' . . the Government will either be trampled by an Olivant or shafted by a Virgin?': Cable Quizzes Darling

12.12.00pm UTC (GMT +0000) Fri 25th Jan 2008

[Jan 24] Vincent Cable: Further to that last intervention, is not the risk of a rapid private sale that the Government will either be trampled by an Olivant or shafted by a Virgin?

In order to reduce the risks to the taxpayer, will the Chancellor assure us that the security that will be offered against the Government bonds will not include any of the £8 billion dodgy, unsecured loans, or the even dodgier Together mortgages, and that the individuals within the bidding consortiums will each be required to put up at least 15 per cent. of the equity, as specified in Financial Services Authority rules?

Alistair Darling (Chancellor of the Exchequer, HM Treasury): That is an interesting piece of analysis, and I shall study the hon. Gentleman's remarks carefully-particularly the first part of his contribution. I have set out the principles that underpin our approach to any possible solution. As I said on Monday, we should receive proposals shortly, and thereafter we shall consider them. As I also said in the House on Monday, I very much hope we can reach a solution. A period of temporary ownership of Northern Rock remains a possibility, but as I said to the hon. Gentleman on Monday, many of the issues he raises now in relation to my proposals would also be relevant in relation to a temporary period of public ownership.

. . Vincent Cable: May I take the Chancellor back to the beginning of his Odyssey through capital gains tax reform, and remind him of the moral outrage that was being expressed by, among others, his colleagues on the Treasury Select Committee at the fact that extremely rich people in the City were paying lower rates of tax than their cleaners? Will he confirm that, after all the twists and turns and comings and goings, those extremely rich people will now be paying 18 per cent.-or, in some cases, 10 per cent.-while their cleaners will now be paying 20 per cent. plus national insurance contributions? In what sense does that represent progress?

Will the Chancellor also explain the impact of all this on the second homes market? Has not he given a tax cut to second-home owners-

Dennis Skinner (Bolsover, Labour): Like Chris Huhne?

Vincent Cable: Indeed. Has not the Chancellor given a tax cut to second-home owners of a minimum of 6 per cent. and, in certain circumstances, of 30 per cent.? Has he considered the impact of those measures on rural areas such as Cornwall, mid-Wales, the Lake district and large parts of rural England, where local people are being priced out of the housing market by second-home owners?

Is the implication of the Chancellor's retreat today and his move away from taper relief that he accepts that the changes brought in at the outset of the Labour Government, when I believe he was Chief Secretary to the Treasury, were-as, indeed, some of us argued at the time-expensive, unnecessary and a diversion? Will he tell us what was wrong with the capital gains tax system under the previous Conservative Government, which was introduced by Lord Lawson? That system had at its heart a very simple central principle that income and capital should be taxed on the same basis. If, as the Chancellor is arguing and as the Conservatives now appear to want, income is taxed at a significantly higher rate than capital, there is a massive opportunity for tax avoidance as individuals and companies convert income into capital. What estimate has the Treasury made of the potential leakage into tax avoidance from that very familiar route?

Finally and on that basis, may I commend the idea of going back to the 1997 capital gains tax system, which was simple, made generous provision for small business, had indexation and would, on the Treasury's own estimates, produce an additional tax revenue of about £2.7 billion? That could be used now for cutting the taxes of cleaners and other people on low pay.

Alistair Darling (Chancellor of the Exchequer, HM Treasury): I do not know of many people who would argue that capital gains tax should be put back up to the 40 per cent. rate. If that is the Liberal party policy, I was not aware of it-and I am sure that many of the hon. Gentleman's colleagues are not aware of it either. I suspect that two parties in the House will make it their business to ensure that people around the country know that that has become the Liberal party's policy. As the hon. Gentleman has set out, the Liberal policy has been to end taper relief.

I believe that our proposals of October and of today provide the right approach. Simplifying taxes must be a good thing if we can do it. What I sought to do in October was set out a much simpler capital gains tax system at a rate of 18 per cent., but I recognised that we needed to do more to help small businesses in particular. As I said earlier, there are 760,000 small businesses in this country. There is additional help-it is important to remember this-through venture capital trusts and enterprise investment schemes. The enterprise schemes have raised about £6 billion and have invested in 14,000 companies, while venture capital trusts have raised about £3 billion and helped about 1,400 companies. That shows that there are many other things we can do to help small businesses through the capital gains tax and income tax regimes. I believe that what I have announced today will be good for small businesses. I have listened to what people have had to say and I believe it important to get the issues right. Overall, simplifying the tax has to be the right way forward. I can see no justification for putting the rate of capital gains tax back up to 40 per cent., which is what I now understand the hon. Gentleman's and the Liberal policy to be. [http://tinyurl.com/yqyhpd]