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The Exchequer Secretary to the Treasury (Sarah McCarthy-Fry):
It is a pleasure to close the Second Reading debate on this year's Finance Bill. I thank all hon. Members who contributed, some of whom did so at great length and some of whom did so very briefly.
The hon. Member for Truro and St. Austell (Matthew Taylor) gave a valedictory speech; I guess that explains why most of his remarks were not actually directed at the Bill, but they were interesting none the less. We also heard contributions from the hon. Member for Fareham (Mr. Hoban), the right hon. Member for Wokingham (Mr. Redwood), the hon. Members for Dundee, East (Stewart Hosie) and for Stone (Mr. Cash), and the virile Member for Broxbourne (Mr. Walker)-that is how he will go down. We also heard from the hon. Members for Macclesfield (Sir Nicholas Winterton) and for South-West Hertfordshire (Mr. Gauke). A number of points have been raised, and I will try to pick up as many of them as I can in my speech.
Dr. Evan Harris (Oxford, West and Abingdon) (LD): I am sorry that I could not be here earlier, but I want to raise an issue about one of the Bill's provisions, given that it seems that there will not be a Committee stage. My point relates to clause 59, which is about the opening of postal packages. The Minister might have a chance to get a note on the subject. Why is the safeguard of allowing the addressee to be present, or indeed to be notified, being removed by an amendment to section 106 of the Postal Services Act 2000, which deals with contraband? Article 8 of the European convention on human rights is engaged by the opening of private mail. I would be grateful if she clarified the justification for removing that important safeguard, as that is not in the explanatory notes.
Sarah McCarthy-Fry: It is unfortunate that the hon. Gentleman was not here for, and unable to contribute to, the Second Reading debate. I will try to get the exact answer to his question, but the customs powers relate to the examination of goods imported in postal packets. Customs does not have powers to open or read correspondence. We are trying to tackle organised tobacco smuggling through the post-a point that was made in an intervention on the Financial Secretary when we were talking about tobacco rates and the incidence of smuggling.
Dr. Harris: That is very helpful, but I remind the Minister that under section 106 of the 2000 Act-I raise the point because it has been covered in the media-the threshold is that a postal operator may detain any postal packet that they suspect contains relevant goods and forward it to Her Majesty's Revenue and Customs. HMRC can then open whatever it receives. As it is, there is no reasonableness test. The only safeguard is that the person to whom the packet is addressed ought to be there, or at least needs to be notified. That is being stripped away by clause 59 of the Bill. The threshold is not HMRC suspecting anything; it is a postal operator suspecting. There is a low threshold, and the Bill removes one of the safeguards, or perhaps the only safeguard.
Sarah McCarthy-Fry: I can only repeat that we take tobacco smuggling very seriously, which is why an amendment is being made to clause 59. It is something that we wish to tackle. I shall try to get an answer to the hon. Gentleman's particular point, and if we do not get it by the end of the debate, I will undertake to write to him on the subject.
I want to pick up a point that the hon. Member for Macclesfield made, because he made his speech deliberately to raise it. He took the view that the Finance Bill does little to reduce the deficit. I do not agree with him, because it delivers our key tax measures, which are at the heart of our plan to halve the deficit over four years. Although this is a limited Finance Bill, we have in it the 50p tax rate, the pensions tax relief, the freezing of the inheritance tax threshold and the bank payroll tax.
The hon. Gentleman made a point about unemployment. I have to tell him that the actions that we took during the global financial crisis mean that we have not had the high levels of unemployment that there certainly were under the Conservative Government.
Many hon. Members spoke about manufacturing, yet we are increasing the capital allowances and the annual allowance for small businesses. I understand that the Conservative proposal is to cut capital allowances, which many manufacturing organisations have been very unhappy about, because that would not help manufacturing.
Sarah McCarthy-Fry: The national insurance increase will not come in until 2011. The whole point is that we will sustain the recovery, so we are not putting that measure in place now. We believe that it would damage industry, if it were to happen now.
Sarah McCarthy-Fry: Of course I am not saying that unemployment does not matter in 2011. What I am saying is that if we took the Opposition's advice and started cutting things now and not supporting industry this year, we would see far higher unemployment. We believe that we have the balance and the timing right.
Sir Nicholas Winterton: I am grateful to the Minister for seeking to respond to my direct questions to the Treasury Bench. Will she not accept that one of the reasons that unemployment has not increased, as many feared, is because the Government have sustained the public sector, and a lot of unemployment has still occurred in the manufacturing and private sector? That the Government have sustained employment in the public sector is the reason why unemployment has not risen much higher.
Sarah McCarthy-Fry: I do not agree with that. The car scrappage scheme had nothing to do with the public sector, and it has sustained industry. The measures that we have taken have helped to keep unemployment down across the board.
