CORPORATION TAX: SMALL COMPANIES

HC Deb 03 June 1980 vol 985 cc1290-328

Question proposed, That the clause stand part of the Bill.

5.30 pm

Mr. John Loveridge (Upminster)

The smaller business community is glad to welcome the encouragement of clause 20, which widens the differential rate of corporation tax so that smaller companies pay 40 per cent. while larger companies pay 52 per cent. Like other provisions affecting the smaller business sector, clause 20 must be seen in relation to the whole package of measures that the Chancellor of the Exchequer has put forward and that have given so much encouragement to that sector.

The Committee will have seen that a number of amendments to the Finance Bill have been tabled in the names of myself and some of my hon. Friends, the officers of the Conservative smaller businesses committee, and in that of my hon. Friend the Member for Surrey, North-West (Mr. Grylls). The amendments dealt with a wide range of matters; from the work of the jobbing gardeners at the small end of the small business structure to major provisions related to medium-sized firms. The fact that it was so easy to put down so many amendments demonstrates that many burdens remain for the small business sector.

We are anxious to relieve the small business sector because it is our belief that every small firm in the kingdom is a potential jobcentre for a return to full employment. We believe that the small business sector is the only clear way to such a return. Large firms will shed men and women as advanced technology develops. The whole economy suffers from a world depression related to oil price rises and to the continuing purchase of oil at high prices by United States firms for stockpiling.

This gloomy outlook is relieved to some degree by measures such as clause 20. The small business sector can lead the resurgence and recovery of the economy. In the United States two-thirds of all new jobs created over a period of years have come from firms with less than 20 staff. We know that four-fifths of those firms are younger than five years old. That shows what the small business sector can do. But is our small business sector strong enough? There is much evidence that it has been weakened over many years, especially at medium size or take-off point.

Let us compare the proportion of small and medium-sized businesses in the United Kingdom with the proportions in France, Germany, Japan and in the United States. In those countries we find that the small business sector is proportionately much stronger than in our own kingdom. Our small business sector is beset by many technical ambiguities. One example can be seen in clause 20. The purpose of this clause is to widen the gap from 10 to 12 per cent. so that small firms pay proportionately less tax and are thus encouraged to create growth in the economy. Yet built into the clause is the most extraordinary anomaly. At a certain rate of profit at the threshold, the tax leaps from 40 per cent. not, as one might suppose, to 52 per cent., but to a rate of 66 per cent! The first £70,000 of profits are chargeable at 40 per cent. This fulfils the Chancellor's intention to create growth. But the treatment of the next £60,000 of profits does not fulfil his intention. This is a " no-man's-land " of exceptionally high corporation tax!

What can and does happen in practice is that a director takes his money out of the business to spend rather than leave it in, because by taking it out he cannot have to pay more than his own maximum threshold, which would be at most 60 per cent. on earned income, or less for many directors. Thus, there is clear encouragement to take the money out and spend it rather than to leave it in the business for the purposes of investment, because if it were left in the business the charge would be 66 per cent.

That situation in fact defeats the Chancellor's object in putting his improvements into clause 20. I do not blame the Chancellor for this—it is part of one of the ridiculous elements built into our tax system, which grow as Budget and Finance Bills follow each other in turn year by year.

The reason is plain. It is to make a sliding scale work, so that there will be a merger of the small business rate with the general rate when the £130,000 figure of profit is reached. That is a reasonable thing which ought to be attempted by the Government. What is not reasonable is the way in which it is done, which defeats the purpose by making a sudden segment of exceptionally high tax just at the point where the small firm is likely to grow into a medium-sized firm, just at the point where we want to encourage it most of all.

I hope that the Government will look at this situation again at a later stage to see whether there is not some way in which they can bring this nonsensical situation to an end. The costs of doing so would not, I understand, be very large, and in no single case could the improved relief be greater than about £7,000—in most cases much less than that. But it would create a sense of encouragement that is badly needed for growth.

This is just one example of so many situations in our system which hinder growth due to technical reasons, I believe that the Chancellor has thought of and has mentioned the possibility at some stage of bringing in an autumn Finance Bill in order to deal with technicalities. I do not know whether he has that in mind for this year, but I hope so because it would be an opportunity for him to deal with the many hindrances to the growth of the smaller business sector at one fell swoop.

There is one particular aspect about which small business men are concerned—the price of money. Every increase in interest charges paid by the business man enters into the costs of production and adds to sale prices. High interest rates are themselves, in this aspect and sense, inflationary. I know that it is dear to my right hon. and learned Friend's heart to bring them down when possible. It is particularly urgent to do so for small businesses even more than others. There is evidence that many small businesses are distressed because, instead of getting their money from bigger suppliers in 30 days' time, they have to wait 90 days, and that in itself is a grave danger to small firms that are expanding, particularly those that do not have a substantial capital base.

Most British firms set their prices on a cost-plus basis, so that we find the high interest rates in particular affecting those which wish to sell their goods abroad at a time of general deflation and falling sales. It is important, therefore, if the Government decide for other reasons that it is imperative to keep these high interest rates for the time being, that they should work with the banking system to ensure that the banks help bolster up small firms that are particularly damaged by these interest rates through no fault of their own, so that they can be ready for the expansion in the economy when it comes.

The situation, though, is not as bad in 1979 as it was in 1976, when there were more bankruptcies recorded. However, there is danger ahead in the vastly reduced profits forecast for the next one or two years. Fears induced by cash flow problems may frighten many firms away from expansion not for months but for years to come. My hon. Friends who are the officers of the smaller businesses committee believe that if full reign is given to that sector now it can lead the way in conquering unemployment and all the attendant distress, in human terms, that goes with it.

We believe that it will take three or four years for the uptake of the encouragement to take effect. Therefore, the Government must act as they are doing with the encouragement in clause 20, but much more widely as well. They should act now so that the small business sector is ready to meet the demands of an improved economy.

I hope that the Government will pay heed to the heartfelt wish that I am expressing on behalf, not only of the officers of the committee, but of the small business sector throughout the kingdom. Those engaged in that sector can do the job that is required of them but they urgently need every help that they can be given. In that sense I am glad to welcome the clause. It is but one step, but it is a helpful one and it should stand part of the Bill.

Mr. Geraint Howells (Cardigan)

Many hon. Members on both sides of the Committee are worried about the plight of small businesses and the self-employed. When the newly elected Government took office in May 1979, my right hon. and hon. Friends were disturbed when they learnt that there was not to be a special Cabinet Minister to represent the small business community and the self-employed. It is a great pity that we do not have a Minister of Cabinet rank to represent the sector that we are discussing. Unfortunately, we have only an Under-Secretary of State holding special responsibilities to represent those in a small way of business. In my view, that is not enough. My right hon. and hon. Friends have always held the view that a Minister with full responsibility for small firms and the self-employed is essential.

Since the Government took office last year the small business sector has had to face vast problems. The problems have been far more difficult than was foreseen. There had to be a revival of interest in independent businesses. They were seen as a means of securing more employment and encouraging enterprise that would revitalise an important sector of the economy. I have always believed the small business man to be the backbone of rural communities in Wales, Scotland and England.

As a result of a great deal of Liberal pressure, the previous Labour Government made certain concessions that made life easier for small businesses and reassured them that at last a British Government were prepared to take their existence seriously and to appreciate their role in the economy. Since that promising beginning to what we all thought would be a new era for small businesses, the economic climate has deteriorated dramatically.

In many ways the small business has probably suffered more severely than the big business. That is because small businesses have smaller assets and inevitably feel more keenly the effects of a recession. In my conversations with small business men in past months, they have said that their chief worry is the rate of inflation, which has an effect on goods and services, and the crippling high interest rates that inhibit all their activities. Many flourishing businesses have seen their profits disappear. Many of them have been forced into liquidation.

