VAT Registration Threshold: SMEs

Debate between Angus MacDonald and Gareth Davies

Tuesday 24th June 2025 Westminster Hall

[Gareth Davies (Grantham and Bourne) (Con)]

It is always a pleasure to see you in the Chair, Mr Vickers. First, I congratulate my hon. Friend the Member for Mid Leicestershire (Mr Bedford) on securing this excellent debate. We arguably do not spend enough time in this place discussing small and medium-sized businesses, which account for some three fifths of employment and half of all turnover in the entire private sector.

The good thing about having a debate on this subject is that we have the Government in the room, rather than behind their keyboards. That is important, because I noticed while preparing for this debate that it comes hot on the heels of a written question on the same subject, which I am afraid to say received a textbook non-answer from the Treasury. My hon. Friend the Member for Mid Leicestershire asked a perfectly reasonable question: will the Chancellor make an assessment of the growth impact of increasing the VAT registration threshold? That was a pretty direct question, yet the Minister’s response completely ignored the point about growth and instead merely stated that the threshold was £90,000. While we are very grateful for the answer, this is something that I am sure my hon. Friend already knew. As my hon. Friend is in this Chamber, I gently suggest that the Minister provide him with a fuller answer.

In some senses, raising the VAT threshold on SMEs would be a tax cut, so there is cause for optimism, given the Government’s newfound enthusiasm for cutting taxes—for those who live in Mauritius. If the Labour party is happy to take 80% of Mauritian workers out of income tax altogether as part of their £30 billion Chagos surrender deal, I am pretty sure they will be sympathetic to taking British SMEs out of VAT registration.

Surely the Minister will remember that last year, when we were in government, the Conservatives raised the VAT registration threshold to the current £90,000. That took 28,000 businesses out of registration, which helped them to compete and grow, and it reduced their administrative burden. We also introduced policies such as business rate relief and full expensing to reduce costs and encourage investment in our country. Put simply, we backed British businesses to drive economic growth. Contrast that with Labour’s approach—it is trying but failing to balance the books on the back of British businesses. In its very first year in office, Labour has introduced the £25 billion hike, and the reduction in the secondary threshold of employer national insurance contributions; the rise in business rates, which the party had promised to abolish, by the way; the £5 billion-a-year burden of the Employment Rights Bill; and, let us not forget, the inheritance tax raid on family businesses.

[Mr MacDonald]

The hon. Gentleman mentioned the increase in the registration threshold from £85,000 to £90,000, which came after many years of it not being increased and is far below inflation. In your time in office, you did no favours for small businesses, as far as VAT is concerned. Would you agree with that?

[Gareth Davies]

I think the hon. Gentleman is accusing you, Mr Vickers, rather than me. I simply say to him that increasing the threshold made a big difference to the 28,000 businesses that were taken out of registration. I encourage him to speak to businesses in his constituency that benefited from what is essentially a tax cut, in addition to all the other measures that I mentioned that we introduced.

The contrast between what the Conservatives did in office and the approach of the Labour Government in their first year is quite stark, and the consequences are even starker. Insolvency rates are at a 15-year high, new registrations have fallen at the fastest rate since the financial crisis, payroll employment is falling, and inflation is well above target and will be higher for longer. It is no wonder that only 14% of companies with fewer than 10 employees have confidence in the Chancellor’s growth plans. According to one survey, just 29% of UK small businesses are now predicting growth this year. Meanwhile, the Federation of Small Businesses reported that its members now view the tax burden as their second biggest barrier to growth.

Here we see very clearly the vicious cycle that Labour has fallen into, just as it did in the 1970s: higher taxes and higher inflation, leading to lower growth and lower revenues, leading to still higher taxation. That is why, even though the Chancellor promised British businesses that she would not be back for more, she is now refusing to rule out even more taxes and tax rises in the autumn Budget. That is no wonder, because the National Institute of Economic and Social Research forecasts a £60 billion shortfall in the public finances—and that was before we had Labour MPs in open revolt about the slightly tiny welfare reforms and an unfunded commitment to increase defence spending by £40 billion.

In that worrying context, I hope the Minister can stand up and provide some certainty to SMEs by giving his assurance that the next Budget will not see a reduction in the registration threshold, or indeed an increase in the rate of VAT. I would like him to stand up and rule those out right now, for all of us to hear. I know that these assurances will fall short of the increase in the registration threshold that my hon. Friend the Member for Mid Leicestershire and other Members are looking for today, but it will provide more certainty if the Minister rules those things out.

I would also be grateful for an update on the so-called new business growth service, which the Government promised would be a “one-stop shop” for advice and support. That was supposed to launch in the first half of this year, but the Government’s industrial strategy has apparently now had to push that back to later this summer. Perhaps one reason for the delay is that the best advice a business growth service could possibly give anybody is “Do not vote Labour”. That is clear for us all to see.

SMEs probably have quite a lot of advice of their own for the Government, but unfortunately the going rate for speaking to a Labour Minister is apparently £55,000, and one has to endure the inevitable gloom of the Labour party conference. In the spirit of this debate, perhaps the Minister could confirm whether the price tag for meeting him is before or after VAT. Either way, like most Labour policies, I expect it will bring in less revenue than was first hoped.