Clause 6 — Charge for financial year 2016

Bill Presented – in the House of Commons am 5:45 pm ar 25 Mawrth 2015.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Pleidleisiau yn y ddadl hon

  • Rhif adran 186
  • Rhif adran 187
    A majority of MPs wedi pleidleisio for a series of taxation related measures including increasing the personal income tax free allowance and increasing the threshold at which higher rate tax is charged.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury) 5:45, 25 Mawrth 2015

I beg to move amendment 2, page 3, line 39, at end insert—

“(3) The Chancellor of the Exchequer shall undertake a review, within six months of the passing of this Act, of the impact of a cut of one per cent to the main rate of Corporation Tax for financial year 2016, with particular reference to—

(a) the impact on businesses with fewer than 50 employees;

(b) the impact on investment by businesses with fewer than 50 employees; and

(c) alternative tax measures, including non-domestic rates, which would have a greater benefit for businesses with fewer than 50 employees.

(4) The Chancellor of the Exchequer must publish the report of the review and lay the report before the House.”.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Full Member)

With this it will be convenient to discuss clause stand part.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

The review proposed in amendment 2 would give us a better understanding of the factors that are helping small businesses to grow and those that are limiting their expansion. Most small and medium-sized businesses with a smaller number of employees tend to be run from premises that have a rateable value of below £50,000. I should say at the outset—the Minister and I have had this debate before—that Labour does not oppose the recent changes to the rate of corporation tax that have so far come into effect. That is in keeping with our party’s policy over the past 15 years. When Labour left office, Britain had the most competitive rate of corporation tax in the G7. The rate has been cut several times over the past few years. The small business rate for companies whose profits are less than £300,000 now stands at 20%, and the rate for companies earning more than that will be 21% from April—in just a few days.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

Is not a theme developing today: the extent to which tax cuts and spending cuts should contribute towards deficit reduction and, with regard to tax cuts, who should benefit? As with the debates on VAT and the 50p tax rate, we are arguing for greater consideration to be given to small businesses, because larger businesses have already benefited from corporation tax cuts.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

My hon. Friend is right. This comes back to the impact of the choices being made—who is being prioritised and who is not, who is bearing the greater share of the burden and who is not. That is the material point.

We know that the Government’s impact assessment prepared for the 2014 Budget estimates that the cost to the Exchequer of the corporation tax cut would be some £400 million in 2015-16, £785 million in 2016-17 and £865 million the following year. In the 2015 Budget Red Book the estimates are revised upwards: for 2015-16 £550 million, for 2016-17 £1.045 billion, and for 2017-18 £1.1 billion. Those are not insignificant sums for a policy that affects a relatively small number of businesses. That is exactly my hon. Friend’s point.

The Government estimate that some 40,000 businesses pay the main rate of corporation tax and a further 41,000 businesses pay at the marginal relief rate. The Department for Business, Innovation and Skills estimates that the UK has some 5.2 million private sector businesses, the majority of which—3.9 million—are sole proprietorships, and 1 million have fewer than 10 employees. Clearly, if about 81,000 businesses benefit from the corporation tax cut, the opposite is also true—5.1 million businesses do not benefit in any way from that rate change.

The Government believe that a further cut in the corporation tax rate makes UK plc a more attractive place to invest and a more attractive destination for business to locate. The Minister and I have often debated the importance of the headline rate of corporation tax when that judgment call is made by businesses. It is important—a point that I have made on several occasions—but it is worth noting that on the former point it is far from clear that this is the case. We know that business investment fell from 8.2% of GDP in 2010 to 7.8% in 2013. That should not come as a big surprise.

Businesses tell us that they face a range of issues and that their decisions about where to locate and where to remain and invest are not based only on the headline rate of corporation tax. They take many other factors into account, such as infrastructure and the skills available in the labour market. Businesses often say that these factors are very important to their decision making, but they worry that under this Government those are areas of policy have not gone in the right direction.

Photo of Ian Swales Ian Swales Democratiaid Rhyddfrydol, Redcar

This is one point on which I think we can agree. Does the hon. Lady share my worry that investment is threatened partly by the uncertainty about the UK’s place in Europe, and that evidence is growing that that is already having an impact?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

This might be the one time during a Finance Bill debate when the hon. Gentleman and I have been in complete agreement. The uncertainty caused by the Conservative party’s positioning over Europe and the Prime Minister giving in to the needs of his party, rather than the national interest, have caused a huge amount of uncertainty. In every conversation that I have had with businesses ever since the Prime Minister made his announcement, that has been the No. 1 issue that they have raised when talking about their future in our country, their future ability to invest in our country, and their future ability to employ more people in our country. It has caused a huge amount of consternation and uncertainty, and the Conservative part of the coalition has been wrong to put its party interest ahead of the national interest.

Our amendment seeks to put flesh on the bones of what is happening to corporation tax by assessing the impact on and the benefit to smaller companies with 50 or fewer employees, which make up the vast majority of private companies in our country. At a time when there are still difficult financial choices to make and a relatively limited number of ways to raise revenue and help support businesses to grow, the evidence suggests that now is the time to give much more support to smaller businesses, and to prioritise smaller businesses for some change in their circumstances, ahead of larger businesses, which have, with the support of all parts of the House, fared pretty well when it comes to cuts to the headline rate of corporation tax.

