 House of Commons |
Session 1997-98 Publications on the internet Standing Committee Debates Finance Bill (Except clauses 1, 15, 17 and 19) |
| Finance Bill (Except clauses 1, 15, 17 and 19)
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This is a corrected copy and is being issued free of charge to all known recipients of the original publication.
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| TABLE | ||
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| Sitting | Proceedings | Time for conclusion of proceedings |
| 1st | Clause 2, Schedule 1, Clause 3, Schedule 2 and Clauses 4 and 5. | -- |
| 2nd | Clause 2, Schedule 1, Clause 3, Schedule 2 and Clauses 4 and 5, so far as not disposed of. | Midnight |
| 3rd | Clause 6 to 14 and Clause 16. | 12:50 pm. |
| 4th | Clause 18, Clauses 20 to 23, Schedule 3, Clauses 24 to 34, Schedule 4, Clause 35, Schedule 5, Clause 36 and Schedule 6. | -- |
| 5th | Clause 18, Clauses 20 to 23, Schedule 3, Clauses 24 to 34, Schedule 4, Clause 35, Schedule 5, Clause 36 and Schedule 6, so far as not diposed of. | -- |
| 6th | Clause 18, Clauses 20 to 23, Schedule 3, Clauses 24 to 34, Schedule 4, Clause 35, Schedule 5, Clause 36 and Schedule 6, so far as not disposed of. | -- |
| 7th | Clause 18, Clauses 20 to 23, Schedule 3, Clauses 24 to 34, Schedule 4, Clause 35, Schedule 5, Clause 36 and Schedule 6, so far as not disposed of. | 7:00 pm. |
| Clauses 37 to 41, Schedule 7, Clauses 42 to 53, Schedule 8 and remaining proceedings. | -- | |
| 8th | Clause 37 to 41, Schedule 7, Clauses 42 to 53, Schedule 8 and remaining proceedings, so far as not disposed of. | -- |
| 9th | Clause 37 to 41, Schedule 7, Clauses 42 to 53, Schedule 8 and remaining proceedings, so far as not disposed of. | 10:00 pm. |
Motion made, and Question put forthwith, pursuant to the Order [14th July]:
That the Committee do agree with the Business Sub-Committee in its resolution--[Ms D. Primarolo.]
Question agreed to.
The Chairman: I have several announcements to make to the Committee. Copies of the Ways and Means resolution on which the Bill is founded are in the Room. There is also a money resolution in connection with the Bill, which is set out at the end of the same document. As a general rule, I do not propose to call amendments of which proper notice has not been given. In general, that means that neither I nor my co-Chairman will call starred amendments. However, as the order in which the Bill is to be taken was not known to members of the Committee generally until this morning, I and my co-Chairman will apply that ruling flexibly. Members of the Committee will notice that one starred amendment has been selected for consideration today. Nonetheless, I urge colleagues not to impose too far on my generosity.
Finally, in accordance with the very long-standing tradition, right hon. and hon. Members will wish to know that green boxes are available in which to store their papers. The filing cabinet behind me on my right that contains those boxes will be locked between sittings, so that members of the Committee can leave their papers in the Committee Room and not have to cart around masses of documents.
10.31 am
Mr. David Heathcoat-Amory (Wells): On a point of order, Mr. McWilliam. Perhaps it is now appropriate, on behalf of the Committee, for me to welcome you, Mr. McWilliam, to the Chair, and, in due course, your co-Chairman, Mrs. Winterton. We regret the speed with which the Committee will have to deal with the Bill but, given that that was decided by the House, there is no prospect of re-opening the matter.
We note that the Government have already tabled amendments to the Bill; we feel that that is the result of the haste in which it was drafted and because it is having to proceed so swiftly through its stages. In the spirit of openness and goodwill, however, I wish to say that Conservative Members look forward to having a constructive debate in Committee. There are not as many of us as there used to be in Finance Bill Committees, a fact that we shall rectify in the years ahead. For now, however, we want to engage with the Government in giving the Bill appropriate scrutiny. It is not an insignificant Bill; it is a major tax-raising measure and we hope that, in the short time that is available to us, we can subject each clause and schedule to close examination. I reiterate my particular welcome to you, Mr. McWilliam. I know that you will guide us throughout our proceedings.
