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We have a worldwide reputation for being good at science. We have 1 per cent. of the world’s population, but 5 per cent. of its science and some 12 per cent. of scientific citations. In the past few years, we have spent more than £3 billion building world-class laboratories, and anyone who visits universities throughout the country will see the result. Ten years ago, many scientists were working in buildings on which money had not been spent for years; now, across the country we increasingly see modern, up-to-date laboratories.
Patents are up 98 per cent., and income from intellectual property is up by more than 100 per cent. In the past three years, 25 companies have emerged from universities and have floated on the stock exchange; they have been valued at £1.5 billion. University spending and research on fuel cells and nanotechnology, and in the biomedical field, also show how such spending and research can be turned into commercial opportunity.
Last week, I announced a £100 million competition to bring universities and business together to lead in high-tech innovation—from medical research to environmental transport—in order to convert that scientific breakthrough into commercial success. We already fund more than 600 projects with over £430 million of Government funding. Research and development as well as innovation are keeping the UK at the cutting edge of international competition. R and D tax credits, which I understand the Conservatives now oppose, have delivered nearly £1.8 billion in support for business and have made a real difference. Large companies such as Nissan have used them to support investment in design, and smaller companies such as Wolfson Microelectronics—an Edinburgh university spin-out company that developed the technology at the heart of iPods—have used them to continue to grow and to innovate in their business. The Budget increased the amount of R and D tax credits available, and in total about 4,500 small and medium-sized companies are claiming more than £250 million a year in tax credits. Those credits are absolutely essential if we are to support the investment that will enable us to compete in the future. It is no wonder that we have attracted more R and D projects than any other country in the European Union.
It is also important that we continue to invest in education and skills, which the House debated last week. Education spending has doubled since 1997. Then, funding per pupil was £2,500, but it will rise to £6,600 by 2010. It is providing us with better equipment, modern schools, more teachers and more spending on universities.
Britain must also remain a competitive place to do business. In the Budget, we announced reforms to employment law that simplify procedures and cut the cost of workplace disputes. We are very conscious of the need further to reduce burdens on business. Because of the strength of Britain’s economy, the Chancellor was able to cut corporation tax again, to 28p, and it is lower than that of all our major competitors. We also believe that investment decisions should be driven by commercial, not tax, considerations. Of course, the reduction in the basic rate of income tax helps not just individuals but many small businesses. Up to 3.4 million sole traders will benefit from personal tax reforms and allowances. They will also benefit from the new annual investment allowances of up to £50,000. Those allowances show that we recognise the need to encourage that investment, as well as research and development into new products.
Mr. Mark Prisk (Hertford and Stortford) (Con):
Does the Secretary of State recognise that, as the Federation of Small Businesses has shown, the vast majority of female entrepreneurs find that, as start-ups, they are in the £5,000 to £18,000 tax bracket—the
very bracket that is going to lose out? In what possible way does that encourage more female entrepreneurs?
Mr. Darling: It is worth bearing it in mind that of the just over 4 million small businesses in this country, about 3.4 million are sole traders and are therefore taxed through the income tax system. Because of small business rate allowances such as the annual investment allowance, which is quite generous—many forms of business spending that people might typically contemplate are deductible—if a business invests, say, just over £2,300 in additional investment, the amount of tax that it has to pay is reduced. The regime that we are putting in place helps small businesses and individuals who benefit from the lower rate of income tax and the annual allowance. The research and development credits that are available will also help businesses do more. It must be right that we focus our tax allowances on the behaviour that we want to encourage, and we want businesses to do more research and development and to reinvest and grow, because that is how they will flourish. Our regime is and will be beneficial for small businesses and I believe that we will see that sector grow.
Mr. Prisk: The annual investment allowance changes mean that unless one invests £50,000, one receives no benefit. Therefore, the change in corporation tax will mean a lot of losers among small companies. Does the Secretary of State agree with Robert Peston, the BBC commentator, who has looked at the issue in some detail and shown that the vast majority of service businesses will be automatically excluded because they do not make the capital investments that the Government are trying to support?
