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Finance Bill

First, I should like to draw hon. Members' attention to my interest in the Register of Members' Interests as a director of a family building business. We have had an interesting debate, and when we talk about first principles—tax, tax rates and competition—we often have such a debate. At the beginning of debate on the Finance Bill, we had almost a Cook's tour of Canada, Bahrain, Dubai, China and Dundee, East. That shows that we live in a competitive world environment that is not getting any easier year by year, but is becoming far more competitive. One of the examples that I used was Ireland, and a key message that has come across is that low taxes generate more revenue and jobs, attracting people to locate there. Ireland is one of our competitors and, notwithstanding its short-term difficulties, which are similar to ours as a result of asset price deflation and everything else, we must accept that this is a competitive world. We should not look at the question on a year-by-year basis; we need to look at the medium term. Our economic problems do not relate to one year alone, but to half a dozen years. We have to keep business in the UK and attract it to the UK. Setting a rate, a direction of travel, of 25 per cent. will make things a little easier than if we set a rate of 28 per cent. One of the messages to come from our financial problems has been how big some of the banks and international companies are in relation to our economy. We know that people sitting in various capitals around the world look at the various competitive differences of language, productivity and tax; all those things feed in. Although we do not necessarily need the lowest tax, we do not want to tax too much more than our competitors. That is a black mark when people are considering where they are going to invest and to locate their businesses. Paying for the measure by restricting the capital allowances reliefs is probably right. Most businesses that have to invest in equipment and machinery do so for reasons to do with the business and not because of the tax advantages. The hon. Member for Coventry, North-West (Mr. Robinson) has already told us that there may be an impact on manufacturing. Of course: the pound has devalued against the euro and interest rates have massively reduced. All those things should—fingers crossed—help west midlands manufacturing. So what I have been discussing is a rather good way to go about things. My hon. Friend the Member for Fareham (Mr. Hoban) mentioned companies such as Google and insurance companies, some of which are moving for regulatory reasons as well as the reason of rate. Such companies are more mobile. Manufacturing can move, but it is a hassle to move a plant; it is easier for an insurance company, bank, investment fund or software company such as Google to move. It is perfectly possible for my hon. Friend to come up with a calculation for amendment 1 whereby the burden on UK business would be the same but the pot might be bigger, because we might retain businesses that would otherwise consider moving—whether to Bermuda, southern Ireland or the Netherlands—and we might well attract businesses in. We have tremendous advantages as a nation. We are creative and hard-working, and the English language is a tremendous asset. That also means that we have to be competitive because a lot of other people speak English and can compete with us. Reducing the rate from 28 to 25 per cent. by restricting capital allowances and reliefs is sensible. My hon. Friend made some compelling arguments. At the beginning of this debate he said that five years ago we had the fourth lowest headline rate in the EU and that today we had the 19th lowest. However, as we have heard, our competition comes not only from the EU—let us face it; many EU countries are rich and successful and will get through the problems—but from the whole world. Setting a lower rate is therefore important. The hon. Member for Taunton (Mr. Browne) made some good points. A simple proposal that is more certain and not as avoidable is far better than having a higher rate and lots of reliefs and allowances. We see the direction of travel, but countries in the rest of the world are trying to get our business. They want to attract our companies, and they are doing so by setting more competitive rates. Unless we respond to that, we will not be defending the wealth, jobs and investment in the UK. We have to look beyond our current economic difficulties. Let us face it—we know that the corporation tax take is going to take a hit and that, even when recovery comes, there will be a lag. However, we also know that international businesses plan on a three, five, seven or 10-year basis. We should therefore plan our economic renaissance on the basis of setting rates to encourage people to look towards the medium term.