As noble Lords are aware, this Government came to power in the midst of an economic crisis and inherited the largest deficit in our peacetime history. Since then, the Government have taken resolute action to deal with our debts and get the economy moving again. The Finance Bill before us represents the latest stage in those plans by legislating for measures to deal with the deficit, to encourage economic growth and support businesses of all sizes and to create a fairer and more efficient tax system.
I turn first to growth and competitiveness. The Government have set out our ambition to have the most competitive tax system in the G20. We have already made significant progress towards that goal. In 2013, the main rate of corporation tax will be 23%, far lower than the uncompetitive 28% rate that we inherited. However, we want to do more to relieve the tax burden on business. Clauses 4 and 6 will reduce the main rate of corporation tax to 21% from April 2014, and to 20% from April 2015—the joint lowest rate in the G20, and lower than any comparable EU member state.
It was also announced in Budget 2013 that once the main rate has fallen to 20%, it will be unified with the small profits rate to create a single headline rate of corporation tax—simplifying the system. These changes have been widely welcomed by business groups such as the Confederation of British Industry and the British Chambers of Commerce, but competitiveness is not only about the corporation tax rate. The Government are also supporting the innovative sectors that will drive future economic growth.
Clause 7 and Schedule 1 increase the annual investment allowance from £25,000 to £250,000 for two years from April 2013. That will provide additional, time-limited support for businesses investing in plant and machinery, and will particularly benefit small and medium-sized firms. Clause 34 introduces a new, more generous above-the-line tax credit for large companies’ R&D expenditure, providing more visible and more certain relief to those companies engaged in ground-breaking research in the UK. Clause 35 introduces new tax reliefs to support the UK’s creative economy, including animation and high-end TV. Those will be among the most effective reliefs available anywhere in the world. As John Cridland, Director-General of the CBI, said:
“Providing further support for our world-beating creative industries … and increasing the rate of the above the line R&D tax credit will … have a material impact on some of the most important sectors of the UK economy”.
Creating a competitive tax system goes hand in hand with making sure that companies and individuals pay the taxes they owe. That is why this Finance Bill includes significant new measures to tackle tax avoidance by the small minority of individuals and businesses
who are not willing to pay their fair share. I know that this is an area in which noble Lords have shown great interest.
Clauses 203 to 212 and Schedule 41 establish the UK’s first general anti-abuse rule, or GAAR. That is a major new development in UK tax law, and will provide HMRC with an important new tool to tackle abusive tax avoidance. It sends a clear message to those who create and promote abusive tax avoidance schemes that their activities will not be tolerated.
We are also strengthening the disclosure of tax-avoidance schemes—or DOTAS—regime. DOTAS has already been highly successful, with more than 2,000 tax avoidance schemes being disclosed to HMRC since its introduction in 2004. This Finance Bill will further improve the information that promoters of tax-avoidance schemes have to provide about the use of their schemes, making DOTAS an even more effective tool.
The Government will also continue to introduce anti-avoidance rules to address specific types of avoidance in areas of the tax system. This Finance Bill includes legislation to close 15 loopholes which have been used to avoid tax.
Taken together, those measures will raise tax revenues by almost £2 billion up to 2017-18, as well as protecting future revenues. Noble Lords will also be aware that the Government have been at the forefront of international efforts to strengthen tax standards and tackle avoidance by multinational companies. The OECD will be present its action plan for tackling base erosion and profit shifting to the G20 in July.
Tackling tax avoidance is an important part of delivering a tax system that is fair. There is, however, more to fairness than tackling avoidance. This Government recognise the financial pressures that many families are currently experiencing and are determined that hard-working families should be able to keep more of the money they earn. That is why this Government have set an ambition for the personal allowance to increase to £10,000 by the end of this Parliament—an ambition which will in fact be reached one year early, in April 2014. Clause 2 takes an important step towards that ambition, by setting the value of the personal allowance at £9,440 from April this year. This is the largest ever cash increase in the personal allowance, and represents a tax cut for 24 million people. It will save a typical basic-rate taxpayer £267 a year.
This Finance Bill also takes action to ensure that the wealthiest members of society make a fair contribution. It introduces a new annual charge on enveloped dwellings to ensure that owners of high-value properties cannot avoid paying their fair share of tax by placing their property in a corporate envelope.
The Bill legislates for a new cap on certain unlimited tax reliefs from this April to curtail excessive use of these reliefs by high-income individuals who want to reduce their tax bills. The cap will be set at £50,000 or 25% of a person's income, whichever is the greater, ensuring that these reliefs cannot be exploited unfairly.
The Bill reduces the pensions tax relief lifetime and annual allowances to £1,250,000 and £40,000 respectively. This will limit the amount of relief available to the top
2% of pension savers and curb the growing cost of pensions tax relief, which has doubled in the decade since 2001.
By rewarding work and ensuring that reliefs are properly targeted, this is a Finance Bill that delivers a fairer tax system. The Government are committed to greater consultation on tax policy changes. Most of the measures in the Bill were announced at Budget 2012 and have been subject to extensive consultation. We published more than 400 pages of draft legislation for comment in December, and received more than 400 responses. This consultation has ensured better legislation with fewer changes required. I take this opportunity to thank the noble Lord, Lord MacGregor, and noble Lords on the Economic Affairs Committee for their detailed examination of the draft Finance Bill and the thoughtful and constructive comments in the report before us today.
To conclude, the Bill sets out measures to improve our competitiveness, tackle tax avoidance, and help hard-working families and businesses. It builds on the progress that the Government have already made to deal with the enormous debts we inherited and get the economy moving again. The underlying damage to our economy has turned out to be greater, and the road to recovery longer, than anyone had thought. We are, however, on the right path. I commend the Bill to the House.
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