Oral Answers to Questions

Stephen Timms Excerpts

Tuesday 21st December 2010 Commons Chamber

[Mr Gauke]

Within the comprehensive spending review we have given priority to school funding. The pupil premium will help the poorest, which is indicative of the Government’s values in looking to the long term, looking at fairness, and ensuring that young people have an opportunity that they did not necessarily get under the previous Government.

[Stephen Timms (East Ham) (Lab)]

10. What recent discussions he has had with his Irish counterpart on measures to reduce budget deficits.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

The Government welcome Ireland’s effort to bring its fiscal deficit under control, and support the international assistance package currently being agreed to deliver stability.

[Stephen Timms]

The Chancellor used to speak of the Irish miracle as a shining example of economic policy making. Are there not, though, important lessons to learn from the misery that we are seeing in Ireland today? Is it not clear that simply increasing VAT, making large-scale public sector redundancies and cutting welfare does not add up to a successful path out of the global crisis?

[Mr Hoban]

Let me remind the right hon. Gentleman what he said about Ireland on 8 May 2007:

“The Irish economy has enjoyed a good deal of success over the past few years. The corporation tax regime has contributed to that, but there have been a number of other factors”.––[Official Report, Finance Public Bill Committee, 8 May 2007; c. 19.]

The truth is that the Irish economy, like our economy under the previous Government, had a banking sector that was poorly regulated and out of control. It is because we have tackled the legacy of the Labour Government that we are in a position to help Ireland.

Oral Answers to Questions

Stephen Timms Excerpts

Tuesday 16th November 2010 Commons Chamber

[Danny Alexander]

In the spending review, we took a number of spending decisions that will support social mobility. We chose to invest in early-years education for disadvantaged two-year-olds—a new investment—and to maintain the 15-hours entitlement for three and four-year-olds, something that was introduced under this Government. We chose to invest in a pupil premium that will give additional support to the most disadvantaged children. In tough financial times, that is the strongest investment in social mobility made by any Government in this country for many a long year.

[Stephen Timms (East Ham) (Lab)]

The White Paper last week stated that HMRC will be taking on new responsibilities in collecting and processing real-time pay data for the calculation of universal credit. How much has been allocated for the IT to deliver that change?

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The response to the consultation on real-time information—the next stage of it—will be published shortly. We will outline the details in that, but additional sums have been identified as part of the spending review process to pay for the real-time information project.

Oral Answers to Questions

Stephen Timms Excerpts

Tuesday 12th October 2010 Commons Chamber

[Mr Osborne]

The short answer to my hon. Friend’s questions is yes. The OBR will move out of the Treasury—in the period immediately after the general election, that was the quickest way to establish it—to a permanent home. The choice of location will be for the permanent chair of the OBR who, I believe, will make a statement on that later today. I think the veto given to the Treasury Committee is the first of its kind in this Parliament, and will be enshrined in legislation.

[Stephen Timms (East Ham) (Lab)]

The Chancellor has announced two new appointments to the budget responsibility committee today. In line with the Treasury Committee’s recommendation, will he extend its veto to those two appointments, as well as to the position of the chair? Will he invite the OBR to comment, as the Select Committee envisages, on the fiscal mandate?

[Mr Osborne]

My answer to the right hon. Gentleman is yes and no—yes to the first part of the question. I listened very carefully to what the Treasury Committee said about the two other members of the budget responsibility committee, and I propose that it should indeed have a veto over those two appointments, which were made on the recommendation of a panel that included Robert Chote. I made the suggested appointments, but it will be for the Treasury Committee presumably to hold hearings and hopefully give its approval.

I do not propose to follow the second path that the right hon. Gentleman suggested. If the OBR begins commenting on the fiscal mandate, it intrudes on what is a legitimate matter of debate in the House between elected representatives who have strong views on this. I want to do everything I can to preserve the independence of the OBR, not just for this Government but for future Governments as well.

Amendment of the Law

Stephen Timms Excerpts

Wednesday 15th September 2010 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

I am grateful to the Minister for his explanation and I agree with the welcome, to which he drew attention, for the consultation on and publication online of the proposed measures before the summer break.

There is still no good reason for this year’s post-election finance legislation being split into two Bills other than the Government’s wanting to get key measures on to the statute book before all the Government Members realised fully what was going on—before, for example, they had the change to read the Institute for Fiscal Studies’ Budget assessment, published last month, which stated that the Budget was “clearly regressive”, or the analysis published by the TUC just a few days ago, which underlined the same point.

We are committed in the debates that will follow to holding the Government to account on fairness and to scrutinising closely the quality of the legislation that the Government propose, which I hope will reflect the benefit of the consultation to which the Minister referred. The Opposition will be busy once the Bill is in front of us, both on the Floor of the House and in Committee, but we have no reason to oppose the resolutions and we are happy for them to proceed.

Equitable Life (Payments) Bill

Stephen Timms Excerpts

Tuesday 14th September 2010 Commons Chamber

[Mr Hoban]

My hon. Friend makes an important point about transparency. The actuarial advice gives a clear demonstration of the methodology used by the actuaries, but 30 million premium transactions had to be compared with a basket of comparable companies from 1992 to the end of 2009. The publication of the model at that level of detail would not aid transparency. It would be more likely to confuse, given the complexity of the calculations. However, we have ensured that EMAG and ELTA—Equitable Life Trapped Annuitants—have had an opportunity to meet Towers Watson, the actuaries, to go through the calculations. Towers Watson has provided examples of its calculations so that the mechanics can be understood.

[Stephen Timms (East Ham) (Lab)]

The ombudsman states in her letter to every hon. Member that because the Government have fully accepted her recommendations Sir John Chadwick’s approach is no longer relevant. Why does the Financial Secretary disagree with her on that point?

[Mr Hoban]

It goes back to what the previous Government were prepared to accept. Sir John’s report is based on the terms of reference that the right hon. Gentleman’s colleagues gave him, which dealt with the accepted findings. Of course, the previous Government did not accept all the ombudsman’s findings, but that decision was overturned in the courts. It is important to recognise that the first stage—the calculation of external relative loss—is not dependent on the accepted findings because it covers the findings of Equitable Life as a whole across the period. The issue of the accepted findings becomes especially important when Sir John assesses what would have happened if Equitable Life had been regulated properly. The reconstruction of Equitable Life’s financial accounts was based on the accepted findings of the previous Government. The problem is that as we get further and further away from the calculation of external relative loss, what the previous Government accepted and did not accept becomes much more relevant to the calculation of compensation. That is one of the factors that we need to take into account when we assess the final level of loss.

--- Later in debate ---

[Stephen Timms (East Ham) (Lab)]

We very much welcome the fact that the Bill is before the House, and we shall not oppose it today. We will want to table amendments to the Bill in Committee, and this afternoon I will set out those that we have in mind. I hope that they will be widely welcomed across the House and that the Government will feel able to accept them.

However, let me first respond to the Minister’s speech. I have not previously spoken in the House on the subject of Equitable Life, so I have been able to come at the issue fresh. Let me begin by acknowledging the extent of the hardship and anxiety that all too many people have endured as a result of the failure of Equitable Life and the long process since. I want also to associate myself with the expressions of apology already made by my right hon. Friends for the contributions to that failure of successive Governments. Unlike me, the Minister has made numerous speeches in the House and elsewhere on the subject—many of them made while in opposition—but he is now the Minister. He is now supposed to be making decisions. Today, as the Prime Minister likes to say, the rubber hits the road, but the Government seem more interested in the lay-by. They have not yet made those decisions. Four months after this Government were elected and almost two months after the publication of Sir John Chadwick’s report, Equitable Life savers are still no nearer to knowing what payments they will receive.

Indeed, things are worse than that. It appears that the Minister, now safely elected, proposes to do precisely the opposite of what he said before the election that he would do. Not just he, but every Treasury Minister, signed the pledge drawn up by the Equitable Members Action Group, whose indefatigable campaigning he was right to draw attention to, and which will have won the respect of every Member. The Prime Minister, the Deputy Prime Minister and the Chancellor all signed the pledge, which committed each signatory to

“vote to set up a swift, simple, transparent and fair payment scheme—independent of government—as recommended by the Parliamentary Ombudsman.”

The previous Government took the view, which I share, that there are practical problems with the ombudsman’s recommendation. That is why we commissioned Sir John Chadwick to advise on a practical scheme. However, for EMAG, the position is clear: the ombudsman is right, the Chadwick recommendations are not. That is the issue that the Minister has failed to resolve.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

My constituent Mr Peter Waller—not a Labour supporter—wrote to me following the statement made to the House previously to say:

“Already, the Coalition government…are…showing shameful disregard to us, after so many Conservative and Lib Dem members signed a pre-election statement that we would get fair justice.”

Does that not sum up what this Government have done?

[Stephen Timms]

My hon. Friend is absolutely right. EMAG today is very angry indeed. When the Prime Minister, the Deputy Prime Minister, the Chancellor, every Treasury Minister, and the great majority of Government Members signed that pledge, EMAG thought that they meant it. Over the next couple of months, the Ministers and their hon. Friends behind them are going to find a lot of their constituents saying exactly what my hon. Friend’s constituent said, and wanting to know why Government Members have reneged on their pledge. They will have a great deal of explaining to do.

[Miss Anne Begg (Aberdeen South) (Lab)]

The previous Government made reparations for a number of historical injustices during their time in office, including compensation for the miners and for the fishermen involved in the cod war, and the financial assistance scheme. We hoped that all those processes would be simple and straightforward, but none turned out that way. Indeed, the Government had to revisit a couple of them on more than one occasion. Equitable Life is a far more complex case than any of them, however, and it was always going to be difficult, if not impossible, to come up with a scheme that was simple, transparent and fair. We hope that the Government will be able to do that, but it is going to be very difficult indeed.

[Stephen Timms]

My hon. Friend is right. This has been a difficult task, and that is why it has taken such a long time to get to this stage. We all hope that the matter will be quickly resolved, but it is now becoming clear that the coalition is not going to deliver. All those nods and smiles before the election, and all those pledges earnestly signed, are not worth the candle. The truth is that both the coalition parties led EMAG up the garden path. They will not deliver what they promised. It is flagrant: EMAG delivered votes at the election, but now that the election is safely over, it can be ditched.

[Nadhim Zahawi]

I note that the shadow Minister opened his speech by saying that he had not spoken before on the subject of the anxiety of the victims and policyholders. Does he think that their anxiety was added to by the fact that, on 3 December 2008, the then Prime Minister told the House that there would be a statement on this matter before Christmas, but that that statement was not forthcoming?

[Stephen Timms]

If I remember correctly, there was a statement in January 2009 in response to the ombudsman’s report.

Precisely the people who promised the earth before the election have now decided to sell EMAG down the river. It is a breathtaking breach of trust.

[Geoffrey Clifton-Brown]

Is this not a bit rich, coming from the right hon. Gentleman, for whom I have a great deal of respect? He had 13 years in which to sort this problem out. He obfuscated the ombudsman not once but twice, and then refused to implement the ombudsman’s ruling. This whole issue could have been resolved by now. We need not have been debating it today if his Government had just got on and done it.

[Stephen Timms]

I think I am right in saying that the hon. Gentleman was one of those who signed the pledge. He will now need to work extremely hard to persuade his hon. Friends on the Front Bench to deliver what he and so many of his hon. Friends have signed up to.

[Mr Watts]

Does my right hon. Friend agree that the Bill is a smokescreen designed to hide a U-turn, and that every Tory and Liberal MP pledged before the election to do something that they are obviously not going to do?

[Stephen Timms]

I am afraid that my hon. Friend is absolutely right. We got some process today, and that is it.

[Jesse Norman (Hereford and South Herefordshire) (Con)]

Does the House share my sense of bewilderment that the right hon. Gentleman should be asking us to apologise for five months of action, when he has done nothing for 10 years? Can he give us a quantification of the cost to Equitable Life policyholders of the past five years of Labour’s failed activity, given that a deal could have been done in 2004 but was not?

[Stephen Timms]

My advice to the hon. Gentleman and the great majority of his hon. Friends is turn his fire on those on his own Front Bench and ask them to deliver the pledge that so many of them signed up to. At the moment, we are heading towards the prospect of that not being delivered.

[Mr Jenkin]

The Public Administration Committee will have to smooth these troubled waters, and I want to be clear about what the right hon. Gentleman is inviting the Government to do. Sir John Chadwick reported that

“the Terms of Reference require me to limit my considerations to those Findings that have been made by the Ombudsman and accepted by the Government”,

so what he could recommend was thereby limited. Is the right hon. Gentleman now inviting the Government to ditch the report that his Government commissioned?

[Stephen Timms]

No, the position we are in now is that there are two quite different ways forward. One was recommended by the ombudsman. The previous Government saw some serious difficulties in that approach, so called on Sir John Chadwick to give advice. The Government now need to choose which of those two options they intend to follow. Their difficulty is that every Treasury Minister—including all those I have mentioned—has pledged to adopt the ombudsman’s approach. The Government are currently saying both that they accept the ombudsman’s recommendation in full, and that Sir John Chadwick’s report is a building block for what is going to happen. Nobody knows what that means, however, as it is trying to ride two horses, when what is required is a decision.

