HC Deb 30 June 1998 vol 315 cc180-207 '.—After section 59DA of the Taxes Management Act 1970 (payment of corporation tax under self-assessment) there shall be inserted— "59F In making any regulations under section 59E above, the Treasury shall have special regard to the trading patterns and profitability of the retailing industry".'.—[Mr. Heathcoat-Amory.]

Brought up, and read the First time.

Mr. Heathcoat-Amory

I beg to move, That the clause be read a Second time.

New clause 5 is an attempt to correct one of the main deficiencies in the Government's corporation tax system, specifically the payment method provided for in the Bill. However, so that I might describe fully the intention behind new clause 5, I hope that it will be in order if I explain to the House some of the problems and—in all fairness—what the Government have tried to achieve in changing the method of taxing companies.

In the past year, we have moved away from the imputation system of corporation tax, which has, for some years, been a familiar part of the taxation landscape. The system was a good one, as it avoided double taxation of profits—in the hands both of companies and of shareholders. However, the Government decided—I can appreciate at least in part their motive for doing so—to switch from that system, abolishing dividend tax credits, to a system of periodic payment of corporation tax.

Our quarrel with the Government is that they have used the change to introduce very large increases in effective taxation. We witnessed an example of such an increase last year, when the abolition of tax credits dealt an enormous blow to the pensions industry by instituting a £5 billion annual raid on pension funds.

Last year was a particularly stupid time to tax savings, as the Government were themselves becoming alarmed at inflationary pressures in the economy. Taxing savings rather than consumption was therefore the most short-sighted action. It was also in conflict with everything that the Government were saying about the need to build up a savings culture in the United Kingdom, to encourage people to provide for their own retirement and generally to increase self-reliance.

I think that the Government understood that the only realistic alternative to welfare dependency was private savings. However, as usual with the Government, there was a huge gap between Ministers' rhetoric and their action. By withdrawing dividend tax credits, they sent a clear message to those who save and have private pensions: "Do not bother to save. If you do, the Government will come along and change all the rules, and tax the very savings and pension funds that you have built up."

Withdrawing dividend tax credits was another short-sighted action, as an acknowledged strength of the United Kingdom is the fact that we have an enormous and successful private pensions industry. It has been calculated that the total sum of pension assets under management in the United Kingdom exceeds the sum for the rest of the European Union combined. On the continent, perhaps only the Netherlands has a comparable private pensions industry. Governments in other countries, particularly some southern European ones, have colossal off-balance-sheet debt. When they promise pensions to their electorate, all they are doing is hoping that a future generation of taxpayers will meet those obligations.

Mr. Nicholas Soames (Mid-Sussex)

Will my right hon. Friend speculate on why the Government should have done such a stupid thing? Although it is easy for Opposition Members to understand why the Government abolished tax relief on health insurance—it was out of pure spite and malice—it seems inexplicable that they could have done such a stupid thing with savings.

Mr. Heathcoat-Amory

I am genuinely at a loss to give my hon. Friend an answer to his question. We have racked our brains to try to determine why the Government should have done something that was not only wrong in macro-economic terms, as I explained, but contradicted their express desire to get people off welfare and on to private provision and self-reliance. I can only speculate that their action was due to ignorance and, perhaps, the instinctive reaction of a Labour Government to tax, which is to try to tax their way out of any difficulty.

Mr. Hammond

Does my right hon. Friend agree that the Government may have hoped that those who were bearing the tax might not notice that they were bearing it? It was a back-door tax which many pensioners did not appreciate they were paying until Conservative Members drew their attention to it.

Mr. Heathcoat-Amory

I think that my hon. Friend has part of the answer—that the Government hoped that no one would notice. They thought that instead of taxing people directly, they could tax corporations and pension funds, which do not themselves have votes. However, millions of people who rely on those pension funds now know perfectly well that the Government effectively conducted a £5 billion-a-year-raid on pensioners and contributors to pension funds.

Last year's Budget, therefore, will always be known as the Robert Maxwell memorial Budget. That is entirely appropriate as at least two of the Ministers conducting that raid had first-hand experience of how the late Robert Maxwell handled his business affairs. So the Government did not get away with it, but the damage created by that Budget will be with us for many more years. It was compounded this year when the Government returned to the subject and used the change in the system of corporation tax to smuggle in a back-door tax increase, borne this time by corporations and the larger business sector in particular.

5.30 pm

When we debated the economy yesterday, the Chief Secretary to the Treasury again asserted that the Government had cut the rate of corporation tax. That may be true in nominal terms, although the Government have a long way to go before they match our record. In 1979, we inherited a corporation tax rate of 52 per cent. and by gradual degrees, year upon year, we reduced it. All the Labour Government have done is to signal that there will be a further 1 per cent. reduction, which will not take effect until next April.

Companies and the Confederation of British Industry are concerned that, despite a nominal reduction, there has been an actual increase in the burden of corporation tax. I am not making an allegation or giving the House an opinion; I invite hon. Members to consult page 18 of the Budget statement, which shows that the abolition of advance corporation tax and the introduction of quarterly payments will increase tax by £100 million in the current financial year, by £1,600 million next year and by a full £2 billion in the year 2000–01.

Mr. Hammond

Are not the Government engaged in utterly cynical manipulation? They are bringing forward in a one-off shift tax revenues that would have been enjoyed later so that they can spend them during the period of this Government and, hopefully from their point of view, buy their way back into power at the next general election?

Mr. Heathcoat-Amory

Yes. My hon. Friend is entirely right. It is particularly short-sighted because the Government are relying on those same larger companies to provide the extra jobs that they need for their so-called welfare-to-work programme. If they persist in taxing those companies, it will rapidly turn into a work-to-welfare programme. There is already evidence that the labour market is turning, and investment is also affected. The same Red Book published in March shows a steady and continuing reduction in investment, particularly by the business sector. That can only be a consequence of the increased tax burden that businesses are expected to bear.

Mr. Quentin Davies

Could not the position get even worse? Not only will companies be less inclined to invest because of the extent to which the tax burden on them is increased, but if the economy continues to turn down as a direct result of Government action and inaction—manufacturing is already in recession—will not that additional £2 billion a year of cash-flow burden on British industry make all the difference to the survival or the collapse and bankruptcy of British businesses? Therefore, there may be an escalating effect. The Government may be launching a vicious circle which will be damaging to output and to employment for a long time.

Mr. Heathcoat-Amory

Yes. My hon. Friend makes a good point. The measures are pro-cyclical; they are reinforcing what is already an emerging recession. The effective increases in corporation tax will hit companies precisely when they are already experiencing a recession. The damage has not yet become entirely apparent.

Another issue concerns our general competitiveness and our position in the European Union and in the wider world. One of the great—and, we hope, lasting—achievements of the previous Conservative Government is that we established a low-taxation structure. We are the envy of Europe. Indeed, the Chancellor of the Exchequer in one of his disguises goes round the European Union lecturing other countries about the problems of high taxes, particularly on labour, and the need for them to introduce flexible labour markets. At the same time he is undermining precisely those achievements at home, so it is little wonder that he is now excluded from Euro X and the other committees on which such matters are discussed. They have spotted a degree of hypocrisy. The Chancellor is telling them to do what he is failing to do at home.

We hope that tomorrow we shall be debating the increase in indirect taxation on transport fuel, for example, which is eroding the competitiveness of our haulage industry, but at least we thought that we had entrenched a competitive advantage for Britain in terms of business taxes which makes us a beneficiary of inward investment from the European Union and the rest of the world.

Mr. Soames

Is my right hon. Friend aware that the competitive advantage which, indeed, was well entrenched, has become eroded in such a way—even within the past year—that in my constituency and neighbouring constituencies, quite substantial numbers of jobs are already beginning to flow out of manufacturing industry? What does my right hon. Friend have to say for the future when the impact of the ill-thought-out and ill-conceived changes to corporation tax will further hit manufacturing industry?

Mr. Heathcoat-Amory

My hon. Friend is entirely right. The damage is already apparent, and we have not yet had the full impact of the changes in corporation tax. The figures that I quoted from the Red Book show that what is a problem today is in danger of becoming a catastrophe tomorrow unless avoiding action is taken. New clause 5 goes some way towards at least drawing the teeth of the change in corporation tax and bringing relief to some sectors of British industry that are faced with effective tax increases.

The Government have abolished advance corporation tax, but replaced it with a system of interim payments whereby larger companies will have to make payments on account, which represent an effective tax increase.

Mr. Andrew Love (Edmonton)

I have listened to my right hon. Friend for the past five or seven minutes, and have yet to hear any recognition from the Opposition that, when corporation tax is reduced by 1 per cent. next year, it will be at its lowest rate ever.

