§ Mr. Loveridgeasked the Chancellor of the Exchequer (1) what advantage will be gained by the larger quoted companies compared with the smaller companies— not obtaining relief—due to the changes in the system of corporation tax;
(2) under what circumstances companies not having a quotation on the Stock Exchange, can benefit from the change of system of corporation tax;
(3) what he estimates will be the increase in corporation tax to be paid by medium and smaller companies—not coming within the group proposed for relief up to £15,000 profits and tapering relief to £25,000—under the new system compared with the old;
(4) what he estimates to be the total savings that will result to quoted com panies, resulting from the change of system of corporation tax;
(5) what proportion he intends medium-sized firms, not subject to relief, to bear of the savings available to larger quoted companies under the change of system of corporation tax.
§ Mr. NottThe new system of corporation tax removes the previous bias160W against distributions and will therefore tend to redistribute the burden of tax as between companies that distribute a higher or lower proportion of their profits. Its comparative effect between various classes of company depends entirely on the distribution ratio of the companies in that class, and not on whether the companies are quoted or unquoted, large or small—apart from the small company relief. There are of course high and low distributors among both quoted and unquoted companies and among larger and smaller companies. I regret however that we have at present insufficient information on the distribution patterns of the different classes of companies to provide answers to the specific questions asked by my hon. Friend.
§ Mr. Loveridgeasked the Chancellor of the Exchequer (1) if he will provide an analysis of how the estimate of £75 million, which could be payable in the initial year, arising from the extra corporation tax to be paid by those unquoted companies which do not obtain relief, was arrived at in detail;
(2) how much of the £75 million extra corporation tax arising under the change of system arises from relief granted to medium-sized firms between the lower and higher limits of effective relief due to the system having been altered;
(3) if the estimated extra £75 million of corporation tax is to be levied entirely on medium-sized firms, or if any of the burden will fall on larger quoted companies.
§ Mr. NottI am not sure what my hon. Friend has in mind with the second of these three Questions but the figure of £75 million mentioned by my right hon. Friend in his Budget Statement did not refer to any extra corporation tax burden falling on unquoted companies as a result of the change in the system of corporation tax. As explained in my reply to my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) on 12th March it referred to the cost to the Exchequer in the first full year of one possible scheme of relief for these companies, taking the form of corporation tax rate of 42½ per cent. for 1973–74 rising by stages to the illustrative rate of 50 per cent. Under a scheme of this kind companies would be 161W entitled to set off in the usual way the advance corporation tax paid on their dividends and many would therefore have their overall tax bill reduced as compared with their overall liability under the present system.—[Vol. 852, c. 266.]
§ Mr. Loveridgeasked the Chancellor of the Exchequer what is his estimate of the reduction in investment expeoted as a consequence of the extra corporation tax that will apply to medium-sized companies above the level of relief as a result of the extra corporation tax they will have to pay.
§ Mr. NottI do not expect the new corporation tax to lead to any reduction in investment by medium-sized companies. The system of 100 per cent. first-year allowances means that the cost of all investment in qualifying plant and machinery can be deducted from profits before any tax is borne.
§ Mr. Loveridgeasked the Chancellor of the Exchequer if he will estimate the increases in taxation that would have to be borne by those companies exempted from the increases in corporation tax arising under the change of system if no relief up to £15,000 and tapering relief thereafter had been given.
§ Mr. NottThe small companies relief provisions of the 1972 Finance Act axe estimated at the illustration rates of 40 per cent. and 50 per cent. to relieve the companies benefiting from those provisions by £40 million to £50 million. This amount is of course much larger than the extra tax burden, if any, which these companies would have had to bear as a result of the change in the corporation tax system if no relief were given; this is because in addition to paying corporation tax at a rate no higher than the162W present rate the companies in question will benefit from the provisions for set-off of advance corporation tax.
§ Mr. Loveridgeasked the Chancellor of the Exchequer what would be the cost to the Exchequer in a full year of increasing the basic figure of £15,000 exemption—and the £25,000 tapering relief in proportion—upwards from £15,000 for each step of £5,000 up to £100,000 basic exemption.
§ Mr. NottI would refer my hon. Friend to the reply I gave my hon. Friend the Member for Basingstoke (Mr. David Mitchell) on 4th April.—[Vol. 854, c. 117.]
§ Mr. Loveridgeasked the Chancellor of the Exchequer if he will propose changing the system of corporation tax so that it bears more lightly on the medium-sized unquoted companies not at present obtaining relief, compared with the normally larger quoted companies, which the system affects more favourably.
§ Mr. NottI have nothing to add to what my right hon. Friend the Chancellor said on this matter in his Budget Statement.