Budget turns Bill into damp squib

With separate legislation on the 1p increase in employer and employee contributions hived off (as it is not a tax), MPs are left with the task of ‘improving’ a mass of complicated tax legislation. Much of this is of some significance and the opposition is not planning a period of quiescence.

Tory shadow paymaster general Howard Flight envisages battles over, among other matters, the government increase in the effective ‘tax’ take to 52% on some share option schemes, setting trading losses against chargeable gains, tax relief for medical gifts, difficulties facing SMEs claiming R&D relief and full charitable status for ‘open’ sports clubs.

Also, the way tax relief for films is being effectively scrapped overnight and seeking the extension of tax breaks for filling stations dispensing ‘green’ fuels like natural gas and hydrogen to LPG, will also provoke heated debate.

He was ready to admit that ‘a lot of the bill is sensible modernisation’, but adds ‘what we are particularly looking out for are hidden stealth taxes’.

Liberal Democrat shadow Edward Davey plans an intensive war against the deliberate increase in ‘overcomplexity’ in the legislation, exemplified by the widespread use of tax credits and small reliefs in a way he believes to be unnecessary.

He said he will be pressing ministers in each case to explain why the complications they represent and the anti-avoidance provisions needed to make them work properly are better than the simpler application of grants.

He believes some – like the R&D credit – ‘look OK’ but stressed: ‘We have a bias against putting through reliefs by tax credit in principle, although we do not have a totally purist line’, citing the abuse of tax reliefs for the film industry to subsidise soaps.

The government has already been forced to consider action to help American-based offshore oil operators who fear they will face double taxation as a result of new measures.

Financial secretary Ruth Kelly justified the moves on the ground that it was necessary to prevent massive tax avoidance but promised to take up the double taxation threat with US tax authorities, stating that she would not rule out dealing with the problem ‘in other ways’ if necessary.

Kelly also rejected a Tory bid to block the enforcement by British tax authorities of tax due in other EU states. And she announced the extension of Inland Revenue clearance arrangements for controlled foreign companies exemptions for businesses emigrating for ‘genuine commercial rather than fiscal reasons’.