Taxation: Business Taxes

– in the House of Lords at 2:52 pm on 23rd October 2007.

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Photo of Lord Roberts of Conwy Lord Roberts of Conwy Conservative 2:52 pm, 23rd October 2007

asked Her Majesty's Government:

Why they propose to increase business taxes when the country may face an economic downturn.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, the UK economy continues its longest unbroken expansion on record with 60 consecutive quarters of growth. Building on this strong and stable economy, the Government are committed to continuing to create conditions that support business, encourage enterprise and attract domestic and foreign investment.

Photo of Lord Roberts of Conwy Lord Roberts of Conwy Conservative

My Lords, the Government accept that there will be a fall in the rate of economic growth next year. Presumably, they are also aware of the general concern about our prospects as a country. In that light, is it not foolish on the Government's part to depress the economy further by increasing the tax burden on business, especially by changing the capital gains tax regime in a way that will sap enterprise, discourage small businesses and take approximately £2 billion away from businesses over three years?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, the noble Lord ignores the fact that the Government are also cutting the corporation tax rate and reducing the impact on business. We ought not to talk our prospects down. Next year's growth is not predicted to be at the same level as this year's, but it will still be a healthy 2 per cent and reflect the fact that we will be one of the faster growing economies among the leading world economies. Therefore, there is strength and momentum in the economy for us to be confident about the immediate future.

Photo of Lord Barnett Lord Barnett Labour

My Lords, I declare a personal interest in the capital gains tax issue. I would not normally speak on it but it is too serious. Is my noble friend aware that our right honourable friend the Chancellor has made a serious mistake? As I am sure he is aware, before the Chancellor put his proposition to us, many small companies were floating on the AIM market to raise millions of pounds of capital to the benefit of the UK economy. That has been put in serious jeopardy by the proposals. I suggest that he ask the Chancellor to reconsider the issue with a view to deferring implementation to a new date to give time for the kind of widespread consultation that he obviously could not have had before announcing a major tax proposal. In that time, he might come up with a more beneficial and less damaging alternative.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I hear my noble friend's representation, which fits in with those made by significant leaders of business and enterprise in the country directly to the Chancellor yesterday in what was described on all sides as a cordial meeting. I do not accept for one moment that the Chancellor has made a mistake. However, business leaders are identifying areas in which support for enterprise could be encouraged by a government strategy additional to the ones we have in hand. The Chancellor indicated that he welcomed the opportunity of the meeting yesterday and that he would continue these consultations up until the presentation of his Budget in 2008.

Photo of Lord Razzall Lord Razzall Spokesperson in the Lords, Department for Business, Enterprise and Regulatory Reform

My Lords, I shall pass over internal Labour grief and return to the Question. Does the Minister agree that it is always difficult to debate these matters with the Conservative Opposition when they never make detailed proposals other than with regard to inheritance tax? Does he also agree that he ought to show sympathy to both opposition parties at this stage of the electoral cycle in that whenever we bring forward detailed tax proposals, the Government pinch them and portray them as their own?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, the Government are always open to representations from whatever quarter. From time to time the Liberal party manages to make successful representations and should delight in that. The noble Lord might reflect on the fact that capital gains tax under the last Conservative Administration was set at 40 per cent without a taper. That the Conservatives are outraged that it is at 18 per cent at present suggests that they have short memories and little wisdom.

Photo of Baroness Noakes Baroness Noakes Shadow Minister, Treasury

My Lords, we know that the Minister has a little trouble with OECD statistics, but he cannot have missed last week's OECD report that Britain is now among the 10 most taxed countries in the OECD, and of course the overall tax burden is set to rise even further. When will the Government wake up to the fact that our declining tax competitiveness is going to drive more businesses away and therefore harm our long-term growth prospects?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, on the question of statistics, the World Economic Forum's global competitiveness report placed the UK 10th out of 125 countries in its ranking of international business competitiveness. I want to reinforce a point that I was able to correct yesterday. The British economy is strong, with some of the lowest taxes in certain areas in the G7; it is below the average found among the noble Baroness's chosen illustration, the OECD countries.

Photo of Lord Stoddart of Swindon Lord Stoddart of Swindon Independent Labour

My Lords, while I understand the problem with capital gains tax, the noble Lord will be aware that there is another tax increase, on national insurance contributions, which will hit small business people and those earning between £34,500 and £40,000 a year. That will result in extra payments of £357 for small business people and £500 for employees. Is that not a grave disincentive and a stealth tax?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, it is not a stealth tax because it is all too obvious. The noble Lord should recognise that when it comes to the overall position on business taxation, the Chancellor has to balance the factors he has identified against other areas where the Government are concerned to help business. Further, the Chancellor made it absolutely clear yesterday that he was open to representations on the way in which we could safeguard the future of enterprise and business in this country, and I do not have the slightest doubt that that dialogue will continue.