Finance Bill

[back to previous text]

Clause 7

Entrepreneurs’ relief
Mr. Browne: I beg to move amendment No. 4, in clause 7, page 3, line 23, at end insert—
‘(2) Within twelve months of the commencement of this section, the Treasury shall compile and lay before the House of Commons a report containing an assessment of the impact of the entrepreneurs’ relief limit on the rate of investment of serial entrepreneurs.’.
The Chairman: With this it will be convenient to discuss the following amendments: No. 8, in schedule 3, page 124, line 5, leave out ‘£1 million’ and insert ‘the entrepreneurs’ relief limit’.
No. 29, in schedule 3, page 124, line 5, leave out ‘£1 million’ and insert ‘the entrepreneur’s relief limit’.
No. 9, in schedule 3, page 124, line 7, leave out ‘£1 million’ and insert ‘the entrepreneurs’ relief limit’.
No. 30, in schedule 3, page 124, line 7, leave out ‘£1 million’ and insert ‘the entrepreneur’s relief limit’.
No. 32, in schedule 3, page 124, line 49, at end insert—
‘(10) The Treasury shall prepare and publish not later than 31st March 2010 an assessment of the impact of the provisions of subsection (3) on the activity of serial entrepreneurs.’.
No. 10, in schedule 3, page 127, line 27, at end insert—
‘169RA Entrepreneurs’ relief limit
The entrepreneurs’ relief limit is £1 million.
169RB Indexation of the entrepreneurs’ relief limit
(1) This section applies if the retail prices index for the September before the start of a tax year is higher than it was for the previous September.
(2) The entrepreneurs’ relief limit for the tax year is the amount found as follows.
Step 1
Increase the entrepreneurs’ relief limit for the previous tax year by the same percentage as the percentage increase in the retail prices index.
Step 2
If the result of Step 1 is a multiple of £10, it is the entrepreneurs’ relief limit for the tax year.
If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which is a multiple of £10.
That amount is the entrepreneurs’ relief limit for the tax year.’.
No. 31, in schedule 3, page 128, line 13, at end insert—
‘“entrepreneur’s relief limit” means £1 million or such greater sum as the Treasury may from time to time by order specify,’.
Mr. Browne: As this is the first time I have spoken this afternoon, other than to intervene, may I say what a pleasure it is to serve under your chairmanship again, Mr. Cook? I shall speak briefly because hon. Members may wish to make broader points on clause stand part.
Amendments Nos. 4, 8, 9 and 10 are a response to a number of representations that we have received expressing concern that the Government’s £1 million lifetime limit on entrepreneurs’ relief will discourage investment and reinvestment by serial entrepreneurs in new businesses. My party and, I am sure, many hon. Members in the Committee are keen to encourage entrepreneurship and enterprise, and not to put tax barriers in the way of people creating wealth.
Amendment No. 4 asks the Government to undertake a review of the new proposal to assess the impact on serial entrepreneurs of the measures that they are introducing. Amendments Nos. 8, 9 and 10 refer to a slightly different topic, and would index the £1 million limit. This morning, we discussed how inflation can erode amounts over time, so the amendments suggest a mechanism by which to allow the £1 million to rise in line with inflation, rounded to a practical figure so that it does not become difficult for people to remember.
That would be the effect of our proposals. They are probing amendments, particularly amendment No. 4, to draw out the concerns that have been expressed about the potentially disadvantageous effects of the Government’s measures on serial entrepreneurs.
2 pm
Mr. Hammond: It is a pleasure to serve under your chairmanship, Mr. Cook.
Clause 7 introduces the concept of entrepreneurs relief, about which there will be a fair bit to say as we go through schedule 3. I should perhaps place on record that we remain unconvinced by the Government’s approach of using entrepreneurs relief as a response to the outburst of anger in the business community at both the substance and the manner of the abrupt abandonment of taper relief. However, in the context of our work in the Committee, we will focus on probing some of the more obvious weaknesses in how entrepreneurs relief has been cobbled together.
The approach is clearly modelled on retirement relief, which was a feature of the capital gains taxation system prior to the taper relief system. Retirement relief was causing practical difficulties when it was scrapped. There are concerns that some of the problem areas of retirement relief have been imported to entrepreneurs relief.
