Clause 5 — Charge for financial year 2015

Oral Answers to Questions — Foreign and Commonwealth Office – in the House of Commons at 1:27 pm on 8 April 2014.

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Votes in this debate

  • Division number 245
    A majority of MPs voted not to require a report on the impact of an additional cut of one per cent to main rate Corporation Tax on businesses, including small and medium sized enterprises

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury) 1:27, 8 April 2014

I beg to move amendment 2, page 3, line 28, at end insert—

‘( ) The Chancellor of the Exchequer shall undertake a review, within six months of the passing of this Act, on the impact of an additional cut of one per cent to the main rate of Corporation Tax for financial year 2015-16, with particular reference to—

(a) the impact on businesses with fewer than 50 employees;

(b) the impact on investment by businesses with fewer than 50 employees; and

(c) alternative tax measures, including non-domestic rates, which would have a greater benefit for businesses with fewer than 50 employees.

( ) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.’.

This amendment would require the Chancellor of the Exchequer to publish a report on the impact of a cut of one per cent to main rate Corporation Tax on businesses, including small and medium sized enterprises (

SMEs

).

Photo of Lindsay Hoyle Lindsay Hoyle Deputy Speaker and Chairman of Ways and Means, Chair, Panel of Chairs, Chairman of Ways and Means, Chair, Panel of Chairs

With this it will be convenient to consider:

Clauses 5 to 7 stand part.

That schedule 1 be the First schedule to the Bill.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

Our amendment would require the Chancellor to publish a review of the impact of an additional cut of 1% to the main rate of corporation tax for 2015-16 with reference to the impact on businesses with fewer than 50 employees, their levels of investment and the impact of alternative tax measures such as a reduction in non-domestic rates—business rates—which we believe would have a greater impact on small and medium-sized enterprises, which tend to be businesses that have fewer employees and in the main occupy premises with a rateable value of less than £50,000.

Our amendment and our approach highlight the difference between us and the Government when it comes to business taxation. The Government have made a number of significant cuts to corporation tax. The main rate has been cut a number of times, and is due to be cut again from 21% to 20% next year. The main rate is paid by companies with profits of more than £1.5 million—about 40,000 or so businesses. The small profits rate is paid by companies with profits of under £300,000, and there is a marginal rate, which applies to companies with profits between £300,000 and £1.5 million.

The Government have announced cuts to the corporation tax rate in almost every fiscal event that we have had since 2010, with the rate falling from 28% in 2010 to 20% in 2015-16. This has brought the UK rate lower than most developed economies. As I said, the Government are planning another cut for April 2015 from 21% to 20%, at a cost of £400 million in 2015-16, rising to £785 million the following year, and £865 million the year after that. The cumulative corporation tax cut over this Parliament has been in the region of £10 billion. The Government’s central argument for cutting corporation tax is that a lower rate makes the UK more attractive as a destination for businesses to locate. They claim that a reduction in the main rate of corporation tax will reduce capital costs for businesses and promote higher levels of business investment.

Photo of Simon Kirby Simon Kirby Conservative, Brighton, Kemptown

Can the Opposition really be interested in business when not a single Back Bencher is present to listen to the hon. Lady speak to her amendment?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury) 1:30, 8 April 2014

I assure the hon. Gentleman that Labour Members are passionate about business and our policy of a business rates cut for small and medium-sized businesses, which I will come to later.

The Government’s impact assessment says that the 1% cut in 2015 will lower the bills of 40,000 businesses that have profits of more than £1.5 million and pay the main rate of corporation tax. It will also benefit a further 41,000 businesses that have profits between £300,000 and £1.5 million and pay the main rate of corporation tax but receive marginal relief.

The Department for Business, Innovation and Skills estimates that the UK has 4.8 million private sector businesses, the majority of which, around 3.6 million, are sole proprietorships, and a further 1.02 million have fewer than 10 employees. That means that if 81,000 businesses benefit from cuts to the main rate of corporation tax, fewer than 2% of the total businesses in the UK are benefiting.

Photo of John Redwood John Redwood Conservative, Wokingham

I would be grateful if the hon. Lady explained how the Treasury should go about making the calculations that she wants it to make. How would the Treasury know the consequence of that one particular tax change, and how would it know what it would be like without it?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

I will come to the point about the different tax choices that we make and measuring their impact. Unlike the Minister, I do not have access to Treasury officials, so I am not versed in their methodology, but I do not deny that the Government’s corporation tax rate cuts in this Parliament, which we have supported, have benefited 2% of businesses. I will come later to the 98% of businesses that have not benefited from the cuts to the main rate of corporation tax, but which are struggling with the costs of running their business. The Opposition believe that the Government can and should go further in helping those businesses cope, in particular, with the business rates that they have seen increase.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

Will the hon. Lady acknowledge that the Government inherited plans to increase corporation tax for small businesses by 1%, but have cut it by 1%, so it is not true to say that the Government have done nothing for small businesses?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

I will come to the Government’s record in helping small and medium-sized enterprises.

As I said, we have supported the reduction in the rate of corporation tax in this Parliament, except to raise concerns, which I am sure the Exchequer Secretary will remember, well before I was in my current post, about the financing of that change at the start of the Parliament by getting rid of investment allowances on which the Government have recently U-turned. But as the figures show, the change to the main rate of corporation tax, the central policy for business taxation, does not help 98% of business in this country. How are they faring under this Government?

Everyone agrees that SMEs are the engine of growth, a phrase that we hear regularly in the Chamber and the House, and it is also fair to say that they are the part of our national life. High streets and corner shops are part of the very British way of life that we enjoy in this country. I have a personal affinity with these enterprises, as when I was younger, my parents had a corner shop. My first job was helping my parents by serving customers in our shop after school and at weekends, doing the stock-take and going with my dad to the cash-and-carry. Even if one did not grow up in such a business, they are easy to call to mind because there are so many of them. As I said, there are almost 5 million, and they are the heart and soul of our villages, towns and cities. They also provide about 47% of private sector jobs.

As for everyone—SMEs are no different—times have been tough, and SMEs have been struggling with a number of issues during this Parliament and I will come to the points raised by the hon. Gentleman. The first of those issues has been access to finance. Every time we discuss SMEs, access to finance is one of the key issues raised. It is fair to say that the Government have failed to get lending going to businesses. They are in their fourth year of office and their many schemes keep failing to have a significant and game-changing impact on the access to finance landscape. For example, business lending fell towards the end of last year as banks continued to squeeze funding for SMEs, despite attempts by the Bank of England to boost finance to the sector. Bank lending figures also show that businesses paid back £4.3 billion more than they had borrowed in the three months to the end of November. SMEs were the worst affected by that particular brake on lending, and that is despite the tweaks to the funding for lending scheme announced by the Bank that were designed to try to ensure that loans to smaller businesses would be favoured.

Although larger businesses can access the growing market for debt financing in the bond market, there is a problem for small businesses that are reliant on high street banks and specialist finance and lending businesses, which have become much more conservative in their lending practices since the global financial crash of

2008. SMEs have consistently reported that credit is either refused or offered at very high prices by the major lenders, as Members on both sides of the House must regularly hear from businesses in their constituencies. There has been much talk in this Parliament about the problems of access to finance for SMEs, but despite several different schemes being announced, the change in practices that is required if SMEs are to have the finance they need has not been seen.

That issue has also been considered by the Public Accounts Committee, which made a number of worrying findings in relation to the landscape for SMEs. It said:

“The departments’ schemes are managed as a series of ad hoc initiatives that are launched to address particular weaknesses in the market, rather than to act as a coherent programme.”

That is a real problem. The lack of a coherent programme from the Government, despite what I am sure are the best efforts of the Business Secretary and the Chancellor, has led to piecemeal action—a little bit here and a little bit there, but no overall drive to action, only some good rhetoric for set-piece debates in the Chamber, leading to not very much at all.

Photo of Steven Baker Steven Baker Conservative, Wycombe

The hon. Lady seems to be arguing that banks should be less conservative, which implies a greater degree of risk, and says that she wants a more coherent, less piecemeal programme. I infer from that that she wants the banks to take a greater degree of risk, and the taxpayer to pick that up. Is that what she is saying?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

As I set out, the issue is not just the risk taken by the banks, which have been very conservative in providing SMEs with access to finance. Members in all parts of the House accept that good businesses that have the capacity to grow, create more jobs and be successful are failing to get the finance they need. In my constituency, a number of successful, viable businesses are still failing to get finance from the banks. That is not a result of banks being a little bit conservative in their risk taking; they have significantly curtailed their lending, which is having a negative impact on SMEs and their capacity to grow and increase jobs.

The Public Accounts Committee also found that investment overall had declined and that Government Departments could not demonstrate whether their schemes had addressed the market failures that they had been set up to correct. There was no mechanism, the Committee said, for evaluation of the various schemes and no obvious goals were set for the schemes, making it easier for the Government to hide any failures. Goal setting of the kind envisaged by the Public Accounts Committee would make the failure of such schemes much starker, but would also lead to greater and quicker action to correct them and ensure that desperately needed finance reached SMEs.

An additional problem in the Government’s approach, according to the Public Accounts Committee—I think we can all agree on this—is the difficulty of raising awareness of the schemes available for SMEs, which are often small operations, one-man or one-woman bands. It is difficult to balance all the responsibilities of running a business, and often people do not have the time to engage with Government policy and how it affects them.

They may hear about schemes randomly and it is not always easy to learn from Government websites what is available for small businesses. The Public Accounts Committee felt strongly that the Government lacked a clear strategy to ensure that SMEs were aware of the funding options available to them.