Mr. Darling: I have not studied Mr. Peston’s reports, or heard them recently, but I will take the trouble to do so when I have the time. It is not the case that a company would have to invest £50,000 before it saw any gain. As I have just been explaining, a medium company that might be faced with a £500 increase in tax would need to invest only £2,300 more to offset it. In other words, they would not pay more tax. There are many companies and sole traders who, if they use the research and development tax credits, will pay less than they do at present.
The objective of the reforms of corporation tax and business taxation is to reduce the rate and to target the allowances in a way that encourages investment and research and development. I am sure that the hon. Gentleman would agree—although perhaps not in public—that some of the allowances that are claimable today were put in place after the second world war when entirely different objectives were important, such as reconstruction, for obvious reasons. It must be right that the Government take the opportunity in the 21st century to ask what is appropriate to encourage investment. Our future depends on our being able to encourage businesses to invest, especially in research and development, on which we have a good record. The Budget will encourage further investment. From a position of economic strength, we have been able to increase investment in science and in education as well as other public spending. We have been able to do more to help businesses invest in the future, as well as making
sure that the tax system rewards work and at the same time helps families with children.
I can also tell the House that we will continue with our reforms of the labour market, which will help parents to work more flexibly and balance their time at work and time with their families. This weekend sees further rights to request flexible working, which will be extended to more than 2 million carers, and that builds on our other reforms. On that issue, as on so many others, the Opposition are pointing in two separate directions. A few months ago, the Leader of the Opposition said that he wanted more flexible working. He presented himself as the thoroughly modern man. However, in today’s Financial Times he has briefed that he does not want to see any extension to flexible working. He has gone back to the position that we would expect from the Tories.
It is not just on family-friendly policies that the Tories are saying different things. On climate change, as my hon. Friend the Economic Secretary pointed out in last night’s debate, the Opposition are saying one thing and doing another. On energy, where we have to meet the twin challenges of security of supply and climate change, the Tories are against the climate change levy, but in favour of a tax on holidays. They would tax individuals who fly, but allow businesses to claim back that tax. They say that they are in favour of renewable energy, but up and down the country Tory councils are opposing the biggest single source of renewable energy—wind farms or “bird blenders”, as the Leader of the Opposition calls them. They are also opposed to the renewables obligation. In contrast, this Budget has a range of measures that help tackle climate change, as the House debated yesterday. If it is successful, carbon capture and storage will present us with an opportunity not just to reduce the amount of carbon we produce, but to export that technology across the world.
If we are to continue to remain competitive in the face of the investment being made by China, India and other developing countries, we must also recognise the key role that public expenditure plays in, for example, schools and universities. Perhaps today, the last day of the Budget debate, the Opposition will finally tell us whether they will match our spending plans. Public expenditure, which is £552 billion this year, will rise to £674 billion at the end of the spending review period. That is investment in schools, hospitals, law and order and support for business. Are they prepared to match that spending? Why cannot they tell us?
The problem for the Opposition is that they are trying to convince one audience that they really want to cut spending and taxes, and another that they want to spend more on public services. I feel sorry for the shadow Chancellor and shadow Chief Secretary, because hardly a day goes by when the Tories are not promising to spend more money on extra prison places, more housing, and a new border police force. At the same time, they have already promised to cut another 1p off corporation tax. They also have a commitment to abolish stamp duty at a cost of £4 billion, as well as to introduce a transferable married couple’s allowance that would help only 1 million of the 12 million married couples.
The Tories have massive spending commitments, but they want to promise tax cuts. That is why they have their third fiscal rule, which attempts to square a circle, but that cannot be done. The rule would have meant £21 billion less spending this year alone. That third rule is a rigid, inflexible approach that takes no account of what the economy needs. It would not have allowed the investment that we have made in public services over the past seven years. The Leader of the Opposition said that his policy would make a “dramatic difference”. Indeed it would: he would have spent substantially less at the very time that our economy needed that spending over the past 10 years. It is that incoherence that led to the massive economic problems of the last Tory Government in the early 1990s, in which the Leader of the Opposition played such a central and pivotal role as a key adviser.
We have struck the right balance between borrowing, tax and spending. We have made investment to build public services, and provided incentives to invest and a tax system that is fair. This is a Budget for investment for the environment, and one that will equip this country to meet the challenges that it faces. I commend it to the House.
