Taxation: Small and Medium-sized Enterprises

Dan Tomlinson Excerpts

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.

[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.

[Rachael Maskell]

It might not have filtered through, but I have written to the Chancellor on behalf of many Labour MPs regarding concerns about small businesses and the fact that many of them will not receive the vital support that they need. They are very fearful of what is going to happen in just eight weeks’ time. Will the Minister look particularly at small businesses, which are not getting the relief and support that they need, and ensure that we are able to mitigate some of that? These businesses form a vital part of the whole economic ecosystem. If they are not growing and are instead shrinking then that will have an impact on our whole economy.

[Dan Tomlinson]

I thank my hon. Friend for her question and the representation that she provides in this place for the small businesses in her constituency—it is a wonderful part of the world. If my team have not been in touch already today, I am hoping that we can find time to meet next week for a conversation. I know that this issue is one that is really important to her. York is a fantastic, vibrant and growing part of our economy. I expect that some of what is happening here is that the businesses in her constituency have seen their values increase by more than others in parts of the country that have not been doing as well. That is why the Government have provided a range of support for businesses. I look forward to talking about that with her in the coming days.

We are fast running out of time, so let me turn to the topic of business rates, which Members have raised. It is worth noting that we are implementing significant reforms to the system. On the point around large online retailers, as far as I am aware, throughout the whole history of the business rates system—including the 14 years under the previous Government—the multiplier, otherwise known as the tax rate, for large online giants was exactly the same as that paid by a typical business on the high street. As part of fulfilling our manifesto commitment to reform the business rates system, we have introduced a really significant wedge into it: the multiplier for large online giants and their warehouses is now 33% higher than for a high street business.

I am aware, and we have had lots of discussions about it in this place, that that reform—the significant underlying reform to the business rates system—has happened at the same time as the revaluations since the pandemic have come into place, and at the same time as the Government have chosen to unwind, slowly and with significant transitional reliefs, the temporary pandemic support. That issue was raised by the hon. Member for Farnham and Bordon.

When the Conservatives stood for re-election, the OBR forecasts did not earmark any funding whatsoever for continued support within the business rates system for our high streets. The Conservatives say now that they would not have stuck with those plans, but had they done so—and they are the plans that they presented to the country before the election—the relief would have ended overnight in 2025.

[Gregory Stafford]

You are in charge now.

[Dan Tomlinson]

Yes, and we extended the relief by a year, at a lower rate, and now, rather than ending it overnight, we have introduced significant transitional relief, so many of the businesses in the hon. Member’s constituency will see their increases, if they experience increases, being capped at 15%.

Overall, across the system as a whole more than half of businesses are either seeing their bills flat-falling or staying at zero, and this tax change—this 33% wedge that has been introduced to the system—is, in effect, a transfer of almost £1 billion in business rate liabilities away from the high street and towards the largest businesses, which have properties worth £500,000 or more. This transfer will benefit 750,000 smaller properties on our high streets.

Pubs have also been mentioned. We saw 7,000 pubs close over the 14 years between 2010 and 2024. I am aware that pubs, and indeed all hospitality businesses, experienced challenges, particularly in 2022 when inflation surged to 11% as energy costs went up. To be clear, that was in large part a result of Putin’s illegal invasion of Ukraine and the impact it had on the global economy, but inflation did rise significantly, which impacted individuals and their bank balances. The Government understand that times are tough for businesses on the high street, in part because of that legacy.

The hon. Member for Farnham and Bordon mentioned some statistics about pubs that are now out of date because of the change that was introduced last year; the 76% increase is not going to happen any more. In fact, three quarters of pubs, live music venues and other businesses affected by the changes that were announced last week—

[Gregory Stafford]

It is delayed.

[Dan Tomlinson]

Three quarters will see their business rates fall or stay the same this year. Then, those rates will be frozen for two years. The crucial point, which relates to whether it is delayed or not, is that we are launching a review of the methodology that is used to assess pubs. I am sure that this issue will have come up in the roundtable on business rates organised by my hon. Friend the Member for York Central (Rachael Maskell) with businesses in her constituency, and in the engagement that other Members have with businesses in their constituencies.

Pubs are valued in a relatively distinct way: their takings are used to assess their value, rather than their floor space. That can be quite opaque for pubs. It can also mean that increases in their business rates can appear to be the result of higher takings but really just reflect underlying increases in higher costs, so they can feel like they are running to stand still. We will therefore look closely at the methodology used to value pubs, and hotels, and I hope that we can find a long-term—indeed, permanent—solution in time for the next revaluation, which will come in 2029, as planned.

I will respond briefly to the point that was made about the increase from £800 to £1,600. I urge the hon. Member to check with the particular pub that he mentioned, but I assume it will be the case—each business is different, and I should not comment on individual businesses precisely—that the 15% relief will probably apply there too now, so there should not be a further £800 increase. I note, of course, that there is an increase for that business, as he set out.

We are also publishing a high streets strategy. We will work on that in the coming months and it will be a cross-Government effort. Yes, the Treasury will be involved, but so will Departments such as the Home Office, so that we can support businesses that are struggling with shoplifting. We will also work with the Department for Business and Trade, and with the Ministry of Housing, Communities and Local Government.

I hope that I have responded to a range of points that were made in the debate, and I thank Members for their contributions to it. In the coming months, in my role as Exchequer Secretary I will of course continue to engage with businesses—small and large—on the important points that have been raised today, to see what more the Government can do to support them as they seek to grow, to support employment in their communities, and to support the life and vibrancy of our high streets and town centres.

[Peter Dowd (in the Chair)]

I assure the hon. Member for Farnham and Bordon that I read his parliamentary contributions assiduously, side by side with the Labour manifesto—so there.

Question put and agreed to.