HC Deb 20 May 1975 vol 892 cc1318-41
Mr. David Mitchell

I beg to move Amendment No. 44, in page 18, line 22, leave out 42 'and insert 40'.

The Temporary Chairman

With this, we are to discuss Amendment No. 45, in page 18, line 22, leave out 42 'and insert 39'.

Mr. Mitchell

If it is any help to the Government—I am always anxious to help them—the reason why both amendments appear on the Notice Paper is to enable them to choose the lesser amendment if they feel that the cost of the other is too much. Amendment No. 45 proposes a reduction in the rate of corporation tax for small businesses from 42 per cent. to 39 per cent. If that is felt to be inappropriate, Amendment No. 44 proposes that the rate be reduced to 40 per cent., which is the figure at which it stood a year ago.

I am glad that the Chief Secretary is to reply to the debate, because he used to be a friend of small businesses. I recall some unholy, or perhaps holy, alliances across party lines in 1972 on the subject of the problems of small businesses. Before coming into the Chamber today I turned up one of those debates. On that occasion, the Chief Secretary said to the Committee, I find myself in the very strange and unusual position of having willingly to support the hon. Members for South Angus (Mr. Bruce-Gardyne) and Basingstoke (Mr. David Mitchell). I should not be quite as fierce with the Government as they are. The hon. Member for Basingstoke said some fearful things about his own Front Bench. I am staggered. I should not have dreamt of using such strong language …".—[Official Report, Standing Committee E, 22nd June 1972; c. 1410.] The Committee may be assured that I shall be forthright. I hope that the alliance which we built up in that period in our understanding of the problems of small businesses has stood the pasage of time well enough to secure the support of the Chief Secretary for these very moderate and modest amendments.

At the time of the General Election, we had promises from the Government to do something about the problems facing small businesses. Since then, we have had undertakings in Government White Papers. But action is a very different matter.

I wish to be fair to the Government. To be fair, last year the Government accepted that the definition of a small business entitled to small business relief from corporation tax should be widened. That certainly helped some businesses, and it was a very good thing. Indeed, had it not been done it would no doubt have added to the numbers of those in financial difficulties at the present time. But tonight the Minister has the opportunity of accepting an amendment to help not a small group of small businesses but all the small businesses which are liable to corporation tax.

I want to remind the Committee why it is that a small business is different, for I am one of those—in this I am sure I would have the agreement of the Minister—who do not believe that small businesses should be subsidised. They should just be left with more of their own money in their own pockets to make their own investment decisions, instead of the Government bleeding so much away. I want to consider why small businesses are different and then the conflict between the national interest and the practical needs and the ideology of the Left wing of the Labour Party, against which I hope the Minister will stand this evening.

Small businesses are different for a variety of reasons, one of which is that they do not have so many employees or so much income on which to carry the increasing overheads which Governments provide. Small businesses today are caught in a web of Government controls and regulations. One has only to think of price controls, profit regulations, census returns, consumer protection, hire-purchase regulations, labour regulations, trade descriptions, wages councils, PAYE—I could go on and on. The difficulty is that it does go on. Where there is a small business with only one person, or perhaps two, to cope with all this, it is a very substantial overhead for that business. One could go on. There are the Factories Acts, wages councils, training boards, contracts of employment. VAT, multiple VAT, and so on.

The point I am trying to get at—I hope that the Government will accept this—is that here one is dealing with something which bears particularly heavily on small organisations.

[Mr. GEORGE THOMAS in the Chair]

The second and perhaps bigger reason for the difference of small businesses is that they are financed from ploughed-back profits. I am sure the Chief Secretary will approve if I say that profits are not money which is taken out of the business by the proprietor. Profits are not what enable the proprietor to go off to South Wales, in your case, Mr. Chairman, or to the South of France, or elsewhere, to regale himself. That is not what profits are. Profits are the money which is generated by the business with which to modernise it, to be ploughed back into it, to be used for research, development, keeping one's product ahead, equipping the factory, providing the reserves to ensure that in times of financial difficulty—there are many firms in that position today—it can weather through without going into liquidation. Those are the sorts of things for which profits are used.

Very often the Left wing, like Pavlov's dog, rises at the word "profits" and assumes it to be something which is wholly undesirable. The truth is that profits are the absolutely essential source of finance for the continuation of all businesses, and for small businesses there is not the opportunity of going elsewhere.

9.0 p.m.

We live in a time of inflation, when businesses require more money to do the same volume of trade. Those who are not engaged in commercial activity may not appreciate the full extent of the process. If a business which has £50,000 worth of work in progress and owes money to its customers is operating with inflation at its present rate of 20 per cent. or 25 per cent.—I shall not argue about the rate—wishes in 12 months' time to do the same volume of business, it will require another £10,000.

The crucial question is: where does it get the money from? At the same time as the business is asking for more money the Chancellor is saying that more money must be taken out in corporation tax. It is this conflict between the needs of the business and the demands of the Chancellor, leeching away the life-blood of the business—its working capital—in increased taxation which is the problem. The large company can go to the Stock Exchange. Quite a number have done so lately, and have raised more capital from their shareholders. The small business is not quoted on the Stock Exchange. It cannot go there.

