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Finance (No. 2) Bill

We introduced the starting rate of corporation tax at 10 per cent. in 2000 to provide the means for small companies to reinvest their profits in their businesses. The hon. Member for Fareham (Mr. Hoban) quoted my right hon. Friend the Paymaster General at length. I remind him that she said at the time of the introduction of the zero rate that we considered that we had the balance between the incentives to incorporate and the incentives to remain unincorporated correct, but she made clear in the Standing Committee that the Government did not have a closed mind. It became plain that the starting rate enabled business to escape tax by retaining profits, but did not reward reinvestment specifically. As we have seen, it left the way open for some to incorporate just to reduce their tax and national insurance contributions burden, and not to take a step towards the growth that we wanted to encourage. In those circumstances, business urged simplicity on us and specialists urged us to deal with the starting rate and with the non-corporate distribution rate. The Institute of Chartered Accountants in England and Wales said in its response to our discussion paper in 2005"““The easiest solution in this case would be to remove the nil rate starting band for corporation tax and repeal the 19 per cent. charge . . . ""We would argue that the cost of abolition of the nil rate band to small companies outweighs the added compliance burden of the new legislation.””" I am glad that the hon. Member for Fareham acknowledged that clause 26 would indeed increase simplicity for small firms. The hon. Member for Dundee, East (Stewart Hosie) asked a couple of questions. He asked how many businesses with profits of less than £10,000 a year would be affected by the changes. I can tell him that about 370,000 companies with profits of less than £10,000 will be affected by the clause. The median tax increase for all companies affected will be £475 a year. The hon. Gentleman obviously has not looked at the regulatory impact assessment that we published alongside the pre-Budget announcement in December, but if he looks at that and the update that we provided at the time of the Budget in March, he will find not only an answer to his question about how many companies would be affected, but a published breakdown of the number of companies, sector by sector.