HC Deb 15 March 1983 vol 39 cc151-4

Small and medium-sized enterprises are a major source of new wealth for the nation and, above all, of new jobs. I shall, therefore, propose today a further series of measures which will foster their growth, greatly extending those which I have already introduced, and whose results are already evident. I am told that Britain now offers a more attractive tax environment than Germany for venture capital and for the microelectronics revolution. That was not so five years ago.

I now propose further action in a number of areas.

I want more people to share in the ownership of the companies for which they work. It is both a good incentive and a good way for people to build up a capital stake. The measures so far introduced have already brought us to the position where about 250,000 employees receive shares each year.

But I want to make these employee profit-sharing schemes more attractive and more flexible, while still open to all employees. Already companies can give tax-free shares to employees each year up to the value of £1,250. I propose to add an alternative limit of 10 per cent. of the employee's earnings, up to a maximum of £5,000. This new freedom will provide still further encouragement to management, upon whom so much depends.

Share options for senior managers also provide an important incentive. Last year I introduced arrangements to spread the income tax burden that can arise when an option is exercised. I propose this year to increase the instalment period from three years to five years.

Save-as-you-earn linked share option schemes already cover over 100,000 employees. The monthly limit on contributions with tax relief now stands at £50. In order to encourage further growth I propose increasing it to £75. The total cost of all these share incentive measures will be £20 million in 1983–84 and some £35 million in a full year.

I also want to ease the path for employees of a company who seek to buy the business for which they work. The transformation that followed the employee buy-out of the National Freight Company shows how valuable this can be. In order to help those who borrowed to take part in this buy-out, and to encourage similar success, I propose that where an employee-controlled company is being set up the employees should benefit from interest relief on loans they take out to buy shares in it.

Capital taxes can suffocate enterprise. Last year we took the major step of indexing capital gains. It is clearly appropriate to provide a period of stability to let the new structure settle in. We have already announced that administrative measures will be introduced to help large institutional investors. I now propose that, as the legislation provides, the annual exempt amounts for individuals and for trustees should be increased in line with inflation; and I propose to increase to £20,000 the limits on the relief for small part disposals of land and for residential letting.

I propose to double the present retirement relief, raising it to £100,000. This will further encourage entrepreneurs to keep money in their business where it can work to best effect. I have received a number of representations that other features of the present relief cause difficulty, and we shall therefore be conducting further consultations later this year.

The cost of the CGT measures I have announced will be £15 million in a full year. There will be no cost in 1983–84.

On capital transfer tax, I propose to increase the threshold and rate bands broadly in line with indexation. As a result the threshold will rise from £55,000 to £60,000.

I am concerned that the prospect of capital transfer tax may still discourage those who are contemplating investing capital in small businesses. It may also be one of the factors reducing the number of farms available for letting. I therefore propose to increase relief for minority shareholders in unquoted companies and for let agricultural land from 20 per cent. to 30 per cent.

The cost of these changes in capital transfer tax will be £20 million in 1983–84 and £55 million in a full year. Other minor changes to CTT and CGT are set out in Inland Revenue press notices.

I propose two other measures to help small firms. The VAT registration threshold will be increased with effect from midnight tonight from £17,000 to £18,000, at a cost of £5 million in a full year.

I propose to increase from £200 to £1,000 the de minimis limit for assessment of investment income apportioned to the members of a close company.

I come to the question of innovation and technology. I have already announced an increase in the proportion of office space in buildings qualifying for the industrial buildings allowance. This additional flexibility will be of particular value in the high technology industries, which often need relatively large amounts of space for design and computer-based activities. It will cost about £25 million in a full year. On the tax side I also propose to extend the 100 per cent. first year allowance for rented teletext receivers until May 1984, and for British films until March 1987. The full year cost of these two measures will be £10 million and £30 million respectively.

On the public expenditure side, I propose a range of measures for the encouragement of industry and enterprise worth £185 million over the next three years.

The west midlands has been particularly hard hit by the current recession. Small engineering firms are even more important in that region than in other parts of the economy. They need help to modernise and rebuild their strength. I propose, therefore, to make available an extra £100 million over the next three years to enable my right hon. Friend the Secretary of State for Industry to reopen the small engineering firms investment scheme.

The scheme is already a proven success: 1,750 applications were received last year and more than 1,400 offers of assistance have been made. It is open to qualifying firms in any area, but, as one would expect, a high proportion of the first allocation went to firms in the west midlands. This new, and much larger, allocation should bring substantial further help to the region, as well as to small engineering firms generally.

