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Mr. Hoban:
We have had a wide-ranging and thorough debate on the amendment about reducing the headline rate of corporation tax. It was interesting that the Minister acknowledged the fact that, in the Finance Act 2008, the Government were able to fund a reduction in the headline rate of corporation tax by simplifying the allowances. We discussed the reforms to the industrial buildings allowance and the agricultural buildings
allowances in Committee. There is therefore a track record of using the proceeds of simplifying capital allowances—that is, reducing the rates—to fund reductions in the headline rate of corporation tax. Our view is that we could go further and reduce the rate to 25 per cent.
My right hon. Friend the Member for Wokingham (Mr. Redwood) was acting in his customary role as a critical friend, supportive of where we had moved so far, but perhaps keen for us to move further in the direction of reducing the headline rate of corporation tax. My other hon. Friends cited their business experience in talking about competitiveness and about what businesses bear in mind when locating activity.
Mention has been made of the way in which Governments focus on tax as a means of competing, and I think that more reference was made to Canada in today’s debate than perhaps at any time since it was a dominion and part of the empire. It was good that my hon. Friend the Member for Henley (John Howell), a former tax inspector, joined the hon. Member for Wolverhampton, South-West (Rob Marris) as an aficionado of Canada and a spokesman on its behalf.
6 pm
We discussed the fact that Canada has a federal rate and provincial rates of tax. I note that the OECD figures suggest that it has a combined rate of 33.5 per cent. If Canada were to achieve its aspiration of reducing the federal rate by 7 per cent., that would bring its combined rate down to 26.5 per cent., which is below the present UK tax rate. If the Minister is keen to match the Canadian rates, some progress clearly needs to be made.
We discussed the impact of the proposal on capital investment and the possible reaction of businesses to it. Part of the problem that we need to address is the fact that the structure of capital allowances has been so unpredictable in this country. That has made it difficult for businesses to factor into their plans an understanding of what the capital allowance rate might be. For example, businesses planning on the basis of a 25 per cent. writing-down allowance might be surprised to find that there will be a 40 per cent. first-year allowance for this year only. The extent to which that provision will create an incentive for businesses to invest this year is unclear. Many businesses with a longer planning horizon might not be able to respond to such a short-term incentive.
It is important to have predictability so that businesses can make their plans. That is one reason why we are so keen to flag up our intention to reduce the headline rate of corporation tax, and to fund that reduction through a reduction in the rate of capital allowances. The broader economy would gain huge benefits from moving to a lower headline rate. Such a move would send a clear signal to inward investment that this is the place to come for lower corporation tax rates.
Such a move would also tackle the issue of businesses moving out of the United Kingdom. I think that my hon. Friend the Member for Poole (Mr. Syms) was impressed by my lengthy list of businesses leaving the UK. Part of the problem is that, when the first few businesses moved, it was newsworthy and people paid attention, but subsequently, a stream of businesses leaving have left. It has become more commonplace and less noteworthy, and people now accept that it is happening.
But the fact that it is less newsworthy does not mean that it is less important for us to take action.
The Financial Secretary to the Treasury talked of several firsts. He said that the UK was the best place for tax compliance and the best place for VAT, but let us not forget our other first. We also have the longest tax code in the world. We beat India by a country mile in that regard. International comparisons do not always work in our favour.
It is important for Britain to have a competitive tax rate. It is important for inward investment, and for strengthening the economy to make Britain a place where people want to do business. This proposal is only one part of a series of reforms of the corporation tax system that would lead to a better system for business in this country, but it is important that we send a signal that this is something that we are committed to. That is why I shall press the amendment to a vote this evening.
Question put, That the amendment be made.
The Committee proceeded to a Division.
The Temporary Chairman: I ask the Serjeant at Arms to investigate the delay in the Aye Lobby.
The Committee having divided: Ayes 200, Noes 302.
