Indeed I do. As ever, my right hon. Friend brings great expertise to the debate.
Clauses 5 to 7 provide further evidence that we are continuing to make progress towards the delivery of a simpler and more competitive tax regime. They charge corporation tax for the financial year 2015. They set the small profits rate and the ring-fence small profits rate for 2014 at 20% and 19% respectively. They fix the ring-fence rates so that we need not reconfirm them every year in the Finance Bill. That is consistent with the way in which we handle the supplementary charge, the 32% tax levied on profits from oil and gas production. They set the fractions that will be used for businesses to calculate their marginal relief: the standard fraction is set at one four- hundredth, and the ring-fence fraction at eleven four-hundredths.
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I apologise to Members if that final measure sounded fairly complex, but I can reassure them that next year this section of the Bill will be far simpler, because the clauses also provide for the unification of the small profits rate and the main rate of corporation tax. Next year, there will be a single headline rate of corporation tax. That will bring about a major simplification of the tax system. For those outside the ring-fence regime, it will mean the end of the complex marginal relief system that currently captures 45,000 companies. It also gives us scope to abolish the complex “associated companies” rules and replace them with a much simpler rule based on 51% ownership of a firm, as set out in schedule 1. In unifying the rates, we are adopting a recommendation by the Office of Tax Simplification, led by John Whiting, and the move was commended by the Chairman of the Treasury Committee when we announced it last year. The Chartered Institute of Taxation welcomed the abolition of the “associated companies” rules when we announced it in the autumn statement.
Of course, it is only possible to unify the rates because we have cut the main rate to 20%, which, as we have heard this afternoon, the Labour party would not do.
Labour has said that it will increase the main rate of corporation tax to 21 %, which would make it the first party to increase the main rate of corporation tax in more than 40 years. It was last increased in 1973, although, to be fair, that was part of a restructuring that was revenue-neutral; it was back in the 1960s that the British Government last sought to increase the yield from corporation tax. No other G7 country has increased its corporation tax since 1997, and those increases were reversed within a year or two.
I agree with my hon. Friend the Member for Witham (Priti Patel) about the signal that Labour’s proposals send and the uncertainty that they create. Notwithstanding the reassurances that we have heard this afternoon, businesses are likely to fear that this is the thin end of the wedge, and that if Labour can increase corporation tax once, it will do so again and again. Under the last Labour Government, the UK’s tax competitiveness fell in the league tables. In 1997 we had the ninth lowest rate in the EU27, but by 2010 we had fallen to 20th in the league. At least by 2015 we will be back up to 11th, but that would be put in jeopardy if Labour were to pursue its policy.
Labour has said it would use the increase to reverse the 2015 business rates increase and freeze business rates in 2016 for all properties with a rateable value below £50,000. In other words, Labour would take money from one set of businesses to give it to another. By contrast, we want to cut taxes for large and small businesses, so, instead of raising one tax to cut another, we are cutting both corporation tax and business rates.
The point was made to the hon. Member for Birmingham, Ladywood (Shabana Mahmood) that the amendment would set off one business against another. Her response was that that was nonsense, but I can tell her that the point has been made not just by Conservative and Liberal Democrat Members of Parliament, but by business leaders. John Cridland, the head of the Confederation of British Industry, has said:
“I just think it’s divisive to take from one part of the business community to give to another.”
He has also said:
“I think the key point though is what it says about the Labour Party’s pro-enterprise credentials...Whether you are small, medium or large you need to invest as a business and grow as a business and higher taxes don’t do that.”
[Interruption.] The shadow Chief Secretary, the hon. Member for Nottingham East (Chris Leslie) says mockingly, “Oh, that is what we would expect from the CBI”, so let us hear from the Institute of Directors. Simon Walker, director of the IOD, says:
“The government has spent three years telling the world that we are open for business, and reductions in corporation tax have been a key part of that strategy. It’s a dangerous move for Labour to risk our business-friendly environment in this way”.
He also says:
“it creates a false distinction between small and larger businesses…The main corporation tax rate is paid not only by multinational corporations and FTSE100 companies but by medium sized companies and smaller firms.”
I will also quote John Longworth, director general of the British Chambers of Commerce:
“Labour must realise that you can’t rob Peter to pay Paul…we question why a freeze or cut in business rates for smaller firms should be offset by a delayed reduction in corporation tax...The notion that you can offset cuts in one tax with changes to another
doesn’t deal with the real problem…Ultimately, companies of all sizes need to be clear on taxes and rates bills, so that they can generate jobs and wealth with certainty.”