'(1) The Treasury shall establish an Office of Tax Simplification.

(2) Its mandate shall be to—

(a) review tax law

(b) make proposals on tax law reform and simplification.

(3) Regulations shall specify the governance arrangements of the Office of Tax Simplification.

(4) Regulations made under this section may not be made unless they have been laid before, and approved by a resolution of, the House of Commons.'.— (Mr. Gauke.)

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss the following: new clause 4 — Holiday accommodation report

'(1) The Chancellor of the Exchequer shall, before the publication of the 2009 Pre-Budget Report, have compiled and laid before the House of Commons a report containing an assessment of the impact of—

(a) section 503 of ICTA, and

(b) Chapter 6 of Part 3 of ITTOIA 2005, on the liability to tax of commercially let furnished holiday accommodation.

(2) Any such report shall address the impact on the UK tourism industry.

(3) A Minister of the Crown must, not later than one month after the report has been laid before the House of Commons, make a motion in that House in relation to the report.'.

New clause 6— Competitiveness of the tax system

'Prior to the first reading of a Finance Bill, the Treasury will lay before Parliament a report on the impact on the competitiveness of UK economy of—

(a) the measures set out in that Finance Bill,

(b) the rates of—

(i) corporation tax,

(ii) income tax,

(iii) national insurance,

(iv) capital gains tax,

(v) excise duties, and

(vi) vehicle excise duties,

(c) the complexity of the tax system, and

(d) the relationship between the HMRC and the taxpayer.'.

Amendment 36, in clause 8, page 3, line 31, at end insert—

'(2A) At the end of subsection 13(3) of ICTA 1988 (small companies' relief), insert—

"(3A) Where in any accounting period the profits of a company do not exceed 1/12 of the lower relevant maximum amount, the company may claim a further reduction (to be known as the "very small companies' relief") on the amount of corporation tax payable under this section.

(3B) The Chancellor of the Exchequer shall, by regulations and within three months of Royal Assent, prescribe the level of the very small companies' relief.

(3C) Regulations made under subsection (3B) may not be made unless a draft of the statutory instrument containing the regulations has been laid before, and approved by a resolution of, each House of parliament."'.

We now turn to another crucial subject, although I do not know whether it will hold Members in the Chamber for long. New clause 3 and the others in the group deal with tax competitiveness— [ Interruption. ]

Order. We have important business to continue with. Will Members please leave the Chamber quickly and quietly?

New clauses 3 and 6 specifically address and seek to improve the competitiveness and attractiveness of the UK taxation system. I hope that there is consensus in the House that it is important that the UK has a competitive taxation system. I hope that that is not in any way controversial, although it is perhaps worth reminding the House of the words of Mr. Byers on 27 April:

"The United Kingdom needs a tax regime that is not only fair, but internationally competitive and attractive."

He made that point in the context of a debate on the Budget and, in particular, the proposal about the 50p higher rate income tax. He said that

"the measures in the Budget will make the United Kingdom less attractive."

I am arguing for a competitive taxation system in the United Kingdom, and some would criticise that approach by attempting to suggest that it is somehow unfair or inherently against the arguments for social justice. Again, it is worth quoting the remarks of the right hon. Member for North Tyneside, who stated that

"wealth creation and social justice are two sides of the same coin. We need wealth to be created if we are to provide the money to finance our social programmes." —[ Hansard, 27 April 2009; Vol. 491, c. 616.]

It is in that context that we have tabled new clause 3 and new clause 6. It is important that the UK has a competitive tax system but the concerns about it are becoming stronger.

Does the hon. Gentleman share the concern held by me and Mr. Cameron that there are far too many quangos in Britain and that the cost is prohibitive? Does he worry that this extra quango is a step in the wrong direction?

I am grateful to the hon. Gentleman. I shall turn in detail to the office of tax simplification, but I have to say that his intervention was as predictable as it was, perhaps, wrong-headed. Had he read the excellent speech that my right hon. Friend the Leader of the Opposition made yesterday, he would have seen that it set out the reasons why it is necessary and desirable to have some organisations that bring technical expertise to an area or provide a degree of transparency as to how matters are dealt with. Such matters are better dealt with outside government rather than inside government. I will make the case that the office of tax simplification meets all those criteria.

Is there not a flaw—perhaps two—in what the hon. Gentleman is saying? Competitive taxation is one of the concerns that are way down the list of those who are considering where to locate themselves as employees or the businesses that they may own or operate. Is it not the case that we must have a competitive corporate tax rate? How many countries would have the majority of their 100 largest companies, as we have in FTSE, paying no mainstream corporation tax? That suggests that we have a very competitive tax rate and tax regime, does it not?

I think I know where the hon. Gentleman got that statistic from, and I am not sure that it is actually right. Perhaps the Minister could respond to that point. That example is often quoted, but my understanding is that it is not necessarily the case. It is right that we should have a competitive taxation system, and I am very pleased that the hon. Gentleman supports that objective. However, the concerns about whether our tax system is competitive are very strong. For example, let me quote the CBI report that was published last year. It says:

"The competitiveness of British business is increasingly compromised by the UK corporate tax system. Only a few years ago the UK was perceived to be one of the most competitive places in the world to do business, underpinned by one of the most competitive corporate tax systems. Today this advantage has been significantly eroded."

Richard Lambert, chief executive of the CBI, has also described our tax system as a

"ball and chain round the ankle" of the UK economy.