AYES
Afriyie, Adam
Alexander, Danny
Amess, Mr. David
Arbuthnot, rh Mr. James
Baldry, Tony
Barker, Gregory
Barrett, John
Beith, rh Sir Alan
Bellingham, Mr. Henry
Bercow, John
Binley, Mr. Brian
Blunt, Mr. Crispin
Bone, Mr. Peter
Boswell, Mr. Tim
Bottomley, Peter
Brady, Mr. Graham
Brake, Tom
Brazier, Mr. Julian
Breed, Mr. Colin
Brokenshire, James
Browne, Mr. Jeremy
Browning, Angela
Bruce, rh Malcolm
Burns, Mr. Simon
Burstow, Mr. Paul
Burt, Alistair
Burt, Lorely
Cable, Dr. Vincent
Cameron, rh Mr. David
Cash, Mr. William
Chope, Mr. Christopher
Clappison, Mr. James
Clark, Greg
Clarke, rh Mr. Kenneth
Clegg, rh Mr. Nick
Clifton-Brown, Mr. Geoffrey
Cox, Mr. Geoffrey
Curry, rh Mr. David
Davey, Mr. Edward
Davies, Mr. Dai
Davies, Philip
Davis, rh David
Djanogly, Mr. Jonathan
Dorrell, rh Mr. Stephen
Dorries, Nadine
Duncan, Alan
Duncan Smith, rh Mr. Iain
Dunne, Mr. Philip
Ellwood, Mr. Tobias
Evans, Mr. Nigel
Evennett, Mr. David
Fabricant, Michael
Fallon, Mr. Michael
Field, Mr. Mark
Foster, Mr. Don
Fox, Dr. Liam
Francois, Mr. Mark
Fraser, Christopher
Gale, Mr. Roger
Garnier, Mr. Edward
Gauke, Mr. David
Gibb, Mr. Nick
Gidley, Sandra
Gillan, Mrs. Cheryl
Goldsworthy, Julia
Goodman, Mr. Paul
Goodwill, Mr. Robert
Gove, Michael
Gray, Mr. James
Grayling, Chris
Green, Damian
Greening, Justine
Grieve, Mr. Dominic
Hague, rh Mr. William
Hammond, Mr. Philip
Hancock, Mr. Mike
Hands, Mr. Greg
Harper, Mr. Mark
Harris, Dr. Evan
Heald, Mr. Oliver
Heath, Mr. David
Heathcoat-Amory, rh Mr. David
Hendry, Charles
Herbert, Nick
Hoban, Mr. Mark
Hogg, rh Mr. Douglas
Hollobone, Mr. Philip
Horam, Mr. John
Horwood, Martin
Hosie, Stewart
Howarth, David
Howarth, Mr. Gerald
Howell, John
Hughes, Simon
Huhne, Chris
Hunt, Mr. Jeremy
Hunter, Mark
Jack, rh Mr. Michael
Jackson, Mr. Stewart
Jenkin, Mr. Bernard
Kawczynski, Daniel
Keetch, Mr. Paul
Kennedy, rh Mr. Charles
Key, Robert
Kirkbride, Miss Julie
Knight, rh Mr. Greg
Kramer, Susan
Lamb, Norman
Lansley, Mr. Andrew
Laws, Mr. David
Letwin, rh Mr. Oliver
Lewis, Dr. Julian
Liddell-Grainger, Mr. Ian
Lidington, Mr. David
Lilley, rh Mr. Peter
Llwyd, Mr. Elfyn
Luff, Peter
Mackay, rh Mr. Andrew
MacNeil, Mr. Angus
Main, Anne
Malins, Mr. Humfrey
Maples, Mr. John
Mason, John
Mates, rh Mr. Michael
McIntosh, Miss Anne
McLoughlin, rh Mr. Patrick
Mercer, Patrick
Miller, Mrs. Maria
Mitchell, Mr. Andrew
Moore, Mr. Michael
Moss, Mr. Malcolm
Mulholland, Greg
Murrison, Dr. Andrew
Neill, Robert
Newmark, Mr. Brooks
O'Brien, Mr. Stephen
Oaten, Mr. Mark