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The Government do not appear to encourage the banks to give overdraft facilities, loans or even risk capital to those operating small businesses, especially if they are starters. A great deal has been said about bank profits and two-tier bank interest rates. There are many in this place who represent rural areas. I and many others wonder whether the Government will reconsider our proposal to set up a land bank, or a business bank, to help youngsters who are willing to have a go on their own in rural areas. If we had a bank of the sort that we proposed two years ago, help could be made available to small farmers and to those willing to start on their own. Risk capital should be given to genuine people.

There is no hope that British Leyland, ICI or Courtaulds will come into the rural areas. Therefore, such areas are dependent on small businesses. If an opportunity were given to those who wish to start on their own by the provision of risk capital, a step would be made in the right direction.

The Government must meet their election promises for small businesses or stand condemned. They must help the self-employed and the small business man and not hinder them in any way. Will the Chief Secretary, when he replies, that bank interest rates are to be lowered in the near future? That is the greatest problem facing business men, especially those in the small business sector. Will the Government consider introducing a two-tier system of bank rate—a special rate to help the small business man and the self-employed to start, and another rate for those who enter into personal borrowing to help themselves? If the reassurance were given to those who are willing to start on their own that the Government were prepared to consider a two-tier bank rate system to help them, they would be greatly encouraged. Against that background, the confidence of many business men would be restored.

I hope that the Government will be able to announce in the near future that the bank rate will come down. The survival of the small business sector is essential. I accept that the clause is a step in the right direction, although it does not go far enough. At times my right hon. and hon. Friends have felt like voting against it, but having considered it positively we shall accept it. I hope that it will turn out to be a benefit to all concerned.

Mr. A. P. Costain (Folkestone and Hythe)

It is interesting to hear the Liberal Party's attitude towards small businesses. It was fascinating to hear that it feels that all would be well if only we had a Cabinet Minister responsible for small businesses. I thoroughly disagree with that. We have a first-class junior Minister responsible for small businesses. He is able to concentrate on that sector. If he were of Cabinet rank, he would have many other matters to worry about. It must be better for him to remain in his present position. The Liberal Party's spokesman, the hon. Member for Cardigan (Mr. Howells), shakes his head. It is obvious that he disagrees with me. Hon. Members in the Liberal Party have never been in the Cabinet. They do not know the amount of time that a Cabinet Minister has to spend outside his Department. I was parliamentary private secretary to a busy Cabinet Minister, and I know how Cabinet affairs occupy a Minister's mind.

Mr. Geraint Howells

Why then are the Secretary of State for Industry and the Minister of Agriculture, Fisheries and Food in the Cabinet?

Mr. Costain

Funnily enough, there has to be a Cabinet and therefore Ministers in a Cabinet. If the Secretary of State is in the Cabinet and he has an efficient junior Minister, his Department can get on with its job while the Cabinet gets on with its job.

I entirely agree that the country depends on small industries. There cannot be a large industry existing today that did not start as a small industry. Private enterprise depends on small industries. I welcome what the Government propose in the clause to encourage small businesses.

It was fascinating to hear the hon. Member for Cardigan talking about two-tier interest rates. Does he advocate a Government Department to decide who shall pay what interest rate? The banks assess interest rates against the profitability or viability of a business. The hon. Gentleman advocates that, where there is more risk in a business, there should be a lower interest rate, which is contrary to banking practices.

I welcome the clever and clear proposal in the Bill that risk capital put out to encourage small businesses shall not be subject to interest. It takes its chance in the success of a company by being invested in ordinary shares. Money that is used to buy ordinary shares will pay no interest, because it anticipates the overall profitability of the company. That proposal is far more preferable than fiddling about with interest rates, which would require a large bureaucratic organisation.

I am also fascinated to learn that the Labour Party believes that the best way to bring down interest rates is to tax lending. Do the Opposition really believe that taxing interest will bring down interest rates, and that if there is a super tax on banks they will decide not to make so much money?

Mr. John Garrett

That is a gross misrepresentation of the argument of my right hon. Friend the Member for Llanelli (Mr. Davies). My right hon. Friend was asking only for a tax on the windfall profits of banks, which is clearly justified.

Mr. Costain

I am sorry that the hon. Gentleman feels that I have misrepresented his right hon. Friend. Let me put it this way. Is it not good Socialist policy to penalise the successful? The successful are helping British industry. Britain is an international banking force. Do we want to inhibit our banks from being able to compete world-wide? The Opposition should think again if they want to help the country get back on its feet.

I welcome the clause.

Mr. Garrett

I understand that the debate was asked for by the Government Back Benchers to demonstrate their care for small businesses. I look forward to some hours of their advocacy. Perhaps hon. Gentlemen will flood into the Chamber after their tea break.

I remember the hon. Member for Upminster (Mr. Loveridge) as a colleague on the Expenditure Committee with a wide experience of small businesses. He made a plea for the small business community, which I hope the Government will consider.

Clause 20 embodies a relief in corporation tax for small businesses which was made much of by the Chancellor of the Exchequer in presenting his so-called enterprise Budget. The Government talk of assisting and encouraging small businesses but offer only modest help in the Finance Bill and in this clause.

The small business sector is being severely damaged by Government fiscal and economic policies in three main ways. The first is by high interest rates. They are of particular importance to a seedling company trying to raise capital for plant, equipment, stocks and work in progress. It is clear from the report of the Treasury Committee on the public expenditure White Paper, the medium-term economic assessment included in it and speeches by Treasury Ministers, that we cannot look forward to a substantial reduction in interest rates in the foreseeable future. High interest rates are an integral part of the monetary monomania that has seized the Government.

The second way in which small businesses have been hit by the Government's policies is through cuts in public expenditure—for example, the cuts in schemes to assist industries, which were a successful element in the Labour Government's industrial policy. Selective assistance schemes for the footwear industry in my constituency were aimed specifically at small companies. There was a size limit above which a company was not eligible. That assistance made a great deal of difference to the footwear industry in my constituency. The bulk of the selective assistance for the foundry and textile industries also went to small businesses.

Cuts in public expenditure have also affected purchasing by public corporations. The Association of Independent Businesses is urging the Government to expand public sector purchasing. The turn-around required by nationalised industries will lead to no signficant increase in business for small businesses.

There is then the direct effect of cuts in public expenditure on small builders. About 290,000 of the 1.3 million small busineses in this country are in the building trade, which will be decimated by cuts in public expenditure, such as the ending of all local authority new house building within the period of the public expenditure White Paper. The building trade is one-quarter of the small business sector, and the result will be enormously damaging.

The third effect of the Government's economic polices on small businesses is through deflation and falling demand. Manufacturing output is expected to decline by 6 per cent. to 10 per cent. in a single year, which is unprecedented. Small businesses will be least able to survive. Taxation relief of the order proposed in the clause, amounting to about £20 million a year, is nothing compared with the loss of markets and the level of interest rates.

In this small business man's Budget, the assistance is also pretty small and largely cosmetic. On 29 March The Economist summed up the situation when it said: Small businessmen are aided not just because they are beautiful, but because aid to them is cheap. The word ' negligible ' features heavily in the tables of the financial statement and budget report (the ' red book ') which quantify the impact of company tax reliefs.

If one looks at those tax reliefs through the financial statement in the Red Book, one finds that they are so small that they are not worth registering in the criteria of our system of national accounts.