I noted at the weekend that the employment allowance introduced by the Government has been rolled out. Millions of letters have been written to businesses to make them aware of the £2,000 allowance that has come into effect. That goes to show the extent of the awareness raising that is required. I am sure that there was also a political advantage and motive to the writing of those letters. Writing to businesses telling them what change has occurred and how they might benefit is a good thing, but it shows the effort required to get the message out. Such effort was not necessarily apparent in the case of other Government schemes relating to access to finance.

Photo of Nick de Bois Nick de Bois Conservative, Enfield North

Perhaps the hon. Lady will understand my confusion and clarify this point for me. She has spent much of her speech suggesting that the Government were doing nothing for small business. Then, when they contact businesses and tell them how they can benefit from the Government’s policies, she seems a bit disappointed. Can she explain the contradiction?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

I assure the hon. Gentleman that it is not a matter of my personal disappointment. The Government have announced a number of schemes, which everyone agrees have failed to get lending to the rate that is necessary to have a game-changing effect on the landscape for small and medium-sized enterprises. The employment allowance, which we supported—the hon. Gentleman served on the relevant Bill Committee—came after the national insurance contributions regional holiday, a scheme that was in place for three years and almost from day one failed to meet the ambitious targets that the Government set for themselves. Throughout the life of that scheme, we called on the Government to change course, which they did not do until the scheme came to the end of its three years, at which point they introduced the employment allowance.

The employment allowance will help SMEs, and has been welcomed by them, but it has come late in the day. We are in the last year of this Parliament. The Government could easily have accepted the failure of the NICs regional holiday scheme and perhaps introduced the employment allowance earlier. We debated that at length some months ago when we were discussing the Bill that brought in the employment allowance. Where they have changed course, the Government have done so late in the day, and where they have not changed course, their schemes are still not having the booster effect that is needed for access to finance for SMEs.

The second area in which SMEs are struggling is exports. The Government set themselves an ambitious target for the increase in exports that they wanted to see by 2020, but we now know that the Government’s two flagship export schemes for businesses announced a couple of years ago are yet to help a single firm. The £5 billion exports refinancing scheme was launched in

July 2012 as part of the Treasury’s UK exports guarantee scheme. At the time, Ministers claimed it would be up and running by the end of 2012, but answers to parliamentary questions reveal that it has not helped a single business and is not yet operational.

The Government’s £1.5 billion direct lending scheme launched seven months ago has not helped a single firm either. So far 15 inquiries have been received and just one firm has put in an application for support under the scheme, which was first announced in the 2012 autumn statement. Both programmes were supposed to help more firms export. Following the failure of the Government’s previous flagship programme designed for the purpose, the export enterprise finance guarantee scheme was abandoned by Ministers after it emerged that it had assisted only five firms.

We know that last year UK Export Finance spent less than a fifth of the £25 billion of financial support made available to businesses. More than £20 billion was left gathering dust in the Government’s coffers. When this record was brought to light, a Government spokesman said that steps were announced in the Budget to make both programmes

“more accessible to small businesses”, and that the changes would help firms to “realise their export potential”, but the verdict of the Institute for Fiscal Studies was that they were

“relatively small and are unlikely to make a substantial difference to the weak performance of UK investment and exports”.

Media reports have suggested that civil servants are privately admitting that the Government’s promise to get 100,000 new companies, primarily small firms, exporting by the end of the decade is not going to happen.

SMEs have real problems in accessing finance and exporting. They are also struggling with energy prices. This is a topic on which there has been a great deal of debate in the Chamber over recent weeks. We know that energy prices are a problem for businesses as much as for families. Our proposals for an energy price freeze would save the average business more than £5,000. In the meantime, energy prices continue to impose a burden on SMEs.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar 1:45, 8 April 2014

Will the shadow Minister enlighten us on how the calculation of a £5,000 saving is made, and on what she predicts about prices before and after such a freeze?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

The hon. Gentleman is welcome to see our detailed calculations, which I can provide to him and are a matter of public record. If he really wants auditing of manifesto commitments, he should support our call for the Office for Budget Responsibility to be allowed to audit parties’ manifestos. We have nothing to hide on the policies that we have announced and the numbers behind them. We are very happy for the OBR to look at all that and to prepare a report for the benefit of the public so that they can see that what we are saying is based on good numbers and is deliverable. If the Government—both parts of the Government—have nothing to hide, they should fully support our proposal on the OBR audit, which is a good one. I am glad that the hon. Gentleman has given me a chance to remind the House that it is not Labour Members who are scared to have their numbers looked at.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

I will not give way; I am going to make a little more progress.

As hon. Members will know, the level of business rates is set by the Treasury, although the revenues are collected locally. Business rates increase with inflation, and the rate of increase each April is set according to the rate of retail prices index inflation in the previous September. In September 2013, RPI was 3.2%, so business rates were due to rise by 3.2% this year. Of course, that was before the Government made their autumn statement announcement, which capped that increase at 2%. Business rates have risen rapidly during this Parliament because of high inflation. More than one in 10 small businesses now say that they spend the same or more on business rates as on rent. This April, businesses have been hit by a rise of £270, on average, at a total cost to business of £45 million.

Photo of Nick de Bois Nick de Bois Conservative, Enfield North

The hon. Lady spoke very passionately, and rightly so, about her parents’ corner shop business, which she is right to be proud of. In citing these numbers, however, she overlooks the fact that because of the Government’s extension of small business rate relief, anyone with a rateable value of less than £6,000 is not paying anything at all, as I found out when I went down my local high street and heard how grateful people are for this support. We need to keep some context when talking about these numbers.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

I hear the hon. Gentleman’s point, which I will come to later in my remarks. On the action that the Government have taken in the round, he will not be surprised to hear that my criticism is that it does not go far enough. By comparison, our alternative proposal, which is a Labour manifesto commitment, goes much further and would result in a cut in business rates and a freeze the following year.

The only choice for many shops, workshops, start-up businesses and others who pay business rates is to pass the increases on to their customers, primarily through higher prices, which of course makes things difficult for those customers. They also face a continuing squeeze, which many of them complain means that they can no longer afford to stay in business. This is having a real impact, as I know from my casework in my constituency surgery. I have met many constituents with family-owned businesses whose stories are not dissimilar to the story of my own family, whose elder relatives came to this country in the ’60s and ’70s and set up businesses that they have passed on to their children and, in some cases, grandchildren. They are now terrified that the squeeze from the exponential growth in business rates might put their family-owned businesses out of business. I have seen constituents break down because every time the business rates bill comes they fear that many years of hard work, which is tied absolutely to their conception of what it is to be British and to enjoy the freedoms offered by this country, might be going down the drain.

Given how much businesses are struggling and given the collection of issues that SMEs are facing, we have said that the next Labour Government would cut business rates in 2015 and then freeze them in 2016. In 2015, we would cut business rates on properties with an annual rental value of less than £50,000, taking the rates back to the level of the previous year, and then freeze them for such properties in 2016. As we have said, we would pay for that by reversing the additional cut in the main rate of corporation tax due to go ahead next year, when it will fall from 21% to 20%. The main rate is paid by companies with profits of over £1.5 million, while companies with profits between £300,000 and £1.5 million pay the rate on a sliding scale, and companies with profits of less than £300,000, which pay the lower rate, will be unaffected by the cut.

All the money raised from the corporation tax increase that we envisage—that is, a rise from 20% back up to 21%—would be spent solely and exclusively on paying for our policy on business rates. That is an important point given some of the debate that has taken place in the House in the past week or two, when we have been speaking about the Budget and attitudes towards business taxation. Even at 21%, our corporation tax rate would remain competitive, being second lowest in the G8 and second lowest in the G20. Government Members often say that any corporation tax rise will have a negative impact on our country’s capacity to do business, but I disagree, because, as I said, even at 21% it will be the second lowest in the G8 and the G20. The headline rate of corporation tax is not the sole reason that businesses choose to come to this country to invest and create jobs. It is an important factor—no one can deny that—but it is part of a picture of support for business that those wishing to come to this country look at, or are advised on, before they make their decisions. I do not believe that putting corporation tax back up from 20% to 21% would have too great an impact on our capacity to attract businesses to this country.

Photo of Simon Kirby Simon Kirby Conservative, Brighton, Kemptown

Is not the problem that a proposed tax increase sends a message that it is the thin end of the wedge—the tip of the iceberg—and that under a Labour Government, God forbid, we might see considerably more tax rises?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

I do not think it does send that message. Business people are much more sophisticated than that: they do not simply look at announcements about the headline rate. They will receive advice from their advisers—their accountants and lawyers—when they are making their decisions about where to base themselves and where to go to invest and grow their companies. It will be explained to them, and known to them, that this policy is designed to support a different type of business that benefits all of us who are interested in the business landscape.

We have been very clear that this is the only change to corporation tax that we envisage during the next Parliament and that we are doing this not because we want to put people off coming to this country, or prevent them from doing so, but because we want to use all the money to pay for a cut and then a freeze in business rates. We have also said very clearly that any choices we make that differ from what the Government are doing will be fully costed and fully funded. As I said, we are happy for the OBR to look at our figures and audit our manifesto, and to do so for all political parties ahead of the next general election to make sure that the public are as well informed as possible about the different choices being made by parties that want to be in government.