Öpik, Lembit
Osborne, Mr. George
Paice, Mr. James
Paterson, Mr. Owen
Penning, Mike
Penrose, John
Pritchard, Mark
Redwood, rh Mr. John
Reid, Mr. Alan
Rennie, Willie
Rifkind, rh Sir Malcolm
Robathan, Mr. Andrew
Robertson, Angus
Robertson, Hugh
Robertson, Mr. Laurence
Rogerson, Dan
Rosindell, Andrew
Rowen, Paul
Russell, Bob
Sanders, Mr. Adrian
Scott, Mr. Lee
Selous, Andrew
Shepherd, Mr. Richard
Simmonds, Mark
Simpson, Mr. Keith
Smith, Sir Robert
Soames, Mr. Nicholas
Spelman, Mrs. Caroline
Spicer, Sir Michael
Spink, Bob
Spring, Mr. Richard
Stanley, rh Sir John
Steen, Mr. Anthony
Streeter, Mr. Gary
Stunell, Andrew
Swayne, Mr. Desmond
Swire, Mr. Hugo
Syms, Mr. Robert
Tapsell, Sir Peter
Taylor, Matthew
Taylor, Dr. Richard
Teather, Sarah
Timpson, Mr. Edward
Tredinnick, David
Turner, Mr. Andrew
Vara, Mr. Shailesh
Villiers, Mrs. Theresa
Wallace, Mr. Ben
Waterson, Mr. Nigel
Watkinson, Angela
Webb, Steve
Weir, Mr. Mike
Whittingdale, Mr. John
Widdecombe, rh Miss Ann
Wiggin, Bill
Willetts, Mr. David
Williams, Hywel
Williams, Mark
Williams, Stephen
Wilson, Mr. Rob
Wilson, Sammy
Wishart, Pete
Young, rh Sir George
Tellers for the Ayes:
James Duddridge and
Jeremy Wright
NOES
Ainsworth, rh Mr. Bob
Alexander, rh Mr. Douglas
Anderson, Mr. David
Anderson, Janet
Armstrong, rh Hilary
Atkins, Charlotte
Austin, Mr. Ian
Austin, John
Bailey, Mr. Adrian
Balls, rh Ed
Banks, Gordon
Barlow, Ms Celia
Battle, rh John
Bayley, Hugh
Beckett, rh Margaret
Begg, Miss Anne
Bell, Sir Stuart
Benn, rh Hilary
Benton, Mr. Joe
Berry, Roger
Betts, Mr. Clive
Blackman, Liz
Blackman-Woods, Dr. Roberta
Blizzard, Mr. Bob
Borrow, Mr. David S.
Bradshaw, Mr. Ben
Brennan, Kevin
Brown, Lyn
Brown, rh Mr. Nicholas
Brown, Mr. Russell
Browne, rh Des
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burgon, Colin
Burnham, rh Andy
Butler, Ms Dawn
Byers, rh Mr. Stephen
Caborn, rh Mr. Richard
Cairns, David
Campbell, Mr. Alan
Campbell, Mr. Ronnie
Caton, Mr. Martin
Cawsey, Mr. Ian
Challen, Colin
Chapman, Ben
Clark, Paul
Clarke, rh Mr. Tom
Clelland, Mr. David
Clwyd, rh Ann
Coaker, Mr. Vernon
Coffey, Ann
Cohen, Harry
Connarty, Michael
Cooper, Rosie
Cooper, rh Yvette
Corbyn, Jeremy
Cousins, Jim
Creagh, Mary
Cruddas, Jon
Cryer, Mrs. Ann
Cummings, John
Cunningham, Mr. Jim
Cunningham, Tony
Curtis-Thomas, Mrs. Claire
David, Mr. Wayne
Davidson, Mr. Ian
Davies, Mr. Quentin
Dean, Mrs. Janet
Denham, rh Mr. John
Dhanda, Mr. Parmjit
Dismore, Mr. Andrew
Dobbin, Jim
Dobson, rh Frank
Donohoe, Mr. Brian H.