The Financial Secretary to the Treasury (Dawn Primarolo): Further to that point of order, Mr. McWilliam. May I welcome you to the Committee; I should also like to welcome Mrs. Winterton, who will be assisting you. You are an experienced Chair and you will keep us in order. I wish to welcome the right hon. Member for Wells (Mr. Heathcoat-Amory) to the Committee. I also welcome the hon. Member for Daventry (Mr. Boswell) and other hon. Gentlemen, who will bring their experience to bear in our deliberations. I am sure that it will assist our scrutiny of the Bill. I also welcome to the Committee my hon. Friends, many of whom were first elected to Parliament in 1997. The Bill will be scrutinised thoroughly, and the Government will give the Opposition what information we can to ensure that.
The Chairman: Spurious points of order are always to be deplored. Nevertheless, I thank the right hon. Gentleman and the hon. Lady for their kind remarks. I may tell the right hon. Gentleman that I see today as many Members in the Finance Bill Committee as I have ever seen--of whatever variety.
Clause 2
The Companies Benefitting from Windfalls
Mr. Tim Boswell (Daventry): I beg to move amendment No. 11, in page 2, line 11, leave out `in the United Kingdom'.
By way of preface, Mr. McWilliam, I add my congratulations--or, perhaps, my commiserations--to you on your assuming the chairmanship of the Committee with your co-Chairman, Mrs. Winterton.
We want constructive debates, and the Member for Wells as my right hon. Friend said, we regret that some of our debates have been attenuated. However, we will not compound that problem by undue prolixity. Our particular objection is to the lack of time. My experience since the general election is distinctly different from that before it as I have had to write my own speeches either very early in the morning or late at night. I make no complaint about that, except to apologise for any lack of felicity--or even of detailed research on a narrow point--because the resources of the Treasury or other Departments are not available to me. Subject to those constraints, however, it is important that we should be able to make our point.
I can tell the Financial Secretary to the Treasury that there has been at least a small improvement in Government behaviour since my first experience of a Finance Bill. Some hon. Members may remember that I said in the Budget debate that no one could have had greater or longer experience than me of a Finance Bill Committee stage. It was in 1968--I suspect in this Room--that a Finance Bill first came to a Standing Committee. The Labour Government of the day guillotined the whole Bill--[Interruption.]
The Chairman: Order. Would all hon. Members please ensure that pagers, bleepers and so on are either in silent mode or switched off. Madam Speaker has ruled very strongly on that matter.
Mr. Boswell: That interruption may have been a protest, Mr. McWilliam--rather retrospective, but appropriate--at the conduct of the then Labour Government. I remind the Committee that in 1968, albeit after much debate, the Bill was guillotined in Committee and the special charge then applied to certain taxpayers was passed without any debate. That was regrettable, but it was in the past; today we have to deal with the Bill before us.
I would like to say, not least because I had a slight and uncharacteristic flurry with the Financial Secretary when considering the Bill in the Committee of the whole House, that I regard our amendments as being essentially of three kinds, although any one amendment may embody all three factors. Those who have been in opposition will be familiar with the first; such amendments are a platform for a general debate on the Government's intentions. We would wish, particularly on a major matter such as this, which so concerns companies and their shareholders, to look at the reasons for the windfall tax and whether the Government are aware of some of its damaging consequences.
The second kind of amendment is the probing amendment, which seeks to winkle out from the Government what is happening; if our lay eyes observe something rather odd, we can ask what it is.
The third kind of amendment--I defer to those of my hon. Friends who are greater professionals or technicians in these matters than me--enables us to raise specific problems which are put to us by professional associations or institutes and which require a specific and detailed answer.
I flag up those factors so that all members of the Committee are aware of the ground rules--subject of course, always, Mr. McWilliam, to the requirements of the Chair. For instance, some of the specific points made yesterday--on verbal contracts and health insurance--were not fully answered.
We debated the principle behind clause 1 in the Committee of the whole House; amendment No. 11 now enables us to consider the companies that are affected by the windfall tax. Conservative Members do not see an absolute distinction between a company and its shareholders--a view that is shared by Professor John Kay, who is close to the governing party. We realise that there is, if not an identity, a strong association between a company and its shareholders--a tax that is imposed on a company will somehow have to be paid out of the shareholders' pockets. That is an important consideration for us to bear in mind during the debates on the clause.
The amendment, which would remove the words ``in the United Kingdom'', is our attempt to introduce a number of concepts. As we are at the beginning of our discussions on the clause, it is important to set out the background to it, and I have two points to make about that. The first concerns the huge internationalisation of the securities industry over recent years. Exchange controls have been progressively abolished within the European Union and widely relaxed in other parts of the world as the damage that they do is beginning to be understood. I seem to recall that about one third of the turnover of German securities occurs not in Frankfurt but in London--I am sure that my hon. Friend the Member for Grantham and Stamford (Mr. Davies) will either confirm or qualify that assertion.