There is general agreement that small and medium-sized enterprises are the engine of growth in our country, employing more than half of the private sector work force and contributing to 50% of UK GDP, but times remain tough and they face wide-ranging challenges. They struggle with high energy costs that do not seem to be getting much better despite wholesale price cuts of 20% in the past year, and with late payments and charges. According to the Government’s own figures, 44% of SMEs had a problem with late payments last year, with the average small business owed over £30,000—an astonishingly high figure.

Photo of Fiona O'Donnell Fiona O'Donnell Llafur, East Lothian

Does my hon. Friend agree that it is important that we assess what the larger corporations do with their extra income as compared with small businesses? Small businesses in my constituency are more likely to create jobs, while larger companies are more likely to give the money to their shareholders.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

My hon. Friend makes an important and interesting point. This is not only about how we how we make choices that prioritise help for those who particularly need it—my case is that SMEs need particular help with business rates—but the impact of the choices we are making and whether they are leading to the change that we hope to see. My case—I know she will agree—is that additional support for SMEs will yield greater gains for UK plc.

This is not about pitting one type of business against another. Government Members have tried to argue that the rise in corporation tax from 20% to 21% that we advocate is an anti-business move, but every single penny of the money from that change will be spent on SMEs, and I defy them to try to imply that they are not true businesses.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

If my hon. Friend wants to intervene, I will give way again.

Photo of Fiona O'Donnell Fiona O'Donnell Llafur, East Lothian

I am grateful to my hon. Friend; I was enjoying her contribution so much that I was going to desist. Does she agree that in the Consumer Rights Bill the Government missed an opportunity to give small businesses consumer rights, and that is often leaving them open to abuses by larger organisations?

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

My hon. Friend is right. I am glad that she has put on record the interplay between the Consumer Rights Bill and small businesses. That was a missed opportunity. The Government should have taken the opportunities available to them during the passage of that Bill to offer a further boost to these struggling businesses—all 5.1 million of them. The vast majority of businesses in our country could have been supported.

Small businesses struggle not only with high energy costs, late payments and charges, but with access to finance. Every time we discuss these issues, the problem of access to finance comes up. I am afraid that the Government have failed to get a grip on this. Since 2010, lending has fallen by a colossal £56 billion. Even in the most recent quarter, net lending to small business fell by a further £1 billion. Research has shown that some 85% of small businesses are locked into the big five banks alone. It has also shown that most SMEs will approach only the larger banks when looking for finance, and that even then the rejection rate is about 50%.

Then there is the pressing issue of business rates. Business rates are levied on the estimated market rental cost of most non-residential properties, and currently based on 2008 rental values. In 2012-13, they raised £26.1 billion. Relief on business rates exists for low-value properties—those with a rateable value of below £6,000—which are subject to a 100% discount. Since April 2013, local authorities in England have been able to retain between a quarter and a half of the rates raised from new developments.

For many small businesses, business rates are a significant overhead that they need to factor in. More than one in 10 small businesses say that they spend more on business rates than on their rent. The only choice for many of those shops, workshops, start-ups and others that pay business rates is to pass the costs of the rates on to their customers.

I come from a tradition of small business. My first job—I have to say that it was unpaid—was helping my parents to serve customers in the corner shop that was also our home. After school, at the weekend and in the holidays, I did the stocktake with my dad, went to the cash and carry and sorted out the VAT. I have a clear idea of the stresses and strains that people who run small businesses go through on a day-to-day basis, and what their families and young children go through as they help to try to keep things afloat.

My constituency covers Birmingham city centre, so hon. Members can imagine the number of retailers—both big and small—I hear from regularly. Many constituents often express the fear that the exponential growth of business rates might put them out of business. It is a concern for the people I meet. I sometimes hear those stories from people who set up businesses in the ’60s and ’70s. They have successfully survived the economic ups and downs since that time, only now to believe that they might finally be done in by the growth of the burden of business rates on small and medium-sized businesses.

We should remember that the 2008 revaluation rate reflected an entirely different time of property prices. Small businesses are stuck paying rates at 2008 levels, which do not reflect the lower property values caused by the financial crisis. Research suggests that, in my west midlands region, the rateable value for retail units is 13% too high, for offices it is 19% too high, and for industrial units it is 16% too high. The latest research shows that the average business rate increase since 2010 has been £1,500.

We have had a lot of debate this afternoon about the relative value of such sums of money to different people and businesses, but I can say with complete confidence that that is a lot of money for a small business. It is easy to see why the word “critical” has been used in relation to the current business rates regime. When people are struggling to make ends meet in their business, when they are struggling to ensure that all their bills are paid, and when their status as a going concern is in doubt, £1,500 is a significant sum of money. It is a big overhead. It has made a huge difference to the ability of small and medium-sized businesses in our country to continue to grow, employ more people and succeed.

