Finance Bill

We have made it clear that we do not intend that the provisions—indeed, we have deliberately drawn them up to this end—should affect those who operate through personal service companies. My hon. Friend the Member for Newcastle upon Tyne, North treated the House to an insight into his experiences as a trade union negotiator and cited some of the deals that he used to negotiate, including 27 per cent. wage increases. All I can say is that I am glad that he is a Member of Parliament, rather than operating in the workplace, otherwise I suspect that he would come to the attention of the Governor of the Bank of England. The conclusion that he drew from his experience, both before and since coming to the House was very important: overriding everything else, there is significant value in stability, which the monetary and fiscal framework introduced since 1997 has helped to bring to the UK, which the Organisation for Economic Co-operation and Development described as ““a paragon of stability?. He was right that the major result that matters to most people and certainly to Government Members is jobs, and there are 2.6 million more jobs in the British economy than there were 10 years ago. He is right that the challenge for the next decade lies in increasing skills and learning throughout the system to allow those in work to continue in work and those not yet in work and seeking work to gain opportunities for the future. On air passenger duty, the hon. Member for Falmouth and Camborne urged me to cite precedents for changes in taxation being introduced before Budget resolutions are debated. I have cited previously in the House the example of the increase in the supplementary charge on North sea oil and gas. I have also written to the Chairman of the Procedure Committee to underline the point and to explain that, in law, a resolution made under the Provisional Collection of Taxes Act 1968 has the effect"““as if contained in an Act of Parliament?." That provision has been regularly used by Governments of different persuasions. I will discuss with the Chairman of the Procedure Committee whether he is content for me to place a copy of my letter citing such precedents and examples in the Library. My hon. Friend the Member for Wolverhampton, South-West delivered a clinical and comprehensive demolition of the Opposition’s amendment and arguments. I hope that I can persuade him to serve on the Bill Committee, although Opposition Members—and perhaps the hon. Member for Falmouth and Camborne in particular—may not be too pleased if he does. On climate change, he made a persuasive and coherent argument. He was an early advocate of the importance of taking into account adaptation to the impact of climate change, and I am glad that, as he said, his private Member’s Bill has largely been incorporated into our draft climate change Bill. The hon. Member for Hornchurch (James Brokenshire), who, I am disappointed to see, is not in his place, is a former tax lawyer, and I hope that we will see him on the Bill Committee, although I do not wish to do the Opposition Whips’ job for them. He maintained that small companies would have difficulty taking advantage of the tax reliefs because of their complexity. However, the Institute for Fiscal Studies, in its reaction to the Budget, said:"““This is a genuinely simplifying Budget…a cause for congratulation rather than criticism.?" It is true that the annual investment allowance makes tax simpler for small businesses. Clearly, it is a simplification, effectively giving small businesses, incorporated and unincorporated, a cash flow tax, which has been welcomed by many, including the Federation of Small Businesses, the chairman of whose tax committee said:"““The Annual Investment Allowance will be significant for small businesses, both incorporated and unincorporated, when it comes in from April 2008. It should allow what is in effect free depreciation for small businesses on plant and machinery, and has the added benefit of being a simplification.?" Small firms often say that volatility in cash flow is one of their major headaches and risks. The AIA will offer significant help to make purchasing new assets more affordable. My hon. Friend the Member for Stoke-on-Trent, South (Mr. Flello) chairs the Staffordshire taskforce and talked with some expertise about the importance of skills and jobs in his local economy. I will make sure that the chairman of Advantage West Midlands is aware of his points about investment, particularly in office accommodation in his area. The right hon. Member for Wokingham treated us to a tantalising taste of the report that he is preparing for his leader. We look forward to the Redwood report on economic reform. I encourage him and those on his Front Bench to take up the idea of publishing it chapter by chapter, and to make sure that it is a question of when and not if. I was glad to see the hon. Member for South-West Hertfordshire (Mr. Gauke) make a contribution and keep the Treasury Committee’s end up in the debate. He was particularly concerned about the Olympics and the impact of capital allowances. We do not expect the reforms to business tax to have the negative impact that he and some other