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Finance Bill

The difference in the tax burden for those who are incorporated and those who are unincorporated is clear and accepted, and our proposals have been phased in, to allow companies to take those changes into account, and to recreate, as it were, a fair and level playing field between small businesses competing in the same sector that may not be incorporated for tax purposes. The increase in the small companies rate reduces the differential between the incorporated and the self-employed. That means that the 3.3 million unincorporated businesses will be relatively more competitive—thus, as I said, levelling the playing field. Last year, we announced a package of business tax reforms to improve competitiveness and encourage investment and growth. The changes to the small companies rate are part of that package, which refocuses the incentives for small businesses on the activity of investment, and is designed to promote fairness across all 4.4 million small businesses. The hon. Member for Fareham asked why a targeted solution to the tax-motivated incorporation problem was not adopted instead of increasing the small companies rate. We have done extensive work on the issue of small business taxation, balancing incentives for small business growth with fairness in the tax system for all, and the changes to the taxation of small businesses announced in the Budget last year provide a good balance between those objectives. It would be wrong, however, to consider the small companies rate in isolation, and the change in that rate was only one component of the small businesses package announced in the 2007 Budget. That package refocuses the manner in which the Government provide incentives for small businesses on the activity of investment, and it would be wrong, as I have said, to take it in isolation.