Corporation Tax (Hansard, 15 July 1976)

§ 4. Mr. David Mitchell
asked the Chancellor of the Exchequer what is the rate of return of corporation tax for those firms paying the lower rate of corporation tax in the years 1966 and 1975, or at the latest date for which figures are available; what is the rate of return for those firms paying the higher rate of corporation tax in the same years; and if he will publish a table showing the figures for the intervening years.

§ Mr. Joel Barnett
I am afraid it is not clear to me what the hon. Member means by "rate of return of corporation tax". If by "firms paying the lower rate" he has in mind the small companies rate, there was, of course, no such rate for profits arising before 1973–74. It is estimated that the yield in 1975 from companies paying at the small companies rate might be about £250 million.

§ Mr. Mitchell
The figure of 14 per cent. has been bandied around as the overall rate of return on corporation tax by small and large companies. The question I hoped that the right hon. Gentleman might be able to answer was whether small firms were benefiting from the concessions through stock relief and similar matters to the same extent as large firms. I hope he will accept that small firms are much more reliant than large firms on retained profits and that the impact of corporation tax on them and their ability to expand is considerable.

§ Mr. Barnett
I know that the hon. Gentleman has accepted that the corporation tax system introduced by his party was not helpful to small companies. We extended substantial corporation tax relief to small companies by way of stock relief and the 100 per cent. first-year allowance, which is of enormous benefit to companies, particularly small expanding companies.

§ Mr. Robinson
Is my right hon. Friend aware that the vast majority of trading and manufacturing companies pay very little mainstream corporation tax, and that that can no longer be used as an excuse by industry or the Opposition for their inability to increase output and investment as required to meet our national economic objectives?

§ Mr. Barnett
I very much agree, but I hope my hon. Friend will recognise, as I am sure he does, that we have acted in a selective way rather than through a straightforward reduction in the rate of corporation tax, which the Opposition pressed upon us. We have given the relief to those companies which are investing in new stock and new capital. That is the way to do it. I believe that most people, both inside and outside the House, recognise that.

§ Mr. David Howell
The right hon. Gentleman mentioned stock relief. Is he aware of the way in which gigantic deferred tax liabilities are being built up in company balance sheets, and that there is growing pressure that something should be done about what is an increasingly difficult situation for companies? Will he give us a clue as to how he will start unscrambling an increasingly serious situation?

§ Mr. Barnett
I am, of course, aware that the relief is deferred, but I do not think that the Opposition can be serious in the sort of amendments they press upon us in Finance Bill debates when they seek to make the relief permanent, because companies could simply take the stock relief, close down and make a tax-free profit. Unlike the Opposition, most people outside the House recognise that that would be nonsense. The hon. Gentleman knows very well that, for a company which continues its expansion, continues to build up its stock and continues to invest in new plant, there is no 883 problem here. The deferred tax remains in the sense that there will be no tax liability. To do what the hon. Gentleman and the Opposition have suggested would be absurd.

§ Mr. Nott
If stock relief is not to be part of the net worth of the business—and it cannot be if the right hon. Gentleman says that it is not to be available in a liquidation—how can this benefit British industry in its expansion? The banks will lend only if the stock relief is part of the assets, part of the net worth of the business. That is the point we have been making since the relief was introduced.

§ Mr. Barnett
I am surprised at the hon. Gentleman, who will be aware that we are not talking about helping those companies which want to liquidate. We are talking about helping companies which are expanding and continuing. It is nonsense to suggest that companies should be given the relief as an absolute relief so that when they liquidate they can take advantage of it. I am astonished at the hon. Gentleman, who should know better.
I recognise that there is a presentational problem on the company's balance sheet—but that is all it is—in terms of cash flow. For a company continuing in business and expanding, there is no real problem.

§ Mr. Mitchell
On a point of order, Mr. Speaker. I beg to give notice that I intend to raise the matter on the Adjournment, in view of the unsatisfactory nature of the reply.