty and to take nearly 600,000 pensioners out of income tax altogether. The Bill also includes measures to safeguard revenues, dealing with schemes such as those that we debated today, which are unfair on the vast majority of taxpayers who pay their fair share.
The Bill introduces reforms to determine penalties for errors. not only on the basis of the amount of tax understated, but by the type of behaviour that caused the understatement and the extent of taxpayer disclosure.
The Bill includes measures to protect the environment. This has been a decade of unprecedented macroeconomic stability and uninterrupted growth, but the Stern report made it clear that such success will not be possible in the future unless we make reducing carbon emissions a priority.
No, I will not give way.
The Bill rises to that challenge with targeted and economically efficient carbon saving measures—for example, to air passenger duty and vehicle excise duty. There are measures to reduce household carbon emissions as well, including incentives for energy efficiency in the current building stock and in new build. [Interruption.]
Finally, on the environment, clause 16 implements—
Clause 16 implements the legislative framework that will enable greater use of auctioning to allocate allowances in phase 2 of the European Union emissions trading scheme, helping to strengthen its long-term integrity and efficiency. The system of charges for tackling climate change across the UK, which this Finance Bill introduces, is now an important part of Government economic policy, with a significant fiscal impact on the UK as a whole.
Over the past 10 years, the UK has enjoyed more stability in GDP growth and inflation than in any decade since the war. Low inflation, low interest rates, high employment, high growth and rising prosperity are the remarkable achievements of this Chancellor over the past decade. For the future, we must continue to deliver the right policies for Britain, enhancing international competitiveness, encouraging investment and innovation, increasing fairness, safeguarding revenues for world-class public services and taking action on climate change at home to support our leading role abroad. That is what this Bill does, and I commend it to the House.
The Opposition will vote against the Bill tonight, because it is flawed in a number of fundamental respects. In particular, we will vote against it because it implements a Budget that was a tax con and not a tax cut. It provides a significant landmark, in that we will overtake India and have the longest national tax code in the world. Thanks to this Chancellor's tendency to micro-manage, tax law has mushroomed, which has increased costs for business and severely damaged our competitiveness in the globalised world economy.
We remain opposed to the increase in tax rates for small businesses in clause 3. That increase comes on top of interest rate rises and falling living standards. It is an increase that many hard-pressed small businesses can ill afford. And many small enterprises will be hit with a double whammy, with the loss of industrial buildings and agricultural buildings allowances. That change was made without warning or consultation, and investment decisions taken as long as 24 years ago could be affected by that retroactive legislation.
The MSC legislation inflicts another blow on many small businesses. In an era when we need to get better and better at high-tech, high-value industries, why does the Chancellor insist on kicking the contractor community yet again, when their work is pivotal in the IT sector?
We welcome a number of the environmentally related provisions in the Bill, but we fail to see why Ministers cannot answer the basic question of how many zero carbon homes there are in this country. They have given us about four different answers, but still they cannot give us a conclusive one.
We welcome the clauses on microgeneration, but it is a matter of regret that once again the Government rejected the request that they account to Parliament on the critical issue of microgeneration after we re-tabled the amendments to last year's Finance Bill tabled by Alan Simpson.
We have severe concerns about the drastic restrictions on sideways relief in schedule 4, which could have a hugely damaging impact on scientific research and the innovation that we need to fight climate change. Those restrictions will catch a huge number of innocent transactions. The Minister has said that he can solve the problems with guidance. For the reasons that we set out throughout the debate, one cannot draft excessively wide legislation and allow HMRC discretion to cut down its scope with guidance. [ Interruption. ] Frankly, that contravenes the spirit underlying the 1688 Bill of Rights and the fundamental constitutional principle that it is for Parliament to determine taxation and not the Executive. [ Interruption. ]
The Bill's provisions on pensions continue to demonstrate the Chancellor's mismanagement of the tax system— [Interruption.]
Significant restrictions are being introduced on ASPs a matter of months after their introduction on A-day. There is little doubt that such instability is one of the main reasons for the collapse in the savings ratio since the Chancellor entered No. 11 Downing street. Small wonder that confidence in saving has sunk to such lows when the Chancellor not only raids pensions funds for billions of pounds every year but pulls the rug from under the feet of savers when they invest in products that his own legislation has been responsible for creating. It is a further blow to savings that the Government have this evening once again resisted our efforts to scrap the annuity rule, which causes so much anger among people who have made the effort to act responsibly and save for their old age.