[Charlie Elphicke]

As a member of the Select Committee on Public Administration, I know that we will take evidence from the ombudsman in due course. Can the right hon. Gentleman help me and the House by explaining what in his mind’s eye were the “serious difficulties” with the ombudsman’s report that he mentioned?

[Stephen Timms]

I will come to that in a few moments. There are some serious problems with the complexity of the procedure recommended. That is why, I think, the Government have realised that what they said before the election will not be honoured.

[Mr Hoban]

May I assume from what the right hon. Gentleman says that the Opposition policy is to pursue the outcome of Sir John’s report?

[Stephen Timms]

Our policy is to proceed in the way we set out before the election—on the basis of what we promised our constituents on this matter—and to take forward what my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne) committed to: that when Sir John Chadwick’s report was submitted in May, within two weeks of publication he would publish the Government’s proposed scheme, including a timetable. Where we are now, four months later, is that nobody knows what the scheme is. There is a fundamental inconsistency in what the Financial Secretary is telling the House. Is he with the ombudsman or Sir John Chadwick? Nobody has any idea.

[Mr Hoban]

I just want to make sure that Government Members heard the right hon. Gentleman correctly, as I think he is saying that he supports Sir John’s work, and would pay out exactly what he proposes.

[Stephen Timms]

My right hon. Friend the Member for Birmingham, Hodge Hill set out before the election the process that we would adopt, which remains our view of the right way forward. What I have no idea about is what the right hon. Gentleman intends to do. We wait with great interest to find out.

[Several hon. Members]

rose—

[Stephen Timms]

Let me make a little progress and then I will gladly give way again.

I want to go back over the events of the period since 1990. The problems of Equitable Life occurred between 1990 and 2001. Lord Penrose concluded that it was principally the society’s own actions that precipitated its downfall in the summer of 2000, but that regulatory system failures were secondary factors. The view of the previous Government, and my own, is that any scheme of payments needs to reflect that. Regulatory factors certainly did contribute: for example, a reinsurance treaty entered into by Equitable Life did not justify the credit that the company’s regulatory returns took for it in 1998 to 2001, so the returns gave a misleading picture of the society’s regulatory solvency position. Equitable Life’s regulatory returns in 1990 to 1996 gave a misleading impression and should have been queried by the public bodies with regulatory responsibility at the time—but they were not.

I have referred to the clear apology to policyholders given by my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper) when she was Chief Secretary in January 2009 on behalf of the public bodies and successive Governments responsible for the regulation of Equitable Life for the maladministration that took place. My right hon. Friend the present shadow Chief Secretary did the same. I have yet to hear, however, any apology from Conservative Members for the shambolic system of financial services regulation that preceded the establishment of the Financial Services Authority. As many will remember, we had numerous little regulators of differing characters and sometimes overlapping powers. The deregulated financial markets of the early 1990s made a great deal of money for some, but, as we are reflecting on today, brought misery to many others. That was when, under the Tory watch, things started to go very badly wrong at Equitable Life.

[Mr Rob Wilson (Reading East) (Con)]

May I remind the right hon. Gentleman what the former Chief Secretary said when she was in charge of this matter? She said that she would compensate only policyholders who had suffered disproportionately. There was no timetable for that compensation, and there was no explanation of what “disproportionately” meant. Is it still the view of the right hon. Gentleman’s party that policyholders should be means-tested?

[Stephen Timms]

My right hon. Friend the Member for Birmingham, Hodge Hill made it clear before the election that he thought that that was entirely inappropriate, so the answer to that question is no.

Parliament has recognised for many years that it is not generally appropriate for the taxpayer to pay compensation even when there is regulatory failure. The responsibility to minimise risks and prevent problems from occurring in a particular financial institution lies first and foremost with the people who own and run it. The Financial Services and Markets Act 2000 reaffirmed the long-standing exemption of financial regulators from liability for negligence in the courts. There would be serious repercussions for the taxpayer, and for the relationship between Government and financial markets, if the taxpayer were to provide a remedy for all losses every time the regulator failed to prevent a financial institution from getting into trouble.

[Dr Sarah Wollaston (Totnes) (Con)]

Does the right hon. Gentleman feel that the emptiness of the Opposition Benches represents a lack of interest in trapped annuitants, or merely shame? I assure him that the fact that the Benches on this side of the House are so full represents a strength of opinion that we wish to express to our Minister on behalf of members of Equitable Life.

[Stephen Timms]

I wish the hon. Lady success. I believe that she is one of those who signed the pledge, and I am sure that she will be training her fire on Ministers. As I have said—and as EMAG has made crystal clear—we are currently heading for the breaking of that pledge.

[Dr Julian Lewis]

Does the shadow Minister feel that people who made dodgy investments in Icelandic banks are more worthy of compensation than people who trusted the Government and the regulatory authorities over Equitable Life?

[Stephen Timms]

I am not sure which investors the hon. Gentleman is thinking of, but I think it essential for us now to move quickly to a scheme. We need a timetable, and we need the details of a scheme, so that this long-standing matter can be resolved.

[Toby Perkins]

Many former Equitable Life policyholders who have spoken to me unquestionably felt that both previous Governments had been too slow to act. They will be very surprised by the extent to which Members who signed that pledge now apparently welcome proposals that are so far removed from what the Conservative and Liberal Democrat parties promised in the run-up to the election.

[Stephen Timms]

My hon. Friend is absolutely right. There is what I would describe as incandescence on the part of those who have been affected, because promises so clearly made to them before the election are not being fulfilled now.

[Several hon. Members]

rose—

[Stephen Timms]

I am going to make a little headway before I give way again.

I have spoken about the ombudsman’s proposals. Sir John Chadwick was asked to advise on a simpler scheme design. Before the election, the present Minister said that he accepted the ombudsman’s proposal. The present Prime Minister, Deputy Prime Minister and Chancellor all signed the EMAG pledge. However, in his report, published in July, Sir John referred to

“the obvious impracticability—if not impossibility—of determining these questions on an individual basis”.

The previous Government favoured his approach as a practical solution, but now the Minister says that it is one of the building blocks of a solution.

[Several hon. Members]

rose—

[Stephen Timms]

I will make a little more progress, and then I will gladly give way again.

The ombudsman spotted a contradiction, and wrote to every member in July making that clear. She said:

“In the light of the new Government’s commitment to implement that recommendation… the approach embodied in the Chadwick report has thus been overtaken by events and cannot provide a basis for the implementation of my recommendation.”

In opposition, the Minister and his right hon. Friends could promise the earth, but now that they are in government their promises are worthless.

[Nicky Morgan (Loughborough) (Con)]

The right hon. Gentleman has not yet mentioned the impact on the public purse. He does talk, however, about how incandescent former policyholders are. They are incandescent about the fact that compensation has been delayed for so long and that the last Government left the economy in such a mess, and as a result the ombudsman has had to say that compensation will have to be limited because of the effect on the public purse. How will Opposition Members explain that to policyholders?

[Stephen Timms]

If the hon. Lady had suggested that the words she has just uttered should have been inserted into the pledge before it was signed by so many Members on the Government Benches she would be on stronger ground, but she and many others gave the impression they were signing up to it in full. Indeed, they did sign the pledge as it stood, without those caveats, so it is no good their now coming back and saying, “We didn’t quite mean what EMAG thought we meant when we signed that pledge.” Therefore, this is the situation: the ombudsman says her proposal and Chadwick are irreconcilable, EMAG backs the ombudsman, and the Minister said before the election that is what he would deliver, but now he says the opposite.

[Mr Weir]

I am listening with interest to the right hon. Gentleman’s comments. As I understand it, the Labour party’s position is that it still supports Sir John Chadwick’s work. If that is the case, can the right hon. Gentleman confirm that Labour would support whatever compensation package Sir John comes up with, or would it follow the coalition and put an arbitrary cap on that?

[Stephen Timms]

Sir John has, in fact, reported. He did so in July. That was rather later than he was going to report; he would have reported in May, and my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne) said that we would have produced a scheme within two weeks. As I have said, our view would have been that we should proceed as we had intended, and as we set out before the election, on the basis of the report that we commissioned.

The new Government delayed publication of the report until July, and we still do not know what the scheme will be. We know almost nothing about the timetable, but I am afraid it will not be what EMAG has been demanding, which it thought current Ministers were signing up to when they signed all those pledges. A great many people feel very let down indeed.

[Margot James]

The ombudsman has found much to welcome in the Bill and this Government’s proposals, such as the independent commission, the compensation scheme, the enabling mechanisms to be set up, the transparency and the progress made. She has welcomed that. Are not Opposition Members therefore getting ahead of themselves in writing off what the Government are proposing? It is one thing for long-suffering members of EMAG to be in that frame of mind because they have been let down so many times, but Opposition Members are getting ahead of themselves. The compensation pot has not yet been fixed, and we are all keen to see the maximum allowance made within the context of the state of the public finances. Opposition Members are being far too negative.

[Stephen Timms]

The ombudsman has said that the Chadwick approach is no longer relevant because the Government have fully accepted her recommendation, yet the Government are saying that they accept that recommendation but that Chadwick is the building block for the future scheme. There is a fundamental contradiction in the Government’s policy.

[Mr Love]

If I were Brian Pomeroy or a member of the independent commission listening to today’s debate I would be confused, especially by the Minister’s contribution, because he is trying to support both the ombudsman’s report in principle and major parts of Chadwick’s report. What is absolutely clear from the debate so far is that the response from Front-Bench Members to all questions about what the compensation pot will be is that the needs of taxpayers must be taken into account. Does that not fundamentally contradict what they were saying before the election?

[Stephen Timms]

Yes, it does. Of course it is absolutely right that the needs of taxpayers must be considered, but Government Members signed the pledge that made no reference to that, which is why they have got themselves into such serious trouble.

[Mr Jim Cunningham (Coventry South) (Lab)]

Is not the fact of the matter that Members who are now in government knew what the economic situation was when they were campaigning in the general election, yet still signed those pledges?

[Stephen Timms]

That is precisely what happened.

I just wish to tell the House the main amendments that we will table in Committee. I hope that the first will meet no opposition, because it directly picks up on a point in the EMAG pledge. It will require that the payments scheme be independent of government. The Bill does not say that, but our view is that it should; indeed, the Minister has confirmed that he intends it to be independent.

The Minister made a slightly puzzling point in his statement to the House on 22 July, when he said:

The ombudsman…concluded that the design of the scheme should be independent of the Government.”—[Official Report, 22 July 2010; Vol. 514, c. 577.]

That is of course true, but the ombudsman concluded that the scheme itself should be independent—that is the point that should be in the Bill, and it is crystal clear in the EMAG pledge. We will doubtless see lots of wriggling by those on the Benches opposite about exactly what was meant by the phrase “proper compensation” in the pledge once the figures are announced on 20 October; many Members will explain that they did not think it meant what EMAG members think it meant. But on scheme independence there is no wriggle room in the pledge, so we will table an amendment to make that a requirement.

[Sajid Javid]

I am grateful that the right hon. Gentleman started his speech by saying that his party would not oppose the Bill this evening. Many victims of the scandal will wonder why his party did not propose a similar Bill when it had the opportunity to do so. My question is a specific one; I am asking him to make something clear for the benefit of everyone watching this debate tonight. His party commissioned the Chadwick report and set the terms of reference. Chadwick said that his final loss figure is £400 million to £500 million. Does the right hon. Gentleman’s party accept that amount or not?

[Stephen Timms]

Our intention, as I have said on a number of occasions, would have been to proceed on the basis that my right hon. Friend the Member for Birmingham, Hodge Hill set out before the election. He did not set out an amount, but he did set out a process, and we would have published within two weeks of the submission of the Chadwick report the timetable for the payments and the scheme itself.

[Several hon. Members]

rose—

[Stephen Timms]

I am going to make a little more progress.

Secondly, as we heard in an intervention that I welcome, we need there to be a clear appeals mechanism that is also independent of government. I believe that the Minister indicated that he was reflecting on an amendment to that effect. The Bill as it stands does not establish such a mechanism, and one should be put in place, because it is certainly necessary. If the Government do not table an amendment to do that, we shall.

[Mr David Burrowes (Enfield, Southgate) (Con)]

For the benefit of my constituents, I want to establish where the Opposition sit on this matter. I understand that one of their critiques of the Government is that they have not responded more quickly to the Chadwick report. Is it right to say that had the Opposition been in government they would, within two weeks, have accepted the Chadwick report and proceeded on the “unsafe and unsound basis” that the ombudsman criticises? Which side of the fence does the right hon. Gentleman think that policyholders would sit? Would they wish to proceed with the Opposition—within two weeks on the Chadwick proposal—or to take account, as the Government are doing, not simply of Chadwick but of wider views?