Equally, portfolio holdings are not confined merely to this country. As was said on the Floor of the House, not only do a large proportion of pension funds--the major institutional investors--have overseas securities, but individual private investors have them either directly or through institutions. It is hardly germane formally to declare an interest, but I have a small collection of overseas securities, including one that has gone through successive tranches of privatisation.
That is a general point about the fact that we can no longer do things in the United Kingdom without reference to what goes on in the rest of the world. My second point is that the programme of privatisation--the concept and even the word--derives from the previous Governments initiatives in the early 1980s, of which the most epoch-making was the sale of British Telecom in 1984. Thirteen years down the track, that process is now subject to some retrospective imposition. Nevertheless, the idea of selling publicly owned assets to the private sector, paying off debts, relieving pressure on the Treasury--especially in relation to competition for capital from other public priorities--regulating output and controlling prices where appropriate has spread from the large seed that was the BT privatisation, not merely within the United Kingdom, but throughout the world.
I have closely followed the affairs of central and eastern Europe since the collapse of the communist system. In those countries, privatisation has happened either by voucher, by negotiation or, not to put it too delicately, by preferred allocation--``I think I'll have that one, if you don't mind.''
10.45 am
In western Europe, where securities markets and public compliance are better accepted, a driving factor has been the need for Governments to adjust their public finances to comply with, for example, the conditions of the Maastricht treaty. One way of doing that has been to sell off public assets--to privatise them. However, the matter goes much wider than that and includes, for example, offers for Nippon Telegraph and Telephone Corporation. I was in Indonesia last year. Privatisation is now a worldwide concept, but it was made in Britain and exported to the whole world. Of course, privatisation is not simply a matter of financial adjustment; it also introduces private sector management techniques and competitive skills.
I attended the east midlands rail forum which was recently held in Northampton. Indeed, I was the only Member of Parliament to attend it--presumably I was not the only one asked, but I was the only one who chose to turn up. Given the political opposition that we faced on the process and the relatively short time that has elapsed since its initiation, I was genuinely interested to hear about the way in which rail privatisation was beginning to work. From the operators of the midland mainline and from other operators, we heard of the promise of improved train services--more trains, faster trains, better and more comfortable trains. We also heard about the beginnings of the re-enlivenment of the rail freight sector, which is a personal interest of mine.
We were hearing good news, and I say that not with triumphalism, but because the new Labour Government seem to have embraced the concept of privatisation. They were slow learners, but they have learnt, and we are grateful for that. They are prepared to take privatisation forward in certain cases. That is germane to another amendment on the date of operation of any windfall tax. I regret the fact that, with the introduction of the windfall tax in the very cradle of privatisation--the place that gave the concept to the world--we are now seeking to foul our own nest with a series of retrospective changes. Those changes send a bad signal to the world and prejudice future privatisation in this country.
I do not want to belabour the matter, but I shall make some specific points on the amendment. I draw Treasury Ministers' attention to the fact that clause 2 refers to ``an offer of shares''. Clause 5--the definitions clause--states:
- ```share' includes any right to require the issue of a share''.
It is a rights issue to claim a share. However, in other parts of the Bill reference is made to partial disposal of shares. That is not a problem, but I assume that the definition of shares in the Bill is the same as that given in the Companies Act because companies can have a range of share capital--I hardly dare say it, but even the Chinese have A and B shares. British companies may have A, B, and preference shares, or any range of them, all of which may carry various rights. In certain cases, those rights to shares, or their format, will be bundled up--one such example involves American depository receipts.
I am concerned about whether a single offering of shares, however defined, will trigger the windfall procedure. I should like the Government to explain that and give us assurances. There could be cases--I am not sure that there have been--in which not all the shares would be offered in a particular class. For example, would an offering of preference shares without an offering of the equity trigger the windfall procedure and, if so, what would happen?
The fact that some offers may have been made outside the United Kingdom is also germane to the amendment; they were not made exclusively outside the United Kingdom, but we are pleased that we involved foreign shareholders. In some cases, a particular class of share might have been offered only abroad. Although I am not a lawyer--I think that that will be apparent to the Committee--I am concerned about references in the Bill to offers made to the public in the United Kingdom because I have a horrible, non-lawyerly feeling that if one specifies something, one excludes something else. Can we be sure of the ground rules about whether that specification applies to offers for shares, whatever they are and however they are defined, only in the United Kingdom? Will shares that were sold in the United Kingdom and other countries also be covered? I shall deal later with the subject of the equity of taxing the UK shareholder when a foreign shareholder of the same security may escape taxation.