The starting point for our approach to the clause and to schedule 3 is that entrepreneurs relief—it is subject to the £1 million cap, which is a big caveat—should seek to restore as much as possible of the beneficial effect of taper relief. Where the Government have tightened up the availability of entrepreneurs relief so that it is more restrictive than taper relief—the case in almost every area—we will want to highlight that, and explore with the Government why they have chosen to do so, apart from the obvious reason that they do not want to spend any money. This was a concession extracted under duress. In particular, and to echo the words of the hon. Member for Taunton, we will want to explore the likely effects of that restrictive application of entrepreneurs relief on the economy.
The context is that taper relief was the Labour party’s great claim to business-friendliness. Whenever anybody asked about the Labour party’s relationship with business, taper relief was wheeled out and waved around as an example of how the party understood and empathised with the aspirations of business people. So the scrapping in the pre-Budget report of taper relief, without any consultation or advance warning, caused a shock wave to run through the business community. A hugely negative signal was sent and huge anger provoked.
The Minister quoted a couple of entrepreneurs who spoke favourably of the process. She could have attended a number of large meetings where she would have heard a vocal view to the contrary. I do not doubt that the measure was popular among the second-home-owning community and the buy-to-let landlord community. However, I think that privately she would acknowledge that the views that she expressed represent a tiny minority among the entrepreneur community, not just because of the material consequences of the change but because of the perception that a signal was being sent that the Government and business were parting ways and that the Government were no longer interested in courting and supporting the business community.
The Government chose to deal with their private equity problem, which they were under pressure, including from the unions, to address. They chose, perhaps chiming with the moves made in the Budget of 2007 in relation to income tax, to send a signal to middle England—to middle-income taxpayers who are typically the second-home-owners and buy-to-let landlords who will be the great beneficiaries of the change. Then, of course, they were forced into a U-turn in response to the united front presented by business. I well remember meetings with the representative business organisations, including the CBI, EEF, Federation of Small Businesses and British Chambers of Commerce. It is extremely unusual for them to be united, but they sat at the same table with exactly the same agendas.
The Government’s introduction of entrepreneurs relief is a cynical response. They have looked at the organisations that led the charge and at how many voters each of them represents and decided to address the problems of the very small businesses—those represented by the Federation of Small Businesses—because it involves lots of voters, including the families and friends of small business people.
We welcome the concessions that have been made in entrepreneurs relief to small, mainly lifestyle, businesses. The move will greatly reduce the impact on many small business people’s retirement funding plans. However, we question whether it is based on sound economics or knee-jerk politics. Contrary to what the Financial Secretary said—I am willing to take her on at any level in any forum on this—the entrepreneurs relief does nothing whatever for serial entrepreneurs. It is a perverse arrangement because, in fact, it rewards those who are moderately successful, but nothing for those who are spectacularly, mind-bogglingly successful in creating high-risk, high-success businesses that go on to create jobs and wealth, and to become the scalable companies that will provide the backbone of the British economy in the next generation.
Emily Thornberry (Islington, South and Finsbury) (Lab): Is the hon. Gentleman seriously saying that such highly motivated entrepreneurs will give up their work because they will need to pay a higher rate of CGT? Surely the entrepreneurs relief is simply to ensure that small business people are protected so that, when they retire, they will not pay a higher rate. The clue is in the clause title, which is “Entrepreneurs’ relief”, not “Serial entrepreneurs’ relief”, which would mean a completely different group of people. Is he saying that they will stop work?
Mr. Hammond: That was an interesting intervention from the hon. Lady. I do not know how much idea she has about how entrepreneurs obtain financing. The problem to which we will repeatedly return is not the hard-working entrepreneur who sets up the small business, but the people to whom they turn to fund their businesses as they go from the first to the next stage of growth. The Minister rightly observed that they will now face an 18 per cent. CGT rate and not a 40 or 10 per cent. rate. The important point that she missed, which the Committee needs to understand, is that the differential of the tax rate on gains from investing in high-risk, illiquid situations, and unquoted businesses at an early stage of growth, and the tax rate on gains from investing in much lower-risk asset classes such as second homes, buy-to-let properties or quoted companies, is precisely zero.
That sends a powerful message to those who we need if we have a dynamic economy. They need to be out there taking risks and losses, which must happen when they make high-risk investments that are trying to scale up. I predict that that is the group of people whose disenchantment with the system will cost the British economy as a result of this change to the taxation regime.
