I think the hon. Gentleman is rather confused. The purpose of the allowance is to enable companies to invest and to take advantage of tax support. If they are not able to take advantage of the annual investment allowance, there is no cost to the taxpayer, so why chop and change the regime and create uncertainty? Businesses need, from one year to the next, to be able to project and say, “This year we cannot afford to make an investment, but next year we can afford to invest so much in plant and machinery and we will be able to offset so much of that against tax.” The Government, however, have been chopping and changing the allowance. Companies cannot make long-term investment decisions from one year to the next without knowing exactly what their tax position will be.
The hon. Gentleman is actually making a very good argument for new clause 10 and I will be very surprised if he does not support us in the Lobby this afternoon. He speculates on companies that may or may not be able to invest and take advantage of the annual investment allowance. Our new clause asks the Government to undertake a proper review of the impact of slashing the annual investment allowance and then increasing it on a temporary basis. Many businesses have said to me—I am sure they have said it to the hon. Gentleman—that it is that uncertainty that creates the difficult environment for businesses to invest. They do not know, from one year to the next, what any tax allowance might be. We want to get to the bottom of that, so the mistakes the Chancellor made in 2010 will not be repeated.
Andrew Gotch of the Chartered Institute of Taxation commented on the increase announced at the 2012 autumn statement:
“This is a very generous increase that will be warmly welcomed by many small businesses...However, we note that it is only a temporary increase. Business would really welcome some stability in this area. In recent years, the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back to £25,000. Businesses like certainty above everything and the chopping and changing of the AIA has been a problem”.
Hon. Members do not need to take it from me, but from a whole range of sources who have raised this as a concern. The Institute of Chartered Accountants in England and Wales welcomed the increase to the allowance, but said:
“We are less enthusiastic about the frequency of the change to this amount.”
Let me be clear, the Opposition welcomed the 2013 increase in the annual investment allowance to £250,000, but we share the very serious concerns about the extremely complex manner in which that was implemented. As hon. Members may be aware, many organisations and
individual businesses raised concerns that the increase to £250,000 would run from January 2013 to January 2015, rather than over companies’ usual accounting periods, making it problematic for firms, particularly small ones, to administer. Indeed, as the Association of Taxation Technicians neatly put it at the time,
“the chopping and changing of capital allowances will lead to error, confusion and higher professional costs for small businesses.”
The Opposition also welcomed the Chancellor’s announcement in Budget 2014 to extend the period of the temporary increase to 31 December 2015, with the allowance being temporarily increased again to £500,000 from April 2014. The straight fact, however, is that the Chancellor and his Government have tied themselves in knots over this vital issue. Just last year, when we considered in Committee what is now the Finance Act 2013, the then Economic Secretary to the Treasury, the Secretary of State for Culture, Media and Sport, the right hon. Member for Bromsgrove (Sajid Javid), explained why the increase in the allowance to £250,000 from January 2013 would be a temporary measure only. He said:
“We recognise that the change follows quite soon after the decrease in the annual investment allowance to £25,000 that was announced in the June 2010 Budget and implemented in the Finance Act 2011, which took effect from April 2012. The Government’s central position has not changed and remains that, in general, a lower corporation tax rate with fewer reliefs and fewer allowances will provide the best incentives for business investment, with the fewest possible distortions. That is why we have announced a further reduction in the main rate of corporation tax, as we discussed earlier, from April 2015 and is also why the current 10-fold increase in the maximum annual investment allowance is time limited rather than permanent.”––[Official Report, Finance Public Bill Committee, 16 May 2013; c. 145.]
A matter of months later, at Budget 2014, the Chancellor decided to about-turn once again, and extended and temporarily increased the annual investment allowance further—before, presumably, he intended it to return to £25,000 from 1 January 2016. As the Chartered Institute of Taxation put it so well, the one thing businesses need most, particularly in challenging economic times, is certainty. They need long-term stability and predictability to give them the confidence to invest, to make plans for the future and to take on more staff. What they have got from this Government, however, is a continual chopping and changing, with U-turn after U-turn and what seems to be a complete lack of strategic thinking.
What we need to hear from the Minister today is confirmation that the Treasury and his Government have taken seriously the impact of their decisions on business confidence, investment and jobs. We need to know that they have learned from the Chancellor’s mistake back in 2010, and that they will properly review its impact to ensure that the same mistake is not made again.
What assessment has the Minister made of the number of businesses that were not able to grow after the annual investment allowance was slashed? How many jobs could have been created during the last three years of flatlining growth while we have undergone the slowest recovery for 100 years? How many households could have been better off as a consequence, but will find themselves worse off in 2015 than they were back in 2010? Let us not forget that in 2010, back when the Chancellor was slashing the annual investment allowance, he said that the economy would have grown by 9.25%
by now. Instead, it has grown by just 4.6%—far slower than in the United States or Germany. Indeed, GDP growth this year is still expected to be lower than the Office for Budget Responsibility forecast in 2010.
On Monday, my right hon. Friend the shadow Chancellor made an important speech about Labour’s approach to developing a business tax system that promotes long-term investment, supports enterprise and innovation and, most importantly, provides a stable and predictable policy framework for business, which is founded on fairness. Yesterday, my right hon. Friend, the Leader of the Opposition set out how a future Labour Government will mend Britain’s fractured economy and develop a genuinely long-term approach to backing growth in every part of this country to ensure rising prosperity for all.
It is this long-term approach to growth and backing Britain’s business and jobs that has been so lacking from this Government, and nothing illustrates it better than their shambolic and chaotic approach to the annual investment allowance since 2010. For that reason, I urge hon. and right hon. Members to back new clause 10 this afternoon, to ensure that the Government understand the impact of the Chancellor’s dreadful decision making back in 2010, and that they do not make the same mistakes ever again.