Where can the small business go? To its bankers? No. Its bankers will say that they will lend if the business is creditworthy. But to a bank "creditworthy" means that there must be an ability to repay in cash in about three years' time. It is no use the company saying, "We are creditworthy and your loan will be used for the most modern printing press in the world. You can have a piece of the money back in three years' time." The bank is not interested.

The company cannot go to the bank for long-term capital for investment purposes. We come back to the need of the business to generate sufficient profits and, having generated them, to be able to retain them in the business. The Chief Secretary has commented on the relative merits of the classical system and the system we now have, with corporation tax. I know that he favours the classical system. He is not in a position—or does not intend—to make a change from the imputation system back to the classical system. That being so it behoves him, on the strength of the arguments he used so persuasively in Committee—when in opposition—against the imputation system, to do something to help small businesses. I hope that he will seize that opportunity tonight.

I noticed in my local paper recently that a store in Winchester was closing. It is a well-known, long-established family business. I thought it was worth trying to find out why it was closing. This is what I discovered: I quote from a letter from Edmonds of Winchester, which says An entirely new situation has developed since details of the capital transfer tax have been promulgated. In its proposed form the tax is deliberately designed to ensure that a business such as this cannot pass to the next generation. Thus, I feel it has become pointless to plan the re-expansion of a firm which is doomed to disappear upon my retirement. I have, therefore, decided to cease trading shortly and to seek a new challenge elsewhere in the world while I am young enough to supply the energy and initiative needed. Other factors have, of course, contributed to the decision. Inflation has seriously affected my ability to equip, stock and staff an enlarged range of departments after meeting greatly increased costs of rebuilding. In a microcosm, this is the problem facing many small businesses. They are not able to generate, after paying tax, sufficient money to expand, to reinvest and re-equip to go into the future.

In this case the man concerned is going to New Zealand to start a new life. With the constant increasing pressure on small businesses I cannot say that I am wholly surprised at his doing so, although I have written to him saying how much I regret that he has chosen to do that rather than stay and fight in this country to create the sort of environment in which small businesses can thrive. However, that being the case, I cite it as an example of an ever-increasing number of people who are saying that it is just not worth while to have a small business today.

The added load of the extra corporation tax which the amendment seeks to reduce is one area in which the Government can help. I sympathise with the Minister in the problems he has with his own Left wing. There is a difference, a difficulty and a conflict with the ideology of the Left, which seeks to base itself upon envy and upon pulling down anyone who has successfully built up a business. However, we do not help the wage earner by destroying the wage payer, and we certainly do not help this country to get more investment by depriving businesses of the money that they generate and need to plough back into those businesses.

Of all the analyses that have been made the one that unites all parties is that we need to have more investment. The generation of funds in a business is the source of that investment—a source which the Government are cutting back and taking away by excessive taxation. It is small wonder that we have become the sick man of Europe. The prime weakness and sickness is that we are not investing enough money behind each man at work in this country to enable him to earn for his firm sufficient to pay him a decent wage and to have enough left over to invest in the modernisation of equipment of that company. That is why we are the poorest country but one in Europe. One does not need to be a prophet to say that in two years we shall be the poorest country in Europe. We need more investment. Here the Government are depriving industry of the funds it needs.

Mr. Crawford

Is the hon. Gentleman saying that the United Kingdom will become the poorest country in Europe or does he mean that England will become the poorest country in Europe?

Mr. Mitchell

I am referring to the United Kingdom, which I hope will remain united. Of this much I am quite certain: if there is a regional argument in this amendment, it is the argument that time and again when the small business or the family business in Scotland, Wales or Northern Ireland finds itself in financial difficulties it is taken over by a London-based, English-based, or possibly internationally-based company. Before very long, when that company has to cut back, it does so at the periphery and in the regions. There is a concentration into the English factories at the expense of the regional areas. There is, therefore, a genuine regional argument that we ought not to see the squeeze on small businesses to the extent that we see it at present.

Finally, Parliament is entitled to ask for information as to the cost of this amendment. Last Monday I tabled a Question in order to ascertain the cost of the amendment. I am delighted to see the Minister responsible for small firms, the Under-Secretary of State for Industry, sitting next to the Financial Secretary. When I tabled my Question the Government did not know what it would cost to reduce corporation tax on small firms from 42 per cent. to 40 per cent. or to 39 per cent. I received the reply last Friday from the Minister of State, Treasury: I will let the hon. Member have the reply as soon as possible."—[Official Report, 16th May 1975; Vol. 892, c. 190.] It had not been possible by then to answer my Question. This is an indication of the Government's failure to have assessed and to have at the Minister's finger tips the cost of the sort of change which ought to be made and which, with respect, the Minister responsible for small businesses should have been pressing on the Government at every available opportunity.

Some of my hon. Friends may ask whether there is a conflict between this amendment and the general Opposition stance that there should be no reductions in taxation, that we have a very difficult financial situation in which we cannot treat ourselves generously, that there are hard times ahead, and that we must tighten our belts. Is there a conflict between that stance and an amendment which seeks to reduce corporation tax on small businesses? I believe that this is not a conflict, for it is a question of priorities. If this country is to get itself out of the financial, business and commercial difficulties it faces, it must do so on the basis of increasing investment in industry and enabling industry to modernise itself. Only on that basis can we earn the high standard of living that we want. It must, therefore, be a priority to reduce the reduction of available capital for investment which is now being carried out by the present Government.