I could even quote the former head of the Prime Minister's business council, who warned the Government to be "extremely careful" on tax policy. It is pretty clear what he meant when he stated:

"The consistency and the nature of (the tax policy) has been hugely attractive to overseas people and to companies. We mustn't lose that competitiveness. It would be very bad for the UK (and) it would be hugely damaging for business."

That head of the Prime Minister's business council is now Lord Davies of Abersoch, the Government's Trade Minister.

A KPMG survey of 50 of Britain's largest businesses published in January 2009 revealed that the percentage actively considering moving their tax residence out of the United Kingdom jumped from 6 per cent. in 2007 to 14 per cent. in 2008. In fact, one of those businesses had already left the UK by 2008 so perhaps we should say 16 per cent. We have seen a number of companies relocate their tax residence out of the UK—WPP Group, Shire, and United Business Media, to name but three. Those cases were specifically to do with fear of the regime on the taxation of foreign profits.

It would be fair to say that since the KPMG survey the Government have come forward with proposals that we debated at some length in Committee, and there is some support for those proposals. We raised a number of concerns and, despite the support for the proposals, the concerns remain. KPMG went back to those companies that were actively considering moving their tax residence after the Government had proposed their reforms on the taxation of foreign profits and the fact remained that all but one of them were continuing to consider actively moving their tax residence. One was waiting to see how things developed. It remains a problem, notwithstanding the announcements that the Government have made on the taxation of foreign profits.

It is worth highlighting the World Economic Forum survey on global competitiveness, which addresses a number of issues including tax competitiveness, where the UK's position fell from fourth in 1998 to 15th in 2003. New clause 6 addresses a number of aspects of competitiveness, one of which is rates. Corporation tax rates have not risen but have, in relative terms, become less competitive. Our corporation tax was the third lowest in the EU15 in 1997 and the sixth highest last year. We have a higher rate than the OECD average, which was not the case in 1997. We can consider the rate of income tax. Of course, at the higher rate level of 50p, we will now have one of the highest rates of income tax in the world, not one of the lowest.

There is also the issue of tax complexity. Those who debate such matters will be familiar with the fact that the UK now has the longest tax code in the world and that we have overtaken India in that respect. It is common in such debates to quote the exponential increase in the number of pages involved in tax textbooks. These are real problems that are frequently highlighted by professional organisations and business groups. I shall touch on that point again in a moment or so.

There is also a lack of predictability that has affected the UK tax system, particularly in the past few years. In a run of Budgets and pre-Budget reports, announcements have been made that were not consulted on and poorly drafted legislation has been presented that has caused significant concern to business groups in the UK. The capital gains tax proposals in the 2007 PBR and the proposals on residence and domicile in last year's Finance Bill are examples of that.

How do we address these fairly fundamental concerns? New clause 6 would require the Treasury to lay before Parliament an annual report on the impact on the competitiveness of the UK economy of measures in that year's Finance Bill. It would also require tax rates, the complexity of the tax system and the relationship between HMRC and the taxpayer to be taken into consideration. The advantage is that that would force the Treasury to focus on the issue of tax competitiveness, and enable Parliament to assess the Treasury's performance in that area. It would also send a strong signal to international investors and businesses about the importance that we as an institution attach to tax competitiveness. The proposal regarding the relationship between HMRC and the taxpayer would also be important in that regard, as it would mean that we all focused on ensuring that Revenue and Customs provided a service to taxpayers that worked to the UK's advantage.

New clause 3 focuses more specifically on the proposal to establish an office of tax simplification. It is an attempt to address the problem of tax complexity, but it would also help with tax predictability. The OTS recommendation is one of three in the report published last year by Lord Howe, the second being a proposal to establish a Joint Select Committee on taxation that would make use of the expertise in this House and the other place to scrutinise Finance Bills and draft legislation. The third element of the Howe report is a proposal for a new convention to the effect that any change to the law with a technical content should be set out no later than the PBR before a Finance Bill is introduced.

The OTS would also report to the proposed Joint Select Committee on taxation, very much as the National Audit Office reports to the Public Accounts Committee. The Howe report proposes that the OTS would be overseen by a steering committee appointed by the Chancellor. Its staff, in some respects like that of the tax law rewrite project, would be made up of a combination of people from HMRC, academics and representatives from the professional organisations and major firms, perhaps on secondment for a year or two.

The OTS's role would be to examine such areas of fiscal law as seem to it appropriate and to put forward proposals for tax law. It would not express a position on rates or yield or make decisions on tax law—it is absolutely right that this House does that—but it would make recommendations.

I hope that I have not missed this in the hon. Gentleman's speech, but will he say what salary he would expect the head of the OTS to receive? Would that person work full time, or for only a few days a week?

We have not made a decision about salary, and the hon. Gentleman would not expect us to have done so at this stage, but as I shall make clear in a moment, we believe that it would be an important role that would add considerably to the effectiveness and attractiveness of the UK tax system.

It might be worth making some comparisons with other organisations. I have referred already to the NAO, for whose work there is great respect across the House. The way that the NAO reports to the PAC is an example of the House of Commons working very effectively, and similarly Lord Howe proposes that the OTS would report to a further parliamentary Committee. Another comparison can be made with the tax law rewrite project which, as its name suggests, is an attempt to rewrite tax law in a way that is more accessible. We have debated it from time to time—I have debated it with the Financial Secretary—and there is widespread recognition of the professionalism with which the project has been undertaken. The OTS proposal is more ambitious and would require a different type of people but, like the tax law rewrite project, its staff would be made up of a combination of HMRC people, academics and professionals.