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On 2 May the Small Business Guardian summed up the situation with regard to these enterprises by saying: The ability of small firms to do any of the things expected of them will be severely curtailed if the numbers going out of business as a result of that aspect of Government policy "— monetarism— exceeds the number being created through the Government's other policies aimed at encouraging the formation of new firms. It went on: Already there is concern at where help for firms in difficulty may come from as the Government insists that it is committed to a policy of non-intervention in the workings of the market place … Some banks are already beginning to put up the shutters to further lending to smaller firms, a sector far more heavily dependent on loans than others. As a result, with interest rates showing little sign of falling, more and more companies will find themselves paying more on their borrowed capital than they are earning on marginal capital employed, severely undermining their ability to meet their short-term commitments. An indication of how the situation is developing is given by the dramatic increase in business failures in the first quarter of 1980… Dun and Bradstreet point out that small firms are particularly vulnerable as not only can they least afford the high cost of borrowing, their sales are often tied to the fortunes of one market. While the loss of a single major contract may be damaging to a large company, for a small one it can mean the difference between solvency and bankruptcy. At present costs are rising in a declining market, which could mean disaster for many a small firm as there is no immediate relief for anyone relying on high interest loans for survival. Rising costs do not only cause bankruptcies, of course, they can also mean that projected and much needed new jobs fail to materialise. At the same time as being regarded as one of the main engines for regenerating the economy and alleviating the unemployment problem, small businesses are being hammered by the Government's policies and the effects of high inflation and high interest rates. Those are the conscious policies of a Government who pursue the teaching of Professor Friedman in economic affairs. If one reads his books, one can see that the consequences are inevitable. The problem is exemplified by the complaints of small business men, which were spelt out in an interesting letter to The Times on 20 March headed: ' Silly monetarism ' hurts the small businessman ". That sums it up. Mr. Edward Frewin said in that letter that he and his wife run a small business. They started in 1967 and now employ nine people, five of whom had been taken off the dole queue. He finds his business crippled by: 1. Usurers' interest rates, making our £50,000 overdraft virtually impossible to service and creating the unbelievable rent of £3.47 per sq. ft. for warehousing. 2. An overstrong pound preventing us from selling into many countries but particularly North America. 3. Increased VAT which caused a dramatic collapse in the home market. 4. Increased national health contributions to add to our already rapidly increasing wages bill caused by 19 per cent. inflation. 5. 20 per cent. increases in office and factory rates. 6. Further increases in our overheads from electricity, telephone and the amazing postal charges. 7. Now, past and planned increases in petrol prices puts our representatives jobs in jeopardy. These items were all directly caused by this Government's silly monetarist policy. I, in common with most of the business community in this country, cannot wait for the return of the sensible politics of maintaining the delicate balance between monetarism and planning the economy.

That is not the only source. I am quoting not Tribune but impeccable small business sources. Mr. E. A. Naptin, the regional chairman of the Association of Independent Businesses, has drawn hon. Member for Upminster drew his remarks, which may not be relevant to British experience.

and increases in rates. He said in a letter to The Times that in our large cities small firms had seen a decline in the volume of local authority housing available for staff and the refuse collection service available for industrial waste, together with cuts in main and secondary road provision and education. He said: All these features represent cost constraints to the development of locally based industry and employment which many authorities "— he might have added the Government— claim to want. Record rate rises this April will hit the small business sector, which is already suffering from high increases in rents, electricity and interest charges.

The London Chamber of Commerce and Industry, in its fifteenth report on manufacturing industry of 21 April, referred to a frightening decline in small businesses and showed that 35 per cent. of companies were facing falling domestic orders. It said that an erosion of the capital base was gathering momentum at a frightening rate and added: Without an upturn in demand, the heart of our manufacturing industry will be eaten away.

Thirty per cent. of companies surveyed reported falling production. The percentage of businesses reporting a scaling down of their investment plans had more than doubled in a year. There was also a fall in the number of businesses investing in job-creating capacity.

Nobody would deny that we need a thriving small business sector in Britain if we are to have a secure and growing industrial base. I assume that that is common ground between us. It is also true, and has been shown over many years, that the rate of small business formation in Britain is lower than in other comparable countries. That should concern us all.

However, there is a tendency by the Government to inflate the importance of small businesses in job creation, particularly when the corporate sector is being reduced to rubble by all their other policies. Most of the evidence of the value of small businesses is based on an American study at the Massachusetts Institute of Technology, from which the A recent study by Dr. David Storey attention to the damage caused to small businesses by cuts in public expenditure, particularly local authority expenditure for the Centre for Environmental Studies, an institution which itself is being savagely cut in size and scope by the present public expenditure cuts, concludes that even raising substantially the rate of new firm formation can have only a minimal impact on manufacturing employment, at least for a decade and that its impact will not be primarily felt in the depressed regions of the country. He concludes also that changes in the rate of income tax do little to encourage new firm formation.

There is little point in producing largely cosmetic changes to stimulate small companies when both large and small companies are being driven out of business by monetarist policies of high interest rates and cuts in public expenditure. The most important determinants of the formation and survival of small firms are demand and the price of capital.

What the clause does is rather like attending to the woodworm when the house is on fire. Like much of the rest of the Bill, the clause is totally overshadowed by the cult of monetarism—a death cult for all businesses, small and large. The Government's policies are pouring loot into the coffers of the banks and the oil companies—the big, powerful allies of the Tories—and starving the small businesses that they affect to support. The small business sector is becoming a wasteland through which is wandering a tribe of loony monetarists doing nothing more than gibbering slogans and keeping their fingers crossed in the hope that eventually the cult will deliver.

Mr. Richard Page (Hertfordshire, South-West)

I said on Second Reading that, with the valuable political attribute of hindsight, the Budget might be viewed as the first real commitment by any Chancellor of the Exchequer to the small business sector. I believe that that is the case, and I reject the cynical remarks of the hon. Member for Norwich, South (Mr. Garrett). I believe that my right hon. and learned Friend the Chancellor of the Exchequer has taken the first step in a series of commitments to the smaller business sector.

I did not specifically refer to clause 20 in my Second Reading speech, but I believe that the raising of the qualifying limit for smaller businesses from £60,000 to £70,000, with the additional marginal relief, is a further illustration of the Government's commitment. Unlike the hon. Member for Norwich, South, I do not reject it out of hand.

I shall not presume on the Committee's patience by talking about the importance of the smaller business sector to our economy. My hon. Friend the Member for Upminster (Mr. Loveridge) has already done that, and I have no doubt that over the years my hon. Friends and I will continue to plug the importance of that sector to our economy. We have to see this corporate tax relief as part of a package aimed at the retention of capital within smaller businesses, not only in their formative years, when they need help to expand and grow, but in the difficult transitional period that the whole country is going through.

One of the more illuminating events during discussions on the Bill has been the series of economic theories that have been paraded back and forth as providing a solution to our economic ills. I am reminded of the truth of the saying that if one takes six economists and one problem, one will end up with seven solutions.

As such, I admire the refreshing candour of the hon. Member for Kettering (Mr. Homewood), who said yesterday that when he was elected to Parliament he found that other hon. Members who spoke about economics knew as little as he did. However, despite all the theories advanced and all the speculation put forward, it seems a brutal fact that if the Government spend more than is earned the seeds of further inflation are laid, with all that it entails. The problems that flowed from Mr. Micawber being unable to balance his £1 budget in the days of Dickens is relevant today on a national scale. The only difference is that everyone suffers rather than one hapless individual.

Despite their breastbeating, Opposition Members must surely now start to recognise that there is growing evidence that the level of PSBR, coupled with a flat GNP in real terms, has a definite relationship to the rate of inflation. One has only to look back over five or six years of the previous Labour Government and note their public service requirement in relation to the level of inflation to see how genuine that evidence is becoming. My fear is that public expenditure, especially that earmarked for revenue rather than capital projects will ultimately work into the system, to hit everyone, but more especially the small business sector—a sector that, because of its size and characteristics, is ill-equipped to look after itself.

The clause goes part of the way down the road towards protecting the retention of capital that is so necessary to combat the effect of inflation and to help future investment. While the clause will help, it is obvious that a reduction of MLR will come as a major boost. I shall net be as prudently gloomy as my right hon. Friend the Chief Secretary to the Treasury was yesterday, in a most powerful contribution to the debates in Committee, because I take considerable heart in the trend downwards in the money supply over the past few months and the difference in the calendar rate of PSBR in 1979 and the rate of PSBR in the fiscal year. I hope that with honour and with that sense of conviction that my right hon. Friend mentioned, steps can be taken in this direction in the near future if—I underline the word " if "—that trend of reduction in the money supply continues to take place. It will bring a boost to industry and to smaller businesses to create a lesser fall in our gross national product in real terms, and will more readily help close the expenditure gap. The clause is a considerable recognition of the contribution of the small business to our economy. I welcome it.