Mr. Heathcoat-Amory

Yes, but the hon. Gentleman has not understood my point. Businesses are not concerned about the nominal headline rate of corporation tax if the actual tax that they pay goes up. Labour's world is all about theory. When Labour Members see a cut of 1 per cent., they assume that all the companies in their constituencies will pay less corporation tax. The hon. Gentleman may have been nodding off when I quoted from the Red Book. Even the Chancellor's own arithmetic shows that there is an effective increase in the tax burden on companies in Britain of £2 billion a year. Does the hon. Gentleman not understand that simple point? If he will not accept it from me, will he do the House the honour of spending the next few minutes reading the Chancellor's Budget statement, which sets that point out with commendable clarity?

Mr. Oliver Letwin (West Dorset)

Does my right hon. Friend agree that the position is even worse than he has described? He has been describing the stagnation part of inflation, but by directing their attentions to corporate taxation and interest rates, which have been shown increasingly to have a greater effect on the corporate sector than on the personal sector, the Government are not addressing inflation.

Mr. Heathcoat-Amory

My hon. Friend is right. I hope that he will catch your eye later, Mr. Deputy Speaker, to elaborate on that point.

I should like to establish the fact—this is not a contestable opinion—that the Government are smuggling in a real increase in the burden of corporation tax suffered by corporate Britain. When investment falls, as it is due to do, and unemployment increases, the Government will have only themselves to blame.

Mr. Geraint Davies (Croydon, Central)

The right hon. Gentleman is confusing cash flow with tax burden. The changes will bring forward tax revenues, but the net present value of tax due by UK plc has gone down. He should welcome that, not try to confuse issues—or is he the one who is confused?

Mr. Heathcoat-Amory

The hon. Gentleman has missed the point. Bringing forward a tax payment is an effective increase in tax, hitting the cash flow of companies and costing them money. If the hon. Gentleman had to pay his tax bill a year earlier than he had been used to, he would resent the change and regard it as a burden on his finances and his ability to spend on other items. The two Labour interventions simply underline our arguments.

If the Government had wanted the change to be tax-neutral, they could have taken the advice of the CBI and put back the payment dates for corporation tax by two months. They did not do that, because they wanted the exercise to raise tax. That is what we are complaining about. The consequences will be long-lasting and very damaging.

The Government are asking companies to predict their profits. Companies will have to pay tax on estimated profits, which may well change. Many companies make unexpected capital gains or losses, perhaps towards the end of their accounting period.

Mr. Derek Twigg (Halton)

On a point of order, Mr. Deputy Speaker. The new clause is specifically about the retail industry, which the right hon. Gentleman has not mentioned. I wonder when he will speak to the new clause.

Mr. Deputy Speaker

The right hon. Gentleman is responsible for his speech. So far I have found him to be in order.

Mr. Heathcoat-Amory

The hon. Gentleman thinks that he can do your job better than you can, Mr. Deputy Speaker, but we heard almost nothing from him in Standing Committee. Many times we had to do his job for him, trying to stand up for the interests of businesses in his constituency about which he was silent. He failed to do his job upstairs and now he thinks that he can do your job better. I am grateful for your confirmation that everything that I have said is fully in order.

There is something seriously wrong with the system of the interim payments introduced by the Bill. The intention behind the new clause is to do something about that. Companies will have to predict their profits, which will be very difficult, particularly for those with marked seasonal variations in their profits. Leisure and tourism is a big industry in my constituency. Almost by definition, it is highly seasonal, with profits tending to be made in the summer. Similarly, many retailing companies, particularly the larger ones, make most of their profit in the run-up to Christmas. That is particularly true of companies that sell discretionary items such as jewellery or greetings cards.

The system of corporation tax payments laid down in the Bill makes no provision for seasonal variations. If a company makes most of its profits towards the end of the financial year, it will be asked to pay tax on profits that it has not yet earned.

5.45 pm
Mr. Geraint Davies

Why does the new clause refer specifically to the retailing industry, and not to industries with seasonal variations in profitability, including tourism? Does that have anything to do with the fact that the shadow Chancellor has an interest in retailing, as do other hon. Members who were on the Standing Committee?

Mr. Heathcoat-Amory

That was not a tremendously telling intervention. As the hon. Gentleman will remember, we discussed seasonality in Committee. I regretted very much at the time that the hon. Gentleman failed to participate in the debate. I am glad that we can, perhaps, look forward to a contribution from him now. We are restricted in the new clauses that we can table on Report. We have chosen the retailing sector to illustrate the problem. If, as I hope, the Paymaster General accepts what we have in mind, he can easily widen the concept to bring relief to manufacturing, processing and service companies that are similarly affected. We have chosen the retail sector because it illustrates particularly well the problem that we are trying to deal with.

It is accepted that many companies have a seasonal variation in their profits. The requirement to make interim regular payments that bear no relation to how the profits are made is inequitable, forcing companies to pay tax on profits that they have not yet earned.

Mr. Hammond

Does my right hon. Friend agree that the provision might require a company to borrow money to pay tax if its revenue pattern was highly seasonal and it did not have great reserves out of which to make the payments?

Mr. Heathcoat-Amory

That is indeed the case. Such companies may make little or no profit during the first six or nine months of the financial year and they will have to borrow money to fund their tax payments. In the final three months of the year, when they make most of their profits, they will be able to repay the money, but they will have lost the interest.

When we debated the issue, the Paymaster General seemed sympathetic to our case. He correctly pointed out that the regulations on the mechanism and timing of payments are out for consultation; that consultation period does not end until 15 July. However, we do not need to wait until 15 July to know what companies want. The British Retail Consortium has already submitted its ideas for relieving its members of the burden.

We have learnt the hard way during the passage of the Bill that, although the Government may express sympathy in Committee, they do nothing about the problem on Report. New clause 1, which we have just debated, was a good example of that. The Paymaster General said that he entirely understood the plight of poorer, non-taxpaying pensioners who were not receiving their dividend tax credits. He said that something would be done about that and that he would return to the issue on Report, but he did not. No amendments or new clauses were tabled until we raised the subject, in an attempt to get the Government to deliver on the sympathetic noises that they made upstairs.

We are in the same danger in this debate. In Committee, the Paymaster General said that he was minded to look at the British Retail Consortium's suggestions, and might respond in due course. Here is an opportunity to make him do so. If not, the consultation period will end, the Government will make up their mind and they will propose regulations that this House will never scrutinise in any way because they do not provide for any affirmative vote by this House or any scrutiny by any Committee.

A theme of the Bill—on which we have commented many times—is that there is far too much reliance on Treasury regulations, promulgated by the Treasury according to its own assessment of the situation, which may or may not bear some relation to assurances given earlier. We shall never again have an opportunity to express an opinion, let alone to vote on the matter.

Mr. Love

I apologise to the right hon. Gentleman for inadvertently calling him "my right hon. Friend" earlier. I assume that he will take that comment in the spirit in which it is meant. Does he consider the new clause to be woolly, in that it refers to having special regard to the trading patterns and profitability of the retailing industry"? What are we supposed to make of that? Will not the net effect of the new clause simply be to increase the complexity of the regulations about which the Opposition are complaining?

Mr. Heathcoat-Amory

No, that is not the case. The British Retail Consortium would not have proposed the idea unless it thought that it would be of advantage to its members. Retailers do not believe that the measure will bring additional and unnecessary complexity. This is a modest way in which the Government can respond to the corporate sector and undo some of the damage that the rest of their corporation tax proposals will do.

Mr. Hammond

Does my right hon. Friend recall the hon. Member for Edmonton (Mr. Love) complaining in Committee about woolly clauses in the Bill, requiring reams of regulation to be proposed by the Government thereafter?

Mr. Heathcoat-Amory

My hon. Friend is absolutely right.

The question of regulation is a constitutional issue. It has been noticed by outside commentators that there is greater reliance on the use of secondary legislation in the Bill, and that is highly undesirable. The Law Society commented that, in some cases, it was unprecedented. A new source, which we have not quoted—because I have only seen its submission recently—is the Institute of Chartered Accountants of Scotland, which said: A reading of this Finance Bill results in the feeling that much of it is missing. Continually, clauses simply provide for a delegated authority to permit regulations to be drawn up. It points out that substantive issues of taxation—the amount of tax, when it is to be paid and by whom—are not in the Bill either. They are delegated to subsequent secondary legislation which, in most cases, will never be debated at all. The institute expressed very strong reservations about the wider use of regulations. If that outside commentator expresses strong reservations, how much more should we—as Members of a Parliament that came into existence to guard the taxation of the people and to ensure that it did not fall into arbitrary hands?