[Stephen Timms]

The hon. Gentleman’s difficulty is that a very large number of EMAG members feel that, under the basis that is emerging compared with the one that they were concerned about in the past, they are going to end up in an extremely similar position; they do not see that any progress has been made. That is why they are so angry about having been sold down the river, after so many people signed their pledge.

[Several hon. Members]

rose—

[Stephen Timms]

I just want to run through the amendments that we want to table. Our third amendment will relate to the fact that the Bill does not say anything about the timing of the payments. As we have established in this debate, that is a crucial point. We will therefore table an amendment to require that either payments should start by a specified date or the Government should publish a report to explain why not. Our view is that that too should be in the Bill.

Our fourth amendment will pick up another important point in the EMAG pledge. Those who signed it committed themselves to vote for

“a swift, simple, transparent and fair payment scheme”.

To enable the House to ensure that those criteria are met, we will table an amendment to include in the Bill a power to make regulations establishing the criteria for the scheme by the affirmative procedure. In that way, Members of the House and of the other place can consider the scheme before it takes effect and satisfy themselves that the criteria that Ministers signed up to in that pledge are delivered. We think it important that the House itself should have the opportunity to consider and debate the scheme. In that way, we can deliver that aspect of the pledge even though other aspects of it will not be delivered.

I have made it clear that we will support the Bill. We are still, I am afraid, a long way from having the scheme that Equitable Life members want. This has been a long-running and distressing saga and the Bill is a significant step, albeit one that still requires some improvement. On this side of the House, we look forward to arguing for those improvements so that those who have had to wait so long for help will at last receive it.

[Several hon. Members]

rose—

PAYE Contributions

Stephen Timms Excerpts

Wednesday 8th September 2010 Commons Chamber

[Mr Gauke]

My hon. Friend is absolutely right. As the Government, we are seeking to address the short-term issue, which is the overpayments and underpayments. We cannot just brush them to one side or park them for another year; we need to address them. However, we must also look at the longer-term solution, and that, as my hon. Friend rightly says, means moving towards a much more up-to-date system so that the information is more up-to-date and we are able to respond accordingly.

[Stephen Timms (East Ham) (Lab)]

I understand that tax experts were briefed last week and told that a small number of notifications would be sent out in the next few weeks as the start of a process over the coming months, so why was the House not told, still less the public, what was intended? Why did HMRC’s website initially say absolutely nothing at all? Why has that arrangement, which was set out to a few experts last week, apparently now been abandoned and replaced, if we are to believe the reports over the weekend, with a headlong rush, whereby 6 million new calculations will be sent out in the next few weeks? Where is the plan for handling that huge exercise?

The Minister will have seen the questions that I tabled yesterday, but let me put four of them to him specifically. He has told us that HMRC will consider writing off demands when taxpayers can demonstrate that they provided all the necessary information to calculate their tax correctly. What exactly will they have to show, and how can they do so? If a problem arises because the employer, rather than the employee, has made a mistake, can he confirm that the employer will be held liable for the tax that is due?

Crucially, if people are required to pay more tax for a past year, their net income for that year will be reduced. In many cases, that will mean that they would have been entitled to more benefits—pension credit, housing benefit and council tax benefit—than they were actually paid. Can the Minister confirm that the rule will be changed so that those higher amounts will be paid to those individuals or offset against the extra tax that is due?

Anecdotal evidence suggests that HMRC call-response times have become much worse over the past few months, with many more people not being able to get through. Can the Minister confirm that the deadline for tax credit renewals has been extended from 31 August as a result? Clearly, sending out all those notifications will hugely increase the demand on those call centres, so how will that extra demand be managed? The press reports all refer to tax paid over the past two years. Does the Minister intend that, in due course, HMRC will look at earlier periods as well, or is the exercise limited to those two years?

Of course, it is a good thing that the previous Government’s investment has provided a system that is better able, in particular, to keep track of tax obligations, when people change their jobs or have multiple sources of income, but it is the Minister’s job now to ensure that the extra information that he has is used fairly.

[Mr Gauke]

I think we now know why Labour Members did not table an urgent question on this matter.

The right hon. Gentleman asked many questions—although there was not a word of apology for a tax system that is clearly encountering some difficulties—and I will endeavour to answer them all. First, there has been no change of plan. We have pursued the same proposal all along, namely to write to 45,000 to 50,000 taxpayers. We will use the information and the lessons learned from this relatively small sample to guide how correspondence will be undertaken with the remaining taxpayers affected. Let me reassure him that his fears about that are wrong. He also expressed concern about the public not being informed about the exercise, but we made great efforts to inform them over the weekend immediately after the decision was taken to proceed with writing those first letters to affected taxpayers.

The right hon. Gentleman referred to a concession that may be available, and he may recall that the A19 concession is available in circumstances where all the information has been provided to HMRC and it has had the opportunity to address it. We have looked into this. The A19 concession, which is well established—he will remember it from his time in the Treasury—does not apply that often in practice, and I do not want people to build up their hopes that it will offer some kind of panacea; that would be unfair on taxpayers.

The right hon. Gentleman questioned whether employers have made mistakes. In some circumstances, employers will have made the mistake that caused the overpayment or underpayment, but the principle remains the same—we have to collect the right amount of tax.

The right hon. Gentleman asked about means-tested benefits. In some cases, because net income was higher in a previous year, certain means-tested benefits would not have been available in that year, so sums are now having to be paid back. In those particular cases where tax underpayments are being recovered through the tax coding system, the corresponding fall in the net income for the taxpayer will increase the availability of means-tested benefits in that relevant year.

The right hon. Gentleman asked about the extension of tax credit renewals’ deadline, and I can confirm that it has been extended to provide additional time for claims. I have to point out to him, however, that the idea that call centres are under strain and that it is difficult to get through to HMRC is not entirely a new phenomenon: it is a long-standing problem. Let me take this opportunity to say to taxpayers who are understandably concerned about their position that they should wait until they receive a letter before contacting HMRC, as only then will it be able to deal effectively and efficiently with their concerns. Nevertheless, he raises a legitimate issue about call centres. We are providing additional staff—there is additional capacity now and there will be after the tax credit renewal process has been completed. We are taking steps to ensure that HMRC is able to deal effectively with those calling in with concerns.

Finance Bill

Stephen Timms Excerpts

Thursday 15th July 2010 Commons Chamber

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

[Stephen Timms (East Ham) (Lab)]

Schedule 4 provides for the exemption from income tax of expenses paid or reimbursed to MPs, following the introduction under the Parliamentary Standards Act 2009 of the popular new scheme for paying the expenses of MPs administered by the Independent Parliamentary Standards Authority. I understand that that will broadly have the effect of maintaining—[Interruption.]

[The First Deputy Chairman]

Order. Far too many conversations are taking place in the Chamber. Will those who are leaving please do so quietly?

[Stephen Timms]

I appreciate that the arrangements will broadly have the effect of maintaining the tax treatment that applied to similar expenses paid under the previous arrangements. Tax treatment of MPs’ expenses used to be dealt with by specific legislation or long-standing extra-statutory concessions. As hon. Members will know, a long-term project has been undertaken following the judgment in the Wilkinson case of 2006 to place all the statutory concessions on a proper legislative basis. Can the Minister confirm that the previous concession, which I think is numbered A.54—Members of Parliament: accommodation, allowances and expenses—has, with this legislation, been withdrawn, and whether any of the other extra-statutory concessions outstanding are affected by the Bill?

[Robert Flello]

My right hon. Friend said that schedule 4 was broadly neutral in terms of income tax. Has he noted paragraph 1(4) on loans for deposits payable on rented accommodation—perhaps our constituency offices or flats that we need in London because of the ridiculous IPSA rules on staying in hotels? It is common practice for landlords to charge a deposit on flats, something that we have to pay only because we are here representing our constituents. Has my right hon. Friend noticed that there is a tax implication for us in that?

[Stephen Timms]

I confess that when I read the legislation that point did not strike me, but it has been raised and I am grateful to my hon. Friend for putting it on the record.

[Stephen Williams (Bristol West) (LD)]

To be helpful, a loan is not subject to income tax whereas if the loan was interest free the difference between the interest rate that someone might be charged and what they are not charged would be.

[Stephen Timms]

I know that the hon. Gentleman is a chartered tax specialist, as was acknowledged at a reception last night, so I defer to his understanding of these matters.

The Bill is different from the IPSA scheme on a couple of points. The IPSA rules say that when Members are required to be at the House of Commons after 11 pm, non-London areas MPs who claim the London area living payment may claim for the cost of an overnight stay in a hotel, subject to an upper limit. Any MP, including London MPs like me and the Minister, may claim for the cost of an overnight stay in a hotel if it would not be reasonable to return to any residence, where they are required to be at the House of Commons because the House is sitting beyond 1 am. I do not understand the different tax treatment of those two situations. Under new section 292, liability for income tax is avoided only if the House sits beyond 1 am. That is fine for London MPs like me. If I made a claim for a hotel stay under the IPSA rules, the new section would exempt me from income tax on that payment. However, it seems a bit unfair to non-London MPs, in that the IPSA scheme allows them to claim for the cost of an overnight stay if the House sits after 11 pm, but the new section gives them an income tax liability on that claim unless the House sits after 1 am. I wonder why the rules have been drawn up in that way.

A second area where I am puzzled relates to travel expenses for children. I have no children, so I hasten to say that this has nothing to do with my personal arrangements. The IPSA scheme provides for travel and subsistence expenses in respect of travel for dependent children aged under 16, limited to 30 single journeys per child between the Member’s London area residence and the constituency residence in each year. The new section would exempt from income tax the cost of journeys by spouses or partners but not—as far as I can see—the cost of journeys by children. Why is tax payable on those expenses but not on the others?

[Justine Greening]

I shall briefly talk about what we seek to achieve with clause 7 and schedule 4, and then try to answer the specific issues raised by the right hon. Gentleman.

Clause 7 introduces schedule 4, which provides for the income tax treatment of certain expenses paid or reimbursed to Members of Parliament under the new MP expenses scheme introduced and administered by the Independent Parliamentary Standards Authority. For the main part, the changes introduced by the provisions are necessary to reflect the fact that expenses are no longer paid under a resolution of the House but instead are paid by IPSA under the authority of the Parliamentary Standards Act 2009.

As we are all aware, expenses paid to Members have come under close scrutiny over the past year, not just by the media and the public, but also by IPSA. In developing its new scheme, IPSA has taken account of the requirement of MPs to perform their duties both in their constituencies and in Westminster. It has decided that the expenses covered by the exemptions introduced by the schedule are necessary for the performance of an MP’s parliamentary functions.

The key provisions will broadly maintain the long-standing statutory exemptions for overnight accommodation and EU travel expenses that were introduced in recognition of the particular role of MPs. The provisions will codify elements of concessionary tax treatments that, because MPs are required to carry out their duties both in their constituencies and in the House, have applied for many years to certain UK travel expenses paid to MPs. Additionally, they will reflect IPSA’s decision to continue to reimburse some UK travel for MPs’ spouses and partners, albeit in more restricted circumstances. The schedule therefore puts the previous concessionary treatment on a statutory footing to allow those payments to continue to be made without tax being due. Finally, the provisions reflect IPSA’s decision to deal with payments for evening meals separately from general expenditure connected to overnight accommodation, and the schedule now introduces a specific exemption for the costs of meals reimbursed under IPSA’s scheme. Again, that maintains the previous tax treatment.

The right hon. Gentleman raised two issues—about late-night sittings and accommodation. He is right: there is indeed a difference. The IPSA and tax treatment is different for sittings that end after 1 am and for sittings that end between 11 pm and 1 am. For sittings that run after 11 o’clock, there is tax exemption for expenses incurred for overnight accommodation, because that is deemed by IPSA a necessary expense incurred in the MP role.

Non-London MPs who decide to take the London allowance—the London expense regime—are able to charge overnight accommodation if the House sits after 11 pm, as the right hon. Gentleman pointed out. However, that charge is not tax-exempt; it is deemed subject to normal tax treatment for any employee. A normal employee would not be able to claim a tax exemption if they chose to stay in a hotel because they had been working late. The rules for the House sitting past 1 o’clock are agreed with IPSA as necessary for the fulfilment of the MP role, so are tax-exempt. Before that, although MPs from outside the London area can get reimbursement for overnight costs, they are not tax-exempt. I hope that I have clarified the situation, even though some people might not agree that the tax treatment set out in the clause and schedule 4 is fair.

Children’s travel was not tax exempt under the previous scheme, and clause 7 and schedule 4 merely maintain the same tax treatment of children. However, the right hon. Gentleman was right to point out that the tax exemption for spouses will continue, albeit with some more restrictive conditions. Again, I hope that I have clarified the position.

