§ These papers and the draft clauses dealing with these matters have caused considerable anxiety. In the case of company residence the primary objective was simply to replace the present ill-defined rules with ones which were clearer and more certain. This was not an attempt to extend the coverage of the tax. But I accept that some people might be adversely affected. The matter therefore needs to be looked at again.
§ The problem of tax havens was a different one. If one has an open world in which there is free movement of capital and of persons—something which in itself is a good thing—this offers increased opportunities for tax avoidance. We must be very careful not to prejudice legitimate business, particularly because of the importance of London as a financial centre. We need to find the right middle road, and one which is accepted as right. It is to this end we shall be directing our efforts. Clearly this precludes legislation this year on any of these topics.
§ I now turn to the areas in which I propose to take action in this Finance Bill.
§ First, international leasing. At present, assets leased abroad attract capital allowances at what is, in many cases, a favourable rate of 25 per cent. per annum. Leasing of this kind has grown sharply. Moreover, there is evidence of United Kingdom tax incentives being used to subsidise deals between other countries—deals by foreign businesses in foreign-made goods, competing with our own home producers. I therefore propose, for new commitments after today, to reduce from 25 to 10 per cent. the rate of writing down allowance for all assets leased abroad.
§ Secondly, films. Investment in films qualifies for 100 per cent. first-year allowances. As with other capital allowance provisions, these investment incentives are available without regard to whether the film is made in this country or overseas. There is evidence that schemes for investment of this kind—primarily in foreign-produced films—are currently being marketed actively in this country. The potential loss to the revenue is very great.
§ I propose, therefore, to withdraw the 100 per cent. first-year allowance for films and to introduce in its place a 749 provision which will, in broad terms, allow companies to write off expenditure over the income-producing life of the film.
§ A change of this kind could have serious implications for the British film industry, if introduced immediately, at a time when there are signs that it is just beginning to establish a new and more competitive position. I intend therefore to introduce transitional relief for British-made films—broadly speaking, films registered for the purposes of the Eady levy arrangements—for a two-year period. I shall be consulting the industry about the form which this assistance might take.
§ Thirdly, shipping. Here again arrangements are being made to exploit United Kingdom investment incentives for the benefit of foreign businesses. In this case a typical arrangement may involve a foreign shipping company chartering a vessel built abroad from a company specially set up in the United Kingdom to attract 100 per cent. capital allowances. I propose to reduce the rate of capital allowance in these cases to the 10 per cent. rate for international leasing generally. I am concerned to safeguard the position of British companies chartering their vessels abroad in the course of a genuine shipping business, and I shall be discussing with the shipping industry how best to do this.
§ On each of these three subjects—international leasing, films and shipping—the changes will take effect from today. I shall bring forward the necessary detailed legislation in Committee.
§ Fourthly, so-called section 233 loans. These are contrived arrangements under which interest paid on certain bank loans escapes liability to corporation tax in the hands of the banks. In future these payments will be taxed like any other interest payments. The new rules will apply from today. In the case of contracts entered into before today, the new rules will apply to payments due on or after 1 April 1983.
§ Fifthly, by taking advantage of double tax relief banks can lend overseas at abnormally low interest rates at the expense of the United Kingdom taxpayer. I propose to include in the coming Finance Bill measures to stop this exploitation of our tax system. They will take effect from 1 April 1982 but in the case of existing loans will apply only to interest arising from 1 April 1983.
While the measures I have announced will help, we shall need to give much further thought in the coming year to the problem of how best to ensure a sufficient contribution to tax revenues from the banking sector. The problem is not an easy one, as the benefit of some of the devices I have just described is shared between the banks and their domestic customers. There is a danger that measures directed to ensuring that the banks pay a more equitable amount of tax are all too simply bypassed by the banks shifting the burden on to their customers. For these reasons I have forborne from taking action earlier, but, as Burke said,
There is, however, a limit at which forebearance ceases to be a virtue.
§ On a different note, a number of building societies have recently issued a new form of negotiable bond. I have no reason to believe that any improper use has been made of these new bonds. But, as an obvious precaution, I propose to extend to these bonds, from today, the existing provisions dealing with the "manufacture of dividends".750
§ I also propose some tightening up of the law relating to very large golden handshakes. The tax relief will be withdrawn on a sliding scale with the effect that the excess of sums over £75,000 will be fully charged to tax.
§ We owe it to the ordinary taxpayer to take action in these fields. It is on him that the cost would fall if we did not do so.