Mr. John Swinney (North Tayside)

Is the right hon. Gentleman aware that the Institute of Chartered Accountants of Scotland expressed similar concerns about the attitude of the Government during the passage of the Scotland Bill? It was concerned that many aspects of the Bill were being left to regulations, including important points such as, for example, the definition of who would be eligible to be a taxpayer under the Scottish Parliament. That matter was left in a rather woolly state by the end of the passage of the Bill, and it is the subject of regulations that we have not seen.

Mr. Deputy Speaker

Order. We would be going somewhat wide of the amendment if we started to discuss that intervention.

Mr. Heathcoat-Amory

I had better not be drawn too far down that line, but I think that it would be in order to relate that point to the new clause, which attempts to correct exactly the problem to which the hon. Member for North Tayside (Mr. Swinney) has drawn our attention—the use of primary legislation to give delegated powers to the Government to propose secondary legislation which will never be scrutinised.

The measures have been called Henry VIII clauses, and we debated them in Committee. Henry VIII used the statute of declarations to ensure that pretty well anything he said had the force of law. He could amend or repeal any statute simply by issuing a proclamation. The Government are getting perilously close to that in the Bill—and, indeed, in the clause dealing with corporation tax. They give to the Treasury almost unparalleled powers to amend any statute which it sees fit to bring into the new system of corporation tax. Clause 30(5) states that regulations under the section may make such modifications of any provision of the Taxes Acts, or … may apply such provisions of the Taxes Acts, as the Treasury think necessary or expedient for or in connection with giving effect to the provisions of this section. That is an extraordinarily wide provision. It is really saying that the Treasury can do what it likes if it thinks that it is bringing the system of corporation tax into effect. The point is that we shall never have a further opportunity to give an opinion on the matter, still less to vote on it.

Mr. Gibb

Are not the regulations in connection with quarterly corporation tax payments different from other Treasury regulations, which deal with the administration of tax, in that the details of the regulations will determine the burden of tax that will be paid by companies? The timing of the payments is part and parcel of the burden, and, therefore, the regulations go much wider than previous Treasury regulations.

Mr. Heathcoat-Amory

My hon. Friend is, characteristically, entirely accurate. The £2 billion extra burden of taxation, to which I have referred, is not provided for in the Bill, and is contingent on regulations that we have not seen. How can this House pass a Bill which apparently gives effect to the Government's arithmetic, but does not include it?

I urge the House seriously to consider accepting the new clause, which would go some way towards correcting the problem by creating the possibility of future regulations. We would then, at least in one small way, lay down in the Bill what the Government must do to relieve the burden on the retailing sector of the economy. That is a modest request. It does not go nearly far enough to correct the damage in the Bill but, at the very least, it would bring relief to a sector of the economy that will suffer because of a failure by the Government to understand the seasonal pattern of its trading activities.

Mr. Derek Twigg

Given the fact that the right hon. Gentleman has shares in a retailer, and the shadow Chancellor is a director of Asda, how seriously can we take their comments? Are they in someone's interests, or is the right hon. Gentleman speaking to a genuine new clause on the retail industry?

Mr. Deputy Speaker

Order. Right hon. and hon. Members are responsible for declaring their own interests. It is not a matter for debate here in the Chamber.

Mr. Heathcoat-Amory

That was a stupid intervention by the hon. Member for Halton (Mr. Twigg)—something that is becoming characteristic. It might interest hon. Members to know that the hon. Gentleman has said more during this debate than he did during the entire Committee proceedings when we scrutinised a 400-page Bill, which closely affects his constituents and on which he remained completely silent. We debated retirement relief and matters of taxation adversely affecting small and medium businesses in his constituency—we know that because letters from them were copied to us—and the hon. Gentleman remained silent. Now he pops up to make an entirely irrelevant remark about a new clause tabled by the Opposition.

Mr. Deputy Speaker

Order. The matter before us is not what happened in Committee, but the new clause. We must discuss the new clause.

6 pm

Mr. Heathcoat-Amory

You are right, Mr. Deputy Speaker, and I was mistaken in giving way to the hon. Member for Halton. I shall not make that mistake again in this debate. However, I shall respond directly to his point. It may interest him to know that food retailing companies would probably be the last to get a concession from the new clause because their business is less seasonal than most. Any company selling goods will of necessity probably not experience highly seasonal variation. Companies that show a marked increase in sales around Christmas will probably chiefly benefit.

I hope that the House will give serious consideration to a modest measure to repair at least some of the damage caused by the Bill.

Mr. Flight

New clause 5 would not only protect retail industries but put the Treasury on notice in forming its regulations to consider all seasonal industries and protect their cash flow from the effects of moving to the new pattern of seasonal payments. The quarterly payments of corporation tax will have to be made in the third and fourth quarters of the current financial year before many companies have earned the profits to pay them. As we have heard, many companies will have to base their payments on predictions.

As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) has pointed out, the new clause is a minor attempt to correct the poor history of this Government wading into massive reform of the corporation tax system without considering all the implications. First, foreign income dividends were forgotten about, and, in changing the system, the Government proposed quarterly payments. In doing so, they forgot that such payments would bring forward the payment of tax, and that many businesses have extremely seasonal patterns of trading.

Mr. Gibb

My hon. Friend is generous to the Government in saying that they forgot that the proposal would mean bringing forward corporation tax receipts. I put it to him that the Government did not forget; they were fully aware of that by-product of the measure and they wanted the revenue.

Mr. Flight

I am sure that the Government do want the revenue and, as I shall describe, the objective of the measures is massively to boost revenue without the citizens at large being aware that that is occurring. I suggest also that the professionals in the Treasury often have to work on these matters in haste without thinking through all the detailed implications of the changes. I refer in particular to the failure to consider the effect on foreign income dividends, which my hon. Friend described in great detail when we considered the previous Finance Bill.

One intended effect of new clause 5 would be to allow firms simply to pay less corporation tax in the first and second instalments and more in the later instalments. That is analogous to the system that obtains in the USA.

The crucial point is not only the additional tax that will be paid—I shall move on to the total of that later—but that we are moving into a phase of economic downturn. We do not know whether that will be a recession, but it is unwise of the Government to impose additional, major cash-flow burdens on business after they have already substantially put up taxation in other ways. It has been pointed out that it is also pro-cyclical and is likely to encourage the worst aspects of the economic cycle.

The problem that new clause 5 aims to tackle arises also from the Chancellor's penchant for disingenuous headline grabbing when presenting the Budget. He made a bold announcement in the House that corporation tax was coming down by one percentage point. Only later did we learn that the true effect—the cash flow effect and the figures recorded in the Red Book—is a substantial increase in the taxation being paid by companies. The measure adds £1.6 billion of taxation in 1999–2000, £2 billion in 2000–01 and £3.1 billion in 2001–02, which is a total of £6.7 billion over those three years. Substantially more taxation will be paid than will be cut by the reduction in corporation tax by 1 percentage point to 30 per cent.

Mr. Love

The hon. Gentleman quoted from figures for the next three years, but did not quote those for the following years when the net effect will be to reduce the burden on companies. Perhaps he could set the record straight.

Mr. Flight

Self-evidently, the effect on the rate of corporation tax will eventually be that it is 30 per cent. rather than 31 per cent., but, equally self-evidently, for the next three to four years, there will be a substantial increase in the burden of taxation paid by companies. I repeat that the increase is being imposed at a point in the economic cycle when it may be extremely negative for employment and investment.

Mr. Gibb

Another point is that the Government's guarantee that they will not increase corporation tax extends only to the end of this Parliament, so by the time the measure becomes revenue-neutral or begins to give back money to the companies, the Government—if they are re-elected—could easily raise the rate of corporation tax.

Mr. Flight

My hon. Friend makes an important point. We hope that the country will be saved from the re-election of a Government who mess around with our tax system as foolishly as they have done over the past two years. My hon. Friend is correct to point out that, faced with potentially deteriorating tax revenues as the cycle turns negative, there is no guarantee that, if re-elected, this Administration would not increase the rate of corporation tax. He is correct: the net effect can be judged only between now and the next election, and it will be a substantial increase in the amount of taxation paid by companies.

As my right hon. Friend the Member for Wells pointed out in describing the background to the changes, they arise from the sad change to the imputation system of taxation and the consequent substantial tax on savings. It has been doubly unfortunate that the tax on savings has produced a fall of almost 2 per cent. in the rate of savings at a time when any economist would say that we need a rise in savings. That fall has produced a rise in consumption.

Mr. Deputy Speaker

Order. We really must keep to the new clause.

Mr. Flight

Thank you, Mr. Deputy Speaker.