Business rates are central to the success of small businesses. That leads us to ask the Chancellor to assess and review alternative tax measures such as a change to

“non-domestic rates, which would have a greater benefit for businesses with fewer than 50 employees”.

Specifically, we believe that a cut in businesses rates for 1.5 million small businesses and then a freeze the following year would be enormously helpful, and would make a difference to the ability of businesses of that size to keep their heads above water and keep their businesses moving forward. The measure would be worth an average of £450 over two years to 1.5 million businesses, including shops, pubs and small start-ups. Some firms would benefit by up to £2,000.

As I have said, an initial cut and then a freeze in business rates in the first two years of the next Parliament would be paid for—it is another fully funded proposal for the Labour party manifesto on which we will seek election from the British people in a few weeks’ time. It will be paid for by not going ahead with the Government’s cut in corporation tax—it will happen in April; it is just a few days away—from 21% to 20% for the 80,000 largest firms in our country. We would spend all the money raised from not going ahead with that additional 1% cut in corporation tax on those 1.5 million small firms instead.

As I said in response to an earlier intervention, Government Members have mischaracterised our corporation tax proposals as anti-business. The Minister and I sometimes agree to a score draw when we debate, but his mischaracterisation of our proposal is just plain wrong. It is also unlike him to be uncharitable and unwilling to engage with the issue at hand. I hope he will pick up on that when he responds.

During a media appearance on “Daily Politics”, I put it to the Conservative party chairman that his party’s contention that our corporation tax proposals are anti-business only holds true if the Conservatives believe that 1.5 million small firms are not really businesses. He evaded that point and no Conservative Member has ever stood up to justify their characterisation of our corporation tax proposals as anti-business by saying that they believe that 1.5 million small businesses are not actually businesses. The Minister does not look like he is about to jump up and say, “Oh no, you’ve got us wrong.” That tells me pretty much all I need to know, which is that the Conservatives are happy to whip up anti-business fervour, but it is misguided and incorrect.

If we are elected in a few weeks’ time, every single penny of the money we raise by not going ahead with a corporation tax cut from 21% to 20% will be spent on small and medium-sized businesses. They need that help and they should be prioritised to receive it. That is the choice we will make to help small and medium-sized businesses.

We already have the lowest rate of corporation tax in Europe, but we also have the most expensive property tax. That is why it makes no sense for the Government to make it a priority to cut a tax that is already among the most competitive, but not help smaller firms with very large costs.

Photo of Seema Malhotra Seema Malhotra Opposition Whip (Commons) 6:00, 25 Mawrth 2015

Does my hon. Friend agree that supporting small businesses, developing skills and apprenticeships and cutting tuition fees, which is what a Labour Government would do, would also benefit large corporations? We need broader measures that work in the interests of the whole economy.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury)

My hon. Friend is absolutely right and her point takes us back to our earlier debate about the value of the headline rate of corporation tax and the policy environment that supports it.

Clearly, more needs to be done on the business rates regime. We back the announcement of a review of business rates. There are problems in the system. For example, a factory investing in a new piece of equipment will find that its bill will go up next year because property is now worth more, which could be a disincentive to invest. Although our corporate property tax system needs to be fundamentally rethought, small businesses need urgent and immediate relief. Our proposal for a cut in business rates in the first year of the next Parliament, followed by a freeze in the second year, will make a genuine difference. I hope that Government Members will today take the opportunity that they have failed to take previously, support our amendment and thereby show their support for small and medium-sized businesses.

Photo of Ian Swales Ian Swales Democratiaid Rhyddfrydol, Redcar

This might be my last contribution in this place, so I would like to say what a great privilege it has been to represent the people of Redcar for the past five years. I thank colleagues for making my time here such a vivid experience. I would struggle to apply the word “vivid” to the many Finance Bill Committees and finance debates I have taken part in, but overall I have had a terrific time.

I support the lower rate of corporation tax. When opponents of such things talk about lower tax rates, retaining profit is often described as some kind of evil, but what happens to that money? The characterisation is that it will probably end up in high pay for the people at the top, but companies with money have lots of choices and do lots of different things. They might pay more money to their shareholders, the vast majority of which are institutions such as public sector pension funds. They might invest the money or employ more people. They might spend the money on innovation or on building skills, and they might spend more money with SMEs, because all big companies have supply chains that involve small companies.

Photo of Fiona O'Donnell Fiona O'Donnell Llafur, East Lothian

It is an honour to intervene in what might be the hon. Gentleman’s last speech in this place. Has he considered the impact on the rural economy, which suffered particularly harshly during the recession? The recovery there is very fragile and corporation tax cuts will not help rural communities. Does he not think that this could be the wrong cause?

Photo of Ian Swales Ian Swales Democratiaid Rhyddfrydol, Redcar

The economy of the country is an ecosystem. No company exists in isolation and each relates to other companies. One measure that we are not talking about this afternoon is the cut in fuel duty, which is enormously helpful to rural citizens and rural companies, so the Government have taken some steps, although that is probably not relevant to this debate.

