asked Her Majesty’s Government:

What steps they are taking to ensure that the United Kingdom’s corporate tax regime is sufficiently competitive to persuade multinational companies based in the United Kingdom to remain.

My Lords, as announced in the Budget 2006 and reiterated in their recent Pre-Budget Report, the Government are committed to a business tax system that supports business competitiveness and operates fairly across businesses and sectors. The Government have undertaken extensive engagement with business in recent months to understand better its concerns in relation to tax and to ensure that we are addressing them. The recommendations of the Varney review of HMRC links with large business, published on 17 November, will improve the responsiveness of tax administration to the needs of business.

My Lords, I am grateful to the noble Lord for that reply, which lacks a certain amount of the urgency that is required with this problem. Is he not aware that while our headline corporation tax rate has remained unchanged since 2000, 24 of the other 29 members of the OECD have cut their rates and we have fallen from eighth most favourable position to 19th, that the business tax burden as a percentage of GDP is higher here than in the United States, Germany, France, Ireland and the Netherlands, and that we are slipping in the overall, economy-wide tax league too? Will not this worsening business environment frighten off business and investment and encourage them to go elsewhere?

My Lords, the business environment is not deteriorating. The noble Lord should not merely quote corporation tax rates. He will recognise that the Germans, in cutting their rates, have imposed alongside that other increases in taxation with the result that German competitiveness has not significantly increased against the UK. The noble Lord will also recognise that the issue of increased tax take is a reflection of the extraordinary success of the economy. More people are in work and therefore they pay more tax. Profits are higher and therefore companies pay more tax. Consumption is buoyant and therefore VAT receipts are higher. That is a record of success.

My Lords, as the noble Lord, Lord Roberts of Conwy, has indicated, UK corporation taxes are becoming uncompetitive internationally. It is a particular problem for businesses in Northern Ireland which has a land border with the Republic of Ireland where the corporation tax rate is 12 per cent. Does the noble Lord agree that the solution is to reduce the overall rate of corporation tax in the United Kingdom?

My Lords, we are not convinced of that argument at the present time. Those countries which are cutting corporation tax are in several cases doing so from a rate far higher than our 30 per cent and so will not produce an extravagantly improved competitive position against Britain, particularly when we take in the round the full range of business taxation. However, I want to come back on a point made by the noble Lord, Lord Roberts, about whether we are addressing these matters urgently. Indeed we are. The reason why the Varney review was set up and why the Chancellor is holding regular high-level meetings with business is because we realise that there are issues to be discussed.

My Lords, in his waking hours of the morning or the middle of the night, will the Minister contemplate what has actually happened in the Republic of Ireland? Corporation tax has been reduced to 12 per cent, the growth rate has not fallen below 6 per cent since, and the annual value of GDP per head of the population is some £10,000 higher than in the UK—all from a much less favourable position several years ago. Is the noble Lord saying that that is just a mirage?

My Lords, of course it is not a mirage, but there are some specific features of the Irish economy which are not general to the much larger economies of the rest of Europe. That is why we have not seen a hell-bent dash by other large economies to follow the Irish model. However, we can certainly learn some lessons. As for being awake at night, the only reason I was awake last night was to support England’s cricket team in its wonderful victory.

My Lords, does the noble Lord agree that the nirvana for business which he describes is not a vision that many businesses would accept? Does he further agree that the headline rate of corporation tax is seen as an important issue and in this country is no longer perceived to be one of the lower ones among our competitors? Is there not an easy way to tackle this; namely, to begin to abolish some of the corporation tax allowances, which at best are ill understood and at worst are positively harmful?

My Lords, UK taxes on corporate income are in fact lower than in 10 of the other 15 comparable European Union countries, so it is not the case that we are heavily taxing business. However, we recognise that there are issues to discuss, particularly those concerning regulation and, taking one of the points made by the noble Lord, the way tax is imposed on businesses and how regulation proves to be irksome. That is exactly why Her Majesty’s Revenue and Customs has produced a review and is now addressing itself to business interests. It is also why the Chancellor is holding his high-level meetings.

My Lords, the level at which corporation tax is set does not seem to deter one industry after another in this country being taken over by foreign firms. Did the Minister hear on the news today that the number of people employed in the manufacturing sector has fallen yet again? I would be interested to know what the Government are going to do to increase the percentage of GDP involved in manufacturing industry, because before very long we will not have any left.

My Lords, the purchase by foreign interests of British firms is a private matter. We should reflect on the fact that such decisions are taken in the interests of those who have the resources to pay. I hear what the noble Lord says about manufacturing industry. He is right, of course, that it is a declining share of the British economy. Its declining share in the past decade is against a background of the most successful economy for generations.

My Lords, in a recent research study by the CBI, the complexity of the corporation tax rules came out as the top complaint of the 350 FTSE companies surveyed. What can the Government do to make the regime less complex so that multinational companies will not move overseas?

My Lords, that representation led the Government to address the complexity and difficulties of corporation tax. That is why the arrangements I described in previous answers obtain. We are concerned to ensure that corporation tax is competitive with the other major economies and that we can simplify it in such a way as to make the burdens on business as light as possible.