Question proposed, That the clause stand part of the Bill.

Clause 7 will cut the rate of corporation tax to 19% in 2017 and 18% in 2020. Let me begin by giving some background to the measure. The Government have made it clear that we want a business tax regime that is competitive and fair, and since 2010 we have made clear strides towards that goal. The main rate of corporation tax was 28% in 2010. We had the 20th-lowest main rate among the EU27 countries, as other countries cut rates further and faster than the UK. To combat that, we have cut the rate by almost a third, to 20%, to make the UK more competitive and to support growth and investment. That is one of the biggest boosts that British business has ever seen. [Hon. Members: “Hear, hear!”] In addition, the small profits rate was also cut to 20% in the previous Parliament, and the two rates were merged to simplify the tax regime. Overall, the cuts delivered in the previous Parliament will save businesses £10 billion a year from 2016-17.

[Mark Garnierin the Chair]

The cuts that we have already delivered are significant, Mr Garnier—

It is as much of a surprise to me as it is to you.

Such greatness to fall on one so young.

In the face of global competition, the UK cannot afford to stand still, which is why we will go further in this Parliament, cutting the rate to 19% in 2017 and 18% in 2020. Those cuts will benefit more than 1 million businesses, saving them a further £6.6 billion by 2021, and will give the UK the lowest corporation tax rate in the G20, supporting investment, productivity and growth.

There is strong evidence of the economic benefits of lower corporation tax rates. Low rates increase the return that companies receive on investment, so encouraging the business investment that is vital to productivity growth. The University of Oxford estimates that the reduction in the corporate tax burden that we have delivered will increase business investment by £11 billion. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010, along with those announced at the summer Budget. The modelling suggests that the cuts could increase long-run GDP by more than 1%, or almost £20 billion in today’s prices.

[Mr George Howarth in the Chair]

As well as supporting businesses already operating in the UK, lower rates of corporation tax make the UK more attractive to international businesses. UK foreign direct investment stock has increased by almost 50% since 2010, reaching £1 trillion by the end of 2014. Last year, UK Trade & Investment reported almost 2,000 inward investment projects—the highest number ever—which have created almost 85,000 new jobs. The corporation  tax cuts and other reforms, such as the introduction of the patent box, have completely changed perceptions of the UK tax regime. Five years ago, businesses were leaving the UK because of our tax regime; that regime has now become an asset that attracts firms to the UK, which is now regularly cited in surveys as having one of the most competitive regimes in the world.

In conclusion, cutting corporation tax has been a central part of the Government’s economic strategy, and it is working. The UK grew faster than any other G7 economy in 2014, and 2 million more people are in employment since 2010. Business investment is growing rapidly. Tax competition is dynamic. In the past few decades, we have seen countries throughout the world cut their corporation tax rates. We cannot afford to stand still while others rush ahead. The UK needs to be as competitive as possible.

There were those at the general election who advocated an increase in corporation tax to 21%. I am pleased that, months later, on Second Reading, those very same people were supportive of the measures in the clause. I am grateful to the hon. Member for Birmingham, Ladywood (Shabana Mahmood), who spoke for her party in that debate and supported the reduction in corporation tax to 19% and then 18%. A new 18% rate will send out the message around the world loud and clear that Britain is open for business. I hope that the Labour party will continue to support the policy, and I commend the clause to the Committee.

I am glad to see you back in the Chair, Mr Howarth. I put my head down for a moment and then you were not there.

As we have heard, clause 7 sets the main corporation tax rate at 19% for the financial years beginning on 1 April in 2017, 2018 and 2019, and at 18% for the financial year beginning 1 April 2020. Labour is in favour of support for businesses, which is what we need to discuss as we consider the clause. We want to help British businesses to invest in the UK and to enable long-term investment. We will support the corporation tax measures, but we have questions about the future direction of policy on support for businesses. It perhaps is not appropriate to discuss it at this point, but that is why later in our consideration of the Bill we would like to introduce a new clause asking for a public consultation on the reforms to the system of tax relief for businesses.

We believe that it is essential that the Government consider the whole system of tax reliefs available to businesses and how we can make it more simple, efficient and fair for businesses and for society. Businesses need certainty to encourage long-term investment and good business planning. Although they should pay their fair share of taxes, we should be looking at how we can provide certainty.

