§ The continuation of stock relief and the present system of capital allowances means that substantially the whole of any profits which a manufacturing company reinvests in its business, whether in fixed 249 or in working capital, will effectively be relieved from corporation tax. Given the importance of expanding and strengthening our manufacturing base, I believe that this is a development which the whole House will welcome.
§ Uncertainty about the future structure of corporation tax is one of the factors which have unsettled business confidence, The present imputation system is not the one which I would have preferred, but I have to take account of the high cost of any change in terms of disruption and diversion of effort in industry. For these reasons, I have decided not to pursue further the idea of a return to the so-called classical system of the corporation tax—the more so since the arrangements we now have provide, in effect, the same powerful incentives for the retention of profits for the purpose of investment as the original corporation tax introduced by my right hon. Friend in 1965.
§ I also do not propose any change in the rates of corporation tax. Given the improved financial prospects for the company sector, I see no case for reducing the rates. But I am anxious to assist small companies where I sensibly can, and I therefore propose to increase the profit level by which small companies are defined for the purpose of the preferential rate of corporation tax from £25,000 to £30,000. The limit for marginal relief will be increased from £40,000 to £50,000.