Clause 2 — Charge and main rate for financial year 2010

Business of the House – in the House of Commons at 8:04 pm on 7 April 2010.

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Question proposed, That the clause stand part of the Bill.

Photo of David Gauke David Gauke Shadow Minister (Treasury) 8:24, 7 April 2010

Given the time, I shall be brief.

Clause 2 relates to the main rate of corporation tax. I was rereading the Prime Minister's 1997 Budget speech when he highlighted the importance of the corporation tax rate, announced a reduction in that rate and highlighted the international comparisons. It might help the House to compare where we were in 1997 with where we are now. In 1997, our corporation tax rate was lower than the OECD average, but now it is higher; in 1997, our corporation tax rate was the 11th lowest, but now it is the 23rd lowest; we used to have the third lowest in the EU15, but now it is the sixth highest; and while the rest of the world has been cutting its corporation tax rates substantially, the UK has been caught up with and, in many cases, overtaken.

Clause 2 does nothing about that situation. We have made it clear that we intend to lower the corporation tax rate by broadening the base and reforming complex allowances. That has the advantage of sending out a signal to the rest of the world and international investors that the UK is open for business, and by lowering the rate we will also be in a position to remove some of the complexities and anti-avoidance measures that may be taken as a consequence of the UK having a rate that is not as attractive as that of our competitors. The Government tend to quote comparisons with the G7, but beyond that many countries now have a lower corporation tax rate than the UK.

The Exchequer Secretary said that some argue against those matters, and last week the Chief Secretary quoted General Electric's international tax counsel, Will Morris, on this. For the House's benefit, I thought it would be worth highlighting his comments at a recent Policy Exchange event on 22 March. He said that the Conservative's

"clearly stated commitment to manufacturing, and to streamlining, rather than abolishing, capital allowances, does actually lead me to believe that the proposed rate cut will send a positive message about investing in Britain."

It is important to address one of the concerns that has grown up under this Government. We have become increasingly uncompetitive in this area, so we intend to reduce the mainstream corporation tax rate from 28 to 25 per cent. and the small profits rate from 22 to 20 per cent. We believe that that will be a step in the right direction; indeed, we have ambitions to reduce the rate further, and have engaged some of the country's leading tax experts. They continue to provide advice to the Government and Her Majesty's Revenue and Customs, but we have asked them to develop proposals to reform our corporation tax regime to ensure that we have the best corporate tax environment in the G20. We should look beyond the G7; we should look at standards in the G20 as a whole, to enable us to bring our corporation tax rate down further. This Finance Bill could have been an opportunity to start some of those reforms and move towards a lower corporation tax rate, but it is an opportunity that has been spurned. However, we hope to have an opportunity in the months ahead to ensure that the UK once again has one of the most competitive corporation tax rates in the developed world.

Photo of Stephen Timms Stephen Timms Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Digital Britain) (also HM Treasury), Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills) 8:30, 7 April 2010

I was rather hoping that Sir Nicholas Winterton might intervene in this debate on behalf of manufacturing and challenge those on his Front Bench, because the Engineering Employers Federation, on behalf of UK manufacturing, has described the proposal that Mr. Gauke has just outlined to us-albeit perhaps not in as much detail as it would have been interesting to hear from him-as a "disaster". And so it would be, because the investment allowances that support manufacturing are crucial. It would be quite wrong to abolish them.

Photo of Stephen Timms Stephen Timms Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Digital Britain) (also HM Treasury), Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

The hon. Gentleman also talked about "streamlining", whatever that might mean. Perhaps he is about to illuminate us with regard to what he had in mind.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

The Minister mentioned the EEF. Let me point out to him that the EEF has welcomed the discussions we have had with it about its proposals for a short-life asset regime. It has said that manufacturers will be encouraged to hear of our engagement in the matter, so the situation is not quite as the Minister portrays it.

Photo of Stephen Timms Stephen Timms Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Digital Britain) (also HM Treasury), Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

I am pleased that the hon. Gentleman has been talking to the Engineering Employers Federation, although he should have talked to it a bit earlier and perhaps avoided the warranted criticism that his proposals have received.

At 28 per cent., the UK's corporation tax rate is at its lowest level ever. As the hon. Gentleman recognised, it remains the lowest in the G7. In our view it is important that we should retain the competitive position that that relatively low rate of corporation tax gives us. I welcome the fact that the Opposition are supporting-or not opposing-clause 2, and I commend it to the Committee.

Question put and agreed to.

Clause 2 ordered to stand part of the Bill.

Clauses 3 to 5 ordered to stand part of the Bill.