Doran, Mr. Frank
Dowd, Jim
Drew, Mr. David
Eagle, Angela
Eagle, Maria
Efford, Clive
Ellman, Mrs. Louise
Engel, Natascha
Ennis, Jeff
Etherington, Bill
Farrelly, Paul
Field, rh Mr. Frank
Fisher, Mark
Fitzpatrick, Jim
Flello, Mr. Robert
Flint, rh Caroline
Flynn, Paul
Follett, Barbara
Foster, Mr. Michael (Worcester)
Foster, Michael Jabez (Hastings and Rye)
Francis, Dr. Hywel
Gardiner, Barry
George, rh Mr. Bruce
Gerrard, Mr. Neil
Gibson, Dr. Ian
Gilroy, Linda
Godsiff, Mr. Roger
Goggins, Paul
Goodman, Helen
Griffith, Nia
Griffiths, Nigel
Grogan, Mr. John
Gwynne, Andrew
Hain, rh Mr. Peter
Hall, Mr. Mike
Hall, Patrick
Hamilton, Mr. David
Hamilton, Mr. Fabian
Hanson, rh Mr. David
Harman, rh Ms Harriet
Harris, Mr. Tom
Havard, Mr. Dai
Healey, rh John
Hendrick, Mr. Mark
Hepburn, Mr. Stephen
Hesford, Stephen
Heyes, David
Hill, rh Keith
Hillier, Meg
Hodgson, Mrs. Sharon
Hoey, Kate
Hoon, rh Mr. Geoffrey
Hope, Phil
Howarth, rh Mr. George
Howells, rh Dr. Kim
Hoyle, Mr. Lindsay
Hughes, rh Beverley
Humble, Mrs. Joan
Hutton, rh Mr. John
Iddon, Dr. Brian
Illsley, Mr. Eric
Ingram, rh Mr. Adam
Irranca-Davies, Huw
Jackson, Glenda
James, Mrs. Siân C.
Jenkins, Mr. Brian
Johnson, rh Alan
Johnson, Ms Diana R.
Jones, Helen
Jones, Mr. Kevan
Jones, Lynne
Jones, Mr. Martyn
Jowell, rh Tessa
Joyce, Mr. Eric
Kaufman, rh Sir Gerald
Keeble, Ms Sally
Keen, Alan
Kelly, rh Ruth
Kemp, Mr. Fraser
Kennedy, rh Jane
Khan, Mr. Sadiq
Kidney, Mr. David
Kilfoyle, Mr. Peter
Knight, rh Jim
Kumar, Dr. Ashok
Ladyman, Dr. Stephen
Lammy, rh Mr. David
Laxton, Mr. Bob
Lepper, David
Levitt, Tom
Lewis, Mr. Ivan
Linton, Martin
Lloyd, Tony
Love, Mr. Andrew
Lucas, Ian
Mackinlay, Andrew
Malik, Mr. Shahid
Mallaber, Judy
Mann, John
Marris, Rob
Marsden, Mr. Gordon
Marshall-Andrews, Mr. Robert
Martlew, Mr. Eric
McAvoy, rh Mr. Thomas
McCabe, Steve
McCafferty, Chris
McCarthy, Kerry
McCarthy-Fry, Sarah
McCartney, rh Mr. Ian
McDonagh, Siobhain
McDonnell, John
McFadden, rh Mr. Pat
McFall, rh John
McGuire, rh Mrs. Anne
McIsaac, Shona
McKechin, Ann
McKenna, Rosemary
McNulty, rh Mr. Tony
Meacher, rh Mr. Michael
Meale, Mr. Alan
Merron, Gillian
Michael, rh Alun
Milburn, rh Mr. Alan
Miller, Andrew
Mitchell, Mr. Austin
Moffat, Anne
Moffatt, Laura
Morgan, Julie
Morley, rh Mr. Elliot
Mudie, Mr. George
