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Budget Resolutions and Economic Situation

The Chancellor is to take a look at the gift aid regime to see how we can improve what it can deliver for charities, and he said clearly that the business tax reform package, which I am about to explain, would not apply to charities. The package constitutes the most extensive reform of investment allowances since the 1980s. There will now be two rates for capital allowances: 20 per cent. for short-life assets and 10 per cent. for long-life assets, with no allowances for property. As a result, there will be fewer tax-driven distortions in the system and incentives will be more properly aligned with economic depreciation. Several speakers have commented on the matter of legitimate small businesses. Part of the reason for staging the increase in the small companies rate is that we estimate that the majority of those currently paying that rate were advised to incorporate from employment or self-employment in order to be able to take their labour income as dividends and, as a result, artificially avoid the tax that they should pay. All the revenue raised from the increase in the small companies rate will be recycled back to legitimate small businesses in the form of support and investment incentives, and the new annual investment allowance of 100 per cent. up to a limit of £50,000 will be available to all companies, incorporated and unincorporated. [Interruption.] The hon. Member for Tatton seems perplexed that such allowances should matter to small companies. I point out that hauliers can use the allowances for their lorries, a service or IT worker can claim for his computer or office equipment, a restaurant can claim for its fridges, tables and ovens, and so on. The hon. Gentleman should not confuse small companies with small businesses. The present system of capital reliefs is not necessarily available in full to unincorporated businesses. The new annual investment allowance will be open to all those, including the self-employed, and they will also benefit from the personal tax changes that we are making.