Treasury and Work and Pensions

It is a great pleasure to have an opportunity to speak in today’s debate. In particular, I would like to address the rather topical issue of our taxation system and the relationship it has with productivity. I say that it is topical in part because of the report produced by the CBI this morning. The survey looked at business’s attitude to taxation in this country. I am afraid that the picture is not a happy one. According to the survey, 70 per cent. of senior business men who responded believe that the UK is a poorer international business location than it was in 2001. Some 75 per cent. say that the corporate tax regime is worse than it was in 2001 and 19 per cent. of UK companies are considering moving their headquarters abroad, as my hon. Friend the Member for Sevenoaks (Mr. Fallon) mentioned earlier today. In 2000, we had the 10th highest corporation tax rate among the Organisation for Economic Co-operation and Development countries. It is now the 18th highest. However, rates—particularly corporation tax rates—are not the be all and end all of taxation. It is the habit of the Government, and of the Chancellor in particular, to quote the fact that corporation tax rates have fallen since 1997. That ignores two points. According to a recent World Bank report corporation tax constitutes, on average, only 36 per cent. of the total amount paid by businesses. These things have to be looked at relatively. There was a time, say in 1997, when our business taxation rates were lower than the OECD average, but that is no longer the case, because our competitors are cutting taxes whereas we are going in the other direction. That is why we are rapidly approaching the point where the tax burden in this country will be greater than that in Germany. That puts us at a competitive disadvantage, at least compared with where we were only a few years ago. As I mentioned earlier, rates are only one aspect of taxation; there is also tax complexity. The Government have a poor record in that area and there is nothing in the Queen’s Speech as such that will address that. We wait to see whether the Finance Bill in this parliamentary Session will attempt to address it. Returning to the CBI survey, 95 per cent. of business people say that the tax system should be simplified. That hardly comes as a surprise. However, the external experts have been damning when it comes to the position that we face in this country. KPMG said:"““The general trend for the UK’s tax system in recent years has been towards more complexity and less certainty, which is gradually making the UK a less competitive location for industry””." The British Chambers of Commerce said:"““It is clear that the system has become progressively more complex over a number of years, driven by the relentless increase in tax legislation…The complexity of the tax system has a real impact on UK firms’ ability to compete in an increasingly competitive market””." The Chartered Institute of Taxation follows in a similar vein:"““Over the past several years there has been a series of waves of complex ill thought out tax legislation that purports to counteract tax avoidance but, in practice, goes much further than that…Certainly the UK’s competitive position has been undermined.””" It is always difficult to quantify complexity, but there are one or two rough and ready measures that are worth looking at. One is the length of handbooks. In 1997, Tolley’s Yellow Tax Handbook of the British tax code was 4,555 pages long; it is now 9,841. In a report published a week or so ago, the World Bank noticed that, among the major economies, only India has a longer tax code than the UK. Another rough and ready measure is Finance Acts. I say this with some feeling having served on the Committee on the previous Finance Bill—[Hon. Members: ““Hear, hear.””] I am grateful for those comments, which I hope will be recorded in Hansard. One hears stories from the old hands about how they stayed up all night considering Finance Bills in the 1980s. Those Finance Bills were only 157 pages long.