Mr. Ryman

If the hon. Gentleman is seeking to argue that he is not advocating a general reduction in taxation and adheres to the policy of his party in wanting the present rate of taxation to be imposed as per the Chancellor's statement, and if at the same time he is advocating that small firms should benefit from a reduction in corporation tax, may I ask him where the additional money is coming from to make up the difference between his suggested reduction in corporation tax and his acknowledged recognition of the fact that the level of general taxation must be increased? Who is to pay the difference?

Mr. Mitchell

I was about to resume my seat. However, I would say that if the hon. Gentleman had been following the Opposition's case on this matter he would have realised that we were opposed to the concept of introducing a two-tier value added tax, with rates of 8 per cent. and 25 per cent. He would know that had VAT been retained at its standard 10 per cent. rate for all goods, ample funds would have been raised to pay for what is involved in this amendment and a great many others, too. There is a much larger off-take into the Treasury from a 10 per cent. rate of VAT than from 8 per cent. on some things and 25 per cent. on others. The point is that in the end it must come from reduction in consumption in our economy and increases in investment. The amendment is an opportunity for the Government to move towards that.

Mr. John MacGregor (Norfolk, South)

I am delighted to support my hon. Friend the Member for Basingstoke (Mr. Mitchell) in the amendment. Since I became a Member of Parliament some 15 months ago, we have had a number of debates on small businesses. But certainly from my experience recently it is right to say that never has it been more relevant to have a debate of this sort, and never has the situation facing many small businesses been more serious.

In the last fortnight alone I have had drawn to my attention—not just in my part of the country but in the United Kingdom generally—several cases, including one of a small business which is almost certain to go into liquidation, with the loss of over 50 jobs, another which is very likely to go into liquidation unless something can be done about it within the next few days, with a further loss of 25 jobs, and a third involving a loss of 40 jobs. Furthermore, I have heard rumours of a great many more examples.

My worry is that in a situation of deepening recession such as this, and with the increased squeeze on small businesses, to which I shall refer shortly, our worst fears, which we have been predicting for some time, could come about very swiftly indeed. It does not become a question of merely one or two businesses going out of business. The snowball gathers force tremendously quickly. I fear that unless something is done we shall face that situation over the next few weeks and months.

My only criticism of the amendment is that I do not believe that the support will be enough. We are talking about easing the cash flow position of companies which are making a profit. Nevertheless, it will greatly help to case the position of some and give us an opportunity to draw attention to the plight of others.

9.15 p.m.

It is interesting to note that the position in all the companies to which I have referred, and the others about which I have heard rumours, is the same. First, there is the general downturn in the economy. Secondly, they are being squeezed at both ends. They are being squeezed by their suppliers, who are often major companies. It is often the smaller business which is least important in a situation like this, from the point of view of a supplier facing difficulties. They are also being squeezed by their customers who are delaying payments to them—and that is one of the principal factors.

As my hon. Friend correctly pointed out, if these companies are being squeezed both in the case of financing stocks and through having to meet high interest payments because of the delay in payments from their own customers, the effect on the cash flow at a time of high inflation becomes greater than it would at other times.

The enormous rises in their costs over the past year as soon as the economy started to downturn is a factor which has equally a very dramatic effect. The rise in taxes is perhaps less of an element than the rise in rates. The very big rate burden that many of these small businesses will have to face this year may be what pushes them from profit to loss.

I put forward recently a private Member's Bill—Local Government (Rate Relief for Small Businesses)—which I think will do more to help some of these businesses than the amendments we are discussing tonight.

There are also the increasing fuel bills. I believe that the Chancellor is right to take action to remove, during the coming year, the deficits of the nationalised industries. However, we must recognise that for certain small businesses this has a dramatic effect that is much ore important than on others. I quote one example of a business which five years ago was converted to natural gas. The fuel bill is an important element in the process in which it is involved. This year, because of the change in the tariff of natural gas, its fuel bill is estimated to rise from £40,000 to £80,000. For a small business that unpredicted increase of £40,000 in one year can have a very dramatic effect on cash flow.

Finally, small businesses have few places to which to turn in this critical situation. Their bank managers are worried about the general economic situation and are being cautious because they believe that the net worth and the valuation of the underlying securities of such businesses, on which they have their existing loans, have diminished, and they are therefore writing them down. They are not prepared to increase advances or to give overdrafts to tide them over this difficult period as they would have done in good times. Indeed, they do not know how long the difficult period will last. Small businesses are in a critical situation.

Bigger companies, particularly the largest companies, can survive because in some cases they can rely on Government help and in others they have the resources to see them through these difficult times. The fear of unemployment on a much larger scale in the larger companies makes it easier for them to get assistance, whether from Government or from private resources, to tide them over.

However, if a small business, of the sort I have been talking about, employing 25 to 50 people, goes into liquidation in a rural area, the effect on that community will be more significant than the liquidation of a bigger business will be in a major conurbation.