Mr. J. Grimond (Orkney and Shetland)

Like other hon. Members, I stress the importance of small businesses to the economy. In many areas they are our main hope for creating new jobs. They are the one lively and expanding part of the economy in many parts of the country. It is not wholly true to say that the House of Commons has ignored them. Ever since I have been an hon. Member there have been constant speeches about them. Often, these excellent admonitions have not led to action or this has been cancelled by other factors. There is a danger of that happening again.

I welcome what the clause proposes. I reiterate a question that has already been asked. Why cannot a sliding scale be introduced? It has been suggested that a figure might be put forward in an autumn Budget. I am not sure whether that is the right course. I do not think that Chancellors of the Exchequer need encouragement to introduce new Budgets. It is, however, right to stress the uncertainty and sharp increase that occurs after £70,000.

Small businesses groan under the amount of documentation that they are forced to undertake, particularly in relation to VAT. I wonder whether the Government have anything to say about that situation. The atmosphere has been against small businesses. It has been a far better bet for someone to go into part of the public service and obtain security and a pension. A small business man can look forward to nothing like that, although his life at times may be more agreeable.

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The most serious factor is the question of interest rates. Is it impossible to have a two-tier interest structure? I appreciate that this is difficult and could lead to a great increase in administration. I would, however, like the Government to examine the matter. I understand that the Swiss have a two-tier system, although not for this purpose. It cannot be impossible. It is known that the Swiss are expert in financial matters. If a two-tier system is out of the question, the outlook for small businesses is poor. Whatever is done under this clause will be more than offset by the high interest rates that those businesses have to pay.

I wonder whether the Government are examining the role of the savings banks. I constantly raise this matter, and equally constantly it is ignored. The savings banks in many parts of the country accumulate large quantities of local savings that are then removed from the local economy. Is it not possible to have some form of bank that would plough back some of this local money into productive enterprise in the areas where it is collected? I have persuaded the building societies to lend in Orkney and Shetland. For many years, the societies took money out of the area and put nothing back. Now they have agreed to put money back. I am still struggling, however, with the savings banks, which are inhibited by their statutory duties. In other countries there are various forms of co-operative banks and other banks that do far more to mobilise local saving and lend to small-scale local industry. In spite of the efforts made over the years to fill the gap, that gap still exists in the financing of small scale industry at a reasonable rate. The joint stock banks and some merchant banks are excellent in many ways but I do not feel that they have yet grappled with this problem. I should like the Government to comment on the possibility of widening the scope of savings banks into new productive investment. I recognise that there is a savings bank unit trust, but that is not the same thing. I wonder also whether the Government can hold out hope for lower interest rates and some reduction in documentation.

The Government have been told that many small businesses find difficulty in getting payments from large businesses and public authorities. I wonder whether the Government can say whether their influence on the matter has had any effect. This is a constant and justifiable cause of complaint. I am sure that all hon. Members are on the side of small businesses. I hope that as a result of the debate they gain some practical advantage from these sentiments.

Mr. John Townend (Bridlington)

I am a small business man. Listening to the hon. Member for Norwich, South (Mr. Garrett), I began to think that I must be operating in business in a different country. My experience and that of many small business men in the area that I represent,—an area with a level of unemployment of over 10 per cent—is one of optimism. There are difficulties, but for the first time in a long period there is a new move of realism that at last there is a Government in power sympathetic to the interests of small businesses, lifting the shackles of taxation off those in businesses and starting to lift a little of the bureacracy off their backs.

Opposition Members may laugh, but the reductions in direct taxation in the Government's first Budget have had an effect. A small developer in my constituency who specialises in building new nursery units for small businesses said that when he had made sufficient money to attract 75 per cent taxation he stopped work. Now that the top rate has been reduced to 60 per cent., there is an incentive. That person is going round looking for development sites, building small units and letting them. There can be no doubt about the change of mood that has occurred.

One aspect with which the Government have not yet fully dealt—I trust that my right hon. and learned Friend the Chancellor will do so at the next Budget—is capital taxation on small businesses.

I welcome the clause. The reduction is modest, but it is as much as we can expect in a difficult year for the economy. I trust that it is only a start. Next year I should like to see a substantial reduction in mainstream corporation tax. That could quite easily be paid for by ending stock relief and reducing other reliefs. That would be particularly advantageous to small businesses, because the small business man, not having the advice of the sophisticated accountants who serve the large companies, often may not appreciate that if only he built up his stock in the few weeks before the year end he could reduce his tax burden. It is clear that the efforts by the large and medium-sized companies to get the benefit of stock relief is putting up the amount of borrowing from the banks and is helping to make it more difficult for the Government to control the money supply.

One important aspect for small businesses—I do not think that the average small business man feels that the Government have done enough in this direct-tion—is raising from their backs the dead hand of bureacracy. There have been modest changes in the Employment Bill, but the small business man is looking for many more reliefs from punitive legislation, which is aimed at large companies rather than small ones.

I accept the comments by Labour Members that the present level of bank rate is weighing down heavily on small businesses. That is part of the medicine that we have to take for living beyond our means in the past decade. However, small business men are particularly irritated when they have to make their contribution towards overcoming our economic difficulties but see the reduction in bank rate that they desperately await delayed because of the high level of public sector pay in the past year. They feel that they are making a sacrifice and that it is wrong that public sector employees should be given 100 per cent. protection from the economic facts of life.

The Government's policy is beginning to work. Some of us think that if we had been a little harsher and tougher to begin with it would have worked sooner. However, everyone in the small business sector agrees that it is better to go slowly and bring interest rates down steadily and progressively than to reduce them prematurely in a way that may mean their being raised yet again.

Labour Members seem to ignore one factor in their discussion of the problems of small businesses—the factor of trade disputes. Small businesses often depend on sub-contracting. In the Midlands the small business sector has undoubtedly suffered because of the problems of the motor car industry. Those problems have not been of this Government's making; they are problems of weak management, bad industrial relations, too many strikes, bad productivity, and too many restrictive practices over a decade. In my area two moderately sized firms have had to lay off substantial numbers of workers in the past two or three weeks because of the drop in orders from the motor industry. There is a knock-on effect, because those firms will in turn reduce their orders to smaller contractors and sub-contractors.

Let us consider the plight of the building industry. Talking to small builders, I have been surprised to find that they are still short of good men. They could still get plenty of work if they could get the men. My area suffers from high unemployment, but one cannot without difficulty obtain the services of a plumber to deal with burst pipes. Equally, it is difficult to get a window cleaner. Labour Members who, judging from their comments, cannot possibly talk to small business men, blame all this on the Government. If there has been a reduction in local authority work that is in part because pay has pre-empted too large a proportion of local government's cash resources. As a result, capital expenditure and spending on maintenance have had to be reduced.

The small business sector is in good heart. It is more optimistic over the medium term to long term than are many of our big firms. The message that I am receiving and which I pass on to my right hon. Friends is that the Government should remain determined to continue with their policy, because it is the only policy that is in the long-term interest of the small business sector.

Mr. D. N. Campbell-Savours (Workington)

I shall endeavour to be brief in this debate, Mr. Godman Irvine, because I hogged the Floor a little yesterday and I shall want to catch your eye again later this evening.

Clause 20 seems to be a little strange in the context of what is happening in the country. It concerns a reduction in the corporation tax burden on smaller companies. We on the Labour Benches are endeavouring today to talk more about the problems that smaller industries have in reaching the threshold at which they will enjoy the lower tax burdens that the Government are proposing. Conservative Members seem to have overlooked that point in their speeches.

I speak with a somewhat explosive background, because I was a small business man and entrepreneur before being elected to Parliament.

Mr. John Townend

Why did the hon. Member make the change?

Mr. Campbell-Savours

Because I believed that there was room on both sides of the Chamber for people who understood the problems of smaller businesses. I do not necessarily accept that Conservative Members have a monopoly of understanding small business, or of the right to be involved in it. It is the prejudice of Conservatives that leads them to the wrong conclusions about the Labour Party on the question of entrepreneurs in society.