Another comparison could be drawn with the Law Commission, which plays a very useful role in making recommendations in technical areas and improving the quality of law as a whole. Indeed, it is worth pointing out that the Chartered Institute of Taxation has called for a long time for the establishment of a tax law commission, a body very similar to the OTS. Lord Howe did not go for that name but he could have done, as the commission would perform a similar role.

Setting up the OTS would have a number of advantages, the first and foremost of which is that it would be a force for making tax law simpler and less complex. An inevitable pressure is exerted by some Chancellors—let me put it that way—to complicate matters, to meddle and to tweak. I think that we can all think of a Chancellor or two who would fall into that category, but the proposed OTS would be a force against that.

The second advantage is that the OTS, in conjunction with the proposed Joint Select Committee, would involve more informed parliamentary scrutiny. Members of this House have to tackle highly technical matters, and the OTS would provide them with more information. It would also require a more deliberative process for making tax law: added to the work of the OTS, Lord Howe's recommendation for a convention that technical matters are published in the PBR would mean that the process was more thorough. That would also provide greater predictability in our tax system, because likely reforms would be clearer at an earlier stage.

The next argument for the OTS is that it would allow the expertise that exists outside the HMRC and the Treasury to play a greater role. I do not mean to belittle the work that those bodies do, but there is an enormous amount of expertise in the professional organisations. Having served on the Committee of each of the last four Finance Bills, I am not convinced that the system gets the best out of that expertise. The proposal would involve more consultation and a greater opportunity for the input of that expertise at an earlier stage in the process, before it becomes a matter of Government climbdowns or political embarrassment for amendments to be accepted.

A related benefit would be a lowering of the barriers between HMRC and the professionals so that the system made it easier for people to spend time working for HMRC, time in private practice, then back to HMRC and so on. Closer co-operation between HMRC staff and those working for the major accounting firms would be welcomed.

The Howe report points in the direction of an improved method of making tax law, and consequently in the direction of improved tax law. At a time when there will be substantial pressures on the public purse and no scope for substantial tax cuts, to put it mildly, and at a time when the rhetoric that we hear from the Government about continuing investment suggests that there will be no cuts in public spending, as we sometimes hear from the Prime Minister, we will see substantial increases in taxes. If that is the case, the least we can do in the context of tax competitiveness is improve the way tax law is made. It is right that we as a party have taken that extremely seriously. We are grateful to Lord Howe for the efforts that he put into producing his report last year. We think the two new clauses are extremely valuable.

Can the hon. Gentleman say a little more about the philosophical underpinnings of tax simplification? It is all very well talking about getting rid of complexities through simplifications. When one does so, one gets rid of subtleties and discretion, so one is likely to end up with a system more akin to rough justice. Because of the complexities of people's lives, particularly their tax lives, there is likely to be a backlash against that, as we have seen tonight on the 10p issue, which was supposedly designed to get rid of complexities.

The hon. Gentleman makes a good point in the context of the 10p rate. I fear that there are times when the argument for tax simplification has been damaged by that measure and the reforms to capital gains tax. If I were in a more partisan mood, which I rarely am with the hon. Gentleman, I would say that when the Government talk about tax simplification, the taxpayer should count the spoons. I recognise the hon. Gentleman's point, and I recognise that simplicity in the tax system is one, but not the only, objective of an effective tax system. It is not the only thing that matters.

We have a real problem. The point is made by professional groups time and again, and it is one of the reasons why our proposals on the office of tax simplification have been so warmly welcomed by the Institute of Chartered Accountants, the Chartered Institute of Taxation, the Association of Chartered Certified Accountants, the CBI, the British Chambers of Commerce and the Institute of Directors. There is widespread support for the proposals because the balance has not been struck in the past few years.

I am listening to my hon. Friend's comments with great interest and welcome the proposal. Does he recognise that for many small businesses, the whole complicated tax system falls proportionally much more heavily on them than on many larger businesses? Does he recognise that the simplification will be a great aid to many small and medium-sized enterprises that are struggling to survive, let alone progress and make massive profits?

Indeed. My hon. Friend is a strong and eloquent advocate of the interests of small businesses and I am grateful for his intervention. He is right that small businesses have greater difficulties with complexity when they cannot afford the infrastructure of tax advice. Small businesses also suffer most from difficulties with administration of the tax system. By and large, I tend to find that the smaller the business, the more concerns they have about the way in which HMRC works. Larger businesses tend to have more positive views about the way in which HMRC works with them than do smaller businesses.

Drawing together his response to my intervention and to that from Mr. Binley, do I take it that if it were pressed to a vote, Mr. Gauke would vote against amendment 36, a tax measure proposed by the Liberal Democrats which would favour very small companies, but would lead to greater complexity in the tax system?

We look forward to hearing the arguments made in favour of that amendment by Mr. Browne. My concerns about it are more to do with affordability than complexity. There are better examples of complexity in the system that need to be addressed than whether or not there is an additional rate.

New clause 4 returns to a debate held at the very end of the Committee stage as a consequence of a new clause tabled by the hon. Member for Taunton. It was always our intention to raise this in the Committee of the whole House because it affects a number of constituencies. It relates to the taxation of furnished holiday lettings. Let me put that briefly in context. Until the late 1970s the provision of holiday accommodation was regarded rather informally by the Inland Revenue as a business activity for tax purposes. Consequently, there was favourable income tax and capital gains tax treatment of it.

