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Taxes on Small Businesses — [Ms Nadine Dorries in the Chair]

Part of the debate – in Westminster Hall at 3:15 pm on 18th October 2017.

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Photo of Peter Dowd Peter Dowd Shadow Chief Secretary to the Treasury 3:15 pm, 18th October 2017

It is a pleasure to serve under your stewardship today, Ms Dorries. I thank Derek Thomas for initiating this important debate. We all recognise that small businesses are the backbone of our economy. Most of us have a family member involved in a small business. They might work for or own a small business, or they might be a partner in a small business, so I would not like people to get the idea that the Labour party is distanced from small business. We are not; we are right in the heart of the small business community. The question is whether the Government have neglected the needs of small business in favour, for example, of tax breaks to big business that has failed to stimulate investment and create the high-skilled, well-paid jobs that the country needs. We have record employment but, as I have said in the past, the issue is not just about the quantity of jobs but the quality. I do not demean the number of jobs that have been created, but there has to be a balance.

Under the Conservatives, productivity trails behind our international rivals and British businesses are struggling to recruit the skilled workers they need. The Government have failed to invest in the infrastructure that businesses depend on and have presided over what amounts to a skills crisis. The approach we have seen from Ministers on business rates revaluation is only one example of the chaos at the heart of the Government. Their approach to business rates revaluation has created a huge and destabilising burden for many businesses, with many facing a substantial and unfair increase, which other Members have alluded to. Discretionary funds are helpful, but they do not solve the underlying problem. All that is in advance of the issue that the continued uncertainty around the Government’s approach to Brexit negotiations is creating in the UK business community, whether small or large.

Such uncertainty has led many businesses to delay investing in their people or capital, which is having the unintended effect of undermining the economy’s long-term prospects. No wonder optimism among small firms and businesses has tumbled to its lowest level in the wake of the referendum and the unprecedented political and economic uncertainty that we face. What we do about it is a different matter, but that is what we face, and that is the environment that people and small businesses operate in.

According to the Federation of Small Businesses’ small business index, a majority of small and medium-sized businesses report that operating costs have risen compared with the same period last year. Labour costs are up, taxation is up and rent is up, and all are frequently mentioned as problems. On top of that, the Government are out of kilter—I will go no further than that—in relation to Making Tax Digital. Stakeholders, including tax experts and accountants—we have discussed this previously—have queried the Government’s implementation date as well as the added cost that will be passed on to small and medium-sized businesses. I take the point made by the hon. Member who said, “You get used to it,” but to be fair, at what point do you have to get used to it?

What we might call the U-turn, or about-face, that the Government made during the summer, under the Minister’s auspices, scaling back plans for Making Tax Digital, was welcome. It pushed back the implementation date to 2019, ensuring an exemption for small businesses below the VAT threshold, and ensuring that businesses do not have to submit quarterly tax returns just yet. I do not criticise that; it is welcome. However, despite that volte-face there is still, in our opinion and that of many others, an impact on small businesses; an example is the unrealistic 2019 implementation date for Making Tax Digital for VAT. That date would mean that SMEs were expected to deal with the added costs and complications of digitalising their tax returns at the same time as having to deal with the added costs of Britain’s leaving the European Union. Glyn Davies thinks that is a good thing and he is entitled to his opinion, but that is not necessarily everyone’s view.

There is also huge uncertainty over whether businesses and HMRC will be ready to implement Making Tax Digital by 2019, and we must take that into account. Perhaps the Government’s implementation timetable has more to do with the lacuna in the public finances. I do not know; I pose the question. According to HMRC, Making Tax Digital will raise £2.1 billion for the Treasury, although the Minister may tell me that that is not the correct figure. That money has probably already been spent; whether it is raised is a different kettle of fish. That is another factor for small businesses to take into account.

The truth is that the Conservatives are not the only party for small businesses. In fact, one could argue that in the past few years they have rewarded larger companies with tax cuts at the expense of SMEs. As to tax avoidance, over the past month we have seen the same story play out, first with eBay and then Amazon. We have heard about small stores in villages having to compete in the face of non-collection of huge amounts of tax from the likes of Amazon, which avoid their fair share of tax or run rings around HMRC. That affects small businesses because they pick up the tab.