I am curious about this argument about manufacturing. Gross fixed capital formation is down-it has been bottom of the EU heap since 1997-and research and development spend has been lower than our major competitors since 1997. We lost a million manufacturing jobs since 1997 before the recession, and
we had an £81 billion balance of trade deficit in goods last year. Which bit of it does Labour think that it has got right?
Sarah McCarthy-Fry: Perhaps the hon. Gentleman will explain why we still have the sixth largest manufacturing industry in the world. We are supporting manufacturing industry; we need to support manufacturing industry. In particular, we need to support the green industries and the new industries that are coming through, which we want the UK to be at the forefront of.
Stewart Hosie: I could not agree more. We should support the new industries. There was an announcement about the games industry, which is vitally important in Dundee, but there is nothing in the Finance Bill and nothing in the Budget for 2010-11. It is always jam tomorrow, is it not?
Sarah McCarthy-Fry: That returns me to the point that this is deliberately a limited Finance Bill, because of the wash-up that we face. To those who claim that there has not been time to scrutinise the Bill, I say that it is deliberately limited, but around two thirds of the measures in it have been aired for comment and been consulted on formally and informally before their introduction here.
Mr. Redwood: Will the Minister explain why not a single Labour Back Bencher has attended most of the debate? No single Labour Back Bencher has thought it worth speaking on this very wide-ranging Finance Bill.
Sarah McCarthy-Fry: I am sure that our Back Benchers can speak for themselves on why they were not here. They have certainly been involved in the Budget process, and I am sure that they have confidence in those on the Treasury Bench to put the Finance Bill forward.
The right hon. Gentleman spoke a lot about the Bill's complexity. On the measures used by the World Bank, the UK compares favourably with other countries, and the World Bank ranks the UK first in the G7 for ease of paying taxes.
Turning to the points made by my right hon. Friend the Financial Secretary, we all know that we faced the deepest global recession in more than 60 years, and, as I said earlier, we have had to make difficult choices and take unprecedented action to support the economy, businesses and families. That support has worked. The economy has slowly returned to growth and the effects of the recession on households and businesses have been less severe than many feared-they have certainly been less severe than in previous recessions. However, uncertainties persist, and for that reason my right hon. Friend the Chancellor set out in the Budget debate the action that we will need to take as we confront the challenges.
It is right that we continue to provide targeted support for businesses. We have made huge strides, and, as I have said, we do not want to derail the recovery by withdrawing support from businesses too hastily.
But one effective way of derailing the recovery would be gravely to underestimate the net debt and the deficit. If the amount of money that the Government raise has absolutely no prospect of filling the deficit target that they have set, how much worse
will the situation be based on the true debt, which the Office for National Statistics and the Library's researchers have indicated, and which is causing so much concern among credit risk agencies and the bond markets?
Sarah McCarthy-Fry: I have had these exchanges with the hon. Gentleman before. We believe that we have set forth the right measures, and that we will be able to support the economy as it comes through to recovery and enables us to reach our target of halving the deficit over four years.
I was talking about businesses, and the Finance Bill includes a number of measures to ensure that businesses continue to invest and grow, doubling both the support provided through the annual investment allowance and the lifetime limit on entrepreneurs' relief. The planned increase in corporation tax for small companies is being deferred further to support businesses through challenging times, and, as I have said, we also hope to support the low-carbon economy. We are halving company car tax for ultra-low-carbon cars, bringing in a zero rate for cars with no emissions and thereby helping to make the UK one of the best places in the world to build low-carbon vehicles.
We want to reduce borrowing at a pace that does not impede the recovery or damage front-line services. Borrowing has increased as a result of the help that we have given, and we have always maintained that it must be brought down once the recovery is assured. We have been clear that, as the economy recovers, the Government will halve the level of borrowing, and we believe it right that those with the broadest shoulders take the greatest burden, so the top 1 per cent. of taxpayers alone will pay the additional 50 per cent. rate of income tax. Most people do not pay inheritance tax, and, even with the freeze in the allowance, only 4 per cent. of estates are expected to pay in 2014-15. The restriction on tax relief on pensions will affect only 2 per cent. of pension savers.
The hon. Member for Fareham asked about the impact assessment changes to the administration costs. The original impact assessment, which was published at the pre-Budget report, was part of the industry consultation. As I have said, there was extensive consultation, in groups, seminars and by going out to talk to the industry, and the upward revision of the impact assessment costs reflects the evidence that stakeholders provided. However, we believe that the numbers in the final impact assessment are reasonable estimates, and we do not expect them to increase significantly.