Of course, we expect people to pay their share of corporation tax and to do it properly. I remember the head of the CBI saying towards the end of 2013 that he was confused about what Parliament wanted because there was so much noise about tax avoidance. It is not very confusing at all: we want businesses to account for their operations in the UK properly and to pay tax on the money they make in the UK. I do not think that that is complicated, but some businesses appear to think that it is.

I welcome the successive measures that the Government have taken on tax avoidance. They are not just about individual avoidance but about corporate avoidance, too. The Bill contains many provisions, but I shall mention just three: it stops contrived arrangements on carried forward tax reliefs; it restructures bank loss relief; and it puts limits on research and development tax credits to deal with certain items. Once again, the Government are looking in great detail at how companies sort out their tax and picking up anything that looks anomalous. I welcome that.

We can go a step further. Both the Chancellor and the Chief Secretary to the Treasury said last week that we are now consulting on new criminal measures to deal with companies that advise on or enable tax evasion. I am choosing my words carefully. Aggressive tax avoidance, which we often hear about, is more of a grey term, but tax evasion is very clear. If a company advises people on how to evade tax or enables that through the provision of accounts or processes, it is not just the person evading the tax who is criminal. We want those who help—I think aid and abet is the legal term—to be in the dock, too. That will further help to change the climate and the number of prosecutions necessary will be much less than the amount of activity that the provision prevents just by existing.

I welcome the consultation that has started, which is yet another step that would be helpful. We are talking about corporation tax and it is relevant to mention the diverted profits tax. As we know, a lot of corporations divert their profits or do not account properly for their operations in the UK. The diverted profits tax is a good step forward. It is quite limited in scope, but it will help to put the initial stakes in the ground for how we want to deal with things in the future.

There is more to do. I was pleased to hear the Minister talk in his opening remarks about the need to look further at internet companies, because we all know that they can position themselves anywhere. It is quite wrong to assume that when a company is selling the address of the server is where the business is, as it is really where the customer is. In fact, the HMRC small print already says that, but it is quite difficult to implement. There is a lot more to be done for internet companies, not least because they are competing against bricks-and-mortar companies, particularly the small businesses that the shadow Minister has been very vocal on and quick to talk about. That is another step that needs to be taken.

The shadow Minister was absolutely right that, when we ask businesses about their issues, they more often talk about business rates than about corporation tax. That applies not just to small and medium-sized businesses; the steel works in my constituency pays £10 million a year in business rates, which is five times the amount it would pay if it was based in the Netherlands. How do we know that? Because the same company ran a steel works in my constituency and one in the Netherlands for a long time, so they know the figures.

A huge, root-and-branch reform is required for business rates, partly to help bricks-and-mortar companies to compete against internet companies and partly to recognise the change in property values. The business rates of some shops on my local high street in Redcar are five times the amount that the landlord is seeking, so the whole decision about whether to take such premises is about business rates, not about rent.

Photo of John Robertson John Robertson Llafur, Glasgow North West 6:15, 25 Mawrth 2015

Does the hon. Gentleman think it right for a Government to take money from a city where a lot is paid in rates—with people from outside the area coming into it—and then spread it around the rest of the country?

Photo of Ian Swales Ian Swales Democratiaid Rhyddfrydol, Redcar

Another thing that the Government have done is to move towards localising business rates again. Certainly my part of the world, which had huge industrial sites such as the one I have mentioned, was pretty nonplussed when all that money was collected by a Government in the 1980s, taken to the centre and then doled out in different proportions. We need to move towards more localisation, not least to incentivise councils to drive economic development. I would argue that that has not been happening sufficiently in some parts of the country, and I live in one of them.

I understand the hon. Gentleman’s point, and there is also the issue about where people live, where they work and what services they use. The south-west has a particular issue when its population doubles every summer, because people may not make a contribution through taxes paid directly in the south-west, but they are using services there. There is another whole argument to be had about the location of rates versus how they are collected.

I will not detain the Committee long. The Government are on the right track with corporation tax. Let us put it this way: there is plenty of work for the next Parliament to do, and I shall watch with interest from afar.

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East

It is a great pleasure to follow Ian Swales, because we have served together on a number of Finance Bill Committees during the past five years. The debates on the details of a Finance Bill in Public Bill Committee are often better than those on the parts of the Bill taken on the Floor of the House. The theory is that the debates on the more important and bigger parts of the Bill are taken in the Chamber and then the Bill goes upstairs, but the Public Bill Committee often allows us to have quite fruitful debates on many of the issues.

One thing that has been very clear during this Government—perhaps this has always been the case, but it seems to be growing—is that all the political parties are falling over themselves to talk about the importance of small and medium-sized businesses, and we are all the friends of small business. Small businesses are probably very pleased to hear politicians talk so much about them, but then the issue becomes one of whether it is talk or action. It is very easy to praise small businesses, but such businesses, especially new ones, sometimes feel that the system is set against them.

