Finance (No.2) Bill

Nick de Bois Excerpts

Tuesday 8th April 2014 Commons Chamber

[Shabana Mahmood]

As I set out, the issue is not just the risk taken by the banks, which have been very conservative in providing SMEs with access to finance. Members in all parts of the House accept that good businesses that have the capacity to grow, create more jobs and be successful are failing to get the finance they need. In my constituency, a number of successful, viable businesses are still failing to get finance from the banks. That is not a result of banks being a little bit conservative in their risk taking; they have significantly curtailed their lending, which is having a negative impact on SMEs and their capacity to grow and increase jobs.

The Public Accounts Committee also found that investment overall had declined and that Government Departments could not demonstrate whether their schemes had addressed the market failures that they had been set up to correct. There was no mechanism, the Committee said, for evaluation of the various schemes and no obvious goals were set for the schemes, making it easier for the Government to hide any failures. Goal setting of the kind envisaged by the Public Accounts Committee would make the failure of such schemes much starker, but would also lead to greater and quicker action to correct them and ensure that desperately needed finance reached SMEs.

An additional problem in the Government’s approach, according to the Public Accounts Committee—I think we can all agree on this—is the difficulty of raising awareness of the schemes available for SMEs, which are often small operations, one-man or one-woman bands. It is difficult to balance all the responsibilities of running a business, and often people do not have the time to engage with Government policy and how it affects them. They may hear about schemes randomly and it is not always easy to learn from Government websites what is available for small businesses. The Public Accounts Committee felt strongly that the Government lacked a clear strategy to ensure that SMEs were aware of the funding options available to them.

I noted at the weekend that the employment allowance introduced by the Government has been rolled out. Millions of letters have been written to businesses to make them aware of the £2,000 allowance that has come into effect. That goes to show the extent of the awareness raising that is required. I am sure that there was also a political advantage and motive to the writing of those letters. Writing to businesses telling them what change has occurred and how they might benefit is a good thing, but it shows the effort required to get the message out. Such effort was not necessarily apparent in the case of other Government schemes relating to access to finance.

[Nick de Bois (Enfield North) (Con)]

Perhaps the hon. Lady will understand my confusion and clarify this point for me. She has spent much of her speech suggesting that the Government were doing nothing for small business. Then, when they contact businesses and tell them how they can benefit from the Government’s policies, she seems a bit disappointed. Can she explain the contradiction?

[Shabana Mahmood]

I assure the hon. Gentleman that it is not a matter of my personal disappointment. The Government have announced a number of schemes, which everyone agrees have failed to get lending to the rate that is necessary to have a game-changing effect on the landscape for small and medium-sized enterprises. The employment allowance, which we supported—the hon. Gentleman served on the relevant Bill Committee—came after the national insurance contributions regional holiday, a scheme that was in place for three years and almost from day one failed to meet the ambitious targets that the Government set for themselves. Throughout the life of that scheme, we called on the Government to change course, which they did not do until the scheme came to the end of its three years, at which point they introduced the employment allowance.

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[Shabana Mahmood]

I will not give way; I am going to make a little more progress.

As hon. Members will know, the level of business rates is set by the Treasury, although the revenues are collected locally. Business rates increase with inflation, and the rate of increase each April is set according to the rate of retail prices index inflation in the previous September. In September 2013, RPI was 3.2%, so business rates were due to rise by 3.2% this year. Of course, that was before the Government made their autumn statement announcement, which capped that increase at 2%. Business rates have risen rapidly during this Parliament because of high inflation. More than one in 10 small businesses now say that they spend the same or more on business rates as on rent. This April, businesses have been hit by a rise of £270, on average, at a total cost to business of £45 million.

[Nick de Bois]

The hon. Lady spoke very passionately, and rightly so, about her parents’ corner shop business, which she is right to be proud of. In citing these numbers, however, she overlooks the fact that because of the Government’s extension of small business rate relief, anyone with a rateable value of less than £6,000 is not paying anything at all, as I found out when I went down my local high street and heard how grateful people are for this support. We need to keep some context when talking about these numbers.

[Shabana Mahmood]

I hear the hon. Gentleman’s point, which I will come to later in my remarks. On the action that the Government have taken in the round, he will not be surprised to hear that my criticism is that it does not go far enough. By comparison, our alternative proposal, which is a Labour manifesto commitment, goes much further and would result in a cut in business rates and a freeze the following year.

The only choice for many shops, workshops, start-up businesses and others who pay business rates is to pass the increases on to their customers, primarily through higher prices, which of course makes things difficult for those customers. They also face a continuing squeeze, which many of them complain means that they can no longer afford to stay in business. This is having a real impact, as I know from my casework in my constituency surgery. I have met many constituents with family-owned businesses whose stories are not dissimilar to the story of my own family, whose elder relatives came to this country in the ’60s and ’70s and set up businesses that they have passed on to their children and, in some cases, grandchildren. They are now terrified that the squeeze from the exponential growth in business rates might put their family-owned businesses out of business. I have seen constituents break down because every time the business rates bill comes they fear that many years of hard work, which is tied absolutely to their conception of what it is to be British and to enjoy the freedoms offered by this country, might be going down the drain.



