Clause 32 - Corporation tax starting rate and fraction for financial year 2002

Part of Finance Bill – in a Public Bill Committee at 3:45 pm on 16th May 2002.

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Photo of Edward Davey Edward Davey Shadow Chief Secretary to the Treasury, Shadow Minister (Olympics and London), Liberal Democrat Spokesperson (Olympics and London), Liberal Democrat Spokesperson (Chief Secretary to the Treasury) 3:45 pm, 16th May 2002

That is a valid point, but not one against the thrust of my argument. I doubt that the Government's estimate took into account a reduction in the size of the black economy—the Paymaster General may prove me wrong.

I am going on the estimates of an independent body that is well renowned and well respected. It has considered dynamic changes, but not of the nature that the hon. Member for Dundee, East (Mr. Luke) suggested. The IFS considered the number of self-employed people available, the new incentive that could change their behaviour and move them towards incorporation, and what would happen if many of them took up that incentive. The IFS is describing not a static, but a dynamic picture. I want to probe the Government on whether they feel that their sums are wrong.

I will shortly conclude so that the Paymaster General can enlighten the Committee. If the Government are wrong, I would prefer it if they admitted it now. This is not about political point scoring but ensuring that the Exchequer gets the money it expects. If the IFS is right and the Government are wrong, we could see a questionable use of taxpayers' money—the hon. Lady would probably agree unless there is a policy objective that we have not heard about. Perhaps the Government want to give a lot of money to a certain group of people but have not got round to telling us. If that is so, we should debate whether that would be a sensible use of taxpayers' money.

Should the favoured group be in the business community or the community as a whole? Perhaps there is a policy objective for a group of businesses, but

does the clause address the best way in which to target money? Perhaps extra allowances should be given to the self-employed so that they do not have to tinker around with incorporation and can just receive money. However, perhaps the Government feel that incorporation has extra advantages for the wider economy, but will not tell us about them. Given the Paymaster General's response in the previous debate, I would not be surprised if she said that the Government were neutral on the issue. I do not believe that such declared neutrality is exhibited in the clause.

Distributional issues are related to the clause. When business people heard the Chancellor on Budget day, they must have thought, ''Great! Here's a pro-business measure.'' Labour Members should be aware that it could mean a huge tax cut for a particular group at a cost to the wider community, and that that could cause distributional issues. I shall remind them of the figures that compare a self-employed person with an employed person, each earning just under £15,000 under the regime. The self-employed person pays no tax, and the employed person pays—I am told by the Institute for Fiscal Studies—£3,827. That is a huge difference, which I am not convinced that Labour Members want.