I do not wish to speak at length on this amendment. I felt it right, in view of my experience over the past two weeks, to draw attention to this serious problem. I ask the Minister responsible for small firms, whom I am delighted to see present, to urge the Government to set up machinery to monitor the situation of the small firms, to be prepared to get the Council for Small Industries in Rural Areas and other bodies of that sort to look with sympathy at the plight of these small businesses and perhaps to be prepared to say to the Customs and Excise and the Inland Revenue that over VAT and PAYE they should be prepared to look sensitively and with sympathy on the plight of these businesses as it affects their payments.

The matter is a question of confidence as well as these practical details, a question of future cash flow expectations. I believe that this small amendment would help small businesses' confidence and expectations of future cash flow.

Therefore, a gesture of support from the Government for the amendment would go a considerable way at least to giving the small businesses the feeling that the Government were sympathetic to them in their plight and were prepared to help.

Mr. Andrew Welsh (South Angus)

For small businesses this is definitely the age of low profits, inflation, high costs, overheads and the burden of the self-employed levy imposed by both Tory and Labour Governments. Adding in the other taxes, we see that there is now small return for the work that small business men are putting in. Many face the possibility of going out of business. By their package of tax measures, the Government seem to be making it pay people not to be in business for themselves.

Part of the unnecessary burden placed on small businesses consists of a mound of paper work for the Government, whether juggling with any of the nine different VAT systems, plus amendments, which have made small business men more or less unpaid tax collectors, or with some of the many statutory returns that they must fill in. They are now in trouble, and any relief will be of benefit to them.

I have in mind especially the plight of small businesses in rural communities—businesses which are of crucial importance to the local economy as employers or sources of income and services to the population. Any help to this important sector of the Scottish economy is to be commended.

Therefore, I recommend my hon. Friends to vote for the amendment. I hope that the Government will take a good, hard look at the plight of small businesses.

Mr. John Cope (Gloucestershire, South)

This is in many ways a modest amendment, and I shall make a speech to match. But it is important, not so much in itself as for what it stands for and the way in which, Mr. Thomas, you have allowed the debate to touch on various matters not directly concerned with the small business rate.

The Chairman

I wish that the hon. Gentleman had not brought everyone's attention to that fact. I have been busily engaged in trying to pretend that I had not noticed. Now that I have noticed, the hon. Gentleman will no doubt confine himself to the 42 per cent. or 40 per cent. rate.

Mr. Cope

I shall do my best, Mr. Thomas, but the small business rate is in any case one of the substantial ways in which the tax system takes note of the special position of small business. That is why the amendment and the relevant sections of the Corporation Tax Acts are so important to small businesses.

The Government feel very hurt sometimes when they are accused of being against small businesses, but they do nothing to justify being let off that charge. Many sections of the nation seem to be telling the House, basically about the economic situation in general and other matters to which I cannot refer, "We cannot go on as we are". The small business sector is saying that to the House and the Government in a more acute way.

Attention has already been drawn to the advantages of small businesses which gave rise to the present corporation tax rate in the first place, and which give rise to the amendment—this attempt to improve the rate. Small businesses are in some ways the yeast in the free enterprise system. They make it work and flourish, because they are responsive to their customers and give good service. They also have excellent industrial relations.

It seems that no large company can operate without the small companies with which it does business and which surround it, any more than a super-tanker or a liner can put to sea without tugs and tenders to help it. Yet these companies labour under a net of problems. The Government have probably developed the technique that was developed by the gladiators in Roman times, who were attacked with a net and a trident. Having surrounded small businesses with the sort of net which my hon. Friends have been talking about, the Government attacked with the trident of direct and indirect taxes and rates. Indeed, the Government have added a few extra prongs since Roman times. I suppose that is some form of progress. The amendment seeks to blunt, to some extent, the direct tax prong to improve the position of the small companies.

If the Government cannot accept the amendment let them suggest something else for the small businesses. The Government bail our larger businesses for the reasons which have been suggested. They almost boast of the fact that they subsidise this company and that, and this commodity and that, but small businesses get only Government interference and more and more problems. I ask the Government to accept the amendment. Let us try to be polite—probably the Government are not so used to that as they are to other techniques. If the Government cannot accept the amendment, let them show us a chink of light for small businesses for the future.

For many small businesses the situation is very serious. We are talking about businesses which in total employ one third of the people of this country. A third of the working population is employed by the public sector and the other third is employed by the large companies. We are talking about a lot of people and a lot of employment. It is for those people, both as employees and as employers, that we seek to press the amendment. If the Government cannot accept it, let us see a little of what else they might do to bring some help to this important section of our community.

Mr. Costain

This is a small amendment which seeks a small concession for small businesses. It may be that 2 per cent. does not mean much to the Chancellor but it means a tremendous amount to others in areas such as my constituency. I speak as president of my local chamber of trade. I have never before had such desperate appeals made to me by the small business man, and particularly by the shopkeeper who employs one or two people. They are telling me that they feel that they are becoming tax collectors. They say that when they make a profit it is taken away in taxation.

My hon. Friend the Member for Gloucestershire, South (Mr. Cope) has suggested that we be polite to the Government. I would crawl across the Chamber if I thought I could get some concession for these desperate and needy people.

9.30 p.m.

It is not only the small businesses that are affected but community life. It is the small shopkeeper who sets up in business in the corner shop in the suburbs of our towns who supplies the elderly who do not want to go to the main shopping centres. However, he cannot carry on if he is to be taxed out of existence. Even from the point of saving fuel, it is important that the small shopkeeper is encouraged.