We are trying to correct one of the minor mistakes resulting from the changes to corporation tax that have been introduced over the past two years. Those changes have had a negative impact on the economy, and threaten to have a negative micro-impact on seasonal industries such as the retailing and tourist sectors, which will suffer from the new quarterly payments of corporation taxation. Reforms introduced in a hurry and designed to raise revenue have ended up creating the sort of problems with which the new clause is intended to deal.

Neither the new system of payment nor the increase in corporation taxation has attracted much attention—the public are scarcely aware of them. The corporate sector has been cash-rich for the past three years; its cash flows have been able to absorb the rise in taxation that has been imposed. But over the next two years, companies' cash flows will swing the other way. It is then that these corporation tax measures will really bite. It is then that retailers and their employees will pay the price for the changes. The very least we can do to counteract what the Government have been doing is to endorse the new clause, which attempts to cushion the cyclical industries from a tax change that will be a major cause of unemployment.

Mr. Derek Twigg

The hon. Gentleman has referred several times to cyclical industries, in the plural. Why, then, does the new clause relate only to retailers? That question was not answered when it was asked earlier.

Mr. Flight

The answer has already been given: the new clause is specific and refers to how the new quarterly payment system will be brought into effect by the Treasury. The intention is to persuade the Treasury to draft the relevant regulations with reference to all cyclical industries, retailing being the main one.

Mr. Edward Davey

The debate has wandered fairly wide of the subject matter so far. Both the right hon. Member for Wells (Mr. Heathcoat-Amory) and the hon. Member for Arundel and South Downs (Mr. Flight) knocked around the issues surrounding the introduction of a new system of corporation tax payments. Indeed, they reminded me of some of the world cup football matches in which the back lines have played for time during the last five minutes of the game. Of course we hope that the England team will be doing just that in a few hours' time—playing for time before their victory.

The debate has been enlivened by a few lunges from the Government Benches which proved in the end rather untimely. One such lunge was made by the hon. Member for Croydon, Central (Mr. Davies), who is not in his place, at the right hon. Member for Wells. The intervention concerned cash flows, but the hon. Gentleman completely missed the point.

The introduction of the new system has been driven by financial motives. The Government have realised that there is a time cost for tax payments, and have sought to recoup it for themselves. They will get the benefit of this revenue, and the corporate sector will be the worse for it. In Committee, the hon. Member for Croydon, Central told us of his experience of multinational companies, so he will know how many companies have built their profits on float income. The time cost of capital is an important factor in any business operation, as the Government have apparently realised—although they now seek the benefit for themselves.

The short-term financial motives of the Government apart, there is nothing wrong in principle with the new system; but the way in which the Government have introduced it has given rise to suspicions of their motives. A new system throws up new problems—problems of implementation, problems for the corporate sector, problems that were not relevant to the previous system. It may throw up problems that the civil servants have never before had to consider.

6.15 pm

The new clause highlights just such a problem which did not occur under the old system—the problem of seasonal profits. Profits vary throughout the year, and the new system of corporation tax payment will serve to highlight that fact, particularly for businesses that generate most of their profits in the second half of the year: most notably, retail companies that make most of their profits in the last quarter.

The new system of paying corporation tax in even quarterly instalments, based on forecast taxable profits for the current year, penalises seasonal businesses such as retailers that do not earn their profits evenly. Because they will have to pay tax up front, they will be required to pay it even before the profits have been earned. That may force them to borrow, which will be a significant extra cost. Therefore, the new system discriminates against companies whose business activities happen to be seasonal, and there would seem to be no justification for such discrimination—we heard no grounds for it in Committee.

The cost of borrowing will be much higher for private sector firms than it would be for the Government. Companies with seasonal profits may be given a higher risk assessment because it will not be known whether Christmas, for instance, will turn out to be a good trading period.

The right hon. Member for Wells mentioned businesses whose profits are linked primarily to the festive season—jewellers, for instance. My hon. Friends and I have been approached by Signet plc, a holding group for a number of high street jewellers whose profits are earned almost entirely in the last two or three months of the year. They will be particularly affected by the new payment system. Toy retailers and companies selling cards and Christmas decorations fall into the same category. Fireworks manufacturers, who would not be covered by the new clause, as they are not retailers, will also be adversely affected by the failure to take seasonality into account in the new system.

Mr. David Ruffley (Bury St. Edmunds)

Is the hon. Gentleman aware of the argument of some Labour critics that it would be open to retail industries, especially those who rely on big Christmas sales, simply to change their year end to get around the seasonality problem? Will he explain why that argument is so fallacious and defective?

Mr. Davey

As I understand it, the payments must be made in equal amounts in the four quarters, so changing the year end would not get around the problem.

Other industries are affected by seasonality—tourism has been mentioned. I do not understand why such firms should be punished because they operate in a specific marketplace and undertake a particular business activity. The state takes money from individuals and businesses to finance its activities on behalf of the community, and it should make it as easy as possible for companies and individuals to pay tax. It should not discriminate against some individuals or some businesses in the way it does.

The right hon. Member for Wells said that draft regulations were out to consultation. We have heard that, in different places, the Paymaster General has expressed sympathy for those who will be affected by the problems that are being outlined and highlighted in the debate. He said: We shall re-examine the draft regulations in the context of the British Retail Consortium's proposals and we shall inform the House of our view."—[Official Report, Standing Committee E, 19 May 1998; c. 254.] I hope that tonight we shall hear not just sympathetic words, but promises of action. The consultation period may end on 15 July, but the Paymaster General must have heard many representations—not only tonight, but well before tonight—about people's worries about his proposed system of payment. He would not exceed his remit if he gave a hint of the Government's thinking. If he feels unable to do so, will he tell us when the Government will publish their response to the consultation? Will it be in the depths of the summer, when the House is in recess, so that the House cannot hold the Government to account? We should like a date from him.

The Paymaster General may want to accept new clause 5 tonight, but I doubt it. He may argue that it is a partial solution to the problem that he is apparently so sympathetic about; I am sure that Conservative Members would admit that it is indeed partial. However, at least he could respond to the spirit of the new clause. I have often argued that Ministers should answer the spirit of the debate, and he should do so tonight.

Mr. Gibb

Given that the new clause merely enables the Government to draft their regulations on the basis of the words in the new clause—that is, it enables them to include some indication that they are taking into account the seasonal effects of retail industry—surely there is no technical reason why the Paymaster General cannot accept the new clause. All the details and planning that the Government need to do can still be done in the regulations.

Mr. Davey

The hon. Gentleman has a point, but it is important that we do not allow the Government to get away with limiting allowances for seasonality to the retail industry; other industries also suffer from the problem.

I hope that, in reviewing the regulations and replying to the debate, the Paymaster General will address some of his comments not only to new clause 5, but to the system proposed by the British Retail Consortium. That proposed add-on to the Government's new system of corporation tax payments suggests that the Government lay down some criteria that would help us determine seasonality, possibly borrowing from the United States system, so that if 70 per cent. of a company's profits were earned in the latter half of the year, that would enable it to elect to pay its corporation tax on actual, not forecast, profits. That 30:70 per cent. split works in the United States; I cannot see why the Government cannot borrow from the way in which that system operates.

The Government may argue that the United States corporation tax system is famous—or infamous—for its other complexities, and that it imposes heavy burdens on United States companies. We are not arguing for borrowing the United States corporation tax system lock, stock and barrel. We would not want the onerous burdens that it places on United States companies to be imposed on British companies, but it would be missing the point to use that argument against borrowing something like the 30:70 criterion. A small element borrowed from the United States system would significantly improve the proposed system of corporation tax payments. We believe that there is no need to imitate the US system point by point; one can borrow the best and leave the worst.

I have spoken to members of the British Retail Consortium, who are in no doubt that they would be more than happy to bear any extra burden placed on them by giving them the option to elect to pay on the basis of actual, not forecast, profits. We are talking about companies that have professional tax departments. In the main, they are large companies, which are more than capable of dealing with any extra burden. To use the words that the Economic Secretary is most likely to utter on the subject, it would be "nae bother" for them to deal with such burdens.

The Government have said that they are anxious that the system that they propose retains simplicity—that we do not complicate it. That argument is not well founded, given the Government's other actions on the Bill. They have introduced complexities into tax legislation, especially with their proposal on capital gains tax, and those complexities must be handled by individuals. The complexities that would be needed to give some sort of seasonality in the system for corporation tax payments would be simple by comparison with the complexities that the Government are introducing on CGT. The argument that the Government need to retain simplicity in the system does not stand up to examination.

I urge the Minister to say that the Government retain an open mind on seasonality, and that they will consider the issue, as it is a serious one for many of our country's largest and most successful companies.