Our policy at the general election was not to go ahead with the corporation tax cut from 21% to 20%, but instead to use the money to pay for a cut to business rates this year and a freeze next year. It was a direct switch spend—a different choice and a different way, and I will come on to talk more about that. At 18%, we will have a lower rate than Luxembourg. Given the ongoing international negotiations at OECD level, will  the Minister confirm what the reaction has been from our friends at the base erosion and profit shifting project to the Government’s proposals on the rate changes?

The reductions in the rate of corporation tax raise ethical questions about the direction of UK tax policy. We should be attracting businesses for the right reasons. The UK is a leading example in adopting fair tax policies. That is why we committed ourselves to early adoption of the common reporting standard by signing the statement, the second part of which states:

“We committed ourselves to early adoption of the Common Reporting Standard, through joining the initiative first launched by France, Germany, Italy, Spain and the UK… In doing so we recognised that only those financial centres which adopt the highest standards in tax transparency and work in close cooperation to tackle cross-border tax evasion will prosper in the future.”

In all areas of our tax policy, we should consider our duty to endorse a fair global tax system. Will the Minister clarify what steps will be taken to alleviate concerns that we might start to be viewed as a tax haven? It is likely that some countries with which we do business may have concerns after the recent change to corporation tax. Although the Government have been quick to give to businesses, businesses themselves have not called for a cut in the rate. Given that our rate is already highly competitive, why have the Government taken the decision to progressively reduce the rate to 18%?

I suggest to the hon. Lady that businesses have been generous in passing on the fruits of their expansion and profitability, as evidenced by this week’s figures showing that wage growth is at a record recent level.

I do not see how that follows the flow of what I am talking about, but if I find a place to give a reply, I will do so.

In 2014-15, corporation tax made up 7% of the total tax take in the UK. We need to be clear that cutting corporation tax amounts to a transfer to the largest businesses that disproportionately benefits them. We are concerned that a more effective policy measure, such as the one suggested at the election, could have been used to help all businesses, rather than just the largest companies. We question the reasoning behind the Government’s policy decision. It appears that corporation tax has been used because it is relatively easy to alter. I am sure the Government recognise that a substantial amount of money is going to businesses. Will the Minister outline how the Government intend to pay for the rate cut, which in 2020-21 will cost £2.5 billion? We have not seen a breakdown of exactly how that will be paid.

We have heard the point about firms being attracted to this country due to our tax regime. KPMG’s December 2014 survey of tax competitiveness revealed that only 8% of respondents saw favourable tax policies as the factor with the most impact on our recovery. Only 18% saw tax as having a high influence on where companies base themselves. That contradicts the point that the Minister just made. We believe that the focus of support for small and medium-sized businesses should be a priority and that policies to encourage businesses would have been better targeted elsewhere than this tax rate change.

Many small and medium businesses will have been disappointed that the Chancellor failed to mention business rates in his Budget speech. During the general election campaign, we outlined proposals to cut and then freeze business rates, so that smaller firms could have the support needed to invest, innovate and raise productivity. That would have helped more than 1.5 million small business properties. Small and medium-sized businesses are concerned about the pressures on business rates. Every time I visit such businesses in my constituency, that is almost the first thing they raise. Labour, along with small and medium-sized businesses up and down the country, will be waiting to see whether the Government will take action to reduce the business rates burden. There are reports that the valuation office now has to deal with 500 appeals a day. Will the Government give small and medium-sized businesses a gesture of support by providing them with an interim report on their business rates review?

Rates reform continually tops many small retailers’ and business groups’ lists of areas that need real reform, but the tax, over which there is a backlog of more than 250,000 complaints, failed to get a mention in the Chancellor’s speech. That caused a lot of disappointment. The British Retail Consortium has warned that the level of business rates could cause 80,000 shops to close by 2017, and business groups including the Confederation of British Industry say that the antiquated system of business rates is a major barrier to investment.

Let me return briefly to the point about the 80,000 shops. Very many MPs, including me, have in our constituencies the situation of empty shops on high streets and we all want to do something about that, but here is the big problem. John Allan, chairman of the Federation of Small Businesses, urged the Government to take action. He said:

“Bringing forward reforms to business rates is an immediate priority.”

