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House of Commons

Thursday 11 December 2003

The House met at half-past Eleven o'clock


[Mr. Speaker in the Chair]

Oral Answers to Questions


The Secretary of State was asked—

Small Businesses

1. Mr. Mark Prisk (Hertford and Stortford) (Con): What representations she has received from small businesses about the effect of changes in the taxation of husband and wife enterprises. [143317]

The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths): There have been no changes in the taxation of husband and wife enterprises.

Mr. Prisk : I think that the Minister is misinformed because the tax changes that small businesses have told me about mean that no one in a family firm now knows what their tax liability is, for this year or for the past six years. I refer, if the Minister is uncertain, to section 660A. This is creating uncertainty for hundreds of thousands of family firms. Will the Minister therefore agree to meet a delegation of small businesses to hear them express their concerns?

Nigel Griffiths: The hon. Gentleman refers to section 660A, but he is being a bit economical in his description. It is section 660A of the 1988 measure to counter tax avoidance. The treatment of businesses under that has been consistent. I understand that the maximum that a husband and wife can attempt to avoid is about £8,000. However, at the moment the Inland Revenue is dealing with fewer than 100 inquiries on this subject. As I meet small business representatives regularly, if they raise the matter with me they can be sure of a robust response.

David Taylor (North-West Leicestershire) (Lab/Co-op): The business sector clearly welcomes the generally benign and encouraging regimes that the Chancellor has introduced since 1997 and there have been great incentives to small businesses to incorporate, but does the Minister agree with the Federation of Small Businesses that an imbalance has grown up between incorporated businesses and the self-employed and partnerships, including husband and wife partnerships, to the extent that the future of some of those self-

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employed and partnership businesses is imperilled? Should not taxation exist to produce revenue, not to shape the form in which business takes place?

Nigel Griffiths: I greatly respect the Federation of Small Businesses and the campaign that it launched with its members some time ago, but I think that small businesses also appreciate that there are advantages to not being incorporated, as well as to incorporation. Whereas incorporation now allows them to benefit from, I think, the lowest starting rate of corporation tax in the advanced industrial economies and a level of corporation tax among the lowest anywhere, unincorporation does confer advantages on small firms and many choose to retain that status, which is why 100,000 viable small firms have started up in the last six years and continue to trade and prosper.

Mr. Jonathan Djanogly (Huntingdon) (Con): If a company pays dividends to its shareholders, why should it matter that they happen to be married? Is not this interpretation an attack on family businesses in this country?

Nigel Griffiths: The hon. Gentleman should address that question to Lord Lawson who, as Chancellor in 1988, was responsible for this piece of legislation. As I have said, I am informed that there have been fewer than 100 inquiries to the Inland Revenue on this subject. Such conduct may involve, in many cases, trying to ensure that a sleeping partner—a non-active director—can benefit from tax avoidance, which is why Nigel Lawson closed that loophole.

Manufacturing Industry

2. Mr. John MacDougall (Central Fife) (Lab): What measures she is taking to increase productivity in the UK's manufacturing industry sector; and if she will make a statement. [143318]

The Minister for Industry and the Regions (Jacqui Smith): We are taking action in all the areas identified in the Government's manufacturing strategy—the first for 30 years—to help the UK's manufacturing sector increase productivity in very difficult global conditions. For example, the manufacturing advisory service has been a real success as a major source of advice and support, adding nearly £30 million total value added benefit to firms helped by that service.

Mr. MacDougall : I am grateful for my right hon. Friend's response. Does she agree that manufacturing industry is still vital to the UK economy, especially to constituencies such as my own, Central Fife; that productivity is a key factor; that we are going to close the productivity gap with Europe and the United States; and that we will declare that intent?

Jacqui Smith: I wholeheartedly agree with my hon. Friend. Producing, as it does, a sixth of national output, employing more than 300,000 people—many of whom are dependent on manufacturing industry—and being a driver of productivity improvements and innovation in

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our economy gives manufacturing an absolutely crucial role. My hon. Friend in his constituency, and I in my west midlands constituency, understand that manufacturing has been a key part of our industrial heritage, and that it is also a key part of our successful economic future.