If the small shops are forced to shut, the elderly will have to alter their shopping habits when buying small articles. We know that such people cannot get on a bus and carry large quantities of material back to their homes. Therefore, they go to the small shops and buy the small items there.

I wish to make a special appeal on behalf of the small shopkeeper. It may be said, "What is 2 per cent? It comes out of profit anyway". But if those small businesses go bankrupt because the Government have done nothing to help them, they will pay no tax whatever and that will be a loss to the Inland Revenue.

Surely we should allow these poor, miserable people to make a small and honest profit. I cannot understand why a Labour Government are so hell bent on hitting the small man. I am sure that this would not happen if those small shopkeepers and businesses had behind them a large trade union. All we are asking in the amendment is for the figure to be varied from 42 per cent. to 40 per cent. When we bear in mind the present inflation rate of 20 per cent., we must appreciate that working capital in a small business is completely tied up. However, I shall not go into that matter in detail because it has been adequately dealt with.

I hope that the right hon. Gentleman, the Chief Secretary to the Treasury, with his experience as an accountant, is well aware of the problems of small firms. He must know the cost situation which faces them, and he will appreciate that a small concession, such as we suggest in the amendment, will help to keep their premises open so that they can give a social service to the community.

Mr. Joel Barnett

The hon. Member for Basingstoke (Mr. Mitchell) will be interested to know that I recall the "unholy alliance" and the occasion when we joined forces in an attack on the then Conservative Government to try to persuade them to help small businesses, although I must point out that in those days the definition of "small companies" was somewhat different from the situation today. The hon. Gentleman knows that in another capacity in earlier years I acted for many small companies, and I wish to declare an interest, since I have a few shares in one or two small companies.

I wish to make clear at the outset of my reply that I have always had a great deal of sympathy for the small company, particularly the small trading company, and the valuable part which it can play in our economy.

The hon. Member for Basingstoke told the Committee why the small business was different, and other hon Members have mentioned some of the problems involved. I was asked about the cost of the amendments, and my answer is based on very provisional estimates. At present there is insufficient information to know what the impact of stock relief will be on small companies. However, let me give the provisional figures. In regard to Amendment No. 44 if we reduce the rate of tax from 42 per cent. to 40 per cent., the estimated cost—and this is very provisional—would be £12 million in 1975–76 and £15 million in a full year. In regard to Amendment No. 45, which seeks to reduce the rate to 39 per cent., the cost would be £18 million in 1975–76 and £23 million in a full year.

We have heard a great deal about the problems of small companies, and I accept that many small companies are at present facing difficulties. The hon. Member for Norfolk, South (Mr. MacGregor) made some interesting points. He was not making a case for a reduction in the rate of corporation tax, but was stating the many other problems which face small companies and, as usual, he was very fair in his comments. Those companies are not going into liquidation because they are paying the 42 per cent. rate of corporation tax. The reason is that they are not making any profits. They are more likely to be making losses because of their increased costs and the squeeze of the big companies forcing small companies to wait for payment. I am aware of that problem. However, it is different from the reduction of tax from 42 per cent. to 40 per cent. or 39 per cent.

Mr. MacGregor

I made that point. This amendment is important because of the confidence it would give small companies to know that their problems are recognised. It is also important as regards the future cash flow of other companies. Those companies will find themselves in the situation I have already described unless something is done to aid their cash flows.

Mr. Barnett

I shall come to that question in a moment. I doubt whether a reduction in the rate of tax from 42 per cent. will help small companies. We know the definition of small companies under the classical system. We mean companies with profits of up to £25,000.

Mr. Crawford

The squeeze by the big companies on small companies has nothing to do with with the profits of small companies. However, it has everything to do with the cash flows of those companies.

Mr. Barnett

I shall now deal with the problem of companies' cash flows, as the hon. Gentleman seems to want to rush me. We are dealing more discriminatingly with that problem by helping trading companies with cash flow problems. The effect of the amendment would be felt by trading, non-trading and small companies alike. The reason is that small companies are facing trading and stock inflation problems. Those problems also apply to small companies in Scotland. We are helping those companies by means of the stock relief. We have thereby helped the trading companies more than they would be helped with this kind of amendment. The Government have done what they promised to do. We have given stock relief to small companies. We have also given an additional 5 per cent. bonus.

Mr. David Mitchell

Will the Financial Secretary accept that there are many trading companies which do not benefit from stock relief? Are the Government prepared to accept an amendment such as this if it applies only to trading companies? That would seem to fit in with the logic of the argument of the Financial Secretary.

Mr. Barnett

I do not know what the hon. Gentleman means by trading companies. Does he mean trading companies without stock or work in progress? Every such company will be helped by stock relief. If he means investment companies—those which will be helped by the imputation system—I cannot go along with that. That is one of the major reasons why I preferred the classical system of corporation tax. The amendment indiscriminately helps small companies with profits below £25,000, including investment companies, property companies and other companies with that size of profit. The old classical system helped the close companies right the way up the line. Those companies sought to plough back their profits, to help their employees and everyone else in the country. That type of company was better.

