Finance Bill

That is not a difficult question. Of course successful investment is welcome in an economy. Any measures that we can include in the Bill to raise the rate of successful investment are welcome. I am not sure that cutting the corporation tax rate and taking away many of the allowances is the way in which to achieve the goal, but I would rather do that than nothing because the headline rate has a psychological effect. It is the first thing that any company considers when deciding where to locate its investment. However, we need genuine tax cuts—the Exchequer taking less money so that more money is left in company coffers to spend on investment. The hon. Gentleman says that the problem for British business is that it distributes too much in dividends. I do not believe that that is the case from examining current world markets. A typical yield on a quoted British equity is 2.5 or 3 per cent. That is not a high rate of running return on a share and it does not represent a high proportion of free cash flow. If the hon. Gentleman wants to know where much of the free cash flow is going, two things make big inroads into it. The first is the tax system, which we are discussing, and reducing the rate from 30 to 28 per cent. is only a small help when allowances are also being removed. The second is the need to invest far bigger contributions in pension funds because of the disastrous tumble into deficit, which we have examined at some length today and previously. If the Government could find a way to solve the pension problem and if they could get their corporation tax rate down a little more, there would be more free cash flow for British businesses to invest. It is a good time for several sectors and businesses to invest. The rates of return on capital are not bad and there is a satisfactory gap between the borrowing rate—even at the new higher rates of interest—and the rate that one could expect to earn on one’s capital. Reluctance to do more relates to pressures on companies’ cash flow from the Government and the pension fund element. The relatively rosy picture is based on averages. Ministers will tell me—as I have just told them—that the rate of return on capital is not bad and that there is a worthwhile margin on average. However, people trying to run process industry in this country would say that it was not true for them and that the Budget does nothing to sort out their problems. A glass maker, a brick maker, a cement maker or a paper manufacturer has considerable problems, mainly from the gas price and energy prices but also from the regulatory backdrop. There is a dreadful exodus from this country of much process industry. The most visible example was the decision of British Steel––then Corus, now Tata Steel––to go to the Netherlands rather than Britain for its new big investment. It did not go to the Netherlands because labour is cheaper there—it is not—but because the Netherlands combines a better tax regime and a lower gas price. The Budget does not tackle that to try to claw back some territory so that we can reinforce those businesses that remain in Britain in process industries with big energy bills and encourage new investment and new companies to come here. Perhaps the Government’s wish is to hit their climate change targets by de-industrialising Britain. One way we could hit the Kyoto-plus targets for climate change is to export all the heavy energy using industries. However, that would not help the world problem because we would simply export our heavy energy users to overseas territories that probably use even more energy less efficiently. I recommended that the Government see whether anything can be done to ease those pressures on British process industry, which is suffering particular problems.