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Mr. Chope: I am sorry that the Financial Secretary mistook my request for information as cavilling. I asked him for information because I have an article written by someone called Richard Murphy and I was unsure whether what he states in his article represents a misunderstanding. However, he asserts that

making a total of about 80,000 firms. Yet the Financial Secretary referred to about 500,000 small firms, so has Mr. Murphy got it wrong?

Mr. Boateng: Mr. Murphy is absolutely right to identify four categories in that 500,000, in giving an approximation of the numbers concerned.

Mr. Chope: I am grateful to the Financial Secretary for that information. Is Mr. Murphy also right to imply that no other group of firms yet qualifies?

Mr. Boateng: Mr. Murphy is not quite right. Slightly more than 500,000 small businesses in all sections of the economy will benefit from this measure.

Mr. Chope: I am grateful to the Financial Secretary for that clarification. I hope that he will now be equally

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helpful in answering a question that has been asked by someone whose daughter owns a hairdressing salon in a small town. He says:

He says that under the

He questions how a scheme has been designed that is

and how has it been worked out

in the hairdressing business. He also says:

I make no political point, but I hope that the Financial Secretary can deal with that specific example.

If the scheme turns out to provide a significant reduction in the burden on business, it will be very welcome. I notice that the estimates as to exactly how much time will be saved have changed significantly from the earlier estimate, but any time that small businesses save is valuable and worth while. However, I should be grateful to the Financial Secretary if he could explain what happens in relation to the records that have to be kept for income tax and corporation tax purposes. If a firm does not have to keep VAT supply invoices for the purposes of VAT accounting, is it exempt from having to keep them for other accounting purposes? If not, what is the purpose of the exemption? Again, that issue has been greeted with some scepticism by several people involved in the very important small business sector.

Mr. Edward Davey: We welcome the clause.

Mr. Boateng: Let me deal with the hypothetical question asked by the hon. Member for Christchurch (Mr. Chope) in relation to the need still to collect receipts for other taxes. There will still be a need to do that because VAT is a real-time tax; people will not need to collect receipts for that purpose, but they may well have to collect them for another purpose.

The specific issue is that small businesses are understandably concerned that they are collecting the tax on our behalf—that we are using them as tax collectors. We are recognising that fact and saying that, because VAT is a real-time tax, they do not have to collect receipts for that purpose, but they may well have to do so for the other purposes.

The hon. Gentleman's specific example of a hairdresser strays into individual tax concerns. I do not feel that it would be appropriate for me to give advice on such matters at the Dispatch Box, but I will happily ensure that Customs and Excise writes to him, or indeed to the individual taxpayer, to outline the proposal's impact on that individual. However, Customs and Excise has given me an illustrative example of the categories of people who

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would benefit from this measure, and it estimates that hairdressers will save about £1,000 in compliance costs. As that information does not relate to the hon. Gentleman's specific example, it is right to share it with the Committee, but I shall write to the hon. Gentleman about it in the way that I have outlined.

On the general point about small businesses paying more tax, the proposed flat-rate scheme will operate on an optional basis, so only those businesses that believe they will benefit from joining the scheme will opt to take part. Therefore, some businesses may well say that they do not want to take part in the scheme because they and their accountants have calculated that it would not benefit them to do so. Businesses that do not believe they will benefit can continue to account for VAT in the way that they always have done.

The rates have been calculated to produce a broadly revenue-neutral outcome in each sector, but that clearly means that there will be a net reduction in the amount of tax many businesses pay, as well as significant compliance cost savings. For all those reasons and bearing in mind the general, broad welcome that the measure has received in all quarters, I commend it to the Committee.

Roger Casale: I wish to make two or three brief comments on the clause. I welcome the new measures, and I am pleased that the Opposition welcome them too, but I rise to speak because the welcome has been distinctly tepid and lukewarm from the Opposition Benches. If the truth were known, there is probably quite a lot of repressed enthusiasm for the measure. After all, it will save small businesses much time and cost. Small businesses make up a growing part of our economy, especially in the service sector, and are great creators of employment.

That is certainly the case in my constituency, as I know from my dealings with the Merton chamber of commerce, the Wimbledon business group and other small businesses, not least Ad Hoc Business Support, which helps me in my work when I have a particularly heavy case load. I have seen that business grow in the past three to four years. One of the things that held it back initially was the onerous task of having to work out its VAT liability. Indeed, being eligible for VAT at all held it back in the early stages. Increasing the threshold and introducing the flat-rate scheme will save that and similar businesses a great deal of time and could save it up to £1,000 a year, which will make a difference to its competitiveness. I hope that that will underpin such companies' future success.

My second reason for wanting to speak in favour of the new measure is that it is part of a series of measures that the Government are taking to boost competitiveness and to support small businesses. For example, there was a recent statement by my right hon. Friend the Chancellor of the Exchequer on the reduction of bank charges for small businesses. There are many thousands of small businesses in my constituency, and they will disagree with us about some things, but on the other side of the equation they will also recognise that we are taking a raft of measures, of which this is one, that demonstrate that we are on the side of small businesses, that we want to support them and that we will make the necessary changes to the tax system, as we are doing now in relation to VAT, to cut red tape and to cut business costs. All of that has come from the dialogue between this Government and the

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small business community, which was completely unknown under the previous Administration. In that regard, I mention the work of the Small Business Council in particular.

I was in touch with the Federation of Small Businesses just today, and it welcomed the measure. It has always made the point that many small businesses feel that they have the onerous task of acting as tax collectors in relation to VAT. This measure demonstrates that we have taken their concerns on board. The small business community wants to work with the Government to improve things, not just in its own interests but because it recognises, as we do, that small businesses will continue to drive our economy in the future and create jobs, and that, by working together, we can reach a solution that works for everybody.

I very much welcome these measures, which come out of that dialogue between the Government and business. As I said, they are one more demonstration of this Government's support for and commitment to the small business community, and our determination, when possible, to introduce the changes necessary to make small businesses more successful and more competitive in the future.

Mr. Mark Hoban (Fareham): I welcome the introduction of a flat-rate scheme for small businesses, although I want to raise one concern in that regard.

One of the issues that small businesses in my constituency have raised with me in recent months is the administrative burden of VAT. Any action taken to lift that burden will be welcomed by those businesses. My only caveat is the process by which the flat rate is set for particular businesses, and what consultation there has been with trade bodies on whether that rate is appropriate. One of the issues that small businesses will consider—my hon. Friend the Member for Christchurch (Mr. Chope) referred to the circumstances of a hairdresser who would lose out as a consequence of adopting the flat-rate scheme—is whether they would feel obliged, on a regular basis, to calculate their VAT liability if they did not elect to use a flat-rate scheme. Would compliance costs continue because businesses would feel the need, every so often, to re-check whether they would be better off using the flat-rate scheme or the more conventional scheme?

I hope that the Financial Secretary will speak to trade representatives to ensure that the flat rate that is set is relevant to those businesses and encourages them to take advantage of it, so that they benefit from the lower compliance costs on offer through this scheme.

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