Mr. Quentin Davies

This has been an extremely interesting debate. It has revealed something very significant about the Government's thinking, and it has strongly confirmed an impression that many of us have gained about the Government's fiscal policy. It has revealed that the Government do not understand the concept of cash flow. A most revealing intervention by a Labour Member made that absolutely clear.

Companies are more likely to fail for cash flow reasons than for any other reason. Cash flow is vital to a company's success, and cash flow planning is especially vital to the success of any small or growing company. Therefore, the idea that one can, with complete levity, say, "Oh, the £2 billion additional burden is just a cash flow burden; actual rates of tax have not changed," reflects, I am afraid, a complete lack of familiarity with some of the essential elements of business management, which is very disturbing in a Government in any country, especially in our own.

Mr. Hammond

My hon. Friend cannot know this and will be disappointed to hear it, but the hon. Member for Croydon, Central (Mr. Davies), who made that intervention—he is not in his place—is one of the few Labour Members who claim to have real experience in business. Is it not utterly depressing that he displayed such a lack of understanding?

Mr. Davies

My hon. Friend has said it all, but, with respect to him, I do not think that we should crow unduly. It may give Opposition Members cause for satisfaction and reassurance to see the Government's obvious failings and shortcomings, but the country will pay the price for that incompetence and inexperience, and I am afraid that the price will be paid by a very large number of businesses, and by those employees and investors whose futures depend on them.

What the Government are doing is comparable to what would happen if, for example, a company suddenly said that it would double, unilaterally and arbitrarily, the period of settlement of its invoices. That would create a great cash flow problem for the company's suppliers. Alternatively, the company might demand that all its customers pay in advance. That would create cash flow problems for its customers. In competitive markets, it might not matter unduly if a company behaved in that way, because the suppliers would decline to supply it or would supply it only on more onerous terms, and the customers would place their business elsewhere.

6.30 pm

However, if a monopoly business behaved in that way, and could enforce on its suppliers or its customers whatever payment terms it chose arbitrarily from time to time to enforce, the situation would be exactly comparable with that of a Government—a tax-raising authority—who arbitrarily said that all tax payments must be brought forward, and the hell with the resulting cost to the companies paying the tax.

That is a serious matter, which leads directly to the second point on which the debate has been particularly revealing. It has strongly confirmed a clear impression that the whole country has begun to appreciate: that the Government believe in surreptitious taxation. They have launched a sinister tradition of surreptitious taxation. It is easy to see that that will lead to fiscal and other forms of tyranny. It is arbitrary and means that the British taxpayer, who, on the whole, believes that Governments act in reasonable good faith and that Government pronouncements can be taken at face value, in accordance with the normal meaning of the English language, is learning that he was wrong. What you see is not what you get with this Government.

The Government believe that they have found a way of taxing the public and taxing business, and then being able to deny that any taxation has taken place. That was the basis of the pensions tax—the abolition of the dividend tax credit. The Government thought that they were extremely clever. They get £5 billion a year, which they are indeed taking, out of pension funds, and they thought that the public would not quite understand that their prospect of receiving a pension in retirement had been reduced by exactly the same figure.

We have seen the same thing today. The Government try to deny that companies face an annual burden of £2 billion more of corporation tax, even though, as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out, that figure derives from the Government's Red Book. They say that corporation tax has not been increased—indeed, that it has been reduced. The debate has provided a depressing insight, but we should be realistic and recognise how the Government have operated over the past year, and how they no doubt intend to continue for the rest of their mandate.

Two anomalies and unfairnesses arise from the changes in corporation tax, the abolition of advance corporation tax and the decision to levy quarterly payments on companies to replace the existing system of corporation tax. They are two sources of economic problems, both potential burdens on business. Although they are related, they are separate and should be considered separately.

The first is the issue of predictability. The Paymaster General and I had an earlier exchange on the subject. I suggested that, however clever one was and however well run one's business was, it was not possible to predict how things would work out over the next year. The hon. Gentleman, who has great faith in his business abilities, said that all companies produce business plans. There was something of the dialogue of the deaf proceeding between us.

The Paymaster General must acknowledge that, however well managed a company is, and however convincing its business plan may be on the basis of assumptions made before the beginning of a financial year, that plan is only as good as the assumptions on which it is based. If the assumptions change as a result of some exogenous and unpredicted event, the business plan may no longer be valid.

Who could have predicted the collapse in Asia? Is the hon. Gentleman going to tell us that he predicted it? I shall be happy to give way, if he wants to tell the House that he knew a year ago that the Asian markets would collapse and the Asian countries would devalue massively. That is an example of an unpredicted and exogenous shock. There could be many more shocks much nearer home, of a more sectorally or geographically limited kind, which the hon. Gentleman can no doubt think of as well as I can.

The issue of predictability arises immediately, if companies must make payments on the basis of their anticipated net revenues and, therefore, taxable income for a given year, when those predictions may prove to be unsound retrospectively. That is a pro-cyclical attack on the company. My right hon. Friend the Member for Wells sometimes corrects me for using technical language in Finance Bill Standing Committee debates, but I am glad that he used that term earlier. It is not a particularly technical term, but it is the right one.

A pro-cyclical burden means that, if the company's profits are less than anticipated because of some unpredictable event, they will be further reduced because the tax charge is excessively high, by virtue of the mechanism that the Government deliberately and thoughtlessly introduced into our tax system. Pro-cyclical burdens are a very bad thing. It is extraordinary that one should have to give the Government such an elementary lecture.

It should be the concern of a good Government to avoid pro-cyclical burdens, whether in macro-economic management, which the Government have utterly failed to do—I shall not be drawn down that line as it is not directly germane to the new clause—or in the micro-economic area. We know that tax changes are enormously important because of their impact on the micro-economy, where the essential decisions on investment, resource allocation and wealth creation are made. The issue of predictability is important. It is fundamentally unsound to make tax payments premised on any assumption at all about future revenues.

The second issue, which has not always been separated in the discussion, is seasonality. Seasonality may be entirely predictable for a retail business. As has been pointed out in several contributions, not only retail businesses are seasonal—the tourist industry is a clear example. Under the measures proposed by the Government, the fact that seasonality is predictable will give businesses no relief from making an excessive tax payment early in the year, when their cash flow may be weak or even negative.

A perfectly sound business may make no money at all in January, February and March, but will still be forced to make a substantial tax payment, because it expects to make some money between October and Christmas. That is pro-cyclical. It places a larger cash flow burden on the company than it would naturally face as a result of operational conditions. That cannot be sensible. I beg the Government, even at this eleventh hour, to think again.

My hon. Friend the Member for Arundel and South Downs (Mr. Flight) referred to the way in which the Americans addressed the matter. They have never had an advance corporation tax system, so they have lived for a long time with the issues that the Government now face. They have a system under which, I gather, there is a 30:70 criterion. My hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) is the expert in these matters. Companies that expect to make more than 70 per cent. of their profits in the second half of the year can opt to make tax payments that are loaded at the back end of the year.

Will the Paymaster General, for once, give us clear answers to some serious questions? To what extent did the Paymaster General look at the American system and other systems around the world before he took a decision on this matter? What would be the cost to the Revenue in this country of implementing a system along the American lines? Let us assume that we introduced the American system exactly: a 70:30 breakdown. What would it cost? I am sure that the Paymaster General's officials have calculated that figure—if they have not, the Government have not done their homework and we should hear about that before we vote on the measure. When we know the answer to that question, it will give us a clue about the heart of the matter.

This measure is about advancing the Government's revenue in this Parliament, and hang the consequences for British industry, for the British economy and for our future wealth, prosperity and employment. It happens to be convenient—I wonder why—for the Labour Government to garner all the resources they can in the next two or three years in order to affect a greater measure of economic competence and a better record of economic achievement than the facts will justify under any circumstances.

Mr. Hammond

I shall add some brief comments to those of my hon. Friends. [HON. MEMBERS: "Hear, hear."] I see that I have managed to introduce a note of consensus into the debate, as my announcement meets the approval of Government Members.

Whatever the Government say, the changes to the corporation tax system are revenue-driven. The Government talk about modernising the system, but it is clear that that is a sham and a smokescreen for an exercise in building a war chest through a one-off shift in the pattern of revenue, bringing forward into this Parliament revenues that Government would otherwise have enjoyed later. The measures that we have considered in Committee will require companies to make payments quarterly. As my hon. Friends have outlined, that gives rise to two quite distinct and separate problems. First, there is the problem of estimation. Companies will be required to make payments throughout the year based on their predicted profits for the whole year.

