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Taxation: Corporate Tax

Volume 692: debated on Wednesday 6 June 2007

asked Her Majesty’s Government:

Whether the expected reduction in the growth of public expenditure following the spending review will provide scope to reduce the corporate tax burden and improve British competitiveness.

My Lords, in the Budget 2007, the Government set the overall spending limits for the 2007 Comprehensive Spending Review period to ensure that it meets their strict fiscal rules while allowing public spending to increase by an average of 2 per cent a year in real terms. The Budget also announced a reduction in the main rate of corporation tax from 30 per cent to 28 per cent, making it the lowest rate among the G7 countries.

My Lords, I am grateful to the noble Lord for that reply. However, is he aware of the mounting concern within the CBI and other business organisations about the corporate tax burden and its relentless cumulative rise from £60 billion in 1997 to its current level and its likely rise to £95 billion by 2010? Is not the result of this going to be an exodus of some of our major companies to other countries with less burdensome tax regimes? Most of our trading partners have got less burdensome regimes than we have, with the possible exception of France. If it is not happening now, that exodus will surely happen in the near future.

My Lords, there was some business anxiety before the Budget but cutting corporation tax, as I indicated to the House, from 30 to 28 per cent, which made it the lowest corporation tax rate in the G7—the rate is well below that of the EU 15 and the OECD averages—reassures business that we will continue to be fair with regard to our taxation and spending policies. It is just not the case that investment is fleeing elsewhere; far from it. Britain is showing a very real increase in investment in this country. The number of head offices being established in London far outscores the number in all the other countries and capitals put together. I dispute the position that the noble Lord outlined in his question.

My Lords, the Minister says that Britain is doing well, but did he see the extraordinary press conference at which the Reverend Ian Paisley and Mr Martin McGuinness were united in their call for Northern Ireland to enjoy the same corporate tax rates as southern Ireland, which has seen revenues go through the roof and its economy expand rapidly as a result of reducing corporation tax?

My Lords, we all realise why at least one of the parties mentioned by the noble Lord would look towards the Republic as an exemplar, but we cannot compare an economy as large as ours—the fourth largest in the world—with that of the Republic of Ireland. The Republic obviously gets huge returns from the European Community because of its very high level of agricultural production, and that factor cannot apply to a more advanced economy such as that of the United Kingdom.

My Lords, does the noble Lord agree that the fixing of tax bases should be the job of the Chancellor of the Exchequer and Parliament? If he does agree, will he also confirm that the Government are against a harmonised corporate tax base in the European Union and that they will continue to resist it and, if necessary, veto it?

My Lords, the noble Lord is right: taxation policies are very important for the United Kingdom Parliament and the United Kingdom Government. I can confirm to the noble Lord that, as he partially conceded, we have opposed harmonisation and will continue to do so.

My Lords, does the Minister agree that corporation tax rates, like income tax rates, have a totemic value that is almost more important than the level of the tax? Therefore, does he not see the advantage in continuing the process that the Chancellor began this year by replacing capital allowances with tax-deductible depreciation, which would allow him to reduce corporation tax further?

My Lords, that is an interesting proposal and the Chancellor has looked at it very carefully. The noble Lord is right in one respect: the corporation tax rate may become somewhat totemic with regard to the status of economies. However, many other factors beyond corporation tax dictate the level of investment in the economy, and the present level of investment in the United Kingdom testifies to the success of the Government’s current strategy.

My Lords, since 1997, Britain has dropped from fourth to 10th in the World Economic Forum’s competitiveness league table. If tax is not causing the problem, what is?

My Lords, a number of factors relate to that position, but the noble Baroness will recognise that in fact our economy is showing strong growth with increased investment. The economy is looking sound in those terms. The figures that she gave with regard to our economic competitiveness were accurate, but she will concede that, taken over a period, the overall strategy is serving this country well.

My Lords, there is not time for both noble Lords to ask a question, but four Cross-Benchers have been up so far and only one noble Lord from the Labour Benches.

Lord Tomlinson: My Lords, did my noble friend see, with the same degree of pleasure that I had, the YouGov poll in the Sunday Telegraph at the weekend, which gave a comparative evaluation of the economic competence of my right honourable friend the Chancellor of the Exchequer and his opposite number? Returning to the original Question, does my noble friend share my concern that at successive general elections we have been told about the number of people who would leave the country if a Labour Government were elected, but so far we have remained disappointed that they are still with us?

My Lords, the whole House will have seen that important poll over the weekend and greeted it with varying degrees of delight. However, I am able to confirm to my noble friend that I rejoice in that figure. The poll reflects a growing understanding of confidence in the Labour Government.

My Lords, I am the first Cross-Bencher to speak on this item, contrary to what the noble Lord, Lord Rooker, said. Has the Chancellor, who is a Scot, remembered the old adage of Adam Smith that less tax equals more revenue?

My Lords, I should have thought that the Chancellor had proved that point over the past decade, as international opinion regards Britain as one of the more lightly taxed business economies.