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Finance (No. 2) Bill

But of course we need incentives to change. We are talking not about increasing the overall burden of taxation, but about trying to change behaviour. Moving away from the environment, another key omission is the failure to address the ticking time bomb in our economy that is personal debt. The Chancellor made no mention of it in his Budget statement, nor is there any mention of it in the Bill, yet personal debt now stands at £1.2 trillion—roughly equivalent to the UK’s gross domestic product—and the legacy could be a disaster for many families, as one fifth of household income is now used to service debt. That is back at the level it reached when the country crashed under the Tories in the early 1990s. The immediate signs of stress are clear—we are seeing rising bankruptcies and repossessions. What would counteract that is a network of advice centres, financial education in the curriculum, steps to prevent the mis-selling of mortgage payment protection insurance and action on non-income verified mortgages, for example. More generally, instead of creating a simpler and fairer taxation system, the Bill creates greater complication, confusion and uncertainty for individuals and businesses. That has become the hallmark of the meddling Chancellor. On the measures for businesses, even the changes we broadly welcome bear the Chancellor’s sticky fingerprints. For example, the changes to corporation tax outlined in clauses 24 to 26 will remove the zero starting rate of corporation tax. We hope that that signals the end of a long and meandering journey that the Chancellor has taken to end up virtually back where he started. In 1999, he introduced a 10 per cent. rate to encourage investment and enterprise. In 2002, he introduced the zero rate to provide further support to new and growing companies. In 2004, the zero starting rate was restricted to profits retained within the company. The 2005 pre-Budget report signalled the end of the zero starting rate. So we are back to where we were in 1998. Given that chain of unintended consequences, the Chancellor has effectively been forced to close a loophole that he created. We hope that that will be the end of a long run of uncertainty and complexity, but given the track record, what confidence can businesses have that that will be the case? For some very small organisations, those changes will, yet again, create more complication. For example, many small clubs and societies that have taxable income from bank and building society interest will have to fill in corporation tax returns once again, even though very small amounts might be involved. That detail needs more discussion in Committee, but it shows how such changes have many unintended consequences and can often set off a chain reaction that prompts the need for further changes, and we end up in a downward spiral. Of course, those changes to corporation tax will cross cut other changes proposed in the Bill, such as those to first-year capital allowances, thus continuing the pattern of small and short-term change. The key issue is whether the benefits of those changes are offset by the regulatory impact of uncertainty in the tax rates and the need for businesses to keep up with the changes. Research from Manchester and Nottingham business schools indicates that, except for the most generous capital allowances, most capital investment tax advantages are only investigated after the decision to invest has already been made. It seems therefore that those short-term changes may not always change business behaviour and, more importantly, undermine confidence in the stability of the taxation system. So the general picture is one of complexity and uncertainty, and another problem is caused by the speed with which the changes are introduced and the fact that they are unexpected. Clause 61, on the home computer initiative scheme, is an example of how proposals can be totally unexpected, by not just businesses but even Departments. Research undertaken by the Home Computing Initiatives Alliance shows that more than 500,000 employees benefit from the scheme, of which more than 75 per cent. are lower paid. Why was the scheme scrapped without any prior consultation or warning? Many businesses have already sunk costs preparing schemes for beyond 6 April. That is also true of the Department for Work and Pensions and the Department of Trade and Industry. In fact, I understand from the HCI Alliance that it went to see the Low Pay Commission and the DTI just a week before to investigate ways to help people on low incomes to access the scheme. From further discussions, it appears that the decision to scrap the scheme was taken only the day before the announcement was made. Will the Minister confirm that and explain the justification behind the decision? Were there any meetings across Departments to consider the implications? What notice was given to other Departments that the changes were about to take place? I understand that the Government now intend to focus resources on those who are not in employment or do not have access to a computer through their employer, but, as yet, they have put forward no alternative proposals. As has already been mentioned, the explanatory notes state:"““There is also evidence to suggest the exemption has been applied beyond the scope of its original intention””." Reference is made to MP3 and computer consoles being obtained through salary sacrifice rather than borrowing. However, surely it would be possible to propose changes to the existing regime that would make it more affordable and attractive to those on lower incomes, while at the same time closing the loopholes that I have just mentioned. Is this a case of throwing the baby out with the bathwater? Those issues will be further explored in Committee.