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We have to decide the extent to which we should be focusing on how people used incorporation for tax planning and crack down on that, or incentivising those small companies that incorporated for legitimate economic and legal reasons. That is where the division is between
the Conservative party and the Government. The Government see incorporation of small companies as a way of managing down tax bills and not paying what is fair. In my view, and that of my hon. Friends who have had experience of running small companies, the increase in the small companies’ rate is not a matter of fairness. We believe that the increase is having an impact on their ability to retain profits which, as my hon. Friend the Member for Northampton, South said, is important to their ability to build up reserves for the future and to fund investment.
In our judgment, the small companies rate of taxation should fall, to incentivise genuine small companies and encourage their growth and future development. The rate should not be increased, as the Government would use it, as a means of cracking down on tax avoidance. That is the dividing line between the Conservative party, which wants to support entrepreneurs, and the Government, who have seen fit to crack down on them by increasing the small companies rate of corporation tax. The Government’s argument on tax-motivated incorporation is, I think, an excuse for a revenue-raising measure, increasing the tax take from small businesses. They have sought to compensate for the increase through the annual investment allowance, but that is available to all businesses, not just small companies, so on average small companies will be worse off as a consequence of the changes that the Government have announced.
Because we want to support entrepreneurs and because we recognise that people have set up limited companies for genuine purposes, and not only for the purpose that the Minister says, we want the small companies rate of corporation tax to be reduced. We have set out clearly how we would fund the reduction through reforming the system of capital allowances—our proposals are costed. I shall press the amendment to a Division, because it is important to send a clear signal to this country’s small companies that we have their interests at heart—we do not regard them as tax dodgers or tax avoiders and we want them to flourish and continue to grow. That is my party’s policy; it is not the Government’s policy. I therefore ask my hon. Friends to vote for amendment 2.
Question put, That the amendment be made.
The Committee proceeded to a Division.
The First Deputy Chairman of Ways and Means (Sylvia Heal): I ask the Sergeant at Arms to investigate the delay in the No Lobby.
The Committee having divided: Ayes 180, Noes 294.
AYES
Afriyie, Adam
Alexander, Danny
Ancram, rh Mr. Michael
Arbuthnot, rh Mr. James
Baker, Norman
Baldry, Tony
Barrett, John
Beith, rh Sir Alan
Bellingham, Mr. Henry
Bercow, John
Binley, Mr. Brian
Blunt, Mr. Crispin
Bone, Mr. Peter
Boswell, Mr. Tim
Brake, Tom
Brazier, Mr. Julian
Brokenshire, James
Browne, Mr. Jeremy
Browning, Angela
Bruce, rh Malcolm
Burns, Mr. Simon
Burt, Alistair
Burt, Lorely
Carmichael, Mr. Alistair
Cash, Mr. William
Chope, Mr. Christopher
Clappison, Mr. James
Clark, Greg
Cox, Mr. Geoffrey
Curry, rh Mr. David
Davies, Mr. Dai
Davies, Philip
Davis, rh David
Djanogly, Mr. Jonathan
Dorrell, rh Mr. Stephen
Dorries, Nadine
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
Francois, Mr. Mark
Fraser, Christopher
Gale, Mr. Roger
Garnier, Mr. Edward
Gauke, Mr. David
George, Andrew
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
Grieve, Mr. Dominic
Hague, rh Mr. William
Hammond, Mr. Philip
Hancock, Mr. Mike
Hands, Mr. Greg
Harper, Mr. Mark
Harris, Dr. Evan
Heath, Mr. David
Heathcoat-Amory, rh Mr. David
Hendry, Charles
Herbert, Nick
Hoban, Mr. Mark
Hollobone, Mr. Philip
Horam, Mr. John
Horwood, Martin
Hosie, Stewart
Howarth, David
Howarth, Mr. Gerald
Howell, John
Huhne, Chris
Hunter, Mark
Jack, rh Mr. Michael
Jackson, Mr. Stewart
Jenkin, Mr. Bernard
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
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
Mundell, David
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
Pickles, Mr. Eric
Pritchard, Mark
Redwood, rh Mr. John
Reid, Mr. Alan
Rennie, Willie
Robathan, Mr. Andrew
Robertson, Angus
Robertson, Mr. Laurence
Rogerson, Dan
Rosindell, Andrew
Rowen, Paul
Russell, Bob
Sanders, Mr. Adrian
Scott, Mr. Lee
Selous, Andrew
Shepherd, Mr. Richard
Simpson, Mr. Keith
Smith, Sir Robert
Soames, Mr. Nicholas
Spelman, Mrs. Caroline
Spicer, Sir Michael
Spink, Bob
Stanley, rh Sir John
Steen, Mr. Anthony
Streeter, Mr. Gary
Stunell, Andrew