members of the Committee might fear. As he will be aware, the changes to capital allowances have a largely temporary timing effect. Those will be more than outweighed by the dominant effect of the cut in the main rate that the Bill and Budget introduce. Overall, we expect the Budget changes to have a positive impact on investment levels, including in relation to the Olympics. The hon. Member for Ludlow (Mr. Dunne), who sadly and surprisingly is not in the Chamber, wanted to discuss in detail aspects of sideways loss relief. The Committee is probably the place to do that, not a Second Reading debate at this hour. The hon. Member for Dundee, East (Stewart Hosie) quoted the Federation of Small Businesses. I shall come on to the business tax reforms and explain why they are likely principally to assist small businesses rather than to hinder them as he fears. He made the argument—although that perhaps flatters him slightly—that the announcements in the Budget would mean R and D tax credit benefits to very few. That is not true at all. The measure in the Bill extends the small and medium-sized enterprises R and D tax credit to companies with up to 500 employees, but the Chancellor’s announcement in the Budget, for which we will legislate next year, means that all companies will benefit from an increase in the value of the SME and the large company R and D tax rate from 2008. To date, there have been more than 23,000 claims under the R and D tax credit from between 6,000 and 8,000 companies. That is scale of those who stand to benefit. My hon. Friend the Member for Swansea, East (Mrs. James) brought some of the contributions back to reality. She was so clear and so right when she argued that tax credits are an important part of many families’ monthly income. Take-up is now 90 per cent. for those on incomes lower than £10,000. More than 6 million families and 10 million children are benefiting. She said that they are afraid of having to do without their tax credits. Those fears would certainly be realised if the Opposition ever got their way. On the business tax reform, the Leader of the Opposition said:"““Somebody needs to tell the Prime Minister that there are two rates of corporation tax, and the one for small businesses is going up. It will be paid by every firm in the country.?—[Official Report, 28 March 2007; Vol. 458, c. 1492.]" Somebody needs to tell the Leader of the Opposition that the UK has 4.3 million small businesses. Of those, more than three quarters are self-employed. They do not pay corporation tax and are not affected by the changes in the Budget. Of those that remain, around a quarter do not pay any corporation tax because they do not declare profits. Of those that remain, we estimate that the majority have incorporated with the purpose of reducing their tax and national insurance liabilities. In all the changes that we have made to small business tax rates and policy, we have done so with a view to having a tax system that ensures that we get greater levels of investment and innovation and a fairness in the system. That was the purpose also of our consultation in 2004. However, the lower rates of tax have resulted in a significant number of people incorporating to take advantage of them, not to invest in business, but simply to extract the company profits in a way that reduces their personal tax and national insurance liabilities. They are doing that while still carrying out the same economic activity that they carried out before they incorporated. The tax break is clearly being subsidised by those companies that are following the rules and by ordinary taxpayers. We are therefore refocusing the provision of investment incentives on small businesses. The increase in the small companies rate will reduce the differential in tax paid between the incorporated and the self-employed. The annual investment allowance will target assistance directly on those firms, incorporated and unincorporated, that invested their profits. The Budget is good for business, with the lowest corporation tax rate in the major economies, a small companies rate that will still be lower than the rate when we came to office in 1997, tax incentives focused on businesses that invest and innovate, and a fair deal for the self-employed. Over the past decade, Britain’s economy has been at the forefront of jobs, stability and growth, and the Bill will help to maintain our competitive economy for the future. Since 1997, Labour has introduced the new deal and tax credits for working families, and has seen more than 2.5 million more jobs in the British economy. The Bill increases the rewards for work and support for families. In the last 10 years, we have seen the United Kingdom lead on international arguments and action to tackle climate change. Now the United Kingdom, almost alone, is set not just to meet our Kyoto targets but to double them. The Bill introduces further measures to protect the environment and to reduce climate change emissions. A strong economy, a just society, a duty to future generations in protecting the environment—this is a Labour Finance Bill, and I commend it to the House. Question put, That the amendment be made:— The House divided: Ayes 168, Noes 283.