Photo of Nick de Bois Nick de Bois Conservative, Enfield North

Given the extreme volatility of corporation tax collections for decades, how would the hon. Lady deal with the unpredictable nature of the amounts collected? Will whatever is collected one year be applied as a discount on business rates the following year? If the revenues were below the expected amount, would the hon. Lady go back to businesses to ask for more in business rates? She should consider the unfortunate, difficult and unpredictable nature of the issue. Business needs certainty.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury) 2:00, 8 April 2014

I agree that business needs certainty. All our figures are based on analysis from the House of Commons Library. That is the best we have to go on and it is, of course, a respected source for making projections on the likely cost of cutting the rate and how much will remain for business rates. As I have said, all the money raised will go towards our business rate policy, which applies to 2015-16 and 2016-17. We will, of course, consider the circumstances in the early part of the next Parliament when deciding what to do about business rates.

During the Budget debates, Government Members tried to argue that our proposal to increase corporation tax back up to 21% meant that Labour was all about increasing business taxes. It is interesting that that argument has not been repeated since those debates. It quickly fell apart when it was pointed out to Government Members that, given that all the revenue from our corporation tax policy would be spent on cutting and then freezing business rates for small businesses, their argument did not seem to consider small businesses to be real businesses. I am glad that Government Members appear to have dropped that particular line of attack and I would warn them against trying to run it again, because it was insulting to small and medium-sized enterprises.

Photo of James Morris James Morris Conservative, Halesowen and Rowley Regis

Under this Government, local authorities will be able to retain an uplift in business rates as part of local government funding. Has the hon. Lady considered the impact of a business rate freeze on the ability of local governments to benefit from an uptake in business rates, and on local government finance in general?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

Our policy is fully costed. We do not envisage any loss of revenue for local government. Our key priority is to give practical assistance to businesses as soon as possible, so that people such as those who visit my constituency surgery to say that they are fearful that they will have to close their business get some relief from what is becoming a very real business burden.

Last week the Secretary of State for Education suggested to the British Chambers of Commerce that our policy on corporation tax and business rates pits businesses against each other, which is complete nonsense. The idea is not to tell one business that it is going to suffer while another business does really well; it is to get a better balance with regard to the landscape of business taxation.

As I have set out in detail, corporation tax cuts over the life of this Parliament amount to some £10 billion and 2% of businesses in this country have done very well with their tax bill. It is fair and right to consider what is happening to the other 98%, understand the struggles they face and make choices that the 2% might not like, but that will offer support to smaller businesses and that will go some way to ensuring that they can remain in business and continue to grow and do good for the economy.

Even if the headline rate of corporation tax increases from 20% to 21%, it is important to remember that it will remain competitive. I do not believe that the change would be destructive or damaging to UK plc. In fact, I think that it and the moneys that will go to businesses as a result of a cut and then a freeze in business rates could do real good, not just for SMEs but for the economy as a whole.

Photo of Simon Kirby Simon Kirby Conservative, Brighton, Kemptown

It is all very well for Labour to bash big businesses, but does the hon. Lady not understand that many of their customers and suppliers are small businesses? The issue is not quite as simple as she would have us believe.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

I am really disappointed that the hon. Gentleman has not been listening to my speech. At what point did I bash big businesses? It was not something I said, and nor was it suggested by my tone. I have made it very clear that we supported the cuts to corporation tax in this Parliament. We are simply suggesting a switch spend—it will be in our manifesto for the next general election—which amounts to making a different choice on corporation tax in order to get practical and immediate help to smaller businesses that will make a real difference to them.

Given that the 2% of businesses that are larger have benefited by about £10 billion over the life of this Parliament as a result of a number of changes to their taxation, it is fair to switch our attention to a part of the business market that has been rather ignored. Although the Government have a number of schemes to help smaller businesses, those schemes are not going far enough or achieving the Government’s aims.

Our suggested switch spend is fair. It is not about pitting one business against another or valuing one above another. It is a simple recognition of the fact that 98% of businesses in this country have not received the practical help they need. They are desperate for change on their business rates and we will deliver it. The policy will be in our next manifesto.

Photo of David Gauke David Gauke The Exchequer Secretary

On support for small businesses, does the hon. Lady regret the fact that when her party was in office, it planned to increase the corporation tax rate for small businesses from 21% to 22%? Does she also regret the previous Government’s plans to increase employers’ national insurance contributions and fuel duty, which would have affected small businesses?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

What I primarily regret is that, as a result of the choices they made, this Government choked off the economic recovery that was under way when they came to office. That is the most regrettable thing: it led to three damaging years of flatlining, and it is ordinary people who are paying the price.

Following a vocal campaign by a number of business groups, ahead of the autumn statement the Government decided not to go ahead with the planned 3.2% increase in business rates and decided instead to cap them at 2%.

The Government also announced in the autumn statement that they would provide additional help to retailers. That was action—it was relatively late in the day but it was action—but it does not go far enough, and the Government’s policy does not compare favourably with ours ahead of the next general election.

Ultimately, business rates are still set to rise this month by an average of £270. The Government’s autumn statement offer of £1,000 business rate relief was welcome for retailers, but it excluded workshops and offices used by high-tech start-ups. I particularly have in mind small jewellery makers in my constituency, which is famous for the jewellery quarter at its heart. Such businesses will not benefit from the Government’s announcements in the autumn statement and, as I have said, a significant rise in business rates is still envisaged for small businesses.

Our proposal for a switch spend from corporation tax to business rates is a much more comprehensive measure that would offer genuine and more far-reaching support to small and medium-sized enterprises. Given the scale of the problem, our policy seeks to offer practical help that would truly make a difference on the Witton road, the Coventry road and the Soho road in my constituency. The Exchequer Secretary will be pleased to know that it would also make a difference in his constituency. The Office for National Statistics report “UK business: Activity, Size and Location 2013”—a great read—tells us that more than 80% of the 5,750 VAT or PAYE-based enterprises in South West Hertfordshire employ no more than four people, while almost 75% of them have a turnover of less than £250,000. They are therefore not affected by the changes to the main rate of corporation tax, which he himself oversees; they are more likely to be in properties with a rental value of £50,000, and are therefore more likely to benefit from Labour’s proposal to cut and then freeze business rates in 2015-16.

In conclusion, we believe that our policy is the right one for helping small businesses. It meets the scale of the challenge that they face on business rates, and it makes the right choice about how to pay for the policy. We will want to vote on our amendment later this afternoon to highlight the impact of this Government’s decisions and the imbalances in their approach.

Photo of John Redwood John Redwood Conservative, Wokingham

I remind the House that I offer advice for an industrial company and an investment company, although not on these subjects.

I thought that Shabana Mahmood started her speech very promisingly. I admire her background, and I can think of a former great Member of Parliament who came from a very similar background and who deduced some very sound principles about how economies and shops work. I thought that the hon. Lady was going to develop in that style. I was delighted when she said that she is now a convert to tax reduction. She said that she and the Labour party now think that taking corporation tax down from 28% to 21% was right. It is wonderful news that we seem to have cross-party accord on the fact that lower tax rates can bring businesses to Britain, keep more profit in Britain and, if we let such policies fructify for long enough, even lead to more revenues and help to promote the economic growth that we all want.

The hon. Lady went even further and thought up another tax reduction that she wants. I am not normally one to let a tax reduction opportunity go by, and she said that a reduction in business rates would be a very good idea. She said that it would be good to find a way to make a further reduction in business rates, because that would be very welcome after years of increases.

I was then disappointed, however, because the hon. Lady said, “Oh, you can’t have too much of a good thing. It might start to work. You’ve got to have a tax rise, as well as a tax reduction.” She did set one part of the business community against another, although she claims that she did not do so. I find that rather curious, because we are meant to be debating the Opposition’s amendment 2, which does not propose a reduction in business rates or an increase in the corporation tax rate, although she says that that is their policy. The amendment allows us to talk about that because it is very wide ranging. We can talk about any kind of tax because it invites us to look at alternatives to corporation tax in ways that she spoke about.

We have a contradiction: the Opposition say that they have a settled policy to put up the corporation tax rate for larger companies and to cut and then freeze business rates. However, we are asked to vote on a much weaker amendment, which just says that the Chancellor of the Exchequer should conduct a review of the impact of cutting the corporation tax rate from 21% to 20%, as well as of other options, presumably including the one that the hon. Lady has already adopted.

I wonder whether Labour Members are in a bit of a muddle. Why do they need a review if they have already made up their minds about its answer, and if they have not made up their minds, why have we been given a clear policy for once, given that they usually use the advantages of being in opposition to be rather shy about coming up with clear policies?

Let me address the policy that Labour recommends the House to adopt, rather than the one that it might put to the electors—that we need a review to be carried out in the six months after the passage of the Bill. In other words, the review of the tax reduction would be conducted before we knew the results of the tax reduction. That is curious: if we were going to conduct a review into the consequences of an action, we might have thought that we would want to see the action first, but no, Labour thinks that we can conduct a thought experiment on the action. I am not against thought experiments; an awful lot of policy has to be based on them or on history.

There is a contradiction in that the review would have to be done in advance of the action, while there is also the contradiction that Labour has apparently settled its policy without needing a review. I therefore wonder whether the review is just a waste of time and a bit of a waste of money; whether it is some kind of smokescreen or whether there is some muddle between Front Benchers about whether or not they have a settled policy. Having started by feeling very warm and sympathetic towards the hon. Lady, I am now reluctant to vote for the amendment. I am not sure that it is a very serious proposal, because it seems already to have been prejudged by what Labour is offering in this debate.

