Finance Bill

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Mr. Jack: I am following the Financial Secretary's analysis closely. He lifted the curtain on the way in which Customs determined whether the tax proposed in the Bill was fair. If the numbers that my hon. Friend proposed had resulted from that calculation, would the hon. Gentleman still have felt that the numbers were fair?

Mr. Timms: I am not sure that I follow the question. The numbers in the Bill are those that emerge from Customs' analysis as a fair level at which to set the tax. Obviously, if Customs' calculations had resulted in other numbers, they would have been quoted.

Mr. Ottaway: I think that my right hon. Friend is saying that I gave him some figures that show that, for example, one company would be hit by £750,000 extra on a £2.5 million profit. If he had known of those figures at the time, would those advising him have thought that that treatment was fair?

Mr. Timms: Perhaps I should go further because I have a few more points to make.

The companies provided the data on which those calculations were based. There was no shortage of accurate data about spread betting firms when those calculations were made. We depend not only on the analysis of Customs and Excise. As hon. Members may know, we received useful advice in a report—which is in the Library—commissioned by Customs and Excise from Nottingham university business school and Nottingham Trent university. It said on the issue:

``Tax as a proportion of gross profits in sports spread betting has varied from just under 8 per cent. in 1999 to more than 10 per cent. in 1996. So we are sceptical that a gross profit tax of 10 per cent. would seriously threaten the viability of sports spread betting. Indeed, in 1999 William Hill index paid 16.4 per cent. of its turnover in tax''

—so a GPT of 10 per cent. would have significantly reduced the tax burden.

Mr. Ottaway: The Minister will be aware that corporation tax comes in on top of the tax that we are discussing.

Mr. Timms: The Nottingham university analysis takes account of that. Customs and Excise came up with the figures and we have obtained the validation that the figures emerging from that research will not damage the industry, which has added a helpful validation of the analysis of Customs and Excise.

I wish to address the other group of amendments and the question of whether we should allow spread bet bookmakers to carry over losses, given the extra volatility to which members of the Committee have referred.

Mr. Jack: Would the Financial Secretary consider letting the Nottingham researchers who validated the Treasury position talk to the industry before the Bill concludes its passage to determine whether, in the light of the information that my hon. Friend the Member for Croydon, South has presented and which was calculated by the industry, the researchers are still as confident of the results of their earlier analysis?

Mr. Timms: I would be surprised if such discussions have not already taken place. I am confident that the Nottingham analysis was based on good information from the industry. Hon. Members are welcome to speak further to the researchers if they wish to do so.

Mr. Tyrie: Before the Minister moves to the issue of the rate on carry overs, he say more about what he sees as the Government's objective in setting a rate? Is it to provide a rate that will enable the industry to grow as much as possible to enable revenue to be maximised in the long run? Or is it to secure historic continuity? The Minister referred several times to the rate of tax on the industry in the years prior to the decision taken by Customs and Excise to set the rates. What is his response to the industry's view that the financial spread betting rate of 3 per cent. would represent an increase on the historic rate of about two-thirds on the overall tax on the industry?

Mr. Timms: I reassure the Committee that the measure is not about short-term revenue maximisation for the Treasury. Our aim was to secure not only an attractive stream of revenue for the Exchequer in the long term but, more importantly, a strong industry. That concern applied to spread betting, which is the smaller part of the industry, and to the wider betting industry as well. I want a successful UK-based spread betting industry that benefits from the new regime, along with the wider betting industry. The objective of the exercise has been to establish a tax arrangement that is fair to all the industry players. It has not been particularly about continuity with the past but establishing a level playing field for the future.

We recognised that spread bet bookmakers face higher operating costs. Analysis of a large sample of bookmakers' returns indicates that there are very few instances in which a fixed odds bookmaker makes a loss in any month—a point made by the hon. Member for Croydon, South—and actually few months in which a sports spread bet bookmaker makes a loss, either. It is true that losses in a given month for financial spread bet bookmakers are more likely, but they are still relatively uncommon. However, some of those who are involved in the industry might not be aware that the law currently allows individual bookmakers or classes of bookmakers to apply to Customs and Excise for longer accounting periods. Customs and Excise will work with the trade to agree the criteria for the use of longer accounting periods to ensure that they are used only where there is a need and not as a means of duty avoidance. That arrangement will meet much, if not all, of the concern behind amendment Nos. 4 and 5. In the past year, one financial spread bet bookmaker made a net loss for three months running but had to pay tax on its turnover. Under the new system, no tax would have been payable in those circumstances, so there is an improvement over the present arrangement.

I have just one minor point in conclusion. There is a technical error in the drafting of the amendment so that it would not actually deliver its intention. However, the substance is clear, and I hope that I have responded to it.

Mr. Ottaway: The Financial Secretary will be amused to know that a certain amount of deliberation took place as to whether the wording should be ``minus'' or ``plus''. Our view was that two minuses made a plus. None the less, I think he takes the point.

