Finance Bill

It is clear again that the hon. Lady—I do not know why she keeps beating up her own constituency—is implying that many businesses that are not involved in manufacturing are now being incorporated simply to avoid tax. She has used the word ““many”” and the Chancellor has used the word ““many””. However, neither of them have produced hard evidence. When we tackled the Chancellor himself on this question in the Select Committee, he said that it was not just a question of what had happened in the past. He said:"““people who are coming to work in this country are being encouraged to form, and work through, managed services companies even before they come into this country. We faced the prospect of schemes that are being marketed right across Eastern Europe, encouraging people to set up companies purely for the purposes of avoiding taxation””." In other words, the clause is based not simply on what has happened or is happening, but on what is likely to happen across Europe. We clearly do not have sufficient evidence to justify this change. Secondly, I am opposed to the clause because, as was brought out in our questioning earlier today, it is discriminatory. It is not neutral in its effect. A vast number of small businesses are not involved in research and development. As my hon. Friend the Member for Ludlow (Mr. Dunne) said, many small businesses do not rely on annual investment. Why? Because they are different types of businesses: they are people businesses, or skills businesses, or consultancies—or knowledge businesses. It is perverse of Ministers to prattle on about how they are supporting the knowledge economy and then to clobber those small businesses that are part of the knowledge economy but do not invest in old-fashioned plant and machinery and qualify for their new fancy allowances. There are knowledge businesses that will lose out because of this measure, so it is discriminatory. Thirdly, I oppose the clause because its aim is distortive. The objective behind the clause is that Ministers want there to be more investment in research and development. Yet when we took evidence on that point, we were informed by Mr. Whiting"““that the changes to the taxation system in the 2007 Budget were unlikely to be behaviour-changing and that businesses tended to prefer a lower tax rate and simpler taxation system to incentives to invest.””" There we have it—and from one of the experts. Small businesses know about research and development, and simply to encourage more of them to invest in research and development through a particular tax change is unlikely to be as effective as lowering the basic rate of tax that applies to small businesses and keeping it low rather than increasing it. I am also opposed to the clause because it will be damaging. That is not my conclusion alone. As the hon. Member for Twickenham pointed out, it was the overall conclusion of the Treasury Committee, which contains a majority of Government Members and a handful of Opposition Members. The Labour-dominated Committee was so concerned at the lack of hard evidence in support of this proposal that we concluded:"““It is not clear whether measures such as the increase in the R&D tax credit and the introduction of the…Allowance will have the desired beneficial impact on investment levels by small companies.””" That is why we recommended that, before the final changes are put into effect in the 2009 Budget, we have a proper review of the impact of the measures so that we can establish whether they are positive across the small business sector and whether they discriminate between different parts of that sector. Until that review has taken place, the House cannot possibly support the clause.