My hon. Friends the Members for Bognor Regis and Littlehampton (Mr. Gigg) and for Grantham and Stamford made the point about double-tax treaties in an earlier debate. Given that hon. Members on both sides of the Committee welcome American and world-wide inward investment into the United Kingdom, will the Government now address more satisfactorily than they did in the earlier debate the fact that the windfall tax is treated as a levy on capital, so will not be rebatable to individual investors or to corporate overseas investors, despite the existence of tax treaties? It is remarkable that Britain has the best portfolio of double-tax treaties in the world. My right hon. Friend the Member of Fylde (Mr. Jack), as the then Financial Secretary, stated in a press release on 12 February this year that we were the first country to have reached a century of double-tax agreements. Today's Order Paper contains four further motions, in the name of the Chancellor of the Exchequer, to approve double-tax treaties in respect of Malaysia and Singapore, the Falkland Islands and Lesotho. However, notwithstanding the existence of those double-tax treaties which attempt to shield the overseas investor from the depredations of the UK Treasury, there is no relief for them under the Bill.
The Bill is drafted for United Kingdom investors, who will be paying the tax. Some of my hon. Friends, now that they know the basis for the operation of the windfall tax, may want to draw the Committee's attention to its impact on particular companies, utilities and others that operate in their own area. We did not have that information before the election; it was studiously denied us. However it is now possible to derive it, more or less, from the Red Book, the Budget statement and the Bill. One reason we tabled the amendment is that United Kingdom investors investing in United Kingdom companies will, as the proprietors of those companies, pay tax through the company; yet United Kingdom investors who chose to take out shares in overseas companies that have been privatised--a procedure they learnt from Britain--will not pay tax. That may apply to United Kingdom residents and taxpayers who are also directors of overseas privatised companies and who may have benefited directly from the privatisation process abroad--I have a particular individual in mind. So unless the poor old United Kingdom investor has taken the money and run--as the Paymaster General and other members of the Committee will know, there is a sharp turnover in such securities--he will pay an element of windfall tax. People such as one or two members of my family, who have loyally subscribed to past privatisation issues and who, being rather passive investors, have stuck with the shares, now find that they will pay an element of windfall tax.
If they had been really smart and had invested in an overseas privatisation, or had been a director of a company overseas, they could be as fat a cat as they liked, but they would not pay a penny in UK windfall tax. They would have gone outside the jurisdiction and escaped the tax. It is likely to be the more sophisticated investor who has done that. So there is the apparent inequity that the home-grown investor, loyally subscribing to a privatisation issue, will suffer, while the person who has the ability to invest abroad may make greater uncovenanted profits--windfalls, as the Government would describe them--but will not suffer at all.
Despite some appearance to the contrary--which is why I will listen to the Government's response before seeking to press the amendment--I would not want the Committee to think that I want to extend the privilege of paying the windfall tax to United Kingdom investors in overseas securities. My point is that investment is worldwide. An attempt to tax UK windfalls--because it is the only cudgel in the Government's locker to finance their welfare-to-work programme, and because it is the only kind of windfall that they can capture,--is inequitable.
That is merely a subset of the continuing anomalies and difficulties of the windfall tax. The Government believe that a one-off tax--fair or unfair--will somehow fund a continuing programme. According to the Red Book, that programme will run for four years at more or less an even rate, and then it appears to stop abruptly. My right hon. Friend the Member for Wells may well want to say something later about what will happen when the proceeds of the windfall tax run out, and to seek assurances from the Government.
I referred earlier to the incoherence of the distinction between companies and their shareholders. I know that it is never easy to hammer out a perfect system that completely mirrors everybody's rights and responsibilities, takes account of the different tax rates of different taxpayers and aligns that with corporate taxation--that is difficult to achieve. However, the windfall tax, together with the advance corporation tax changes, represents a major grab on the corporate sector and--the final anomaly--will hit the individual shareholder very hard.
People in Britain can choose whether they invest in Britain or abroad. The windfall tax--imposed because it is the only bit of proceeds that the Government can grab--sends a bad signal to British investors to invest abroad. It also sends a bad signal to overseas investors about the probity and consistency of the Government's conduct of tax affairs. It is not a sensible way to proceed: it would be far better to recognise the reality, which is that investment is international. That is recognised by our acceptance of the concept of double tax agreements. The Government should withdraw the tax, or find an equitable basis on which to impose it.
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| ©Parliamentary copyright 1997 | Prepared 17 July 1997 |