In thinking about other options, as amendment 2 invites us to do, we should bear it in mind that if we are clever with our taxation policies, we can actually cut a rate and increase the revenue. That is the kind of tax cut that I like at the moment, because I want to get the deficit down. It makes intelligent sense not to pursue a policy of jealousy, but to decide how we can get money out of rich companies or individuals who have money—one obvious point about taxation is that we have to tax people who have money; we cannot tax those who have not got any—by setting rates that they are prepared to pay, that they are prepared to stay and pay or that they are prepared to come here to pay because the rates are more attractive than those elsewhere.

There is already some evidence for such a review in that the Government have now got round to cutting the top rate of income tax from 50% to 45%, and the latest revenue figures for the nearly completed financial year show that there has been an extraordinary surge of £9 billion of extra revenue this year compared with the previous year from payers of the top rate of income tax. That is an astonishing achievement.

Photo of Andrew Love Andrew Love Labour, Edmonton 2:15, 8 April 2014

Does the right hon. Gentleman accept that the primary cause of that increase in revenue is income shifting from one year to the next? Many individuals held back income in the year when the rate was 50%, and brought it forward when the rate was reduced to 45%.

Photo of John Redwood John Redwood Conservative, Wokingham

I do not accept that at all, because the revenue in the previous year was very similar to the figure for the year before that, which was before people knew that there might be a cut in the tax rate. I suspect that next year will also see good levels of revenue. I do not expect a sudden reduction of £9 billion in revenue in the financial year we are just starting. As always, the hon. Gentleman is peddling misery for no good reason. Labour Members should rejoice and accept the fact that if we cut a rate, we sometimes get more money. They always want to spend other people’s money, so surely they should listen to how we can maximise the amount we get out of people.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Will the right hon. Gentleman explain where, following the rate change, this money has suddenly come from if it is not re-phased income? Is he suggesting that people have somehow avoided tax or that people have suddenly come into this country to pay it? He must have some reason for the increase, if he does not accept the one given by my hon. Friend Mr Love.

Photo of John Redwood John Redwood Conservative, Wokingham

We are talking about people who are a serious amount richer than any of us on MPs’ salaries, and if the hon. Lady meets such people occasionally she will discover that they have many more freedoms than other people on when and where they earn income, what they invest in and where they organise their affairs. Some of them were not in this country before and came here when the rate was lowered. Some have some money in one country and some in another, and they can quite legally shift their money around and decide where they are going to earn more income. That is what companies do, as she has discovered and sometimes complained about. Rich people have a lot of flexibility, which means that a country that sets sensible tax rates attracts and keeps more of them and gets them to do more things.

There is also a disincentive effect, because someone who is legally here and keeps all their money here might not do extra work—why should they, when they are going to be taxed at too high a rate? Or they might not take an extra risk with their investments—why should they? If it works they will get taxed, and if it does not work they will take 100% of the loss. We can therefore change the climate by setting a competitive rate to encourage more confidence and action.

Photo of John Redwood John Redwood Conservative, Wokingham

I will give way again, if the hon. Gentleman wants another go.

Photo of Andrew Love Andrew Love Labour, Edmonton

I do, because I want to explore the Arthur Laffer effect. The right hon. Gentleman seems to be saying that if we reduce income tax, we increase the amount of money we take. How far would he take that? Would he make income tax 40p in the pound, or 35p? Would he abolish income tax entirely and raise even more money?

Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Gentleman is now being completely stupid, is he not? There are two rates of tax that will raise no money—0% and 100%—and there is a curve between the two, which, as he rightly said, was first drawn by Mr Laffer, I believe on a napkin. Most people, including the Treasury, accept that there is a Laffer curve, and that it is a question of judgment where the rate is that maximises revenue. It is quite clear from the evidence in this year’s Revenue and Customs figures that 50% was too high a rate to maximise revenue, and that 45% gets us more revenue than 50%. I believe that 40% would get us more revenue than 45%. I am pleased to hear today that a Liberal Democrat, of all people, is writing a book on the subject. I welcome that and look forward to more progress in coalition talks about the maximising rate of income tax. If it were taken down to 20%, we would clearly lose a lot of money, so somewhere between there and where we are now is the maximising rate, and getting it right is partly science and partly trial and error. We can be sure that we are now moving in the right direction, having gone in the wrong one previously.

It is interesting that the previous Prime Minister, during all his time as Chancellor of the Exchequer, never took the top rate above 40%. I do not think that was because he liked rich people or wanted to be unkind to the left wing of the Labour party. I believe it was his judgment that anything over 40% would have cost him revenue. As a modest man, I therefore accept that there was something about which he was absolutely right—he was correct in not raising the top rate of tax above 40%.

Photo of Tom Blenkinsop Tom Blenkinsop Opposition Whip (Commons)

The right hon. Gentleman has made a case about corporation tax and about the top rate of income tax being reduced from 50p to 45p. Would he apply the same logic of Laffer to indirect taxation? It would be interesting to hear his comments about the raising of VAT to 20%.

Photo of John Redwood John Redwood Conservative, Wokingham

It is clear from the figures that the raising of the rate to 20% increased revenue. Yes, there is a Laffer effect in VAT, and 20% is clearly below the optimising point if our only interest is in increasing revenue. Going from 17.5% to 20% has not got us to the point where it costs us revenue. If it had, I would have been the first to tell Ministers that it was a ridiculous idea. I understand their need for more revenue, because they inherited such a huge deficit.

Photo of Tom Blenkinsop Tom Blenkinsop Opposition Whip (Commons)

Of course, companies often pay VAT before they even make a profit.

Photo of John Redwood John Redwood Conservative, Wokingham

Indeed, there are timing issues with VAT, as the hon. Gentleman says, but I do not really see how that affects the argument about whether putting the rate up brings in more money. That is in the figures.

I fear that we are drifting a bit far even from the wide subject of the amendment, but I suppose the alternative options to help business could include cutting VAT. However, it is clear that if we cut the rate of VAT again, there would be a substantial loss of revenue, whereas we have just cut the income tax rate and there has been a colossal revenue gain. We should learn from those points.

I think the shadow Minister suggested that there would be no loss of revenue to local government from cutting and then freezing business rates. I do not know whether she wants to intervene, but that was my understanding of what she said. I think the Labour party has been converted to the Laffer effect. It now asserts—I do not know on what evidence—that if we cut and then froze business rates, we would collect the same amount of revenue. I would need persuading about that, because I am not sure that business rates are at that point yet, but if they were, it would be a sensible proposal for the coalition Government to take up. It would make it an even bigger pity that Labour has not bothered to table a proposal along those lines for us to vote on today, which might even have drawn me into the Lobby against my own party’s Front Benchers if the case had been well made and I felt that the Laffer effect of lower business rates was well established. I have profoundly shocked my Front-Bench colleagues now, having earned myself a brownie point through my earlier remarks. As they are well aware, they are quite safe, because there is no proposal on the amendment paper to cut business rates. [Interruption.] The Whip has just found that out—she needs to do a little more homework before coming to these debates. [Interruption.] Now she is complaining that she did not say that. As she will be in the record as having said nothing, who am I to disagree?

Before I get into any more trouble, I will conclude my remarks by saying that I will not support the amendment. I do not believe that a review would help, and I do not understand how it would be judged. Nor does it seem that it would have any impact on Labour policy. I am perplexed by the fact that when Labour has a clear policy for once, it has not tabled a proposal so that we can debate it fully and vote on it. I strongly support lower corporation tax rates, which will be very helpful.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

It is a great pleasure to speak briefly in this debate. There is everything to be said for reviewing the effects of changes in tax rates, but to do that one must eliminate all other factors.

A great surge in demand over a certain period, with unemployment going down and output going up, and all sorts of other factors can affect tax revenues. It is not just tax rates. As my hon. Friend Mr Love said, if there was a direct relationship between lower tax rates and increased revenues, a zero tax rate would mean big revenues and a higher tax rate would mean lower revenues. It is just not like that.

I also suggest that marginal changes to tax rates will not make much difference. Everybody in business likes lower taxes, and no doubt most citizens do. It is in the nature of things, because they have more money in their pocket. At the same time, in a civilised society—I like to think that we still have some remnants of a civilised society—taxation is vital to pay for the things that make it civilised. I would personally like higher revenues, so that we could spend more on the things that make our society worth living in. Over the past few decades, there have been some regrettable cuts in tax revenues. Perhaps we should not go back to the 98% top rate of the 1970s, but when Nigel Lawson got rid of the 60% rate and brought in the 40% rate, it led to substantial income for better-off people.

Photo of John Redwood John Redwood Conservative, Wokingham

Would the hon. Gentleman not accept that cutting the top rate from 83% to 40%, or from 98% to 40% for so-called investment income, meant a huge surge in revenue? Rich people not only paid more in cash terms and real terms but paid a bigger proportion of total income tax. What’s not to like?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

We can argue about particular cases, but when we measure the impact of tax changes, we have to ensure that we are not measuring other factors. I met some people in the City just after Nigel Lawson cut the tax rate, and a lot of them were aghast at the Budget, saying, “Why has he cut the taxes? We don’t need the money.” They were clearly not of the same mind as the right hon. Gentleman, but they were civilised, decent people who thought that good tax revenues and higher taxes were a good thing.

Photo of John Redwood John Redwood Conservative, Wokingham

As they were civilised people who did not need the money, all they had to do was give it away. They could have given the money to the state or to charity.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North 2:30, 8 April 2014

The problem with charity is that only nice people give to it. The great thing about tax is that it applies to everyone equally, which is the way things should be.