My hon. Friend the Member for Grantham and Stamford (Mr. Davies) explained eloquently the difficulties involved in doing that. The Paymaster General told us in Committee that all businesses are able to predict their profits and that they have mechanisms for doing so. However, if the Paymaster General reflects carefully, he will acknowledge that many companies have failed to predict their profits accurately and effectively. Retailers who depend heavily on seasonal profits are one notable group that have failed, as a result of the large fluctuations that occur at the year's end, to predict accurately the profits that they will enjoy over the whole year.

If a retailer gets it wrong, overestimates his profits and begins to pay substantial corporation tax earlier in the year, only to find that, because of a downturn in business, he is squeezed later in the year, he will be doubly jeopardised. He will have to live with the cash flow burden of having made those payments earlier in the year. However, if a retailer makes the opposite mistake and underestimates his likely profits for the year, he will face a penal regime which requires him to pay additional penalties when making up those payments later. Companies will be required to perform an exact and precise exercise in an area where history and experience suggest that it is not possible to do so with any accuracy.

The second problem that companies will face is much more obvious—the impact on their cash flow. The proposed new clause focuses particularly on the retail sector, in which a substantial number of companies have seasonal patterns of cash flow and profitability. Those companies that make advance corporation tax payments during the earlier part of the year will not only face making those payments but, because of the seasonal nature of their businesses, typically invest large sums to build up stocks for their busy period.

Companies involved in the jewellery, toy, Christmas card or Christmas decoration businesses do not operate for only two or three months: they operate all year round. Christmas crackers are manufactured in January and February and are financed and stockpiled. That stockpiling represents a heavy drain on the cash flows of those companies. The Government propose to pile an additional burden on that cash flow strain by requiring those companies to make payments during a lean time in anticipation of profits that they may or may not make later in the year. According to my definition, that amounts to kicking a man when he is down.

The hon. Member for Croydon, Central (Mr. Davies) apparently failed to understand—although my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) did his best to explain it in simple terms-that, if we ask a company to pay £X million to the Treasury in January or June, that is £X million that that company cannot spend on investment in plant and equipment or on working capital for its business, thus generating jobs and prosperity in the economy. That is common sense, and it is not much to expect of the Government that they should make special provision in the most exceptional cases for companies that have seasonal cash flow and profitability patterns.

6.45 pm

We know that the draft regulations are out to consultation. The Paymaster General will no doubt tell us in a moment that, when he has completed that consultation, he will amend the draft regulations if he believes that there is a case to answer. However, we are anxious that the Government should state in fairly broad terms in the Bill that they intend to have regard to the special circumstances of seasonal retailers. It is not good enough that the regulations procedure is being used once again—even at the draft stage—to avoid scrutiny in the House of the Government's proposals. The Government will be allowed to do their dirty work behind the scenes at the regulations level. I urge the Government, even at this late stage, to rethink the measure.

Mr. Gibb

I shall explain briefly the problem that the Government have created. Quarterly payments must be paid in months seven, 11, 14 and 17. That means that, in month seven of the current accounting period, a company must determine the profits on which its corporation tax is payable. It must then apply all the corporation tax rules, including the deductible and non-deductible items, to determine its tax bill—and it is still only seven months into the current accounting period. The company must then pay its first quarter amount based on a quarter of the bill.

The problem facing the retail sector is that much of the activity that determines its profits will not have occurred in month seven—or indeed in months eight or nine—of the accounting period. [Interruption.]

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. If Labour Members wish to conduct a conversation, I would prefer that they did so outside the Chamber.

Mr. Gibb

Thank you, Mr. Deputy Speaker.

The figures of retail companies, whose profits are determined in the last two or three months of the year, could fluctuate wildly. It is imperative that, in drafting the regulations, the Government come up with a new method that enables the retail sector to have some flexibility when calculating its profits for the full year. The profits that are determined in November or December could differ wildly from those estimated at the beginning of the year when companies must make their calculations.

My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley) quizzed the Liberal Democrat spokesman, the hon. Member for Kingston and Surbiton (Mr. Davey), about why companies do not simply change their year end. That would be a way around the problem because, if their busy period were at the beginning of the accounting period, companies would know what their profits were by month seven. The determinant period—for example, January and February or November and December—would be at the beginning of the accounting period and companies would know what had happened in that busy time.

The problem is that the stock exchange will want to see quoted retail groups' results for that busy period—which will determine the whole year's profits—as soon as possible after the event. Many retail groups have January year ends and, if such companies were to change that to another period, their value on the stock exchange would markedly decline because of the uncertainty inherent in having to wait a full year before the profits were reported to the exchange.

For those reasons, I urge the Government, when they have finished their consultation process, to take into account the serious concerns of the British Retail Consortium and the retail industry throughout Britain.

Mr. Geoffrey Robinson

We have had a long and wide-ranging debate on new clause 5. I hope to emulate the consensual approach of the hon. Members for Runnymede and Weybridge (Mr. Hammond) and for Bognor Regis and Littlehampton (Mr. Gibb) in the brevity of my speech and by sticking closely to the issue.

The right hon. Member for Wells (Mr. Heathcoat-Amory) went off into his usual wide-ranging ineffectual attack on the Government's long-term measures to put right what a previous Conservative Government did wrong in the economy. However, I notice that he seems finally to have accepted the principle of the changes and is now down to criticising their implementation. I am not sure whether the same can be said for the hon. Member for Grantham and Stamford (Mr. Davies). However, generally, the Conservative party is no longer seriously suggesting that, in the unlikely and impossible event of its ever being in government again, it would repeal the changes that we have introduced, be it the independence of the Bank of England, the code for fiscal stability or the abolition of tax credits to make a level playing field to encourage investment.

The Government have largely won the argument. There is no real argument for going back to an imputation system. No one will do that. There is no real argument for ending the operational independence of the Bank of England and returning its powers to the Treasury. The issue before us is the narrow point in new clause 5. Before I deal with that, there are one or two other things that I must say, particularly on secondary regulation, a matter to which Conservative Members return with boring regularity.

All we have had—it is a pity that the quality of debate among Conservative Members has sunk to this—is a rehash in general and in detail of everything that was said in Committee on the Floor of the House and upstairs. We have had no new ideas from them whatever, other than a grudging final acceptance of the correctness of our approach to these matters. [Interruption.] The hon. Member for Bognor Regis and Littlehampton shakes his head, but is he seriously saying that he would rather we returned to a system of tax credits and advance corporation tax?

Mr. Gibb

The hon. Gentleman has completely ravaged Britain's corporation tax system solely because, in July, the Government wanted to raid Britain's pension funds to the tune of £5 billion a year. That is what we are paying for with these new complex provisions.

Mr. Robinson

The stock market is standing higher than on the day we took office, and the country continues to do well.

The Conservative Government's last three Finance Bills provided more than one dozen sets of regulation-making powers covering direct taxes alone. That is the extent of regulation under the previous Government. Three quarters of those regulations included powers to modify existing provisions in the taxes legislation. We need no lessons from Conservative Members on secondary regulations. I beg them to grow up in that respect and see that we are a Government who respect the proper prerogatives of this Parliament. The hon. Member for Bognor Regis and Littlehampton well knows that, although the regulations will be introduced under the negative resolution procedure, hon. Members can pray against them.

The hon. Member for Grantham and Stamford has a captivating interest in the American system. If we were to adopt that system en bloc, a high proportion of companies would pay the whole of their tax within the year, instead of just half of it as happens under the system that we have adopted. We considered the American system, but we have gone for one that is much better from that point of view. Moreover, our system includes a relatively small number of companies. We consulted on who should come within it and excluded the small and medium sectors.

I am looking to see whether Conservative Members have made any new points to which I should reply, but I cannot find any.

The new clause simply returns to an issue with which we dealt during the debate on new clause 30 in Committee of the whole House and again during the debate on amendment No. 8 to clause 36 in Standing Committee. As I made clear on both those occasions, the regulation-making power provided by clause 30 is already sufficiently wide to allow for the regulations governing the payment by large companies of their corporation tax by instalments from 1999 to include special rules for companies with seasonal trades. Therefore, the new clause is unnecessary, otiose and as useless as the Opposition.

Mr. Hammond

Is the Paymaster General, then, giving the House a commitment now that those regulations, when they are finalised, will include special provisions for retailers with highly seasonal patterns of profitability?

Mr. Robinson

No, I am not saying that. I am saying that the regulations are capable of doing that, so we do not need the new clause.

Much has been made by the Opposition of the alleged plight of retailers and others with businesses that have seasonal peaks and troughs in their profits, but many retailers do not have particularly seasonal trades. For example, I understand that supermarkets selling food—in fairness, this point was made by Conservative Members—earn their profits fairly evenly during the year, and many other retailing businesses are carried on by small or medium companies or by individuals, and so are not affected by the introduction of instalments.