Mullin, Mr. Chris
Munn, Meg
Murphy, Mr. Denis
Murphy, rh Mr. Jim
Murphy, rh Mr. Paul
Naysmith, Dr. Doug
Norris, Dan
O'Brien, Mr. Mike
O'Hara, Mr. Edward
Olner, Mr. Bill
Osborne, Sandra
Owen, Albert
Palmer, Dr. Nick
Pearson, Ian
Plaskitt, Mr. James
Pope, Mr. Greg
Pound, Stephen
Prentice, Mr. Gordon
Primarolo, rh Dawn
Prosser, Gwyn
Purchase, Mr. Ken
Purnell, rh James
Rammell, Bill
Raynsford, rh Mr. Nick
Reed, Mr. Andy
Reed, Mr. Jamie
Riordan, Mrs. Linda
Robertson, John
Robinson, Mr. Geoffrey
Rooney, Mr. Terry
Roy, Mr. Frank
Roy, Lindsay
Ruane, Chris
Ruddock, Joan
Russell, Christine
Salter, Martin
Sarwar, Mr. Mohammad
Seabeck, Alison
Sharma, Mr. Virendra
Shaw, Jonathan
Sheridan, Jim
Simon, Mr. Siôn
Singh, Mr. Marsha
Skinner, Mr. Dennis
Slaughter, Mr. Andy
Smith, rh Mr. Andrew
Smith, Ms Angela C. (Sheffield, Hillsborough)
Smith, Angela E. (Basildon)
Smith, Geraldine
Smith, rh Jacqui
Snelgrove, Anne
Soulsby, Sir Peter
Southworth, Helen
Spellar, rh Mr. John
Starkey, Dr. Phyllis
Stewart, Ian
Stoate, Dr. Howard
Strang, rh Dr. Gavin
Straw, rh Mr. Jack
Stringer, Graham
Stuart, Ms Gisela
Sutcliffe, Mr. Gerry
Tami, Mark
Taylor, Ms Dari
Taylor, David
Thomas, Mr. Gareth
Thornberry, Emily
Timms, rh Mr. Stephen
Tipping, Paddy
Todd, Mr. Mark
Touhig, rh Mr. Don
Trickett, Jon
Turner, Dr. Desmond
Turner, Mr. Neil
Twigg, Derek
Ussher, Kitty
Vaz, rh Keith
Vis, Dr. Rudi
Walley, Joan
Waltho, Lynda
Ward, Claire
Watts, Mr. Dave
Whitehead, Dr. Alan
Williams, rh Mr. Alan
Williams, Mrs. Betty
Wills, rh Mr. Michael
Wilson, Phil
Winnick, Mr. David
Winterton, rh Ms Rosie
Wood, Mike
Woodward, rh Mr. Shaun
Woolas, Mr. Phil
Wright, Mr. Anthony
Wright, David
Wright, Mr. Iain
Wright, Dr. Tony
Wyatt, Derek
Tellers for the Noes:
Barbara Keeley and
Chris Mole
Question accordingly negatived.
Clause 7 ordered to stand part of the Bill.
Mr. Hoban: I beg to move amendment 2, page 3, line 22, leave out ‘21%’ and insert ‘20%’.
The Temporary Chairman: With this it will be convenient to discuss the following:
Amendment 6, page 3, line 23, at end insert—
‘(1A) The Treasury may by regulations provide for the introduction of a very small companies relief from the small companies’ rate under subsection (1) for businesses with a rateable value of less than £25,000.