At the general election last year the Conservatives gave firm pledges to small business men and industrialists that they would create conditions in which those businesses would find it easy to operate. Yesterday I received a letter from a company in Lancashire. I do not intend to name the company, because it is located in another hon. Member's constituency, but I knew of this company some years ago. The letter sums up the position of small manufacturing industry today. The company produces moulded polythene containers. The letter states: We as a company should like to bring to your attention the critical state of industry in general and, more particularly, our own. Since commencing business in 1974 we have enjoyed moderate success expanding slowly, purchasing our own factory and giving a reasonable service in the container field to industries including chemicals, textiles, tobacco, meat and many others. We have built up a small labour force over this time "— if I am correct it is about 30— and in our opinion contributed to the well being of the county. Since September 1979 the availability of work is such that at this level we are becoming non-viable. Is it not time for a certain amount of purchasing power to be put back into the economy? Is it not time VAT was reviewed and the subsequent cash flow difficulties removed? Is it not time for interest rates to be reviewed and once again make it attractive to manufacture than to bank cash. We are in a battlefield but we cannot fight and survive if the economy is stagnant. The interesting thing about that letter is that it comes from an industrial estate in Lancashire, and when I was last there half the companies on it were on short-time working. When one speaks to industrialists in that part of Lancashire they talk of the grim future that they believe they face in terms not only of the activities of central Government but of the international recession. Though they may accept that the international recession was partly responsible, they also believe that there is a duty upon the British Government to react to that recession by introducing measures which will have an impact and give them some protection during these days of considerable difficulty.

I am sure that Conservative Members will understand what I mean when I talk about the people on the road. They are the representatives who go out from door to door, from shop to shop, from factory to factory and from warehouse to wherever, selling on behalf of British industry and producers. Wherever one goes, one hears the depressing message that representatives cannot find the orders. I am sure that Conservative Members who have had a close relationship with representatives in industry will be aware that even those companies in which they have a secondary interest outside this Chamber are feeling the pinch of Government policy. Today. it has been recognised that orders are simply not there, particularly in small manufacturing businesses.

6.30 pm

It is unfair for the Financial Secretary to the Treasury to make repeated statements on behalf of the Prime Minister and his hon. Friends, as he did yesterday, to the effect that the country must wait until the end of the Government's period of office for an upturn in the economy, because in the meantime jobs are being lost, as are the small businesses which are vital to the future of our national economy.

It is not this Government who have taken major initiatives in dealing with small businesses. It was the last Government who in 1974 appointed Ministers in the Department and introduced the stock relief scheme which, if Conservative Members were honest—if the hon. Member for Bridlington (Mr. Townend) had done his homework and asked manufacturers in his own constituency he would have discovered this—they would admit was the vital component in preserving the future of many companies.

I think that this Government's attitude to stock relief has, in the main, been fairly responsible, in that they have retained the scheme, pending the introduction of new forms of inflation accounting which will have a major effect in preserving smaller companies. Last year I wrote to my right hon. Friend the Member for Heywood and Royton (Mr. Barnett) about stock relief. He pointed out the great benefits of stock relief to industry and said that over four and a half years industry had been able to avoid paying £6,150 million that might have been spent by a Labour Administration in areas such as the social services. That money was given back to many smaller industries to assist them.

Mr. Loveridge

I wonder why the hon. Gentleman feels that the Labour Party did so much for smaller businesses when in 1974 there were 3,720 company liquidations and when by 1976 that figure had risen to 5,939. Stock relief was indeed necessary, because the Labour Administration were driving the smaller business sector into the ground with multiple bankruptcies.

Mr. Campbell-Savours

I take the word of the hon. Member for Upminster (Mr. Loveridge), but if so many businesses were going bankrupt in 1974 I can only assume that the preceding years of Conservative Government must have been particularly difficult. I can assure the hon. Gentleman that it is impossible for a Government to come into office and, within a few months, so transform the economy that 5,000 business men can suddenly disappear from the scene. When we deal with statistics on bankruptcy we should always grade companies according to the operations in which they are involved. I suggest that certain companies should not be in business at all. I would press for the expansion of smaller manufacturing industry.

I turn now to an area of particular interest to me, as a former small business man. I have raised the issue before and I shall raise it repeatedly in future. It concerns the establishment of a regional bank. I cannot understand why it is not possible for the Government to subsidise interest rates. Industry is saying that it needs subsidies, particularly in certain areas.

I believe that there is a strong case for regional subsidies to be paid and regional interest rates to be established in various parts of the United Kingdom. Such mechanisms would entice companies to come to the regions and also help smaller companies in setting up. Smaller companies find it difficult to start up, particularly in the regions, because of smaller markets.

Obviously, in areas of smaller population, smaller companies find it difficult to operate. In the larger areas and the conurbations, which have greater populations, smaller businesses find it easier to proliferate. Why do not the Government introduce some form of incentive to smaller company operation where, in particular areas—perhaps on the basis of a turnover ceiling—money could be allocated to companies through a clearing bank organisation? That would help such companies with cash flow difficulties.

The main problems of smaller companies, as was pointed out by my hon. Friend the Member for Norwich, South (Mr. Garrett), relate first to the market but, more importantly, to cash flow. If we set up a system whereby people in the regions have access to what I call cheap money, we shall in part resolve the problem, particularly if the money is advanced on the basis of discounted or factored invoices. That would mean that goods could be shipped by a company that would be allowed to convert the value of those goods into cash for investment. However, the cash would have to be borrowed at sensible interest rates. That is a proposition that I have previously advanced, and I believe that it would have an immeasurable effect upon the possibility of developing, in the regions, the companies about which I have spoken.

Mr. Michael Shersby (Uxbridge)

I was surprised to hear the hon. Member for Workington (Mr. Campbell-Savours) praising the expertise of the Minister with responsibility for small businesses in the previous Labour Government. I seem to recall that the Minister concerned resigned from the Government because of the refusal of the then Prime Minister to channel more money into a bankrupt co-operative. That Minister was not replaced by the former Prime Minister. We do not retain good memories of the success of the hon. Member for Keighley (Mr. Cryer) who, fortunately for us, held that post very briefly.

I welcome clause 20 because it is an important contribution towards the Government's enterprise Budget. I believe the clause is in the Bill because the Chancellor has listened to small business men and to the views of his colleagues in the House, particularly Conservatives, who interest themselves in these matters. During my time in the House no Chancellor has been more receptive to the views of colleagues on both sides of the House about the problems of small business men and no Chancellor has responded in such a way.

We are all deeply grateful for the Chancellor's magnificent Budget, which is widely appreciated despite the fact that business men in both small and large enterprises face difficulties in a world which is in the midst of a recession. It is clear that the Chancellor has also paid special attention to the views of my hon. Friend the Member for Upminster (Mr. Loveridge), who is noted for his extensive knowledge of the problems facing small firms. I hope that the Minister will give a warm response to my hon. Friend's speech. I hope that he will be able to give an assurance that the Government will tackle the problem caused by the sliding scale for corporation tax. It is vital that we eliminate the sudden jump to 66 per cent. It is a serious hurdle which deserves to be tackled.

We have heard much in the debate about small business men obtaining bank loans. There has been much discussion inside and outside the House since the Budget about the desirability or otherwise of small business men having access to loans which are guaranteed or made available at differential interest rates. Partly as a result of that, and partly because of the initiative taken by my hon. Friend the Member for Upminster in Back Bench Committees and outside the House, important initiatives are being taken by the big banks, particularly by Barclays and the Midland. There might be others. They are doing everything possible to channel more funds to small firms which need them to start. There is no doubt that the banks are acutely aware of the need to help small firms wherever possible.

It is clear that the banks are willing to consider the possibility of selling back equity to small firms which are successful after a couple of years and after they have got off the ground with the help of venture finance.

