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Finance Bill

My hon. Friend the Exchequer Secretary reminds me that a figure of 700,000 new businesses is not a discouraging one. The hon. Member for Braintree (Mr. Newmark) asked me a general question about the economic climate in which we have made these changes. As I have just explained, they are intended to re-establish fair competition for those who have been incorporated for tax purposes, and thus enable them to take advantage of arrangements that ought to have been made for investment in business for growth purposes. By levelling the playing field, we will restore the motivation for companies to focus less on how to use incorporation to avoid tax liabilities, and encourage them instead to focus on growing their business. The annual investment allowance, as I have mentioned, will target assistance directly on those businesses that invest their profits, regardless of their legal form. As I said, it will be available to all 4.4 million businesses, and will allow them to offset up to £50,000 of capital expenditure in the same way that they offset other costs such as employment costs. To increase the sense of déjà vu experienced by the hon. Member for Fareham, I repeat that the package is important: it was introduced last year, and it is part of the ongoing debate. Simon Sweetman, chair of the Federation of Small Businesses tax committee, said:"““The Annual Investment Allowance will be significant for small business, both incorporated and unincorporated…and has the added benefit of being a simplification.””" The allowance should be welcomed, rather than dismissed as some speakers have done. The Government also announced an increase in the small and medium enterprise R and D tax credit rate from 150 per cent. to 175 per cent.—we will come on to debate that later in other clauses—and that will also help small companies investing in new technology. All these measures taken together refocus tax support on investment rather than on low profits. Thank you for bearing with me, Sir Alan. I will now deal with the proposed amendments in detail and in turn. I fear that the amendments would pose a serious risk to fairness. The Government have set out how they will make the tax system fairer across all small businesses, reducing the competitive disadvantage, as I have said, faced by unincorporated businesses. However, the Opposition believe that all 3.3 million of them should continue to be disadvantaged in this way. Amendment No. 1 would encourage further tax-motivated incorporation, counteracting the moves towards fairness that the Government support. Furthermore, the small companies rate will still be lower than it was in 1997 when it was 23 per cent., even as we take the proposals forward. Amendment No. 2 proposes to maintain the current fraction of marginal relief as 1/40th. In proposing the amendment however, the Opposition have not done their sums properly, setting out a perverse incentive to have profits within the marginal relief band. The fraction for marginal relief ensures that there is a smooth rise in the rate of tax applied to companies with profits between the thresholds for the small companies and main rates of corporation tax. In proposing that the small companies rate and marginal fraction both be maintained at last year's level, the Opposition fail to take account of the reduction in the main rate of corporation tax from 30 to 28 per cent.