Certainly it is compared with France or Germany. As well as discouraging initiative, it makes difficult the borrowing of adequate capital for growth on account of the resulting lower net profits.
This process has been carried even further in the Green Paper on the Price and Pay Code, of which my hon. Friend the Member for Basingstoke (Mr. David Mitchell) said last week,
It is the economics of the madhouse to suggest that industry should only be allowed to use a 2½ per cent. net return on its investment …".—[OFFICIAL REPORT, 5th March 1973; Vol. 852, c. 117.]
My hon. Friend showed that this would be the situation which would apply under paragraph 46 of the code.
Direct taxation bears especially hard on the hopes of growth in small firms run by sole traders or in small partnerships. This was the situation of 60 per cent. of the firms which responded to the Bolton survey.
I come to specific recommendations arising from my regrets about matters not included in the Budget. First, on the question of corporation tax, I appreciated the position of the Chancellor of the Exchequer when he said that he could not help the medium-size firms to the tune of £75 million a year in the present crisis, but I hope he will consider that the reverse of this situation also applies. Why place a new crisis of extra taxation on the medium-size firms among the smaller range of businesses, particularly at a time when their new investment is urgently needed, just as the success of the Chancellor's efforts is being seen as our growth policy is leading to the full utilisation of spare capacity? It is now that we need new investment most of all. Will my right hon. Friend consider this aspect for the future?
Secondly, retained earnings are the lifeblood of small, growing companies, of which the Bolton Report said that no special tax abuse would come about if close companies were allowed to retain all their incomes. Short-fall provisions can lead to over-distribution of income: so let them go.
Thirdly, there should not be discrimination against a man concerning the kind of pension he may take out because he works as a director of a private company instead of working as a director of a public company. He should be allowed to enter into similarly beneficial pension schemes as his colleague in the public company.
Fourthly, on capital gains tax, at least part of the inflationary effect should be taken into account. I hope that the Chancellor will consider a sliding scale reducing the tax by 10 per cent. for each year that an asset has been held by a person who disposes of it. The tax should not be payable on deemed disposals. Clearly, too, the old-age relief on the sale of businesses provision is now out of date and needs reconsideration. It has not been adjusted for some time. I suggest that it would be improved by the addition of a sliding scale from the age of 65 down to 60. This would help small businessmen who wish to give up in favour of younger men and provide them with the encouragement to do so.
Fifthly, regarding estate duty, I welcome the new provision concerning the sales by trustees of quoted shares after death. These shares may well form part of the reserves of a medium-sized company. But, above all, it is the high maximum rates of duty that bear so heavily on the medium-sized firm. These may cause the sale of part of a firm or even all of it when a death occurs. Even where a loan can be obtained to carry the provisions forward beyond those years allowed by the Government for payment, it may be too heavy a burden to bear; or at least slow down any prospect of growth for a number of years. In this connection the 45 per cent. relief available to agriculture and on industrial properties should be extended to all the assets of the smaller businesses. Why discriminate in favour of the factory owner in particular? And over the question of time to pay, longer periods should be allowed than at present to pay off any severe burden of estate duty threatening the life of a small business. The Chancellor's Green Paper on inheritance tax is welcome, but the main objections to our present duties are the destructive top marginal rates as they apply to the smaller businesses in particular.
Sixthly, the same objection applies to the top rates of direct taxation. The 75 per cent. rate on earned income is far too high and is unfair to those who are trying to compete with companies in Europe where rates may be so much lower than our own. The Chancellor would have given new impetus to the smaller firm to compete with our Europan neighbours if he had cut the top rate on earned income to 60 per cent. I hope that he will do so in future, but I appreciate that in the climate of phase 2 it would not be reasonable to expect an immediate response to this request, although it is a necessary step to improve our competitive edge with our neighbours.
Finally, I do not ask for discrimination in favour of the small businessman so much as a cessation of discrimination against him. We know that much new knowledge comes from the larger companies, but there surely remains a place in this kingdom for innovation from the independent entrepreneur. He still has much to offer. There is still room for a Henry Ford in Western society or, nearer home, for a Nuffield. Let this Government give such men encouragement to build up their firms from small beginnings. Many firms have grown radically in the past 25 years to be substantial and to become public companies. Let this process go on, to allow growth as my hon. Friend the Member for Croydon, North-East (Mr. Weatherill) once wrote, "From acorns to oaks".
I hope that my right hon. Friend will do his utmost to ensure that the measures I have suggested are brought into effect to make possible improved prosperity for small businesses, for those who work in them and, as a result, for the nation as a whole.