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Finance (No. 2) Bill

I shall try to match the Paymaster General for brevity, but I cannot guarantee that I will be quite as quick as she was. Although there are a number of aspects of the Finance Bill that we support, we have grave concerns about a number of its provisions, and the Opposition will therefore be voting against the Bill this evening. Before turning to the provisions—I assure the House that I am not going to take each one in turn—I echo the right hon. Lady’s thanks to all the Members who have participated in what has often been a very constructive series of debates. I want also to put on record the debt of gratitude that my Front-Bench colleagues and I owe to many professionals and professional organisations that have given us impartial and very useful advice to aid us in scrutinising the Bill. Turning to the matters on which there is a degree of consensus across the House, we welcome the broad thrust of the Government’s attempt to prevent the abuse of charitable reliefs. However, we share a number of the concerns of the charities tax reform group, particularly in relation to the paperwork and record-keeping requirements imposed on charities. We welcome also the attempt by the Government in clauses 95 to 98 to provide a legal and tax framework to accommodate sharia-compliant finance arrangements of wakala and diminishing musharaka. I acknowledge the valuable work done by the Government on this issue, which is important not only for our international competitiveness in an increasingly important global market in Islamic finance but for tackling financial exclusion in Britain’s Muslim community. I take the opportunity to pay tribute to one of the imams in Barnet, Mufti Barkatullah, for his work on this important matter. We also welcome, as we have said this afternoon, the Government’s framework for real estate investment trusts. We feel that the reform is long overdue, since such structures have been in place in other developed economies with great success for many years. We also feel that more could be done to encourage residential property in REITs, and we continue to believe that REITs quoted on the alternative investment market would be feasible and a sensible extension of the framework provided for in the Bill. Although we welcome clause 19, on cracking down on missing trader fraud, we want to know when the Treasury will get the EU derogation that it needs to put the clause into operation. We are grateful for the assurances given on that point by the Paymaster General. I emphasise again the urgency of tackling this problem, which as we have heard again today is estimated to have lost the Exchequer about £1.9 billion in 2004-05. The problem is now so serious that it is undermining the accuracy of our trade figures, and it is high time the Government took effective action to tackle this organised criminal fraud, which is depriving the Exchequer of so much money. I move on to more contentious matters. One of the main reasons for opposing the Bill is that we do not believe that it is a green Bill. We do not believe that it implemented a green Budget. The Red Book shows that the proportion of green taxes is falling as a proportion of tax revenue. It is lower than it was in 1997-98. The Chancellor’s headline-grabbing scheme on car tax will have a minimal impact. Anyone who delves into the small print will find that schedule 8 abolishes tax incentives for leasing environmentally friendly equipment. We regret that the Government voted down the entirely reasonable demand that the Chancellor report to Parliament on the uptake of crucial microgeneration technology. As for the climate change levy, sticking in the words ““climate change”” does not mean that the levy works to tackle climate change. It is a tax that does not do what it says on the tin. Yes, some of the climate change agreements that the levy has produced have been useful but the fundamental problem remains that it is a tax on energy and not on carbon. It needs to be converted into a genuine carbon tax that does much more to encourage and promote the uptake of clean renewable energy than it does at present. The second key reason for opposing the Bill is that we believe that it will further undermine our competitiveness in an international world economy. The Chartered Institute of Taxation put the problem in measured terms as follows:"““We appreciate that the UK’s competitive position depends on a number of factors and that potential investors in the UK will consider the whole business environment and not just the tax system in isolation. Our experience is that the UK is becoming regarded as a more difficult place to do business, with the complexity of the tax system being perceived as a disincentive to invest.””" The institute describes the UK tax system as ““spinning out of control””. It appeals for an end to"““excessive tinkering with tax rules.””" The abolition of the zero percent rate of corporation tax and other changes to business tax relief are prime examples of chronic instability in our tax regime. Year in and year out, the Chancellor announces initiatives that make a good sound bite in the Budget. He