§ I now turn to corporation tax. The new system of corporation tax for which we legislated in last year's Finance Bill comes into effect next month—in April. As from then, the old system will no longer be operative. As the House knows, however, corporation tax is paid in arrear. It follows therefore that in this Budget it is necessary to fix the rate for the financial year 1972, the last under the old system. There will be no change in the present rate and it will therefore remain at 40 per cent. for the financial year 1972. Next year the rate will re-sect the change in the system, but it is too early yet to reach a decision as to what the appropriate rate will then be.
§ As far as the structure of the corporation tax is concerned, the Finance Bill 262 will provide two significant changes affecting groups of companies. These are the outcome of consultations between the Inland Revenue and representatives of industry.
§ I was urged last year by a number of important groups of companies, and in particular those with large overseas interests, to make more flexible the provisions under which companies may surrender advance corporation tax to their subsidiaries. The problem was that I could not contemplate any relaxation in the treatment of groups unless I could also take action to counter certain artificial manipulations of the group relief provisions involving in effect the sale of capital and other allowances at a discount. This abuse was spreading rapidly and there was reason to fear a possible loss of tax of the order of £100 million a year.
§ We have now found a solution to deal with this problem. This is another instance of the value of the kind of consultation, at professional level, which we have tried constantly to foster in the programme of taxation reform. The changes will be described in detail by my hon. Friend the Chief Secretary later in the debate.
§ Last year much consideration was given and rightly so, to the position of unquoted companies under the new tax system. I have looked again at the possibility of devising a transitional scheme of relief for such companies. But the hard fact is that any scheme of this kind would inevitably be costly: to give a significant degree of relief across the board could well entail a cost of £75 million in the initial year. The House will understand why I cannot contemplate a cost of this order in present circumstances.