Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 12th March 1973.

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Photo of Mr John Loveridge Mr John Loveridge , Hornchurch 12:00 am, 12th March 1973

The hon. Member for Durham (Mr. Mark Hughes) has spoken about high interest rates. We all share the concern that they should be so high, especially for long-term borrowing. This is necessary because of the world interest situation. The cost of money is, however, the root of almost all other costs and any steps which the Government can take to bring down internal interest rates will be welcome.

There are in this country 100 large businesses which produce perhaps half our output. The dominance by this limited number of firms is growing. It is important to consider how far this process can or should continue in the national interest. We owe much to large firms and to their dedicated research teams. But we know from the Bolton inquiry into small firms that small firms are just as efficient and can often be more adaptable and faster to react to changing conditions. I wish to concentrate on the effect of our budgetary policy on this group of smaller businesses.

There are 1¾ million small firms, employing 6 million people and providing a quarter of the gross national product. Are they being helped or hindered in their efforts to play a greater part in our national life? Let me give an example concerned with the new corporation tax. The very small firms will have welcome relief from the effect of the new system when it comes into force after April. The new system also has given favour to our largest public companies by an effective reduction in their taxation. What of the medium-size firms in between? They, instead, are to be heavily penalised.

I have a letter from a fast-growing medium-size firm crying out against the effect upon it of an increase expected from the new system of 25 per cent. in corporation tax. The writer goes on to say about private business I cannot remember when we have been so severely treated by any Government It may be thought that this is hardly fair since in many respects my right hon. Friend's tax changes have helped owners of businesses, particularly by continuing the 100 per cent. depreciation and the encouragement in connection with capital investment. The Government have also encouraged smaller firms by their acceptance, in part or in whole, of many of the 56 recommendations of the Bolton Committee's inquiry. However, the letter from which I have just quoted, although perhaps hardly fair to my right hon. Friend and his colleagues, emphasises how frustrated the leaders of small and medium-size firms feel.

Such firms are threatened from three directions at once. Estate duty can cripple or even destroy a firm. Capital gains tax on the sale of surplus assets can, over a period, through inflation become a confiscatory tax, although the roll-over relief is a welcome help. In addition maximum marginal direct taxation in this country is among the highest in the world.