I am aware that some large companies with retail businesses are quite highly seasonal, with sales, and therefore profits, peaking around Christmas and at sale times. The hon. Member for Runnymede and Weybridge mentioned some of them and obviously knows something about that sector. If that causes them to get their instalments wrong so that they pay their corporation tax late, they will be charged interest, but that will just reflect their late payment of corporation tax, and their use for a while of money that should have been paid over to the Exchequer. Similarly, if they pay too much corporation tax by instalments, they will get the extra back with interest. As Opposition Members know, the ratio of interest between what the Government pay and are paid has been brought into close, reasonably commercial proximity.

The Opposition have suggested that companies with seasonal profits should be allowed to pay their instalments based on actual tax-adjusted results for the previous six months. I think that that is the suggestion of the British Retail Consortium, which would confine it to companies consistently making less than 30 per cent. of their profits in their first half year. However, that would help few large companies, because few can consistently make upwards of 70 per cent. of their profits in the second half of the year, and it would be difficult to police.

This is simply another attempt by the Opposition to return to an issue that has already been thoroughly explored. I have said before that I am anxious to keep the instalment regime as simple as possible. It is no good the hon. Member for Kingston and Surbiton (Mr. Davey) saying that, because the Government could not obtain in aspects of other legislation the simplicity that we would have wanted, it does not matter in this case. That is a perverse argument. The hon. Gentleman would be surprised at the extent to which we have achieved simplification in many areas, and, if we can obtain it, we must clearly go for it.

Introducing special rules for retail companies would inevitably add considerable complexity to the instalment rules while benefiting only a relatively small number of companies. However, we have received representations on the point which we are continuing to consider, along with all representations received during the consultation period, ending on 15 July, on the draft regulations. We shall take all those into account and let the House know our decision.

Mr. Heathcoat-Amory

These debates are achieving a sort of regularity. Conservative Members put up an unanswerable case and the Paymaster General blusters and flusters. On this occasion, he ended up virtually accepting our case, but he spoilt it all by saying that new clause 5 was unnecessary because the regulations under the Bill already make the same provision. However, we have learnt not to accept Government intentions but to try to tie them down so that they deliver on some of their words. We debated earlier this evening a new clause which we introduced precisely because the Government had failed to deliver on an expressed sympathy for the low-paid and poorer pensioners who had been hit, and continue to be hit, by the withdrawal of dividend tax credits in the Bill. We shall press the new clause to a vote to ensure that the Government deliver on their intentions.

7 pm

Mr. Clifton-Brown

Does my right hon. Friend agree that one of Labour's hidden tax rises will be affected if the Government do not accept the new clause? In the tourism industry, for example, large hotels in my constituency with variable profit fluctuations will have to pay higher corporation tax or file higher corporation tax returns than they would otherwise have done because of the interest penalties that will endure. It will be cheaper to pay the tax in advance—which is, in effect, a cost—rather than endure the penalties.

Mr. Heathcoat-Amory

My hon. Friend has given a good example of the difficulties that businesses will face because of the Finance Bill as it stands. Our new clause would, in a modest way, relieve the ravages of Labour's high tax policy for a small sector of corporate Britain. We want to include it in the Bill, and this is our last chance to make that happen. The Paymaster General did not even refer to the fact that parts of the Bill will never be debated again because they will be relegated to secondary legislation.

I repeat that there is in the Chancellor's own Budget arithmetic a £2 billion a year increase in the effective rate of corporation tax, consequential on these quarterly payments. That is specified on page 18 of the Red Book, but it is not specified in the Bill, and hon. Members will not find any clause laying down how that sum is to be raised and who is to pay it.

Those who were Members of Parliament before us would be amazed that we are authorising a £2 billion a year increase in taxation which is to be laid down later in regulations that the House will never have a chance of debating, approving or voting against. We will betray the traditions of the House if we allow the Government to increase taxes in such a way, without giving ourselves any opportunity to express an opinion.

In a small way, through our new clause, we are ensuring that the parts of the retail sector that experience seasonal profits will have their interests at least partly protected. We have had a proper debate, which we have won, and we shall put the new clause, which should be incorporated in the Bill, to the test of a vote.

Question put, That the clause be read a Second time:—

The House divided: Ayes 175, Noes 276.