We have not got that system. We have the imputation system, and we must do the best we can with it. Inside that system the problems referred to by hon. Gentlemen, many of them not specifically relating to the level of corporation tax but more to the problems of inflation and the present economic and industrial difficulties, are more specifically helped in my view by the stock relief. We may disagree about this.

Mr. David Mitchell

indicated dissent.

Mr. Barnett

I see that the hon. Gentleman disagrees. With respect, I suggest that the stock relief goes directly to those trading companies with inflation problems which affect their stock and work in progress. As opposed to that, the amendment would give the amount of money, which I have provisionally estimated, to small companies with profits below £25,000 whether or not they are trading companies with stocks or work in progress. In my view, that is not the best way to deal with the problem.

I come back to the major problem facing us. The hon. Member for Basingstoke said that if we reduce our tax revenue by £18 million or £15 million, or whatever the figure will be, it can be taken by increasing VAT to 10 per cent. The hon. Gentleman and his hon. Friends will take almost everything by increasing VAT to 10 per cent. I can list many things that they have promised to be able to obtain by increasing VAT to 10 per cent.

We must deal with the amendment as it stands. In my view, to increase further a borrowing requirement at £9,000 million, which is what the amendment would do, would be irresponsible at this time. I must therefore advise my right hon. and hon. Friends to resist the amendment.

Mr. David Howell

I thank the Under-Secretary of State with responsibility for small businesses, the hon. Member for Rutherglen (Mr. Mackenzie), for sitting in on our debate. I have never had the pleasure of debating with him, but I have noticed over the last year that whenever Treasury Ministers are busy telling us why the small business sector must be further damaged or why they cannot help, he slips in silently and sits beside his colleagues and then silently, and perhaps sadly, goes away. This has been the story of his life in the last year, and small businesses have gone steadily down the escalator to greater and greater difficulties.

The record of Treasury Ministers and of the Chancellor of the Exchequer over the last 15 months on the smaller end of business in this country will go down in economic history as a see-saw record of dithering, of change of tack, of hitting and picking up and then hitting again. It makes the most remarkable reading even now when it is fact.

I agree with the Chief Secretary that in Clause 49 there is some element of relief or lightening of one part of the burden. However, the story so far, which is familiar, has been that in March 1974 the economy was declared to be flush with cash and small businesses were severely penalised. In July the Chancellor changed his mind and relief was brought, but postponed for small businesses. In February this year the small business sector took the capital transfer tax between the eyes. Indeed, how telling was the story by my hon. Friend the Member for Basingstoke (Mr. Mitchell)—the first I have heard with such graphic detail—of the firm which failed because of capital transfer tax. It will not be the last. We shall hear of many more.

I shall often think of the bland and confident assurances given by the Chief Secretary and the Financial Secretary that small businesses would not be hurt by the capital transfer tax. They will be hurt harder and life will be more difficult for that reason, let alone any other difficulties which may come along.

In March, the self-employed contribution was jacked up and that no doubt hurt many small businesses. In April we had the Budget, with its help in Clause 49, but no sooner had the patients been taken out of bed than they were hauled back in again by increased VAT and increased rents.

9.45 p.m.

Mr. David Mitchell

I hope that my hon. Friend will not allow himself to be persuaded by the Chief Secretary that the help which is given under Clause 49 is as widespread and generous as the Chief Secretary suggests. There are many companies whose financial resources are so strained that they are unable to increase the value of work in progress or stocks and are not beneficiaries. Repairers and similar firms do not come into the category of firms in which stock is a major item.

Mr. Howell

My hon. Friend need have no fear. I shall take a lot of persuading that anything substantial and positive has been done for small companies and small firms. When we debate Clause 49 we shall go into that in detail.

In the meantime, even while that potential advantage is offered, small companies are again flattened by the higher rate of VAT and the large rate increases that are being demanded right across the country. This would be a matter just for regret and perhaps for some political protest were it not for the sheer size and importance of the problem. We are dealing with the 25 per cent. of the GNP represented by firms having fewer than 200 employees. We are dealing with the 33 per cent. of jobs which are to be found in small firms and small companies. These are the people who have a cash flow problem. The Chief Secretary said that the amendment would not help in that respect, but I am not so sure about that. Even if he is right, I am not sure that that is an argument for taking a negative view of the amendment.

The amendment, both psychologically and directly would assist many firms which are in difficulties. There is the cost, which is £15 million in a full year for Amendment No. 44, and more for Amendment No. 45. The Chief Secretary points to the fact that that would reduce the revenue. But let us get this in perspective. This is small beer. It is minute when set against the daily commitments being undertaken by the Secretary of State for Industry. It is peanuts compared with the daily bill that is being generated by the enormous increases in public sector pay which are being financed by Government and less and less covered by genuine savings as the days go by and as the printing presses gather speed. It is almost microscopic compared with the £9 million requirement, if that is a figure in which we can have the least confidence. Compared with all the other Government spending plans the cost fades away into nothingness.

Even if it would not be covered by additional revenue from a 10 per cent. rate of VAT it would substantially be covered. Even if it were not, how much better to spend a little money in this area than the vast sums which are being poured casually and with political motivation into other areas in the name of job saving.

It is in this area, where 33 per cent. of the jobs in the country exist that jobs will have to be saved. It is in this area that the first wave of flack damage and penalty will be suffered as the economic situation deteriorates. It is in this area that job savings should be a pre-occupation, not in other areas.

