§ Mr. HattersleyI beg to move amendment No. 36, in page 42, line 32, at end insert—
'(2) Subsection (1) above shall not apply to allowances against Schedule D case I and Schedule D case II of income tax.'.I shall be excessively brief in this, my last test this evening of the Government's rigidity or lack of imagination and flexibility. The amendment concerns the so-called package by which certain benefits are provided for industry at the expense of certain penalties.
By now, the Committee will recall that capital allowances will be phased out for both corporation taxpayers and schedule D income taxpayers—the self-employed. While some of the effects on corporation taxpayers will be offset by the fall in corporation tax to a rate of 35 per cent. there will be no offsetting benefit for schedule D taxpayers. Very often, they are small employers — small business men. The amendment proposes to retain capital allowances for schedule D income taxpayers so that they will not lose the benefits without gaining any of the advantages.
If we are talking about a policy that is fair and square between competitive sources, to have one section of the economy that receives none of the new benefits but has to suffer all the new penalties is wholly unreasonable by any standards. The standard against which I want to test that 291 this evening is whether it provides the help that the Government always claim they want to provide for the small business man.
If the Government choose to resist the amendment—it is extraordinary how a hush falls over the Committee at the mention of small business men—the Minister must tell us that the Government propose to do something to compensate for the added burden that will fall on some business men in the absence of any of the benefits that they would receive if they were corporation taxpayers.
§ Mr. MooreThe right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) moved the amendment with a degree of charm and brevity that I wish I could match. Of course, concealed within it is a great deal, to which I must respond as briefly as possible.
The amendment seeks to exclude the self-employed from the proposed changes. I recognise the right hon. Gentleman's point. For unincorporated businesses there will be no direct benefit from the corporation tax changes. But that is ignoring the effects of the other changes in the package of measures — the substantial increase in income tax thresholds, the abolition of the national insurance surcharge, the abolition of the investment income surcharge—especially important on retirement—and the capital taxation changes.
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Thus, in the first two years, 1984–85 and 1985–86, unincorporated businesses as a whole will gain. They will get the benefit of the abolition of the NIS, and the phasing out of initial and first year allowances will not have taken full effect. Taking the two years together, the net effect of these changes will be a gain to the unincorporated sector of about £60 million. Thereafter—and I recognise the point that the right hon. Gentleman makes—the effect will tend to move the other way because the loss from the abolition of stock relief and capital allowances will exceed the continuing gain from the abolition of NIS.
In the longer run, the losses from the changes on capital allowances will fall as the writing down allowances build up, and the unincorporated sector will gain substantially from the income tax changes in the Budget. It would be wrong to leave the income tax changes out of account. They are the principal means by which the unincorporated sector will benefit.
Of the 1.5 million self-employed traders, 170,000 are higher rate taxpayers and 55,000 pay investment income surcharge. The total gain accruing to the 1.5 million self-employed in 1984–85 from the Budget will be £275 million, compared with no change in the personal allowances, and £160 million compared with indexation. There will also be a small gain from the CTT proposals.
Taking the income tax and other changes together, the unincorporated sector will, therefore, get a substantial gain from the Budget up to and including 1986–87 and will not be far from balance in 1987–88. Furthermore, the self-employed can look forward to further improvements in income tax.
In his Budget statement, the Chancellor said that, while he thought it right to concentrate this year on business taxation, the burden of income tax was still too heavy and that he intended to carry forward in the lifetime of the present Parliament the progress already made in reducing the burden of personal taxation.
292 Despite all this, we have heard much of late from Opposition Members about the problems of the self-employed trader and it has been suggested that he has been overlooked or ignored. Nothing could be further from the truth. Since 1979, we have devoted more time and effort than any previous Government to helping the self-employed to set up new businesses and to expand. The reduction in the small companies' rate of corporation tax to 30 per cent. will provide a strong incentive for a number of the self-employed to incorporate. How to carry on a business is for its proprietors, not the Government, to decide. Removing distortions in the tax system creates the best basis for achieving that.
I realise that some businesses traditionally do not incorporate — farmers, for example — and that some, such as accountants and solicitors, are not permitted to incorporate because of professional and ethical rules. However, professional bodies are allowed to arrange for some of their activities to be handled by service companies of which the professional firm's partners are directors, and this facility is widely used.