We urge the Minister and the Chancellor to ensure that the ongoing review of business rates does not result in small businesses paying disproportionately more. We call for greater attention to be given to business rates as a means to support small businesses.

It is quite common in these debates to hear questions backwards and forwards about the different priorities. During the general election campaign, Labour set out further ways to support small businesses, including elements that are often talked about here in debates. One was the tackling of late payments with a new requirement on larger businesses to set out the extent of late payment that they have been responsible for and the action that they have taken to compensate suppliers. We would have given business organisations, such as the Federation of Small Businesses, the right to take cases on behalf of their members, because they believe that that is very important.

We wanted to strive to reduce unnecessary regulation in the small business arena by establishing a small business administration, which the FSB has called for, to co-ordinate work across the Government to benefit smaller businesses and cut unnecessary regulation as it affects them. Our small business administration would have been given a remit to ensure that regulations or requirements on small business were proportionate and appropriate and avoided unnecessary burdens or  compliance costs. They want to see regulation designed from the perspective of the smaller firm and they feel that it is not.

There is a need to deliver a longer-term road map for capital allowances and incentives for research and innovation such as the research and development tax credit, and not just for the headline rate of corporation tax. There is also a need to improve support for entrepreneurs and small and medium-sized enterprises that want to grow rapidly.

We understand that the Government have started to take steps to address the issue of late payments and that a consultation on the proposed role of small business commissioner was undertaken. As we are talking about the different scale of businesses, may I ask whether Ministers can provide us with an update on the new role, because that consultation ended on 21 August?

What other action are the Government taking to offer the support needed for small and medium-sized businesses? Feedback from a cross-section of businesses, ranging from start-ups to FTSE 100 companies, that was gathered by PricewaterhouseCoopers stated a number of key messages about their view on how the UK tax system should be shaped in the future. They included the following. The UK needs to be clearer on tax; that is the issue of the road map to instil confidence. A longer-term approach to tax needs to be taken. We will talk about that later in terms of how some taxes and allowances have changed. Businesses feel that the tax system should be more focused. It is too complex, with many different reliefs and exemptions; reliefs should be better targeted at specific purposes. Also—I have already made this point—national insurance contributions should be aligned with income tax. That was the view of those businesses.

Labour wants certainty for businesses looking to invest.

The hon. Lady mentions certainty. Does she accept that other measures in the Budget, such as the national insurance contribution ceiling, will not only create certainty, but help the small businesses that she is mentioning?

Indeed; that is why we made that pledge first. There is nothing else to say about that. We understood how important that was, and made the pledge first—on income tax, national insurance and VAT. The only difference between us on that is that we would not have spent the time of a Public Bill Committee or Committee of the whole House on gimmicks—on putting forward legislation to bring in what we pledged. We support action to help small and medium-sized businesses, and a system in which business reliefs are clear and focused. We want to ease the burden on smaller business of navigating the myriad reliefs that, we have to admit, exist today.

We will not challenge the main substance of clause 7, but it has unintended consequences that reflect on later clauses that we will try to amend; I want to bring those up, and will ask the Minister to reflect on them and perhaps discuss them with the Chancellor.

The clause pre-announces the cut to the main rate five years in advance. Ordinarily, I would think that was quite a good thing to do, because it maximises revenue  streams and still gets us the maximum impact of the incentive. That worked very well in Sweden, so we should congratulate the Minister on that principle. The first problem that emerges is that significant evidence shows that large amounts of corporate surpluses are staying in the bank or are being used for share by banks. There has been no great evidence over the past few years to show that cuts to corporation tax are leading directly to reinvestment in manufacturing plant and productive infrastructure. In fact, corporate balances have been going up significantly in the UK and, for the same reason, the United States.

My practical worry is that if we continue, over these five years, to cut corporation tax, that may incentivise profit-making in business, but the profits will not be reinvested into raising productivity in the British economy. That link has to be looked at. The issue could be dealt with by adding extra incentives for investment, so that the corporate surpluses are recycled. One of my criticisms of the Bill overall is that those incentives do not exist. I ask the Minister to look at that.

Does the hon. Gentleman agree that if we put in place the incentives that he describes, we would add complication to an already very complicated tax code? On his point about reinvestment, if corporate profits are dividended back to shareholders, it is likely that those shareholders will reinvest them elsewhere. If the profits are deposited in banks, my basic Maynard Keynes reading suggests that the banks will lend the money to other people. The money will find its way back into the economy, but via different routes.

