Finance Bill

The hon. Member for Newcastle upon Tyne, North (Mr. Henderson) raised some interesting questions about regional policy, which I agree needs to be re-examined. I represent a constituency that belongs to a region extending from the Isles to Scilly to Bristol and Swindon. Clearly, we need to re-assess what the regions, as currently defined, have in common. There is a great difference between the local economies of Penzance and of Bristol. The hon. Gentleman also raised some interesting issues about the purpose of the Finance Bill. He posed the question whether it should focus on macro or micro-economic issues. Perhaps the process that we go through each year in dealing with the Bill should be reviewed to try to encourage it to be more strategic. The last few sentences of the Chancellor’s Budget included some pretty explosive fireworks, so initially I expected some pretty explosive stuff in this year’s Finance Bill. However, it turns out that it is a bit more of a damp squib. Much of the Chancellor’s wider legacy will be left to his successor to sort out—we have seen increases in unemployment recently, and we have rising interest rates, rising inflation and rising personal debt—and the same is true of the Finance Bill. The most uncomfortable bits for the Chancellor to justify and explain will be left to someone else to deal with next year. I am sure that the Paymaster General hopes that, after 11 Budgets of leading the Committee on the Finance Bill, it is not going to be her. The clearest example is the changes that were announced to income tax in the Budget. The changes cut the basic rate by 2p and abolish the 10p starting rate, which for 2 million people will in effect mean that the rate of tax that they will pay will increase by 10 per cent. The Chancellor said those last few sentences just before he sat down and in the immediate aftermath the proposals were broadly welcomed, even on the Liberal Democrat Benches. They seemed to mirror proposals made by the Liberal Democrat party to try to make the tax system fairer. As my hon. Friend the Member for Twickenham (Dr. Cable) said, initially it gave him a frisson of flattery, but, as ever the devil is in the detail. The Chancellor did not make it explicit in his Budget speech that the tax cut that he was trumpeting was going to be funded by raising taxes for those on the lowest incomes—mostly people who are lower paid and childless couples, who will pay more in tax. He is abolishing a rate of tax that he introduced. Perhaps that is why he is keen to leave the detailed debate to his successor. I would like the Minister to confirm that it would have been possible to include the income tax changes for next year in this year’s Finance Bill, even though they may not take effect till next year. If it was decided not to do that, on what basis what that decision made? I hope to return to that when the Bill enters a Committee of the whole House. Other changes to the taxation system that were flagged up in the Budget have made their way into this year’s Finance Bill. As we have already heard in some of the lengthy discussions about taxes on business, on the surface the changes look like simplification measures. They look like they should be welcomed, but once one looks in the Red Book and sees the way in which the revenue is changing, it is clear that there are complicating fingerprints from the Chancellor all over them. The changes were intended only to grab the headlines, not to make the system simpler or fairer. The headline cut in corporation tax from 30p to 28p in the pound is welcome in itself and follows the lead of many other leading economies, but it is going to be paid for by changes to capital allowances that will disproportionately hit some sectors over others. Small businesses will, in effect, see their corporation tax rate rise and they will still be trying to work out how they qualify under the changes to the other allowances that are proposed in the Finance Bill. As I have mentioned in interventions, micro-businesses will be the least well placed to try to navigate the new geography. I draw attention to clause 35 on industrial and agricultural buildings allowances. It seems that proper consideration has not been given to the kinds of businesses that will be adversely impacted. Two of the areas that have been highlighted are the hotel industry and poultry farmers. The clause withdraws after March 2007 the final allowance or charge that was previously taxable or tax deductible on disposal of these buildings. When implemented, the clause will change the impact of long-term investment decisions that might have been made many years ago. Hoteliers are concerned that that will increase room rents considerably. Hoteliers that have recently refurbished their hotels may find it difficult to raise room rates enough, compared with market rates. Turning to the agricultural buildings allowance, I would like to refer briefly to an issue raised by a constituent of my hon. Friend the Member for North Devon (Nick Harvey). The constituent referred to the abolition of the agricultural buildings allowance over four years and cited what he called something of a killer fact. He wrote:"““Mr Brown describes in Budget Note no. 7…the reason for this abolition is that it removes ‘outdated and unjustified distortions’ implying that the ABA is some sort of tax break to encourage investment in the post war period. This is completely wrong. Poultry buildings?—" this man is a poultry farmer—"““in which I have a particular interest with my brother…will not last much longer than 25 years no matter how much you repair them, and so it would quite proper to write them off against tax over 25 years at 4 per cent.?" The point is that even some sub-sectors of particular sectors will be disproportionately disadvantaged. I am worried that the matter was not properly investigated before the announcement was made, because the measure was proposed to grab headlines. No strategic context undermines the long-term stability of the taxation system more than investor confidence. Was any assessment made of the differential impact of the measure on sub-sectors of the economy, such as the agricultural sector?