Swayne, Mr. Desmond
Swinson, Jo
Swire, Mr. Hugo
Syms, Mr. Robert
Tapsell, Sir Peter
Taylor, Dr. Richard
Teather, Sarah
Timpson, Mr. Edward
Tredinnick, David
Turner, Mr. Andrew
Tyrie, Mr. Andrew
Vara, Mr. Shailesh
Wallace, Mr. Ben
Waterson, Mr. Nigel
Watkinson, Angela
Webb, Steve
Weir, Mr. Mike
Whittingdale, Mr. John
Wiggin, Bill
Willetts, Mr. David
Williams, Hywel
Williams, Mark
Williams, Mr. Roger
Williams, Stephen
Wilson, Mr. Rob
Wilson, Sammy
Wishart, Pete
Young, rh Sir George
Tellers for the Ayes:
James Duddridge and
Jeremy Wright
NOES
Abbott, Ms Diane
Ainsworth, rh Mr. Bob
Alexander, rh Mr. Douglas
Anderson, Janet
Armstrong, rh Hilary
Atkins, Charlotte
Austin, Mr. Ian
Austin, John
Bailey, Mr. Adrian
Baird, Vera
Balls, rh Ed
Banks, Gordon
Barlow, Ms Celia
Barron, rh Mr. Kevin
Battle, rh John
Bayley, Hugh
Beckett, rh Margaret
Begg, Miss Anne
Bell, Sir Stuart
Benton, Mr. Joe
Berry, Roger
Betts, Mr. Clive
Blackman, Liz
Blackman-Woods, Dr. Roberta
Blizzard, Mr. Bob
Borrow, Mr. David S.
Bradshaw, Mr. Ben
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
Cousins, Jim
Creagh, Mary
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
Devine, Mr. Jim
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
Gwynne, Andrew
Hain, rh Mr. Peter
Hall, Mr. Mike
Hall, Patrick
Hamilton, Mr. David
Hamilton, Mr. Fabian
Hanson, rh Mr. David
Harris, Mr. Tom
Havard, Mr. Dai
Healey, rh John
Hendrick, Mr. Mark
Hepburn, Mr. Stephen
Hesford, Stephen
Hewitt, rh Ms Patricia
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, 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, Ann
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
Lazarowicz, Mark
Lepper, David
Levitt, Tom
Lewis, Mr. Ivan
Linton, Martin
Lloyd, Tony
Love, Mr. Andrew
Lucas, Ian
Mackinlay, Andrew
Malik, Mr. Shahid
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
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
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
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
Prentice, Mr. Gordon
Prescott, rh Mr. John
Primarolo, rh Dawn
Prosser, Gwyn
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
Ryan, rh Joan
Salter, Martin
Sarwar, Mr. Mohammad
Seabeck, Alison
Sharma, Mr. Virendra
Shaw, Jonathan
Sheridan, Jim
Simon, Mr. Siôn
Simpson, Alan
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
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
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 8 ordered to stand part of the Bill.
Mr. Jeremy Browne: I beg to move amendment 8, page 4, line 2, at end insert—
‘(1A) The Chancellor of the Exchequer must, not later than 1 April 2010, compile and lay before the House of Commons a report containing an assessment of the impact of the temporary VAT rate reduction on—
(b) the competitiveness of small and medium-sized businesses, and
(c) the disposable income of low-income households,
for the period during which the rate reduction had effect.
(1B) A Minister of the Crown must, not later than 1 May 2010, make a motion in the House of Commons in relation to the report.’.
I am grateful for the opportunity to speak on a subject that most people would regard as a central feature of our debate on the Finance Bill—the Government’s decision to use a reduction in VAT as a way of injecting extra money into the economy and trying to deal with the recession. Members will be familiar with many of the arguments, but before I make some slightly more general comments, I shall just explain the amendments that I tabled.
Amendment 7, which has not been selected, but which appears on the amendment paper—I hope I am not out of order, Mrs. Heal, if I briefly mention it, because it illustrates the direction in which I am seeking to move Government policy—seeks to bring forward the day on which the VAT reduction from 17.5 to 15 per cent. ceased to apply to the date on which the Bill receives Royal Assent, which we believe is the earliest conceivable date on which that temporary reduction could be ended. The amendment was not accepted, for entirely understandable reasons to do with revenue implications, but it nevertheless remains our intention to try to encourage or force the Government to bring forward that measure to the earliest possible date.
Amendment 8 is much more wide-ranging and benign, and provides an opportunity to review the success or otherwise of the Government’s policy. Inevitably, such a review could take place only after the effects of the
policy had been experienced, so it is not as immediate as the change proposed in amendment 7 or, indeed, a proposal to reject the clause as a whole. However, it provides a useful opportunity to discuss the Government’s strategy as a whole. Many right hon. and hon. Members will be familiar with that strategy.