The Inland Revenue changed this practice in the early 1980s and started to treat the activity as an investment, rather than a business. There was considerable disquiet, and in 1984 furnished holiday lettings were formally treated as a business activity for tax purposes. This year the beneficial treatment of furnished holiday lettings is being extended to properties in the European economic area, but it was announced in the Red Book that the Government intend to abolish the furnished holiday letting rules next year and owners will need to prove that they are running a trade in order for it to be treated as a business activity. We had only a brief opportunity to debate the matter in Committee, and I thought it might be helpful to return to it and perhaps press the Minister, who made some helpful and conciliatory remarks in the Committee of the whole House. I should like to take this opportunity to press him again.

The concern expressed to us is that a number of properties that are currently let out as furnished holiday lettings will be sold before April 2010 to benefit from the advantageous capital gains tax regime. Some may think that there are advantages in doing so, given that such properties tend to be located in attractive rural parts of the country where locals often find it difficult to secure affordable housing. However, we are hearing that many of those homes are likely to be sold to second-home owners, who will use the cottages only occasionally. As a consequence, the properties will not be in use as often; there will be fewer visitors to the countryside; and there is the potential for significant damage to the rural economy. The situation will become more difficult for those currently owning furnished holiday lettings and for holidaymakers wanting to rent out a holiday home in the UK. In rural areas that are popular with tourists, there is particular concern that the measure will have a major impact on their economy. I note that there is particular concern in Devon and Cornwall, where there are some 62,000 furnished holiday lets. They could be substantially affected.

The hon. Member for Taunton raised one point about which I, too, have heard. When the announcement was made in the Budget, there had been no consultation with the Department for Culture, Media and Sport, which has responsibility for tourism. I should be grateful if the Minister would confirm whether that is true, and explain why the Government have voluntarily declared that the existing furnished holiday letting rules are incompatible with EU law. The Government usually have to be dragged kicking and screaming before they ever concede one of those points, but on that issue they seemed rather to move ahead of any court judgment.

Why was there no consultation prior to the publication of the announcement? The Minister says that there will be consultation subsequently, but why has there been no attempt to look more imaginatively at whether there is a revenue-neutral approach that would still provide some protection or favourable treatment to those owning furnished holiday lettings, given the impact that the measure may have on the tourist industry and the unfortunate dynamic effects that may occur?

rose—

I was going to conclude, but I will certainly give way.

Before the hon. Gentleman concludes, will he acknowledge the point that I made in our debate, which was in Committee not Committee of the whole House, about European constraints on activity here? The arrangements simply support UK-based furnished holiday lets, not those elsewhere in the European Union, and there is an issue.

I do acknowledge that there is an issue, and extending the treatment to EEA properties clearly makes the concession—the favourable tax treatment—more expensive. I absolutely acknowledge that point. The point that I was seeking to draw out is that the Government's usual approach is not to be so proactive in identifying areas of the UK tax system that appear to be in breach of EU law. There is a long list of cases on which the Government have fought long and hard before making the changes, yet on the issue before us they seem to have rushed rather quickly from identifying it to conceding the point that it is in breach of European law. The Government's wording is that it may be in breach of European law, and I do not know whether that prevents them from running into retrospective difficulties, but I do not want to press the Minister on that. There seems to be some enthusiasm for creating the problem as a consequence of European law, and that is not always the case. If the Minister will respond to those points in his remarks, I shall be grateful.

In conclusion, and returning to the other new clauses in the group, we think that it is vital that everything be done to ensure that the UK has a competitive tax system. In the current fiscal climate, the priority has to be a predictable and workable tax system, and our proposals for an office of tax simplification go some way towards addressing that.

I want to make a few brief remarks about philosophy, to put it at its most general. Most of my first degree is in sociology, and one thing that I learned during my studies is that people are able to hold contradictory positions. So, for example, it is all the rage for politicians from all parts of the House to talk about decentralisation and local control. We see it most markedly with the national health service. People say, "Let local doctors make decisions, with the local distribution of resources to where health needs are locally determined to be greatest." In the next breath, however, they say, "Oh! It's a national health service and we don't want a postcode lottery." We saw it graphically 12 months ago when the Conservative party's position was that the NHS should not be run from Whitehall and there should be local control. In the very same speech, however, its spokesperson called for a national moratorium on all hospital closures. Both positions may be desirable, but they are contradictory.

We have seen a certain contradictory nature tonight, and I probed it during my first intervention on Mr. Gauke. On the one hand, the argument runs that we have a tax system that is indeed complex, includes subtleties and allows a measure of discretion; and then in the new clause, we have a proposal for an office of tax simplification, which, were it to proceed not only to be an office but to have a remit for tax simplification, would undoubtedly lead us along the spectrum towards a much more rough and ready system of taxation administration, of decision making on the taxes that should be paid, and so on. That would be rough justice. If that is what the House and the Conservative party want, however, that is an honourable and coherent position.