Photo of Simon Kirby Simon Kirby Conservative, Brighton, Kemptown

The hon. Gentleman’s argument, interesting though at first it may appear, is totally busted when we look at France. Hordes of rich French people are coming to pay tax in this country rather than in France. The net effect is worse than if the taxes had been lower in the first place.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I am one of those who would like to see a little more insulation between countries on financial matters, rather than a free flow of finances across borders, but I am a traditional leftist and Keynesian. I am not of the same mind as those who believe in breaking barriers and people having complete freedom to do exactly what they like with their money anywhere in the world. I hope that one day we will return to a more sensible approach.

The problem with tax is not the tax rates but the collection. For a long time we have seen vast amounts of tax not just avoided but evaded. The thick end of avoidance is the thin end of evasion. The precise line between avoidance and evasion is ill-defined, and I would like stricter rules so that a lot of what is now called tax avoidance is defined as tax evasion. If we sent one or two of the big tax avoiders and tax evaders to prison, it might concentrate a few minds and bring in more tax. The research on behalf of the TUC by Richard Murphy shows that, in his view, the tax gap is in the order of £120 billion a year. If we collected a fraction of that sum, we could solve all our problems, including the famous deficit. I am very much in favour of reviewing the effect of tax changes.

Photo of Andrew Love Andrew Love Labour, Edmonton

My hon. Friend talks about the tax gap. Whatever we believe the tax gap to be, everyone recognises that there is one. Is it not surprising that we are seeing cuts to HMRC staffing at a time when we need to reduce that tax gap?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

My hon. Friend is absolutely right. I have called many times in this Chamber, including in the past week or two, for more tax officers to be employed. Every tax officer collects many times their own salary. A VAT officer told me that, even for VAT on small businesses, tax officers collect some five times their own salary. When it comes to the big corporates, if we had a good chief tax officer, Vodafone might have paid a few more billions, as it should have done. We could then start to solve our problems. We have to focus on the big corporates, which are getting away with murder.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

I have a lot of sympathy with the hon. Gentleman’s comments on HMRC staff, which I raise frequently on the Public Accounts Committee, but surely he must regret the cut in 10,000 compliance staff when his party was in government and welcome the addition of 2,500 compliance staff under this Government.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I made exactly the same speeches when my party was in government. I demanded that the previous Government employ many more tax officers. There has been a conspiracy between Front-Bench Members for some decades to get away from being too unpleasant to the corporates and to let them have their way. Well, I do not want to let them have their way; I want them to pay their taxes so that we can pay for the things that ordinary people need, particularly those who are less well off and those who are more vulnerable.

Photo of David Gauke David Gauke The Exchequer Secretary

I note the hon. Gentleman’s comments on wanting to have more HMRC staff, but surely the most important point is that HMRC’s yield should increase. Has he noted that the forecast yield over this Parliament is almost double the yield over the previous Parliament?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

That is very welcome, but I do not believe in the immutability of a certain level of tax revenue and that, whatever we do, we cannot change that level because somehow the world will not produce more than 38% of GDP in tax. It is just a question of collecting that tax and enforcing the tax rates to ensure that the big international corporates, in particular, pay their taxes. When we do that, we will see a substantial increase in revenue. Of course there are countries where overall tax revenues are substantially higher than ours, and they are not necessarily countries that are doing badly economically; they are countries that are doing well, but a higher proportion of their economy is in the public sector. Those countries have higher taxes and higher public spending, and they are civilised societies, too. The countries with the lowest levels of tax and public spending are often some of the poorest, where the gulf between rich and poor is much greater and, generally speaking, life is less pleasant, particularly for the poor and the less well off.

I look forward to more enforcement and a higher tax take by enforcing the existing tax rates and ensuring that people, particularly the corporates, pay their taxes. When it comes to taxation, the behaviour of the economy is crucial.

Photo of Jim Cunningham Jim Cunningham Labour, Coventry South

My hon. Friend has said that we should look at tax avoidance. There are negotiations between the Inland Revenue and multinational companies in which the Inland Revenue estimates what it thinks the tax should be, rather than collecting the real tax.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

My hon. Friend is absolutely right. The recent head of HMRC is now a tax adviser to corporate companies, but when he worked for HMRC he seemed to have had a cosy relationship with some of the biggest corporate companies and was doing deals over lunch on what those companies should pay. That was wholly inappropriate. He should have said, “You have to pay your taxes, and we are going to chase you until you do.” That is what I want to see—HMRC staff at the highest level who view their job first as being a public servant who collects taxes for the state, the public and the ordinary citizen, rather than letting the international corporates, and indeed the domestic corporates, get away with what is effectively appalling tax fiddling. I applaud my hon. Friend Shabana Mahmood for saying that we should have a review of the effect of tax rates from time to time.

Photo of Steven Baker Steven Baker Conservative, Wycombe

This is not the first time that I have agreed with the hon. Gentleman. It is important that taxes are collected according to the law, not an individual’s opinion of what the figure ought to be, but does he concede that the situation is as it is because the tax code is far too complex?

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I am not an expert on tax codes, but taxation is too complex and could be made much simpler, although I think tax should remain progressive. The idea of a flat tax, which the UK Independence party is talking about, is complete nonsense. I fundamentally oppose UKIP not because of its views on the European Union, on which I might have some sympathy, but because of its views on everything else. UKIP is extremely right wing. It wants to get rid of rights at work, privatise the health service and introduce a flat tax. Frankly, UKIP is barking and I will oppose it at every turn.

My hon. Friend the Member for Birmingham, Ladywood talked about a review of the impact of tax changes, which is absolutely right and I support her.

Photo of Priti Patel Priti Patel Conservative, Witham

I have thoroughly enjoyed the debate so far. I am astonished by the ground that we have covered, because we are solely here to address corporation tax, which has not been explored anywhere near enough in the light of the Labour party’s amendment.

As my hon. Friend Nick de Bois said, the amendment would create uncertainty and put jobs and future investment at risk—there is no doubt about that. The Labour party wants to reverse the Government’s low business tax approach by putting up corporation tax, which would send out all the wrong messages to the business community. It is farcical that Labour Members are dressing up their so-called policy as a way to help small businesses with business rates. They are cynically trying to pitch big business against small business. The Government have clearly shown that we can help all businesses, both large and small, by cutting corporation tax and, importantly, easing the burden of business rates, which the Minister and the Chancellor of the Exchequer have done.

Photo of Angie Bray Angie Bray Conservative, Ealing Central and Acton

Does my hon. Friend agree that it is often not an either/or situation? Small businesses often depend on larger businesses for work.

Photo of Priti Patel Priti Patel Conservative, Witham

My hon. Friend is absolutely right. She gets to the heart of the debate and shows why Labour has no credibility. Labour Members cannot claim to want to help small businesses when, as the Minister pointed out, at the last general election, when they were in government, they proposed to increase the small profits rate of corporation tax from 21% to 22%. We have also heard about the Labour party’s so-called interest in small business, but in government it presided over the closure of 6,000 small post offices. There is fuel duty and energy costs for small businesses, too. On many issues, Labour lacks credibility. We should put things into context and beyond doubt.

Photo of Priti Patel Priti Patel Conservative, Witham

No. We heard from the hon. Gentleman earlier.

The last Labour Government ignored the benefit of expanding trade. Exports came up in the discussion. This Government have gone out of their way to expand overseas trade. The Chancellor is in Brazil this week at the beginning of export week. We are doing everything right to sell Britain overseas, and to encourage overseas companies to come here and benefit from the low rate of corporation tax, which Labour wants to destroy.

Putting up corporation tax does nothing to help small business, contrary to what Labour says in its shallow and feeble amendment. That only goes to demonstrate that the Opposition have no plan to expand our economy or create more jobs, growth and prosperity—creating those things is exactly the right approach that the Government are taking.

Amendment 2, which I obviously do not support, is completely irrelevant to the wider national debate currently, which is about sustaining growth in our economy, and expanding our economy with jobs, growth, prosperity, inward investment and exports. On that point, I heard a terrible diatribe earlier—an hon. Member said we are not exporting enough. In my county of Essex, the Essex chamber of commerce has helped more than 1,000 local firms, including many small and medium-sized businesses, in processing export documents and giving practical assistance. The value of those exports is well over £300 million. That is the message we want to send out to business of all sizes in the UK. I have no intention of supporting the amendment and support what the Government are doing.

Photo of Mike Kane Mike Kane Labour, Wythenshawe and Sale East

It is an honour to follow Priti Patel. I concur that it is great news that the Chancellor is drumming up business for Britain in Brazil, but I wonder what first attracted him to the Copacabana beach.

I know debates in the House can sound like statistical conventions, but we have only to look at the statistics to realise that the debate is important. Some 99.9% of all private sector business in the UK is in SMEs, which also account for 59% of private sector employment and 48% of private sector turnover. As my hon. Friend Shabana Mahmood said, SMEs account for 47% of all private sector employment. Labour Members will know that growing private sector trade unions such as the Union of Shop, Distributive and Allied Workers and Community the union are picking up on that growth.

I was intrigued by my hon. Friend’s story about starting out in a corner shop. I want to tell a story about a firm in my constituency. In 1985, a young woman—a housewife called Kamal Basran—was bringing up a young family and preparing food for them in her kitchen. She was fed up that she could not buy quality Indian cuisine from any of the major supermarkets. She took out a £5,000 bank loan and started supplying food to local restaurants and businesses. In the past nearly 30 years, she has grown that business and hopes to post a £50 million profit this year. It has grown year on year despite the recession. She now has 220 employees. As a new MP, I had the great honour of visiting that business in my constituency just a couple of weeks ago. The package I got as I left was superb. I do not declare an interest—I distributed the goods to parliamentary staff and constituents afterwards.

