Finance Bill

It is appropriate to start our consideration in Committee by discussing the Chancellor’s tax raid on small businesses. He followed our lead by doing the right thing for large businesses, but he did the wrong thing for small businesses. Although the cut in the corporation tax headline rate for large companies from 30 to 28 per cent. is welcome and has grabbed the headlines, small companies face a substantial rise in the tax that they pay. The Bill increases the small companies rate from 19 to 20 per cent., although the Chancellors’ Budget speech set out a series of further increases, which we shall debate in subsequent Finance Bills, up to 22 per cent. from 1 April 2009. The increase in taxation fails to acknowledge the contribution that small businesses make to the UK economy. Small businesses, about one quarter of which are small companies, employ 58 per cent. of the private sector work force—about 12 million people—and contribute more than 50 per cent. of UK turnover. While larger companies will benefit from a reduced corporation tax rate, smaller companies will face a tax hike. In an attempt to sweeten the blow to small companies, the Chancellor simultaneously proposed a new set of complex tax reliefs, yet many small businesses will either be ineligible for them or will fail to apply for them. After 11 Budgets and multiple rate changes, the Chancellor has almost come full circle on the taxation of small companies. When the Government came into office, the small companies tax rate was 23p in the pound. They reduced it to 21p in 1997, and to 20 per cent. in 1998. In 1999, a new 10 per cent. rate was introduced, which was reduced to zero in 2002, only to be put back up to 19 per cent. for non-corporate distributions in 2004. In this year’s Budget, the small companies rate was increased from 19 to 20 per cent., with further increases proposed over the course of the next three years. There have been so many changes to the small companies tax rate, yet so little progress: by the time we reach April 2009, the rate will be just 1p lower than it was when the Government came to office in 1997. Given so many changes, one can conclude only that the Chancellor cannot make up his mind about how he regards small businesses: he cannot decide whether to encourage or discourage them; whether to congratulate them on being engines of growth or reprimand them for tax avoidance; or whether to give them reliefs or to reduce their profits. The Chancellor may not be able to make up his mind about small businesses, but they have certainly done so about him. Following his Budget, the comments in the papers from business organisations demonstrated their thoughts about him, particularly in relation to the small companies rate. Carol Undy, of the Federation of Small Businesses said:"““This is the Chancellor’s eleventh Budget and this year’s offering is no different to the others—he gives with one hand and takes with the other. Corporation tax was cut for large firms but increased for smaller ones.””" The federation went on to say:"““Tax cuts aimed at big business will do nothing to ease the burden for the majority of the private sector.””" The British Chambers of Commerce said:"““many of our members feel let down and are dismayed by the measures taken which will hit their competitiveness and increase their tax burden.””" The Association of Chartered Certified Accountants declared:"““This is no encouragement for the small business sector””." Chas Roy-Chowdhury, the head of taxation, said it was"““a very surprising Budget from a Chancellor who claims to be a friend of enterprise. It seems to be a case of robbing small business Peter to pay big business Paul.””" One of the themes that emerges when one talks to small business organisations is that, despite the complexity of the Budget, many of their members feel that small companies are being penalised to fund the tax cuts experienced by large businesses. Chas Roy-Chowdhury commented:"““This decision flies in the face of the Chancellor's previous aim to encourage more businesses to incorporate””." Many small businesses have commented individually that the Budget was aimed at wooing the City, not at wooing small businesses. Pauline Birdsall, a director of a freight forwarding company in Hayes, Middlesex, summed up the mood of many small businesses by saying:"““What do we have to do to makes ends meet? The Government is clearly afraid of big businesses going abroad, but they don’t seem to worry much about the small firms. As a group we are major employers and we are totally undervalued.””" A Hampshire business woman, Lynn Willrich, said that small businesses had been forgotten by this Government. She continued:"““We are a very small company and we are being hit from all angles. We feel as though we are paying the price for big companies getting a tax break…. The Government should be helping us not hindering us.””" The Chancellor may have presented his tax con as a tax cut, but small businesses saw through his sales patter and saw nothing in it for them. In a survey of 220 owners and managers of small firms conducted by the Forum of Private Business, 82 per cent. of respondents said that the tax hike in the corporation tax rate for smaller companies would be damaging to their company; 65 per cent. felt that, overall, the Budget would have a negative effect on their business; and a third felt that the plans laid out in the Budget made the tax system more complex. Only 4 per cent. regarded the Budget as positive for them—only 4 per cent., compared with 82 per cent. who felt that the Budget would damage their business.