The difficulty is when the position becomes contradictory and people start running away from its inevitable trajectory. We have seen it graphically tonight from the hon. Gentleman. The group of amendments before us includes amendment 36, which would set up very small companies' relief and mean greater complexity within the tax system. Mr. Browne will shortly tell us why the measure is desirable, but let us leave that aside and consider the philosophy. We have very small companies' relief in one amendment and tax simplification as the highlight of another. When I probed the hon. Member for South-West Hertfordshire, he did not make it very clear which way his party would like to go on the very small companies' relief proposal—a proposal of complexity.

Will the hon. Gentleman empathise with my frustration at another Opposition party saying one thing to one group and a completely contradictory thing to another, and seeming to be governed solely by a desire to have attractive headlines in by-election literature, rather than by a coherent alternative vision for government?

I presume that the hon. Gentleman is talking about the Liberal Democrat "Focus" newsletter published around the country; that is frequently contradictory.

Following the contribution from Mr. Browne, will Rob Marris confirm that the age of satire is not dead?

Indeed not; and the age of chutzpah is upon us.

I was discussing two of the new clauses in this group. In one, the Conservative party is pushing for tax simplification; that is understandable, coherent and logical, and in theory it might be desirable. At the first whiff of grapeshot, however, the party starts running in the opposite direction—it appears to be doing so on relief for very small companies, and it is certainly doing so on the furnished holiday lettings rules. Again, the rules might be desirable and it might be right for us to keep them; I am not getting into that. I merely give that new clause as an example, within a single group of amendments, of what I am saying.

The hon. Member for South-West Hertfordshire gives us a lot of stuff about simplification and its desirability. In new clause 4, however, he is saying that a problem exists with the abolition of the beneficial capital gains tax rules for furnished holiday lettings and that he is worried about that favourable treatment being done away with. Doing that, however, would be a simplification.

The hon. Gentleman is a clever man, and I have admired his comments again and again. However, is he saying that he does not agree with tax simplification? Britain's tax code rivals India's as the largest in the world. Is he saying that that does not harm small businesses?

What I am saying is that the issues are philosophically and politically much more difficult than is implied by simply standing up and wrapping oneself in the cloak of tax simplification. Life is more difficult than that, as we can see from the group of amendments. I gave those two examples. There are three new clauses and one amendment in the group. I leave aside new clause 6, which is about competitiveness. New clause 3 is about tax simplification. Amendment 36 would add complexity to the taxation of very small companies. In new clause 4, the abolition of a complexity is resisted by those who say that they pursue tax simplification.

Will the hon. Gentleman stop being a lawyer and tell me whether he believes in tax simplification?

I am simply saying to the hon. Gentleman that the issues are difficult and that I am not going to stand here and show what I regard as chutzpah, to say the least. I shall use a politer expression. I am not going to say, "Oh yes, tax simplification is wonderful," and then put myself in a contradictory position, as the hon. Member for South-West Hertfordshire has done.

Within a group of three new clauses and an amendment, the hon. Gentleman has one in favour of simplification and two in which he apparently comes down on the side of complexity. These things are difficult. Simply grandstanding and saying, "I believe in tax simplification," and asking me whether I do, does not help the political discourse of this country.

May I help the hon. Gentleman?

I don't need any help!

Perhaps the hon. Gentleman should accept some. An amendment in the group has been tabled by the Liberal Democrats, although it appears to have been associated with us. Yes, we have a new clause on furnished holiday lettings; in it, we attempt to probe the Government's thinking, as an Opposition should. We want to press them on a concern about the impact of a tax change they have announced—rather unwillingly I think; they do not seem particularly enthusiastic about the change, although they feel they have to make it.

We are also setting out an argument for a structure that will move towards a simplified tax system. I do not accept that there is an inherent contradiction. The hon. Gentleman appears to be saying that an amendment tabled by the Liberal Democrats is inconsistent with a new clause tabled by the Conservatives, and that that suggests a contradiction.

Let us be clear. Let us leave aside Liberal Democrat amendment 36 for the moment; we will get on to that. New clause 4 was tabled by the hon. Gentleman, among others. That new clause is about the tax position of commercially let, furnished holiday accommodation. New clause 3, also tabled by the hon. Gentleman, among others, is to do with tax simplification. All I am pointing out is that the issues are difficult and that simplifying simplification, to coin a phrase, is not helpful. We see it, however, in the position of the hon. Gentleman. He wishes to do the best in respect of commercially let furnished holiday accommodation; I understand his position, although I am not certain that I agree with it. He is concerned about the beneficial capital gains tax regime for that sector of small business being done away with. He wants the favourable treatment, as he called it, to continue. That is counterposed with a demand for tax simplification. All I am saying is that, to me, that is contradictory and demonstrates the difficulties of achieving tax simplification.

It is difficult to follow that devastating dismantling of not only the new clauses put forward by the Conservative party, but the fitness to govern that the party professes to possess. I was impressed when I read in this morning's edition of The Times that Conservative Front Benchers are taking guidance on budgetary affairs from the Liberal party of Canada, the sister party of the Liberal Democrats. The article says that when they met the Canadian Liberals,

"The Conservatives were impressed. Philip Hammond, the Shadow Chief Secretary to the Treasury, and Francis Maude, the Shadow Cabinet minister responsible for policy implementation, requested a private breakfast briefing with the Canadians."

That is how impressed they were.

I am not surprised that the Conservative party is looking for guidance and leadership from Liberal parties around the world. I include the Liberal Democrats here in Britain; I say that because new clause 4 looked extremely familiar to me as I leafed through the Order Paper. I soon realised that that was because I tabled the same clause in Committee. I welcome the support from the Conservative party.