As IPSA continues to develop its expenses regime over the coming months and perhaps years, we will obviously have to keep an eye on any changes and ensure that we determine whether we need to reflect them in tax law.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 8

Amounts not fully recognised for accounting purposes

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

[Stephen Timms]

Clause 8 and schedule 5 amend the corporation tax rules on loan relationships and derivative contracts that apply to amounts not fully recognised for accounting purposes. This is a good example of the way in which the obligations that the previous Government introduced in 2004 on the disclosure of tax avoidance schemes are bearing fruit by revealing forms of avoidance that represent loopholes that need to be closed, which is what the clause does. The intention behind the clause was announced by the previous Government at the time of the March Budget. The provision is tightly targeted. I am not aware of any adverse reaction, and I certainly support the clause, but will the Exchequer Secretary give us his assessment of how much tax avoidance will be prevented by blocking the loophole?

I was pleased that the coalition agreement included the commitment:

“We will make every effort to tackle tax avoidance”.

Clauses 8 and 9 are the first concrete signs of that commitment being delivered. However, will the Exchequer Secretary tell us a little more about how those efforts will be pursued and what is meant in the coalition agreement by the commitment to

“detailed development of Liberal Democrat proposals”?

If I understand correctly, Liberal Democrat proposals in this area include: changing the taxation of benefits in kind; increasing the proportion of HMRC time spent on income tax evasion; a new general anti-avoidance provision for corporation tax, with companies paying a commercial rate for HMRC pre-clearance—I imagine that that is being subsumed in the wider discussion about a general anti-avoidance rule; and legislating to establish the beneficial ownership of property that is sold to prevent the avoidance of stamp duty land tax. Will the Exchequer Secretary confirm what the coalition agreement meant? Are all those initiatives—

[The First Deputy Chairman]

Order. I think that the right hon. Gentleman is going much wider than the provision before us. Will he confine his remarks to what is contained in clause 8?

[Stephen Timms]

Of course I will, Mr Evans.

I accept that there will always be areas in which there is legitimate uncertainty among business and their representatives about how the law applies. However, I am pleased that clause 8 and schedule 5 are being brought forward to block one more unwanted loophole.

Finance Bill

Stephen Timms Excerpts

Monday 12th July 2010 Commons Chamber

[Mr Redwood]

Has the hon. Gentleman been in the Chamber while I have been talking? The first part of my speech was about bad cases of evasion in which a company has deliberately misrepresented its financial condition. Like him, I think that those cases should be taken seriously, and prosecution should result. I am going on to the second set of cases, in which evasion is thought to have taken place according to the Revenue, but when we look at what is going on there is a genuine disagreement between one group of tax experts, lawyers and company advisers and another lot advising the Revenue, which sometimes needs to consult counsel on these complicated matters to try to reach a conclusion. Such cases are often sorted out slightly more amicably, and rightly so, because the companies concerned were obviously not trying to do down the Revenue but to pay the minimum amount of tax to comply with the law, as most sensible people try to do, and there was a disagreement that had to be sorted out sensibly. That might result in financial penalties or in an agreement not to have financial penalties, but usually the Revenue has a certain amount of strength in having its way.

That is evasion, and then there is avoidance, which is much more problematic. I am sure that billions-worth of avoidance is going on all the time, because it is a perfectly legal approach; one man’s avoidance is another man’s sensible tax planning. That is why I asked the hon. Member for Hayes and Harlington for an example relating to personal income tax, which is easier for people listening in to this debate to understand. Many small savers switch from tax-paying savings to tax-free savings, which is avoidance of tax, is it not? They realise that they can do better by having a tax-exempt savings product; surely we should not condemn that, because it is about someone trying to get the most for their money. Indeed, that is something that the Government positively encourage. They encourage tax avoidance because they say, “We have the unique power to provide tax-exempt products for savings, and we want you to buy ours rather than the taxed private sector product.”

[Stephen Timms (East Ham) (Lab)]

My hon. Friend the Member for Eltham (Clive Efford) asked a telling question, and I am not sure what the right hon. Gentleman’s answer is. The question is this: does he deprecate any tax avoidance, or is he saying that as long as it is strictly in compliance with the law, anything goes? As he knows, there have been some very ingenious, and indeed expensive, schemes used by companies to avoid paying tax, clearly contrary to the spirit of the law but arguably in compliance with the letter of the law. Does he not deprecate that kind of activity?

[Mr Redwood]

I do not want to get drawn into the moral issue of deprecating or not deprecating: what I am interested in is the efficiency of revenue collection and the clarity of the law for the people having to meet it. It is the job of this House to have a clear tax law that people have to follow, and we often have these debates to try to carry out that task. Sometimes tax law is so complicated, or people outside this House are so ingenious, that there are ways round it that I might disagree with and the right hon. Gentleman will often disagree with, and that is when we come back to legislate again. We say, “We haven’t done our job well enough. People are avoiding tax more easily than we would like them to be able to, and so we’re going to add another complication”—or sometimes even a simplification or clarification—“to the tax law to try to capture that.” That is the job of this House. The shadow spokesman and I will sometimes agree that an avoidance scheme goes too far and we need to legislate to stop it; on other occasions, we will disagree. I will say, “That’s perfectly rational tax planning—don’t be such a party pooper”, he will say, “I don’t like people getting away with that kind of thing”, and we will have our disagreements.

--- Later in debate ---

[Mr Redwood]

The hon. Gentleman shakes his head, but what else is it? Why are people investing more than they otherwise would have done? Because they are allowed to avoid tax and pay less tax than they otherwise would.

[Stephen Timms]

The right hon. Gentleman is uncharacteristically abusing the English language. To say that something that is explicitly provided for in the law is tax avoidance is not what most people mean by the term.

[Mr Redwood]

Fine—that is a very good linguistic point, and if the right hon. Gentleman wishes to define tax avoidance more narrowly as actions that we all disagree with, we can do that and it makes the debate much simpler. However, he has to understand that there are a series of grey areas, and it is not a black-and-white matter. There is not a set of actions that everybody agrees are tax avoidance and another set that everybody agrees are perfectly reasonable incentives or sensible ways of paying less tax.

Let us get on to the more difficult corporation tax cases, having dealt with the investment one—everybody in the House thinks that investment is a good thing and that corporations should therefore pay less tax one way or another, either through the rate of tax or through explicit relief.

--- Later in debate ---

[Gavin Williamson]

The hon. Gentleman makes an interesting point, although more people becoming incorporated as limited companies will reduce the amount of tax avoidance from which people could perhaps benefit as sole traders.

[Stephen Timms]

I join others in congratulating the hon. Member for Lincoln (Karl MᶜCartney) on his maiden speech. He launched some important claims on behalf of his constituents. I was interested in the case that he made for reintroducing indexation and taper relief on capital gains tax. I suspect that these debates will gain a new currency, given the increase in the rate of capital gains tax that the Bill introduces. I also welcome the evidence of independent thinking that he showed the Committee today, and I appreciate, as many will, his generous remarks about Gillian Merron, who was certainly a very popular Member of the House, as well as a popular feature in the local press in the hon. Gentleman’s constituency.

I am grateful to my hon. Friend the Member for Hayes and Harlington (John McDonnell) for raising this issue. He has done us a service by raising some important points. I do not agree with his criticism of the previous Government in that respect, as I shall explain, but it is right that we should have this debate in this part of our consideration of the Bill.

I enjoyed listening to what the hon. Member for South Staffordshire (Gavin Williamson) said a moment ago. What he was saying, I think, was that he was expecting the new Government to simplify the tax system. Well, maybe, although I do not think that there is much simplification in the Bill. In fact, there is a major new complication, as we will see when we come to clause 2. For the first time ever, the rate of capital gains tax is being changed in the middle of a year. That is a significant new complexity that the Bill introduces. Although I am touched by his faith, I suspect that he might find himself somewhat disappointed as time goes on.

My hon. Friend the Member for Hayes and Harlington was right to pay tribute to the work of Richard Murphy and the tax justice campaign. I want to pay particular tribute to Richard Murphy for developing, and first arguing for, the idea of country-by-country reporting. We are debating the avoidance, and indeed evasion, of corporation tax, and of course, that is a matter not only for the UK but for developing countries on a large scale as well. Richard Murphy was the first person to argue that companies should report, on a country-by-country basis, the profits that they make in each country and the tax that they pay in each country, so that everyone can see if there is a mismatch between the two.

The previous Government supported that call, and I am pleased that the OECD is taking the matter up. I think that we are now going to see some progress on that front, thanks to Richard’s efforts. I note from his blog that he has been on the receiving end of some unwarranted online harassment recently on account of his work. I certainly wish him well in what he is doing. However, I am not entirely persuaded by his criticism, or that of my hon. Friend the Member for Hayes and Harlington, of the work of HMRC on the tax gap. As my hon. Friend rightly mentioned, however, it is inevitable that any estimates in this area will be uncertain because no one knows precisely what is being hidden from the tax authorities.

Narrowing the tax gap was an important priority for the previous Government, and I was grateful for the comments made by the hon. Member for Southport (Dr Pugh) and by the Minister in the debate on tax avoidance that was held in Westminster Hall on 14 June. In that debate, my hon. Friend the Member for Wallasey (Ms Eagle) set out the key elements of the progress that the previous Government had made on tackling the problem of avoidance. One of the initiatives that we took was to propose a voluntary code of practice for the banks, and I hope that the Minister will be able to tell us more about this when he winds up the debate. My hon. Friend the Member for Leeds East (Mr Mudie) mentioned one of the banks a few moments ago. The idea was that banks would sign up to the code of practice and, in doing so, would agree to stick not only to the law on the payment of taxes but to the spirit of the law as well.

Having listened to the arguments put forward by the right hon. Member for Wokingham (Mr Redwood), I imagine that he would be opposed to that initiative, because he would feel that it should simply be a matter of asking, “Are you or are you not complying with the letter of the law?” and that, if a problem arose, the Government should legislate to close the loophole. The problem with that approach is that we can get into an arms race, as we have certainly done on many occasions, in which the Government and Parliament agree on changes to the law and everyone knows perfectly well what they mean, but the banks then commission ingenious accountants to find ways round the spirit of the law, even though the letter of the law is being complied with. If we were to stick with the approach for which the right hon. Gentleman is arguing, Parliament would then have to close the loophole, perhaps a year later, and the circle would continue to go round. He made an interesting case, but we have to find a way of breaking that vicious circle, because huge amounts of money are being spent by taxpayers and by HMRC, and, in the end, nobody benefits.

[Mr Redwood]

The right hon. Gentleman is quite right to say that there can be an arms race, but would he also acknowledge that, while quite a lot of companies accept that they need to pay a fair whack of tax, there are many judgments involved? Those companies seek advice on that judgment, but they do not always get the same advice as HMRC. It is not that they are all trying to cheat the taxpayer; these are complicated matters and a view needs to be taken on cost overhead allocation, transfer prices and so on. Judgments are reached and the Revenue disagrees, but these are judgment matters, and this subject is not easy to handle.

[Stephen Timms]

The right hon. Gentleman is absolutely right about that. I entirely accept that that often happens, but I hope that he will accept that there are also people who commission very highly paid accountants to find ways of getting round the law. Everyone involved in that practice knows perfectly well that they are going against the spirit of what Parliament intended, and that is the kind of damaging avoidance that we need to bear down on.

[Kwasi Kwarteng]

Clearly, we have laws, but people are also going to try to pay the minimum amount of tax that they can. That is an entirely rational thing for them to do. It is our job to frame the laws as simply as possible, so that there are no loopholes. As my hon. Friend the Member for South Staffordshire (Gavin Williamson) pointed out, because there is so much more complication in our tax system, there are far more opportunities for loopholes. Surely the way to tackle the problem is to simplify the tax code, rather than pursuing people through the law courts or making the code even more complicated.

[Stephen Timms]

I am happy to subscribe to the view that the tax code should be as simple as possible, and I look forward to the new Government introducing measures along those lines. Simplicity is certainly a virtue, but, as I have said, those who are pressing for such measures might find that they have a rather longer wait than they would have liked. Let me also make it clear, in agreeing with my hon. Friend the Member for Hayes and Harlington, that there is absolutely nothing wrong with tax planning or with people ordering their affairs in a sensible way from a tax point of view.

[Mr Mudie]

I thank the Minister for giving way. I am sorry, I should have said “the shadow Minister”—old habits die hard. Does he recall that it was reported last year that the majority of the top 100 companies paid no tax whatever? That was not a matter of the tax system being complicated; it was a simple matter of their going to enormous lengths—working with the worst culprit, Barclays bank—to devise systems and work through offshore companies to avoid paying any tax. Do not Members on the Government Benches get angry that ordinary people work hard and pay their taxes while multinationals and other large companies go to extreme lengths to pay no tax whatever?

[Stephen Timms]

My hon. Friend is absolutely right. There are some flagrant examples of that, not least in the banking sector. Indeed, some of those examples were very well documented in the excellent series in The Guardian earlier this year. I would particularly welcome an update from the Minister on the progress of the voluntary code of practice for the banks, which could be an effective way of tackling the problem that he is dealing with.

[Andrew George]

Of course we all agree that we should seek the holy grail of a more simplified tax system, but what assessment did the right hon. Gentleman make of the announcement of 12,000 job cuts in HMRC, which we have discussed, and particularly of the breaking up of the compliance teams that were scrutinising the very areas of tax avoidance and tax evasion that we are now debating?

