Finance (No.2) Bill

Debate between Shabana Mahmood and Simon Kirby

Tuesday 8th April 2014 Commons Chamber

[Shabana Mahmood]

Our amendment would require the Chancellor to publish a review of the impact of an additional cut of 1% to the main rate of corporation tax for 2015-16 with reference to the impact on businesses with fewer than 50 employees, their levels of investment and the impact of alternative tax measures such as a reduction in non-domestic rates—business rates—which we believe would have a greater impact on small and medium-sized enterprises, which tend to be businesses that have fewer employees and in the main occupy premises with a rateable value of less than £50,000.

Our amendment and our approach highlight the difference between us and the Government when it comes to business taxation. The Government have made a number of significant cuts to corporation tax. The main rate has been cut a number of times, and is due to be cut again from 21% to 20% next year. The main rate is paid by companies with profits of more than £1.5 million—about 40,000 or so businesses. The small profits rate is paid by companies with profits of under £300,000, and there is a marginal rate, which applies to companies with profits between £300,000 and £1.5 million.

The Government have announced cuts to the corporation tax rate in almost every fiscal event that we have had since 2010, with the rate falling from 28% in 2010 to 20% in 2015-16. This has brought the UK rate lower than most developed economies. As I said, the Government are planning another cut for April 2015 from 21% to 20%, at a cost of £400 million in 2015-16, rising to £785 million the following year, and £865 million the year after that. The cumulative corporation tax cut over this Parliament has been in the region of £10 billion. The Government’s central argument for cutting corporation tax is that a lower rate makes the UK more attractive as a destination for businesses to locate. They claim that a reduction in the main rate of corporation tax will reduce capital costs for businesses and promote higher levels of business investment.

[Simon Kirby (Brighton, Kemptown) (Con)]

Can the Opposition really be interested in business when not a single Back Bencher is present to listen to the hon. Lady speak to her amendment?

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[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.

[Simon Kirby]

Is not the problem that a proposed tax increase sends a message that it is the thin end of the wedge—the tip of the iceberg—and that under a Labour Government, God forbid, we might see considerably more tax rises?

[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.

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[Shabana Mahmood]

Our policy is fully costed. We do not envisage any loss of revenue for local government. Our key priority is to give practical assistance to businesses as soon as possible, so that people such as those who visit my constituency surgery to say that they are fearful that they will have to close their business get some relief from what is becoming a very real business burden.

Last week the Secretary of State for Education suggested to the British Chambers of Commerce that our policy on corporation tax and business rates pits businesses against each other, which is complete nonsense. The idea is not to tell one business that it is going to suffer while another business does really well; it is to get a better balance with regard to the landscape of business taxation.

As I have set out in detail, corporation tax cuts over the life of this Parliament amount to some £10 billion and 2% of businesses in this country have done very well with their tax bill. It is fair and right to consider what is happening to the other 98%, understand the struggles they face and make choices that the 2% might not like, but that will offer support to smaller businesses and that will go some way to ensuring that they can remain in business and continue to grow and do good for the economy.

Even if the headline rate of corporation tax increases from 20% to 21%, it is important to remember that it will remain competitive. I do not believe that the change would be destructive or damaging to UK plc. In fact, I think that it and the moneys that will go to businesses as a result of a cut and then a freeze in business rates could do real good, not just for SMEs but for the economy as a whole.

[Simon Kirby]

It is all very well for Labour to bash big businesses, but does the hon. Lady not understand that many of their customers and suppliers are small businesses? The issue is not quite as simple as she would have us believe.

[Shabana Mahmood]

I am really disappointed that the hon. Gentleman has not been listening to my speech. At what point did I bash big businesses? It was not something I said, and nor was it suggested by my tone. I have made it very clear that we supported the cuts to corporation tax in this Parliament. We are simply suggesting a switch spend—it will be in our manifesto for the next general election—which amounts to making a different choice on corporation tax in order to get practical and immediate help to smaller businesses that will make a real difference to them.

Given that the 2% of businesses that are larger have benefited by about £10 billion over the life of this Parliament as a result of a number of changes to their taxation, it is fair to switch our attention to a part of the business market that has been rather ignored. Although the Government have a number of schemes to help smaller businesses, those schemes are not going far enough or achieving the Government’s aims.

Our suggested switch spend is fair. It is not about pitting one business against another or valuing one above another. It is a simple recognition of the fact that 98% of businesses in this country have not received the practical help they need. They are desperate for change on their business rates and we will deliver it. The policy will be in our next manifesto.