We have sought safeguards in relation to the significant powers of arrest and surveillance that the Bill extends to the combined HMRC organisation. Of course, we support the use of powerful tools in the fight against tax fraud, particularly organised crime and missing trader intra-Community fraud, but it is vital that such powers should not be used as leverage in ordinary day-to-day tax disputes. It would not be acceptable if someone was threatened with arrest if they made a mistake on their tax return. We are pleased that the Government have responded to concerns expressed about the concept of "HMRC thinks", which was almost universally condemned. It would be highly inappropriate to give HMRC the power to penalise taxpayers when it merely thinks that they have done something wrong.
We continue to support the Government's efforts to crack down on MTIC fraud. We welcome the fact that they have now got their derogation from the European Union, but regret that the heavy price they paid was to give up all resistance on the loss of £7.2 billion of our rebate. In negotiating the derogation, it seems that the Treasury finally gave up the last semblance of resistance and handed over £7.2 billion more of our money to the EU.
On the last full day of his term as Chancellor, this Finance Bill is typical of the 10 years that we have seen of him—not all bad, by any means, but defective in some very fundamental respects. The Bill creates further complexity and instability in our tax system, just as every one of his other Finance Bills has, to the detriment of our global competitiveness. It fails to provide effective measures to tackle climate change. It penalises small companies with higher taxes and more tax complexity, just as the Chancellor has done so many times in the past. It undermines confidence in pensions. Just as we see the Chancellor's 10 years in office ending with figures showing poverty and inequality increasing in Britain, the Bill does nothing to help those on low incomes, and the Budget actually shifts the burden of tax on to the poor and away from those on middle incomes. Above all, we decline to give the Bill a Third Reading because it implements a Budget that was characterised by the spin and the cynically, nakedly political motivation that has typified the Chancellor's years at No. 11—and will no doubt continue to characterise his years at No. 10.
Another year, another Finance Bill. It has been a great shame not to see the Paymaster General here, although I have seen her in action in Westminster Hall and she seems to be very well. Perhaps she will be here next year, even though the current Chancellor will not.
One of the issues that came up in last year's Finance Bill was the clear lack of consultation on significant changes to the taxation system, particularly in relation to the inheritance tax treatment of trusts. This year, that has raised its head again in some important respects. The Treasury has been ignoring the impact that some of its decisions will have on some very vulnerable groups. For example, this afternoon we discussed steps to abolish the industrial and agricultural buildings allowances. Again, there seems to be no understanding of the impact that these changes will have in rural areas, particularly on tenant farmers. We merely heard a restatement of the fact that the package was cost-neutral overall.
There is not simply a lack of consultation but a lack of openness and clarity. One need only look at the Chancellor's Budget announcements on personal taxation to see that key vulnerable groups are again being ignored. He announced, to paraphrase, that the basic rate of income tax would be cut by 2p next year to make the system fairer and to reward work, but did not say that that cut would be paid for by abolishing the starting rate that he himself introduced, meaning that many low-paid workers would see their marginal rate of taxation double. At best, people would be no worse off if they claimed tax credits and other benefits, but those not entitled to those benefits, such as pensioners, the under-25s and couples without children, would lose out. That was not made clear. That was why Mr. Field said that we need to publish the impact of these decisions at the time when they are announced so that we have greater clarity and can hold the Government to account for their decisions. There are probably still people out there who do not know whether they will be better off as a result of the Chancellor's announcements. I still do not understand why Conservative Members showed timidity and failed to support a provision that would provide much greater clarity. It was a good principle, which, instead of being rejected, should have been applied to the impact of the business taxation package in the Bill.
Throughout our proceedings, there has been a lack of transparency. I wonder whether, in some cases, it was deliberate to hide unpalatable proposals. However, in others, it was probably inadvertent and a result of the complexity of the proposals. Again, the Bill would have benefited significantly from open consultation before going into Committee. That option is available to other programmed Bills, and I hope that Treasury Ministers will take that up with the Leader of the House.