The Government are running a massive deficit—£175 billion this financial year, and £173 billion in the next financial year, if their assumptions are correct—so there is a legitimate debate to be had about the extent to which the Government can afford to borrow more to stimulate the economy. My party’s view is that there is merit in fiscal stimulus—trying to inject an extra boost into the economy will help us to get through the recession quicker, and the best way we can address our public finance deficit is to get the economy growing again. After that, we will have to ask questions about additional tax revenue, and about savings in the public sector. The immediate task, however, is to get through the recession and out the other end, growing strongly again. Some sort of fiscal stimulus, in my party’s view, is the right way forward, if it is affordable.
7.45 pm
Mr. Nicholas Soames (Mid-Sussex) (Con): Without wanting to make a point about it, I agree about the need for fiscal stimulus. Before every Budget, I survey almost every business in my constituency and this year, for the first time, that survey received an extremely high response rate. Everyone who responded on the VAT cut was extremely critical of it. Does the hon. Gentleman acknowledge that that change is not one that commands universal support across the country and that it was not the right thing to do?
Mr. Browne: I not only acknowledge but completely agree with that.
The starting point for us, for the Government and for others was whether it was possible to afford some sort of fiscal stimulus. The answer, in our view, was yes, although it would be limited in scope because of the state of the public finances. The question that then arose was what form that fiscal stimulus should take. The Government’s view, as I understand it, was that a VAT cut would be a good way to go, partly because it could be introduced speedily—no doubt the Minister will put the Government’s case; I do not with to misrepresent it, but I will explain my view. They thought a VAT cut would incentivise people to spend money, which would provide the sort of stimulus they believed would be advantageous in the short term. They also believed it would be beneficial for individual consumers. I remember their making the case when it was introduced that it would save money for typical households, and we were given examples of those savings. However, when some retailers did not pass on the VAT reduction, the Government then made the case that it helped the margins of those retailers. I accept that there was a degree of truth in the Government’s position, even though to some extent they were having their cake and eating it: when the VAT cut was passed on, it would help consumers, and when it was not, it would help retailers and businesses.
That, as I understand it, was the Government’s case for the VAT cut. It is not a case that my party finds compelling, and that view is shared by many hon. Members, including Government Members. There are
numerous reasons for that but, first, the Government unfortunately cut VAT in the run-up to Christmas, when retailers were heavily discounting their products. Many companies were introducing cuts of 20, 25, 30 or 35 per cent. and, in that context, the 2.5 per cent. reduction was rather modest. It may have led to a small extra saving for consumers, but it was unlikely to provoke them to make a purchase that they would not otherwise have made. The cuts introduced by the retailers themselves were substantially greater than the VAT cut.
There was the serious issue, too, of the administrative burdens placed on businesses as a result of the VAT cut. A number of businesses sought to reprice their goods, and if they were priced in a catalogue that had already been printed or if a similar approach had been taken, that presented even greater problems. I went into a shop in my constituency where the company introduced the discount, but did not mark it on the price that appeared on the product, as that would have resulted in extra burdens. I remember buying a birthday card for someone for £2, and I paid with two £1 coins. I was given 4p change because the shop had kept the marked price as £2, but I was given a discount, to reflect the temporary VAT reduction, which I had not anticipated. Up to a point, I appreciated it, but I did not necessarily feel incentivised to buy another card once I knew that another 4p was there for the taking. I suppose I had 4p more to spend on other goods and services, but I am not sure that the effect on the economy as a whole, even if everyone received that benefit, was as great as the Government hoped.
Lembit Öpik: I very much agree with my hon. Friend’s point, but is there not another marketing consideration? Something that had cost £11.99 should cost about £11.73 after the VAT cut but, as we all know, the price points are heavily determined by marketing considerations—the prices tend to end with “99” and so on. Does my hon. Friend agree that the benefit of the VAT cut will almost inevitably gravitate back to the companies and businesses as they revert to the standard pricing points? No one can pretend that £11.73 is a natural pricing point or that it has any marketing advantage.
Mr. Browne: I take my hon. Friend’s point. Many retailers round their prices to a sensible point and then discount a penny to make them look more attractive. A lot of the margins might be greater than the VAT reduction, so the reduction might not have been felt in the way envisaged by the Government. With small items—I just gave the example of a birthday card—the saving to the consumer is small. With big items such as a new car, the saving would be greater. However, it is worth mentioning that car retailers were so desperate to turn over more of their products that the discounts by and large were bigger than the VAT reduction that was meant to incentivise consumers.
Mr. Syms: The hon. Gentleman has talked about costs to small businesses, but there are also the costs to local authorities, which charge for a range of services such as car parking spaces. Some such charges have VAT implications. That created costs for local government, which had to reduce lots of charges to be able to comply quickly with what the Government wanted.
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