Emily Thornberry: But is this right? I heard today for the first time that the only country in the G7 with a lower rate of CGT is Italy, which is only 0.5 per cent. behind. Compared with our competitors, what disadvantage are we giving ourselves?
Mr. Hammond: The hon. Lady completely misses the point. When a potential business angel looks where to invest his money, he looks at the risk he is going to take, the reward he might gain and the taxation on that reward. He does not wonder whether to pop off to Italy and invest in a small business there. He thinks, “Shall I put it in something safer? Shall I buy gold or quoted stocks and shares? Shall I buy a second home or invest in buy-to-let property?” He compares high-risk investments.
We can all make comments about short-term movements in the market, but I hope that the hon. Lady and the Minister will see my point. If we seek—as the Government did, to their credit, with taper relief—to encourage a culture in which people with asset wealth will take large risks by investing that wealth in areas in which some of them will lose money for sure, in the hope of making large rewards and having those rewards taxed favourably, that will deliver an innovative and entrepreneurial culture. Such a culture underpins the growth in wealth and living standards in our economy that the Conservatives aspire to maintain as an essential part of the UK’s economic culture.
Mr. Simon: May I offer the hon. Gentleman a trade from the Back Benches? Some of us on the Back Benches might recognise that there is an element of truth in what he says about there being a perverse incentive, at times, in investment terms, but does he accept that he overstates his case considerably? I take his point, which is fair, but the changes do not mean the end of investment and the death of entrepreneurship in Britain.
Mr. Hammond: Now it is the hon. Gentleman who is guilty of overstating his case. I have never suggested that not a further penny will be invested in the UK economy. Clearly, that is not the case. I have spoken to entrepreneurs who have succeeded, and have listened to them explain how their businesses went from being small-scale firms with half a dozen employees and a good idea to the next level, where they were seriously in the game. It is about borrowing money from family and friends, and cobbling together networks of informal investors.
To give the Government credit, taper relief has played a huge role in giving people an incentive to invest, including people who might never have invested before, and certainly people who do not think of themselves as private equity investors. It has encouraged such people to take risks by investing in someone whom they know or in a local business enterprise such as a new restaurant or a factory where a new widget that has been invented is to be made. It has been very successful and has helped to create an entrepreneurial culture in this country that has helped our economy hugely in the past few years. We should be extremely proud in this country, as I am, that we have—until now—had a more innovative business culture than any other nation outside the United States that I can think of. I genuinely fear that we are putting that at risk.
We could argue all day about whether I am exaggerating the case. Indeed, I hope that I am and that history will prove me wrong, but I fear that it will not. Obviously, we will have to wait and see what happens. The Conservatives’ intention this afternoon is to probe the Government not on the principle of entrepreneurs relief—I have said my piece on that—but on the details. It is restrictive, but let us see whether there are areas in which it is too restrictive or more restrictive than the Government intended. Let us see whether it could be made less restrictive in order to apply it to areas in which the hon. Members for Birmingham, Erdington or for Islington, South and Finsbury might think that it applies, but in which we might discover, when we look closely at the fine print of the measure, that it does not.
Clive Efford (Eltham) (Lab): The hon. Gentleman has been full of praise for the previous Chancellor, the current Prime Minister, for introducing taper relief, and about its success in creating entrepreneurs. Will he remind us what the Conservatives’ position was regarding the Budget that introduced taper relief?
Mr. Hammond: No, I will not because I cannot remember, but I am sure that the hon. Gentleman will.
Clive Efford: Shall I remind the hon. Gentleman?
Mr. Hammond: I am sure that he will.
2.15 pm
I will return to the amendments in hand. Amendment No. 4, tabled by the Liberal Democrats, and amendment No. 32, which I tabled, focus on the risk of damaging the incentives to serial entrepreneurs. As I have already said, serial entrepreneurs are the lifeblood of an innovative economy. They take risks and establish businesses, which, if successful are floated or absorbed by larger players in the sector. It is often easier to innovate in a new, small business. It is often safer for larger companies to acquire proven, established new technologies that have been got to that first stage of development, rather than try to develop them themselves in their own rather more bureaucratic environments. Whether they are establishing new technologies, ideas or marketing approaches, small, innovative companies established with the intention of growth are the lifeblood of our economy. They are the oxygen that feeds it with new ideas and new processes. They are also mobile because they are essentially based on talented individuals.