These are the people who are threatened by high taxation and high inflation. I do not know where they fit into the pattern of the Secretary of State for Industry. I sometimes feel like asking him whether he ever stops between speeches and articles on the need for more industrial investment—about £6,000 million—to worry about firms that are being hit daily and mulcted of all the profit they can make to advance his special plans. I do not know whether the right hon. Gentleman asks himself that question.

If he were to ask it, I can tell the Committee his answer. His answer—he would never say it here, but it comes over from everything else the Government say—is that these people are expendable. They are not "our people",

they do not belong to the useful sector of the economy. They are not part of the previous and now destroyed social contract. Despite the sincere efforts which have no doubt been made by the Minister who is responsible for small businesses, these people have been neglected, damaged and destroyed as the shutters begin to go up in the High Street.

However popular the Secretary of State for Industry or Treasury Ministers may be with some of the big battalions as job preservers, among some of those concerned with small businesses, as my hon. Friend the Member for Basingstoke and others will testify, the Secretary of State for Industry is the apostle of unemployment. These people are seen as second-class citizens and they are going to the wall. We have tried politeness on the Treasury. We have tried talking, which is difficult when the Chief Secretary is not even listening. We have tried pleading and we have tried to emphasise by shouting the fact over the last 12 months. We have tried prayers, but we have not tried, in spite of what my hon. Friend the Member for Folkestone and Hythe (Mr. Costain) said, crawling across the floor of the Chamber. We have tried everything else—

Mr. Crawford

The hon. Member says that he has tried everything. Why did his party not support the SNP in the vote against the Government on the Budget?

Mr. Howell

The Scottish National Party might also care to support the main Opposition in their attempt to overthrow a Socialist Government which rules by a minority in the House.

We have tried all these things, and I now advise that we try votes here tonight and in the country in due course to reverse this philosophy and to save the small businesses of this country.

Question put, That the amendment be made:—

The Committee divided: Ayes 133, Noes 151.