Not only small tradesmen would gain from the amendment. The proposal to shelter the unincorporated from the changes in the capital allowances would benefit farmers, lawyers and many other professional and business people who pay income tax rather than corporation tax on their profits. Many of these people will inevitably be high earners. Yet at the same time Opposition Members complain about increases in the higher rate thresholds.
Having outlined some of the ways in which the unincorporated have benefited and will continue to benefit, I urge the Committee to reject the amendment.
§ Mr. HattersleyThe Financial Secretary said that the Committee had heard much in the last two days from Opposition Members about the self-employed. We have not heard a word from the Government Benches about them, except from the Front Bench, defending the Government's position. Where are those Tory Back Benchers of old who could always be relied upon to rally to the cause of the small businessmen and the self-employed? On the evidence of yesterday and today, they are not here.
Where are the accounts that we normally hear of the opinions of small businessmen as represented to the Government by the Small Businesses Bureau? Apart from the rather complacent view of their prospects given by the Financial Secretary, it has been left to Opposition Members to speak for them tonight; and my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) spoke for them in another context yesterday.
The Financial Secretary missed the point in two ways. First, we have a new Government technique of calculating the benefits provided to industry over varying periods according to the convenience of choosing two or four years or an indefinite period. In an earlier debate I was urged to understand that if one calculated the balance between corporation tax and capital allowances over four years, all would turn out well in the end. The Committee is now being told that things will turn out all right over two years. No doubt something will happen in six, eight or 10 years' time, but I do not think that that theoretical view of the economy will commend itself to the self-employed. I do not believe that they will be impressed by the Financial Secretary urging them to remember that they will receive other benefits from the Budget. They will benefit from the 293 abolition of the national insurance surcharge but so will ICI and other massive companies, which will benefit also from the other relaxations.
The self-employed businessman will object especially to the Financial Secretary saying that he or she will gain from the income tax changes as an earner. One of the great complaints of the self-employed about successive Governments is over their inability to realise that they have two roles. Their first role is that of a worker who receives a wage and the second is that they are the owners of businesses. They argue that the two roles have to be separated and distinguished. That is something that the Financial Secretary has singularly failed to do. He has failed the self-employed and ignored the interests of small businesses, and the Opposition will rally to their defence by dividing the Committee.
§ Question put, That the amendment be made;—
§ The Committee divided: Ayes 109, Noes 215.
296| Division No. 267] | [10.35 pm |
| AYES | |
| Adams, Allen (Paisley N) | Hattersley, Rt Hon Roy |
| Anderson, Donald | Haynes, Frank |
| Archer, Rt Hon Peter | Hogg, N. (C'nauld & Kilsyth) |
| Atkinson, N. (Tottenham) | Holland, Stuart (Vauxhall) |
| Bagier. Gordon A. T. | Hoyle, Douglas |
| Barron, Kevin | Hughes, Dr. Mark (Durham) |