(1B) Regulations under subsection (1A) shall be made by statutory instrument and shall be subject to amendment in pursuance of a resolution of the House of Commons.’.
Amendment 3, page 3, line 25, leave out ‘7/400ths’ and insert ‘1/50th’.
Mr. Hoban: Having engaged in a helpful and thorough debate on amendment 1, relating to the main rate of corporation tax, we must now deal with the small companies rate. Amendment 2, tabled by me and by two of my hon. Friends, seeks to reduce the headline rate from 21 per cent. to 20 per cent., while amendment 3 seeks to change the fraction from 7/400 to 1/50. I shall say more about amendment 3 a little later. Many of the points made during our debate on amendment 1 about the unpredictability, complexity and uncertainty of the corporation tax system apply to small companies as well, but in the case of small companies there is a more pressing issue.
There is a little bit of history attached to amendment 2. There has been a long-running debate in Government about the taxation of small companies, and about what tax rate has been appropriate. When I first served on a Finance Bill Committee as a Back Bencher in 2002, the then Chancellor—now Prime Minister—had proposed a zero per cent. corporation tax rate on profits of less than £10,000. What the Government said at the time suggested that they saw the proposed rate as a spur to enterprise which would reinvigorate British business, but that rested on a key assumption which was misplaced then and which, in a sense, has led to some of our present problems: the assumption that only companies were entrepreneurial. That assumption ignored the contribution that can be made by partnerships and other unincorporated businesses to the dynamism of the British economy.
The flaw in the Government’s proposal was that it did not merely overlook the fact that other types of business organisation could be equally dynamic, but triggered a behavioural change. A raft of unincorporated businesses became limited companies, because a gap had opened up between the rates of tax that would be paid by, say, a
plumber, depending on whether he was employed, self-employed or a limited company. I believe that it was adequately flagged up at the time that that would happen.
David Taylor: I recall the decision and its implementation, and I recall the massive wave of incorporation that took place. It was not one of the best decisions that we have made in government. Does the hon. Gentleman agree with me—and, indeed with most management consultants—that, in the context of the framework for business, the decision whether to incorporate should never, or at best very rarely, be made for fiscal reasons?
Mr. Hoban: That is an important question. It returns us to what was said earlier about distortions in the tax system, and about attempts to persuade people to make decisions that reflect commercial realities rather than being driven by tax considerations. A difficult position arose. Very small businesses—one-man bands—became incorporated in order to take advantage of the fiscal position, which I believed was a flawed decision. I argued at the time that it would lead to a wave of incorporations.
The problem is that small companies are not measured in terms of numbers: in terms of whether they have one employee or two, three, four or five. They are measured in terms of the amount of profit that they make. On the one hand, there is the wish to create a level playing field for the plumber, the carpenter, the engineer and the IT software support worker, while on the other hand there is a range of businesses that are also incorporated and that are much bigger. In the latter case, the decision to incorporate was probably made on grounds of logic or to admit liabilities.
What is happening now, however, is that larger companies that nevertheless fall within the profit threshold for small companies are paying the price of the Government’s early mistakes. Following the introduction of the zero per cent. rate in 2002, the Government saw what was happening and responded by introducing such measures as a higher tax charge on distributions. Gradually, a point was reached at which, rather than piling complexity on complexity, the Government decided to increase the small companies rate of corporation tax in an attempt to narrow the gap between the rate paid by people working by themselves as small companies and the rate that they would pay if they were employees or self-employed.
In 2007, the Government finally decided that enough was enough. They scrapped the system, and introduced a 19 per cent. rate. They then set out to increase corporation tax for small companies by 1 per cent. per annum until it reached a top rate of 22 per cent. This was meant to be the year in which it would reach that rate, but, in the light of the current economic circumstances, the Government decided to put the increase on hold. Let me ask the Minister a question that I asked on Second Reading last week. Can the Government give any indication of whether they intend next year to raise the rate to 22 per cent., and to continue on that upward path?
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