---

Finance Bill

This is about trying to reduce distortions in the tax system to ensure that decisions are not being driven by tax considerations. The rate of the capital allowance is a cash flow issue. Over the life of an asset, a business will get full relief on that asset, assuming that it uses it until it is scrapped. It is a question of timing as to when that relief arises. I am sure that, at a later stage in Committee, we shall have a debate about the 40 per cent. first-year allowance being introduced in the Bill. Perhaps such a measure is right in a crisis, but for the purposes of the long-term reform and simplification of corporation tax, we need to look at reducing the distortions in the system. In so doing, we should consider reducing the headline rate of corporation tax. That would send a clear message to businesses, which are fed up with the complexity and distortions in the tax system. A lot of the tax planning that takes place is a consequence of the distortions that are built in to encourage particular types of behaviour. A less complex, more straightforward system would yield benefits to the economy as a whole and make it more attractive to inward investment. Companies' compliance costs would also be reduced, and my old employer, PricewaterhouseCoopers, might not get quite the same revenue flow from tax planning as it had in the past. That might be a price worth paying, however. I have spoken for rather longer than I hoped to, but the Committee will be pleased to know that I have almost completed my remarks on this subject. It is important for Britain's competitive position in the global economy that we have a corporation tax regime that is fit for purpose. Part of that can be achieved through tackling complexity, improving predictability and certainty, and having a proper consultation process in place. A fundamental part of the package, however, is to reduce the headline rate of corporation tax. The amendment is part of a package that would ensure that the measure was cost-neutral. Regrettably, I cannot table amendments that would increase the tax take, so I cannot propose the flipside to this package, which would change capital allowances. However, we have set out a clear package of measures to reform corporation tax, in order to improve the competitiveness of the UK economy. As we look beyond the recession, we need to ensure that we are competitive not only with the G7 but with other global economies, so as to make the best of the advantages that we have, to broaden the base of the economy and to bring wealth and prosperity back to the UK.