Before the hon. Member for Birmingham, Erdington jumps up and accuses me of exaggerating, I am not suggesting that no entrepreneur will ever open a factory in Britain again or that they will all desert. However, it is noticeable to those of us who have had discussions since the pre-Budget report with groups representing entrepreneurs that a significant minority intend to exercise their mobility. Some of those people do not originate from the UK, but are foreigners who came here because the economic climate was attractive. My hon. Friend the Member for Tatton (Mr. Osborne) and I spoke to a Canadian who had established either two or three successful businesses, all of which had been sold. He intended to return immediately to Canada to establish his next venture.
Mr. Peter Bone (Wellingborough) (Con): My experience of building up a new innovative company is that we had the support of the Americans. They look round to see which is the best country for entrepreneurs. It is the signals that we send to such people that are important. Those signals are as much as anything about the practicalities. We want to capture those people and get them here.
Mr. Hammond: My hon. Friend is right. It is not just about the money. It is about the signals. Taper relief sent a signal that entrepreneurs were valued. I am not making a party political point, but there was a time in the history of the Labour party when those who created wealth and made huge profits were denigrated. It was hugely reassuring to potential entrepreneurs to see the party that had traditionally denigrated wealth creation celebrating it. That sent a very powerful message. The pre-Budget report last autumn reversed that message in double-quick time. As my hon. Friend says, that is part of the problem.
I have made my point already about the 18 per cent. rate. The point is not whether it is competitive with other jurisdictions, but whether it is competitive against less risky forms of investment within this jurisdiction. There is a very real concern about the signal that is being sent.
We share with the Liberal Democrats the concern about the impact that this measure will have. As the hon. Member for Taunton said, the proposal to require a report is simply a probing device to address these issues with the Government. The Government will no doubt say that they will monitor carefully what happens and that they will look closely at the behaviour of entrepreneurs. I say to the Financial Secretary that at the level of Government, she will detect the problem only long after it has occurred. These people are invisible until they come to realise their gains. They are not registered on any HMRC database or picked up by any Government questionnaire. They are going about their daily business quietly all over the country. The investment networks are highly informal—investors clubs, informal networks within neighbourhoods and between family and friends. She will discover that there is a problem only two, three or four years down the line when it has already occurred and the system of financial support for entrepreneurs is broken. That is our concern, and that is why we seek to place in the Bill a requirement to assess the effect of increasing the tax rate from 10 per cent. to 18 per cent. for all but the smallest companies. In particular, that will mean looking at the effect on serial entrepreneurs and business angels. Such a report would inform potential future changes of policy by a future Government, and it would be good to have it under way and presented in good time.
Taper relief was not perfect; no one would suggest that. Clearly, some of the flaws in it, particularly in relation to its use in private equity, had been extensively identified and debated and could have been addressed without removing the entire system. We could have had a system that addressed those problems but left a recognition of genuine medium-term entrepreneurial success.
The Opposition will now want to look again at the whole system of business capital taxation. In the meantime, it is essential that we monitor the effect of, what I must say is a very silly, short-term and economically inept move. Amendments Nos. 4 and 32 have the same purpose. If the hon. Member for Taunton decides to press his amendment to a Division, my hon. Friends and I will be happy to support him.
The remaining amendments in the group address the level of entrepreneurs relief. We have the same intentions as the Liberal Democrats—that of probing the Government’s intentions. There is no mechanism for indexing the relief. I know that £1 million is a temptingly round number, but it would be sensible to send some form of signal about the Government’s future intentions. The Liberal Democrats have chosen to index it by the formula used to index allowances and thresholds. We have taken a slightly different approach and provided for the Treasury to vary the £1 million limit by order, so that it can be done as quickly as necessary. We think that that is just as good, but we would not fall out with the hon. Member for Taunton over that point.
The point is this. If my predictions, and those of other hon. Members on this side of the Committee, are right; if the niggling and the just about concern of the hon. Member for Birmingham, Erdington turns out to be for real—none of us know hether it will —the Government must be able to respond quickly. If we find that hon. Members of all parties are picking up signs from talking to people in their communities, professional accountancy firms, lawyers and so on that the system is breaking down, the Government must be able to respond. They should not necessarily wait for the next Finance Bill to go through Parliament, and the power to vary the limit by order would be a worthwhile weapon in their armoury. Rather unusually, I find myself arguing in favour of greater power for the Government to intervene without the need for primary legislation, because I feel that in this case, the need to act very quickly may arise.
