Clause 5 - Small profits rate and fractions for financial year 2013

Finance (No. 2) Bill – in a Public Bill Committee am 2:30 pm ar 25 Ebrill 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

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

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I appreciate that we have had a difficult series of discussions, and it was important that you took all the points of order, Mr Amess. At the risk of embarrassing my hon. Friend the Member for Airdrie and Shotts, I will reveal that she was not alive in 1984 when you were sitting on that Committee, Mr Amess.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 2:45, 25 Ebrill 2013

Let us move on to clause 5. I want to raise a number of issues on the clause, which deals with the small profits rate and fractions for financial year 2013. We had much debate on the principles of corporation tax earlier on and I do not wish to repeat the points that were made.

The clause essentially unifies the small profits rate with the main rate for 2013/14; there will be only one corporation tax rate for non-ring-fenced profits, set at 20%—as we discussed earlier, the ring-fenced profits of North sea oil companies are treated differently—so firms with profits of up to £300,000 pay the small profits rate and those with profits between £300,000 and £1.5 million benefit from marginal relief. The clause also sets the fraction used for calculating the marginal relief from the main rate at three four-hundredths for all profits except ring-fenced profits, where the fraction is set at 11 four-hundredths. I am sure that those who looked on with interest at the constitutional wrangling  we had over a vote will be delighted to see that we are now back on fractions, numbers, percentages and the meat of the Bill.

The alignment with the small profits rate is intended to remove the complications of tapering. However, I wish to raise a number of concerns with the Minister because some of the cuts that are being carried out by the public sector, and even the corporate sector, could mean that future job creation will come from a much larger number of small businesses. That was raised in an earlier debate, which was why I asked the hon. Member for Amber Valley about the discussions he had had with the Federation of Small Businesses in relation to his amendment. Small businesses are crucial to getting growth back into the economy. Therefore my question is: what will be the impact of this measure? Will it disproportionately benefit large businesses rather than small businesses?

I return to an issue that we raised earlier in the proceedings with the Minister. If Ministers want to help small firms, why do they not use the money left over from the Government’s failed national insurance rebate for new businesses to offer a one-year national insurance tax break for every small firm that takes on extra workers? I also asked the Minister earlier why the Government would not consider bringing forward the employer allowance—a measure that we welcomed—to 2014. Why not legislate for that in the Bill?

The Minister gave us a bit of a preview of what was coming down the line in the Queen’s Speech when he told us that there would be a national insurance contributions Bill. That will, no doubt, provide further work for many of the Members serving on this Committee and we have that to look forward to. I wonder, however, what consultation will be undertaken until that Bill comes in. Will the Minister engage further with small businesses on national insurance contributions to see whether that would provide more of a benefit to those small firms that will be the backbone of our local economy in the future?

I do not want to go over all of the ground that we covered in relation to corporation tax as, if we make sufficient progress, we will be able to do that when we get to clause 6. There are, however, particular questions that the Minister must answer at this stage, particularly in relation to the alignment and complications of tapering and how the impact of cuts in the public sector means that small businesses will have to step into that gap, rather than large businesses.

I again raise the question of confidence in the economy, which we discussed in relation to clause 4 this morning. Hon. Members will recall that there were several speeches about the fact that many businesses are now sitting on reserves of cash and are not investing because they are concerned that the economy is not improving overall. They have seen the flatlining and, as I have mentioned, we cannot rely on a collective sigh of relief from the Government that we are not in a triple-dip recession as enough of a message to send out to businesses that the economy is moving again.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

This morning, an Opposition Back Bencher mentioned the number of companies sitting on large amounts of cash that they are not investing. What is the source for that? I am disputing it; I was simply not aware of it.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I hate to go back to this point—we had so much discussion about the technicalities—but many of the indications from business are not only that people are concerned about the banks not lending but that they are waiting to see whether there will indeed be an upturn in the economy. The hon. Member for Amber Valley referred to the need to have a report and to consider the issue in the round to understand what is going on in the business sector in relation to corporation tax and the taxation regime overall.