That success story is an example of why SMEs matter so much. In polling up to the last general election, people said that their work prospects were the most important things to them after health and crime—work prospects were always No. 3 or No. 4 on the list. That is why the debate is important.

Amendment 2 highlights the divide between Labour and the Government on help for business. The Government have focused on the top corporations. The latest statistics show that there have been £10 billion tax cuts for multinationals and large companies, but not enough help for SMEs. That is critical. Labour Members have said that, instead of going ahead with the Government’s planned additional cut in corporation tax, the money would be better used to cut and freeze business rates for the 1.5 million SMEs.

Photo of Tom Blenkinsop Tom Blenkinsop Opposition Whip (Commons) 2:45, 8 April 2014

Does my hon. Friend agree that a review would be important? A corporation tax cut would be welcomed by the business community, but it is not the priority in certain sectors. For example, energy-intensive industries are more concerned about capital allowances—the Government have had to U-turn on getting rid of them—and the carbon price floor, which affects the chemical and steel industries.

Photo of Mike Kane Mike Kane Labour, Wythenshawe and Sale East

I agree with my hon. Friend. Government Members have said that amendment 2 would create uncertainty, but if the Committee agreed to it and to a review, businesses would welcome it, because a review would be part of the ongoing debate.

The amendment would require the Government to publish a report on the impact of the planned cut in corporation tax in the 2015-16 financial year from 21p to 20p. The amendment calls for the assessment of the impact specifically on SMEs.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

I welcome the hon. Gentleman to the Chamber—this is the first time I have heard him speak. The amendment mentions “fewer than 50 employees”. Can he help me to make sense of that? Mainstream corporation tax would apply only to firms making more than £1.5 million profit. Is he suggesting that the amendment includes small companies that make more than £1.5 million profit? That is how it reads to me.

Photo of Mike Kane Mike Kane Labour, Wythenshawe and Sale East

I thank the hon. Gentleman for his welcome. Most SMEs have fewer than 50 people working for them, and a medium-sized enterprise is usually defined as one with fewer than 250 employees.

I welcome the fact that Labour Members want to cut business rates on properties with an annual rental value of less than £50,000 back to the level of the previous year. We would then freeze business rates for those properties in 2016. That can be paid for by reversing the additional cut in the main rate of corporation tax from 21% to 20% in 2015.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

It is a pleasure to speak in the debate. If there is one attraction to the amendment, it is that it allows a broad-ranging debate on any tax measure one can think of. Perhaps I could talk about the impact that a carrier bag tax would have on small businesses, especially a tax on bags that would allow the biodegradable element to get into the recycling stream, which damages recycling businesses in the plastics industry. That would perhaps stretch the debate a little too far away from the main rate of corporation tax, even though hon. Members might agree on such a measure.

We are going in exactly the right direction in trying to get the main rate of corporation tax down to 20%. That has been the direction of travel for this Parliament and it is the right place to be. I suspect that, if we get it to 20%, that will be the end of the journey, for the very good reason that having a corporation tax rate lower than the basic rate of income tax creates lots of interesting tax planning opportunities, as the previous Government found out when they had a small companies rate of

10%. Lots of strange people incorporated themselves as businesses—they looked a lot like one-man bands who ought to have been self-employed and made interesting tax deferrals or savings when pretending to be companies.

If we get to 20%, that is the end. I suspect that that is why we can no longer have a small companies rate of corporation tax that is lower than the large companies rate. If we lower one rate, we encourage behaviour that we do not want to encourage. It is right that we get both rates down to 20% and to have one rate of corporation tax. We can then scrap the hugely complex marginal relief calculation and everyone will know what rate of tax they pay on their profits. That has to be the right situation. A small growing business, whose profit increases during the year and suddenly hits more than a quarter of a million pounds, will wonder what tax rate it will paying in that year, so losing that whole calculation completely is a huge advantage.

Photo of John Redwood John Redwood Conservative, Wokingham

Does my hon. Friend agree that the review could very usefully come up with a 20% capital gains tax rate, too? I would settle for 20% capital gains tax, 20% corporation tax and 20% income tax. There would then be fewer tricks.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

A symmetry of tax rates would make perfect sense. Whatever form of income one had, one would know what rate one was paying.

Photo of James Morris James Morris Conservative, Halesowen and Rowley Regis

One of the issues in Britain is that not enough companies are starting up and then growing. One of the reasons for that is that we do not have enough symmetry and the tax system is too complicated. Does my hon. Friend therefore think it would be a good idea to get some simplicity into the system?

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

My hon. Friend is exactly right. I think many Members, not least the Minister, know of my commitment to tax simplification. I was tempted, knowing that we were debating corporation tax, to table my amendment yet again on rewriting the whole corporation tax code to one that is more understandable and less complex.

Photo of Andrew Love Andrew Love Labour, Edmonton

The hon. Gentleman seems to be arguing that we might need a different policy mix for small businesses and for larger businesses. May I therefore invite him to reject the idea that the amendment somehow splits off small businesses from large businesses? We need a different policy mix.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I agree with the hon. Gentleman. There is eminent sense in having a lighter-touch tax regime for small businesses, with perhaps lower taxes in some areas for small business. We clearly do that: there is a separate regime for filing accounts. There is less expectation on small businesses, and, if only in the business rates field, there are exemptions for the very smallest businesses. I think we actually have that graduated system.

Photo of Andrew Love Andrew Love Labour, Edmonton

Notwithstanding small business rates relief, does the hon. Gentleman accept that for a significant minority of small businesses, business rates are now greater than the rental payments they have to meet, and that therefore there is some merit to the proposal being put forward?

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I might be tempted to agree that there is some merit in looking at the level of business rate cost, but I am not sure there is much merit in the proposal we are debating here this afternoon for yet another review. I welcome the measures the Government have taken to reduce business rates, or least reducing the increase through the 2% cap and discount for high street businesses. I think we are all very keen to see how we can help our high streets grow. That reduction has to be the right way forward.

Returning to the earliest of the series of interventions, on a 20% capital gains tax rate, companies that realise a capital gain will be paying at 20%. It is only individuals who will end up paying the higher rate. There is sense in having symmetry restored to that situation. I wholeheartedly support getting the corporation tax rate down to 20%. We could trumpet it around the world that we have one of the lowest rates in the G8. That long-term direction of travel has to be one of the most powerful ways to encourage investment in this country by the large corporations we want to see operating here. It would perhaps stop them setting up their headquarters in Switzerland, Ireland or elsewhere. This is now a trend we can see: large corporations choosing to bring more jobs to, and paying tax in, the UK.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

My hon. Friend is making a very good speech, as he always does on these matters. Will he join me in welcoming the fact that Hitachi has decided to relocate its rail headquarters to the UK, in the north-east?

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I am always a little nervous talking about Hitachi and rail, as I am from Derbyshire. I support Bombardier and want it to get rail contracts. I am sure that it is great news for the country and the north-east that Hitachi has chosen to do that. However, I clearly say that Bombardier is a far better make of trains and that it fully deserves the Crossrail contract it got in recent weeks. I look forward to healthy competition between the two. It would be great to have two well-regarded, highly skilled train makers in this country. Just to be clear: Bombardier clearly has the trump card on that.

It would be a terrible message to send out to the rest of the world, having seen us go so far in the right direction by reducing the rate of corporation tax from 28% down to the planned 20%, to suddenly start reversing that journey and saying, “Perhaps we’re not quite so sure that that was the right thing to do. Let’s have that extra revenue back and not support those businesses.” That would be the wrong thing to do.

Photo of Nick de Bois Nick de Bois Conservative, Enfield North

Some people may be seduced by the idea that it is only 1%, going from 20% to 21%, but for corporations coming into a tax level of 20%, the Opposition are effectively saying that they would increase corporation tax by 5%. Let us make that clear.

Photo of Nigel Mills Nigel Mills Conservative, Amber Valley

I am sure my hon. Friend’s maths are absolutely right.

If we are to review taxes and rates, I am intrigued by the idea of having, as my right hon. Friend Mr Redwood said, a wide-ranging dynamic assessment of tax rates. Let us have a look and work out exactly the right rates for various taxes. Are we in the right place, or are we throwing away revenue and destroying business activity by having certain rates in the wrong place? I would like to understand the impact on small businesses of the jobs tax or employees’ national insurance. I would be keen to know the impact of fuel duty rates and of the tax on energy bills. I suspect those measures are doing far more damage to our small businesses, and the number of jobs they can support, than other things. A wide-ranging study of the impact of tax on small business could be an interesting exercise and could direct the way forward for policy. I suspect that it would not go in the area the Opposition want. They seem to want an expensive hike in the indirect taxes on manufacturing that do so much damage.

We ought to welcome people moving in the right direction. In 13 years in government, Labour favoured property taxes via the council tax. They hiked it up thinking that people would not notice. It is intriguing that they have now realised that it is extremely unpopular for those taxes to get too high, and that perhaps it is easier to try to focus on direct tax rates.

In conclusion, the Opposition amendment is in many ways a complete waste of our time. It is absolutely right to get the corporation tax rate down to 20%. I suspect that that is the end of that journey and then we can look at various other measures to support small businesses. Reducing the main rate down to 20% will not stop our support for small businesses. Let us get on and do it: it is the right thing to do.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

For those who have already made the decision that they want to reduce corporation tax in this way, it is easy to characterise the debate as one group of businesses being pitted against another. The debate has to be taken in context. On the basis of that argument, it would be very difficult to suggest any changes, because somebody would always be able to say, “Ah, but you are pitting one group against another.”