[Stephen Timms]

HMRC, for which I was responsible, has a very difficult task on its hands. I was persuaded, and remain convinced, of the case for HMRC being able to discharge its functions a good deal more efficiently in the future, thanks to the use of new systems and to a reorganisation into larger groups. In the past, HMRC was characterised by lots of offices with not very many people working in them. It is now clear that that was not very efficient or effective, and I think that the reorganisation will help. There is no escaping the fact that it has a tough job to do, but I think that it is setting about it in the right way.

The financial crisis since 2008 has led to a big shift in the approach to tax evasion and tax avoidance. Following the crisis, the previous Government made certain that the UK was at the forefront of the drive for change. Internationally, there was recognition that a lack of transparency in the international financial system had presented previously unrecognised but nevertheless significant systemic threats to the global financial architecture, that those threats had to be dealt with and that progress had to be made quickly. In the forum of the G20 and in the aftermath of the credit crunch, good progress was made, but that momentum needs to be maintained. I hope that the Minister will set out for us today how he sees it being maintained.

--- Later in debate ---

[Gavin Williamson]

In 1997, we had the 11th lowest rate of corporation tax, whereas in 2010 we have only the 23rd lowest. Does the right hon. Gentleman believe that that might have some impact on corporation tax evasion?

[Stephen Timms]

I believe that it is important, as the previous Government made clear was their continuing intention, to have the lowest rate of corporation tax in the G7. That is why we reduced corporation tax when we were in government, and when we come to debate the rate, as we will in a few minutes’ time, I will press the Minister to reiterate on behalf of the present Government the commitment that was made and indeed fulfilled by the previous Government—to have a competitive corporation tax regime.

[Gavin Williamson]

When global companies are looking across the globe to where they should locate their headquarters, is the right hon. Gentleman not concerned that we slipped so far down the rankings under a Labour Government?

[Stephen Timms]

No, we were successful in maintaining a competitive business tax system in the UK. It is true, of course, that if a company goes to Ireland, it will pay a much lower rate of corporation than it would in the UK, but that rate of corporation tax in Ireland is lower than in any G7 country. Our commitment was to keep the UK’s corporation tax rate the lowest in the G7, and that is what we successfully did. It was important that we did so.

There is debate about whether the £40 billion figure is correct. I believe that HMRC did a serious and careful analysis. I also think there should be more discussion with people such as Richard Murphy. I believe his figure for the tax gap on corporation tax was about £12 billion—not vastly more than the £9 billion or so in the HMRC figure. Richard Murphy also makes the point that there is uncertainty—perhaps more uncertainty—about that figure than some of the others that he estimates. Continuing discussion between people such as the tax justice campaign and HMRC is important so that we make these figures as accurate as possible. I very much hope that the Minister will confirm that it is his intention regularly to update the analysis that has been published, to be frank and robust in publication and to discuss the issues with the tax justice campaign, which takes a different view, and the TUC, which has also taken a close interest. Ultimately, it is in everyone’s interest to have the best possible information available. I hope that the Minister will reassure us on that.

[Matthew Hancock (West Suffolk) (Con)]

The right hon. Gentleman has just admitted that since 1997, in respect of avoidance or evasion of corporation tax, the tax gap was reduced by only £3 billion. Does he not agree, then, that it is wrong to go around the country telling people that the entire deficit could be dealt with if we just got to grips with this one issue? It is, of course, important to get to grips with it, but it will not on its own resolve the deficit. Is it not wrong to tell people that it could?

[Stephen Timms]

I am sorry if I misled the hon. Gentleman into thinking that the figure was reduced by only £3 billion as result of the previous Government’s efforts. I did not say that at all. I would be happy to go through in more detail the efforts of the previous Government on this issue, but the crucial initiative was the disclosure regime, which we introduced in 2004 to great howls of protest, yet it has undoubtedly saved many billions in tax that would otherwise not have been collected. The total figure is certainly a great deal more than £3 billion. As to whether addressing this problem could be the sole solution to the problem of the deficit, however, I agree that it could not.

[Stewart Hosie]

The shadow Minister makes a point about the success of the disclosure scheme. It has been successful, but does he now regret not implementing a pre-commencement validation system with the Revenue before such avoidance schemes were put in place rather than a post-commencement disclosure, when the money has to be clawed back through retrospective legislation? Is it not better to avoid any avoidance happening in the first place?

[Stephen Timms]

The hon. Gentleman, who knows a lot about these matters, is right that this is one of the subjects that will have to be considered in looking at a general anti-avoidance rule. The problem, I think, is HMRC having to respond quickly to potentially huge numbers of pre-clearance requests of that kind, which would be a massive additional burden. If I were in the Minister’s shoes, before going down that road, I would press very hard for some cast-iron assurances on the part of HMRC that those clearances could be provided quickly. The problem is that a lot of new bureaucracy would be required.

[Stewart Hosie]

I understand the argument and I have heard it before—last year, in fact. I welcome what the shadow Minister is saying, but given the concept of promoters or introducers of these schemes—effectively a clear register of people who might engage in this kind of activity—might it not now be easier than it would have been even two or three years ago?

[Stephen Timms]

I think it would still be difficult, complex and cumbersome. A judgment will have to be made about whether it is the right thing to do—effectively, the benefit of reducing avoidance would have to be worth the additional complexity. I am sure that this debate is still to come.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

Before responding to amendment 11, I would like to thank my hon. Friend the Member for Lincoln (Karl MᶜCartney) for making his maiden speech earlier. He is rightly proud to represent that fine constituency, and I am sure that his constituency will be rightly proud of him. I hope he represents his constituency for many years to come. I will deal with the issues he raised about capital gains tax—as already noted, he shows great independence of mind on this point—when I respond to a later grouping of amendments.

I am very pleased to see the right hon. Member for East Ham (Stephen Timms) back at the Dispatch Box. It is good to see him returned here and I hope he is returning to good health. He is certainly a formidable person to face on the other side of the Dispatch Box, as he has great expertise and experience in this particular subject. He was a highly popular and effective Minister, performing the same role as I now perform. His are big shoes to fill and I am sure that there will be plenty of disagreements in the months ahead, but it is none the less a great pleasure to see the right hon. Gentleman back, well and in good form.

Amendment 11 seeks the publication of a report assessing corporation tax avoidance and evasion and setting out measures to ensure the payment of tax before the reduction in the main rate of corporation tax can be applied. The Government are committed to a competitive corporation tax rate, which will show that the UK is open for business and encourage growth. The amendment is narrowly focused on the role of evasion and avoidance, so I shall explain later and in more detail our reasons for the more general changes proposed.

Terminology was a large part of the debate on the matter. As we have heard, tax evasion occurs when someone acts against the law. Tax avoidance involves compliance with the letter but not the spirit of the law, and it is right that the Government seek to minimise that. Tax planning is a case of acting in both the spirit and the letter of the law. There is a distinction, although there will be occasions when the line is a little blurred.

The Government are committed to tackling robustly avoidance and evasion, which undermine the effectiveness of the tax system, distort competition and increase the burden of taxation on those who do comply with the spirit and letter of the law. The emergency Budget clearly sets out the Government’s strategic approach to reducing tax avoidance and evasion. As a number of my hon. Friends have pointed out, some matters relate to how we make tax law, and to ensuring that tax law has as much clarity as possible. At the time of the Budget, we produced a well-received publication setting out a more deliberative and consultative way to make tax law.

There is also a strong case for a more simplified tax code. Too many allowances and reliefs and too much complication within the tax system provide opportunity for tax avoidance, which we seek to address. We will address long-standing avoidance risks, and I have announced an informal consultation on the introduction of a general anti-avoidance rule. I appreciate that there are arguments on both sides, some of which we heard from the right hon. Member for East Ham. We will ensure that we make changes in the law in a way that prevents increasing complexity and reduces the need for frequent legislative revisions. We will also ensure that we build in sustainable defences against avoidance opportunities when undertaking policy reform. The Government have already closed specific loopholes to prevent the avoidance of corporation tax, and clauses 8 and 9 protect about £200 million of tax revenues per year.

The Government fully support the type of transparency for which the hon. Member for Hayes and Harlington (John McDonnell) calls in his amendment. As others have pointed out, that form of transparency already exists. The right hon. Member for East Ham pointed out that HMRC has published an assessment of corporation tax avoidance and evasion, although it deals with not just corporation tax but tax across the board. In December 2009, HMRC published the document, “Measuring Tax Gaps 2009”, which estimated the overall tax gaps across HMRC’s regimes for the first time. Alongside that statistical release, HMRC also published estimates of the tax gap by behaviour, including avoidance and evasion, as well as the actions being taken to reduce the gap. As we have heard, HMRC’s estimate for the tax gap as a whole is £40 billion, and the definition includes evasion and avoidance, debt and legal interpretation—as my right hon. Friend the Member for Wokingham (Mr Redwood) pointed out, there are sometimes disputes between two parties, both acting in good faith.

--- Later in debate ---

[Stephen Timms]

Was the hon. Gentleman surprised that the Office for Budget Responsibility reduced its estimate of future growth in the British economy following the Budget?

[Sajid Javid]

That is a misleading question, and it does not go to the heart of the matter. It is a nice try, but the right hon. Gentleman will really have to try harder than that.

To return to banks and how to get our economy going, as well as restoring incentives we need to get banks lending again. That was the only vaguely accurate or factual point that I could pick up from the speech of the hon. Member for North Durham (Mr Jones). If we are to do that, we need to understand why they are not lending at the moment, and the major reason is a lack of capital for British banks. Banks across the world face the same problem. As a Government, we need to work out a way to restore the capital positions of banks so that they are willing to take the risks that are a necessary part of making lending decisions.

There are only three ways for banks to try to raise capital. The first is through the free capital markets, but today those markets are effectively closed to virtually all banks. Prior to the financial crisis, there were many instruments that banks could use to try to raise capital, including types of subordinated debt, hybrid equity instruments, tier 1 and 2 securities and common equity. Not only are those markets closed to banks today, but if Opposition Members have watched carefully what has happened in the financial markets over the past three or four months, they will know that banks cannot even raise senior debt effectively, let alone capital. Banks throughout Europe—especially those on the continent, but British banks included—are in many cases unable to raise that type of debt, let alone equity. The capital markets as an avenue to raise capital are closed.

The second option is for the Government themselves to give capital to banks. After the £70 billion-odd injection made by the previous Government, I do not believe that any Member of any party is advocating the Government injecting more capital into the banking system.

There is one final way left, which is to allow banks to hold on to some of their profits, if they are in a position to generate profits. No matter what Opposition Members would like to think, unless we create the conditions inside a bank that make it want to lend, there is no way to force it to do so.

[Sajid Javid]

No, not at all. We have to separate the two issues. The levy is about working towards a way of taking something back from the banks to build an insurance-type system, so that if things such as happened during the financial crisis happen again, the Government will have a mechanism to withdraw some capital from the banks. However, if we are to cut corporation tax on all companies, it would be madness to leave out the banks. They need to be allowed to build capital, not just for the sake of getting them lending again by putting them in a comfortable enough position to make that decision, but because of the impact on their competitiveness.

Whether we like it or not, our financial sector is a huge part of our economy, and it is much bigger as a percentage of GDP than that of many of our international competitors, even after the financial crisis. It accounts for thousands of jobs up and down the country, not just in the City but probably in each and every constituency. If we are to restore some health to our financial sector, it makes no sense to make it uncompetitive when compared with other sectors in our economy and with other countries. The banking and financing sector is one of the most mobile of all our economic sectors. If we have differentiated tax rates for one sector of the economy compared with others, that will only make matters worse. I therefore oppose the amendments.

[Stephen Timms]

I am grateful to the Exchequer Secretary for his kind remarks on my return to the Dispatch Box. He, along with many Members of all parties, was good enough to write to me after I was attacked and injured. I greatly appreciated all the messages of good will that I received, and I would like to put on record my thanks to all those from across the House who got in touch; I think that those messages have accelerated my recovery. I am grateful to the Exchequer Secretary for his words.

My hon. Friend the Member for Nottingham East (Chris Leslie), in an excellent speech when moving the amendment, raised some important points. I was also encouraged by the comments of the hon. Member for St Ives (Andrew George). I am pleased that he described himself as free ranging, and I hope that his freedom of ranging includes joining us in the Lobby. I am particularly keen to have the opportunity to vote on amendment 34.

The Chancellor told us in his Budget speech that he was being tough on the banks. Listening to some Conservative Members’ speeches, I wonder whether they heard that part of his speech. He explained rightly:

“The failures of the banks imposed a huge cost on the rest of society, so I believe that it is fair and right that in future banks should make a more appropriate contribution, reflecting the many risks that they generate.”

At that stage, it could well be that the Chancellor’s words were consistent with the comment in the Red Book, to which the hon. Member for West Suffolk (Matthew Hancock) drew our attention. It states:

“The levy will result in a rebalancing of the burden of taxation between banking and other sectors.”