Photo of James Duddridge James Duddridge Chair, Regulatory Reform Committee, Chair, Regulatory Reform Committee

Is the hon. Lady saying that the evidence is anecdotal from chatting to local businesses, or is there a report that refers to those large capital amounts? Most businesses that I deal with—I do not know whether Rochford and Southend East is any different—have debt requirements that they still have to finance.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I certainly take very seriously the anecdotal evidence from my local businesses, but the source is not simply anecdotal evidence, because figures and reports—for example, from the Bank of England—back it up. I hope that all hon. Members will talk not only to small businesses but to others. This morning, we discussed the importance of the manufacturing sector and how to ensure that such firms grow, become more involved in exporting and up their game to take on additional staff.

I again ask the Minister to explain how the measure will contribute to achieving the growth required and to job creation. I do not want to rehearse all our arguments from previous sittings, but we talked earlier about efforts to create more jobs, get people back into well-paid employment, create more exports, help the manufacturing sector, create a retail sector recovery and support service industries. I want the Minister to tell us specifically how the measure will help in such processes in the year ahead.

I understand the point that the Minister made earlier—he was of course technically correct—just as we understand the difference between what will happen in the Finance Bill and what will happen in the national insurance contributions Bill. Will the Minister also take into account the points made in earlier debates? If there is not going to be a report about corporation tax issues, will he say more about which of the points made by hon. Members on both sides of the Committee he intends to pick up? I recall that one of his hon. Friends reflected some of our concerns that corporation tax reform is not the factor that will help small businesses in particular; a range of other measures could also be taken forward.

I look forward to hearing what the Minister has to say. If he can answer all the questions, well and good, but if not, I hope to intervene and put a few more specific points to him.

Photo of David Gauke David Gauke The Exchequer Secretary

It is a great pleasure to welcome you back to a livelier final afternoon of this Session than we might have anticipated, Mr Amess. Clause 5 confirms that the small profits rate of corporation tax for the year beginning 1 April 2013 remains at 20%. It also sets the standard fraction for calculating marginal relief at three four-hundredths. This reflects the 1% reduction in the main  rate, from 24% to 23% from 1 April 2013, which is a further step towards a single unified corporation tax rate of 20% from 1 April 2015. This clause sets the small profits rate for 2013-14 and confirms the corporation tax rate at 20% for the 850,000 companies which have profits up to £300,000 a year. As I pointed out this morning, that is lower than the proposed 22% that we inherited when we came into office in 2010.

In addition to those paying 20%, 41,000 companies with profits in excess of £300,000 but less than £1.5 million benefit from marginal relief from the main rate of corporation tax. The marginal relief from the main rate ensures that companies pay a marginally increasing rate of corporation tax as their profits rise. This clause also sets the standard fraction used to calculate marginal relief at three four-hundredths, in line with the reduction in the main rate from 24% to 23%.

Looking ahead, in the Finance Bill 2014 we will legislate to remove the small profits rate from 1 April 2015, to create a single unified rate of corporation tax of 20%. Unification of the main rate and small profits rate itself creates a simpler, more competitive and less burdensome corporate tax regime—a point that I am sure will be welcomed by all members of the Committee, not least by my hon. Friend the Member for Amber Valley. It is something that many have recommended, including the Office of Tax Simplification. Support for this move also comes from the Chairman of the Treasury Select Committee, my hon. Friend the Member for Chichester (Mr Tyrie), who commended a substantial cut in corporation tax and its simplification in one go.

For the avoidance of doubt, it is worth stressing that removing the small profit rate does not reflect any change in the Government’s commitment to support small businesses. Indeed, since 2010 this Government have provided, and continue to provide, increasing support for small businesses to help meet our ambition to make the UK the best place in Europe to start, finance and grow a business. In the Budget, the Chancellor announced a range of measures, many of which we will debate in due course, which will help small businesses to succeed and grow. These measures include the £2,000 employment allowance for all businesses to reduce their employer national insurance contributions bill each year. This will reduce the costs of employment, particularly for small businesses. I touched on that this morning and I suspect that I will be requested to say more about it this afternoon.