Jane Kennedy: As we have been discussing, clause 7 introduces schedule 3, which contains the provisions related to the proposed capital gains tax entrepreneurs relief. Broadly speaking, the relief is available on the disposal of a trading business, or shares in a trading company, provided that the person making the disposal is an officer or employee of the company and has a minimum 5 per cent. stake in the business. The relief reduces the effective capital gains tax rate from 18 per cent. to 10 per cent. for up to the first £1 million of qualifying gains made over a lifetime.
Those conditions are designed to help focus the relief on individuals who play an active role in a business, and have a material capital stake in that business. The £1 million lifetime limit for the relief strikes a balance between providing flexibility for individuals and ensuring that valuable tax reliefs are targeted in a fair and efficient manner. We recognise that in some cases investors may not meet those criteria. However, we believe that the rules that we have announced are a reasonable way to determine eligibility for the new relief.
We estimate that around 80,000 business owners and investors will benefit from entrepreneurs relief next year alone; 90 per cent. of that group will pay capital gains tax at an effective rate of 10 per cent. on their entire gain. That includes people who are selling their business and retiring, who will continue to benefit from a 10 per cent. rate on the first £1 million of gains, and 18 per cent. on the excess over £1 million. The Government consider that a limit on relief for the first £1 million strikes the right balance between supporting entrepreneurs and taking a fair amount of tax from people with large capital gains. Even where gains exceed the £1 million limit, the individual will keep 82 per cent. of whatever gains they make, which remains highly competitive, as I argued earlier.
Mr. Hammond: The hon. Lady said that the Government estimate that 80,000 people will benefit in the first year alone from entrepreneurs’ relief. To put that into context, can she tell the Committee how many people benefited from taper relief in the last year for which it was available? If she does not have the answer, could she perhaps obtain it and advise the Committee later so that we can understand the context of her remarks?
Jane Kennedy: I will give that figure if I can before I sit down, but if not, I shall happily provide it to the hon. Gentleman and members of the Committee in writing. I have some further figures that I think will interest the Committee, which set some of the context.
Peter Viggers (Gosport) (Con): May I ask the Minister about a matter that was raised with me by the Chartered Institute of Taxation? It is concerned:
“that the entrepreneurs’ relief does not appear to be available for:
Certain assets used in a business, such as a property owned outside a trading company and rented to that company - even where the company stops paying rent from April 2008;
Most employee shareholdings - where not an owner manager. This seems to be a reversal of policy encouraging employee shareholdings.”
I recognise that those are technical points that I have raised late, but if it is not possible to answer them immediately, I would be grateful if they could be dealt with in some way.
Jane Kennedy: I will obviously seek to respond. We discussed employee share schemes in the earlier debate—I think that the hon. Gentleman was present. If they were not covered then, I shall seek to answer the points that he quite properly raises. There is no need for an order to increase the £1 million limit. If an immediate increase were desirable, it could be announced with immediate effect and then included in the Finance Bill. However, I will come to that in greater detail in a moment.
The hon. Member for Runnymede and Weybridge argued that the Government were failing to support risk-taking in business investment. We believe that the new regime makes it easier to understand the capital gains tax position. Being able to understand tax liabilities is helpful to businesses considering investment. A number of sources of relief remain to support risk-taking and enterprise: losses can be offset against future capital gains; business asset rollover relief means that gains can be reinvested and tax deferred; venture capital trusts, which I shall return to in a moment, and enterprise investment schemes also continue and have been enhanced. Entrepreneurs relief is focused on people with a material stake in a business.
The hon. Member for Dundee, East asked questions in the previous debate about share options as opposed to shares. The relief is focused on people with an actual material stake. That means people who own businesses or company shares. It is not available on options themselves. However, if the options are exercised and shares are required, relief will be given if the conditions under schedule 3 are met.
2.30 pm
Stewart Hosie: If I understand that correctly, the person would have to crystallise the option, purchase the shares at the price and hold them for at least one year in order to benefit, irrespective of for how long they had held the options. Is that so?
Jane Kennedy: I understand that to be the case. Because the matter has generated some interest in the Committee, I will check to make sure that what I have said to hon. Members is accurate. I believe that it is.
