Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 12:00 am on 17 April 1978.

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Photo of Mr Harold Lever Mr Harold Lever , Manchester Central 12:00, 17 April 1978

The Minister has been doing a great deal to help small businesses. I often receive letters from those who avow themselves to be the hon. Member's political supporters. In one case I was surprised because it was such an intelligent letter. They pay great tribute to the Minister for the zeal and effort that he has put in to the needs of small businesses. The hon. Member would be wrong to belittle my hon. Friend. We have worked in harmonious partnership in the last six months in an effort to step up the work which is being done in all Departments on behalf of small firms.

I turn to the question of taxation, which necessarily will be the main topic of my comments this afternoon. I must bear in mind that the informed consensus is clear. It is that the tax system, plus inflation, has continuously, since the end of the war, reduced incentive to start up or build up businesses, or to obtain risk money for businesses. That must be examined and altered. It is true that our present tax system is so geared that it tends to encourage people to build up businesses if they are minded to sell them out. But there is not sufficient encouragement for people to build them up in order to preserve them, develop them and perhaps pass them on.

The process of small firms being taken over in this way by people selling out because that is favoured by our tax system is unhelpful because it adds to the imbalance in the structure of our economy. It gets lopsided. There are many big firms at the top and a greatly diminishing tail of small and medium firms.

Moreover, our tax system undoubtedly gives advantage to institutional investment. That is to say, it gives many entirely justified inducements for people to put their savings in pension funds or self-employed pensions and the like. It gives great tax inducements to do that. But in the nature of things the institutions that manage pension funds cannot possibly cope with the furnishing of funds to a million or more small businesses, many of them requiring sums ranging from £5,000 to £50,000. It is beyond their power. In so far as good will could do it, I am quite sure that the pension funds would do it. The miners' pension fund, for example, has linked arms with two of our leading merchant banks specifically to try to produce funds that will help the small business and to make them available, but, of course, it has a limited ability to do so.

My objectives and the Government's objectives have been to see what we can do in tax that will give encouragement at every stage of a company's life cycle—encourage start-ups, encourage people to build up businesses, encourage people to retain them without their being taken over by conglomerates or big business later, and to enable them to transfer, if necessary.

We have also wanted to produce a situation in which small businesses will act as a magnet for investment. We want to give them some of the attractions—not the same attractions, but appropriate attractions—that we give to savings when they are channelled into institutional directions. So I want to see, too, that we make concessions that will have the effect of making them a magnet for more investment. That is only right to keep a balance in our economy, for the reasons I have given, on institutional use of savings. This is not a creation of loopholes or a creation of favours. It is simply the maintenance of balance in our economy.

I am not ruling out any other means of encouraging investment into small business, but I think that tax concessions of this kind will constitute an important element in creating magnetism in the small businesses for the investor.

I confess that it is my view that whatever we ultimately decide in the way of providing supportive finance for small businesses from Government sources—I am by no means ruling that out, and I am waiting for the Wilson Committee and the Roll Committee to let us have their distilled wisdom on the subject before we plunge in—in general it is better that there should be hundreds of thousands of shrewd investors bringing their brains and money to small business than a handful of civil servants presiding over a fund, however generous. That is not to rule out the civil servants if the conclusion is that that will be helpful. But there is no substitute for harnessing the brains and judgment of hundreds of thousands of people with savings to invest, and they will invest in the small business sector only if it has an appeal that is comparable with that of the other sectors of our economy.

Therefore, what has been done in this Budget—and I am very grateful to my right hon. Friend the Chancellor of the Exchequer and, in particular, to my right hon. Friend the Chief Secretary for the very important concessions that have been made—is only a beginning. The Chancellor has said that he will consider any reasonable suggestions that are put up in this area. I can undertake that quite a few suggestions that I think are reasonable will be put to him during the course of the next 12 months. I am absolutely clear that the Chancellor's statement is not in some ways an emollient brush-off to those who would like to do more. It must be taken as a very firm committal to continue the advance in tax adjustment favourable to small firms which forms so important a part of this Budget.