Goldsworthy proposes an amendment to reduce the 10p rate of income tax to zero rather than doubling it to 20p as put forward in the bill. Cable warns that the tax changes included in the bill will harm small businesses and calls for a trial of new tax avoidance powers before they are fully implemented.

Small Businesses (Clause 3)

Dr Vincent Cable, Liberal Democrat Shadow Chancellor

Dr Cable said, “It is true that, as has just been said, the Budget’s overall approach to business is neutral. It has probably been favourable to large companies and less favourable to small companies, for reasons that have already been given and particularly because of the impact of clause 3. However, what we say as Opposition spokesmen is less important than the way in which businesses themselves experience and perceive the changes. A fairly large survey conducted by the British Chambers of Commerce, which represents both large and small companies, concluded that 70 per cent. of United Kingdom businesses believed that the proposals would damage them, mainly because of the impact on small companies.”

“The Government would therefore be wise to heed the advice of the Treasury Committee. The hon. Member for Fareham has already quoted its conclusion that the Government should initiate a review of the policy for next year's Finance Bill because of the unpredictable nature of the outcome, but it is worth while quoting another sentence from the conclusion. It states:

“It is not clear whether measures such as the increase in the R&D tax credit and the introduction of the Annual Investment Allowance will have the desired beneficial impact on investment levels by small companies.”

“In several interventions, Labour Members have asserted as a matter of dogma that the changes will increase investment, whereas the Treasury Committee, representing three parties, looked at the matter across the board and concluded that the results are likely to be entirely unpredictable. Therefore, I remain totally unpersuaded that clause 3 is justified in anything like its present form.”

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Colin Breed, Liberal Democrat Shadow Treasury Minister

Mr Breed said, “It is part of the issue about stability that when people are looking to create their business plans and looking to the quite considerable growth of these sorts of businesses, they consider the expenses that they will have to pay. Tax is one such expense. They would undoubtedly have made their business plans on the basis that they would not be paying tax quite as quickly as they are now going to be. I think that that will stunt some potential growth and undermine investment from European objective 1 funding. The investment’s new guise of convergence funding is even more titled towards such businesses, rather than the old capital-intensive businesses. That funding is designed to generate more knowledge-based industries. If we are to have this new tax regime, the real benefit of boosting the economy of Cornwall, which is the essence of convergence funding, will be undermined.”

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MPs voted on the clause

Ayes: 257, Noes: 138

The clause was therefore accepted

The Liberal Democrats voted against the clause

Read the full voting record here


Income Tax (Amendment No. 10)

Julia Goldsworthy, Liberal Democrat Shadow Chief Secretary to the Treasury

Moving the amendment Ms Goldsworthy said, “The amendments that we have tabled on the income tax clause reiterate that theme. They seek to pursue two different lines of inquiry, and pose questions that I hope will tease out the Government’s line of thinking in relation to the announcements that the Chancellor made in his final Budget.”

“First, we are trying to tease out the Government’s arguments behind the Chancellor’s proposal to abolish the starting rate of income tax and to cut the basic rate by 2p in the pound. That is dealt with by amendment No. 11 and by amendment No. 12, which has not been selected for debate. It will be interesting to hear the Minister’s justification of the abolition of the 10p starting rate, which will result in millions of people who currently pay 10p in the pound seeing their tax rate increase to 20p in the pound.”

“Secondly, we want to highlight the alternatives that the Government could have considered, given that the Chancellor talked about tax changes that would be “fairer”. This is dealt with in amendment No. 10, which, rather than increasing the 10p starting rate to 20p, would get rid of it altogether, thereby lifting people on very low incomes out of tax altogether. It would replace the 10 per cent. rate with a zero rate, which would have the opposite effect to that announced by the Chancellor. Two million people would thereby be lifted out of tax altogether. This was a proposal that our tax commission looked at, in addition to cutting the basic rate of tax by 2p, as the Chancellor has announced. Amendment No. 11 proposes to introduce the basic rate changes that the Chancellor announced with great fanfare in the Budget but which, according to the Government’s timetable, will not be introduced until the next financial year.”

“The amendments are particularly pertinent given the coverage over the weekend of how the wealth of the richest in our society has grown exponentially over the past 10 years - yet the Government proposals will hit those on the lowest incomes. Would it not have been fairer to fund a basic rate tax cut, reducing that growing inequality, by raising taxes for those on very high incomes, instead of raising taxes for those on very low incomes? As the “Rich List” published in The Times at the weekend showed, the only tax that many of those very rich people pay is council tax. Why did the Government not take the opportunity provided by the Bill to introduce measures that would have made the tax system fairer, perhaps by implementing some of the Lyons review’s recommendations in the short term?”

“Will the Chief Secretary explain why, and on what basis, he would feel unable to support now amendment No. 11, tabled by the Liberal Democrats, which reduces the basic rate of tax to 20 per cent.? If the Government want to get rid of the 10p rate, why would that be fairer? It was clearly presented as fairer in the Budget, but in the aftermath of the Budget, Ministers were keener to present it as a simplification measure, which is certainly more logical.”

“The amendments provide an opportunity for the Treasury to set the record straight and follow through on its announcements in the Budget. I am not clear why it was not able to do that in this year’s Finance Bill. If the Government really consider the measure to be fairer, it makes sense to introduce it straight away. Alternatively, is the Treasury keen to postpone certain arguments until after the present Chancellor moves next door to No. 10?”

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Click here to read Julia Goldsworthy’s speech closing the debate


The amendment was withdrawn

Freelancers and Contractors (Amendment No. 1)

Dr Vincent Cable, Liberal Democrat Shadow Chancellor

Dr Cable said, “I want to introduce amendment No. 14, which stands in my name and that of my hon. Friend the Member for Falmouth and Camborne (Julia Goldsworthy), and to support amendment No. 1, which tries to achieve the same thing in a somewhat different way.”

“The hon. Member for Chipping Barnet (Mrs. Villiers) has talked in some detail about the technical and legal issues, and I do not want to duplicate that. The value that I can add relates primarily to being a gnarled veteran of the IR35 debate in the 1997 to 2001 Parliament, when we went through these arguments in Committee and on the Floor of the House. Clause 25 is in many ways a successor to that. In her introduction, the hon. Lady raised many fundamentally important questions, including whether IR35 has failed, whether clause 25 is a substitute for it or a complement to it, and how the two things interact.”
 

“Having been involved in the IR35 debate, it was clear to me that we are in inherently difficult territory. We are dealing with an economy with a great deal of ambiguity; with the fuzzy borderline between employment and self-employment. That presents fundamental problems for any Government when it comes to avoidance, because there is quite a big margin of difference between the marginal tax rates paid by the employed and the self-employed through national insurance. A lot is at stake.”

“I hope that the Government will reconsider the matter. I reiterate that we appreciate that there is a genuine problem of tax avoidance. We understand that the Government are responsible for dealing with that and that avoidance - and, indeed, serious criminal evasion in some cases - is happening with the rapid growth of MSCs. Something must be done, but we want to provide a limited opportunity for phasing in and conducting a study and analysis. That is the sensible way in which to deal with the sensitivities of the companies involved.”

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MPs voted on the amendment

Ayes: 123, Noes: 265

The amendment was therefore rejected

The Liberal Democrats voted in favour of the amendment

Read the full voting record here