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Finance Bill

We are undoubtedly in a very serious world economic downturn, and the measures that the Government have taken are helping to support the economy through it. I was speaking to an accountant yesterday, and he told me that his colleagues who work in liquidation are less busy this year than they were last year. He thought that that was because of the success of the business payment support service and the large number of companies that have gained a significant cash-flow benefit from it. The service has been very valuable for business survival, and its scope was widened further in the Budget. The hon. Member for Fareham (Mr. Hoban) spoke about the fairness of the UK's corporation tax arrangements for small companies. At £300,000, the UK threshold for the small company rate is the highest in the G7. It is perfectly true that rates in some other countries are lower, though not many are. For example, the small companies rate in the US is 15 per cent., but that applies to only about £30,000 of profit, compared with £300,000 in the UK. The fact that the threshold in Britain is the highest in any of the G7 countries means that companies making a profit of, say, £250,000, or up to the threshold pay the lowest marginal rate on that profit in the G7. Finally, as we discussed earlier, we performed very well in an international analysis of competitiveness. The amendments proposed by the hon. Member for Fareham would raise a serious problem of fairness. He acknowledged, I think, the problems that arose when the small companies rate was reduced significantly, as the result was a large incidence of businesses being incorporated, which was motivated purely by tax. The problem with his amendment 2 is that it would return us to precisely that problem. It would not be fair to encourage people to incorporate purely to gain an advantage in terms of tax and national insurance payments. We have set out a range of measures to make the tax system fairer across all small businesses, and to reduce the competitive disadvantage faced by unincorporated businesses. The amendment would make that disadvantage greater. The number of incorporations per year increased from 230,000 to 320,000 with the introduction of the zero per cent. starting rate. They reached a record high of 450,000 in 2006-07, but they have declined since, following the increase in the small company rate. The amendments tabled by the hon. Member for Fareham would reignite the problem, which would be unfair and a mistake. The amendments also pose a substantial fiscal risk—by the way, I accept that the hon. Member for Fareham has got his arithmetic correct this year—because, as the hon. Gentleman indicated, a permanent reduction in the rate would cost something like £500 million per year. He suggested that more changes to capital allowances would pay for that, but he did not give us any information about what they would be. I simply point him to the concerns that I expressed when we debated similar changes to the previous clause. I agree with the hon. Member for Taunton (Mr. Browne) about the crucial importance of very small companies to the UK economy, although he accepted that his amendment 6 might not be the best way to identify them. I was not quite clear about what relief he had in mind, but he made some important points.