Clause 35
Finance Bill
11:45 am
Stephen Timms (Chief Secretary, HM Treasury; East Ham, Labour)
Indeed, that was my next sentence. The refocusing of the small company taxation system will tackle the rising Exchequer costs of tax-motivated incorporation and provide a better-targeted incentive for investment in the shape of the new annual investment allowance, which was conspicuously absent from the comments of Opposition Members, although not from those of the hon. Member for Falmouth and Camborne. I shall refer to that in a moment. In addition, enhancements to both the large company and small and medium-sized enterprises research and development tax credits will increase business R and D and strengthen the UK’s competitive position.
The packages are designed to be fiscally neutral for both small and larger businesses in each of the years listed on the Red Book score card, maintaining and strengthening the UK’s international competitiveness and encouraging further economic growth through high levels of investment. To underline the point for the hon. Member for Windsor, the package will be fiscally neutral for small businesses in all the score card years, because the benefits of the additional allowances will be set alongside the increase in the small company rate of corporation tax.
Clause 35 paves the way for gradual withdrawal of industrial and agricultural buildings allowances over four years. The hon. Member for Fareham is right to point out that the allowances were first introduced more than 60 years ago. They replaced the old mills and factories allowance, which dated back to the early years of the 20th century. Sixty years ago, it made a lot of sense to assist in the post-war reconstruction of British industry, but as my hon. Friend the Member for Wirral, West pointed out in his intervention, the allowances no longer reflect the reality of the modern economy.
There is no good economic case for continuing to provide a selective subsidy for some kinds of business property but not others. It may come as a bit of a surprise to some listening to this debate, in the light of the slightly overblown rhetoric of Opposition Members, to hear that 13 per cent. of the stock of business property is eligible for industrial or agricultural buildings allowances—80 per cent. is not eligible. There really is no justification for having subsidies for this small proportion of business properties and no allowances at all for the rest. It is perfectly true that a case has been made for a general system of allowances for all commercial properties so that the other 87 per cent. would be eligible too, but given the performance in recent years of the commercial property sector, it would be hard to argue that a more generous tax arrangement for them would be the right thing to do.