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Mr. Campbell-Savours: Will the hon. Gentleman give way?

Mr. Bruce: Not until I have finished this point.

The Government are on record as saying that they want genuine public debate, but they are not happy when other people hold a different view from theirs and they do not always explain the full implications of their policy changes, let alone the forward projections.

The First Deputy Chairman of Ways and Means (Mr. Michael J. Martin): Order. The hon. Gentleman is going wide of the amendment. Government policies are not being debated; there is an amendment before us.

Mr. Bruce: I accept your ruling, Mr. Martin. The amendment asks for a statement of impact, and I am balancing the argument. The Government should state the net effects of the changes and their forward projections.

Mr. Campbell-Savours: The hon. Gentleman said that 1p should be put on the standard rate of tax and that the rate should be 50 per cent. on incomes of over £100,000 to fund a lower threshold and education spending.

The First Deputy Chairman: Order. We have the amendment before us, although it is perhaps different from the one being discussed by the hon. Gentlemen. The amendment that we are discussing mentions a draft of regulations being laid before Parliament. We should talk about that, not about what the Liberal Democrats wanted to do at the last election, which is nothing to do with the issue before us. The hon. Member for Workington(Mr. Campbell-Savours) should be seated.

Mr. Bruce: I take your strictures, Mr. Martin. I may have strayed somewhat, but I think that the Paymaster General has got the drift of my argument. The right hon. Member for Hitchin and Harpenden said that he wanted detailed regulations because he was concerned about the impact of the change and the Government's lack of transparency in introducing it. I do not think the amendment very practical; when the Conservatives were in government, we had debates on similar amendments, only they were tabled by the opposite quarter.

I hope that, from now on, the Government will recognise the need for people to know the precise impact of measures on their businesses, as well as the likely impact on the national finances. In the interests of open government and of wider debate, it would help us to have more information from the Paymaster General.

Mr. Nick Gibb (Bognor Regis and Littlehampton): The hon. Gentleman describes the need for a wider debate on Finance Bills. May I take it from that that he and his colleagues will attend each and every sitting of the Finance Bill Standing Committee? During last year's one,

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they flitted in and out at whim, and I rarely saw the hon. Gentleman take part. Will he and his colleagues play the part of a proper Opposition this time round?

The First Deputy Chairman: Order. That has very little to do with the amendment.

Mr. Bruce: On a point of fact, I was not a member of the Finance Bill Committee last year, so I would have found it difficult to take part.

May we have some specific assurances from the Minister on how the regulations will affect the businesses that may encounter problems? Secondly, what will the overall impact of the regulations be?

Mr. Charles Wardle (Bexhill and Battle): Before the hon. Member for Gordon (Mr. Bruce) outlined the shape of a Liberal Democrat Budget, he seemed to chide the Minister gently for not disclosing the cash flow benefit to the Treasury of these changes. What my right hon. Friends and I object to are the cash flow disadvantages over the next few years to companies bigger than small and medium enterprises, or SMEs.

I hope that the Minister will help to clarify a certain definition. When looking at clause 30 it has been helpful to look also at the glossy version of the Red Book, "New Ambitions for Britain". Paragraph 4.19 says that the Budget will exempt SMEs from quarterly corporation tax payments to improve their cash flows, but paragraph 4.18 implies that that refers to companies with 50 employees or fewer. The paragraph states that the Treasury says that 99 per cent. of the UK's 3.7 million businesses have50 or fewer employees, and that those businesses account for 46 per cent. of jobs and 42 per cent. of aggregate turnover. That immediately precedes the point about exemption, but I believe that I saw in a press release at the time of the Budget a suggestion that the definition of a small company was one with profits of up to £300,000 before tax, and that a medium-sized company was one with pre-tax profits of between £300,000 and £1.5 million. I see the Minister nodding, but it would be helpful to have that clarified. It would be boring to have to wait for regulations which we may or may not have the chance to debate before finding out precisely who will benefit from the exemption.

