§ So far I have been dealing almost entirely with a group of measures that will have the disagreeable but necessary effect of increasing the revenue.
§ In order to secure the reduction in interest rates most of that revenue must go to reducing the PSBR. But some can go, as it should, to lightening directly the tax burden on business and enterprise.
§ There is not enough for across-the-board measures. It is important to concentrate relief where it will be most effective. I cannot, for example, find room for a reduction in the national insurance surcharge, at a full year cost to the PSBR of £700 million for each percentage point. Nor would a general reduction in corporation tax be appropriate, since it would not help companies that are so hard pressed that they are making no profit. I therefore propose to bring help to business and to encourage enterprise in the following ways.
§ The first measure is one announced, subject to further consultation on the details, last November: the reform of the stock relief scheme.
§ This reform will tackle certain abuses of the old scheme that have attracted legitimate concern. It will also lift the threat of clawback—the withdrawal of tax relief when businesses reduce their stocks. This was jeopardising the financial position of industry in the current recession. It was, above all, this problem of clawback that made it essential for the details of a new scheme to be announced, as they were in our consultative document last November.
§ I have considered very carefully the representations that have since been made in response to my original proposals. As a result, I propose to make certain detailed changes, including improvements in the transitional arrangements.
§ In particular, I have considered very carefully the concern that has been expressed to me by many businesses 777 about how they would be affected by the proposed credit restriction—that is, the arrangement under which relief should be restricted to the extent that a business may finance its stocks by trade credit or other borrowings. I have sought to balance the case in principle for the credit restriction against the fact that the other changes that I am making will in themselves reduce the scope for abuse under the old stock relief scheme. In the light of the severe difficulties which many businesses are now facing. I have decided not to legislate for the credit restriction. This will be reviewed in the context of other possible changes in the promised corporation tax Green Paper.
§ These changes will increase the cost of the new scheme to the Exchequer. The fall in the rate of inflation would by itself have reduced that cost. But as a result of the changes I now propose, the cost in respect of profits earned in the present calendar year, 1981—tax on which will mostly be paid in 1982–83—will be £450 million. This includes the cost of dropping the credit restriction, of about £75 million in the first full year. Only a part year cost—about £180 million—will fall in 1981–82. There will be a continuing revenue cost for some time to come and equally a substantial benefit to industry.
§ I also propose a limited extension of consortium relief to enable consortium members to pass relief downwards to a consortium company.