One new business in my constituency involved two young women who set up a fitness studio. They went into premises on what was effectively a redevelopment area after our old hospital had been relocated. Largely because of the financial crash and the recession, the whole redevelopment took longer than expected, so the population to support new businesses had not arrived at the expected rate. Although they got a rent holiday for the first 18 months from the developer who was renting them their premises, which was welcome, they were struggling with business rates. Oddly, even though my local council said that it wanted to encourage economic development and had particularly encouraged the redevelopment of that site, it was not particularly forthcoming with help for a new business.

Those young women were not in the region of having to worry about corporation tax—that was not where their business was. They had to worry about the rates. It was touch and go, but I was pleased to see recently that they are still there and have managed to overcome their initial difficulties. Some of the other redevelopment is beginning to happen, so I hope that they will continue to be successful. However, we do not always join the dots either locally or nationally. Things such as rates are essential for a lot of small businesses, and we have to support such businesses to the greatest extent that we can.

I have some sympathy with the hon. Gentleman in his points about business rates being retained locally. We have to work through the conflict between that and redistribution to ensure that different areas of the country are assisted in developing. When I was on the council in Edinburgh, we often raised the issue. It was and still is an expanding city, and it generates a lot of business. We have big events that generate worldwide attention, and a lot of businesses feel that they bear the cost of all that without necessarily seeing the rates coming back to the city. It is all very well to say that we get rates in because we have events such as the festival and big tourist attractions, but sometimes it feels that the rates are not coming back. I understand the tension between that and looking at the region or country as a whole and trying to build wealth. It is not easy, but we have to incentivise businesses as far as possible to feel that keeping on growing is to their advantage as well as to wider advantage.

Politicians and political parties must not just pay lip service to the importance of small business. We must do specific things to assist, and that is what amendment 2, moved by my hon. Friend Shabana Mahmood, is intended to do.

The hon. Member for Redcar probably has a different view of economics from mine, but he appeared to be of the view that if a company is making a profit, it will be ploughing it back in the right directions. I do not think that is necessarily always the case. Big businesses in particular should make a good contribution to our society, and we have to ensure that they do. I urge the House to support the amendment.

Photo of Fiona O'Donnell Fiona O'Donnell Llafur, East Lothian

It is a pleasure to see you back in the Chair, Mr Hood.

I wish to talk particularly about the rural economy and the opportunities that the Government might be missing, given the importance of small and medium-sized enterprises to rural economies. Given that this may be my last contribution in this Parliament, I also want to reflect briefly on the political situation in Scotland.

We have had more than one eclipse in Scotland in recent weeks. It seems to be a daily occurrence that Alex Salmond’s moon blocks out Nicola Sturgeon’s sun. At one time, the current leader of the Scottish National party—people might easily be confused as to who that is these days, but I remind them that it is Nicola Sturgeon—did a U-turn on the SNP’s proposal in its White Paper “Scotland’s Future” to reduce corporation tax by 3%. I welcome that, because I do not think it would have been a progressive move or have provided the right environment for the stability, job creation, employment rights and pay and conditions that we want in a fair, modern and successful Scotland. The Minister may wish to reflect on that and the debate that went on around the referendum, because the measure was not popular with working people or businesses—certainly not with SMEs that would not have seen any benefit.

The Financial Secretary said that he does not want to do anything to risk the recovery, but I urge him to think about what more his Government can do to aid recovery in rural areas. Most of the conversation and discourse I have heard from Government Members—for example in the Enterprise and Regulatory Reform Bill Committee—was about employment rights. The Minister seemed to think that the way to help small businesses was to erode workers’ rights, but I think that has the opposite effect because it can be more difficult for them to recruit staff.

Much as I admire the beautiful city of Edinburgh, our capital, I am concerned that so many people from my rural constituency commute there for work. At a time when the population of East Lothian is set to grow at the fastest rate of anywhere in Scotland, with 10,000 more homes, we need jobs in our own communities. We must look at the impact that the Budget will have on SMEs with 50 or more employees, and we are asking the Government to pause and reflect on what that impact might be.

We are losing many skills in local, rural and remote economies, especially in the construction industry—that relates to the point raised by my hon. Friend Shabana Mahmood about difficulties with lending. Small construction firms are finding it very difficult to access lending, which means that they are disadvantaged when it comes to procurement contracts. If they take on small housing developments in the community, the people working on the construction sites will often be local young men and women who are benefiting from an apprenticeship and learning skills, and they will be spending money in that local community.

The healthy cycle of the rural economy is thus given new impetus and energy. Will the Minister at least reflect on that?

When small businesses fail, it does not make the headlines in the same way as when a large manufacturing company announces job losses. The news about Longannet, which is across the water from my constituency and where many of my constituents are employed, is deeply concerning. When a small business fails, it does not make the headlines in the same way, but for the rural economy and community it can be devastating. The village where I live in East Lothian, Pencaitland, has two village shops and a pub, and the thought that any of those could fold at any time would have a devastating impact on our community. At that point, community cohesion goes and the place becomes just a dormitory, somewhere people go to lay down their head at night, rather than the vibrant community we want.