Given how much businesses are struggling and given the collection of issues that SMEs are facing, we have said that the next Labour Government would cut business rates in 2015 and then freeze them in 2016. In 2015, we would cut business rates on properties with an annual rental value of less than £50,000, taking the rates back to the level of the previous year, and then freeze them for such properties in 2016. As we have said, we would pay for that by reversing the additional cut in the main rate of corporation tax due to go ahead next year, when it will fall from 21% to 20%. The main rate is paid by companies with profits of over £1.5 million, while companies with profits between £300,000 and £1.5 million pay the rate on a sliding scale, and companies with profits of less than £300,000, which pay the lower rate, will be unaffected by the cut.

All the money raised from the corporation tax increase that we envisage—that is, a rise from 20% back up to 21%—would be spent solely and exclusively on paying for our policy on business rates. That is an important point given some of the debate that has taken place in the House in the past week or two, when we have been speaking about the Budget and attitudes towards business taxation. Even at 21%, our corporation tax rate would remain competitive, being second lowest in the G8 and second lowest in the G20. Government Members often say that any corporation tax rise will have a negative impact on our country’s capacity to do business, but I disagree, because, as I said, even at 21% it will be the second lowest in the G8 and the G20. The headline rate of corporation tax is not the sole reason that businesses choose to come to this country to invest and create jobs. It is an important factor—no one can deny that—but it is part of a picture of support for business that those wishing to come to this country look at, or are advised on, before they make their decisions. I do not believe that putting corporation tax back up from 20% to 21% would have too great an impact on our capacity to attract businesses to this country.

[Shabana Mahmood]

I do not think it does send that message. Business people are much more sophisticated than that: they do not simply look at announcements about the headline rate. They will receive advice from their advisers—their accountants and lawyers—when they are making their decisions about where to base themselves and where to go to invest and grow their companies. It will be explained to them, and known to them, that this policy is designed to support a different type of business that benefits all of us who are interested in the business landscape.

We have been very clear that this is the only change to corporation tax that we envisage during the next Parliament and that we are doing this not because we want to put people off coming to this country, or prevent them from doing so, but because we want to use all the money to pay for a cut and then a freeze in business rates. We have also said very clearly that any choices we make that differ from what the Government are doing will be fully costed and fully funded. As I said, we are happy for the OBR to look at our figures and audit our manifesto, and to do so for all political parties ahead of the next general election to make sure that the public are as well informed as possible about the different choices being made by parties that want to be in government.

[Nick de Bois]

Given the extreme volatility of corporation tax collections for decades, how would the hon. Lady deal with the unpredictable nature of the amounts collected? Will whatever is collected one year be applied as a discount on business rates the following year? If the revenues were below the expected amount, would the hon. Lady go back to businesses to ask for more in business rates? She should consider the unfortunate, difficult and unpredictable nature of the issue. Business needs certainty.

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[Nigel Mills]

I am always a little nervous talking about Hitachi and rail, as I am from Derbyshire. I support Bombardier and want it to get rail contracts. I am sure that it is great news for the country and the north-east that Hitachi has chosen to do that. However, I clearly say that Bombardier is a far better make of trains and that it fully deserves the Crossrail contract it got in recent weeks. I look forward to healthy competition between the two. It would be great to have two well-regarded, highly skilled train makers in this country. Just to be clear: Bombardier clearly has the trump card on that.

It would be a terrible message to send out to the rest of the world, having seen us go so far in the right direction by reducing the rate of corporation tax from 28% down to the planned 20%, to suddenly start reversing that journey and saying, “Perhaps we’re not quite so sure that that was the right thing to do. Let’s have that extra revenue back and not support those businesses.” That would be the wrong thing to do.

[Nick de Bois]

Some people may be seduced by the idea that it is only 1%, going from 20% to 21%, but for corporations coming into a tax level of 20%, the Opposition are effectively saying that they would increase corporation tax by 5%. Let us make that clear.

[Nigel Mills]

I am sure my hon. Friend’s maths are absolutely right.

If we are to review taxes and rates, I am intrigued by the idea of having, as my right hon. Friend the Member for Wokingham (Mr Redwood) said, a wide-ranging dynamic assessment of tax rates. Let us have a look and work out exactly the right rates for various taxes. Are we in the right place, or are we throwing away revenue and destroying business activity by having certain rates in the wrong place? I would like to understand the impact on small businesses of the jobs tax or employees’ national insurance. I would be keen to know the impact of fuel duty rates and of the tax on energy bills. I suspect those measures are doing far more damage to our small businesses, and the number of jobs they can support, than other things. A wide-ranging study of the impact of tax on small business could be an interesting exercise and could direct the way forward for policy. I suspect that it would not go in the area the Opposition want. They seem to want an expensive hike in the indirect taxes on manufacturing that do so much damage.

We ought to welcome people moving in the right direction. In 13 years in government, Labour favoured property taxes via the council tax. They hiked it up thinking that people would not notice. It is intriguing that they have now realised that it is extremely unpopular for those taxes to get too high, and that perhaps it is easier to try to focus on direct tax rates.

In conclusion, the Opposition amendment is in many ways a complete waste of our time. It is absolutely right to get the corporation tax rate down to 20%. I suspect that that is the end of that journey and then we can look at various other measures to support small businesses. Reducing the main rate down to 20% will not stop our support for small businesses. Let us get on and do it: it is the right thing to do.