HC Deb 15 March 1983 vol 39 cc149-51

From one key industry I turn now to business and industry as a whole. Our living standards and jobs depend on our ability to sell and compete, producing the right goods and services at the right time and the right price. The main responsibility for achieving this lies with industry and commerce. But the Government can help by reducing the burdens they place on business. These can be twofold. High inflation and excessive public borrowing have in the past kept interest rates and business costs higher than they need have been. We have made progress in putting that right. But Government also impose direct burdens on business, and here too we have acted to help cut costs. I have given high priority to reducing the national insurance surcharge, the tax on jobs first introduced and then increased by our Labour predecessors.

In last year's Budget, I cut MS from 3ֵ5 per cent. to 2ֵ5 per cent. In November I announced that, for 1983–84, the rate would be further cut to 1ֵ5 per cent. On top of this I made special arrangements to enable half of that further cut of 1 per cent. to be brought forward into 1982–83.

I now propose that the rate be reduced from 1ֵ5 per cent. to 1 per cent. from August 1983. As before, the benefits will be confined to the private sector. This cut is worth another £215 million in 1983–84 and nearly £400 million in a full year.

The surcharge was 3ֵ5 per cent. when this Government took office. We are now well on the way to abolishing it. the reduction from 3ֵ5 per cent. to 1 per cent. will be worth nearly £2 billion to private business in a full year.

On corporation tax, we issued a Green Paper over a year ago. I am grateful for the many thoughtful responses, which we have examined carefully. There is one impression that stands out, and that is the overwhelming desire on the part of industry for stability in the corporation tax regime. I recognise the force in this. Change is not costless. I have therefore concluded that there should be no change in the broad structure of the present arrangements. As regards the taxation of inflationary profits, I await the outcome of the accountancy profession's further considerations.

There are, however, some useful changes on which I can make a start today.

At present, advance corporation tax can be carried back two years to be set against corporation tax. I propose to extend this over a period to six years. I also propose that the incidental business costs of issuing acceptance credits and of issuing certain convertible loan stocks should be allowable expenses for corporation tax purposes. There are other areas where we need to make progress, including the tax treatment of groups and capital allowances for the mineral extraction industries. I am authorising the Inland Revenue to look further at these issues, and to consult on them where necessary.

On the taxation of international business, I have considered carefully the responses to the latest round of consultation. I have decided not to proceed this year with measures concerning company residence and upstream loans. Both need further consideration.

On tax havens, however, I propose to move clauses which take account of the recent consultations. These will not come into effect until April 1984.

This change should be considered alongside one other proposal that flows from the corporation tax Green Paper. At present, credit for foreign tax on overseas income is only allowed against such part of a company's corporation tax liability as remains after deduction of ACT. As a result of representations received in response to the Green Paper, I propose that from April 1984 this double tax relief should be allowed against the full corporation tax liability before ACT is deducted.

As I have said, my proposals on tax havens and on ACT and double tax relief have to be seen together Between them they will not involve any increase in the total burden of tax on international business, but they do mean a switch in the tax burden away from those who remit profits home and on to those who accumulate surplus cash balances in tax havens overseas. I am sure that the House will agree that this is right.

To turn to a different area, I announce each year the future scale rates for measuring the benefits from company cars. Recent increases have been at a rate of 20 per cent., but the levels still fall short of any objective measure of the true benefit. This year I am proposing further increases with effect from April 1984; but they will be held to about 15 per cent. These increases will also apply from the same date to the new car fuel scales which come into operation next month.

I have also decided to legislate to bring back into tax the benefit from scholarships provided by employers for the children of their higher paid employees. There will be a transitional exemption for awards made before today so that scholarship income in respect of an existing award will continue to be exempt until the child leaves his present school or college.

I propose, too, to remove an anomaly by which some people have their tax bills artificially reduced because their employers do not account for PAYE at the right time and then pay over too little. I also propose with effect from April 1984 to increase substantially the tax measure of the benefit gained by an employee who occupies rent free, or at a very low rent, expensive accommodation owned by his employer.

The House will be aware of instances of tax avoidance through the exploitation of group relief, and through the exploitation of so-called second hand bonds. I propose legislation to deal with these abuses and also to improve the arrangements for collecting DLT on disposals by nonresidents.

Now I wish to say a word about banks. I said last year that we would be giving further thought to the problem of how best to ensure a sufficient contribution to tax revenues by the banking sector. I have examined the position with great care in the light of current circumstances, and have concluded that it would not this year be sensible to tighten the tax regime for banks.

Finally, for the company sector, I propose some changes that are designed specifically to help small and medium-sized companies. At present the so-called small companies rate of corporation tax is 40 per cent. and applies to taxable profits up to £90,000. The 52 per cent. rate is payable at £225,000. I propose to reduce the 40 per cent. rate to 38 per cent., to raise the lower limit of £90,000 to £100,000, and to raise the upper limit from £225,000 to £500,000.

Between these two limits profits are subject to a marginal rate which stood at just over 66 per cent. when this Government came into office. I have already reduced it to 60 per cent. The changes that I am proposing today will bring it down to 55ֵ5 per cent.—only a little above the main 52 per cent. rate.

These changes will concentrate the help that I can give on the many small and medium-sized companies with taxable profits of up to £500,000. The cost will be £40 million in 1983–84 and £70 million in a full year.

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