We have heard much about devolution during this Parliament. When it comes to how we support and drive growth in the SME sector, we need to trust people at local authority and community level to make decisions about how businesses are supported, how they grow and create jobs and wealth, and how they provide sustainability. We must trust the people who know the area and the skill requirements to make those decisions. Talking about who gets to vote on what Bill does not have the same impact; it does not empower. It may take power away from individual MPs, but it does not empower communities, which is what devolution should be about.

I ask the Financial Secretary to consider the intervention I made on my hon. Friend the Member for Birmingham, Ladywood who spoke from the Opposition Front Bench. What evidence do the Government have that cutting corporation tax will create more jobs than supporting SMEs, particularly in the rural context?

I am very grateful to Members who have been sitting patiently and silently for allowing me to make this pitch on behalf of the rural economy. I look forward to hearing the Minister’s comments.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health) 6:30, 25 Mawrth 2015

It is always a pleasure to serve under your chairmanship, Mr Hood. It is also a pleasure to follow my hon. Friend Fiona O'Donnell, who I am almost certain will be back in the next Parliament to pursue these cases vigorously with the next Labour Government. I was tempted to speak by the Minister’s generosity in likening me to a future statesman. I appreciate that I have some way to go, although I have not handed him the Red Book across the Table, as I did to his Liberal Democrat counterpart on Thursday.

The debates we have had today really come down to one issue: balance and priorities. It is about the share we expect to take from tax or the share we expect to take from spending cuts to deal with deficit reduction in the next Parliament. As I said in an intervention on my hon. Friend Shabana Mahmood, the issues are the same whether it is the VAT debate, the 50p debate or the debate we are now having on business rates and corporation tax.

Photo of John Robertson John Robertson Llafur, Glasgow North West

The best way to get the tax contribution is to give people real jobs with real pay; then we will get the money in.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

My hon. Friend is absolutely right, and that goes to the nub of the issue today. As my hon. Friend the Member for Birmingham, Ladywood eloquently set out from the Opposition Front Bench, the numbers are clear. In respect of corporation tax, we are talking about a very small number of large businesses operating across the country. The benefits of that tax cut will not necessarily be felt throughout the wider economy. I would argue—I know my hon. Friend makes the same argument—that targeting the same amount of money on a business rate cut for the first year and a freeze for the second year is much smarter, because it would affect 5.1 million small and medium-sized businesses and others. That is the right thing to do for the struggling high street.

I therefore urge the Minister to consider very seriously what the Labour Front-Bench team is asking for. We are not asking him to implement Labour party policy, as much as I would like him to, and we are not asking him to freeze business rates or to cut them. We are asking him to conduct a review so that we can have a proper debate on whether his approach of cutting corporation tax is the right one, or whether, as we argue and believe, cutting and then freezing business rates is a much smarter way of using the same amount of money, as it would create a bigger boost for the economies of towns, villages and cities across the country.

I want to add one note of caution. I am very supportive of the devolution agenda in England. As a Greater Manchester MP, Members would expect me to say that I very much support the efforts by the Greater Manchester combined authority and the 10 local authorities—eight are Labour, one is Conservative and one is Liberal Democrat-controlled—and recognise the benefits of the conurbation working together. The Government’s announcement included the retention of additional business rates from growth, but I urge caution. I support the proposal, but we have to approach it on a conurbation, city region and county region basis. Growth areas in cities and counties are often located in particular geographical areas, whereas needs are spread across whole areas. With that, I urge the Minister to accept Labour’s amendment, which requires nothing more than a report that I think would back our plans 100%.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

First, I pay tribute to my hon. Friend Ian Swales, who spoke in this debate as he has done in so many Finance Bill debates over the past five years. He has always provided a voice of calmness and sanity. I have not agreed with everything he has said, but he has mostly made helpful contributions, and thoughtfulness is a consistent characteristic of those contributions.

The corporation tax rate is set in legislation a year in advance on an annual basis. Clause 6 sets the corporation tax rate and charge for the financial year beginning on 1 April 2016. The House will be aware that in 2013 legislation was passed cutting the main rate of corporation tax from 21% to 20% for the 2015 financial year. The cut will take effect in seven days and give the UK by far the lowest rate in the G7 and the joint lowest rate in the G20. The clause confirms that the rate will remain at 20% in 2016.

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%. We have cut it by almost a third to make the UK more competitive and to support growth and investment. At the same time, we have taken significant measures to clamp down on tax avoidance, and on Second Reading we debated the diverted profits tax introduced by the Bill.

Low corporation taxes enable businesses to increase investment, take on new staff, increase wages or reduce prices. Overall, the corporation tax cuts we have delivered since 2010 will save businesses £10 billion a year from 2016. To give Members a sense of scale, that is the equivalent of giving businesses enough money to hire 270,000 new employees. Oxford university’s centre for business taxation estimates that our reduction in the corporate tax burden will increase business investment by £11 billion; and as well as supporting businesses already operating in the UK, lower rates of corporation tax make the UK more attractive to international businesses. Last year, UK Trade & Investment reported a record number of inward investment projects that led to the creation of 66,000 new jobs and safeguarded 45,000 more.

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. In surveys, the UK is now regularly cited as one of the most competitive regimes in the world. The clause embeds the message that the UK is open for business by affirming that the UK rate will remain at the record low of 20% in 2016.

