§ I now turn to other aspects of business taxation. It cannot be repeated too often that it is businesses and not Governments that create jobs. The Government's responsibility is to foster the conditions which will encourage businesses to grow and to create more jobs. The measures I have to announce are designed with that end in view.
First, on corporation tax, the reforms I announced last year set out a new and improved framework of business taxation for the remainder of this Parliament and beyond, so this year I have only limited changes to make. A full list is, of course, contained in the Red Book.
As I promised last year, I have reviewed the scientific research allowance. Given the particular importance of expenditure on research and development if British industry is to hold its own in a competitive world, I have decided, exceptionally, not to reduce that allowance in line with the changes in the other capital allowances. A few minor changes apart, the scientific research allowance will remain at 100 per cent.
I have also decided to modify the new capital allowance system as it applies to short-life assets. While the new structure of capital allowances enables most plant and machinery to be written off over a period that more than fairly reflects its useful life, I accept that there is a problem with those assets which enjoy only a short life, in particular high technology assets.
Accordingly, from next year, a business will be able to exclude from its general pool of capital expenditure any asset which it believes will have only a short life, so that, if the asset is subsequently scrapped after, say, four years, it will be fully written off for tax over that period. I believe that this change will be widely welcomed. The benefit to business could rise to about £300 million in the early 1990s.
I now turn to a number of other detailed measures affecting business.
The number of employee share schemes has increased from 30 when we first took office in 1979 to some 850 today. The whole-hearted commitment of employees to the success of the companies in which they work is vital to our country's economic future. To maintain and build on this progress, I propose to reduce the retention period for profit-sharing schemes from seven years to five.
I propose to take action to deal with tax avoidance by partnerships, following the consultative document issued last year.
In my last Budget, I removed a competitive disadvantage to British manufacturers by levying VAT on imports. I have decided to modify the new regime in two respects.
First, I propose to relieve from VAT certain goods which are imported into this country solely for repair, or for processing which does not change their identity, and are then re-exported to their owners overseas. Secondly, goods which are temporarily exported from the United Kingdom and then reimported after repair or processing abroad, will bear VAT only on the value of the repair or processing. These reliefs will take effect on 1 June and have a once-for-all cost in 1985–86 of £30 million.
I propose to introduce secondary legislation to remove the constraint imposed by the Banking Act, which at 794 present prevents companies from financing themselves by a series of issues of short-term securities. That should provide a useful alternative to bank borrowing.
I have no major new proposals this year on the taxation of North sea oil. I have reviewed the economics of incremental investment in existing fields, but I have not been persuaded that there is a case for introducing new fiscal reliefs at this stage. My only proposal for change, apart for some minor technical measures, is to remove immediate petroleum revenue tax relief for onshore exploration and appraisal expenditure. Onshore activities are sufficiently low-cost not to need that special incentive.
In last year's Budget statement, I mentioned the Government's concern at the spread of unitary taxation within the United States, and the threat that this posed to the US subsidiaries of British companies. Since then, I am glad to note that several American states have abolished unitary taxation; but in others, notably California, no change has yet been made. We shall continue to press for action to be taken this year, and fully support the campaign being waged by the CBI and others on this issue.
Finally, I turn to a group of measures of particular importance to smaller businesses and the self-employed, a sector of the economy where an increasing proportion of the jobs of the future is likely to be found.
I have already announced a substantial reform of the capital gains tax. In addition, I propose to implement many of the proposals contained in last year's consultative document on capital gains tax retirement relief, notably to reduce the age for full relief to 60 and to extend relief to those who are obliged by ill health to retire before that age. This relief is particularly important to the proprietors of small businesses concerned at the capital gains tax they might have to pay when they come to sell their business on retirement.
Although the business expansion scheme has been in existence only two years, it has already made an impressive contribution to the promotion and growth of new businesses. Last year, almost 20,000 people took advantage of the tax reliefs offered by the business expansion scheme to invest some £100 million in more than 500 companies. Over half of this went to provide equity capital for new businesses.
I have two changes to propose. The scheme was designed to encourage investment by individuals in new and expanding businesses in risk areas. Accordingly, I propose to include within the scheme companies formed to carry out research and development. By the same token I propose to exclude from the scheme certain ventures which primarily involve property development. Building and construction will, of course, continue to be a qualifying trade.
Last year I undertook to review the scope of VAT relief for bad debts, a matter of considerable concern to small businesses. In the light of legislation now proceeding in another place on the reform of the insolvency law, I propose to widen the scope of the existing relief. The new rules will take effect as soon as the provisions of the Insolvency Bill are implemented, and will cost some £25 million in a full year.
I propose to increase the VAT threshold to £19,500 from midnight tonight.
Over the past five years, the ranks of the self-employed have risen by well over half a million, or some 30 per cent., and the growth in self-employment has been a 795 particularly marked feature of the encouraging growth in overall employment that has occured since the spring of 1983.
However, the self-employed suffer from one longstanding grievance so far as tax is concerned. While the national insurance contribution paid by an employee cannot be set against tax, the national insurance contribution paid by the employer on the employee's behalf can. Yet none of the national insurance contribution paid by the self-employed can be set against tax at all.
Today I propose to remedy this grievance. As from 6 April, tax relief will be allowed for half the graduated class 4 national insurance contribution paid by the self-employed. In addition, I have agreed with my right hon. Friend the Secretary of State for Social Services that, as from the beginning of October, the flat rate class 2 national insurance contribution payable by the self-employed will be reduced from £4.75 to £3.50 a week. The benefit of these reliefs to the self-employed will be £55 million in 1985–86 and £155 million in a full year.
All this adds up to a substantial package of measures to help small business and the self-employed, which I am sure the whole House will welcome.