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Mr. John Burnett (Torridge and West Devon): This is my first opportunity to welcome you to the Chair, Mr. O'Hara, although I have been fortunate enough to serve under your chairmanship before. I rise to endorse the points made by the right hon. Member for Fylde (Mr. Jack). I, too, have received representations on the Bill from the Chartered Institute of Taxation and I know from past experience that many purchasers of plant and equipment prefer, for cash-flow reasons, to buy through leasing or hire purchase. The Government are pursuing the laudable aim of encouraging the purchase of energy-saving plant and machinery, but why are they excluding lessors from that? The object of the exercise is to get as much energy-saving plant and equipment into use in businesses and companies throughout the country, so I look forward to hearing a compelling explanation of why lessors are excluded. Miss Melanie Johnson: The energy technologies list sets out qualifying technologies and products, and was issued by the Department of the Environment, Transport and the Regions on 1 April. It is available on the DETR website, as I said in response to the hon. Member for Croydon, South, and it is also published—hard copies are available from the DETR's energy and environment hotline. I am sure that the same problems exist in locating something whether it is on a website or in hard copy. Until one knows that it exists, one does not know to look for it. That is also a problem with signposts, but that is beside the point. It makes no difference which form is used. On the question of whether the certificates can be issued by the devolved administrations, responsibility for some environmental technologies has been transferred to the devolved assemblies. However, that does not include responsibility for the technologies currently included in the scheme, and, in particular, it does not include responsibility for combined heat and power technology. That is the only kind of technology that currently requires a certificate of energy efficiency. The schedule caters for future cases in which responsibility for environmental technology included in the technology list has been transferred to the devolved administrations, which would also issue certificates of energy efficiency. Mr. Jack: Let us say, for example, that a piece of equipment was approved in Scotland, then moved to England, but came under the unified tax jurisdiction. How would the allowance operate if the piece of equipment had not been certified in England? Miss Johnson: My understanding is that, at the moment, certificates are issued centrally, so the right hon. Gentleman's point is hypothetical. The DETR will delegate it to the combined heat and power quality assurance programme. That is how the issuing of certificates is dealt with. I appreciate that the right hon. Gentleman's point might need to be borne in mind in future, and I shall write to him on the subject. The energy-saving criteria will apply nationwide, so there should not be any marked difference between decisions, even though they are not being made centrally. A modified design can be re-certified if the new design still meets the criteria. The point made about the modification of equipment to fit in with other equipment, perhaps when it arrives on site, can be tackled in that way. Mr. Jack: How will that information be communicated to taxpayers, so that someone does not unwittingly buy a certified piece of equipment, modify it and forget to re-certify it? Will people be given guidance? Miss Johnson: I do not know exactly what form of communication there will be, but I shall write to the right hon. Gentleman on the details later. The retrospective withdrawal of certificates was referred to. Products on the product list are not covered by the special rules concerning the certificates of energy efficiency, and can be given to the taxpayer. The certificates are used only for technologies specifically designed for the taxpayer's business, and the energy savings depend on the design. Combined heat and power is the only technology for which a certificate is needed. A certificate can rightly be withdrawn if, for example, a combined heat and power installation is not built according to the certified design. Obviously, people must discharge some criteria if they are expected to do so. The energy efficiency of a combined heat and power installation can be measured from its design, and the certificates can then be issued at the design stage. They will certify that the energy efficiency standards required for the scheme are met, and the purchaser should thus be certain that the installation can qualify for 100 per cent. allowances before he makes the investment. Some hon. Members spoke about leasing arrangements and the exclusion of leases. First-year capital allowances, such as given by the scheme, aim to encourage targeted capital investment by businesses. They help them to overcome the cash-flow disadvantages that they face when they make up-front investments out of profits after tax. They also enable businesses to receive tax relief earlier than would otherwise be the case. Businesses that lease assets do not suffer the same disadvantage, and can claim the full tax relief on their lease payments during the term of the lease. There is a marked difference between the profile and the nature of the leasing arrangements, hence the exclusion. Mr. Jack: Can the process of leasing not be an aid to the cash flow of a business? With it, a business need not put a capital sum up front, albeit one that is assisted by the capital allowance that the Minister has outlined? If the objective is a high uptake of energy-saving equipment, does it matter how the initial purchase is funded? Miss Johnson: I have just made the point that we are trying to ensure, by the use of first-year capital allowances, that we overcome the difficulties of the cash-flow disadvantage for those not leasing. The up-front investments have to be made out of profits after tax, but that is not the case for leasing. Mr. Burnett: I think that the Minister is explaining that the payments that lessees make—the lease payments—are tax deductible in toto. It would help lessees greatly if the lessor company received a capital allowance, as the lease payments would be diminished by the tax saving. Miss Johnson: Energy service providers can claim 100 per cent. allowances on their spending only on qualifying technology. As I said, such equipment is not for leasing. It is equipment that the providers are contracted to install and operate on clients' premises as part of a comprehensive energy management agreement to achieve energy savings or energy efficiencies. The energy-saving services provided in such cases are different from normal commercial leasing arrangements. Unlike usual lessors, the energy-saving service companies are responsible for the day-to-day operation of the equipment. The difference is that the energy-saving service providers do not operate the same arrangements. Mr. Jack: I am struggling to follow the logic of the Economic Secretary's argument. If I understand it correctly, her argument is that, because the equipment might be provided by an energy service company—perhaps a company that has entered into an agreement with the company to which the service is being provided, in order to share the energy savings—there might, in her judgment, not be a case for the energy service company to receive the 100 per cent. allowance. I come back to the point that I made earlier, that the objective is surely to achieve a high uptake of the energy-saving systems. As the hon. Member for Torridge and West Devon (Mr. Burnett) said, it may be to the advantage of the company to use a leasing arrangement to get hold of the equipment because of the cash flow advantages. However, there can be only one capital allowance, and it can be used only once. If it is used once by the leasing company ultimately to reduce the cost to the user of the equipment, as the hon. Gentleman said, does it matter that it is not the company or the principal who claims the allowance but a leasing organisation? I do not know whether there are any financial implications for allowing only the company to claim the allowance rather than a leasing company, but it throws into question the raison d'etre of leasing. I should be grateful if the Economic Secretary would expand a little on that. I do not understand why such discrimination has crept into the legislation. The other point that the hon. Lady did not cover concerned proposed new section 45A and what is unused and what is second-hand. An answer would help the industry. Mr. Ottaway: My right hon. Friend makes a strong point about leasing. Indeed, it is mentioned also in the next schedule. I return to the issuing of certificates of energy efficiency. The Minister said that they were being be issued centrally, but the schedule does not provide for that. Proposed new section 45B(3)(b) states that
Mr. Burnett: I remind the Minister that the rental costs of leasing agreements of qualifying plant and machinery are invariably deductible, if the equipment is qualifying equipment for business purposes, either against the corporation tax profits of the business or against the income tax paid on the profits of sole proprietorships or partnerships. That deduction is made in full. Will the Economic Secretary answer the central thrust of the question that the right hon. Member for Fylde and I asked? Why will the lessor company—the acquirer—not be entitled to such laudable relief for energy-saving machinery?
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