7.17 pm
Mr. Mark Prisk (Hertford and Stortford) (Con): I begin by offering the apologies of my hon. Friend the Member for Rutland and Melton (Alan Duncan). He has a long-standing engagement of some 50 years: I will leave the House to work that one out.
Last week, the Chancellor gave us his view of the state of the economy. His speech, however, was as notable for what he left out, as for what he actually said. The Chancellor did not, for example, tell us that productivity growth—the measure that he once called the fundamental yardstick of economic performance—is now barely half the rate that it was under the last Conservative Government. He did not mention that business investment, a key driver of future economic growth, has now fallen below 10 per cent. of GDP for the first time since records began. He also neglected to mention that while Britain had a balance of trade surplus in May 1997, under his stewardship there has been a trade deficit every month since January 1998, with last year’s deficit being an all-time record of more than £54 billion. The sleight of hand did not end there. While the Chancellor was proud to boast that his borrowing forecast was £1 billion better than in his pre-Budget report, he forgot to mention that it was still £16 billion worse than he predicted in last year’s Budget.
So the Chancellor’s speech—unlike that of the Secretary of State, to be fair—was a triumph of omission over candour. But perhaps the most interesting omission was on the UK’s declining competitiveness. The World Economic Forum is the leading independent authority which assesses international competitiveness. It has found that in recent years the UK has fallen further and further behind. For example, when it comes to starting up a business, the UK now ranks 22nd in the world, behind Latvia and Tunisia. When it comes to the burden of the tax system, we are now down at No. 25, below India and Nigeria. When it comes to the burden of regulation, the UK is now ranked a dismal 41st, below
Azerbaijan and Burkina Faso. The result is that while the Chancellor has been in office, the UK has fallen from being the world’s fourth most competitive nation to being the 10th. I wonder why that was not in his speech?
The Opposition do not pretend that everything is wrong with the economy, but it would be nice if Treasury Ministers—and they are well represented here this evening—for once could be a little more candid about the underlying problems that our economy is facing, and about the tax burden that they are imposing.
It is clear that the British people see the Budget for what it is—a tax con, and not a tax cut. It is a con that hits the poorest hardest. Thus a full-time employee on the minimum wage will pay more than £160 more in tax as a result of the Budget. The Chancellor says that people can claim the money back through higher tax credits, but he knows full well that take-up rates for tax credits are often only 60 per cent. It is not even a Budget that takes money with one hand and gives it back with the other: it is one that takes people’s money and then gives them a form to fill in instead.
Of course, the tax con was not limited to personal taxes. For more than a week, the Treasury was leaking that it was to be a Budget for business. However, page 208 of the Red Book shows that the total taxes on business are to rise by more than £1 billion next year and another £800 million the year after.
I welcome the fact that the Government have taken our advice in respect of large companies and are going to simplify reliefs to cut the headline rate. However, although the Chancellor claimed to be tackling tax complexity, he does not seem to realise that he is part of the problem. In 1997, Tolleys yellow tax handbook was 4,550 pages long; in just nine years, it doubled in size to more than 9,000 pages—not least as a result of more than 100 stealth tax changes.
Last year’s Finance Bill was a bit of a dull affair, comprising a mere 181 clauses over 489 pages, and so complex that it needed three separate volumes of explanatory notes. That represented a quiet day in the Treasury office. When he replies to the debate, perhaps the Chief Secretary can tell us how many pages long Tolleys tax guide will be after this year’s Budget.
For business, every change that the Government make costs time and money in compliance. Indeed, the Federation of Small Businesses says that simply complying with Government red tape now costs every small business in this country seven hours a week. It is no wonder that our productivity is so poor.
Business and investors need clarity and certainty, but from this Chancellor they get only confusion and complexity. Never mind Stalin, the Chancellor’s constant tax changes are more Maoist in character—a form of permanent revolution in regulation.
As was briefly mentioned in the Budget, a vital part of the Department of Trade and Industry’s remit is supporting business, especially small business, yet all too often Ministers have no idea whether the programmes that they are running have any effect. Earlier this month, we published the interim report from our small business task force, which is chaired by the entrepreneur Doug Richard. It found that, overall,
the Government spend £12 billion of taxpayers’ money on small businesses, but cannot—or will not—say whether the money is working.
