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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 7:15 pm on 12th May 2009.

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Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 7:15 pm, 12th May 2009

This has been a useful debate, as it drew on the experience of my hon. Friends the Members for Poole (Mr. Syms), for Henley (John Howell) and for Northampton, South (Mr. Binley), in small businesses. My experience before entering Parliament was largely confined to large businesses; in my professional practice, I had little contact with small businesses, but I have got to know the sector well in my role as a constituency Member of Parliament.

I have a great deal of respect for small business men, because they really do put themselves on the line in growing their businesses and taking day-to-day responsibility, not only for their own future, but for that of their staff. My conversations with them over the past few months have brought home to me how tough they are finding it to survive in the present economic climate. They are worried about their cash flow, for example. The Financial Secretary talked the tax payment deferral scheme, which I welcome, but before the Government announced their scheme, the Conservatives proposed a six-month deferral of payment of VAT, recognising the importance of cash flows. Mr. Browne talked about smaller businesses. We also proposed measures on national insurance that particularly affected micro-businesses employing four or fewer members of staff.

There is a judgment call to be made on the small companies tax rate. The Minister is right to point out that not all small companies are small businesses. He says that there are 4.7 million small businesses in this country, three quarters of which are unincorporated, leaving about 1.2 million small companies, of which 400,000 pay no corporation tax. We are therefore talking about 800,000 businesses across the country that fall into the small companies' rate of taxation. This debate is important to them.

We have to decide the extent to which we should be focusing on how people used incorporation for tax planning and crack down on that, or incentivising those small companies that incorporated for legitimate economic and legal reasons. That is where the division is between the Conservative party and the Government. The Government see incorporation of small companies as a way of managing down tax bills and not paying what is fair. In my view, and that of my hon. Friends who have had experience of running small companies, the increase in the small companies' rate is not a matter of fairness. We believe that the increase is having an impact on their ability to retain profits which, as my hon. Friend the Member for Northampton, South said, is important to their ability to build up reserves for the future and to fund investment.

In our judgment, the small companies rate of taxation should fall, to incentivise genuine small companies and encourage their growth and future development. The rate should not be increased, as the Government would use it, as a means of cracking down on tax avoidance. That is the dividing line between the Conservative party, which wants to support entrepreneurs, and the Government, who have seen fit to crack down on them by increasing the small companies rate of corporation tax. The Government's argument on tax-motivated incorporation is, I think, an excuse for a revenue-raising measure, increasing the tax take from small businesses. They have sought to compensate for the increase through the annual investment allowance, but that is available to all businesses, not just small companies, so on average small companies will be worse off as a consequence of the changes that the Government have announced.

Because we want to support entrepreneurs and because we recognise that people have set up limited companies for genuine purposes, and not only for the purpose that the Minister says, we want the small companies rate of corporation tax to be reduced. We have set out clearly how we would fund the reduction through reforming the system of capital allowances—our proposals are costed. I shall press the amendment to a Division, because it is important to send a clear signal to this country's small companies that we have their interests at heart—we do not regard them as tax dodgers or tax avoiders and we want them to flourish and continue to grow. That is my party's policy; it is not the Government's policy. I therefore ask my hon. Friends to vote for amendment 2.

Question put, That the amendment be made.

The Committee proceeded to a Division.

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