In dealing with the first group of amendments in respect of the levy of 10 per cent. on sports and 3 per cent. on financials, the Financial Secretary said that his objective is not to maximise Treasury revenues. However, the evidence that I presented indicates that that will be the case. He has been generous with my second group of amendments, but I hope that he will reconsider the first group, if he is not seeking to maximise revenues and if he wants to be fair to all players in the industry. The fixed odds people do not think that they will pay any more in proportion to turnover—we all agree that turnover will increase—and they believe that they will have a level playing field. However, the spread betting people think that they will be paying more and that they will be treated unfairly. The Financial Secretary genuinely believes that that will not happen. None the less, if it does, would he undertake to hear representations from the industry after, say, a year and perhaps give them some comfort, if it turns out that he is wrong and I am right?

As far as the second amendments are concerned, he is being very fair about the accounting periods, and I am sure that the industry will be pleased to hear that Customs and Excise are open to representations. We are content on that point.

5.45 pm

Mr. Timms: Given that we expect a loss of revenue of £45 million more in the first full year of the new arrangements, it should be clear that the exercise is not about increasing income to the Treasury in the short term. Neither do we intend to increase revenue from a particular sector. We have tried to come up with an arrangement that is fair to everyone. That does not mean that we expect that everyone will pay the same in future. It is our view that the duty charged on spread betting has been low compared with what is charged elsewhere. The figures in the Bill, which are endorsed by the Nottingham research, reflect that view. The hon. Gentleman asked me whether after a year I would be prepared to have a look at how things are working out and assess the impact on the industry. I am grateful that he thinks that I will still be in a position to do that then and, yes, I would be glad to so.

Mr. Ottaway: I am grateful. If I am sitting in the Financial Secretary's office, I shall do the same. There is a slight innuendo in what the Minister just said. The Treasury's view is that spread betting has been getting off rather lightly and they are trying to bring it up. That is a completely different argument and slightly inconsistent with his level-playing-field point of view. It is the nature of any tax change that there will be winners and losers. We can let it rest that the spread betting people feel that they are marginal losers.

Question put and agreed to.

Clause 6 ordered to stand part of the Bill.

Schedule 1 agreed to.

Clause 7 ordered to stand part of the Bill.

Clause 8

Threshold for reduced general rate

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

Mr. James Clappison (Hertsmere): It is tempting to let this pass as it involves a reduction in vehicle excise duty, but I cannot do so without putting the reduction into some sort of context, given the remarks that Ministers have made about similar proposals. The clause would extend the scope of the lower rate of vehicle excise duty from 1,200 cu cm cars to 1,549 cu cm cars. The change will take effect on 1 July but it will be backdated to November 2000. The clause provides for a system of rebates.

I hope that the Minister will accept that the background to that is the pressure under which the Government came last autumn. The change must be set in the context of what took place before then. In the Budget last year the reduced vehicle excise duty rate was extended to cars with engines up to 1,200 cu cm. When last year's Finance Bill was being considered in Committee the Liberal Democrats moved an amendment to extend that reduced rate to cars with engines up to 1,400 cu cm. The Financial Secretary rejected the amendment saying that it was not well targeted, environmentally or otherwise and that as it would apply to almost half the cars on the road it would cost about £290 million more than the extension of the threshold

Given that what is proposed is an extension not just up 1,400 cu cm but to 1,549 cu cm, it would be interesting to know what change in environmental factors between May and November of last year led to a change in Government thinking. At the time of the pre-Budget statement when the Chancellor announced the reduced rate for vehicles up to 1,549 cu cm, the number of additional vehicles brought into the reduced rate had gone from being the vice that it had been in May, when the Financial Secretary addressed the Committee, to being a positive virtue, because on the day of the statement the Chancellor told us:

``All those who have a car from 1200cc to 1500 cc—that is, an extra 5 million cars—will be entitled to £55 off their annual licence fee from today.''

The Chancellor gave his rationale for the policy shift that had taken place as a wish to provide greater choice for rural dwellers:

``many—especially those in rural areas—have put it to me that greater choice would be available to rural motorists and motorists generally if the £55 deduction could be accessible not only for cars under 1200 cc, but for cars up to 1500 cc, including the Focus, Golf, Astra, Escort and Rover 214.''—[Official Report, 8 November 2000; Vol. 356, c. 323.]

I look forward to the Financial Secretary's reaction, and am tempted to speculate on the basis of the Chancellor's statement whether Ministers had hitherto been unaware that it was possible for those who live in the country to purchase and drive the Focus, Golf, Astra, Escort and Rover 214. One imagines that Ministers, even in this Government of city dwellers, may have been aware that those possibilities were open to them. [Interruption] No doubt the Financial Secretary will put me right. I suggest to him that, while country dwellers may not be concerned about their choice of car—and it was country dwellers that the Financial Secretary said he was responding to—and, to be fair, I am sure that they would be grateful to the Chancellor for being considerate about that choice, they are certainly concerned that they have no choice about the cost of the petrol they put inside those cars, and the fact that so much of that cost arises from tax and duty. That, however, is another story.

Can the Minister tell us the rationale for the policy shift that is so dramatic compared to the attitude of the Government last May?

 

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Prepared 26 April 2001