Who knows to what a “rebalancing of the burden” amounts? It could mean something pathetic and small. However, the Chancellor went further in his Budget speech. He said that the introduction of the bank levy would entail

“a greater contribution from the banking sector—one that far outweighs any benefit that it will receive from the lower tax rates that I have just announced.” —[Official Report, 22 June 2010; Vol. 512, c. 175.]

The Chancellor told the House that the cost of levy to the banks would “far outweigh” any benefit that the banking sector received. Listening to the speeches of the hon. Member for West Suffolk and the hon. Member for Bromsgrove (Sajid Javid), I do not think that they heard that part of the Chancellor’s speech.

My hon. Friends the Members for Nottingham East and for North Durham (Mr Jones) queried whether the levy, in so far as we know about it—the hon. Member for St Ives told us something about it—would fulfil the Chancellor’s words and far outweigh any benefits that the banks receive from the reduction of corporation tax. It is odd, as my hon. Friend the Member for Nottingham East pointed out, that for all the appearance of toughness in the Chancellor’s speech, bank shares actually went up after his announcement.

[Matthew Hancock]

The right hon. Gentleman may have misheard my earlier comment. Can he be surprised about the Chancellor’s comments when page 101 of the Red Book states that the bank levy raises £2.5 billion and the corporation tax cut in 2013-14 will cost £700 million? It is therefore no surprise that the bank levy raises more than the cut in corporation tax to the banks. That is precisely the point that I made earlier.

[Stephen Timms]

I am not sure about the figure of £700 million. I hope that the hon. Gentleman is not telling us that the reduction in corporation tax will decrease that tax take by £700 million. That is incorrect—perhaps he was citing a partial figure. However, that is why we need a report. I would genuinely like to know the impact specifically on the banking sector of a four percentage point reduction—it was not long ago that the banks accounted for a quarter of all the corporation tax receipts that the Exchequer collected—compared with the £2 billion cost of the levy.

[Andrew George]

The Red Book costings on page 19, in table 3 refer to the yield from the bank levy across fiscal years. In 2011-12, the figure is £1.15 billion, and in 2012-13, it is £2.32 billion. It is important to clarify that for the record.

[Stephen Timms]

I am grateful for that clarification. However, my hon. Friend the Member for Nottingham East described the background, pointing out the rather surprising fact that, after the tough talk, banking shares rose. He cited some of the analysts and mentioned the note from BNP Paribas, entitled

“UK Bank Levy: Bark Worse Than Its Bite?”

The note explained the reasons for that. It states:

“As things turned out for all the pre-election vitriol aimed at the UK banking system, the impact of today’s measures appears materially lighter than expected.”

The ratings agency Fitch said the levy would have “no impact” on the ratings of any UK bank. FT.com reported ideas being developed by the Swiss bank, UBS, to reduce the impact of the levy through some careful so-called “balance sheet management.” My hon. Friend the Member for North Durham pointed out that the banking levy is supposed to be based on bank balance sheets, so I suppose that it is no surprise that organisations such as UBS are thinking about what they can do to manage to balance sheets in such a way as to reduce the impact of the levy. That takes us back to our earlier debate on avoidance and evasion, and why legislation often turns out to be more complex than people originally intend: it has to address such behaviour.

My hon. Friend the Member for Nottingham East also rightly made the point that several banking analysts were quoted after the Budget as saying that the cut in corporation tax from 28% to 24% would “negate” the impact of the levy on bank profitability. We need to know the truth of the matter, and that is why the amendment calls for a report. It is certain that the amount payable under the levy will be offset—at least in part and possibly wholly—for banks making a profit by the reduction in corporation tax in the next few years. It is entirely plausible for the amount due under the levy to be more than offset for some banks—possibly for all banks—by the reduction in corporation tax under the clause, together with reductions over the next few years.

The Chancellor said in his Budget speech that the contribution under the new levy would “far outweigh” the benefit from corporation tax reduction, but to put it kindly, it is by no means clear that that will be the case. I would not favour a different, higher rate of corporation tax for the banks. That would raise several difficulties, but given that the Chancellor has made clear his view that the banks should make a larger contribution in the light of what has happened, that the increase in the tax they bear should “far” outweigh the reductions they enjoy—of which the clause outlines the first—I hope that the Exchequer Secretary will agree that a report along the lines suggested in the amendment, and in the strikingly similar amendment that the hon. Member for St Ives tabled, would be a valuable contribution to transparency and to understanding the impact of the Budget measures. I also hope that the Minister sets out as much information as possible to illuminate the impact of the corporation tax cut on the banks in comparison with the bank levy.

The nub of the issue is this: can the Minister substantiate the Chancellor’s claim that the impact of the bank levy will “far outweigh” the impact of lower corporation tax? If the Minister is unable to accept amendment 34, I should like to press it to a Division.

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[Stephen Timms]

I beg to move amendment 49, page 1, line 6, at end add—

‘(2) In section 2(2)(a) of the Finance Act 2010, after “companies”, add “not meeting the condition in (c) below”.

(3) At the end of section 2 of the Finance Act 2010 add—

“(c) 26 per cent. on profits of companies whose taxable profits will be increased by more than 1 per cent. as a result of changes in investment allowances.”.’.

It is a puzzling feature of the Budget that, on the one hand, the Chancellor is gambling on a big increase in investment, and basing his Budget arithmetic on the belief that investment will grow in each of the next three years at a rate that has been achieved in only one year in the last 40. That is an heroic assumption about investment growth, and if it proves to be untrue, the Budget gamble will fail. At the same time as banking on that huge increase in investment, he has announced that he will drastically cut the incentives for investment. The rates of capital allowances will be reduced from 20% to 18%, and the annual investment allowance will be cut by three quarters, from £100,000 to just £25,000. It is hard to see how the forecast growth in investment can be reconciled with such a big cut in investment allowances. The Budget was billed as Britain being open for business, yet it will clearly reduce the prospects for growth, as the Office for Business Responsibility confirmed in its two projections, before and after the Budget. Indeed, the International Monetary Fund, in its projections last week, also downgraded its growth forecast for the UK economy as a result of the Budget.

We have here a collision of conflicting objectives, which we highlight in the amendment. We propose a lower rate of corporation tax for companies that lose out from the reduction of allowances above a certain threshold. The Institute for Fiscal Studies pointed out before the election that the losers as a result of the Conservatives’ approach would be those making big investments and earning modest profits, notably

“in the manufacturing and transport sectors”,

and that the gainers would typically be in the financial sector.

We do not yet know what the legislation on allowances will say. The Chancellor said in his Budget speech that the change in the rate of capital allowances and the lower annual investment allowance would not take effect until 2012. Will the Minister confirm that the coalition Government are planning no reduction at all in investment allowances in the current financial year? Will the changes announced by the Chancellor in the Budget be in the Finance Bill later this year or will they be delayed until next year’s Finance Bill? I hope that the Minister will also comment on the principles underlying our amendment. How can it make sense to reduce so drastically the incentives for investment in a period in which the Budget depends so heavily on an unprecedentedly large and sustained increase in investment?

[Mr Gauke]

As I have already explained, the Chancellor or the Exchequer set out a business tax package in the Budget that included rate cuts and reductions in allowances that are good for business and growth overall. Amendment 49 proposes that clause 1 be amended to reduce the main rate of corporation tax to 26% for those companies whose tax bill will increase by more than 1% as a result of the reduction in investment allowances. That is a somewhat complex mechanism, but it provides an opportunity to raise the matter of capital allowances.

As part of a package to improve the UK’s competitiveness, it was announced that from April 2012 there would be reductions in the rates of writing-down allowances for plant and machinery and a reduction in the annual investment allowance. The Government will reduce the main rate of corporation tax to 26% that year—2012—and by that reduction, alongside changes to allowances, we will achieve the results that the amendment seeks. Furthermore, by not implementing the changes to allowances for two years, but reducing corporation tax rates next year, we are giving companies a full year to benefit from the reductions in rates, alongside current levels of allowances. Further reductions in the main rate of corporation tax follow in later years and capital allowances remain broadly in line with average rates of economic depreciation. To answer the shadow Minister’s questions, no changes are made to the so-called investment allowances in this Finance Bill and none is planned for the next financial year.

[Mr Gauke]

As I said a moment ago, the changes to capital allowances will take effect from 2012, and we believe that there is a substantial benefit for the UK economy in reducing the corporation tax rate. Indeed, it is a direction of travel that our predecessors followed when they reduced the rate from 30% to 28%, but we do not think that that went far enough. The point was raised in earlier debates that the UK has lost its competitive advantage in having a relatively low rate of corporation tax, as a number of other countries have cut their corporation tax rates much further than we have over the last 13 years. We believe that the lower rate sends a very clear signal that Britain is open for business and it is a demonstration of the direction of travel in which we are going. Assessment of the impact of Budget measures on investment over the next few years suggests an increase in investment of £13 billion.

The Budget thus provides a set of proposals and a set of reforms to corporation tax that will encourage further investment. As I say, it is a sign that Britain is open for business and a sign to investors and businesses throughout the world that the UK is a good place in which to do business. We believe that the package as a whole is well balanced and that it will aid a private sector recovery, partly funded through reforms to capital allowances and partly through the bank levy, as we debated earlier. Legislation is not required for the changes in capital allowances in this Finance Bill or indeed in next year’s, but we have set out a clear sense of direction that has been welcomed by business groups as a whole. We therefore urge the shadow Minister not to press the rather complicated amendment 49. It will not make any difference, because we will legislate to this effect in any event—without the complicated mechanism in the amendment. I urge him to withdraw it.

[Stephen Timms]

I am disappointed by that response. I am disappointed that my hon. Friend the Member for Brent North (Barry Gardiner) did not get an answer to the telling point that he put to the Minister. There is a real issue about how this large increase in investment is supposed to be achieved at exactly the time that incentives for investment are being reduced. Nevertheless, I shall not press the amendment to the vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

[Stephen Timms]

We have had useful and important debates about the amendments to clause 1, but some important points remain to be discussed. I have no wish to oppose the clause, and I will not encourage my hon Friends to vote against it. However, we need to ask some significant questions, in particular about why the clause does not contain items that we might have expected.

Small companies will face a worrying and uncertain time over the next few months, and we would all sign up to the proposition that they are the lifeblood of the UK economy, yet the Bill does nothing to help them. The Budget did not do much either, but at least it included the 1 percentage point reduction in corporation tax. Inexplicably, that measure has been omitted from the Bill. Will the Minister tell us why? What was the basis for selecting the measures in the Bill? Is the Bill’s purpose simply to ensure that the increase in VAT is legislated for before Liberal Democrat Members have the opportunity over the summer to learn what their constituents think about it, or perhaps before their party conference has a chance to express a view in September? Were the other measures included just to make up the numbers and pad out the Bill? Alternatively, is there another criterion—urgency, presumably—for what is included in or omitted from the Bill? If so, why was it urgent to legislate for the large companies rate but not the small companies rate? The more we look at the Bill, the more it appears to be a rag-bag of measures to give an impression of substance, when in reality it is all about railroading the VAT increase through Parliament before the Liberal Democrats wake up.

Businesses of all sizes face a worrying time. As the National Institute of Economic and Social Research pointed out last Thursday,

“Fiscal consolidation, both in the UK and the euro area, will restrict growth”.

The IMF’s startling post-Budget growth downgrade for the UK last week made the same point. The Daily Telegraph expressed it bluntly on Friday, “UK austerity drive threatens to snuff out recovery, IMF warns”, and went on to summarise the IMF message thus:

“Britain’s fledgling recovery may be nipped in the bud by the savage cuts”.

A lot of other evidence points in the same direction. Last Monday, the monthly report on business confidence showed that, far from the Budget placing an “Open for business” sign above Great Britain plc as the Chancellor had hoped, business confidence suffered the biggest one-month fall ever recorded in June, the month in which the Budget announcements were made. With confidence on a sharp downward trajectory, the truth is that the Chancellor is taking an enormous and unwarranted risk with the UK economic recovery.

Our case is clear: in taking such an enormous and unjustified risk with the recovery, the Budget judgment was wrong. Businesses and their employees, as well as those who work in the public sector, will pay the price. As was mentioned earlier, small manufacturing firms will be hit particularly hard by the Budget, as the Engineering Employers Federation pointed out in its Budget response, to which my hon. Friend the Member for North Durham (Mr Jones) referred. The EEF said:

“Reducing the corporation tax rate over time was in principle the right course of action. But financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies.”

It might be a positive signal for large companies, but not for their suppliers.

--- Later in debate ---

[Stewart Hosie]

I am listening carefully to the right hon. Gentleman’s comments, and I rise to seek the following clarification. Am I right that it was in fact the previous Government who—sensibly—allowed unused tax assets to pay, at least in part, for the asset protection scheme to protect all of us against non-performing and toxic assets?