Division No. 212.] AYES [9.52 p.m.
Adley, Robert Brittan, Leon Cooke, Robert (Bristol W)
Arnold, Tom Buchanan-Smith, Alick Cope, John
Atkins, Rt Hon H. (Spelthorne) Burden, F. A. Cormack, Patrick
Awdry, Daniel Butler, Adam (Bosworth) Corrie, John
Benyon, W. Carlisle, Mark Costain, A. P.
Berry, Hon Anthony Chalker, Mrs Lynda Craig, Rt Hon W. (Belfast E)
Boscawen, Hon Robert Clark, Alan (Plymouth, Sutton) Crawford, Douglas
Bowden, A. (Brighton, Kemptown) Clegg, Walter Crouch, David
Dean, Paul (N Somerset) Kellett-Bowman, Mrs Elaine Raison, Timothy
Douglas-Hamilton, Lord James Kershaw, Anthony Rees, Peter (Dover & Deal)
Drayson, Burnaby Kilfedder, James Renton, Rt Hon Sir D. (Hunts)
Dykes, Hugh King, Evelyn (South Dorset) Ridley, Hon Nicholas
Edwards, Nicholas (Pembroke) Kitson, Sir Timothy Ross, William (Londonderry)
Elliott, Sir William Langford-Holt, Sir John Rossi, Hugh (Hornsey)
Emery, Peter Lawrence, Ivan Sainsbury, Tim
Evans, Gwynfor (Carmarthen) Lawson, Nigel Scott-Hopkins, James
Eyre, Reginald Le Marchant, Spencer Shaw, Giles (Pudsey)
Farr, John Lester, Jim (Beeston) Shepherd, Colin
Fisher, Sir Nigel MacCormick, Iain Sims, Roger
Fletcher-Cooke, Charles McCrindle, Robert Skeet, T. H. H.
Fowler, Norman (Sutton C'f'd) McCusker, H. Speed, Keith
Gilmour, Sir John (East Fife) Macfarlane, Neil Spence, John
Goodhew, Victor McNair-Wilson, M. (Newbury) Spicer, Michael (S Worcester)
Gow, Ian (Eastbourne) Marshall, Michael (Arundel) Sproat, Iain
Grant, Anthony (Harrow C) Mather, Carol Stainton, Keith
Gray, Hamish Maxwell-Hyslop, Robin Stanbrook, Ivor
Grimond, Rt Hon J. Mayhew, Patrick Stewart, Donald (Western Isles)
Hall, Sir John Miscampbell, Norman Stewart, Ian (Hitchin)
Hamilton, Michael (Salisbury) Mitchell, David (Basingstoke) Stradling Thomas, J.
Hampson, Dr Keith Moate, Roger Taylor, Teddy (Cathcart)
Hannam, John Molyneaux, James Tebbit, Norman
Harrison, Col Sir Harwood (Eye) Morgan, Geraint Thompson, George
Havers, Sir Michael Morris, Michael (Northampton S) Townsend, Cyril D.
Hawkins, Paul Morrison, Hon Peter (Chester) Tugendhat, Christopher
Hayhoe, Barney Nelson, Anthony Viggers, Peter
Henderson, Douglas Neubert, Michael Weatherill, Bernard
Holland, Philip Newton, Tony Welsh, Andrew
Hooson, Emlyn Nott, John Wiggin, Jerry
Hordern, Peter Onslow, Cranley Wigley, Dafydd
Howell, David (Guildford) Page, John (Harrow West) Wilson, Gordon (Dundee E)
Howell, Ralph (North Norfolk) Page, Rt Hon R. Graham (Crosby) Winterton, Nicholas
Hunt, John Pardoe, John Younger, Hon George
Irvine, Bryant Godman (Rye) Parkinson, Cecil
James, David Percival, Ian TELLERS FOR THE AYES:
Johnson Smith, G. (E Grinstead) Powell, Rt Hon J. Enoch Mr. Richard Luce and
Kaberry, Sir Donald Prior, Rt Hon James Mr. Russell Fairgrieve
Archer, Peter Edge, Geoff Lewis, Ron (Carlisle)
Armstrong, Ernest Ellis, John (Brigg & Scun) Loyden, Eddie
Ashton, Joe Ellis, Tom (Wrexham) Lyons, Edward (Bradford W)
Atkinson, Norman Ennals, David Mackenzie, Gregor
Barnett, Guy (Greenwich) Evans, Ioan (Aberdare) McNamara, Kevin
Barnett, Rt Hon Joel (Heywood) Evans, John (Newton) Madden, Max
Bates, Alf Ewing, Harry (Stirling) Magee, Bryan
Benn, Rt Hon Anthony Wedgwood Fletcher, Ted (Darlington) Mahon, Simon
Blenkinsop, Arthur George, Bruce Marks, Kenneth
Boardman, H. Gilbert, Dr. John Maynard, Miss Joan
Booth, Albert Ginsburg, David Millan, Bruce
Brown, Hugh D. (Provan) Golding, John Miller, Dr M. S. (E Kilbride)
Brown, Ronald (Hackney S) Gould, Bryan Miller, Mrs Millie (Ilford N)
Callaghan, Jim (Middleton & P) Gourlay, Harry Mitchell, R. C. (Soton, Itchen)
Campbell, Ian Grant, George (Morpeth) Morris, Charles R. (Openshaw)
Canavan, Dennis Grant, John (Islington C) Murray, Rt Hon Ronald King
Carmichael, Neil Hamilton, James (Bothwell) Newens, Stanley
Carter, Ray Hardy, Peter Noble, Mike
Carter-Jones, Lewis Harper, Joseph Oakes, Gordon
Cartwright, John Harrison, Walter (Wakefield) Ogden, Eric
Cocks, Michael (Bristol S) Hatton, Frank O'Halloran, Michael
Cohen, Stanley Hayman, Mrs Helene O'Malley, Rt Hon Brian
Coleman, Donald Heffer, Eric S. Ovenden, John
Conlan, Bernard Horam, John Park, George
Corbett, Robin Hoyle, Doug (Nelson) Parry, Robert
Cox, Thomas (Tooting) Huckfield, Les Peart, Rt Hon Fred
Craigen, J. M. (Maryhill) Hughes, Rt Hon C. (Anglesey) Prescott, John
Crawshaw, Richard Hughes, Mark (Durham) Roberts, Albert (Normanton)
Cronin, John Hughes, Robert (Aberdeen N) Robertson, John (Paisley)
Crosland, Rt Hon Anthony Hughes, Roy (Newport) Roderick, Caerwyn
Cryer, Bob Irving, Rt Hon S. (Dartford) Rodgers, George (Chorley)
Cunningham, G. (Islington S) Jackson, Miss Margaret (Lincoln) Rooker, J. W.
Cunningham, Dr J. (Whiteh) Janner, Greville Roper, John
Dalyell, Tam Johnson, Walter (Derby S) Rose, Paul B.
Davidson, Arthur Jones, Alec (Rhondda) Rowlands, Ted
Davies, Ifor (Gower) Jones, Barry (East Flint) Ryman, John
Dean, Joseph (Leeds West) Jones, Dan (Burnley) Selby, Harry
de Freitas, Rt Hon Sir Geoffrey Kaufman, Gerald Sheldon, Robert (Ashton-u-Lyne)
Dempsey, James Kerr, Russell Silkin, Rt Hon John (Deptford)
Doig, Peter Kilroy-Silk, Robert Sillars, James
Dormand, J. D. Kinnock, Neil Small, William
Douglas-Mann, Bruce Lamborn, Harry Spearing, Nigel
Dunn, James A. Lamond, James Spriggs, Leslie
Stallard, A. W. Walker, Harold (Doncaster) Wilson, William (Coventry SE)
Stewart, Rt Hon M. (Fulham) Walker, Terry (Kingswood) Wise, Mrs Audrey
Stott, Roger Ward, Michael Woof, Robert
Taylor, Mrs Ann (Bolton W) Watkins, David Young, David (Bolton E)
Thorne, Stan (Preston South) Weetch, Ken
Tinn, James Wellbeloved, James TELLERS FOR THE NOES:
Tomlinson, John White, Frank R. (Bury) Mr. David Stoddart and
Urwin, T. W. White, James (Pollok) Miss Betty Boothroyd.
Wainwright, Edwin (Dearne V) Whitlock, William

Question accordingly negatived.

Clause 25 ordered to stand part of the Bill.

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