Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 3:49 pm on 30th April 2002.

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Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury 3:49 pm, 30th April 2002

I was coming later in my remarks to the steps that we are taking to raise the VAT threshold and greatly to simplify the administration of VAT, which I hope will come as a great help to the companies to which the hon. Gentleman refers. He is right to stress the importance of small businesses. They account for 55 per cent. of all private sector jobs—more than 10 million jobs in all—and nearly half the economy's output. Recognising their important role as employers and wealth creators is an important theme running through the Bill.

In 1997 we cut the small companies tax rate from 23p to 21p and in 1998 we cut it again to 20p with a starting rate of 10p. This year, clause 31 takes it down again to 19p with immediate effect. To send a strong signal to the small business community, clause 32 reduces the starting rate of corporation tax, also with immediate effect, from 10p to zero. That means that companies with profits of up to £10,000 will pay no corporation tax. The Budget set out the most favourable tax regime for small companies in any of the advanced industrial countries and the Finance Bill puts that into statute.

To fund the growth of innovative young companies, we need to increase the level of business investment. Private equity investment has doubled since 1997 and 38 per cent. of all EU private equity investment is in the UK. To maintain that momentum, the Bill will cut capital gains tax to 20 per cent. for business assets held for one year or more from this month. For business assets held for more than two years, it will cut capital gains tax to 10 per cent. That means that overall, Britain will have a capital gains tax regime more favourable to enterprise than even that of the United States.

We recognise too that the cost of compliance is an important issue and the Budget sets out proposals to reform the administration of VAT, to help smaller firms comply with PAYE and to remove unnecessary regulations. Clauses 23 to 25 set out the steps that we are taking in the Bill to simplify and streamline the VAT regime.

In disadvantaged areas, businesses can be a catalyst for community regeneration, so in 2,000 designated enterprise neighbourhoods, our small business tax cuts will be supported by further measures to encourage social entrepreneurs. First, there are measures on stamp duty on property transactions. In the pre-Budget report, we abolished stamp duty on home and business property transactions worth up to £150,000. For commercial transactions, we are now seeking state aid approval to abolish the limit altogether. Secondly, the community investment tax credit will take effect from this month, providing £25 million to support every £100 million of private sector investment. Clause 56 and schedules 16 and 17 set out the details.

We also believe that there is no necessary trade-off between economic growth and environmental protection. The challenge for us all is to achieve higher growth while enhancing the environment. It is increasingly recognised that sustainable development is an opportunity for British companies. Investing now in productive energy- saving technologies and techniques is important for competitiveness in this expanding global market.

We are taking further steps in the Bill to exempt from the climate change levy all electricity produced by combined heat and power. We will also exempt from the levy electricity generated by coal mine methane, which combines the social benefit of employment in mining communities and the environmental benefit of efficient energy production. More generally, investment in energy-saving technologies will qualify for capital allowances at an enhanced rate of 100 per cent., strengthening our economy as we move towards our Kyoto targets.

On cleaner fuels, the Bill introduces a fuel duty incentive on sulphur-free fuel. We have already announced fuel duty cuts for the development of hydrogen, biogas and methanol in pilot projects. Last week, my right hon. Friend the Financial Secretary invited further proposals for pilots that would help the development of cleaner fuels and which we would be prepared to support with fuel duty cuts and exemptions.

Incentives will also be introduced to encourage people to drive cleaner vehicles, with a licence fee reduction of £30 for the most efficient cars, £55 for the least polluting vans and £35 for the least polluting motor cycles. We have also announced our introduction of the distance- based road user charge for lorries, with offsetting cuts for the UK haulage industry to ensure that foreign lorry operators pay their fair share for using our roads. The details are set out in clause 134.