Clause 30 - Charge and main rate for financial year 2003
Finance Bill
2:30 pm
Ms Dawn Primarolo (Paymaster General, HM Treasury; Bristol South, Labour)
I welcome you, Mr. Gale, to our proceedings.
It can be taken as read that it is difficult in Opposition to draft amendments and I accept the caveat of the hon. Member for Arundel and South Downs (Mr. Flight), although we may sometimes have fun with some of the wording. [Hon. Members: ''When?''] Now. [Laughter.] It depends on how well we get on.
I shall explain why I am not attracted to the amendment. As I understand his underlying point, the hon. Gentleman wants to ensure that the number of small companies qualifying for the lower rate should continue to receive the Government's attention once they have started up and are growing. Putting the most generous spin on his comments, I imagine that he is expressing a hope that this is not a once-and-for-all, set-in-stone provision that would diminish in time if all new companies were successful. I assure him that our commitment in setting corporate tax levels for small and medium-sized as well as other companies is designed specifically to assist with other tax changes, the creation of companies, entrepreneurial activity and the growth of those companies. I know that Opposition Members take a slightly different view about what would be the best measures, but I am happy to reassure the hon. Gentleman about our intention.
The clause sets the corporate tax rate at 30 per cent. We are keeping it at that rate, having already reduced it twice since taking office. The amendment is an attempt at a Rooker-Wise amendment for corporate tax. I should like to offer the hon. Gentleman congratulations on his ingenuity, but I am not attracted to it and I will explain why. The amendment would introduce an annual programme of up rating the profit limits using a calculated entitlement to the small company rate and the starting rate of corporation tax.
The profit limits used to compute UK corporation tax are already high compared with other Organisation for Economic Co-operation and Development countries. We already have a higher level. Companies with profits of up to £1.5 million gain some benefit from the lower rates of tax, and how they interact with the 30 per cent. rate. It would have been possible for the Government to increase profit limits this year, and it is acknowledged that that would have had a positive effect on some companies, but not all of them and particularly not smaller ones. We are trying to consider how all tax rates work, in particular for small companies.
Instead, the Government decided that we would obtain greater benefit from reducing the tax rates than from changing the limit. As I have said before to the Committee, the Government favour ''targeting'' relief where they can, so that the economy can benefit to the greatest extent, rather than using blunt instruments such as a year-by-year increase in profit limits.
Apart from the fact that changing the rate is better than the mechanism proposed by the hon. Gentleman, because it maximises the benefits to the smaller companies, I also have technical objections. I am not
talking about whether the amendment is technically correct; I am talking about how the hon. Gentleman has constructed the amendment. At first sight, it seems that a requirement to upgrade the profit limit in line with inflation might seem reasonable. However, the inflationary adjustments in the hon. Gentleman's proposals are rounded up to the nearest £1,000 for the limits relating to the starting rate, or £10,000 for those relating to the small companies rate. I can understand why he may have done that, and I am sure that he will understand why I do not want to. However, the effect of rounding up the increase would be to increase the limits by five times the current rate of inflation. Having said that that was indexation, it is given a big push by rounding up. Every year, the amendment would mean that the profit limits would increase in real terms, leading continually to a real terms reduction in the amount of tax that companies pay. That may well be the hon. Gentleman's intention, but it is not the Government's. The Government intend that there should be fair levels of tax and we should look at that for all companies.