Mr. Stephen O'Brien (Eddisbury) (Con): Given that according to the Office for National Statistics, UK manufacturing growth has halved under Labour, does the right hon. Lady agree with her senior Government colleague, the Leader of the House, who acknowledged at the CBI conference on 17 November that the gold-plating of European regulations by this Labour Government is one of the major difficulties British firms face, thus depressing productivity and competitiveness? Will she give the House the percentage of all regulations that affect UK manufacturers that now emanate from the European Union?

Jacqui Smith: I welcome the hon. Gentleman to his new job, but I point him towards the ONS information that manufacturing output in this country grew by 1 per cent. between September and October. Nevertheless, he raises an important issue about European regulation and, because of our wish to ensure that we give the very best and most flexible regime to our manufacturers, we are working extremely hard in Europe, pushing forward the better regulation action plan.

My right hon. Friend the Secretary of State, along with representatives of the future presidencies of the EU, is setting in place action to ensure that what we do in Europe drives competitiveness throughout Europe and in the UK, that we improve the way in which European regulations are assessed for their impact on competitiveness and that we drive that forward to the benefit of our manufacturing industry in this country. But if this question is a Trojan horse for the hon. Gentleman's dislike of Europe, I simply remind him that two thirds of our exports go to Europe. We are in the right position—at the centre of Europe, arguing for reforms that will benefit our manufacturing industry.

Mr. O'Brien: The right hon. Lady gave no defence of her Cabinet colleague and no direct answer to the question, so perhaps I can help her, not least as I have been a manufacturer in many European countries, by saying that her accusation is not well founded. About 40 per cent. of regulations that are driving down UK businesses' productivity are derived from the EU. Under six and a half years of Labour government, as many major EU directives have been implemented in the UK as in the whole of the preceding quarter of a century of our EU membership. In an effort to reverse the relative decline in the UK's manufacturing productivity, will she now direct her Department, with its hugely expanded staff, to use its burgeoning £8 billion budget to promote British business, and not to carry on being the stifling regulator-in-chief against British business?

Jacqui Smith: I will excuse the hon. Gentleman, as this is his first time at the Dispatch Box in his new role, for not having listened to my response to his first question, in which I outlined the considerable action that is being

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taken by this country and the Department of Trade and Industry to ensure that we are at the forefront of better regulation across Europe. We will make a difference. We will ensure that the benefits that we derive from being in Europe, which many Opposition Members clearly do not recognise, come to our manufacturers and that we drive forward competitiveness using the active approach that we are taking with our partners across Europe.

Chris Ruane (Vale of Clwyd) (Lab): Does my right hon. Friend agree that one of the key ways to improve productivity in the manufacturing sector is to develop techniums—incubation and research centres—such as the Optic project on the St. Asaph business park in my constituency, which is about to open and which will be a world leader in the development of optoelectronic products? What measures can she take to expand techniums in the UK?

Jacqui Smith: My hon. Friend makes a very important point. Of course those innovative and fast-growing UK businesses are very much part of the future, particularly those that take advantage of the research produced by the Government's increased expenditure on the science budget. He is right: we need to set up that sort of incubation unit and ways in which we can translate scientific research into effective business products and processes. I commend the development of those incubation centres, as I do when I see them across the country during my regional visits.

Malcolm Bruce (Gordon) (LD): Does the Minister accept that the key to productivity is investment and that it has been falling? Is she aware, for example, of figures from the ONS today that show a collapse in inward investment in this country and a disinvestment from America and, in fact, that 63 per cent. of all investment in this country in 2002 came from Germany? In those circumstances, does she acknowledge that we are not getting the benefit of the special relationship and that we are in danger of undermining the benefit of the relationship with the EU? Will she comment on how the proposed £9.1 billion write-down of bad debt by the Export Credits Guarantee Department helps? Does that not give the impression that that money is being used for either international politics or backhanded subsidies, and not for increasing investment, which is the underlying key to productivity?

Jacqui Smith: I do not recognise the context of the hon. Gentleman's question. I hope that he is not talking down the success of our manufacturing industry at a time when, as we hear today, the CBI sees confidence in our manufacturing industry improving. I agree, however, that investment is one of the key pillars of our manufacturing success. That is why the type of macro-economic stability that we have delivered in this country, and some of the specific provisions outlined by my right hon. Friend the Chancellor yesterday, will help to build on the success that our manufacturers already have in investing in the sort of innovative products and skills that will enable them to be successful.

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