Mrs, Elaine Kellett-Bowman (Lancaster)

Does my hon. Friend agree that, although his constituency cannot take advantage of it, the European Investment Bank, with its steady and low rates of interest, is of immense value to small firms, which can borrow as little as £17,000 under an agency agreement?

Mr. Shersby

I am grateful to my hon. Friend. I agree that the European Investment Bank can play an important part. Small business men are not as aware as they should be of the facilities available. I hope that the bank will take an early opportunity to publicise its activities and the funds which are available.

The debate has ranged wide. Because of that, I should like to tackle one or two of the issues which have been raised by Opposition Members. One of the factors to which reference was not made in the long catalogue of rising costs was the enormous burden of rates. Rates have to be paid by small business men. Generally, rates in Labour-controlled authorities are higher than in Conservative-controlled authorities. Nothing will close down a small firm more quickly, or make it move to another area more certainly, than the imposition of crippling rate charges. It has happened in one local authority after another. I warn the Committee that if the Labour Party persists in its spendthrift policies in local government, some areas will be denuded of small firms.

Of the 20 real big spenders in local government, 19 are Labour-controlled. One has only to examine the differences in rates between Lambeth and Wandsworth to recognise the different circumstances that firms in those two boroughs face.

The relief in clause 20 is of vital importance. With the other measures announced by the Chancellor in his Budget, particularly the introduction of enterprise zones, it will have a powerful effect on stimulating small business activity throughout the country. I welcome the clause as part of the package.

6.45 pm

My hon. Friend the Member for Bridlington (Mr. Townend) spoke about the mobility of labour and the difficulties which small firms experience in his constituency because of the lack of accommodation. The Government introduced shorthold tenancies in the Housing Bill as part of the enterprise package. When that Bill becomes law, many people, including council tenants, will be able to offer accommodation—or digs—to people who want to move from an area of low employment to an area such as Bridlington or Uxbridge, where there is employment. That is another important part of the total scene. Britain has not been noted for its mobility of labour. Clause 20 is welcome, but we hope that its provisions will be improved still further in the next Budget by particular attention being paid to the points raised by my hon. Friend the Member for Upminster and the 66 per cent. problem.

Mr. Dalyell

It is not very profitable to swap " yah-boos " across the Committee about whether one party's ministerial arrangements are better than another's. Those who remember my noble Friend Lord Lever when he was Minister will be under no illusion that he carried considerable weight in the previous Government. I leave it at that. I am not saying whether it is better or worse to have a Minister outside the Cabinet, but he might have more time to meet delegations. There are swings and roundabouts. One cannot accuse the previous Government of being uninterested in small businesses.

I agree with the right hon. Member for Orkney and Shetland (Mr. Grimond) in one matter. From our constituency experience, we can be in no doubt that many small businesses suffer from the tardy payments by a number of big enterprises, both public and private. I am not sure what Governments can do to ensure that big organisations pay their bills on time. However, the lag in payment is a real and practical problem.

I should like to engage the Chief Secretary's attention on three issues. The first is the chartered accountants' issue. They say that the marginal rate of tax on profits between £70,000 and £130,000 is 66 per cent. and that it increases to almost 76 per cent. where the 15 per cent. profit restriction for stock relief purposes applies. The Scottish chartered accountants believe that in the interests of simplicity the system of marginal relief should be replaced by one where the various bands are taxed at flat rates. I do not know how much the Exchequer would lose, but it seems that there is a prima facie case for simplicity. I wonder what the Government's reaction is to that. Perhaps a flat rate would be sensible, taking into account the equity and efficiency of collection.

The second issue arises from correspondence from the Conservation Society to the Chancellor of the Exchequer. Copies were sent to the hon. Member for Carshalton (Mr. Forman) and myself. I have taken a sustained interest in the society's activities. On 23 January, it said: We wish to put forward again a proposal which we made last year, modified to meet the objections then made to it. We suggest that no Corporation Tax should be charged where a company's profits are less than say £10,000, with a marginal relief system designed to run out at say £20,000. This could be easily combined with a ' small companies rate ' system of the present type for higher profits. One advantage of having an exempt band would of course be a great saving in time and resources for the Inland Revenue as well as the small businessman. The Conservation Society's case then is that If the concept of total exemption is not acceptable, we would nevertheless submit that the present differential between the rate for small companies and that for other companies—a mere 20 per cent. of the normal rate—is so small as to be no more than an ineffective ocmplication and that the small companies rate should be no more than half the normal rate. I have asked various people who know about these things what the sense of that proposal is, and I gather that it is in fact quite sensible.

On 13 May the Chancellor replied along the following lines: You make alternative suggestions for easing the corporation tax rate for small companies. One trouble with these is that they involve such a very high rate of tax on each additional £ of income in the marginal bands—over 80 per cent. in either case; and if one tries to get round this by extending the marginal bands, the cost increases. I do not quite see why that should necessarily be so, or by how much. The Chancellor went on to say that he had considered how far it would make sense to help companies generally with their liquidity problems by major tax reductions, but this could be provided only at the expense of much higher personal taxation or higher borrowing and so higher interest rates. I decided that the best service I could perform for business was to give priority to reducing the burden of financing the public sector and so get down interest rates. But within the constraints I have also brought forward a long list of measures which will assist small businesses in particular and encourage those who run them. The major changes are the easements in capital taxation which complement last year's reduction in income tax; but in addition I am bringing forward a number of other measures. These do in fact include help in the area that you "— that is, the Conservation Society— identified; the small companies rate of corporation tax is going down a further 2 points to 40 per cent., and the limits for the relief are being increased to £70,000 for the full relief and £130,000 for the marginal relief. Yes, but, with respect, I do not see that that answers the perfectly sensible case that was made in the first place, and I should like the Chief Secretary, either now or at some later date, to give his mind to the case that was made by the Conservation Society. It may be possible to come back to it on Report if it is thought that that case is well founded. It does not seem to me to be all that costly; it seems sensible in terms of efficiency and it is certainly sensible in terms of the costs of collection.

The third issue that I wish to raise with the Chief Secretary is one that he may say he can do little or nothing about, but it concerns a problem that many of us are facing. I refer to the problem of the independent garage that retails petrol in country areas such as the one that I represent.

The truth is that the pressures from the petrol supplying companies on these small garages selling petrol are now extreme. I suppose that what I am asking is that the Government as a whole should make contact with those who run Esso, Shell and BP to ask them what the policy should be, since overall it cannot be energy-saving-effective or, I suspect, cost-effective to put out of business many of the small garages in country areas. We all know that in the country areas of West Lothian and, doubtless, in the constituencies of all other hon. Members who represent rural areas, these businesses serve an important function for the community. If people have to go into towns to get petrol, it must be obvious—though I do not make too much of it—that quite considerable quantities of fuel may well be wasted through the very fact that there is no petrol point in the country areas themselves.

This issue has been raised by the Scottish Motor Trade Association and by a number of constituents. I shall spare the Committee any of the letters that I have received from constituents, but the motor trade representatives make this point: A considerable number of rural communities rely on personal transport for mobility. The ' Gas bar ' policy of Esso may in certain urban sites be beneficial but not in a rural situation where the present petrol station repairs vehicles, performs MoTs and generally provides an overall service to the community. Many of the sites which the oil companies allow to remain open will be redeveloped to ' pump gas ' with not other services provided other than a shop with Esso recommended goods on sale. In the short term, petrol prices remain competitive, but are they so on motorways—apart from the M8 which is a special case—where it is a distress purchase? Is it not a fair analogy to suggest that when rationalisation is complete the urban communities will be in a distress purchase situation? Already in Edinburgh, for instance, 57 per cent. of sites are owned by oil companies which account for 69 per cent. of sales. Admittedly at present prices are highly competitive, which is benefiting the Edinburgh motorist, but what is it doing to the already dwindling gallonage of, say, the independent retailer in the Borders or, for that matter, the tenant of a small site "— in, say, West Lothian or East Lothian? It is, we feel, a deliberate creation of a whirlpool effect by oil companies capable of manipulation of prices. The end result will be to polarise gallonage and as a by-product carve up Edinburgh into trading areas dominated by one or other of the major oil companies. This latter point is vehemently denied by the oil companies, who claim that they merely wish to retain their share of the market and to control retail prices. The motor trade is aware from discussions with other bodies that its concern is not, as has been suggested, an " in-house " trade problem, but it concerns many others.