I should like to outline two types of management problem which might affect a large number of businesses in the transition period. I accept that quarterly corporation tax payments are made in many other countries. What concerns us today is the transition period, the hit on companies, and the hitherto hidden benefit which my right hon. Friend the Member for Hitchin and Harpenden(Mr. Lilley) has so admirably disclosed.

The Minister and other hon. Members with management experience will appreciate the examples that I am about to describe, but I hope that they will bear with me because it is important to illustrate what problems might arise in the next four years.

My first example refers to the rapidly expanding company. Let us assume that it has got off the ground with great success. It has shot past the upper limit definition of an SME and has continued to expand rapidly. There is not a business person who does not know that the risk of company failure and receivership is at its greatest when companies embark on ambitious programmes of

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expansion without sufficient capital backing. Business history is littered with examples of entrepreneurs who got off to a good start with a great marketing idea for a new product that attracted sudden and rapid demand.

That company buys in more raw materials and puts more into work in progress and finished stock. As it expands, it finds that it has more money tied up in accounts receivable--in debtors--and that its suppliers are still insisting on tough terms. The company does not have a history long enough for a good credit standing, so the terms of payment for raw materials are still tough. Moreover, the bank insists on a tough overdraft limit; doubtless, the company does not have a freehold property, so there is little on which to secure an overdraft.

It is a familiar story. If companies in a period of rapid expansion are to risk becoming over-extended, cash flow is critical. Some of those companies will find that their overdraft limits are broken and that the banks are not tolerant, because they see little in the way of underlying assets. The companies will therefore be faced with receivership. Such circumstances are not uncommon.

That type of company will now be spending more management time on dealing with quarterly assessments of corporation tax payments in months seven, 10, 13 and 16--more time dealing with inquiries just when they should be fighting to consolidate themselves on a new plateau of stability following their rapid success.

Mr. Geraint Davies (Croydon, Central): Is the hon. Gentleman suggesting that the taxpayer should bail out high-risk, fast-growth companies in circumstances when no high street bank would dream of doing so?

Mr. Wardle: I am suggesting nothing of the sort. Indeed, I am saying that the banks take their fair share of risk. I also say that this is not the time for a Government who insist that they are business-friendly to impose further pressures on rapidly expanding companies.

My second example concerns the established company with a remarkable success in export markets--there are many of them about. Because of the persistently strong pound, they find those markets eroded; whereupon, they do all the right things: trim their sales prices, suffer lower margins, trim their overheads, and possibly even let some staff go rather than tie up cash flow in stock and finished goods.

Such companies, facing those pressures in an increasingly competitive export market, will find the requirement for quarterly payments of corporation tax, introduced so rapidly, an additional burden.

Mr. Cranston rose--

Mr. Wardle: I shall give way to the hon. Gentleman, provided that he will tell us about his business experience. I understand that he is a solicitor.

Mr. Cranston: I am not a solicitor: I am a member of the Bar. Only 2.8 per cent. of companies, 20,000 of them, will have to make the quarterly payments. It seems to me that the hon. Gentleman is making a good argument for a regulation-making power, not a piece of bland legislation, to cover all these different types of company.

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5.30 pm

Mr. Wardle: No. With the typical skill of a barrister, the hon. Gentleman does not illustrate to the Committee the sort of companies involved. Those 20,000 companies represent the engine room of Britain. It is vital that companies that have been successful in export markets and are now feeling the pinch, or companies that have been expanding rapidly on the back of a good idea and have gone beyond the protection that the Minister rightly intends to provide for SMEs, should be examined by the House of Commons to see the proposals' effect on them in the crucial next three or four years.

How can the Minister justify quarterly payments that add to paperwork and intrude on management time that should be devoted to market success? How can he justify the hit of £1.6 billion in the first year and £2 billion on company cash flow in the next two years, if the Government are supposedly business-friendly?

Finally, I draw the Minister's attention to a point that was raised time and again on Second Reading, as well as in the financial press. Long though the Bill is, it is full of references to regulations that are to be made subsequently. Clause 30 is a classic example of that. Ministers and the Inland Revenue will have a free hand to be as creative or as repressive as they choose in making regulations. By not writing into the Bill the substance of those changes, the Government make a mockery of their accountability to the House.


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