Other elements of the system have been updated to tueet the challenges of a modem business environment. With business increasingly organized on an international scale, the rules for allowing losses to be used within multinational groups needed to be modernized. So these rules have been liberalized to give groups the flexibility to structure themselves in the way that best meets their needs.
Intangible assets are of growing importance in the emerging knowledge-based economy. The available reliefs for business expenses did not recognize this. So new reliefs have been introduced, such as for the cost of purchasing third generation mobile phone licenses and the Government has proposed a comprehensive regime that will provide a lasting solution for all intangible assets.
Looking at the UK today, it now offers a highly attractive tax regime for multinational business. Reforms undertaken by this Government have modernized the tax system, eliminating outdated structures and removing tax constraints on businesses ability to adapt to emerging commercial opportunities.
But there are more steps to be taken. Encouraging research and development is a vita] component of the Government's strategy for improving the UK's productivity performance and competitiveness. Comparisons with other countries show that in nearly every sector the UK trails behind other major industrialized countries in business R&D, although our science base is strong.
This has translated into lower overall levels of innovation, in the last Parliament the Government introduced an R&D tax credit for SMEs in order to address the particular difficulties such firms face in accessing capital to invest in innovation and R&D.
To complement this in Budget 2001 the Government published a document “Increasing Innovation” which set out the case for a proposed new tax incentive to encourage R&D and innovation among larger firms, and invited views on the design issues for the measure.
To address concerns about the quality and supply of skilled researchers, the Government has also announced an independent study into the provision of skilled scientists and engineers to British industry. The Government is considering the representations it has received with a view to introducing the new R&D tax credit for large firms in Budget 2002.
I have already referred to the reform of the taxation of intangibles, and we hope to have the changes in place no later than Finance Act 2002, You will also be aware that we will shortly be publishing a further paper, taking forward the current proposals for a relief on gains arising on the disposal of substantial shareholdings.
Considerable progress has already been made on developing this relief which takes further the principle that groups should be able to structure and restructure their operations to meet global opportunities without undue impediments. The paper will contain details of how the proposed exemption could operate, so that respondents can make a realistic comparison between this and a possible deferral regime. This will also provide the opportunity to consult business on associated issues aimed at producing a flexible and competitive tax system for parent companies based in the UK.
The UK is engaged in a process of modernization of its corporate tax system. We wish to create a system that allows business to flourish, and meet the challenges of a global economy. The UK's work with the OECD is an essential part of this agenda—ensuring that companies can compete on a level global playing field. But we should always keep the ultimate goal in sight—enhancing opportunity and prosperity for all through sustained economic growth.