Both are fair points, but the recycling is largely going into property. Every crane that we count around this building is the result of that. We have offset productive investment into an overheated property market, which is hardly what we want to do to raise productivity.

On the hon. Gentleman’s first point about how we craft incentives so that they do not become over-complicated and lead to further tax loopholes, that is an historical problem. This is a question of the here and now. I am sure that the Chancellor and the Government can come up with some good ideas on that.

I raised the issue with the Treasury Committee and the Monetary Policy Committee yesterday, because I am concerned that the Government are adding to the burden by attempting to run a permanent budget surplus—to generate surpluses that do not go into the productive economy. The representatives of the Monetary Policy Committee committed themselves to an answer that they may rue and that the Government should go away and think about. The committee was pressed on the point that if the Government run a permanent budget surplus, it must have an impact on the rest of the national income accounts. If we run a budget surplus, we are saving; we are taxing people to save. Where do the savings go? The best that the committee could do was say that there would be a further rundown of corporate balance sheets—in other words, money would flow out of the corporate sector—and that money might start flowing abroad, so we would end up investing abroad.

We have a £1.5 trillion national debt, and I would respectfully suggest that surpluses would begin, in a very small way, to pay it down.

I merely reflect the answer given to me by the Monetary Policy Committee of the Bank of England. The hon. Gentleman may take it up with them.

Clause 7 will have a second unintended consequence, which is more specific. The Finance Bill does not just cut taxes to business; it raises them in a new way in the banking sector through the introduction of the bank levy—the surcharge on bank profits, which will replace the old levy. The problem with the change to the surcharge is that it extends the new tax to challenger banks and mutual building societies. The Chancellor responded to me personally and said that challenger banks and mutuals will not be disadvantaged because any shift in the extra tax burden from the surcharge on their profits will be offset by the reduction in corporation tax. Unfortunately, there is a five-year gap, and therein lies the problem. Yes, the reduction in corporation tax will eventually feed through to the challenger banks and mutuals, but in the interim they will have to pay a surcharge. There is a problem for competition, because we will be placing an extra burden on the mutuals and challenger banks in the interim by raising the surcharge on their profits. The full effect of the cut in corporation tax will come only five years down the road.

Order. The hon. Gentleman has done a very good job of conflating two issues into one clause, but he needs to keep relating his speech to the levy on corporation tax. He has done that so far, but he seems to be straying from that a bit.

I stand chastened, Mr Howarth. My point is that the one does not offset the other because of the time gap, which is where I wanted to finish. That is what I would like the Minister to reflect on.

I begin by welcoming the support of the hon. Member for Worsley and Eccles South for the reduction in corporation tax—although, if I may say so, she could have sounded a little more enthusiastic about the measure. I would be grateful to know whether the shadow Chancellor agrees with the reduction in the corporation tax rate first to 19% and then to 18%. He is on record suggesting that the rate should be considerably higher, but I appreciate that he made those comments when he was a Back Bencher, so perhaps we should not dwell on them for too long.

A few issues were raised, some of which relate to this clause. I will try to address as many as possible. First, on the issue of the UK’s reputation and the base erosion and profit shifting process, which was instigated by the UK Government and others, the UK believes in a tax system that is competitive and fair, and which properly reflects where economic activity takes place. We want a simple, competitive and fair tax system, which is why we instigated the BEPS initiative to ensure that companies are not able to make use of an outdated international tax system that does not properly reflect where economic activity takes place. Within that system it is perfectly reasonable to have low and competitive rates, and that is exactly what we have delivered.

As I set out earlier, we are seeing signs of increased business investment. The analysis undertaken by the Treasury and HMRC shows that much of the tax loss as  a consequence of the reductions is recovered by increases in economic activity. A dynamic behavioural analysis shows that this is helping. Real business investment is growing as a proportion of GDP; business investment grew by 8% in 2014, and the Office for Budget Responsibility is forecasting that it will grow strongly over the next few years. It is also worth pointing out that the likes of the OECD make the case that corporation tax is perhaps one of the most economically damaging taxes and one of the most inefficient of our taxes. That is why it has been a priority for the Government to reduce it. We believe that if the UK is to prosper and to win the global race, it is important that we have that competitive tax system.

