Finance (No. 3) Bill

Debate between Baroness Primarolo and Nigel Mills

Monday 4th July 2011 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Dawn Primarolo)]

With this it will be convenient to discuss the following:

New clause 14—Group filing for corporation tax—

‘The Chancellor shall direct the Office of Tax Simplification to report by 31 March 2012 on the potential for the introduction of a consolidated corporation tax filing for UK-resident companies meeting the current definition of a group for corporation tax purposes, to include an assessment of the potential cost savings for companies and HMRC, and the potential for reducing tax avoidance.’.

Amendment 15, in clause 4, page 2, line 16, leave out ‘is treated as having come into force on 1 April 2011’ and insert

‘shall come into effect when legislation shall have been enacted requiring that all public limited companies registered in the United Kingdom shall be required to submit the arrangements for the payment of salaries and bonuses of their directors to a binding vote of approval by their shareholders at an Annual General Meeting.’.

Amendment 20, page 2, line 16, leave out ‘is treated as having come into force on 1 April 2011’ and insert

‘shall come into effect when legislation shall have been enacted requiring all public limited companies registered in the United Kingdom to publish the current salaries and bonuses of their directors.’.

Amendment 51, in clause 7, page 4, line 6, at end insert—

‘(10A) The Chancellor shall produce, before 30 August 2011, a report on the Government’s discussions with the industry on the implementation of the increased charge’.

Amendment 17, in clause 42, page 27, line 4, after ‘appoint’, insert

‘after a Report has been submitted to the House of Commons detailing the number of EIS schemes previously approved, their total cost in terms of tax relief, the number of jobs created by the companies enjoying such relief and the number of companies that failed subsequent to relief being granted allowing for an estimate to be made of the cost of each job created under the terms of this scheme when compared to the cost of tax relief given.’.

Amendment 9, in clause 43, page 27, line 35, at end insert—

‘(11A) In section 1052 in subsection (2) after paragraph (a) insert—

“(e) incurred on premises costs

(f) incurred on design costs

(g) incurred on patent, trade mark, registered design, copyright, design right or plant breeder’s right (see section 1139)”.

(11B) After section 1142 add—

“1142A Premises costs

(1) In this part “premises costs” means rents and business rates costs of the studio where R&D is undertaken.

1142B Design costs

‘(1) In this Part “design costs” means—

(a) user interface costs,

(b) user testing costs,

(c) aesthetic costs,

(d) new business model costs.

(2) In subsection (1)(a) “user interface costs” means—

(a) costs occurred from designing the visual and functional appearance of the application,

(b) costs occurred from designing the code that reacts to user inputs.

(3) In subsection (1)(b) “user testing costs” means—

(a) costs occurred during product testing.

(4) In subsection (1)(c) “aesthetic costs” means—

(a) costs occurred from the artistic design of the product.

(5) In subsection (1)(d) “new business model costs” means—

(a) marketing of building a new business monetisation model,

(b) marketing of testing a new business monetisation model.”’.

[Nigel Mills]

The aim of new clauses 12 and 14 is to encourage the Government to move a little faster in simplifying our corporation tax system, which is far too complex to meet modern needs.

On a day on which we have celebrated the 100th birthday of Ronald Reagan, it is appropriate to start with a quote from that great tax reformer. He said in 1985:

“Later in this session of Congress, we’ll be presenting our proposals for tax reform that will lower tax rates, broaden the tax base and make the tax code simpler and fairer. We’re looking at a top rate on personal income taxes of 35 percent, very possibly less. And we’ll be sure that incentives for capital formation are maintained. And I just want to reemphasise one thing: Tax reform will not be a tax increase in disguise.”

Those words are as relevant today as they were 26 years ago. To be fair, the Government have received that message. The Exchequer Secretary recently said:

“Taxation in Britain is far too complex. A clearer and more straightforward tax system will bring benefits for tax payers, tax professionals and the Government alike.”

I hope that the whole House would entirely agree with those sentiments.

The Government have taken welcome steps in the right direction. We have established the Office of Tax Simplification, and I commend the work it has done. In fact I am keen to ensure that we get maximum value out of it by giving it a bit more work to do under these two new clauses. At a time when we are assessing the value of all our quangos and outside bodies, the more work we get out of them the better.

We need to hasten the work of the OTS along. We are already a year into this Parliament and we rightly have a process now whereby we consult in detail on major changes to the tax system. If we do not bring forward our proposals in the next year or so, we will struggle to get any benefit from them in this Parliament, and that is the direction in which I am encouraging the Government to go tonight.

The Exchequer Secretary has made such a great start in tax simplification that he has had the honour of being named the tax personality of the year. We could start making various jokes about accountants’ personalities, but we would probably cause grave offence to all my former colleagues, so perhaps we should leave that subject. We have had a consultation on removing a few simple tax allowances, such as the reliefs for angostura bitters and black beer—if going that far gets the Minister that award, just think what garlands could be thrown at his feet if he tackled some of the real complexities of our tax system!

It was just last week that the Government announced the next areas that they want the OTS to consider, rightly including the taxation of pensioners and employment taxes. However, at a time when we need business to drive the growth that will sort out the deficit and our economy, we need to look at the taxes that encourage—or perhaps discourage—business from making the investment that we need. That is why new clause 12 would require the OTS to consider ways to simplify the capital allowance system, or to replace it if simplification is not possible. If the Minister questions why we need that provision, I draw his attention to the Bill, in which we have had to introduce various measures that tinker with the capital allowance system, because we know it is out of date and not working. It is hard to imagine that anyone would design from scratch a system in which we have to introduce a modification to ensure a different system for short-life assets and then we have to change the definition of short-life assets to eight years. I wonder how often businesses invest in assets that they expect to have a useful life of eight years, never mind any longer. That is a clear sign that the system is not working, out of date and far too complex. It needs to change.

I am sure that Members have taken a fascinating look through this country’s tax code and seen how many types of capital allowances we now have. We have a basic regime—the general pool—which from next year will produce an allowance on a reducing balance basis of 18%, meaning that it will take a long time for a business to get the full economic relief for its investment. It would take well in excess of six years to get the majority of that relief. We then have the short-life asset pool for assets that a business thinks might have a life of less than eight years. That effectively means that it has to track those assets and work out when to scrap or dispose of them to get the final balance. We also have a long-life asset regime for assets that have a particularly long life, but which are not suitable for the general pool. Furthermore, we have different rules for cars and environmentally friendly assets, and completely different rules for assets on a finance lease, where effectively we allow account depreciation.

This range of reliefs for simple investments in plant and machinery beggars belief. Frankly, if I was an overseas business or someone with some cash wanting to start a business in the UK, and if I wanted to invest in a heavy manufacturing business, was investing in large numbers of plant and equipment and went to my adviser and said, “I want to invest in the UK. Can you tell me how I get relief for all this investment?” and I got the answer, “Well, it depends on whether it’s a long-life asset, a short-life asset, an ordinary asset, an environmentally friendly asset, and it depends whether you lease it, hire purchase or buy it outright”, I would start to wonder whether it was really worth the effort. Surely there must be a simpler and better way of doing this than having to go down all these different routes.

We know what happens. The system creates complexity for businesses having to track and make all these returns. Then the Revenue has to audit and scrutinise those returns and ensure that everything is done properly. It therefore takes work on both sides to support a system that I suspect is achieving the opposite of what we want, which is to encourage existing and new businesses to invest in new, modern and environmentally friendly equipment, and to create more jobs in the manufacturing sector that we so value in this country.