| Beckett, Mrs Margaret | Hughes, Robert (Aberdeen N) |
| Bell, Stuart | Hughes, Sean (Knowsley S) |
| Benn, Tony | Janner, Hon Greville |
| Bennett, A. (Dent'n & Red'sh) | Kaufman, Rt Hon Gerald |
| Bermingham, Gerald | Lamond, James |
| Blair, Anthony | Leadbitter, Ted |
| Boyes, Roland | Lewis, Ron (Carlisle) |
| Bray, Dr Jeremy | Litherland, Robert |
| Brown, R. (N'c'tle-u-Tyne N) | Lofthouse, Geoffrey |
| Caborn, Richard | Loyden, Edward |
| Callaghan, Jim (Heyw'd & M) | McCartney, Hugh |
| Clark, Dr David (S Shields) | McDonald, Dr Oonagh |
| Clay, Robert | McGuire, Michael |
| Cocks, Rt Hon M. (Bristol S.) | McNamara, Kevin |
| Cohen, Harry | McWilliam, John |
| Cook, Frank (Stockton North) | Madden, Max |
| Corbett, Robin | Marshall, David (Shettleston) |
| Corbyn, Jeremy | Michie, William |
| Cowans, Harry | Millan, Rt Hon Bruce |
| Craigen, J. M. | Miller, Dr M. S. (E Kilbride) |
| Crowther, Stan | Mitchell, Austin (G't Grimsby) |
| Cunliffe, Lawrence | Morris, Rt Hon J. (Aberavon) |
| Dalyell, Tam | O'Brien, William |
| Davies, Ronald (Caerphilly) | Park, George |
| Davis, Terry (B'ham, H'ge H'I) | Patchett, Terry |
| Dixon, Donald | Pike, Peter |
| Dobson, Frank | Powell, Raymond (Ogmore) |
| Dormand, Jack | Randall, Stuart |
| Dubs, Alfred | Redmond, M. |
| Duffy, A. E. P. | Richardson, Ms Jo |
| Eadie, Alex | Robertson, George |
| Evans, John (St. Helens N) | Rooker, J. W. |
| Ewing, Harry | Sedgemore, Brian |
| Fatchett, Derek | Sheldon, Rt Hon R. |
| Faulds, Andrew | Short, Ms Clare (Ladywood) |
| Fisher, Mark | Short, Mrs R.(W'hampt'n NE) |
| Flannery, Martin | Smith, C.(lsl'ton S & F'bury) |
| Foster, Derek | Snape, Peter |
| Fraser, J. (Norwood) | Soley, Clive |
| Freeson, Rt Hon Reginald | Strang, Gavin |
| Garrett, W. E. | Thomas, Dr R. (Carmarthen) |
| George, Bruce | Tinn, James |
| Godman, Dr Norman | Wardell, Gareth (Gower) |
| Gould, Bryan | Welsh, Michael |
| Hamilton, W. W. (Central Fife) | Wigley, Dafydd |
| Hardy, Peter | Wilson, Gordon |
| Harman, Ms Harriet | Winnick, David |
| Hart, Rt Hon Dame Judith | Woodall, Alec |
| Young, David (Bolton SE) | Mr. James Hamilton and |
| Mr. Allen McKay. | |
| Tellers for the Ayes: | |
| NOES | |
| Aitken, Jonathan | Hughes, Simon (Southwark) |
| Ancram, Michael | Hunt, David (Wirral) |
| Ashby, David | Hunter, Andrew |
| Ashdown, Paddy | Jessel, Toby |
| Atkins, Robert (South Ribble) | Johnson-Smith, Sir Geoffrey |
| Baldry, Anthony | Jones, Gwilym (Cardiff N) |
| Batiste, Spencer | Jones, Robert (W Herts) |
| Beaumont-Dark, Anthony | Joseph, Rt Hon Sir Keith |
| Bellingham, Henry | Kellett-Bowman, Mrs Elaine |
| Benyon, William | Key, Robert |
| Berry, Sir Anthony | King, Roger (B'ham N'field) |
| Biffen, Rt Hon John | Kirkwood, Archibald |
| Boscawen, Hon Robert | Knight, Gregory (Derby N) |
| Bowden, Gerald (Dulwich) | Lamont, Norman |
| Braine, Sir Bernard | Latham, Michael |
| Brandon-Bravo, Martin | Lawler, Geoffrey |
| Bruce, Malcolm | Leigh, Edward (Gainsbor'gh) |
| Budgen, Nick | Lennox-Boyd, Hon Mark |
| Butterfill, John | Lester, Jim |
| Clark, Dr Michael (Rochford) | Lewis, Sir Kenneth (Stamf'd) |
| Clegg, Sir Walter | Lightbown, David |
| Cockeram, Eric | Lilley, Peter |
| Colvin, Michael | Lloyd, Peter, (Fareham) |
| Conway, Derek | Lord, Michael |
| Cranborne, Viscount | McCrindle, Robert |
| Crouch, David | McCurley, Mrs Anna |
| Dorrell, Stephen | McCusker, Harold |
| Evennett, David | MacKay, Andrew (Berkshire) |
| Favell, Anthony | MacKay, John (Argyll & Bute) |
| Finsberg, Sir Geoffrey | Maclean, David John |