In information technology, further assistance will be available to enable firms to evaluate the benefits of computer aids for production management, and for the development of innovative software products.

At the moment grants are available for research and development, but there is no special facility for encouraging the marketing and investment stages of the innovation process. To fill this gap a new scheme will be introduced, which will be of special value to small and medium-sized companies.

There will also be an increase in expenditure on the Department of Industry's manufacturing and design advisory services. These provide small firms with a free introduction to private sector consultancy services, and have proved highly successful.

My right hon. Friend the Secretary of State for Industry may have an opportunity, later in this debate, to describe these measures in more detail. Taken together with measures previously announced, they will mean that Government assistance on new technology and innovation will have doubled since this Government took office.

Last year I extended the small workshop scheme by two years for very small industrial units. The scheme is proving very effective in promoting the provision of premises for new businesses. This year I want to encourage the conversion of more old buildings into productive workshops. I propose to allow all such units in a single converted building to qualify for 100 per cent. first year allowances if on average they meet the size requirements.

Now I come to the important matter of finance for business, on which I have major improvements to propose.

Companies and monetary policy alike would both benefit from a revival of the corporate bond market. Lower long-term interest rates are the key to this. But there are also a number of ways of giving companies greater flexibility in the nature and timing of the bonds they issue.

A consultative document on deep discount stock was issued on 12 January. It set out a range of options, and I am grateful to those who responded.

I now propose to introduce attractive tax arrangements for this stock. The borrower will get relief on an appropriate accruals basis, but the investor will pay tax only at redemption or on sale. There was considerable support for such tax treatment.

Companies will still be able to issue conventional or indexed bonds. My proposal extends their range of options.

I also propose certain reliefs to enable companies to issue Eurobonds in this country and to ensure that full tax relief is available for discounts paid on acceptance credits.

We shall be issuing on 21 March a consultative document on the possibilities for the simplification of stamp duty.

The loan guarantee scheme is another important innovation that we have introduced. My hon. Friend the Under-Secretary of State for Industry has conducted a thorough review of the scheme with the help of outside consultants. He will be making a full statement tomorrow. It is clear that the scheme has usefully encouraged lending to the small firms sector. Nearly £300 million has been lent to some 9,000 companies, about half of them new businesses. As a result, the scheme is now close to its present ceiling of £300 million. This ceiling will therefore be raised to £600 million to enable the scheme to run its full three-year course to May 1984, and we may need to seek the House's approval for an increase in the statutory limit for this purpose.

On 3 March I informed the House about the publication of the report of the working party on free ports, under the chairmanship of my hon. Friend the Economic Secretary to the Treasury. I can now tell the House that the Government accepts the report and will implement its recommendations. Legislation will therefore be introduced in the Finance Bill to enable selected free port sites to be designated.

Free ports are a new trading concept for the United Kingdom and I regard it as essential to make a careful test of the facilities they offer. As the report recommended, the first step is to establish free ports on an experimental basis in a limited number of locations. Widespread consultation will be needed before the sites are chosen.

Last, but far from least, the business start-up scheme. This scheme, announced in my 1981 Budget statement, offers uniquely generous tax incentives to outside investors in small companies. It is not bettered anywhere in the world. But I now intend to better it.

When I introduced the scheme I thought it right to give priority to investment in business start-ups, where there is often the greatest difficulty in raising outside equity finance.

I now propose a major extension of the scheme. It was due to end in April 1984. The life of the new, extended scheme will run to April 1987. From 6 April the coverage will be greatly widened to include not only new companies but qualifying established unquoted trading companies as well. I propose also to double the allowable maximum investment in any year from £20,000 to £40,000. A number of other changes will be made to improve the scheme. In particular, the 50 per cent. limit on qualifying shares will be dropped. The cost of these changes is difficult to estimate, but could be £75 million in a full year.

Those proposals will transform the position of unquoted trading companies seeking outside equity. It is a further move towards removing the bias in the tax system against the personal shareholder, and a further measure to encourage wider share ownership. By concentrating help on those companies which do not have ready access to outside capital the scheme will assist many more small and medium companies to realise their undoubted potential for growth. The new, extended scheme will be known as the business expansion scheme.

Our constant concern as a Government has been to improve the competitive environment for businesses and people who work in them. These proposals mark a further major step in that direction.