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Finance Bill

I beg to move, That the Bill be now read the Third time. I would like to take this opportunity to thank all the right hon. and hon. Members who participated in the Committee of the whole House and the Standing Committee. The quality of the contributions produced good, productive debate, animated exchanges and some improvement in the substance of the Bill. As my right hon. Friend the Chancellor outlined in his Budget back in March, the Government’s economic objective is to build a strong economy and a fair society, in which there is opportunity and security for all. The long-term decisions that the Government have taken—giving independence to the Bank of England, new fiscal rules and a reduction in debt—have helped to shape economic stability, which in turn has created the platform for building prosperity, achieving social justice with security and opportunity for all, and maintaining investment in public services. This Bill contains measures to strengthen further stability while sustaining enterprise and ensuring fairness. I have made this point to the House before and I will do so again because I believe it goes to the heart of this Bill: a fair tax system is one in which everyone pays their fair share. The protection of tax revenues is imperative both in providing improvements in efficiency and enabling increased investment in public services. Tax avoidance undermines the ability of the Government to deliver their objectives and imposes increased burdens on those who pay their fair share of taxes. Tackling avoidance is not incompatible with maintaining UK competitiveness. In fact, avoidance undermines fair competition. Turning a blind eye while some companies obtain an unfair advantage by exploiting avoidance schemes is not the same thing as supporting and maintaining UK competitiveness. As I said to the hon. Member for Runnymede and Weybridge (Mr. Hammond) in Committee, competitiveness is based on the question of whether the tax system is modern and fair and whether it has appropriate rules that respond to the challenges that it faces, so that it discharges its responsibility to all taxpayers by ensuring that there is fairness in the system. As we have seen, the Bill’s provisions will do just that. They reflect the Government’s resolve to ensure that our tax system is both fair and competitive. In the Budget 2004, the Government introduced disclosure rules to tackle tax avoidance. Those rules have revealed that several areas of the tax system are at risk from high levels of tax avoidance. The Bill will close several schemes of which we have been made aware, including schemes involving the exploitation of arbitrage, employee securities, VAT avoidance and financial avoidance. The measures that achieve that make up much of the substance of the Bill and have been subject to much scrutiny in Committee. On arbitrage, increasing globalisation presents new opportunities for the few who attempt to evade their UK obligations. Clauses 24 to 31 and schedule 3 introduce legislation to target avoidance involving tax arbitrage. The measures catch contrived avoidance structures that seek to achieve a UK tax advantage and will apply only when a company is involved in a scheme that increases UK tax deductions because of the exploitation of arbitrage. Alongside the 2004 pre-Budget report, I made a statement to the House stressing how successive Governments have been perpetually presented with ever more intricate arrangements designed to avoid income tax and national insurance on the rewards from employment. Clause 12 and schedule 2 are a carefully focused response to such avoidance schemes. The measures will effectively target arrangements that are used to disguise cash bonuses and thus avoid tax and national insurance. It is important to remember that without prompt and decisive action, around £500 million in tax and national insurance would be at risk every year. The Government estimate that around £2 billion of payments were going through such schemes in 2004–05. I should also remind the House that in my statement alongside the pre-Budget report I made it clear that the Government’s objective was to close down such activities permanently, initially by closing down schemes that had been identified by Her Majesty’s Revenue and Customs. Furthermore, I made it clear that should further attempts be made to frustrate that intention, legislation would be introduced to combat the problem, where necessary, with effect from 2 December 2004. The response is thus fair and proportionate, given the substantial amount of revenue at risk and the history of the previous attempts made by some taxpayers and their advisers to get around legislation that was aimed at stopping their avoidance schemes. I must stress that only those who, despite these warnings, choose to avoid their responsibilities and pass a heavier burden on to other taxpayers will be affected. Furthermore, the disclosure rules are an integral part of the Government’s strategy to ensure that there is fairness. They target the information deficit on which tax avoidance is based. They enable Her Majesty’s Revenue and Customs to act faster and with a more targeted response to abuse of the tax system, thus providing an early warning about new avoidance schemes. Clause 6 and schedule 1 will improve the effectiveness of the rules by drawing on the experience of disclosures up to this juncture, extending the definition of tax advantage and simplifying the requirements on business to disclose schemes so that if a new listed scheme is designated, the tax authorities will be able to act swiftly. The Bill introduces important measures to promote fairness and confront tax avoidance while maintaining our competitiveness and providing certainty to businesses, allowing them to keep pace with the opportunities presented by the fast-evolving global economy. It will help to develop the macro-economic stability that is essential to our future productivity, growth and stability. It will support business while ensuring fairness, and will enable the country to sustain and build on a competitive enterprise-based economy, allowing for security and opportunity so that everyone benefits from growing prosperity. The Finance Bill sets in statute the measures proposed in the Budget to enable the United Kingdom to respond to and meet the challenges of a global economy. I commend it to the House.