The Opposition amendment proposes a review of the impact of a 1% cut to the main rate of corporation tax for the financial year 2016. A great deal is already known about the impact of corporation tax policy. We know that lower rates encourage growth and investment, and that stable and simple taxes give businesses confidence to invest and expand. The clause refers only to a single rate because we have already legislated to unify the main rate and small profits rate of corporation tax and to scrap the complex marginal relief system for all companies, except those with ring-fenced profits.

These changes will take effect next week and give the UK for the first time a single headline rate of corporation tax and provide administrative savings for a huge number of businesses, particularly the nearly 50,000 companies that pay the marginal rate of corporation tax each year. The move was recommended by the Office of Tax Simplification, and I would like to take the opportunity to pay tribute to Michael Jack, John Whiting and the team for all the work they have done since we introduced the OTS at the start of this Parliament. The Institute for Fiscal Studies has also been supportive of our reforms. In a recent report, it said:

“The simplification of moving to a single rate of corporation tax…is a real achievement of the coalition government’s tax policy, and it is one that should not be reversed.”

The evidence on corporation tax is clear: low rates and a simple system support business and support growth. In our view, the proposed review would provide little benefit, so we are not minded to accept the amendment.

As far as business rates are concerned, the Government recognise that they represent a fixed cost for businesses. That is why during this Parliament we have continued to double the small business rate relief schemes, supporting 575,000 businesses, of which 385,000 pay no rates at all. We have capped the inflation-linked increase in the business rates multiplier at 2% for two years, and we have provided a £1,000 retail discount this year, rising to £1,500 next year for small shops, pubs, cafés and restaurants, supporting the high street.

Labour said it would cut business rates by 1% for lower-value properties in 2015-16. Under its plan, the smallest single properties would pay more. A property with a rateable value of £5,000 saves £1,165 under this Government compared with the Opposition’s proposals. The high street would also lose out. A shop with a rateable value of £30,000 saves £1,080 under this Government when compared with the original proposals. We have published terms of reference for a wide-ranging ambitious review of Budget business rates to report back to the Government. That is, of course, on top of what we have done on fuel duty, which helps small businesses, and the employment allowance, which does the same.

In conclusion, cutting corporation tax has been a central part of our economic strategy—a strategy that is working. In 2014, growth in the UK outstripped that of every other G7 country. Employment is at record levels, business investment is growing rapidly, and this clause ensures that the rate of corporation tax for 2016-17 will remain at 20%—an extremely competitive rate and a foundation of tax system designed to support growth and investment. Reversing the progress we have made would be a big mistake and send a terrible signal to businesses around the world. That is why I believe the clause should stand part of the Bill.

Question put, That the amendment be made.

The Committee divided:

Ayes 229, Noes 306.

Rhif adran 186 Bill Presented — Clause 6 — Charge for financial year 2016

Ie: 229 MPs

Na: 306 MPs

Ie: A-Z fesul cyfenw


Na: A-Z fesul cyfenw


Question accordingly negatived.

Photo of Caroline Lucas Caroline Lucas Green, Brighton, Pavilion

On a point of order, Mr Hood. Can we look again at the way in which the business of this House is organised, because it brings our procedures into real disrepute when we have not had the chance even to look at a set of important amendments, much less to debate them. [Interruption.]

Photo of Jimmy Hood Jimmy Hood Llafur, Lanark and Hamilton East

Order. I ask Members for order to allow the hon. Lady to make her point of order.

Photo of Caroline Lucas Caroline Lucas Green, Brighton, Pavilion

I was simply making the case that our procedures are brought into disrepute when we have not had the chance even to debate a huge number of amendments, much less to put them to the vote, including an important amendment that would have closed a tax-dodging loophole for private equity firms. Can we look again at the way in which the business of this House is organised, Mr Hood?

Photo of Jimmy Hood Jimmy Hood Llafur, Lanark and Hamilton East

I thank the hon. Lady for her point of order. She may want to take her point up with the Procedure Committee. Unfortunately, it is not a matter for me.

Six hours having elapsed since the commencement of proceedings on the Finance (No. 2) Bill, the proceedings were interrupted (Order, 24 March).

The Chair put forthwith the Question necessary for the disposal of the business to be concluded at that time (Standing Order No. 83D and Order, 24 March).

Clauses 6 to 65 and 68 to 127 ordered to stand part of the Bill.

Schedules 1 to 21 agreed to.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Question put forthwith (Order, 24 March), That the Bill be now read the Third time.

The House divided:

Ayes 307, Noes 226.

Rhif adran 187 Finance Bill — Third Reading

A majority of MPs wedi pleidleisio for a series of taxation related measures including increasing the personal income tax free allowance and increasing the threshold at which higher rate tax is charged.

Ie: 307 MPs

Na: 227 MPs

Ie: A-Z fesul cyfenw


Na: A-Z fesul cyfenw


Absennol: 112 MPs

Absennol: A-Z fesul cyfenw

Question accordingly agreed to.

Bill read the Third time and passed.