Many people have said that pensions tax relief is complicated, and the hon. Member for Stone read out a formula. The second formula that he read out is in schedule 5, and he asked me whether I understood it. Sadly, I am afraid that I probably did, because in my job before I became an MP I used to deal with capital allowances for businesses. However, the formula that we discussed in schedule 3-the pensions formula-is being dealt with and is understood by the pensions industry, and the pension schemes will value that benefit.
We are taking a fair approach to halving the deficit, and many hon. Members-in particular, the hon. Members for Broxbourne and for Dundee, East-mentioned fuel duty. Questions were also raised about a regulator and stabiliser. There is an assumption, which the hon. Member for Dundee, East expressed, that the Government receive
a tax windfall when oil prices are high. Although revenues from North sea taxes admittedly increase, that is offset by a number of factors, such as lower corporation tax receipts because high oil prices reduce company profits, higher payments on index-linked benefits because rising oil prices push up inflation and greater costs of servicing index-linked bonds. Although the VAT take from fuel increases when pump prices rise, that is offset by the fact that people who pay more for fuel tend to spend less on other goods and services, so we have not seen a VAT windfall at such times.
A rise in fuel duty will play an important role in securing the public finances in the medium term, but we are sensitive to other pressures faced by families and businesses, which is why we are staging the increase in the next year.
Sir Nicholas Winterton: Will the hon. Lady respond to the serious and growing problems of rural areas, such as the hill country to the east of Macclesfield, where there is no public transport? How are people expected to live and have a proper standard of life if they have to pay more for transport, their allowances are frozen and they are not getting any increase in their wages? How can they pay?
Sarah McCarthy-Fry: We recognise the difficulties faced by people in rural areas who are dependent on the car. I say to the hon. Gentleman that fuel duty is still lower in real terms now than it was in 1999, and it is just one part of the cost of fuel. It is because we are sensitive to the pressures that people face that we are staging the increase.
I wish to move on to cider. Several hon. Members have made much of saying that we had proposed a pernicious increase in cider tax and that the increase should have been imposed just on higher-strength ciders. People pray in aid small cider producers, but in clause 69,
which will remain in the Bill, we change the definition of cider. Much of the difficulty that people have had with the problem ciders is that they do not have a very high apple juice content. That is why we are changing the definition, which will not affect rural producers.
I wonder whether Members of all parties have seen the letters that I have received from those in the beer brewing industry, who have been complaining for a long time about the iniquity of the situation. In their view, with which we agree, there is an unfair difference between beer and cider duty.
Mr. Hands: Is the Exchequer Secretary saying that those letters from the beer industry argue that duty should be raised on cider but left unchanged on beer? Surely the Government created the wider differential in the first place.
Sarah McCarthy-Fry: Certainly the letters that I have had from the beer industry, including small brewers, express the opinion that it is very unfair. Even with the 10 per cent. increase that we planned to introduce, the rate of duty on cider would still have been half that on beer. We were trying not to close the gap totally, but to bring the two closer together. The two largest companies produce more than 80 per cent. of cider, and under our proposed regulations the majority of cider makers-almost 400 of the smallest producers-would have been subject to special conditions and not affected. None the less, we have gone through a process of negotiation and consensus, and the measure will not be in the Bill, although when we are returned to Government we will bring it back.
I believe that we have made the right choices through the duration of this global downturn. The Finance Bill continues the provision of help where it is needed most, and we are introducing measures in it to ensure that we can meet our commitment to halve the deficit over four years. I commend it to the House.
Clause 2 relates to the main rate of corporation tax. I was rereading the Prime Minister's 1997 Budget speech when he highlighted the importance of the corporation tax rate, announced a reduction in that rate and highlighted the international comparisons. It might help the House to compare where we were in 1997 with where we are now. In 1997, our corporation tax rate was lower than the OECD average, but now it is higher; in 1997, our corporation tax rate was the 11th lowest, but now it is the 23rd lowest; we used to have the third lowest in the EU15, but now it is the sixth highest; and while the rest of the world has been cutting its corporation tax rates substantially, the UK has been caught up with and, in many cases, overtaken.
Clause 2 does nothing about that situation. We have made it clear that we intend to lower the corporation tax rate by broadening the base and reforming complex allowances. That has the advantage of sending out a signal to the rest of the world and international investors that the UK is open for business, and by lowering the rate we will also be in a position to remove some of the complexities and anti-avoidance measures that may be taken as a consequence of the UK having a rate that is not as attractive as that of our competitors. The Government tend to quote comparisons with the G7, but beyond that many countries now have a lower corporation tax rate than the UK.
The Exchequer Secretary said that some argue against those matters, and last week the Chief Secretary quoted General Electric's international tax counsel, Will Morris, on this. For the House's benefit, I thought it would be worth highlighting his comments at a recent Policy Exchange event on 22 March. He said that the Conservative's
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