I gently point out to the hon. Gentleman the perils involved in some of these issues. Having carried out a devastating tax-cutting approach as a federal Government in Ottawa, the Liberals lost the general election. They formed a minority Government under Paul Martin, but they fell shortly thereafter.

I defer to the hon. Gentleman's expertise about Canadian politics, although I observe a constant theme: if one wants tough decisions about the future of a country, and balanced budgets, one should look to a Liberal or Liberal Democrat party to make those decisions.

That gets me neatly to new clause 3, and the hon. Gentleman's dismantling of the credibility of the Conservative party.

Will the hon. Gentleman give way?

Let me talk for a moment about the difficulty that the hon. Gentleman will face when he makes his point. I very much support simplification. Don't we all? Everybody would rather have a simple system than a complicated one. One of the difficulties faced by businesses and individuals is being confronted by a complex tax code and all kinds of micro-incentives that are meant to change behaviour but actually mean that accountants are needed to fill out relatively simple tax returns. That is to be regretted. The objective of a simpler system is shared by all parties; the question is whether new clause 3 is the right way to advance that objective.

Does the hon. Gentleman not recognise that in the simplification of any code, the emphasis changes? Part of the code might grow, but the overall effect is for there to be a simpler code in the end. That is how the system works.

My first concern is that I take seriously the speeches of Mr. Cameron; I have no reason to believe that he means to mislead anybody. He made a big speech to the think-tank Reform. I serve on its advisory board, so I had a direct interest in what he said. Yesterday, the right hon. Gentleman spoke about the great threat posed to the public finances of the plethora of quangos, which cost a huge amount to administer. When I heard that I thought, wow, here we have a substantial policy—something that I can really latch on to. I have always struggled to get a real feel for what the right hon. Gentleman believes, but yesterday I thought that, he had raised a tangible issue that meant something. I can tell that Conservative Front Benchers intend to follow that theme through in the House of Commons—lots of amendments and new clauses will be tabled to flesh out the agenda to remove the quango state.

Then the following day, and although I appreciate that all new clauses had to be tabled before the right hon. Gentleman made his speech, I find a Conservative new clause that proposes a new quango. I ask Mr. Gauke this very simple question: how much would the head of the quango be paid? We could get into a bigger conversation about the overall cost, because I assume that it would need a secretariat, central London offices, and a new logo. The Conservatives would want its representatives at their party conference, so they would charge the quango lots of money to host fringe meetings there. It would have an entertainments budget—

Order. Will the hon. Gentleman get back to discussing the new clause?

I am grateful for that guidance, Madam Deputy Speaker, but this is directly central to the new clause. This proposed new quango appears to be uncosted. The going rate for chairing such organisations is not cheap, so I can imagine that the person who ran this one would require a big salary, expenses and everything else.

Order. The hon. Gentleman's remarks may well be correct, but perhaps we will restrict ourselves a little more to the terms of the new clause.

I think that I have made my point.

I am reluctant, in this time of difficult financial circumstances, to write a blank cheque to the Conservatives so that they can keep coming up with expensive quangos that I fear we cannot afford. Rob Marris has already mentioned the inconsistency in their argument. For example, we have just had a vote on a new clause tabled by Mr. Field that would have meant that we had to rejig thresholds, which would have been very hard to do and would have made the tax system more complicated, yet the Conservatives voted for that.

On the other hand, the shadow Chancellor has a history of being enthusiastic about flat-rate taxes. He came into office saying that he would consider their introduction, but it was only when he did so that he realised how foolish his initial proposal was. At one moment he seems to be in favour of an extreme form of simplification, but earlier this evening he seemed to be in favour of greater complexity.

Surely it is bogus to accuse the Conservative party of undermining the support we have always expressed for simplification just because, on occasion, we support a change in the law that might possibly add one further small complication to the tax system. That argument does not hold together intellectually. We can show general support for simplification while accepting that in certain instances a small degree of additional complication is desirable to achieve policy ends.

I think it is legitimate to explore the motives behind the new clause. My fear—I may be wrong—is that the Conservatives tell different audiences what those people want to hear, even if the messages are contradictory. For example, they tell people who are, rightly, concerned about the size of the budget deficit that the Conservatives are the party that will get to grips with it. Then I read today on the front page of The Daily Telegraph that they have a wish-list of extra, completely uncosted spending commitments aimed at pleasing people in rural communities. How that is compatible with getting to grips with the budget deficit is a mystery to me. They tell groups who complain that the tax system is insufficiently simple, "Don't you worry—we're bringing in new clause 3 to set up a quango to deal with that", yet the day before they told another group concerned about the growth in the number of quangos that they intended to cut their number. To another interest group that wants great complexity in the system because that would change it to its advantage the Conservatives say that they too favour that greater complexity because they share that interest groups' concerns.

Let me offer the Conservative party some advice. My party has been in opposition for decades, and my colleagues and I have come to the conclusion that the path that the Conservatives have decided to take is not the right one. It looks superficially attractive to a party that has been in opposition for a long time, as the Conservatives have been, because it seems that it can thereby appease all those different groups and that approach will cumulatively add up to something credible. However, the problem with that approach, as I fear that the Conservatives are increasingly discovering, is that those individual initiatives are less than the sum of their parts and do not add up to an alternative prospectus for government.