I hope that the Treasury will pay serious attention to that proposal because it has the support of several bodies and representative groups, including the Low Incomes Tax Reform Group, the Institute of Directors, the British Chambers of Commerce, the Society of Trust and Estate Practitioners, the Association of Taxation Technicians and the Chartered Institute of Taxation. They all believe that there is an opportunity for genuine consultative sessions that would benefit the measure, resulting in more workable proposals. There is an opportunity to raise issues on which there has not been adequate consultation and explain more complex issues, especially given that we have a system whereby third-party relaying of information occurs. Such consultation is not intended to duplicate matters on which widespread pre-legislative scrutiny has already occurred.
I hope that Treasury Ministers will take the proposal on board and take it up with the Leader of the House. I hope that they will be constructive about the matter, because they have been so about other matters and we have held genuinely useful debates. [Interruption.] For example, we have received responses to our concerns about the word "think"— [Interruption.]
There has been significant movement on the powers that HMRC officials can take up when they believe that there may have been abuse by the taxpayer. Treasury Ministers have accepted the spirit of the Conservative amendment on statutory references to Public Bill Committees. I am sure that that is a significant step forward. We have also held some constructive debates today on issues such as inheritance tax—Ministers are open minded about discussing the principles of that.
Sadly, there has been a refusal to give way on some important principles. I have already mentioned the amendment of the right hon. Member for Birkenhead, but another problem is the Government's failure to acknowledge the difficulty that high fuel costs in rural areas represent, let alone to discuss any action that might be taken to help create a level playing field. Again, Conservative Members are happy to recognise the problem but fail to make any proposals to tackle it.
Most important, the Bill shows no genuine willingness to strengthen green provisions. The Government broke cross-party consensus on microgeneration to try to provide stronger incentives and accountability on such issues. There is still no clear sense of what constitutes a zero carbon home or when we will experience a non-linear progression to the number of such homes that will be provided. Retrospective increases in air passenger duty will do nothing except strengthen public cynicism about the Chancellor's motives. They are clearly an effort to increase taxation rather than change behaviour.
If the Treasury and the future Prime Minister, who currently leads the Department, wish to convince the public that they are serious about tackling climate change, dealing with poverty and improving the lot of those on low incomes, they must do much better than the Chancellor's 11th Budget and the Bill that we have considered.
Some changes were intended purely to grab headlines without due care and attention being paid to their impact on behaviour or the effect of personal tax changes on people on low incomes. The impact of the changes in business taxation on small businesses has also not been taken into account. If the Chancellor wishes us to believe that he is a man of substance, he must do more to convince us than we have seen in this year's Finance Bill. Indeed, he should probably apologise for some of the measures in this year's Budget. For those reasons, we shall not support Third Reading.
The Chief Secretary said that the Budget, the Bill and future legislation would lift people out of poverty. That may happen if the tax credit system works, the child tax credit take-up rate is more than 80 per cent., that of working tax credit is more than 60 per cent. and unclaimed entitlement is rather less than £5 billion. When I cited those figures in the debate yesterday, the Chief Secretary said:
"I do not know the basis of the figure quoted by the hon. Gentleman".—[ Hansard, 25 June 2007; Vol. 462, c. 119.]
The take-up rates were published by HMRC in 2007 and the entitlement figures, claimed and unclaimed, were also published by HMRC in 2007. If he did not know then, he certainly knows now.
More importantly, the cumulative effect of the Finance Bill, the Budget from which it flows, and Finance Bills subsequent to this year's Budget will be a tax take on business, particularly small business, leading to a loss of competitiveness, particularly for small businesses in Scotland. If all the provisions on personal taxation are put in place, it will lead to a tax take, particularly from the poorest and most vulnerable in society, with at least 52 per cent. of the working population in Kirkcaldy and Cowdenbeath being worse off.
I will not take any interventions. It is very late and, with the greatest respect, the hon. Gentleman has rarely been in the Chamber over the past two days, let alone the past six or seven weeks, while we have been debating these important matters. Indeed, there have been so few Scottish Labour Back Benchers here that I was not sure that they had not all gone on holiday for the duration of the debates.
The Finance Bill and the Budget will tax businesses more and make Scottish businesses, especially the small ones, less competitive. The conclusion of all the measures on personal taxation will make the poorest and most vulnerable worse off. For those two reasons, if for no others, we will oppose the Bill's Third Reading tonight.