I put it to the Treasury that no Government can quite pass by this problem, as the Levite did, on the other side of the road, for the truth is that only Governments can do something about it. It is no good rural Members of Parliament going along in dribs and drabs and tackling Dr. Pearce or any other head of an oil company. There is some Government moral responsibility in this matter, and when we are discussing small businesses I must ask what is to happen.

Do the Government view with equanimity the prospect that a great number of small garages that could not remain as garages without the sale of petrol should be driven out of business by a policy that, so far as we can see, is determined by the major oil companies in competition one with the other rather than, in this case, by any advice from the Government? I hardly think that this Government—and rightly so—will give oil companies advice along the lines that they should put small rural garages out of business.

I state the problem. I do not want to impinge upon the patience of the Committee, but it is a real problem, it is urgent, and I ask that there be some comment on it.

Mr. James Hill (Southampton, Test)

I wonder whether, when they pick up Hansard tomorrow and read this debate, our small business men will draw any crumb of comfort. There have been a lot of platitudes, and there has been a tugging across the Floor, with a " yah-boo " sort of attitude—" I can protect small business men better than you ". What the small business man needs, instead of a very low key debate, is real confidence. He lacks confidence today.

The small business man is under extreme pressure. He works long hours. I am talking about the small business, the business with the man who runs it and three or four, or perhaps five or six, employees. Apart from working extremely long hours, he is the last in the pay queue. In some weeks, indeed, he will not be able to pay himself because he has not made ends meet. He is ploughing every possible penny back into his business. He is proud that he is a small business man. He is proud that he controls his own destiny under the umbrella of the State, but he is very hard pressed.

When the small business man reads the detailed series of letters just read out by the hon. Member for West Lothian (Mr. Dalyell), he will realise that this place is just a sounding box. We do not seem to have Members who understand the real trials of the small business man. We can only reflect the views of associations and large groups which write in. The small business man is the man one can go and meet in any pub in the evening and talk over his problems. He is willing to talk. He will not get any sustenance or delight from the debate today. What ideas have been suggested? The suggestion of a two-layer interest rate is unworkable. It is bureaucratic nonsense.

7 pm

Mr. Dalyell rose——

Mr. Hill

I shall not give way to the hon. Gentleman, because he is a constant interrupter in debates. In another Committee we had trials and tribulations with the hon. Gentleman. I shall not give way. I have only a few minutes in which to speak. There should be a form of justice in debate. I am making a few minor points. I am not trying to annoy any hon. Member, but I am definitely going to make my points.

The small business man will be depressed when he reads Hansard tomorrow. He will be depressed also because the procurement programmes of some of our nationalised industries are not aimed at buying British. They buy radar for British airports from American sources. A system is being established within the Inland Revenue whereby PAYE will be dealt with by computer. There is some doubt whether we should buy British for that. It is the same with everything that one could mention. We are about to split the Post Office. The telecommunications section, which will be under a new chairman, will have a tremendous purchasing bill.

In France, industries buy French equipment. President Giscard d'Estaing agreed that the French Post Office should buy for the Paris area 5,000 television screens to computerise the telephone directory. That process will be continued throughout France. We must begin to support the small business man in Britain.

Mr. John Garrett

I am sorry to interrupt the hon. Gentleman, but I am sure that he will give way to me.

Mr. Dalyell

The hon. Member for Southampton, Test (Mr. Hill) gives way to my hon. Friend only because he is an anti-vivisectionist.

Mr. Garrett

In view of the remarks of the hon. Member for Southampton, Test (Mr. Hill) about the need for public enterprises to buy British, I am sure that he would wholeheartedly support the important innovation introduced by the previous Labour Government, namely, the Offshore Supplies Office, which managed within three or four years to raise the proportion of North Sea oil equipment purchased from British sources from about 25 per cent. to more than 50 per cent. That is an example of Government intervention with which I hope he will fully agree.

Mr. Hill

I did not have the pleasure of being in the House when the previous Labour Government were taking such wonderful steps into the future. Unfortunately, one of those steps led them to the edge of the cliff. Had I been in the House, I would certainly have supported any suggestion to buy British. As long as there is a comparable product, and a way through the purchasing bodies of the nationalised industries, we must support the small business man. At the end of the day he is the man who receives the orders for small components. He can survive only on orders from above. It is only with high productivity that Britain can make the goods to sell to the outside world. I am sorry that I mentioned those one or two odd little matters, which are outside the power of the Chief Secretary—and quite rightly so. He does not want to direct any nationalised industry to buy British.

One of the most serious aspects for the small business man—once again outside the interests of the Committee—is the national insurance surcharge, which has a most frightening effect. Although there is a great deal of force in the argument for reducing the minimum lending rate, one of the most traumatic experiences for any small business man is when, at the end of the month, he has to put together the PAYE and the national insurance cheque for the collector of taxes. That is most disheartening for all small busineseses.

As has already been said, there are the problems of rates, taxes—which are being reduced, for which every small business man is grateful—and the general overheads. The small business man can survive only in good premises with a good work force and a full order book. He needs the confidence that can be given to him only by the House. The sooner that we get down to making it possible for the small business man to gain that confidence after a debate in the House, the sooner Britain will become more productive, and the sooner it will become a prosperous nation once again, and not number seven or eight in the European league.

Mr. Biffen

We have had a most entertaining and ambitious debate on clause 20. We have been graced by the presence of my hon. Friend the Under-Secretary of State for Industry. His presence is a courtesy to the Committee and an indication of the Government's commitment to the small business sector.

I wish to speak briefly on the clause. When I have performed that role, and paid my toll to enter into the wider debate, I shall seek to deal with some of the points that were raised in speeches from both sides of the Committee and to comment upon the role of small businesses within our national economy.

The purpose of the clause is to set the rate of corporation tax for small companies. It contains two significant changes. The rate is cut from 42 per cent. to 40 per cent., and the profits limit is raised from £60,000 to £70,000, broadly in line with inflation. The corresponding marginal relief applies up to a figure raised from £100,000 to £130,000.

My hon. Friend the Member for Upminster (Mr. Loveridge), who initiated the debate, was joined by the right hon. Member for Orkney and Shetland (Mr. Grimond) and the hon. Member for West Lothian (Mr. Dalyell) on the question about the smoothness with which the tax proceeds from £70,000 to £130,000. There is a formula, which I cannot commend for its simplicity, which, when applied to profits, effectively produces a sliding scale from £70,000 to £130,000. Most of the objections to that are based on the belief that the sliding scale should start at a lower figure, but the whole principle of the tax is not to apply a lower rate of tax to the first £70,000 of profits but to provide that the lower rate shall be available only for profits that are earned up to £70,000. It has been skewed to benefit small companies rather than the first tranche of profits of companies of whatever size.

The 40 per cent. small company rate compares with a 52 per cent. standard corporation tax rate. Clearly the Government believe that the measures should aid the cash flow problems in the small business sector, and help to solve its difficulties in raising finance. The cost to the Exchequer during 1980–81 will be £20 million, and for a full year it will be £35 million.

I wish to turn to the general debate which preceded my contribution——

Mr. Loveridge

Before my right hon. Friend does so, I hope that he will give us an assurance that the Government will carefully consider the matter of the scale at the point where the jump in tax is from 40 per cent. to 66 per cent., which has a sharply disincentive effect. I hope that the Government will think again on this matter.

Mr. Biffen

I hope that my hon. Friend will read carefully what I said a few moments ago, explaining why the formula that we have employed in the Bill was chosen.