| Fletcher, Alexander | McNair-Wilson, P. (New F'st) |
| Forman, Nigel | Maginnis, Ken |
| Forsythe, Clifford (S Antrim) | Malins, Humfrey |
| Forth, Eric | Maples, John |
| Fox, Marcus | Marland, Paul |
| Franks, Cecil | Mather, Carol |
| Fraser, Peter (Angus East) | Maude, Hon Francis |
| Freeman, Roger | Mawhinney, Dr Brian |
| Galley, Roy | Maxwell-Hyslop, Robin |
| Gardiner, George (Reigate) | Meadowcroft, Michael |
| Garel-Jones, Tristan | Mellor, David |
| Glyn, Dr Alan | Merchant, Piers |
| Goodlad, Alastair | Meyer, Sir Anthony |
| Grant, Sir Anthony | Mills, lain (Meriden) |
| Greenway, Harry | Mills, Sir Peter (West Devon) |
| Gregory, Conal | Miscampbell, Norman |
| Griffiths, E. (B'y St Edm'ds) | Moate, Roger |
| Griffiths, Peter (Portsm'th N) | Molyneaux, Rt Hon James |
| Ground, Patrick | Moore, John |
| Hamilton, Hon A. (Epsom) | Morrison, Hon C. (Devizes) |
| Hamilton, Neil (Tatton) | Morrison, Hon P. (Chester) |
| Hampson, Dr Keith | Moynihan, Hon C. |
| Hanley, Jeremy | Mudd, David |
| Hargreaves, Kenneth | Murphy, Christopher |
| Harris, David | Neale, Gerrard |
| Hawkins, C. (High Peak) | Needham, Richard |
| Hawkins, Sir Paul (SW N'folk) | Nicholls, Patrick |
| Hawksley, Warren | Nicholson, J. |
| Hayes, J. | Normanton, Tom |
| Hayhoe, Barney | Norris, Steven |
| Hayward, Robert | Oppenheim, Philip |
| Heathcoat-Amory, David | Ottaway, Richard |
| Henderson, Barry | Page, Richard (Herts SW) |
| Hill, James | Parkinson, Rt Hon Cecil |
| Hirst, Michael | Parris, Matthew |
| Hogg, Hon Douglas (Gr'th'm) | Pawsey, James |
| Holland, Sir Philip (Gedling) | Peacock, Mrs Elizabeth |
| Holt, Richard | Penhaligon, David |
| Hooson, Tom | Percival, Rt Hon Sir Ian |
| Howard, Michael | Pollock, Alexander |
| Howarth, Alan (Stratf'd-on-A) | Powell, Rt Hon J. E. (S Down) |
| Howarth, Gerald (Cannock) | Powell, William (Corby) |
| Howell, Ralph (N Norfolk) | Powley, John |
| Howells, Geraint | Prentice, Rt Hon Reg |
| Hubbard-Miles, Peter | Proctor, K. Harvey |
| Rees, Rt Hon Peter (Dover) | Spencer, Derek |
| Rhys Williams, Sir Brandon | Squire, Robin |
| Ridsdale, Sir Julian | Stanbrook, Ivor |
| Roberts, Wyn (Convey) | Steel, Rt Hon David |
| Roe, Mrs Marion | Steen, Anthony |
| Ross, Wm. (Londonderry) | Stern, Michael |
| Rowe, Andrew | Stevens, Lewis (Nuneaton) |
| Ryder, Richard | Stevens, Martin (Fulham) |
| Sackville, Hon Thomas | Stewart, Allan (Eastwood) |
| Shaw, Giles (Pudsey) | Stewart, Andrew (Sherwood) |
| Shelton, William (Streatham) | Stewart, Ian (N Hertf'dshire) |
| Shepherd, Colin (Hereford) | Stokes, John |
| Shepherd, Richard (Aldridge) | Stradling Thomas, J. |
| Sims, Roger | Sumberg, David |
| Skeet, T. H. H. | Tapsell, Peter |
| Smith, Sir Dudley (Warwick) | Taylor, John (Solihull) |
| Smith, Tim (Beaconsfield) | Taylor, Teddy (S'end E) |
| Smyth, Rev W. M. (Belfast S) | Tebbit, Rt Hon Norman |
| Soames, Hon Nicholas | Temple-Morris, Peter |
| Terlezki, Stefan | Wardle, C. (Bexhill) |
| Thomas, Rt Hon Peter | Wells, John (Maidstone) |
| Thompson, Donald (Calder V) | Wheeler, John |
| Thompson, Patrick (N'ich N) | Whitfield, John |
| Thurnham, Peter | Winterton, Mrs Ann |
| Townend, John (Bridlington) | Winterton, Nicholas |
| Trotter, Neville | Wolfson, Mark |
| Twinn, Dr Ian | Wood, Timothy |
| van Straubenzee, Sir W. | Woodcock, Michael |
| Vaughan, Sir Gerard | Wrigglesworth, Ian |
| Viggers, Peter | Young, Sir George (Acton) |
| Wainwright, R. | |
| Wakeham, Rt Hon John | Tellers for the Noes: |
| Walker, Cecil (Belfast N) | Mr. Tim Sainsbury and |
| Waller, Gary | Mr. John Major. |
| Ward, John |
§ Question accordingly negatived.