Is the crux of the matter not simplification but fairness? In an attempt to try to make things fairer for people, there are necessarily some complexities. I, for one, would much prefer to have a fairer tax system, even if that made it mildly more complex. When people look at their tax paperwork, they often compare what tax they are paying with that paid by other groups. While complexity can cause difficulties when we are looking to achieve competitiveness and so on, we should be aiming for a much fairer system, even if, at the end of the day, it is slightly more complex.

That is a particularly good point. My hon. Friend may have ruled himself out of the lavishly paid job as part-time chairman of the office of tax simplification, but given that he is not a member of the Conservative party, perhaps he would not have been considered for that role in any case. He makes the entirely reasonable point that although simplification of the tax system is desirable, in a complicated economy it is inevitable that some complexity is needed to ensure that the system is progressive and treats people fairly.

I spoke about new clause 24 in Committee on 25 June. I am pleased that the Conservatives were impressed by my contribution and felt moved to follow suit in their amendment. Is the possibility that the favourable status enjoyed by furnished holiday lettings may not be compliant with European law sufficient reason to introduce the proposed change? That issue is still hanging over the Government. It would be better if we were more certain about whether we are required to make this change, not least because the Government appear to have acknowledged that they did not consult the Department for Culture, Media and Sport and have not made any intelligent impact assessment of whether the measures would be damaging, particularly to rural and seaside communities in areas such as those in the south-west. It is safe to say that there probably would be an adverse impact, but I am not sure that the Government know precisely what it will be. Surely they should know that before they propose any such measure.

New clause 6 is self-explanatory. We are all in favour of competitiveness, although the form that the proposed report took would dictate how interesting or useful it would be.

Amendment 36 would target some additional assistance, at very modest cost, at very small businesses. A form of relief is available to companies with a profit level of less than £300,000, but there are a lot of companies within the range of zero profit to £300,000 profit, and that is quite a big gap. I know that Mr. Binley takes a keen interest in these matters, but it is worth repeating a couple of statistics. According to the Federation of Small Businesses, there are 4.7 million small businesses in the United Kingdom. Ninety-seven per cent. of firms employ fewer than 20 people, and 95 per cent. of firms—19 out of every 20—employ fewer than five people. Cumulatively, those very small businesses are making a significant contribution to the well-being of the economy and to overall employment levels. The amendment would target some additional assistance at companies making profits of less than £25,000—very small, almost micro-businesses would benefit from some additional assistance to help them to get on their feet, to stay profitable and, in time, to grow into bigger and more profitable organisations. It asks the Treasury to consider how that could best be achieved, so it is not excessively prescriptive, although the regulations would require an affirmative resolution to be brought into effect. On that note, I look forward to hearing the Minister's contribution.

I shall not detain the House long, but I wish strongly to support the new clauses tabled by my hon. Friend Mr. Gauke, particularly new clause 3, on simplification, and new clause 6, on competitiveness.

There is obviously a trade-off between simplification and complexity. These things are never easy, but the entire benefit and tax system in this country has gone much too far towards complexity. There is rough justice in a simple system, but we are now trying to tailor both those systems to take account of every eventuality and the needs of every group. Very often, we cater for the demands of special interest groups and lobbyists rather than try to achieve equality across the board. The result is a system of benefits and tax that nobody really understands and that costs an enormous amount to administer. Nobody really knows what their entitlements are or what taxes they are paying. If we ask people how much tax they pay, either at corporate or personal level, they often do not know. That is bad for democracy.

I am agnostic on whether we need an office of tax simplification. I simply ask my hon. Friend to think carefully before setting up a permanent, full-time body when there are many outside experts and bodies that would willingly give their time and advice for free, particularly if it was augmented by good special advisers.

The whole system of special advisers has been corrupted in recent years, and they are now propagandists more often than not, acting as spin doctors at public expense. At their best, however, they provide independent, expert advice. The last Government had an individual in the Treasury called Edward Troup, who came with a great deal of tax and legal experience. He was able to challenge the revenue department and give advice to officials and Ministers from a commercial perspective, which was extremely valuable. Such advice, particularly when associated with some sort of voluntary body, may mean that we do not have to set up a whole new simplification office.

I have only one point to make on the question of competitiveness, but I want to make it strongly. I reject the notion that international tax competition is bad. Indeed, it is not just the best way but probably the only effective way of countering the relentless upward pressure on tax rates. It is a realistic and effective constraint on Governments to know that if they push taxes up too far, they will lose business and revenue. My hon. Friend gave some good examples of when that has already happened. I am afraid that by international standards, we are now a rather high-tax jurisdiction, and we are paying a daily penalty in the loss of revenue and employment. However, that is an effective constraint.

Of course, the reaction of Governments is to try to form a tax cartel internationally to prevent tax competition. In 1997, when the Government first came in, they encouraged a European Union package to prevent what was called "harmful tax competition". There was an EU committee, chaired by a Government Minister, to try to form a cartel to keep the EU as a high-tax, high-regulation regime and prevent what it called unfair tax competition. That was defined as meaning any competition that might affect the location of business activity, so almost any lower taxes in any part of the EU could be called unfair.

What that committee could not do was prevent the rest of the world from providing competition. The obsession with the idea that there is too much tax competition in the EU blinds us to the real challenge, which is whether the EU as a whole is competitive in the wider world. There, too, we are losing altitude. The EU is demonstrably less competitive now than it was 10 or 20 years ago, and we are paying a heavy price in employment and output. The G20 is now on to this, and it is trying to form a cartel to drive out tax competition.