is not in his place today but he turns up for the Budget. Businesses carry out the difficult time-consuming and expensive task of adapting to yet more changes in the tax system. Just as they have become used to those changes, the Chancellor scraps them and his cycle of continuing revolution continues. This pattern of volatility recurs in clauses 31 to 47, in introducing a new regime for the film industry. The Chancellor introduced major changes to film tax in the Finance Acts of 2000, 2002 and 2004-05. Yet still the reliefs haemorrhaged a staggering £560 million from the Exchequer in the past financial year. An entire industry has developed around the misuse of these reliefs. The Opposition certainly hope that the Government’s latest attempt to focus tax breaks more accurately on people making films will provide better value for money than reliefs have proved to date. We are not sorry to see the back of the sections 42 and 48 reliefs. We hope that the Government have at last got it right; otherwise, expect ““Groundhog Day”” this time next year with yet more changes to the film tax regime in the Finance Bill 2007. The continual cycle of change has produced a huge amount of uncertainty in the film industry and has jeopardised some important projects. For example, the filming of the latest James Bond film has moved to the Czech Republic. Even the Government’s most famous civil servant has moved offshore, partly as a result of the instability caused by changes in the film tax regime. I move on to a rather less glamorous aspect of the Bill. Schedules 8 to 10 introduce what the Finance and Leasing Association describes as the biggest change to leasing taxation for a generation. A thriving leasing industry is crucial for business investment and productivity, both of which have performed poorly under Labour. We are not convinced that the Government have fully thought through the impact of these eye-wateringly complex new provisions, given their impact on business investment, on indirect investment and on the public sector. These areas face higher leasing costs as a result of the changes. We are dismayed at the phenomenal complexity of pension provisions, supposedly adopted with a view to simplification. We believe that the Government’s attempts to prevent recycling of lump sums could discourage people from saving for their old age. The provisions are incredibly widely drafted. The Economic Secretary tells us, ““Don’t worry, innocent transactions will be excluded by detailed guidelines.”” It is not acceptable to draft a hugely expansive statutory provision that catches many entirely innocent taxpayers and then to say, ““It is OK because we will not tax everyone who falls within the statute. We will only tax the bad guys.”” This is suspiciously close to taxation by decree. That is why Opposition Members oppose the provisions. We regret that the Government have failed to address the injustices caused by the annuity rule. We strongly oppose the Government’s hare-brained proposal to bring forward the filing dates for tax returns to September. The Carter report would involve a huge amount of unnecessary hassle for taxpayers and would impose great pressure on their professional advisors, so we urge the Government to reject it. The abolition of the home computing initiative is a major blow to the competitiveness of the economy. Thousands of low-income families, many of whom would find it difficult to obtain credit to buy a personal computer on the open market, have benefited from the scheme. The Government’s decision to abolish a scheme that it recently relaunched does not help us to embrace the digital age or develop the highly skilled work force that we desperately need to compete with the new global economic giants of China and India. It does not help the Government Departments that were rolling out the scheme when the Chancellor’s axe fell; nor will it help working people in Britain to develop a good work-life balance; nor does it help people striving to improve their skills and their lives. In conclusion, the Opposition oppose the Bill, because it fails to equip us to compete effectively in the globalised world economy. It heaps further confusion, complication and instability on a tax system that the Chancellor has made one of the most complex in the developed world. It contains no effective measures to tackle climate change, and despite the Chancellor’s ignominious retreat on a range of key issues, schedule 20 still imposes punitive new inheritance tax charges on a wide range of ordinary hard-working people whose only wrongdoing is to use a trust to provide responsibly and prudently for their family’s future. Those iniquitous new IHT charges were introduced without consultation. They are deeply flawed, which is why the Government have tabled no fewer than 50 amendments to the schedule that brings them into effect. They are retrospective, and they penalise thrift and prudence. They hit the sick, the dying, the mentally ill and the vulnerable, as well as those struggling with the misery of divorce. They have caused needless anxiety to thousands of people across the country, and I urge the House to oppose them and the Bill this evening.