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
entrepreneurs 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
entrepreneurs 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
entrepreneurs 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 Governments
£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
Governments 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 Governments
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 reliefit is subject to the £1 million cap,
which is a big caveatshould 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 reliefthe case in almost every
areawe 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 partys great claim to
business-friendliness. Whenever anybody asked about the Labour
partys 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 Englandto
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 Governments
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 businessesthose represented by the Federation of Small
Businessesbecause 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 peoples retirement funding plans. However, we
question whether it is based on sound economics or knee-jerk politics.
Contrary to what the Financial Secretary saidI am willing to
take her on at any level in any forum on thisthe 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 seekas the Government
did, to their credit, with taper reliefto 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 UKs 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 haveuntil nowhad 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 reliefI have
said my piece on thatbut 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 informalinvestors 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 Democratsthat of probing the
Governments 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
Governments 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 realnone 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 debateI 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.
Jane
Kennedy:
Well, those figures are reliable and in the
public domain, and are worthy of drawing to the Committees
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 credits20,000 of them made under the small and
medium enterprise schememade since the schemes
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
incorporatedwhether 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.
Mr.
Simon:
May I make a suggestion? To some extent, this move
looks slightly counterintuitive and at the more micro-level the
enterprise investment scheme is under quite a lot of pressure. Perhaps
the Treasury could have another look at how it could give more
support to that. The R and D tax credits, for instance, are not
available to wholly private equity-funded companies because of the
control roles. Given that the Treasury is going to do this rather
counterintuitive thing, it should have a serious, across-the-board look
at how it can support investment in businesses with a turnover below
£1 million, which are so crucial in areas like the west midlands
and the
north-west.
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 Governments
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
Iand I suspect many people who are entrepreneurially minded in
the business sectorhave 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
]
Blackman-Woods,
Dr.
Roberta
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
businessesthose 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 Committeeparticularly Labour Memberstake this step,
they consider the politically damaging effect of abolishing what was
Labours 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
Labours 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 Ministers 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 Governments 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
deafnot 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.
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