Photo of Angela Eagle Angela Eagle Shadow Leader of the House of Commons

On a point of order, Mr Deputy Speaker. It has just come to my attention that the Government have tabled a motion for debate on the final day of this Parliament, with no notice whatever to myself as shadow Leader of the House. The motion proposes changes to the way in which the Speaker is elected—procedural matters in the House—with no consultation with Her Majesty’s loyal Opposition and no consultation with the Chair of the Procedure Committee, for debate in only one hour tomorrow. Is this in order? Do you believe that the procedures of this House should be bandied around by the Government in this way, and that we should have surprises delivered to us in this manner on the last day of the first ever fixed-term Parliament? The motion attempts to influence the results of the first thing that will happen in the next Parliament, with no chance for large numbers of Members who had no knowledge that this was happening to participate.

Photo of Lindsay Hoyle Lindsay Hoyle Deputy Speaker and Chairman of Ways and Means, Chair, Panel of Chairs, Chairman of Ways and Means, Chair, Panel of Chairs

It is a business matter for the Government, as the shadow Leader of the House is well aware. Rightly or wrongly—whichever the House may decide—a business motion was agreed to yesterday, as I understand it, and as we know, business of the House is decided by the Government, not by the Chair, so it is not a matter for the Chair.

Photo of Kevin Brennan Kevin Brennan Shadow Minister (Education)

Further to that point of order, Mr Deputy Speaker. Usually I am an assiduous attender, as you know, of business questions, but I was unable to attend last week. Was this announced then? If it was not, can you tell us when you and Mr Speaker were informed that the motion was to be tabled?

Photo of Lindsay Hoyle Lindsay Hoyle Deputy Speaker and Chairman of Ways and Means, Chair, Panel of Chairs, Chairman of Ways and Means, Chair, Panel of Chairs

It was a business motion that was agreed yesterday, but not the terminology, I presume. Mr Speaker is not in the Chair so I do not know when he was told. I was told about five minutes ago when I came into the Chair. [Interruption.] No, that is correct. There is a business motion. [Interruption.] Mr Doughty, we are trying to deal with this. We have many other points of order on that matter.

Photo of John Spellar John Spellar Shadow Minister (Foreign and Commonwealth Affairs)

Further to that point of order, Mr Deputy Speaker. We have had some slightly strange events on the Budget, with Ministers speaking from the Government Dispatch Box—from the Treasury Bench—but speaking for their parties. My understanding is that the Government speak from there—the Government Benches. May we be clear? Is the motion a Government motion, which has therefore been signed off by the coalition partners, or is it a motion from the Conservative party?

Photo of Lindsay Hoyle Lindsay Hoyle Deputy Speaker and Chairman of Ways and Means, Chair, Panel of Chairs, Chairman of Ways and Means, Chair, Panel of Chairs

We are getting into areas that are not a matter for the Chair. This is agreed business of the Government. That answers that.

Photo of Barbara Keeley Barbara Keeley Llafur, Worsley and Eccles South

On a point of order, Mr Deputy Speaker. Is it in order for a member of a Select Committee who has been involved in a serious leak and a possible breach of privilege in this House then to raise that, as happened today at Prime Minister’s questions in a question from Charlotte Leslie, thus exacerbating the situation the Committee has found itself in? I would be grateful for your advice.

Photo of Valerie Vaz Valerie Vaz Llafur, Walsall South

Further to that point of order, Mr Deputy Speaker. Other members of the Health Committee are also affected. Charlotte Leslie has openly leaked the private considerations of the Committee. What action can be taken immediately?

Photo of Lindsay Hoyle Lindsay Hoyle Deputy Speaker and Chairman of Ways and Means, Chair, Panel of Chairs, Chairman of Ways and Means, Chair, Panel of Chairs

May I just say that we are raising a matter where a Member is being discussed? I presume that they are aware that this matter was going to be raised as a point of order.

Photo of Rosie Cooper Rosie Cooper Llafur, West Lancashire

Further to that point of order, Mr Speaker. Like my hon. Friends, I think that we, as members of the Health Committee, need the advice of your good self as to how we can address the distorted report of events at the private sitting of the Committee without falling foul of the very convention that prevents this. Conservative members of the Health Committee have previously been referred to the Liaison Committee by a vote in the Committee, and here we have it again. How do we defend ourselves?

Photo of Grahame Morris Grahame Morris Llafur, Easington

Further to that point of order, Mr Deputy Speaker. I do think it is an absolute outrage that Charlotte Leslie did not give us notice that she was raising the matter. She is subject to a referral. Other Select Committees have chosen not to publish reports.

Photo of Lindsay Hoyle Lindsay Hoyle Deputy Speaker and Chairman of Ways and Means, Chair, Panel of Chairs, Chairman of Ways and Means, Chair, Panel of Chairs

I am sure that you are aware that Mr Speaker has sent a letter to the Chair of the Select Committee. I can also inform you that it is not a matter for the Chair; it is a matter for the Committee. In the new Parliament, there will also be a new Committee that can look into it. Unfortunately, as I say, it is not a matter for the Chair.