We hear a lot of warm words about small businesses in this House. We are told frequently that they will be the driver of the economy and that the economic recovery depends on them. It is therefore disappointing for this proposal to be so quickly dismissed as irrelevant or inappropriate. If the amendment asked for it to happen without further review, Government Members would no doubt be telling us that we should not make such suggestions without looking at the impact. If we ask for a review to look at the impact they will tell us, “Well, that’s no good; you should just be doing it if you really believe in it,” rather than engaging with the issue.

Small businesses find that business rates are a large element of their costs, particularly when setting up and trying to get their businesses off the ground. A constituent of mine, with a friend, was setting up a fitness business—a very competitive market—from scratch, with a particular appeal to women. They called themselves “Fitness Chicks”. I thought that that might perhaps put off older women, but nevertheless they had a real ambition to get the business off the ground. They said that rates were the biggest thing holding them back as they were setting the business up.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover 3:00, 8 April 2014

Small businesses do not tend to pay so much in corporation tax. That is not the main burden they suffer—that is the burden of business rates and payroll taxes. Will the hon. Lady therefore join me in welcoming the action that the Government have taken on business rates and payroll taxes, which will really help small businesses?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I am glad that the hon. Gentleman is interested in business rates, the subject we are discussing. Our suggestion is that in order to make a real difference to those businesses, we can go far further in the way we deal with business rates.

Rather dramatic statements are made that a suggested change of 1% in the rate of corporation tax will result in companies—on the basis of that alone—changing their plans, leaving the country or not coming here. These statements are made but it is not clear whether there is evidence for them. The impact of the 21% to 20% change in corporation tax is not—or so it would appear in the initial period at least, according to the OBR report—to increase take from corporation tax, but to decrease it.

Photo of Angie Bray Angie Bray Conservative, Ealing Central and Acton

Does the hon. Lady agree that there is some certainty on business rates because we have the cap of 2% and a reduction in costs for those with rateable values under £50,000? That is something of which businesses can be certain. In the meantime, we need to make sure that larger companies can be certain of the tax regime in this country. Having a review will only create uncertainty, which is the one thing that businesses looking to invest really do not like.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

We must review constantly what we do to get it right. The suggestion is that a review in itself causes uncertainty, but there are many uncertainties in business. The constant discussion about the EU, Britain’s place in it and whether there should or should not be a referendum is an uncertainty. I am sure that many people who feel strongly about that nevertheless feel it is so important that they are willing to risk that level of uncertainty.

Photo of John Redwood John Redwood Conservative, Wokingham

The Labour Front-Bench team made a great deal of the need for banks to lend more money to small businesses being crucial to their future. How would an increase in the corporation tax rate and a special bank levy on payroll help? Would not that mean that the banks had less money to lend?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

We still see high levels of remuneration and bonuses at banks while small businesses are told that there is no money to lend. Sometimes, of course, we are told the opposite is the case: banks allege that it is not a lack of money, but that businesses are not coming forward and do not want to expand. For a lot of small businesses who want to borrow, it is galling to find that banks are still seemingly able—despite all the difficulties they allege they have—to pay out so much in bonus payments.

To review these matters and to make a genuine attempt to provide additional help for the small businesses we all say we want to help would be useful. The terms of the amendment would enable us to get details of the impact of the cut in corporation tax to see exactly what the impact has been and what the impact of the suggested minor and very small increase might be before a decision is made.

Photo of Tom Blenkinsop Tom Blenkinsop Opposition Whip (Commons)

Does my hon. Friend agree that it is interesting that Conservative Members are talking about a 20% rate of corporation tax, which is a direct tax on profit, but have no qualms about how a review might interplay with things such as value added tax, which many, if not all, small businesses pay and is paid prior to profit?

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Value added tax has been a difficulty for a lot of individuals and for small businesses. The amendment is an opportunity for us to review these matters. If Conservative Members are right that such a change would be harmful, a review would show that. It has to be demonstrated to the small businesses of this country why a proposal of this kind is thought to be harmful to our economy.

Photo of David Gauke David Gauke The Exchequer Secretary

It is a great pleasure to serve under your chairmanship, Ms Clark, and to respond to the first of what will no doubt be many detailed debates over the course of this year’s Finance Bill. It may be helpful if I set out a little context as to what the Government have done in terms of corporation tax.

When we came to office in 2010, the main rate of corporation tax was 28%, and the small profits rate was 21% but was due to rise, under the plans of the previous Government, to 22%. In 2010, we set out the corporate tax road map. We set out our ambition to give the UK the most competitive tax regime in the G20. We wanted a corporation tax system that would support, not hinder, growth and would boost investment to support the economic recovery, so we reversed the previous Government's planned increase in the small profits rate and cut it to 20%, and embarked on the biggest reduction in the main rate of corporation tax since the 1980s. Last week, the rate was cut to 21%. Next year it will fall to 20%— the joint lowest rate in the G20.

Photo of Andrew Love Andrew Love Labour, Edmonton

The Minister recounts how the corporation tax rate has moved from 28p to 22p. During that period, business investment languished. Does he accept that there is no direct connection between the level of corporation tax and business investment?

Photo of David Gauke David Gauke The Exchequer Secretary

The cuts in corporation tax were a central plank of the Government's economic strategy, a strategy that is working. Jobs are up and business confidence is increasing.

It may be helpful if I inform the House of the news that we have heard from the IMF this afternoon. The IMF has revised the UK’s growth forecast for 2014 and 2015 to 2.9% and 2.5% respectively, an upward revision of 0.4 percentage points in 2014 and 0.3 percentage points in 2015. Those are the largest increases for both years among major advanced economies and among the BRIC countries—Brazil, Russia, India and China—for both years. The UK is also forecast to be the fastest-growing major advanced economy in 2014. I make the point to the hon. Gentleman that the plan is working. Business investment has grown for four consecutive quarters for the first time since 2007. The OBR has forecast that investment will grow very strongly over the next two years—by 8% in 2014 and 9.2% in 2015.

More and more businesses are moving operations here, a point made by my hon. Friend Nigel Mills. Just in the past two weeks, we have seen Hitachi Rail—referred to by my hon. Friend Ian Swales—and Brit Insurance announcing moves to the UK. Siemens has announced a £160 million investment in the Humber. Business surveys reflect the positive impact of the corporation tax reforms. For the past two years, the UK has ranked highest in the KPMG survey of international tax competitiveness, with business leaders putting us ahead of countries such as the USA, the Netherlands and Switzerland.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

As a champion of manufacturing, I would like to see more capital investment, but does the Minister accept that investment in people has clearly been going on during this period?

Photo of David Gauke David Gauke The Exchequer Secretary

Indeed it has. I will say more about some of the other measures we are taking to make our tax system more competitive, but overall it is clear that our tax system—in terms of being open for business—has moved in the right direction over the last four years. It is important that we maintain that momentum and do not put it at risk by trying to reverse some of the progress we have made.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

According to a report in CityM this morning, the British Chambers of Commerce has said that we are seeing the strongest investment and export growth for nearly a century. Did my hon. Friend see that report?

Photo of David Gauke David Gauke The Exchequer Secretary

Indeed I did, and I heard the head of the BCC make the same point in a radio interview this morning. We are moving in the right direction, and this afternoon’s figures from the IMF are extremely significant. I hope that Members in all parts of the House welcome the news that the United Kingdom is the fastest-growing major advanced economy this year.

Photo of Andrew Love Andrew Love Labour, Edmonton

The Office for Budget Responsibility has forecast that there will be no net increase in net trade, so the export-led recovery simply will not happen. It has also said that the recovery is too dependent on consumer expenditure, and that as long as real wages do not increase—and it predicts that they will not increase very fast—that simply cannot continue.

Photo of David Gauke David Gauke The Exchequer Secretary

Again, we are seeing movement in the right direction. In the Budget, the Chancellor announced additional support for exports through the expansion of the direct lending scheme. Moreover, in 2012-13 British business received £4.3 billion of support from UK Export Finance, which was a 12-year high.

Photo of Tom Blenkinsop Tom Blenkinsop Opposition Whip (Commons)

I think I am right in saying that the UK current account deficit has not been as bad as it is now since 1955, when records began. The Minister may wish to correct me, but I am certain that that is the case.

Photo of David Gauke David Gauke The Exchequer Secretary

The Government are taking steps to ensure that we can export more. We recognise that we need to export more, and that we need more business investment. However, the way in which to ensure that that happens is not to try to avoid a competitive tax system, or to turn our back on the progress that we have made. All that would put the recovery at risk, and I fear that it is what we would get from Labour.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I do not think that the Minister has yet addressed the lack of balance in the growth that is being shown, and the concern that has been expressed about that by the IMF and others. If policies such as the reduction in corporation tax were intended to boost manufacturing and exports, I should like to know why that still does not appear to be happening to the degree that would convince people that this is a balanced recovery.

Photo of David Gauke David Gauke The Exchequer Secretary

As a result of our corporation tax reforms, businesses are moving their headquarters here. The north-east of England, for instance, has benefited from Hitachi’s investment. However, if the hon. Lady’s point is that the job has not yet been done and that further steps are needed to make our economy more productive and competitive, I entirely agree with her. That is why we must stick to the long-term economic plan.

