First, I pay tribute to my hon. Friend the Member for Redcar (Ian Swales), who spoke in this debate as he has done in so many Finance Bill debates over the past five years. He has always provided a voice of calmness and sanity. I have not agreed with everything he has said, but he has mostly made helpful contributions, and thoughtfulness is a consistent characteristic of those contributions.
The corporation tax rate is set in legislation a year in advance on an annual basis. Clause 6 sets the corporation tax rate and charge for the financial year beginning on 1 April 2016. The House will be aware that in 2013 legislation was passed cutting the main rate of corporation tax from 21% to 20% for the 2015 financial year. The cut will take effect in seven days and give the UK by far the lowest rate in the G7 and the joint lowest rate in the G20. The clause confirms that the rate will remain at 20% in 2016.
The Government have made it clear that we want a business tax regime that is competitive and fair, and since 2010 we have made clear strides towards that goal. The main rate of corporation tax was 28%. We have cut it by almost a third to make the UK more competitive and to support growth and investment. At the same time, we have taken significant measures to clamp down on tax avoidance, and on Second Reading we debated the diverted profits tax introduced by the Bill.
Low corporation taxes enable businesses to increase investment, take on new staff, increase wages or reduce prices. Overall, the corporation tax cuts we have delivered since 2010 will save businesses £10 billion a year from 2016. To give Members a sense of scale, that is the equivalent of giving businesses enough money to hire 270,000 new employees. Oxford university’s centre for business taxation estimates that our reduction in the corporate tax burden will increase business investment by £11 billion; and as well as supporting businesses already operating in the UK, lower rates of corporation tax make the UK more attractive to international businesses. Last year, UK Trade & Investment reported a record number of inward investment projects that led to the creation of 66,000 new jobs and safeguarded 45,000 more.
The corporation tax cuts and other reforms, such as the introduction of the patent box, have completely changed perceptions of the UK tax regime. Five years ago, businesses were leaving the UK because of our tax regime. That regime has now become an asset that attracts firms to the UK. In surveys, the UK is now regularly cited as one of the most competitive regimes in the world. The clause embeds the message that the UK is open for business by affirming that the UK rate will remain at the record low of 20% in 2016.
The Opposition amendment proposes a review of the impact of a 1% cut to the main rate of corporation tax for the financial year 2016. A great deal is already known about the impact of corporation tax policy. We know that lower rates encourage growth and investment, and that stable and simple taxes give businesses confidence to invest and expand. The clause refers only to a single rate because we have already legislated to unify the main rate and small profits rate of corporation tax and to scrap the complex marginal relief system for all companies, except those with ring-fenced profits.
These changes will take effect next week and give the UK for the first time a single headline rate of corporation tax and provide administrative savings for a huge number of businesses, particularly the nearly 50,000 companies that pay the marginal rate of corporation tax each year. The move was recommended by the Office of Tax Simplification, and I would like to take the opportunity to pay tribute to Michael Jack, John Whiting and the team for all the work they have done since we introduced the OTS at the start of this Parliament. The Institute for Fiscal Studies has also been supportive of our reforms. In a recent report, it said:
“The simplification of moving to a single rate of corporation tax…is a real achievement of the coalition government’s tax policy, and it is one that should not be reversed.”
The evidence on corporation tax is clear: low rates and a simple system support business and support growth. In our view, the proposed review would provide little benefit, so we are not minded to accept the amendment.
As far as business rates are concerned, the Government recognise that they represent a fixed cost for businesses. That is why during this Parliament we have continued to double the small business rate relief schemes, supporting 575,000 businesses, of which 385,000 pay no rates at all. We have capped the inflation-linked increase in the business rates multiplier at 2% for two years, and we have provided a £1,000 retail discount this year, rising to £1,500 next year for small shops, pubs, cafés and restaurants, supporting the high street.
Labour said it would cut business rates by 1% for lower-value properties in 2015-16. Under its plan, the smallest single properties would pay more. A property with a rateable value of £5,000 saves £1,165 under this Government compared with the Opposition’s proposals. The high street would also lose out. A shop with a rateable value of £30,000 saves £1,080 under this Government when compared with the original proposals. We have published terms of reference for a wide-ranging ambitious review of Budget business rates to report back to the Government. That is, of course, on top of what we have done on fuel duty, which helps small businesses, and the employment allowance, which does the same.
In conclusion, cutting corporation tax has been a central part of our economic strategy—a strategy that is working. In 2014, growth in the UK outstripped that of every other G7 country. Employment is at record levels, business investment is growing rapidly, and this clause ensures that the rate of corporation tax for 2016-17 will remain at 20%—an extremely competitive rate and a foundation of tax system designed to support growth and investment. Reversing the progress we have made would be a big mistake and send a terrible signal to businesses around the world. That is why I believe the clause should stand part of the Bill.
Question put, That the amendment be made.