Part of the problem is that the whole system has got out of control. There are roughly 3,000 schemes, and they are run by approximately 2,000 different public bodies and their contractors. Just as worrying is the fact that, in most schemes, much of the money is lost in administration. Indeed, the task force found that, even in the best schemes, a third of the money in such schemes is lost in administration.
Not surprisingly, business confidence in state advisory services is low. The FSB has found that just 4.4 per cent. of small businesses use Government-funded advice, with more than half consulting accountants. Moreover, those small businesses that use public services are often deeply disappointed. The task force found that less than 0.5 per cent. of all small businesses using state agencies for advice were satisfied with the advice provided.
Given the amount of taxpayers’ money involved, it is extraordinary—although, sadly, not surprising—that the Government can spend so much and have so little to show for it. Small businesses deserve better.
It is these small businesses that are the real losers in this Budget. As a result of the changes announced by the Chancellor, small companies face an extra £820 million tax bill from the Treasury. The Budget increases the rate of tax that small companies pay by 3 pence in the pound, and creates a new set of complex capital reliefs. The Chancellor knows all too well that many small companies will not be eligible for those reliefs, or will not apply for them.
Thus most service businesses—such as design agencies, hairdressers, shops or accountants—will be losers. Those companies innovating through contracting-out will also lose out, and even those business that do invest will still be losers under this Budget.
As Nick Goulding, chief executive of the Forum of Private Business, said:
“The Chancellor has used smoke and mirrors to disguise the fact that there is nothing in this budget to support small businesses”.
That is why we will be voting against the Chancellor’s small business tax rises later tonight. They are bad for small companies and bad for the economy.
Last Wednesday, the Chancellor had a golden opportunity to match his enterprising rhetoric with practical action to help business. He could have set out a balanced view of the strengths and weaknesses in the economy, and explained the long-term threats and opportunities. He should have helped small businesses as he helped large firms, but instead he pretended that the Budget was both tax-neutral and a tax cut. Instead of simplifying the tax system for all businesses, he made it worse for the smallest. Instead of an income tax cut, we had a tax con.
Beyond the spin and smoke and mirrors, people can now see what kind of Chancellor this really is: a man whose tax promises cannot be trusted. If he becomes Prime Minister, they will not forget it, nor will they forgive him.
7.26 pm
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): I am pleased to follow the Opposition spokesman in this debate. I am delighted that there is such a strong turnout from the Treasury team, even though this evening is dedicated to the DTI aspect of the Budget. The Economic, Financial and Chief Secretaries to the Treasury are all here, as is the Paymaster General—all are in their places.
One of the least satisfactory aspects of the Budget debate, here and elsewhere, has been the unpleasant and unnecessary personal attacks on the Chancellor. The hon. Member for Hertford and Stortford (Mr. Prisk), who has just spoken, repeated some of them. Anyone taking an objective view over the past 15 years would say that someone who could be Labour’s shadow Chancellor for five years in the build-up to Government, and then perform as my right hon. Friend has in the role of Chancellor for 10 years, yet remain fundamentally sane— [ Interruption. ] I do not think Opposition Members question my right hon. Friend’s sanity, but his is no small achievement.
As I look at the Chancellor’s record, it seems to me that he has emerged with a remarkable combination of outcomes. He is feared by the Opposition, he has emerged as the envy of some of his peers, and he is still held in deep affection by his friends. Finally, throughout the country, he enjoys general respect, if nothing more.
Peter Luff (Mid-Worcestershire) (Con): Will the hon. Gentleman give way?
Mr. Robinson: In a moment. By any standards, that is a remarkable set of outcomes. Any sensible Member of this House—and there may not be many on the Opposition Benches—would be happy to plead guilty to them. In fact, my right hon. Friend’s remarkable record goes further. If I am to believe what I read in the press and elsewhere, he is poised to emerge as primus inter pares of us all.
Peter Luff: Will the hon. Gentleman give way on that?
Mr. Robinson: I will in a moment, if the hon. Gentleman keeps quiet.
That is something that none of us would be ashamed of, nor should we be.
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