Division No. 319] [7.2 pm
Allan, Richard Gummer, Rt Hon John
Amess, David Hamilton, Rt Hon Sir Archie
Ancram, Rt Hon Michael Hammond, Philip
Arbuthnot, James Hancock, Mike
Ashdown, Rt Hon Paddy Harris, Dr Evan
Atkinson, David (Bour'mth E) Harvey, Nick
Atkinson, Peter (Hexham) Hawkins, Nick
Baker, Norman Hayes, John
Ballard, Jackie Heald, Oliver
Bercow, John Heath, David (Somerton & Frome)
Beresford, Sir Paul Heathcoat-Amory, Rt Hon David
Body, Sir Richard Hogg, Rt Hon Douglas
Boswell, Tim Horam, John
Bottomley, Peter (Worthing W) Hughes, Simon (Southwark N)
Brady, Graham Hunter, Andrew
Brake, Tom Jack, Rt Hon Michael
Brand, Dr Peter Jackson, Robert (Wantage)
Brazier, Julian Jenkin, Bernard
Browning, Mrs Angela Jones, Ieuan Wyn (Ynys Môn)
Bruce, Ian (S Dorset) Jones, Nigel (Cheltenham)
Bruce, Malcolm (Gordon) Kennedy, Charles (Ross Skye)
Burns, Simon Key, Robert
Cable, Dr Vincent Kirkbride, Miss Julie
Campbell, Menzies (NE Fife) Kirkwood, Archy
Cash, William Laing, Mrs Eleanor
Chapman, Sir Sydney (Chipping Barnet) Lait, Mrs Jacqui
Lansley, Andrew
Chidgey, David Leigh, Edward
Chope, Christopher Letwin, Oliver
Clappison, James Lidington, David
Clark, Rt Hon Alan (Kensington) Lilley, Rt Hon Peter
Clarke, Rt Hon Kenneth (Rushcliffe) Livsey, Richard
Lloyd, Rt Hon Sir Peter (Fareham)
Clifton-Brown, Geoffrey Llwyd, Elfyn
Collins, Tim Loughton, Tim
Colvin, Michael Luff, Peter
Cormack, Sir Patrick MacGregor, Rt Hon John
Cotter, Brian McIntosh, Miss Anne
Cran, James MacKay, Andrew
Curry, Rt Hon David Maclean, Rt Hon David
Dafis, Cynog McLoughlin, Patrick
Davey, Edward (Kingston) Major, Rt Hon John
Davies, Quentin (Grantham) Maples, John
Davis, Rt Hon David (Haltemprice) Maude, Rt Hon Francis
Day, Stephen May, Mrs Theresa
Donaldson, Jeffrey Michie, Mrs Ray (Argyll & Bute)
Dorrell, Rt Hon Stephen Moore, Michael
Duncan, Alan Morgan, Alasdair (Galloway)
Emery, Rt Hon Sir Peter Moss, Malcolm
Evans, Nigel Nicholls, Patrick
Ewing, Mrs Margaret Norman, Archie
Fallon, Michael Öpik, Lembit
Fearn, Ronnie Ottaway, Richard
Flight, Howard Page, Richard
Forth, Rt Hon Eric Paice, James
Foster, Don (Bath) Paterson, Owen
Fox, Dr Liam Pickles, Eric
Fraser, Christopher Prior, David
Garnier, Edward Redwood, Rt Hon John
George, Andrew (St Ives) Rendel, David
Gibb, Nick Robathan, Andrew
Gill, Christopher Robertson, Laurence (Tewk'b'ry)
Gillan, Mrs Cheryl Rowe, Andrew (Faversham)
Gorman, Mrs Teresa Ruffley, David
Gorrie, Donald Russell, Bob (Colchester)
Gray, James St Aubyn, Nick
Green, Damian Sanders, Adrian
Greenway, John Sayeed, Jonathan
Grieve, Dominic Shephard, Rt Hon Mrs Gillian
Shepherd, Richard Tyler, Paul
Simpson, Keith (Mid-Norfolk) Tyrie, Andrew
Smyth, Rev Martin (Belfast S) Viggers, Peter
Soames, Nicholas Wallace, James
Spicer, Sir Michael Waterson, Nigel
Stanley, Rt Hon Sir John Webb, Steve
Steen, Anthony Wells, Bowen
Streeter, Gary Welsh, Andrew
Stunell, Andrew Whittingdale, John
Swayne, Desmond Wigley, Rt Hon Dafydd
Swinney, John Wilkinson, John
Syms, Robert Willetts, David
Tapsell, Sir Peter Willis, Phil
Taylor, Ian (Esher & Walton) Wilshire, David
Taylor, John M (Solihull) Winterton, Mrs Ann (Congleton)
Taylor, Matthew (Truro) Winterton, Nicholas (Macclesfield)
Taylor, Sir Teddy Woodward, Shaun
Tonge, Dr Jenny Yeo, Tim
Townend, John
Tredinnick, David Tellers for the Ayes:
Trend, Michael Sir David Madel and
Mrs. Caroline Spelman.
Adams, Mrs Irene (Paisley N) Colman, Tony
Ainger, Nick Connarty, Michael
Ainsworth, Robert (Cov'try NE) Cook, Frank (Stockton N)
Alexander, Douglas Corbett, Robin
Anderson, Janet (Rossendale) Corston, Ms Jean
Armstrong, Ms Hilary Cousins, Jim
Ashton, Joe Cranston, Ross
Atkins, Charlotte Crausby, David
Austin, John Cummings, John
Banks, Tony Cunliffe, Lawrence
Beard, Nigel Cunningham, Jim (Cov'try S)
Begg, Miss Anne Dalyell, Tam
Bennett, Andrew F Davey, Valerie (Bristol W)
Benton, Joe Davidson, Ian
Berry, Roger Davies, Rt Hon Denzil (Llanelli)
Betts, Clive Davies, Geraint (Croydon C)
Blears, Ms Hazel Davies, Rt Hon Ron (Caerphilly)
Blizzard, Bob Davis Terry (B'ham Hodge H)
Borrow, David Dawson, Hilton
Bradley, Keith (Withington) Dean, Mrs Janet
Bradley, Peter (The Wrekin) Denham, John
Bradshaw, Ben Dismore, Andrew
Brinton, Mrs Helen Dobbin, Jim
Brown, Rt Hon Nick (Newcastle E) Donohoe, Brian H
Brown, Russell (Dumfries) Doran, Frank
Browne, Desmond Drew, David
Buck, Ms Karen Eagle, Maria (L'pool Garston)
Burden, Richard Ellman, Mrs Louise
Burgon, Colin Ennis, Jeff
Byers, Stephen Etherington, Bill
Caborn, Richard Fatchett, Derek
Campbell, Alan (Tynemouth) Field, Rt Hon Frank
Campbell, Mrs Anne (C'bridge) Fitzpatrickc, Jim
Campbell, Ronnie (Blyth V) Flint, Caroline
Cann, Jamie Flynn, Paul
Caplin, Ivor Foster, Rt Hon Derek
Casale, Roger Foster, Michael Jabez (Hastings)
Chapman, Ben (Wirral S) Foster, Michael J (Worcester)
Chaytor, David Foulkes, George
Chisholm, Malcolm Gapes, Mike
Clapham, Michael Gardiner, Barry
Clark, Rt Hon Dr David (S Shields) George Bruce (Walsall S)
Clark, Dr Lynda (Edinburgh Pentlands) Gibson, Dr Ian
Gilroy, Mrs Linda
Clark, Paul (Gillingham) Godman, Dr Norman A
Clarke, Tony (Northampton S) Goggins, Paul
Clelland, David Golding, Mrs Llin
Clwyd, Ann Gordon, Mrs Eileen
Coaker, Vernon Grant, Bernie
Coffey, Ms Ann Griffiths, Jane (Reading E)
Cohen, Harry Griffiths, Nigel (Edinburgh S)
Coleman, Iain Grogan, John
Gunnell, John Michael, Alun
Hain, Peter Milburn, Alan
Hall, Mike (Weaver Vale) Miller, Andrew
Hamilton, Fabian (Leeds NE) Mitchell, Austin
Hanson, David Moffatt, Laura
Heal, Mrs Sylvia Morgan, Ms Julie (Cardiff N)
Henderson, Ivan (Harwich) Morgan, Rhodri (Cardiff W)
Heppell, John Morris, Ms Estelle (B'ham Yardley)
Hewitt, Ms Patricia Mudie, George
Hill, Keith Mullin, Chris
Hinchliffe, David Murphy, Jim (Eastwood)
Hoey, Kate O'Brien, Bill (Normanton)
Home Robertson, John O'Brien, Mike (N Warks)
Hood, Jimmy Olner, Bill
Hoon, Geoffrey O'Neill, Martin
Howarth, Alan (Newport E) Osborne, Ms Sandra
Hoyle, Lindsay Palmer, Dr Nick
Hughes, Ms Beverley (Stretford) Pearson, Ian
Hughes, Kevin (Doncaster N) Pendry, Tom
Humble, Mrs Joan Pickthall Colin
Hutton, John Pike, Peter L
Iddon, Dr Brian Plaskitt, James
Illsley, Eric Pope, Greg
Jackson, Ms Glenda (Hampstead) Pound, Stephen
Jackson, Helen (Hillsborough) Powell, Sir Raymond
Jenkins, Brian Prentice, Ms Bridget (Lewisham E)
Johnson, Alan (Hull W & Hessle) Prentice, Gordon (Pendle)
Jones, Mrs Fiona (Newark) Primarolo, Dawn
Jones, Jon Owen (Cardiff C) Prosser, Gwyn
Jones, Dr Lynne (Selly Oak) Purchase, Ken
Jones, Martyn (Clwyd S) Quin, Ms Joyce
Jowell, Ms Tessa Quinn, Lawrie
Keeble, Ms Sally Radice, Giles
Keen, Alan (Feltham & Heston) Rammell, Bill
Keen, Ann (Brentford & Isleworth) Reed, Andrew (Loughborough)
Kennedy, Jane (Wavertree) Reid, Dr John (Hamilton N)
Khabra, Piara S Robertson, Rt Hon George (Hamilton S)
Kidney, David
Kilfoyle, Peter Robinson, Geoffrey (Cov'try NW)
King, Andy (Rugby & Kenilworth) Roche, Mrs Barbara
Kingham, Ms Tess Rooker, Jeff
Kumar, Dr Ashok Rooney, Terry
Ladyman, Dr Stephen Ross, Ernie (Dundee W)
Lepper, David Rowlands, Ted
Leslie, Christopher Roy, Frank
Lewis, Terry (Worsley) Ruddock, Ms Joan
Liddell, Mrs Helen Russell, Ms Christine (Chester)
Livingstone, Ken Ryan, Ms Joan
Lloyd, Tony (Manchester C) Salter, Martin
Lock, David Savidge, Malcolm
Love, Andrew Sedgemore, Brian
McAllion, John Shaw, Jonathan
McAvoy, Thomas Sheerman, Barry
McCabe, Steve Sheldon, Rt Hon Robert
McCafferty, Ms Chris Simpson, Alan (Nottingham S)
McDonagh, Siobhain Singh, Marsha
McDonnell, John Skinner, Dennis
McGuire, Mrs Anne Smith, Rt Hon Andrew (Oxford E)
McKenna, Mrs Rosemary Smith, Miss Geraldine (Morecambe & Lunesdale)
McNulty, Tony
MacShane, Denis Smith, Llew (Blaenau Gwent)
Mactaggart, Fiona Soley, Clive
McWilliam, John Southworth, Ms Helen
Mahon, Mrs Alice Spellar, John
Mandelson, Peter Squire, Ms Rachel
Marek, Dr John Steinberg, Gerry
Marsden, Gordon (Blackpool S) Stevenson, George
Marsden, Paul (Shrewsbury) Stewart, Ian (Eccles)
Marshall, David (Shettleston) Stoate, Dr Howard
Marshall, Jim (Leicester S) Stott, Roger
Marshall-Andrews, Robert Strang, Rt Hon Dr Gavin
Martlew, Eric Stringer, Graham
Maxton, John Stuart, Ms Gisela
Meacher, Rt Hon Michael Sutcliffe, Gerry
Meale, Alan Taylor, Rt Hon Mrs Ann (Dewsbury)
Merron, Gillian
Temple-Morris, Peter White, Brian
Thomas, Gareth R (Harrow W) Whitehead, Dr Alan
Timms, Stephen Wicks, Malcolm
Touhig, Don Williams, Alan W (E Carmarthen)
Trickett, Jon Winnick, David
Truswell, Paul Wood, Mike
Turner, Dennis (Wolverh'ton SE) Woolas, Phil
Turner, Dr Desmond (Kemptown) Wright, Anthony D (Gt Yarmouth)
Twigg, Derek (Halton) Wright, Dr Tony (Cannock)
Vaz, Keith Wyatt,Derek
Vis, Dr Rudi
Walley, Ms Joan Tellers for the Noes:
Wareing, Robert N Mr. Jim Dowd and
Watts, David Mr. David Jamieson.

Question accordingly negatived.

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