The group of amendments considers both the impact of the entrepreneurs relief on serial entrepreneurs and the £1 million lifetime limit for access to relief. Amendments Nos. 4 and 32 would require the Treasury to report on the impact of the new entrepreneurs relief on serial entrepreneurs and to do so within the next year or two. Neither amendment is necessary. As with any new aspect of the tax regime, we will keep the operation of the new entrepreneurs relief under review as a matter of course. I accept that that form of words is used regularly. but, because of the importance of the relief to Britain and British business, we will want to be sure that the arrangements that we have put in place will do exactly what we hope. On a practical level, requiring the Treasury to report back within a one or two-year window is not a realistic time in which to evaluate the long-term impact of a policy change properly.
Amendments Nos. 8 to 10 deal with the £1 million lifetime limit, and would introduce an automatic annual uprating in line with the retail prices index. Amendments Nos. 29 to 31 would introduce a power to alter the limit by a Treasury order. I am quite interested in that proposal, particularly as it comes from the hon. Member for Runnymede and Weybridge. Again, the amendments are unnecessary. The Government have said that the £1 million lifetime limit will be kept under review. We will follow through on that commitment accordingly. If and when the time comes to alter the limit, it will be done in a future Finance Bill but, if necessary, we have powers to do it anyway with the opportunity for Parliament, under the Finance Bill, to debate the matter further.
I want to say a further sentence or two about our commitment to monitor the relief and how it is working. My hon. Friend the Member for Birmingham, Erdington is right that we heard the concerns that were expressed following the PBR, which is why we introduced the relief. It was welcome, but clearly we shall want to monitor its impact. That is not just the usual thing that Ministers say to get over a point. In this case, it is important to us to do so.
The Committee would be interested to know that the number of small and medium enterprises has risen by an estimated 17.2 per cent. since 1997. There are now 4.3 million small and medium enterprises in the United Kingdom, which is 99.9 per cent. of all UK businesses, employing 58.5 per cent. of the private sector work force and generating more than £1,000 billion of private sector turnover.
Mr. Greg Hands (Hammersmith and Fulham) (Con): The Financial Secretary is being a little backward-looking. What about the relative attraction of different asset classes? If we want to attract entrepreneurs, we should do something to make putting capital in such a venture more attractive than putting it in a FTSE 100 company. Looking forward, how does the right hon. Lady believe that the measures will allow that?
Jane Kennedy: I am giving figures to the Committee to show the health of the business sector.
Mr. Hands: In the past.
Jane Kennedy: Well, those figures are reliable and in the public domain, and are worthy of drawing to the Committee’s attention. The enterprise investment scheme, for example, has raised more than £5.5 billion since its inception, and invested in more than 13,000 smaller high-risk companies. That scheme remains in place and the venture capital trusts have invested more than £3 billion in more than 1,400 companies. That is also supported and encouraged by the Government. As I have said before, the 23,000 claims for R and D tax credits—20,000 of them made under the small and medium enterprise scheme—made since the scheme’s introduction in 2000 are encouraging indications that the UK remains a competitive economy in which businesses are encouraged to invest.
Mr. Hammond: As the Financial Secretary has touched on the number of small company incorporations and quoted it again, may I ask again a question which I asked her, or perhaps it was her colleague, during a debate in the House a couple of weeks ago and which was not answered then? Yes, the number of incorporations has increased, largely driven by tax incentives to incorporate, but is not the figure about which she should be concerned the fall in the number of companies reaching £1 million turnover within three years? So we have more companies and more lifestyle businesses being incorporated—whether that is a good thing is not an issue. The key thing is that we are not getting them to that critical £1 million turnover level from which they can grow and become generators of employment and real wealth in the economy.
Jane Kennedy: Such figures are precisely why we want to keep the entrepreneurs relief under review. We have discussed the state of the economy, and it would not be wise of me to do so today, but we believe that there is a still a great deal of healthy indication in the figures. I will want to look at the point that he has raised. He asked me to set the context by saying how many people benefited from taper relief, but I do not have that figure immediately available. I will write to him.
Jane Kennedy: I know that my hon. Friend takes a keen interest in the regime within which we encourage businesses to invest and grow. He makes a sensible point, and I am happy to take it on board. It ought to form part of the ongoing review that we make of the alterations that we have made to this reform. It is a very big reform. We believe that it will have an enormous benefit by introducing simplification into an otherwise extremely complicated area. I will be happy to undertake the work that he suggests.
