Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 8:28 pm on 16th March 1988.

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Photo of Mr Graham Bright Mr Graham Bright , Luton South 8:28 pm, 16th March 1988

I hope that the hon. Member for Edinburgh, Central (Mr. Darling) will not think it discourteous if I do not refer to his speech, but, in the interests of time, I shall push on with my speech.

The Budget was unique because it recorded the longest period of sustained economic growth that Britain has enjoyed since the war. That growth is consistently higher than that enjoyed by many of our rivals and it has been accompanied by low inflation, rising output, rising productivity and falling unemployment. Those are achievements about which the Government and the nation can feel justifiably proud.

It is vital that those achievements are sustained. The policies of restraint in public expenditure and borrowing, of lowering taxation and of rewarding enterprise have been the key to our economic recovery. Firm monetary discipline and a prudent fiscal stance go hand in hand.

My right hon. Friend the Chancellor of the Exchequer is right to stick to those policies. They have created an enterprise economy in which the incentives to work and to prosper operate. The net addition of 500 new businesses created each week since 1979 and the welcome growth of 800,000 people in self-employment are proof of that. It is right to use the carrot of lower rates of income tax and higher thresholds to encourage that process.

I strongly support the decision to cut the standard rate of income tax by 2p. It will provide a further incentive to private individuals, particularly small business men, to work harder. The 7·5 per cent. increase in personal allowances will be of direct benefit to those on lower incomes. The process of lowering direct taxation in this way must be continued in future years.

I make it equally clear that I support the simplification of the higher rates of income tax and their reduction to 40p in the pound. The tax burden on the top 5 per cent. of earners had been growing recently. Those earners are also the creators of many jobs. Action to cut that burden and to reduce the attraction of tax-avoidance schemes is appropriate. Higher tax revenues will be produced in due course.

Given those reductions in income tax, it is certainly right to reduce the rate of corporation tax for small companies to 25 per cent. My right hon. Friend the Chancellor of the Exchequer is, I know, aware of the concern which is shared by many hon. Members who are interested in the prosperity of small businesses—that the impact of corporation tax should be more progressive. That reduction is a step in the right direction and it will leave many small incorporated businesses subject to the lowest level of taxation since 1945.

I hope that my right hon. Friend the Chancellor will entertain the idea that I have been advancing for many years of enterprise bonds to allow small companies an instant rebate on corporation tax if they intend to expand, invest or carry out research and development, which is essential if a small company is to continue to grow.

The difficulties that rapidly expanding small companies face in finding new equity are well known. The Government have rightly taken measures to help small companies and to encourage growth in the number of venture capital institutions. I understand that more than £700 million a year is being channelled through those institutions.

There is evidence that the business expansion scheme has been benefiting companies of rather larger than those that it was originally intended to help. For that reason, I particularly welcome the proposal to limit the amount that any one company can raise under the BES in one year to £500,000. It will give newly established firms and those of smaller size a better opportunity to find equity investment than they have had in recent years. This is a matter about which I and my hon. Friends on the Back Bench smaller business committee have expressed our concern. I thank my right hon. Friend the Chancellor for responding so positively to that problem.

One of the great advantages of small firms is their flexibility and mobility. Where there are opportunities and premises, there are always small businesses willing to take them up. Unfortunately, our housing market before 1979 had severe inbuilt constraints and our work force was relatively immobile. The position has improved, but more needs to be done, especially in the inner urban areas. The extension of the BES to residential property let on the new assured tenancy basis will encourage new private investment and provide more flexibility for workers seeking new employment.

No tax is ever popular with small businesses, and VAT is slightly less popular than most. It imposes a considerable bureaucratic burden, although that is counterbalanced by the salutary need to keep up-to-date and accurate accounts, so there are benefits from it. Nevertheless, the increase in the threshold will be welcomed.

There will be an even warmer welcome from small business men for the reform in capital taxation. Capital gains tax has posed a serious disincentive to owners of small firms who are contemplating retirement, and the differential in the rates of income tax has provided clever lawyers with scope for devising ingenious methods of avoidance. I have nothing against lawyers, but their activities in that regard provide a classic illustration of the problems created by an over-complex tax system.

The extension of the ceiling on retirement relief for capital gains tax from £100,000 to £125,000, and the concession that half of any gain between that level and £500,000 will be free of tax, will go a long way towards solving this problem. Families whose assets, on passing to the next generation, have been subject to inheritance tax will now, thanks to the Budget, have to pay no more than 20 per cent. in total.

That is important because small businesses are not just one-off, one-generation enterprises. They are often family concerns offering employment and prosperity to successive generations. They are an essential part of the social and economic fabric of Britain, but they have been gravely damaged in the past by excessively high taxation. That era is over, thank goodness. I am sure that the extension of the ceiling will help to keep small businesses in the forefront for a long time.

It is only in a prosperous enterprise economy that resources for private and public consumption can be generated. That is a matter about which we have heard a lot from the Opposition. However, if wealth is not being generated it cannot be spent. That requires a low tax regime, with in-built incentives and without complex allowances, reliefs and shelters. We have moved, step by step, towards such a system since 1979, despite being told that it could not be done and that it would have disastrous consequences. That has been shown, by experience, to be false.

Regrettably, Opposition Members do not understand or do not wish to understand that fact, and they have no intention of accepting it. When I listen to them I sometimes think that they would be happier if their recurrent prophecies of doom were being realised, if the economy was contracting, if output was falling and unemployment was rising, if inflation was back at 27 per cent. and if the burden of taxation was increasing rapidly. Their prescription has been tried. It failed disastrously and no amount of crude blustering will disguise that fact.

The Government have succeeded in revitalising the economy. The Budget builds on that success and my right hon. Friend the Chancellor is fully entitled to ask for the support of the House and the country for its contents. I am confident that he will get that support.