Photo of Stephen Doughty Stephen Doughty Llafur, De Caerdydd a Phenarth

The Minister has given a long list of measures that the Government are supposed to be taking to support small businesses. I speak regularly to a number of small businesses in my constituency, and they have a much less positive view of what the Government are doing. If the Minister is doing all this to support the small business community, why are we seeing the slowest rate of recovery in growth for over 100 years?

Photo of David Gauke David Gauke The Exchequer Secretary

We have, of course, seen figures this morning showing that the economy is growing. That is something that we certainly welcome on this side of the Committee. We recognise that these are difficult economic conditions. However it should be pointed out that over the time in which the Government have been in place,  about 1.25 million private sector jobs have been created. That is a net number, and a large number of those jobs can be attributed to small businesses. [ Interruption.] The hon. Member for Newcastle upon Tyne North says “nonsense”, but 1.25 million new jobs have been created in the private sector. If that is disputed—the hon. Lady says that it is—I would be grateful to know what the evidence is.

Photo of Stephen Doughty Stephen Doughty Llafur, De Caerdydd a Phenarth

I appreciate the Minister giving way once more. Having spoken to a number of small businesses in my constituency, I have to say that they do not thank the UK Government for the fact that they can take on new workers; they thank the Welsh Labour Government for supporting them with the Jobs Growth Wales fund, which has enabled many small businesses to take on extra staff in what, as he has described, are very difficult economic circumstances.

Photo of David Gauke David Gauke The Exchequer Secretary 3:00, 25 Ebrill 2013

That is an interesting observation; no doubt the hon. Gentleman will be presenting evidence that job creation in Wales is substantially greater than in the rest of the United Kingdom. I await that evidence with interest.

Pamela Nash rose—

Sheila Gilmore rose—

Photo of David Gauke David Gauke The Exchequer Secretary

I will certainly give way to a number of hon. Ladies, who are no doubt going to tell me that job creation in Scotland is not something for which the Government deserve any credit.

Photo of Pamela Nash Pamela Nash Llafur, Airdrie and Shotts

I thank the Minister for giving way. I am sure that my hon. Friends will do exactly as he suggests. He mentioned that 1.25 million private sector jobs have been created; does he have figures on how many of those are part time?

Photo of David Gauke David Gauke The Exchequer Secretary

We not should dismiss part-time jobs; they are an important part of our economy and many people value them, so let us not be sniffy about them. The fact is that the number of working hours is also increasing.

Photo of Sheila Gilmore Sheila Gilmore Llafur, Edinburgh East

Whenever they are presented with criticisms about the slow rate of growth, the Government respond as the Minister just did, with the 1.25 million private sector jobs. However, the quality and type of jobs may be one of the reasons why, despite the creation of those jobs, growth is so sluggish. Will he investigate the situation I have discovered in my area, where 55 out of 75 new shop assistant jobs advertised to jobseekers were for roles distributing Kleeneze catalogues and then trying to make sales? Those sorts of jobs would normally be advertised as a way to boost income rather than as something that in any sense provides a living wage.

Photo of David Gauke David Gauke The Exchequer Secretary

Nobody on the Government side will deny that economic conditions are difficult. It is pleasing that the economy is growing, but we would all like growth to be faster and the economy to be stronger.  I would have thought we would all be united in welcoming the fact that there are more people in employment now than there have been in the past, and that the number of people who are on out-of-work benefits is now significantly lower than it was in 2010 despite the difficult economic conditions. We can debate why those conditions are difficult, but the truth is that they are, and the fact that employment is up is something that both sides of the Committee should welcome.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

The Minister will recall the debate that we had on clause 4 about types of jobs. No one on the Opposition side is suggesting that there are some jobs—for example, in retail—that should not be available at all; the issue is whether people have enough hours and whether those jobs pay enough to give them a sustainable quality of life. Will the Minister explain how the measures that he is proposing are going to give a boost to the manufacturing sector, for example, to ensure that businesses are able to take on more workers?