I strongly support my hon. Friend's aim, which is to ensure that before every Budget, there must be a careful examination of whether it will help or damage Britain's position in the pitiless struggle for international competitiveness. It is much better to promote competition than to form cartels and reach agreements with other member states to prevent it. I hope that the House will divide if the new clauses are not accepted.

I think we can all agree that tax competitiveness is important, and it is a good thing that the UK consistently performs well in international comparisons of business environment. Mr. Gauke told us that we were 15th in the World Economic Forum's global competitiveness report in 2003. I am not quite sure why he chose 2003, but I can tell the House that in the latest edition of that report we are 12th. We have improved our position and are 12th out of 134 countries on the WEF's measure of international business competitiveness. The World Bank's study "Doing Business 2009" ranked the UK sixth out of 181 countries for ease of doing business and second in the EU. It is right that we compare the position in the UK with the position elsewhere, and I am pleased to be able to tell the House that those comparisons put the UK in a strong position.

On simplification, the Government have brought forward more than 50 measures since the 2007 pre-Budget report, and again we compare favourably, with the World Bank ranking the UK best in the G7 for ease of paying taxes in its 2009 "Paying Taxes" report.

On consultation, we have consulted formally on more than 50 per cent. of this year's Finance Bill, and informally on substantially more, such as oil taxation. Those affected by that are quite a self-contained community, so a formal consultation is not always necessary. The Government do not, of course, consult on tax rates, owing to the possible market impact and potential forestalling, but we are committed to consultation and our record underlines that.

Recent business tax reform, such as changes to the taxation of foreign profits, to which the hon. Member for South-West Hertfordshire referred—I am grateful to him and his hon. Friends for their support for our changes—is designed to modernise the corporate tax system to meet the demands of an increasingly globalised economy and to promote more long-term investment. That package will enhance the competitiveness of the UK business environment. I am bound to say that, at 28 per cent., the rate of corporation tax in the UK is at its lowest level ever, and is the lowest in all the G7 economies. The small companies rate, at £300,000, is very competitive internationally, with the highest threshold between the small companies and the larger companies rate.

Our record on competitiveness is strong. Mr. Heathcoat-Amory was right to say that tax competition is healthy, but I caution him against criticising the work on harmful tax measures. It is not right to characterise that as the establishment of a cartel, as he suggested. Things have been done that encourage tax avoidance, and it is right for companies to work together on that.

New clause 3 would establish an office of tax simplification. I was intrigued by the difference between the approach of the hon. Member for South-West Hertfordshire and that of the Leader of the Opposition yesterday. The hon. Gentleman told us that he would explain why that particular quango is a good thing, even though his party is committed to reducing the number of quangos. I missed that part of his speech, but perhaps we will hear it on another occasion. The new clause is unnecessarily bureaucratic. By contrast, we have conducted a series of tax simplification reviews, and we set out our progress in the Budget.

Of course, it is the Financial Secretary's job to paint everything in the garden as rosy, but does he acknowledge that "Tolley's Yellow Tax Handbook" had 10,134 pages in 2008 and 4,998 pages in 1997, and that the page layout has been changed to get in more words? Is that a rosy situation?

The World Bank's assessment shows that we are the best in the G7 for ease of paying taxes—that is the real test of what is happening in our tax system.

New clause 6 provides that the Government should report to Parliament on the competitiveness of the UK tax system. We already provide a wide range of information in impact assessments of Budget measures, progress reports at the Budget and our annual departmental report. I am not clear that a further report would have the benefits suggested.

Amendment 36 would pose a serious risk to the fairness of small business taxation. Seventy-five per cent. of UK businesses are unincorporated, so do not pay corporation tax. In proposing benefits for only "very small companies", the Liberal Democrats would disadvantage the 3.5 million unincorporated businesses relative to the small companies with which they directly compete. The amendment would also increase tax-motivated incorporation, helping few businesses and introducing additional complexity. It would also mean an unfunded tax cut.

As Mr. Browne said, he moved an identical amendment to new clause 4 in Committee. I was pleased that he did not press it to a vote then, and I hope that Conservative Members will not press it today. We will publish draft legislation and an impact assessment at the time of the pre-Budget report, before the introduction of such a measure in next year's Finance Bill. Treasury officials will be happy to consider any comments on the proposed legislation at that time. The difficulty with European law is clear. I think that we made the right judgment, and there will be an opportunity to reflect on that when the information is published. New clause 4 is unnecessary because the opportunity for which it would provide will be given at the time of the pre-Budget report.

The new clauses and the amendment would introduce additional complexity and bureaucracy. I hope that hon. Members will not press them to a Division.

The Minister's view of the UK's taxation system is frankly complacent. Professional groups and business organisations have expressed genuine concerns, yet the Government appear to be distant from the real world. I would advise both the Minister and Mr. Browne to read carefully the speech by my right hon. Friend the Leader of the Opposition, who set out a compelling case for bringing in outside organisations to provide technical expertise to Departments, which is exactly what the office of tax simplification would be. I note that the hon. Gentleman said that he was in favour of simplification, although it was not quite clear why he appears not to be in favour of establishing an office of tax simplification, which would be widely welcomed by many professional groups and business organisations. As a consequence, I intend to press new clause 3 to a vote.

Question put, That the clause be read a Second time.

The House divided: Ayes 146, Noes 365.

Question accordingly negatived.