Corporation Tax (Hansard, 1 April 1993)

§ 2. Mr. Stephen
To ask the Chancellor of the Exchequer what is the differential between the level of corporation tax in the United Kingdom and equivalent taxes in other EC countries.

§ 3. Mr. Robathan
To ask the Chancellor of the Exchequer what is the difference between the level of corporation tax in the United Kingdom and equivalent taxes in other EC countries.

§ The Financial Secretary to the Treasury (Mr. Stephen Dorrell)
The proposed main rate of UK corporation tax for the financial year 1993 is 33 per cent. The main rates on distributed profits in other European Community states vary sbetween 33⅓ and 40 per cent.

§ Mr. Stephen
Does my hon. Friend agree that it is much better for British industry and commerce to have a simple system of company taxation at the lowest possible rate, rather than the complex system of capital allowances much favoured by the Opposition parties, as they distort investment decisions and are open to abuse?

§ Mr. Dorrell
I agree entirely with my hon. Friend. The consequence of the corporation tax changes introduced in the 1980s is that we have cut the marginal rate of corporation tax on profits from 52 per cent. when we came to power to 33 per cent. now—the lowest rate in the European Community. That is one of the factors which make this country an attractive place for business to invest. That must have been one of the factors that Mr. Delors took into account when he correctly described this country as a paradise for Japanese investment.

§ Mr. Robathan
My hon. Friend mentioned inward investment. How much encouragement does he believe 482 that the low rate of taxation has given foreign companies in the past? Does he believe that the low rate of corporate taxation will continue to encourage inward investment into this country?

§ Mr. Dorrell
I believe that a low rate of corporation tax is an important part of the Government's total commitment to attracting a high rate of inward investment—a policy which has been startlingly successful. Some 40 per cent. of Japanese investment in Europe is based in the United Kingdom and one third of all inward investment into the European Community in 1991 came to the United Kingdom. That is because we have set out to make this country an attractive place in which business can invest in order to employ people and create wealth.

§ Mr. Sheldon
Is not it a misleading over-simplification to talk about the corporation tax rate of other countries without going into the complicated ways in which they give allowances for capital investment, particularly on plant and machinery? In this respect, while I understand that the Treasury will not increase the level of capital allowances in the way that I, for one, would wish to see, will the hon. Gentleman give an undertaking that the increase from 25 to 40 per cent., due to expire on 31 October this year, will be extended?

§ Mr. Dorrell
No, but I can give the right hon. Gentleman the undertaking that we will carry out the policy that we announced in the autumn statement: to have time-limited investment allowances of the sort that were written into the Labour party's manifesto at the last election. It is rather odd that the right hon. Gentleman should seek to move away from it. What is not an over-simplification is that plant and machinery investment in Britain today is running over 50 per cent. higher in real terms than it was when the Labour party left office in 1979. There is an investment boom in this country by firms that recognise that Britain is an attractive place in which to do business.

§ Mr. Nicholas Brown
Will the Financial Secretary confirm that to state the rate is not to state the tax burden and that, in the United Kingdom, company taxes account for 4 per cent. of GDP while the European Community average is 3.1 per cent. of GDP? Will he further confirm that in the OECD only Australia, Japan, Luxembourg and Norway have higher corporate tax takes than we do?

§ Mr. Dorrell
To state the rate is to state the incentive, which is the important thing when considering whether an investment is to go ahead. The hon. Gentleman quotes a series of selective figures, which discount the fact that the figures for other countries for business investment should take account of the much higher rates of tax that they impose, for example, through their national insurance systems. Furthermore, the hon. Gentleman discounts the fact that British business has been successful at generating profits—more successful than it was when the Labour party was in power.

§ Sir Anthony Durant
Is my hon. Friend aware that, only this morning, I took two Japanese business men to the Board of Trade because they have looked at the whole of Europe and decided that this is the best place to come, with quite large sums of money? They feel that the atmosphere, taxation and everything is right for setting up business.

§ Mr. Dorrell
I congratulate my hon. Friend on his actions and on the fact that he is drawing the attention of his Japanese business friends to the attractive nature of the regime for investment here. It is not only Japanese or overseas investors who find this an attractive place in which to do business. It would occasionally be nice to hear congratulations from Labour Members on the fact that 10 of the top 20 European companies are British companies which are successfully doing business in this country and proving themselves in the marketplace to be more successful than their competitors.

§ Mr. Skinner
The Japanese are probably doing exceptionally well because they know the difference between threes and fives. The Minister referred to 33 per cent. corporation tax. Did he get that figure from the Chancellor of the Exchequer? If he did, how do we know that it is correct? It could be 55 per cent. I throw out a challenge to the Chancellor. I will play him at fives and threes at dominos and I will win every time and give the money to the pensioners to pay the extra VAT.

§ Mr. Dorrell
The hon. Gentleman might like to reflect on the fact that the £35 billion worth of public expenditure commitments that the Labour party made in its manifesto at the general election might have been £53 billion.