Our case as a country would be aided if there was consensus that we should have low rates of corporation tax, and that is why I genuinely welcome the fact that the Opposition parties apparently will not divide the Committee on that issue. I hope that that consensus can be maintained, because those who go around advocating very high rates for corporation tax do not aid those of us who are trying to advocate that businesses should invest in the UK when they have a number of international choices.

Will the Minister give way?

I certainly give way to the hon. Lady, who can confirm her party’s and, indeed, the shadow Chancellor’s support for this measure.

I do not think it would be my place to confirm the shadow Chancellor’s support for the measure. If this is going to come up again in the debate, I should explain that we have a robust system of policy development and that decisions in the short to medium term are taken by the shadow Cabinet, which I think has met only once since we had the change of leadership at the weekend; then we have a substantial policy forum set up, which works nationally with our annual conference to take forward new developments and changes in policy direction and decisions. It is not sensible in this very short time into a new administration to ask a junior shadow Treasury Minister to make that point.

To bring the Minister back to my questions, I spent quite a lot of time talking about corporation tax versus business rates. We made our pledge on business rates and we are very concerned about small and medium-sized businesses, and about the high street. Can he answer my questions?

I will, although I do not want to hurry away from corporation tax, given that it is the essence of clause 7. I note that the hon. Lady said that although she is able to make a statement about party policy as the Labour party Front Bencher in this Committee, neither the leader of her party nor the shadow Chancellor are in a position to do so. If that is the way the Labour party operates, that is one for that party, curious though it might be to the rest of us.

Exactly, and I think we should not get too drawn into policy-making processes of any political party.

I can understand your making that point, Mr Howarth.

I wonder whether my hon. Friend shares my view that those who usually call for higher rates of corporation tax have never themselves ever been involved in the running of a business.

My hon. Friend makes a very important point. Another point about corporation tax that can be lost in the debate is that, ultimately, the burden of all taxes falls on people. There is a lively debate on corporation tax about how much should it fall upon shareholders, in which case we are often talking about pension funds that pay pensions to ordinary people. Sometimes it could fall upon employees as a consequence of the fact that there is a reduction in investment as a consequence of corporation tax, which in turn means that productivity does not improve, and as productivity tends to drive salaries and wages, employees often suffer; or it could indeed be consumers who suffer from higher prices as a consequence of corporation tax.

Let us be clear that all taxes that we debate in this Committee are ultimately paid by people. They might not be writing the cheque or transferring the funds from their account, but ultimately all taxes are paid by people, and if one has an economically inefficient tax, the price that people pay for the benefit to the public finances becomes all the greater.

I find the comment from the hon. Member for North Dorset about the prior experience of Members of this House rather patronising. I started my career in IBM, which is one of the biggest companies in the world. In fact, I worked at the large systems end of IBM with some of the largest organisations in the country, so I will not be patronised about my business experience. I have also been self-employed, which an awful lot of Members have not been.

I return to the point that this was a straightforward switch. I do not have many large corporations in my constituency in Salford, but I do have a lot of small and medium-sized businesses. Our straight switch from corporation tax was to support those small and medium-sized businesses. That was the essence of my contribution.

I am grateful to the hon. Lady for her intervention. To be fair to my hon. Friend the Member for North Dorset, he was saying that those who advocate corporation tax rises might not understand business. As she is not advocating corporation tax rises, I do not think she should take those remarks personally.

The coalition Government introduced a number of measures on business rates at autumn statements and in Budgets—for example, introducing a discount and extending the small business rate relief. We have announced a review of business rates, which will report by the end of the year. We set out details in the Budget of how we are paying for the rate cut, as part of a set of tax-reforming measures.

The Government have taken strong steps to deal with avoidance both domestically and internationally. I will not detain the Committee on that, but I am happy to do so if necessary.

On tax simplification and helping small and medium-sized enterprises, it is worth pointing out that the Office of Tax Simplification was set up in 2010 and has made more than 400 recommendations, of which half have already been implemented. The OTS will be established on a statutory basis with an expanded role and capacity.

The hon. Lady asked specifically about the late payments consultation. As we heard, that consultation was completed last month and the House will be updated on its results once responses have been reviewed. I am grateful for the Committee’s support for the measures, and I hope clause 7 will stand part of the Bill.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.