Photo of David Gauke David Gauke The Exchequer Secretary

Let me turn directly to the steps that the Government are taking to ensure that the UK economy grows more strongly than it otherwise would. We believe that we should have a competitive tax system and are reducing corporation tax; looking specifically at clause 5, we have a lower rate of corporation tax than the previous Government intended there to be; and we are bringing in an employment allowance that will save every business that employs people £2,000 a year. Unlike the Opposition proposals we have heard, which were for a complicated scheme that would apply only to small businesses that took on staff, this scheme will be much simpler to administer, and will apply very broadly, across the board. The complicated proposals that we have heard from the Opposition are not workable, but our measures will be a radical change and will make a dramatic difference for businesses across the piece. That is why we are taking steps such as freezing fuel duty—we are not putting that up—which is also helping businesses. We are a Government who are taking practical action to help businesses, create jobs, and ensure that the United Kingdom wins the global race and that businesses, whether big or small, can succeed despite the fact that we were left with the most awful deficit by the previous Government, which means that we have no money to spend.

Photo of Paul Uppal Paul Uppal Ceidwadwyr, Wolverhampton South West

This debate reminds me of my time on the Welfare Reform Bill Committee, where there seemed to be a general consensus on both sides that whatever the nature of jobs, even part-time micro jobs, they are an essential step in getting people out of poverty and into the habit of work. Moreover, many part-time jobs lead on to full-time jobs, so it is a win-win situation for everybody.

Photo of David Gauke David Gauke The Exchequer Secretary

My hon. Friend makes an important point. It was not that long ago when the Labour party, or some of its supporters, was predicting that unemployment would rise to 3 million or 4 million—[Interruption.]— 5 million. There is a bit of an auction going on. We hear 6 million from the hon. Gentleman at the back. The concern was raised, and it is a legitimate one, that unemployment causes long-term difficulties and that when people get out of the habit of working, it is a great struggle to recover that good habit. Although the economy has not performed as well as anticipated, the employment performance has been a lot better, and that is something  we should all welcome. However, we should not be complacent, which is why, for example, we have chosen not to increase the jobs tax, as the previous Government intended to do, but to reduce it, and that is an important step.

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

Some time back, the Minister said that we should all be united in welcoming any progress that the Government make in reducing the deficit. I am sure that he is aware that figures from the House of Commons Library show that under his Government, 74% of the burden of it has fallen on women. How can we all celebrate and be united? How can we believe that we are all in it together when women are disproportionately paying the price?

Photo of David Gauke David Gauke The Exchequer Secretary

I will not digress too long in saying that we believe that that analysis is somewhat simplistic and applies an assessment to financial support that may be paid more often than not to the woman but is there to support a household. It is also worth pointing out that more women are in employment than at any time in our history, and that should not be ignored.

Photo of Rory Stewart Rory Stewart Ceidwadwyr, Penrith and The Border

The Minister is being immensely generous in giving way. May I encourage him to expand support in terms of employer’s national insurance further? It is a wonderful initiative and, given that we are so focused on jobs, a real priority to pursue.

Photo of David Gauke David Gauke The Exchequer Secretary

I shall note that as an early Budget representation from my hon. Friend. I also thank him for saying that I have been immensely generous. Looking at the clock, I should perhaps cease that generosity, although I shall make one last exception.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I thank the Minister for being extremely generous. I wanted to pick him up on the employment allowance, which he rightly says will give some support to all firms. He seemed, however, to disassociate that from job creation, and I wonder whether I have picked him up incorrectly. Does he have any indication of how many jobs would be created as a result of that additional allowance?

Photo of David Gauke David Gauke The Exchequer Secretary

It is difficult to put a precise number on that. However, an environment that allows a business to take on, for example, its first employee at £22,000 a year without paying any employer’s national insurance contributions, or two employees at £15,000 a year without paying any such contributions, has to be beneficial. [ Interruption. ] As the bell tolls, let me conclude by saying that the Bill confirms the small profits rate of corporation tax for 2013-14 at 20%, representing the Government’s continued commitment to supporting growth and investment in small business.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Greg Hands.)

Bill, so far as considered, to be reported, without amendment.