I hope that, having heard my remarks, the hon. Member for Taunton—
Mr. Hammond: Will the Financial Secretary give way?
Jane Kennedy: I am just about to finish.
Mr. Hammond: I am grateful to the right hon. Lady for being generous enough to give way. That will save me from rising again to make a further remark.
The right hon. Lady said in response to the proposals in the amendments that the Government had the power to alter the £1 million level, and that they would keep matters under review. That may well be the case; I do not dispute that. However, both the hon. Member for Taunton and I said that this was a probing amendment. We hoped to get from the Financial Secretary a clear signal to entrepreneurs as to the Government’s intentions regarding the £1 million limit. If there is not an utter disaster and it needs to be trebled, and if it is not a raging success and 500,000 people claim it in the first year, but if it just ticks along normally, what are entrepreneurs to understand? Is it expected to increase in line with inflation? This was a concession grudgingly made after the pre-Budget report. The Government, even the right hon. Lady with her best hat on, will not be able to pretend that it was part of the original plan. It is necessary to send a signal that, although grudgingly made, it will not be allowed to wither on the vine but will be uprated in line with inflation.
Jane Kennedy: We were convinced by the representations made following the pre-Budget report of the need to assist entrepreneurs and investors. That is why we introduced the relief. If the relief does its job, we will want to keep the limit. We will keep the limit under review. I cannot give the hon. Gentleman an absolute commitment that we will set an automatic revision rate, or a time at which we would further consider the limit. However, we look at all taxes as we go through the normal processes of considering policy, through the pre-Budget report programme of work and in preparing for future Budgets. Therefore, I cannot give him an absolute guarantee that we will always raise the rate in line with inflation or at a particular time, but we will keep it actively under review. We are keen to ensure that it is working and encouraging investment as we have described and as we expect.
I therefore hope that I have persuaded the hon. Member for Taunton to withdraw the amendment, in the spirit of probing amendments. I hope that, if he does not, the Committee will resist it.
2.45 pm
Mr. Browne: This concession, the entrepreneurs relief, is a model of how the Government, and the Treasury in particular, should not conduct their affairs. It came, of course, after the main event, as a concession made when the Government realised that they had made a serious miscalculation and thus sought to adjust the policy to diffuse the frustration, anger even, in many parts of the business community. However, I will readily concede that this is not an issue that the average member of the public detains himself or herself with on a daily basis. There is unlikely to be a public clamour for the Government to uprate entrepreneurs relief in line with inflation or any other measure, in the way there is on the doubling of the 10p rate.
The fear that I—and I suspect many people who are entrepreneurially minded in the business sector—have is that the mechanism has bought off anger and frustration in the short term and may be allowed to wither on the vine. The Financial Secretary, in rejecting both the Conservative proposal and the less flexible but more specific proposal in the amendment tabled by me and my hon. Friends, did not rule out cutting the £1 million figure at some point, were it to prove too expensive to the Treasury. One million pounds is a suspiciously round number, and many of the general public might be persuaded that that is a large enough amount of money for nobody to worry too much about whether it needs to go up in line with inflation or the overall growth of the economy. In addition to that, she showed some uncertainty when she rose to defend the policy, and kept saying that the Government would keep it under review. That made it sound as though it was a policy built on shifting sands. That reinforces all the more our inclination to pin the Government to something more specific, certainly a meaningful Treasury review of the impact of the proposal. Many who take a close interest in these matters, and will read our deliberations at a later date or even later today, will be keen that Opposition parties hold the Government to account on this matter. For that reason, I am keen to push amendment No. 4 to a vote.
Question put, That the amendment be made:—
The Committee divided: Ayes 11, Noes 16.
Division No. 2 ]
Bone, Mr. Peter
Breed, Mr. Colin
Browne, Mr. Jeremy
Gauke, Mr. David
Hammond, Mr. Philip
Hands, Mr. Greg
Hoban, Mr. Mark
Hosie, Stewart
Newmark, Mr. Brooks
Penrose, John
Viggers, Peter
Atkins, Charlotte
Blackman-Woods, Dr. Roberta
Blizzard, Mr. Bob
Chapman, Ben
Eagle, Angela
Efford, Clive
Hall, Patrick
Hesford, Stephen
Kennedy, rh Jane
Morden, Jessica
Palmer, Dr. Nick
Sharma, Mr. Virendra
Simon, Mr. Siôn
Thornberry, Emily
Ussher, Kitty
Wright, David
Question accordingly negatived.