Photo of John Redwood John Redwood Conservative, Wokingham

Does the Minister agree that increases in investment require consumption growth? Does he agree that the whole point of investment is to satisfy future consumption increases, and that we need both for a balanced recovery?

Photo of David Gauke David Gauke The Exchequer Secretary

Indeed I do. As ever, my right hon. Friend brings great expertise to the debate.

Clauses 5 to 7 provide further evidence that we are continuing to make progress towards the delivery of a simpler and more competitive tax regime. They charge corporation tax for the financial year 2015. They set the small profits rate and the ring-fence small profits rate for 2014 at 20% and 19% respectively. They fix the ring-fence rates so that we need not reconfirm them every year in the Finance Bill. That is consistent with the way in which we handle the supplementary charge, the 32% tax levied on profits from oil and gas production. They set the fractions that will be used for businesses to calculate their marginal relief: the standard fraction is set at one four- hundredth, and the ring-fence fraction at eleven four-hundredths.

I apologise to Members if that final measure sounded fairly complex, but I can reassure them that next year this section of the Bill will be far simpler, because the clauses also provide for the unification of the small profits rate and the main rate of corporation tax. Next year, there will be a single headline rate of corporation tax. That will bring about a major simplification of the tax system. For those outside the ring-fence regime, it will mean the end of the complex marginal relief system that currently captures 45,000 companies. It also gives us scope to abolish the complex “associated companies” rules and replace them with a much simpler rule based on 51% ownership of a firm, as set out in schedule 1. In unifying the rates, we are adopting a recommendation by the Office of Tax Simplification, led by John Whiting, and the move was commended by the Chairman of the Treasury Committee when we announced it last year. The Chartered Institute of Taxation welcomed the abolition of the “associated companies” rules when we announced it in the autumn statement.

Of course, it is only possible to unify the rates because we have cut the main rate to 20%, which, as we have heard this afternoon, the Labour party would not do.

Labour has said that it will increase the main rate of corporation tax to 21 %, which would make it the first party to increase the main rate of corporation tax in more than 40 years. It was last increased in 1973, although, to be fair, that was part of a restructuring that was revenue-neutral; it was back in the 1960s that the British Government last sought to increase the yield from corporation tax. No other G7 country has increased its corporation tax since 1997, and those increases were reversed within a year or two.

I agree with my hon. Friend Priti Patel about the signal that Labour’s proposals send and the uncertainty that they create. Notwithstanding the reassurances that we have heard this afternoon, businesses are likely to fear that this is the thin end of the wedge, and that if Labour can increase corporation tax once, it will do so again and again. Under the last Labour Government, the UK’s tax competitiveness fell in the league tables. In 1997 we had the ninth lowest rate in the EU27, but by 2010 we had fallen to 20th in the league. At least by 2015 we will be back up to 11th, but that would be put in jeopardy if Labour were to pursue its policy.

Labour has said it would use the increase to reverse the 2015 business rates increase and freeze business rates in 2016 for all properties with a rateable value below £50,000. In other words, Labour would take money from one set of businesses to give it to another. By contrast, we want to cut taxes for large and small businesses, so, instead of raising one tax to cut another, we are cutting both corporation tax and business rates.

The point was made to Shabana Mahmood that the amendment would set off one business against another. Her response was that that was nonsense, but I can tell her that the point has been made not just by Conservative and Liberal Democrat Members of Parliament, but by business leaders. John Cridland, the head of the Confederation of British Industry, has said:

“I just think it’s divisive to take from one part of the business community to give to another.”

He has also said:

“I think the key point though is what it says about the Labour Party’s pro-enterprise credentials...Whether you are small, medium or large you need to invest as a business and grow as a business and higher taxes don’t do that.”

[Interruption.] The shadow Chief Secretary, Chris Leslie says mockingly, “Oh, that is what we would expect from the CBI”, so let us hear from the Institute of Directors. Simon Walker, director of the IOD, says:

“The government has spent three years telling the world that we are open for business, and reductions in corporation tax have been a key part of that strategy. It’s a dangerous move for Labour to risk our business-friendly environment in this way”.

He also says:

“it creates a false distinction between small and larger businesses…The main corporation tax rate is paid not only by multinational corporations and FTSE100 companies but by medium sized companies and smaller firms.”

I will also quote John Longworth, director general of the British Chambers of Commerce:

“Labour must realise that you can’t rob Peter to pay Paul…we question why a freeze or cut in business rates for smaller firms should be offset by a delayed reduction in corporation tax...The notion that you can offset cuts in one tax with changes to another doesn’t deal with the real problem…Ultimately, companies of all sizes need to be clear on taxes and rates bills, so that they can generate jobs and wealth with certainty.”

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury) 3:15, 8 April 2014

The Exchequer Secretary speaks about a positive business environment. Business rates have increased by £1,500 on average since his Government have been in power. Does he think that that has led to a positive business environment for those businesses affected?

Photo of David Gauke David Gauke The Exchequer Secretary

It is worth pointing out that business rates have increased in line with RPI, which is exactly what the previous Government planned to do, and, indeed, exactly what the previous Government did when they were in office. What we have done, however, is double small business rate relief for every year of this Parliament, saving small businesses over £1.5 billion on their business rates bills to date. In the autumn statement we introduced the biggest business rates cut in over 20 years. This package of measures was larger than that proposed by the Opposition. Their proposal would have been worth significantly less than the £1 billion our package cost. Of that £1 billion, over 90% is going to businesses occupying small premises and targeted support is going to help the retail sector on the high street and bring empty shops back into use. The combined effect of the measures is to freeze, or even reduce, business rates bills for 35% of the smallest rate payers. This Government’s business rates measures are both more generous and better targeted than those proposed by the Opposition and benefit all businesses.

Amendment 2, tabled by the shadow Chancellor and his colleagues, proposes a review of the impact of the additional cut in corporation tax with particular reference to businesses with fewer than 50 employees. I understand from the comments made by the shadow Chief Secretary in last week’s debate that what is driving this amendment is a concern about the business environment for small businesses. The Government have done far more for small businesses than the Opposition would have done, including making it easier for small businesses to create new jobs by introducing the £2,000 employment allowance, which will benefit up to 1.25 million businesses and charities in the UK. We are lifting 450,000 small businesses out of employer national insurance contributions altogether. We have made it easier for small firms to invest and grow. We have doubled the annual investment allowance to £500,000 per year so that 99.8% of businesses will receive relief on 100% of their investment in the first year, and we have increased the small business research and development tax credit to the maximum level available under EU law. We have cut costs for small businesses by delivering the longest fuel duty freeze for 20 years and through the £7.1 billion package announced in the Budget to reduce energy costs for businesses and households.

It is worth pointing out that the rate reduction for corporation tax will lead to large firms investing more, with huge benefits for SMEs in their supply chains. Economic modelling by HMRC has shown that the corporation tax cuts introduced in this Parliament will increase long-run business investment by 2.5% to 4.5%. In today’s prices that is an extra £3.6 billion to £6 billion every year, a boost for the whole business community. As John Longworth, director general of the British Chambers of Commerce, said last year:

“All companies will cheer the news that Corporation Tax will fall to 20% by 2015.”

This is just one element of what we have done. If Members look at what we have done on business rates, the employment allowance and energy costs, it is clear that this is a Government who are supporting business. I am afraid, however, that, as always, what we hear from the Opposition is policies that are anti-business and that will drive away investment and growth, and no realisation of how the world has changed. The UK needs to compete for jobs and investment. The best way of doing that is through a competitive tax system. I am afraid that the biggest risk to our achieving a competitive tax system and economic growth is the Labour party.

These clauses see us continue to make progress towards delivering a simpler and more competitive tax regime that supports investment, productivity and growth. I urge the House to support the clauses and to reject the Opposition amendment.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

We have had a very good and interesting debate. I was a little horrified when Mr Redwood began his remarks by making what sounded almost like positive comments about me, but he very quickly moved on to comments that better reflected both his politics and mine. He raised a point that I did not hear clearly, but I am sure it was a withering put-down about me not doing my homework. On his criticisms of both the amendment and what it seeks to achieve, I say to him as gently as possible that if he had done his homework, he would know that the Opposition are somewhat constrained in the amendments we can table to Finance Bills and the impact they could have on the Exchequer, so often the best way for us to get a good debate on what we seek to achieve is through asking for a review. I hope that that settles his mind as to the nature of our amendment.

There has been a great deal of discussion today about our proposals to increase the headline rate of corporation tax from 20% to 21%. We would use every penny of the revenue from that tax increase to cut business rates for small businesses in 2015 and to freeze them the year after. Nothing that Government Members have said today has shown that they understand the true impact that business rates are having on small businesses up and down the country. The Government are not prepared to make choices or spending switches to support those small businesses, but that is what the next Labour Government will do in 2015. We intend to press our amendment to a vote.

Question put, That the amendment be made.

The House divided: Ayes 219, Noes 289.

Division number 245 Finance Bill — Clause 5 — Report on Futher Corporation Tax Cut

A majority of MPs voted not to require a report on the impact of an additional cut of one per cent to main rate Corporation Tax on businesses, including small and medium sized enterprises

Aye: 219 MPs

No: 288 MPs

Aye: A-Z by last name

Tellers

No: A-Z by last name

Tellers

Absent: 139 MPs

Absent: A-Z by last name

Question accordingly negatived.

Proceedings interrupted (Programme Order, 1 April).

The Chair put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83D).

Clauses 5 to7 ordered tostand part of the Bill.

Schedule 1 agreed to.