[Stephen Timms]

Indeed, and I am certainly not arguing against the long-established mechanism allowing tax losses to be used in that way. I am simply querying, just as a matter of fact, whether that is the reason why this Bill only makes one of the four promised year’s reductions in corporation tax. I have certainly not come across any other suggestions as to why the Bill is doing that in that way. People who have deferred tax liabilities—as opposed to the banks having deferred tax credits—would benefit from early enactment of the lower rate. Typically, that is people such as manufacturers. If that is the reason, this is, sadly, another case of helping out the banks at the expense of manufacturers.

Surely the Institute of Chartered Accountants in England and Wales is right to say that

“to provide better certainty for businesses”

there should be legislation

“as soon as possible for the proposed reductions in the main rate of corporation tax”.

When will the Government legislate for the remaining reductions? Will they do so in the Finance Bill that we have been promised in the autumn? Are we really going to have to wait for four years of Finance Bills to complete these reductions, as the Chief Secretary suggested, or can we look forward to legislation in the Finance Bill No. 3 of 2010? If certainty for business is the aim, it surely must be done this year at least.

When do the Government intend to introduce their changes to the rate of capital allowances and the annual investment allowance? I listened carefully to what the Minister said about that and perhaps I missed the point but I did not quite grasp which piece of legislation he envisaged those changes being made in. Will they be in the further Finance Bill in the autumn or will they await next year’s Bill? By that time, I suppose we might have some further data on the actual change in business investment in the next 12 months and how that compares with the change on which the Chancellor is pinning his Budget arithmetic.

There is something else about which the Bill is silent but on which we might have expected some change: the differential compared with the main rate of corporation tax inside the North sea ring fence. The ring fence for North sea operations rightly prevents taxable profits from oil and gas extraction in the UK and the UK continental shelf from being reduced by losses from other activities or by excessive interest payments. The ring-fenced corporation tax rate was the same as the main corporation tax rate, until the previous Government reduced the main rate from 30% to 28% from 1 April 2008; we left the ring-fenced rate at 30%. Now that the main rate has been announced as falling to 24%, do the Government intend to leave the ring-fenced rate at 30% throughout the next four years, thus trebling the differential from two to six percentage points or is a reduction to the ring-fenced rate being considered, perhaps along with some other changes to the fiscal regime for oil and gas extraction?

Let me finish by asking one further question. As I reminded the House, it was the previous Government’s explicit aim that corporation tax in the UK should be the lowest among the G7 economies, and we succeeded in achieving that aim. That is one of the reasons why the UK has been so successful over the past decade in attracting so much overseas investment into our economy. Do the present Government intend to ensure that we continue to have the lowest rate of corporation tax in the G7? Will that commitment be maintained?

As I explained at the outset of my remarks, it is not my aim to oppose this clause, but I hope that the Minister will provide some explanation for the omissions I have highlighted, and in particular give an account of why the remaining reductions in the rate of corporation tax have been delayed, and say when the legislation for them will be introduced.

[Chris Leslie]

I am grateful, Mr Benton, that you have seen fit to allow a stand part debate on this important clause, especially at a time when every measure in the Finance Bill and the Budget as enacted needs sufficient scrutiny to ensure that the general public can have confidence in the fact that any revenue forgone is forgone for a good purpose. At a time when our public services are threatened and look set to be cut so significantly, it is very important that, if this country is to give away potential yield through changes such as the corporation tax, this is done for the right reasons.

It is important to note that we want a healthy economy and for our companies, by and large, to be profitable and doing well. I do not, of course, want to revisit in too much detail our debate on the banking sector, but I point out that it is necessary to have an environment in which our companies can be competitive on a global scale, and to ensure that they can succeed. While we want companies to be profitable, we also want them to reinvest a lot of those profits, so that they can improve the capital stock, improve the ingenuity and enterprising innovation that goes on within such companies, and have a longer-term profitability trajectory. It is for those reasons that I am perplexed by the drastic reduction in capital allowances, to just £25,000. Manufacturing companies—the institutions that produce the actual goods we can sell and export abroad—may well be disadvantaged relative to other sectors of the economy.

--- Later in debate ---

[Mr Gauke]

In the Budget, my right hon. Friend the Chancellor announced a programme of measures aimed at improving the competitiveness of the UK economy, including four annual 1% reductions in the main rate of corporation tax, down to 24% in 2014, and a reduction in the small profits rate to 20% from April 2011, in contrast to the previous Government’s plan to increase it to 22%. That will reduce the tax rate for some 850,000 companies. The Budget also included, from April 2012, a reduction in the capital allowances main rate from 20% to 18%, a reduction in the special rate from 10% to 8% and a reduction in the annual investment allowance to £25,000. Despite that, investment allowances will permit more than 95% of businesses to offset completely their annual plant and machinery expenditure. As I said in our debate on amendment 49, by delaying these changes to allowances for two years but reducing the corporation tax rate next year, we are giving companies a year’s advantage.

We have been asked why we are legislating for the 1p cut in the main rate this year. This is the usual convention as the corporation tax main rate is usually set a year at a time. The right hon. Member for East Ham (Stephen Timms) is right to say that there was an exception in 1984, when four years were done together, but the usual convention is to do these things a year at a time. A distinction has been made between the mainstream rate and the small profits rate. The right hon. Gentleman, who was a distinguished Treasury Minister for several years, may have forgotten that payers of the corporation tax main rate are within the quarterly instalments payment regime and so require advance notice of the rate, as they might be making payments of corporation tax liability before 1 April of the relevant year in which profits fall in the next financial year. Payers of corporation tax at the small profits rate do not require advance notice, as they have until nine months after the end of the accountancy period to pay their tax.

Both main and small profits corporation tax rates have traditionally been set in this manner, and what we are doing is consistent with the usual approach. The right hon. Gentleman asked about deferred tax assets, but they are not the reason why we are doing this; we are simply following the usual convention.

Opposition Members have asked whether business can have faith in what this Government do, but they should give us some time and they will see exactly what we will do: we will follow through on these promises. No great concerns about this issue have been raised with us. On deferred tax assets, when I was in opposition, I received representations not from a bank but from a major manufacturer who made the point that the right hon. Gentleman has made, but that is not what has driven our thinking regarding the timing in this area.

[Stephen Timms]

The Minister says that it is normal practice to do what the Bill does, but as far as I know, there has been only one occasion since this tax was introduced when a series of reductions was announced, and those reductions were all legislated for in the 1984 legislation. I am not sure what precedent he is referring to that suggests that the way things are being this time is the normal way, as that is not the case.

[Mr Gauke]

The usual approach has been that the Finance Bill sets the small companies rate in-year, just as it sets the rate for income tax; the preceding year sets out the large companies rate. The right hon. Gentleman is right that there is a precedent for doing it another way, but we do not believe that business has any concerns that we will fail to follow through on our promises. There is an argument for doing it the other way, but we are pursuing the approach that has been adopted for a number of years.

Why cut corporation tax? As I have explained in debates on amendments to the clause, this package of measures takes real strides towards restoring the UK’s tax competitiveness, and will support economic growth in this country. It does so in a sustainable way that provides business with a clear direction on our long-term aims—a 1% cut every year for four years clearly demonstrates our position in making the UK open for business. No other legislative changes are proposed in the Finance Bill, although the small profits rate of corporation tax will reduce from 1 April 2011 from 21% to 20%, instead of rising to 22%, as the previous Government intended. I find it somewhat strange that those who were proposing to raise that tax are now outraged that we are not legislating to reduce it, or are calling for us to reduce it even further.

--- Later in debate ---

In setting the corporation tax rate for 2011-12 at 27%, this year’s Finance Bill takes a first step towards putting Britain back on the map as an attractive place to do business. That is consistent with sound public finances.

[Stephen Timms]

Will the hon. Gentleman comment on my question about whether it is an explicit aim of the Government that the UK rate of corporation tax should continue to be the lowest in the G7?

[Mr Gauke]

Of course, our proposals go beyond that. The explicit aim of this Government is to have the best corporate tax environment within the G20. That is considerably more ambitious, and we think that it will help to lead to the UK developing a stronger private sector that will lead us to recovery. The Bill and the clause represent a step in the right direction that will benefit the UK economy very strongly.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Schedule 1

Rates of capital gains tax

[Stephen Timms]

I beg to move amendment 30, page 6, leave out lines 13 to 16 and insert—

‘(3) The rate of capital gains tax in respect of gains accruing in a tax year to—

(a) the trustees of a settlement is 28%, and

(b) The personal representatives of a deceased person is 18% for the first £10,000 of gains and 28% thereafter.’.

The Government have decided to raise the rate of capital gains tax for people paying higher rate income tax. We are not going to object to that; indeed, we are interested to know why a higher rate has not been adopted. The rate will be left at 18% for people paying basic rate tax, but the higher rate of 28% will apply to all trusts. Some people with low incomes have their interests represented by trusts, and there is a case that it would be unfair for them to pay the higher rate. However, it has been agreed that the rate of income tax on discretionary trusts will be 50%, so I accept that it is logical to apply the higher rate of capital gains tax to them as well, although I have no doubt that that this is a question to which the House will want to return in future debates.

Amendment 30 applies to one specific situation that has been drawn to our attention by the Low Incomes Tax Reform Group—that is, the position of so-called estates in course of administration, to which the Bill as drafted would apply, in every case, a capital gains tax rate of 28%. In the case of the majority of estates of people who have died and who paid basic rate income tax prior to their death, those people, had they still been alive, would have been entitled to realise at least some capital gains at the lower rate of 18%. The Bill, however, applies a rate of 28% to any taxable gain.

The most common problem that the Low Incomes Tax Reform Group had in mind was a case in which a house increases in value between the point of the owner’s death and the point at which it is sold. Under the Bill as drafted, the whole of any such gain would be taxed at 28%, even if there was no other income or capital gain accruing to the estate at all.

I acknowledge that this is a relatively straightforward problem to identify but rather more difficult to solve. The amendment suggests that to remedy pragmatically what could, as I hope I have set out, otherwise be unfair, the first £10,000 of gains in a year should always be charged at 18%, rather than 28%, with gains above £10,000 being charged at 28%. I accept that that is not an ideal solution, because wealthy estates would benefit as well as the estates of people with low incomes. If the Exchequer Secretary has a better solution, I would be interested and eager to hear it, but I hope that he will recognise that there is a potential unfairness in relation to the estates of people with low incomes that realise capital gains after the individual’s death, typically when the estate includes a property.

If the Exchequer Secretary feels unable to accept the amendment, will he agree to reflect on the matter and consider whether it might be possible to address what would certainly be an unfairness in some cases in the next Finance Bill later in the year?

[Mr Gauke]

The amendment would set the capital gains tax rate at 18% for personal representatives of the deceased for the first £10,000 of gains, while retaining the 28% rate for gains above that level and for trustees. I am grateful to the shadow Minister for the explanation of the thinking behind it. As he said, the matter was raised by the Low Incomes Tax Reform Group. The Institute of Chartered Accountants in England and Wales made a similar point, stating that it would be appropriate to tax the personal representatives of a deceased person in the same way as basic rate taxpayers because it is a completely different situation to that of a trust.

We believe that the treatment of personal representatives in the Bill is appropriate. The amendment would add complexity and could give rise to unfair results or avoidance opportunities. The function of personal representatives is very similar to that of trustees. They have a duty to realise the assets of the deceased person on behalf of the heirs or legatees, and it should be their primary objective to complete their duties as quickly as possible so that the assets of the estate are distributed to those people without undue delay.

The amendment could provide an incentive for personal representatives to hold on to an asset while it appreciated, so that they could sell the asset and pay tax at 18% on the gain, rather than passing the asset directly on to an heir or legatee with a potential liability of 28%. There is no reason to give that sort of incentive to increase the value of a legatee’s inheritance by reducing the capital gains tax due.

I appreciate the manner in which the shadow Minister raised the matter and identified the problem. Quite fairly, he was somewhat tentative about the potential solution set out in the amendment, which I appreciate was of a probing nature. As I understand it, it is possible for personal representatives to pass assets to the heirs, so they could pay at 18% on the gains if appropriate. I will reflect further on the right hon. Gentleman’s points, but as I believe he recognises, amendment 30 has its weaknesses. It could give rise to avoidance opportunities and some unfair results, and consequently I urge him to withdraw it. However, I am grateful for his comments on the amendment.

[Stephen Timms]

I am happy not to force a vote, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Stephen Timms]

I beg to move amendment 31, page 6, line 16, leave out ‘28%’ and insert ‘25%’.

[The First Deputy Chairman of Ways and Means (Mr Nigel Evans)]

With this it will be convenient to discuss the following: amendment 32, page 6, line 20, leave out ‘28%’ and insert ‘25%’.

Amendment 33, page 6, line 25, leave out ‘28%’ and insert ‘25%’.

Amendment 10, page 9, line 29, at end insert—

‘, provided that the Chancellor of the Exchequer has laid before the House of Commons a report on the implications of aligning rates of capital gains tax with rates of income tax.’.

Schedule 1 stand part.

--- Later in debate ---

[Stephen Timms]

The amendments are probing amendments. We are keen to understand the thinking that led to the figure of 28% as the rate of capital gains tax. We will not vote against the Government’s proposal or for the lower figure proposed in the three amendments.