Question proposed, That the clause stand part of the Bill.
Mr. Hammond: I would just like to say a few words before we agree this clause, which introduces schedule 3. I hate to say this to the Minister, but I detect a degree of complacency in her remarks. I honestly do not think that Ministers understand what they have done; perhaps Labour Members have a better idea. I say that openly. If we on the Conservative Benches had wanted to devise a strategy for the Government that would help us in securing the maximum number of business voters for the Conservative cause, we could scarcely have done better than to ask them to abolish capital gains tax taper relief without consultation or warning. It created an anger in the business community that I do not think anybody can remember the like of.
The Minister said that the entrepreneurs relief had been welcomed. If she thinks back, she will remember that it was welcomed by the Federation of Small Businesses, quite properly representing the smallest scale of businesses—those that are most likely to benefit from it. The CBI, the Engineering Employers’ Federation and the representatives of larger-scale businesses, which are so important to the economy, described it as wholly inadequate. It is the economic consequences that we are particularly concerned about.
It is a hastily cobbled together measure and before the Committee agrees clause 7 it needs to think one more time about this. In order to mitigate the damaging effects of the abolition—
The Chairman: Order. If this is a rerun of discussions that have already taken place, I hope that it will not go on for too long.
Mr. Hammond: Mr. Cook, I would not dream of rerunning a discussion that has already gone on and I shall not go on for very much longer. I merely want to ensure that before members of the Committee—particularly Labour Members—take this step, they consider the politically damaging effect of abolishing what was Labour’s flagship pro-business policy.
If any Labour Members are wondering why the anger of low-income earners who were hit by the abolition of the 10p rate has been mirrored by the anger of business owners who are hit by the abolition of the 10p long-term capital gains tax rate, I say to them that it is for the same reasons in both cases. Those were both long-term Labour objectives. Both were introduced with great fanfare. Both were trailed as symbols of Labour’s commitment on the one hand to those on low incomes and on the other to long-term investors. Both were withdrawn without warning or consultation for cynical political reasons and both represent a denial of the Prime Minister’s statement that when the Government make promises, they keep them. For those reasons, they have incurred the wrath of the business community, the low paid and all who believe that our tax system should be fair and balanced. I urge Labour Members to think very carefully before agreeing to the clause.
Jane Kennedy: I have been provoked and I promise that I will respond very briefly, Mr. Cook. I feel that it is necessary to defend the Government’s proposals. When I say that I will keep the matter under active review, I am accused of complacency. I understand that the Conservative party is reviewing its manufacturing strategy and has embedded some of its policy staff in Rolls-Royce to understand some of the issues that that company faces. These criticisms are a bit rich when, on two occasions that the Conservatives were in control of the economy and had an effect on the way that businesses made decisions, interest rates hit 15 per cent. and 3 million people were unemployed.
Hon. Members: Hear, hear.
Jane Kennedy: I think that we have an entirely defensible position and I encourage my hon. Friends to support the Government proposals.
Hon. Members: Hear, hear.
The Chairman: We seem to be getting more echoes than one would receive in the Pyrenees.
Question put and agreed to.
Clause 7 ordered to stand part of the Bill.
The Chairman: At this stage, I feel obliged to make an observation. Throughout this week, on Tuesday in Westminster Hall and in Committee and again today, I have witnessed a number of minor transgressions against what have been considered time-honoured practices in the House, both in the main Chamber and in Committee. When a right hon. or hon. Member is addressing the Chamber through the Chair or speaking directly through the Chair to another hon. Member, it is considered bad form and to be discouraged if hon. Members cross the direct line of address between the Member and the Chair, between the two Members or in passing messages.
I simply ask members of the Committee to remember protocols and to behave as civilised Members of the House should. You are all time-served now and fairly well seasoned in these practices. Even the youngest of you in parliamentary terms have been here since 2005. I thank you for the attention. I also ask the Financial Secretary, particularly when addressing her own side, to bear in mind that I am partly deaf—not daft, deaf. She speaks very quietly, which I applaud, but only if I can hear and understand her, because part of my job is to understand every syllable.
Previous Contents Continue
House of Commons 
home page Parliament home page House of 
Lords home page search page enquiries ordering index

©Parliamentary copyright 2008
Prepared 9 May 2008