Taxation: Small and Medium-sized Enterprises

Debate between Angus MacDonald and Dan Tomlinson

Tuesday 3rd February 2026 Westminster Hall

[The Exchequer Secretary to the Treasury (Dan Tomlinson)]

It is a pleasure to serve under your chairship, Mr Dowd. I am grateful to the hon. Member for Farnham and Bordon (Gregory Stafford) for securing the debate. I believe it is the second debate of his that I have had the pleasure of responding to in Westminster Hall and I look forward to many more in my time as Exchequer Secretary. I am grateful for his contribution, and I am sure the businesses in his constituency will be grateful to him for representing them in this place; it sounds like he has a fantastic set of small and medium-sized enterprises in his constituency.

On the broader point of the impact of this Government on the economy, I believe the hon. Member was being too downbeat and gloomy. We have seen six interest rate cuts since this Government took office because of the stability that we have brought back. That is bringing down borrowing costs for businesses and improving the cost of living for families up and down the country. That means hundreds if not thousands of extra pounds in their bank account rather than going on their mortgage. Economic growth has increased—we outperformed the OBR forecast by 50% last year—and wages have increased across the economy faster in the first year of this Government than in the first 10 years under the Conservatives. Higher wages and better living standards for people in our communities, in his constituency and in mine, mean that there is more money to spend in the shops to support our high streets.

The hon. Member raised a range of policies. I would gently say that some of them were implemented by his Government. For example, the extended producer responsibility for packaging was, I believe, a Michael Gove initiative. The Labour party in opposition learned the lessons of rubbishing the record of a previous Labour Government, and once we stopped doing that we found ourselves re-elected because people put their trust in us. I gently suggest that the Conservatives be careful what they wish for when they criticise policies that the Conservative Government introduced.

The debate follows two Budgets in which the Government did have to ask businesses and individuals to contribute more to support our public services. But we did all we could, particularly in the last Budget, which I was closely involved with in the Treasury, to keep the contribution we were asking for as low as possible by pursuing fair reforms to our tax system that were long overdue. I am happy to go through them in detail, but I will not do so for the sake of time and because it is slightly off topic. Those changes allowed us to provide support for businesses, for example in the business rates system. The main ask of the public was keeping income tax thresholds frozen at the end of the decade for a further three years in addition to the seven years for which the Conservatives decided they would be frozen.

This Government do back and value small and medium-sized enterprises. They are at the heart of so many communities; I am sure they are at the heart of your constituency, Mr Dowd, and those of all Members in this room. We value such businesses, their contribution and the hard work and graft that the people who set them up do to grow them, to expand to multiple premises, and to hire more people. The work that they do is fantastic, really valued and vital to the culture, life and vibrancy of our high streets and communities. Sometimes these small businesses are the only business in a village or a rural community, whether it be a pub, post office or café. We know how important they are to rural and coastal communities.

[Mr Angus MacDonald]

I have spent a great deal of my life looking at small businesses. There are 4.1 million sole traders or self-employed people in the UK and that £90,000 VAT restriction is a block on building businesses. Were it increased to, say, £250,000 and 10% of those businesses employed people, that would mean 400,000 youngsters in work, and the modelling that I have done shows that His Majesty’s Revenue and Customs would get a lot more money. I would be delighted to go through it with the Minister. If we want real growth from UK micro-organisations, I would really appreciate a chance to meet him to discuss this.

[Dan Tomlinson]

We do have one of the highest VAT thresholds among large economies in Europe and of course the Government keep all tax policy thresholds, rates and so on under review. I would be interested in the analysis that the hon. Member has carried out, though my understanding is that significantly increasing the threshold would not be revenue generating but would cost revenue for the Exchequer.

This goes to a point that the hon. Member for Farnham and Bordon raised. He suggested that we should almost halve the rate of VAT for some businesses. The challenge and trade-offs that we must grapple with in government are not grappled with by those who want to see such significant cuts to VAT, because we have to make sure we maintain revenue to fund the NHS in the hon Member’s constituency, and fund local councils to fill in the potholes and provide the social care that constituents need.

--- Later in debate ---

[Mr MacDonald]

I met the Institute of Chartered Accountants in England and Wales this morning and am meeting the Federation of Small Businesses later. We have done all the modelling and I assure the Minister that our numbers are being checked out by all the experts. I think that the Government might be missing a trick on this one.

[Dan Tomlinson]

I am always happy to receive representations from Members on both sides of the House. I will look out for correspondence from the hon. Member in my very large weekend correspondence box, which I always enjoy on a Sunday evening.