In answering the general debate, I refer first to the speech by the hon. Member for West Lothian, partly because I want to perform the blessed role of peacemaker. A misunderstanding arose about the respective merits of former Ministers with responsibility for small businesses. My hon. Friend the Member for Uxbridge (Mr. Shersby) had in mind the hon. Member for Keighley (Mr. Cryer), not Lord Lever.

Mr. Dalyell

Ah!

Mr. Biffen

" Ah! ", says the hon. Member for West Lothian. Whether or not one agrees with the sentiment, one can understand how easily confusion could arise unless one were clear about the person at whom the remarks were directed.

I shall give my mind to the comments made by the hon. Member for West Lothian arising out of correspondence with the Conservation Society. It was the first that I had heard of this problem. However, I see no reason to suppose that I would be foolhardy enough to disagree with the recorded judgment of my right hon. and learned Friend the Chancellor of the Exchequer. None the less, having said that I shall give my mind to that point I shall do so.

The hon. Gentleman then raised the wider issue of the independent garage in rural areas. Inasmuch as there is a Government responsibility in this matter, it is more likely to fall within the ambit of the Department of Trade than of the Treasury. The best that I can do is to refer the hon. Gentleman's remarks to my right hon. Friend, so that he may make his assessment.

The hon. Member for Workington (Mr. Campbell-Savours), standing as a self-confessed entrepreneur—a fairly provocative description at this stage of our debates—proceeded to devise suggestions for the Government which I think would be absolute heaven to the entrepreneur—namely, a system of subsidised interest rates on a regional basis. I say in all seriousness to the hon. Gentleman, because we are going to be locked in comradely war——

Mr. Campbell-Savours

Coexistence.

Mr. Biffen

All right, coexistence—over the coming evenings——

Mr. Campbell-Savours

Mornings.

Mr. Biffen

Promises, promises. The position is that in the prosecution of regional policy we have had the payment of grants on physical assets. I note the presence of my hon. Friend the Member for Folkestone and Hythe (Mr. Costain). The Public Accounts Committee can provide no end of evidence of the difficulty of ensuring that those physical assets attracting grant were actually used in the areas that had been designated. How much more difficult it would be if we designated financial assets. I can see endless scope for the nimble-minded in this whole area. I am not commenting on the theological acceptability of the proposition; I am merely saying, in hard practical terms, that I do not believe that this kind of proposition is a starter.

7.15 pm

The same consideration leads me to be sceptical about the time-honoured Liberal proposal for differential interest rates. At least it can be said that the Liberal proposition was almost born of the pre-1914 days—the land on which we stand God gave to the people. But we have moved on. I see no effective likelihood in the sophisticated society in which we live of having two-tier interest rates or, indeed, an effective tax on bank lending, which was the great offering to our public debate this afternoon by the right hon. Member for Llanelli (Mr. Davies), who asked us to study it with very close care.

The debate has thrown up this itch for mistaken intervention on the part of the Opposition. It is a Lib-Lab coalition in this instance, but it is not dignified by that passing alliance. It takes us again more and more to the broad divide in approaching the problems of business: whether we believe that we can help by constant Government involvement on a discriminatory basis or whether we should proceed on the basis of trying to withdraw Governments successively from their present degree of involvement.

The hon. Member for Cardigan (Mr. Howells), besides referring to two-tier interest rates, suggested that I might like to enliven our proceedings by indicating when the minimum lending rate would fall. I have nothing to add to what I said last night. Indeed, the right hon. Member for Llanelli said that what I said last night moved the market. It is a great temptation to see what goes up come down, and whether one can manipulate two ways, but I shall be immensely responsible. I say that I have nothing to add.

I note that my hon. Friend the Member for Hertfordshire, South-West (Mr. Page) said that he was travelling happily—that was the impression that I got—with regard to the prospect of a fairly early fall in the minimum lending rate. I always have a cheery wave for such a pilgrim, but again I cannot reasonably go beyond what I have already said.

The hon. Member for Norwich, South (Mr. Garrett), coming to the Opposition Dispatch Box, treated the Committee to a litany of gloom that would almost have been worthy of myself. One learns that paste is no substitute for pearls. I felt that, somehow or other, the whole thing was just that much overdone that it had become something of a caricature.

When the hon. Gentleman referred to small businesses as a wasteland, he showed a total misunderstanding of what was happening in the economy. Of course small businesses have their full share of problems. There is not the slightest prospect of sheltering the small business sector of the economy from the general buffets that we shall encounter over the coming 12 months or so. Nobody would be so foolish, so facile or so patronising as to suggest that. But at least we are enabled to believe that there is about the small business sector an innovative characteristic—a reaction, an aptitude, an ability to weather storms a great deal more successfully than do some of the giants. I should think that that is the story of what is currently happening.

In contrast to what was offered by the hon. Member for Norwich, South, I turn to the speech made by my hon. Friend the Member for Bridlington (Mr. Townend). He showed just the kind of robust optimism that is needed to wither the contrived gloom of the Opposition Front Bench. My hon. Friend made a point that will increasingly lie at the heart of the debate. He said that if we have the interests of the small business sector at heart we must secure an early and substantial reform of capital taxation. That will be the real test. What is the degree of bipartisanship on the whole issue of small businesses, whether or not the Opposition will join us in prosecuting the passage of a substantial reform of capital taxation?

The right hon. Member for Llanelli said that we have not done anything yet. That should be written into the record, as should his pledge on a tax on bank lending. It is a clear indication by the Opposition Front Bench that we should get on with the question of reforming capital taxation. In this area I shall also travel happily.

My hon. Friend the Member for Uxbridge said that he believed that the banks wanted to help small firms. That is true. The whole area of the financing of small companies is one that is engaging the anxieties of the financial community on a scale that has hitherto been unparalleled. It knows perfectly well that small businesses have become politically very topical. I do not blame it on that account. I also believe that it is a matter of good, sound business instinct. The financial community knows that this is an area that will allow the deployment of our asssets to produce a profit and secure livelihood.

My hon. Friend the Member for Southampton, Test (Mr. Hill) enjoined us to realise—I thought splendidly—that a large number of small companies prefer to proceed invisibly. They are not interested in joining trade associations. They are a part of the great unorganised army. That is partly why they are resented by those who have a vested commitment to centralised planning in the economy. The small business sector is full of people who are monumentally and temperamentally unfit to be members of a sector working party, and long may that remain so. They are part of the free enterprise sector of the economy that we need so much.

I turn now to the speech of my hon. Friend the Member for Upminster, who introduced this debate and who speaks with the authority of the office that he holds with the small business committee of the Conservative Party. I thank my hon. Friend for initiating a debate that has ranged widely. The longer it proceeded the more it vindicated the role of small businesses in our economy. My hon. Friend drew upon American experience—which is as good a guide as we have—indicating the importance of small businesses for the whole process of renewal in our economy.

The hon. Member for Norwich, South sits on the Opposition Front Bench, taking a slightly sniffy attitude. I heard all his words and the mild barracking from the Opposition Front Bench throughout the debate. I am not complaining, so the hon. Gentleman must not get too upset.

There is no harm whatever in quoting from the American experience. Of course, our economy does not slavishly follow that of North America, but I believe that the experience there is a good general guide as to the importance of small businesses in securing the renewal and change that must be essential if our economy is to prosper.

This clause is a modest indication of the Government's commitment to provide a better tax framework for small businesses. I make no great claims, but at least it is better than nothing, and its value is increased when it is taken in conjunction with other tax changes, both in the previous Budget and in this Budget. There is also a commitment to ensure that there are better ways of providing venture capital for the small business sector. On this, we are well advised to await the final outcome and judgment of the Wilson committee. It will be a matter of major continuing debate.

Finally, we have a commitment to keep off the grass, which is not an attitude congenial to our opponents. We believe that the small business community needs significantly less government rather than more regulation. This clause is part of a general approach that is being deployed by this Government in their policy towards small businesses. I recommend it to the Committee and I hope that it will receive its authority.

Question put and agreed to.

Clause 20 ordered to stand part of the Bill.