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Clause 8 — Small companies' rates and fractions for financial year 2009

Part of Surface Water and Highway Drainage Charges (Exemption) Bill – in the House of Commons at 6:30 pm on 12th May 2009.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury) 6:30 pm, 12th May 2009

I am grateful for the opportunity to contribute to this part of our deliberations. I say at the outset that I was not criticising Mr. Hoban when I said his proposals were modest: I was praising him, and it is precisely because of their modesty that I feel able to support them. If they had been unfunded—Mr. Redwood suggested that we consider such a situation—that may have given us greater difficulty, given the overall state of the public finances.

That leads me neatly to this proposal, which, after all, is largely an extension of our discussion on the previous clause. However, as it is slightly different, I shall speak at slighter greater length to it. According to the Federation of Small Businesses, there are 4.7 million small businesses in the UK, a remarkable 97 per cent. of firms employ fewer than 20 people, and 95 per cent.—19 out of 20 companies in the United Kingdom; I am not talking about 19 out of 20 employees—employ fewer than five people, so the overwhelming majority of businesses and enterprises in this country are extremely small employers. More than 500,000 people start up their own businesses every year, small firms employ 58 per cent. of the private sector work force, 13.5 million people work in small firms, small firms contribute more than 50 per cent. of UK turnover, and 64 per cent. of commercial innovations come from small firms.

I rehearse those statistics because it is clear—this point is made so often that it is a truism—that small enterprises are extremely important to wealth creation and employment opportunities. Thus, it is important that we regard them as being a distinct entity for corporation tax purposes. That point is widely accepted, which is why the Government have a different rate for them. For the same reasons that I cited in our previous discussion, we think that stability is important. If the Government are not going to cut rates, it is good that they at least indicate that there will be stability and that the rates will be frozen, and seek to convey to businesses the understanding that the situation will endure, even though it is not necessarily in the gift of the Government to guarantee that, as clearly it is not for a longer time scale.

That statement of intent is helpful because it allows businesses to plan. However, it remains our view, as it was when we discussed the previous clause, that simplicity has a virtue and that our trying to reduce headline rates helps companies—as my hon. Friend Lembit Öpik said, it helps in terms of their administrative burden—and creates the right message for those looking to start businesses or invest in this country. For those reasons, and because I have the assurance of the hon. Member for Fareham that the Conservative proposal is costed and responsible, as I like proposals to be, it is reasonable to support it.

Amendment 6, which stands in my name and that of my colleagues, was an attempt to provide additional assistance. In an effort to be open-minded and generous-spirited, may I say that I take the hon. Gentleman's point that there are potential difficulties with the system I am proposing? It is difficult to frame amendments that cover every eventuality, because the nature of the process is that amendments have to be reasonably brief. We seek to give further assistance to particularly small businesses, which may benefit from that help, given that, as I was saying, 95 per cent. of businesses in the United Kingdom have five or fewer employees.

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