§ This increase in Corporation Tax makes it doubly necessary for me to give special consideration to the position of close companies, which in any event I had thought ready for review. Some of these companies are, and will remain, static. But others are the soil in which major industrial and commercial initiative may develop. I am persuaded that they have some legitimate grievances. The most important is the amount of directors' remuneration which can be allowed against Corporation Tax. This bears little relationship to realistic salary levels. I have been strongly pressed by hon. Members on both sides of the House to agree to an increase. But an increase would involve a difficult, and almost inevitably arbitrary, judgment as to what is the right level of remuneration. The answer would vary widely from company to company and from one individual director to another. I therefore think it better to remove the restriction altogether. The salaries paid will, of course, be subject to the full rigour of Income Tax and Surtax. They will simply escape attracting Corporation Tax as well. The cost is not small. It 1028 will be £20 million in a full year, although very little in 1969–70. But any worthwhile extension would have been almost equally expensive. I believe that, bearing in mind the general increase in Corporation Tax, this is a reasonable price to pay.
§ I also propose to allow a deduction from Corporation Tax in respect of reasonable interest paid by a close company on a loan from one of its directors. I believe it to be highly desirable to give these companies the opportunity to grow to their full potential.