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Finally, the hon. Member for Dudley, West took us at some length through the central issue of how one determines the life of an asset. He read out a number of quotations. The straight question of who decides the useful economic life of an asset that needs to be determined when the accounts are drawn up. That is one for the accountants, who are used to it and understand it. As I said, if there is a disagreement, it is the role of the tax inspector and the commissioners to sort it out.
The hon. Member for Dudley, West asked whether inspectors would be bound by the expected economic life used in the accounts. That will be strong evidence of whether the 25-year test is made, but the inspector must
be able to query the figure if he is not satisfied that it is reasonable. Those are fairly simple and straightforward statements.
Mr. Nicholas Winterton (Macclesfield):
I have been involved in industry, as has the hon. Member for Dudley, West (Mr. Pearson). How can my hon. Friend the Minister believe that in this modern age any asset lasts for 25 years? If we are to remain efficient in this competitive age, we need to replace machinery of almost any sort within 10 years. Writing off assets over 25 years is a total nonsense, and puts this country at a grave disadvantage with our competitors.
Mr. Jack:
My hon. Friend is right. If he is drawing the Committee's attention to the fact that machinery may be built that has an obviously shorter operating life, to take account of technological advance, that clearly is a matter for the accountant. I remember this argument being used when I was involved with the glasshouse industry. It was made clear that some of the structures might not last all that long. The advice to that industry was clear--take it up with the tax inspector.
Mr. Jack:
I hope that my hon. Friend will forgive me if I do not give way again, as I want to draw my remarks to a conclusion.
The life of an asset was a central part of the remarks of the hon. Member for Dudley, West. I shall certainly study carefully some of the further technical points that he made and, if he will excuse me, I shall write to him about them. I commend the clause and the schedule to the Committee.
Mr. Pearson:
I thank the Minister for his brief final comments and for explaining the meaning of life to the Committee. I appreciate that he will write to me about some of the technical issues, and so will not mention again building alterations, dry docks, grain silos and the treatment of groups of companies. Will he comment on how the Bill affects the private finance initiative, with particular reference to hospitals?
Has the Treasury taken into account in its estimates of cost savings the way in which contracts will be redesigned to take account of the new legislation? It seems clear that, when putting in a new production line or a manufacturing cell, whereas one might have awarded a £2 million contract for 10 different machines and all the links, one will now use 10 or 11 different contracts plus an assembly contract to get around the legislation and claim the allowances.
Mr. Winterton:
I am grateful to the hon. Gentleman for giving way when my hon. Friend the Minister would not. Is not one of the problems the fact that accountants make these decisions rather than production managers or engineers, who have more knowledge of the benefit of equipment than accountants, who merely look at the figures and the bottom line? Would the hon. Gentleman, whose interest and involvement in industry and in rugby football I have considerable respect for, comment on that matter before the Minister responds?
Mr. Pearson:
The hon. Gentleman is right, if he is making the general point that too many accountants run
I should appreciate a response from the Minister on the PFI and hospitals, on the extent to which the Department has taken account of the real world and on how contracts will be redesigned as a result of the legislation. It is easy to draw a coach and horses through some of the Bill because of the way in which it is drafted.
Mr. Jack:
We do not hide the fact that the Bill will affect the PFI and contracts where long-life investment exceeds £100,000. As the hon. Member for Edinburgh, Central said, the quality of the investment is what should see the thing through. The matter should not turn on the question of tax allowances, which is why we are removing this distortion. The underlying thesis is the fact that, in business terms, the highly competitive corporation tax regime is far more important to those who want to make quality investments than the tax allowance regime.
Mr. Darling:
I know that the Committee anticipates a vote and I shall not speak for too long, but I must refer to a number of matters. The debate has shown the difficulties that we can get into when a straightforward proposition becomes complicated by exemptions, and where different reliefs apply, depending on different definitions. Indeed, it appears that, while the Government were trying to simplify the provision of allowances, the position has become rather more complicated and many of the gainers will be lawyers and accountants.
I will deal with one or two questions that the Minister did not completely answer. We should be grateful to him for clarifying the position on railways. We have a clear admission from the Government that the railways will be making losses for some years to come--certainly for 13 years. I understand the argument that there is not much point in giving a tax break to someone who has to be subsidised by the taxpayer. That admission undermines all the Government's claims about the railways. According to the Minister, they are loss making and therefore we cannot justify giving them a further tax break. I understand the logic of that, but it bears out what we have been saying--that the taxpayer will have to subsidise the privatised railways for many years to come. Thirteen years is a long time before any review.
I have never understood why aeroplanes are included in the measure and railways are not. The Minister did not deal with that central point.
It concerned me when the Minister, in effect, gave the industry tips on how to get around the provisions of the Bill, because it seems that the engines of an aeroplane can be removed and treated separately. Perhaps the example I gave, of wings, was not a good one, although the wings are a major part of an aeroplane. I should probably declare an interest, as I use aeroplanes at least twice a week. I have always--perhaps naively--thought of an aeroplane as being one body rather than the sum of a number of component parts, all of which can be treated differently for tax purposes and removed as appropriate.
That illustrates my point. If operators and manufacturers get round the problem by treating different parts of the aeroplane in different ways, it will lead to precisely the difficulty that was pointed out by the hon. Member for Macclesfield (Mr. Winterton)--accountants
will instruct manufacturers to ensure that a part cannot reasonably have a life of 25 years and, therefore, obsolescence will be built in. When an engine or the electronics of an aeroplane is designed, the accountants will say that it must not last for more than 20 years, in case it gets caught. They can then claim the 25 per cent.
That shows the problems that arise when the law becomes, not simpler, as we all profess to want, but more complicated. I am worried that we are, in fact, creating great opportunities for lawyers and accountants. When describing the new concept--the meaning of economic life--the Minister referred to accountants, saying that they understand these matters. I was once a practising lawyer, so I know that accountants and lawyers understand these matters. In particular, they understand that a good and long argument is a lucrative way of spending their time, and we should not put together a tax system that guarantees them work for 25 years. Nevertheless, that appears to be what we are doing.
I have come to believe that the next Government will have to spend a substantial amount of time trying to sort out these difficulties, some of which will be immediately apparent, while others will only appear when the law starts to operate. It would be unreasonable to burden the next Government with having to report to Parliament in addition to that, as I suggested in my amendment.
Question put and agreed to.
Clause 82 ordered to stand part of the Bill.
Schedule 13 agreed to.
Ms Dawn Primarolo (Bristol, South):
I beg to move amendment No. 4, in page 56, line 19, at end add--
The Second Deputy Chairman of Ways and Means (Dame Janet Fookes):
With this, it will be convenient to discuss amendment No. 5, in page 56, line 19, at end add--
'(4) The Treasury shall produce a report each year on the companies which had schemes registered under that Chapter.
(5) The report mentioned in (4) above shall analyse the actions taken by companies in relation to profit related pay after 1st January 1998.
(6) The report mentioned in (4) above shall also describe separately the impact of the removal of tax relief for profit related pay on employees paying income tax at both higher rate and basic rate.'.
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