I noted that some of my hon. Friends, including some who are in the Chamber, tabled an amendment calling for a higher rate at 40%. I understand why, in accordance with convention, it was not selected for debate. However, I am puzzled that no Liberal Democrat Members put their names to that amendment because it appears to reflect the proposal in their manifesto.

The Liberal Democrat manifesto, which is always an interesting read, sets out, under the slogan, “Change that Works for You”, a series of tax-raising measures, including,

“taxing capital gains at the same rate as income, so that all the money you make is taxed in the same way.”

The document, “Liberal Democrat Tax Plans”, went into more detail. It states:

“We propose to tax capital as income in order to remove this anomaly.”

That presumably means applying a 50% rate to those on the highest income, as well as a 40% rate to those on the higher rate tax. The Liberal Democrat document claims that that would raise £3.2 billion a year. It also argues for reducing the annual tax exempt allowance from the current figure of just over £10,000 to £2,000, thereby raising a further £0.9 billion a year. That is more than £4 billion a year—a significant contribution to avoiding the unfair VAT rise, which is at the heart of the Budget and against which the Liberal Democrats campaigned. If more than £4 billion had been raised in that way, one percentage point of the 2.5% VAT rise could have been avoided.

Some of the thinking in the Liberal Democrat documents survived in the coalition agreement, which states:

“We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income.”

The Liberal Democrats were therefore successful in at least getting the idea into the coalition agreement, but they signally failed to get it into the Bill. The Chancellor in his Budget speech flatly rejected the suggestion of reducing the annual exempt allowance. He said he would leave it at £10,000 and, far from reducing it to £2,000, would continue to uprate it in line with inflation in future.

I am encouraged to see the hon. Member for St Ives (Andrew George) in his place, together with some of his hon. Friends. He has tabled an amendment, about which he will speak shortly, and he may seek to pursue the ideas in the Liberal Democrat manifesto. It would be interesting to know whether Liberal Democrats really supported those proposals when they campaigned on them. Have they been persuaded by their coalition partners that they were naive or unrealistic, or that the proposals were damaging? Have most Liberal Democrats just given up, smothered in the embrace of their new partners and no longer capable of defending the policies on which they were elected?

I am very much looking forward to what the hon. Member for St Ives has to say on that. He has already described himself as a free-ranging Back Bencher, although he was not quite free enough to range into the Aye Lobby with the Opposition earlier this evening. I am keen to hear from him and perhaps from other Liberal Democrats, who appeared to have such distinctive views on capital gains tax during the election campaign but who have since seemingly abandoned them, choosing instead to support what is traditionally the Conservatives’ favourite tax-raising device, namely an increase in VAT.

We also need an explanation from the Minister, because, as I said, the coalition agreement states:

“We will seek ways of taxing non-business capital gains at rates similar or close to those applied to income”.

It is a bit hard to see how 28% can be described as

“similar or close to”

40%, let alone to 50%, and I hope the Minister can offer some explanation for the adoption of 28%, which seems to be at variance with the agreement. Perhaps he could shed some light on how vigorously—behind the scenes within the Government—Liberal Democrat members of the coalition fought for the position that they succeeded in negotiating into the agreement. Alternatively, is the truth that having got that into the agreement, they simply gave up, vacated the field and meekly accepted 28% as the best that the Conservatives were going to offer them? It would be of great interest to many of us if the Minister could shed light on those discussions.

Why was the figure of 28% chosen? It somewhat narrows the differential between tax on income and tax on capital gains, but it does not narrow it any further than the position before the introduction of the 50p rate, and nowhere near abolishes it. Indeed, increasing the rate by just 10 percentage points means that somebody on the 50p rate of income tax has exactly the same incentive to convert their income into capital gains as when they paid tax at 40p in the pound. For those people—the highest earners—there has been no reduction in the incentive, but as I understand it, reducing the incentive was the whole reason for the change.

There was one hint in the Chancellor’s Budget speech on the reason for choosing 28%. He said:

“I asked the Treasury to examine what would have happened if we had increased the rate much further beyond 28%, and its dynamic analysis showed that that would have resulted in smaller total revenues.”—[Official Report, 22 June 2010; Vol. 512, c. 178.]

I would be grateful if the Minister could confirm whether the Government’s view is that 28% is close to the revenue-maximising rate. Is 28% the rate at which proceeds from capital gains tax are maximised? Is he willing to place in the Library the “dynamic analysis” to which the Chancellor referred that shows how proceeds would decline if the rate were set at higher than 28%, more in keeping with the proposal in the Liberal Democrats’ manifesto?

The Red Book tells us that that change will generate £725 million next year. That is certainly a handy and significant sum, but it is only about one sixth of the amount that the Liberal Democrats wanted to raise from increasing capital gains tax. Can the Minister tell us how much of that £725 million will be raised in capital gains tax, and how much of it will raised in income tax that would otherwise have been avoided by switching to capital gains?

[Paul Uppal (Wolverhampton South West) (Con)]

I pay tribute to the right hon. Gentleman. It is good to see him in Committee. As a new Member, I was appalled by the dreadful event that afflicted him and it is good to see him in good health and good temper.

From my experience of the working of capital gains tax, and from speaking to constituents, it is a tax that is at the discretion of the individual investor. If prudent investors accrued a capital sum over a period of time, under the old system of indexation they would hold it for a long time and then realise the gains, often paying a minimal amount of capital gains tax. He will remember the 1970s, when CGT was very high and private investors would often ask “Why materialise this asset and pay the tax?” The 28% rate strikes a fair deal, and those of us on the Conservative Benches who come from a real business background understand and appreciate that a deal has to be struck with private investors and business.

[Stephen Timms]

I am grateful to the hon. Gentleman for his kind remarks, and to the Minister for his generous remarks earlier.

Of course taxpayers have opportunities, for example, to defer payment of capital gains tax and I shall come to such instances in a moment. The hon. Gentleman suggests that 28% is a compromise, but the Chancellor suggested that it might be—or is at least close to—the rate at which revenue is maximised. The Treasury has carried out some dynamic analysis to illustrate that, and it would be welcome if it could be placed in the Library so that hon. Members can see it. We need to know more about the reasons for the choice of rate, and I hope that the Minister will be able to provide us and some of his Liberal Democrat partners with some much needed enlightenment.

I wish to press the Minister on two further aspects of the proposed change—the timing of the change and, on the change to entrepreneurs relief, the reason for the increase in its generosity and the change to the way the amount relieved will be calculated. First, on the timing point, the Minister will be very familiar with the arguments against changing tax rates mid-year. Indeed, when our positions were reversed, he used to rehearse regularly the arguments against the kinds of complexities caused by changing rates mid-year. Indeed, some of his hon. Friends said earlier that they were looking forward to the Government simplifying the tax system. This is their first Bill and they have introduced a new and unprecedented complexity. What is it that persuaded the Minister that this particular complication was worth introducing? I am told that there has never been a mid-year change of rate in CGT since it was introduced in the mid-1960s. Will he acknowledge that this should not be the norm—that sudden and unannounced lurches in tax rates, in the middle of a tax year, are damaging and undermine people’s confidence in the tax system? Can he assure us that the Government will do their utmost to avoid a repetition in future?

The Institute of Chartered Accountants in England and Wales says that there are likely to be a number of practical problems, in particular with changes to the supplementary pages for capital gains for the self-assessment tax return and for filing online. Are the Government aware of those problems, and is the Minister able to tell us how they will be addressed? ICAEW also makes the point that the transitional provisions for the current financial year are insufficient from a technical standpoint. Is it intended to make further transitional arrangements in the third Finance Bill of this year—the one to be brought forward in the autumn? Is the Minister able to confirm that these matters will be discussed with the experts of the CGT liaison group, ensuring through a collaborative approach that the final legislation later this year covers all the issues raised by a mid-year change?

--- Later in debate ---

I know that the Members are anxious to hear me produce the same analysis of the figures for 2012-13, 2013-14 and 2014-15, but I am afraid that they will just have to have a look at the costings, which are available.

[Stephen Timms]

Why is no yield specified for the current year?

--- Later in debate ---

[Mr Gauke]

The assumption is that there is an ongoing gain—that we will gain more in income tax as a consequence of the rise in the CGT rate.

The reason why there is no yield this year has suddenly dawned on me. We do not get the receipts for capital gains tax through self-assessment immediately; it is only in future that CGT will be paid through the self-assessment process.

[Stephen Timms]

The Minister has made the point, however, that most of the gain is in fact income tax, which surely would score in the coming year?

[Mr Gauke]

I think we will see more of that behavioural effect as time goes by, but I am not sure that that will come through immediately. In some cases, it will depend on when the additional income will be crystallised or realised. I think that is the explanation, but if I have anything to add I will write to the right hon. Gentleman.

[Mr Gauke]

I will write to my hon. Friend to explain further why there is no yield in the current year, but I am very grateful for his expertise in this matter.

Questions were also asked about serial entrepreneurs who cannot claim entrepreneur’s relief and defer gains under the enterprise investment scheme. People can now choose between claiming entrepreneur’s relief and paying capital gains tax at 10% or deferring a tax charge by reinvesting under the EIS and paying 18% or 28% when the postponed gain comes into charge. If they claim entrepreneur’s relief they can still invest in EIS companies. The CGT deferral relief will not be available, but income tax relief under the EIS could still be available if the conditions are met. Serial entrepreneurs who have used up their lifetime limit of entrepreneur’s relief will be able to claim the EIS deferral relief on gains above the limit. Allowing individuals to claim both entrepreneur’s relief and deferred gains will be highly complex and is inconsistent with the aim of simplifying the tax system.

The right hon. Member for East Ham also asked whether Her Majesty’s Revenue and Customs is planning any extra education about the changes for customers and their advisers. HMRC will talk to representative bodies about what extra guidance is required. It will see what practical help it can give to agents generally through the “working together” agent network, and it will look at working with the media and interest groups to raise awareness among individuals who may be affected by the changes.

This is a reform that protects the Exchequer while ensuring that those on lower incomes are protected and the recovery is safeguarded. We have acted in a way that is in the spirit of the coalition agreement. I do not think any Member on the Government Benches would want to raise taxes beyond a level that would maximise revenue—revenue that is, after all, used to fund a substantial increase in the income tax threshold, taking 880,000 people out of income tax. If we had raised the level further, or if we had raised it by less, we would not have been able to do so much in that particular area. Consequently, we believe that 28% is the right level. We do not intend to return to this matter, and I ask that schedule 1 be agreed.

[Stephen Timms]

I do not propose to press this to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 1 agreed to.

To report progress and ask leave to sit again.—(Mr Newmark.)

The Deputy Speaker resumed the Chair.

Progress reported; Committee to sit again tomorrow.

Finance Bill

Stephen Timms Excerpts

Tuesday 6th July 2010 Commons Chamber

[Danny Alexander]

No, I have given way nearly 30 times already.

Thirdly, the emergency Budget stands for freedom because it frees businesses to go for growth. A genuine and long-lasting economic recovery must have its foundations in the private sector. That is where jobs will come from, and we will do everything we can to support their creation. That is why the Budget sets out a plan to open Britain for business once more.

We will open Britain for business by creating a more competitive system of corporation tax, reducing the rate from 28% today to just 24% over four years. It will give us the lowest rate of corporation tax of any major western economy, and one of the most competitive rates in the G20.

[Stephen Timms (East Ham) (Lab)]

Why does the Bill legislate for only one of those changes, not all four?

[Danny Alexander]

It is good to see the right hon. Gentleman in his place; I welcome him back to the House after the experience that he had, for which Members of all parties feel enormous sympathy.

As I understand it, the practice in Finance Bills is to legislate one at a time for the changes that are needed in the following years. The Chancellor’s commitment in the Budget speech was for year-on-year reductions, and we will fulfil it.

[Stephen Timms]

I thank the Chief Secretary for his kind remarks.

I think the precedent was set in 1984, when the now Lord Lawson reduced corporation tax over a series of years, and the Finance Act 1984 legislated for them all. Why is that not being done in this Bill?

[Danny Alexander]

I am grateful for the further intervention and it is interesting to hear the right hon. Gentleman cite Lord Lawson. I am not sure that the Labour party cited that example in its Budgets. There are various technical reasons, which have just been discussed, and which my hon. Friend the Exchequer Secretary will explain in his closing speech. The basic point is that our method is more business-friendly.

As a first step, clause 1 reduces the main rate of corporation tax from 28% to 27% from 1 April 2011. Consequently, the corporation tax of around 47,000 companies will fall. The Budget also supports Britain’s small businesses by cutting the small companies rate of corporation tax from April 2011, reversing the previous Government’s plans to increase the small companies rate. That will benefit some 850,000 companies. The Budget takes action to stop the previous Government’s job tax by increasing the threshold for employers’ national insurance contributions, thereby lifting 650,000 employees out of that tax. Of course, a separate Bill will deal with that.

Taken together, those measures offer a stable and consistent platform for a private sector recovery.