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Michael Fabricant (Lichfield): I am grateful to the right hon. Lady for her good choice in selecting who to give way to. While she rightly mentions benefits to smaller businesses, she will be aware that in my part of the world, there are many manufacturers connected with the automotive industry that have profits of more than £1.5 millionan amount that sounds large, but is not a lot in terms of the capital that they employ. She will know that they will not benefit from cuts in corporation tax, but will suffer a 1 per cent. increase on employers' national insurance. What can she do to ensure that those firms, two of which have already gone out of business in Dagenham and Luton, can continue to thrive or at least survive in the west midlands?
Ms Hewitt: As the hon. Gentleman will be aware, about £3 billion of new investment has been going into the car industry in the past few years. We are seeing considerable success in many of our motor car companies, which feeds through to business in the supply chain. Many of the supplier companies are limited companies. The average small company will see its corporation tax bills reduced by £700 a year, almost matching the increase in national insurance contributions on the wage bill. I shall return to national insurance contributions in a moment.
Mr. Andrew Turner (Isle of Wight): I thank the Secretary of State for giving way. She has answered one of the questions that I was about to ask by telling us that the national insurance increase will exceed any benefit from a reduction in corporation tax. Furthermore, is it not the case that corporation tax is payable only on profit, while national insurance has to be paid up front, whether or not a company makes a profit? That is what is damaging to the small business sector.
Ms Hewitt: I shall come in a moment to the issue of national insurance contributions and why they are the fairest way of funding the long-term increase in national health service resources that almost everybody in our countryI am not sure about Opposition Membersagrees is needed.
Geraint Davies (Croydon, Central): My right hon. Friend will know that I have a particular interest in small business. Does she agree that one of the key drivers for improving the productivity of small business is the investment that we are putting into health? If there is one thing that keeps back a small company with a few people acting with enterprise within it is somebody being sick,
Ms Hewitt: My hon. Friend is absolutely right. I know well that the decision of my right hon. Friend the Chancellor on employers' national insurance contributions came as an unwelcome surprise to many businesses. As I have just said, however, almost everyoneincluding almost every business person I have spoken to in the last weekagrees that, as a country, we need to put more investment into health care and to reform it. The British Chambers of Commerce, for instance, has estimated that more than 200 million working days are lost through illness every year in Britain. That is about 400 times more than the number of days lost to strikes last year. The Institute of Directors says that an efficient health care sector is as vital a part of the infrastructure for business to survive as education and transport. The CBI, reflecting the point that my hon. Friend the Member for Croydon, Central (Geraint Davies) has just made, has estimated that absence from work due to sickness costs British businesses nearly £11 billion a year.
Some Conservative Members have said that we should have looked instead at private insurance to fund increased health costs. If we look at the United States of America, what do we find? The average premium for private health insurance is £100 per family. That is an appalling imposition on businesses, when they have to pick up those costs, and people on very low wages or who are not in work at all get very poor-quality health care. Conservative Members have also said, "Let us have social insurance." When we look at France, which we are told is a model to emulate, we see employers paying 12.8 per cent. contributions for health care alone, never mind what they are paying for unemployment and pension provision. That represents an average of £60 per employee per week. That would be a real imposition on business. We are very clear that there is a strong business case for better health care, and that the best way to meet the long-term need for increased funding for the national health service is to have most of the NHS funded from general taxation and to have this additional funding, provided by a modest 1 per cent. increase in national contributions, paid by all contributors.
Regulation and administrative burdens are an issue for many who run small businesses, and a favourite theme of Conservative Members. This Budget includes measures that have been widely welcomed by business and by business organisations. By increasing the VAT threshold, for instance, we shall take another 4,000 smaller businesses out of the VAT system altogether. More importantly, the radical simplification of VAT that my right hon. Friend the Chancellor has introduced will benefit 700,000 businesses.
We are also acting to simplify payroll administration. The review by Patrick Carter concluded that electronic payroll filing was much the best way to cut through the difficulties faced by small employers in coping with the complexity of payrolls.
Ms Hewitt: I recommend that the hon. Gentleman has a look at electronic filing systems, including those available directly from the internet. The fact is that they will save hours of work for employers who currently use manual payroll systems. They will be able to concentrate on getting on with their business, instead of on administration. They will have greater certainty that the payroll has been calculated accurately, and they will face fewer inquiries from the Inland Revenue into their end-of-year returns. That will mean less administration, less time spent on form filling, and more time to run the business. We have also extended the time given to the smallest employers to comply with the proposals for electronic filing. Firms with fewer than 50 employees will have until 200910 to complete the move to electronic filing of their returns, although they will get the incentive payment of £250 from 200405 onwards.
Brian Cotter (Weston-super-Mare): I hear what the Secretary of State is saying about payroll tax, and I agree with colleagues that she is not helping enormously. Will she consider the impact assessment of the Budget on small businesses? Most people in business say that it will add to bureaucracy and the red tape burden. Nothing significant has been taken away.
Ms Hewitt: Of course we shall publish a regulatory impact assessment for each measure and of course we have already consulted many small businesses on payroll administration. It is clear that effective software dealing with all the different parts of the payroll and contributions and taxes makes life much simpler.
On top of those measures, I shall shortly consult on a national strategy for business start-ups, including proposals to make it much easier for people who are setting up a business to find out exactly what help is available to them and exactly what the Government need from them.
The Budget also takes smaller combined heat and power generators out of the climate change levya measure that is particularly welcomed by many of my hon. Friendsand exempts the use of coal mine methane for electricity generation. Indeed, it freezes the levy itself.
Mr. Martin O'Neill (Ochil): My right hon. Friend is arguing that the climate change levy may be ignored or set aside for energy generation that does not create greenhouse gases. Acting on that precedent, when will we get movement in the nuclear sector?
Ms Hewitt: The announcement that we made in the Budget was welcomed, not least by Corus, with which I spent last Friday morning. The tax treatment of nuclear energy is considered in the recent performance and innovation unit energy policy report and we shall examine it as we prepare the White Paper in response to that review.
As we support enterprise, so we must encourage innovation. Our country has an extraordinary history of innovation, invention and scientific success. We have 1 per cent. of the world's population, but we make nearly 5 per cent. of the world's investment in science and produce 8 per cent. of the world's scientific papers, 9 per cent. of citations and 10 per cent. of Nobel prize winners. Last Friday, with my hon. Friend the Member for Amber
People are all too quick to write ceramics off as one of the traditional manufacturing industries that supposedly have no future. Denby Pottery has existed for almost 200 years, but half its revenue comes from products that did not exist four years ago. By investing in design, marketing and the creation of new products and by driving through production process efficiencies, it has pushed revenues up from £12 million 10 years ago, to £38 million last year and still growing.
Denby Pottery is a successful, innovative, profitable business, but we do not always put our innovative ability to such good effect. British manufacturers invest less in developing new products than manufacturers in competitor countries and we are in the bottom half of the European league for manufacturing turnover accounted for by new or improved products. We also lag behind our international counterparts in resources devoted to innovation.
Over the next three years, the science budget is to increase by an average of 7 per cent. a year in real terms, which will help to overcome the underfunding and neglect of our science infrastructure during the Conservative years. We have also multiplied threefold the commercial spin-offs from universities, turning "Invented in Britain" into "Made in Britain". As a result, we are beginning to see the signs of a brain gain rather than a brain drain.
The research and development tax credit that we introduced last year for small and medium-sized firms will be matched by the extension of that incentive to large companiesone of the most important recommendations made by the CBI and the TUC in their joint work on productivity.