Finance Bill

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John Healey: It is always welcome to hear a contribution from the Opposition Whip. I suspect that he is anxious to fill time in the Committee's proceedings for his own purposes--in the same way that I am at present. I shall answer his specific question directly and add a couple of general comments that explain the purpose of the clause.

Further technologies include: heat pumps for space heating; radiant and warm air heaters; solar thermal systems; further refrigeration equipment; and, of course, air compressor drain traps and monitoring equipment.

Mr. Luff: Oh, of course.

John Healey: If the hon. Gentleman would like further details on each technology, I should be happy to provide them.

The clause makes a small but significant amendment to the rules that determine the expenditure on plant machinery that may qualify for the first-year allowances. It enables businesses that incur expenditure on qualifying environmentally friendly plant machinery for leasing or hire to claim 100 per cent. enhanced capital allowances on their expenditure. The change applies to investments under new schemes for enhanced capital allowances for low-emission cars and gas refuelling equipment. Furthermore—this is the point that the hon. Gentleman raised—the change will extend enhanced capital allowances to energy-saving technologies under the scheme that we introduced last year to encourage investment.

To give a full picture, existing energy-saving technologies include combined heat and power boilers, variable speed drives, thermal screens for horticulture, lighting, pipe insulation and some refrigeration equipment.

The clause will ensure that such schemes reach the widest number of businesses and encourage the highest uptake of technologies for the widest possible environmental gain. The new treatment will apply to expenditure incurred from Budget day—17 April 2002—on qualifying assets for leasing. I commend the clause to the Committee.

Mr. Hoban: Can the Minister clarify the concluding sentence in paragraph 6 of the explanatory notes? It says:

    ''Subject to State aids, further technologies will be added later in 2002.''

Does that imply that the Government must seek clearance from another organisation, such as the European Union, before further technologies can be added? Can the Minister tell us what the sentence means?

John Healey: I can, indeed. An established process should be conducted on this area of legislation, and that involves the European Commission. We are currently undertaking the process and we do not anticipate any problems with the proposals in the clause.

Column Number: 272

Mr. Hoban: Is the approval that the Minister seeks based on technological aspects? Is the EU checking that the technologies are sufficiently green to be merited and that they conform to the Kyoto protocol and domestic or EU rules on emissions and other environmental aspects? Alternatively, is the Minister seeking approval from the EU on giving state aid to technology? The amounts involved must be fairly minimal, so why do we need approval on the financial aspects? Does the Minister want technological or financial approval?

John Healey: The hon. Gentleman may not like the European Commission, but it exists. The United Kingdom Government are signed up to follow the process. In a sense, the hon. Gentleman has answered his own question by referring to state aids. The principal worry about state aids is the distortion of competition. I reassure him that the process is under way. We do not expect that the European Commission will have problems with the proposals in the clause.

Mr. Luff: I am glad that I raised that point. When we ask a question in Committee, we often receive a surprising answer. I represent the Vale of Evesham, which has many horticulturists and growers, and I know that they will be delighted to be the principal beneficiaries under the clause. Will the Minister be kind enough to write to me setting out details of how horticulturists and growers can benefit from the provisions and say whether any of the technologies to be added to the list are likely to benefit that sector?

John Healey: The hon. Member for Mid-Worcestershire (Mr. Luff) is much more of an expert on horticulture than I am, given that I represent a former coal- mining community in southYorkshire. I shall certainly make inquiries and write to him on that matter.

I shall try to wrap up the concern felt by the Opposition—understandably from their point of view—about the European Commission and the European Union. In our judgment, the new technologies that we propose to extend under the clause will not give rise to state aid issues. We are not seeking state aid approval from the Commission, but we have undertaken to inform it if we make any subsequent changes to the provisions in last year's Finance Act. We are in the middle of that process, and we do not expect any problems to arise. I trust that my explanation has been sufficient.

Mr. Luff: The horticultural sector knows that several state aids are payable to their competitor countries elsewhere in the European Union, which have escaped proper scrutiny. If any are scrutinised by the European Union, I hope that the Minister will be extremely robust in ensuring that British growers and horticulturists are not denied the advantage already enjoyed by their competitors in other EU countries.

Question put and agreed to.

Clause 61 ordered to stand part of the Bill.

Column Number: 273

Clause 62

First-year allowances for expenditure wholly for a ring fence trade

Mr. Chope: I beg to move amendment No. 99, in page 40, line 21, after 'first-year', insert 'and writing-down'.

The Chairman: With this it will be convenient to take the following amendments: No. 100, in page 40, line 27, after 'first-year', insert 'and writing-down'.

No. 101, in page 40, line 31, after 'amendments', insert

    'relating to first-year allowances'.

No. 102, in page 40, line 32, at end add—

    '(4) The amendments relating to writing-down allowances made by that Schedule have effect for chargeable periods beginning on or after 1st January 2003.'.

No. 103, in schedule 21, page 252, line 4, at end insert—

    '6A In section 56 subsection 7 shall be replaced with—

    ''(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period is a percentage of the amount by which AQE exceeds TDR, as shown in the Table—


    Type of AQE Amount
    AQE incurred on the provision of plant and machinery for use wholly for the purposes of a ring fence trade which is not excluded by section 46 (general exclusions) 50%
    All other AQE25%''

      6B In section 56 after subsection (7) add—

      ''(8) The increased writing-down allowance for ring fence trades will only be available for chargeable periods beginning on or after 1st January 2003.

      (9) In this section ''ring fence trade'' has the same meaning as in section 45F.''.'.

    No. 104, in schedule 21, page 255, line 30, at end insert—

      '14 In section 418, subsection (1) shall be replaced with—

      ''(1) The amount of the writing-down allowance to which a person is entitled for a chargeable period in respect of qualifying expenditure is a percentage of the amount by which UQE exceeds TDR, as shown in the Table—


    Type of UQEAmount
    UQE on the acquisition of a mineral asset 10%
    UQE for use wholly for the purposes of a ring fence trade50%
    All other UQE 25%''

      15 In section 418 after subsection (6), add—

      ''(7) The increased writing-down allowance for ring fence trades will only be available for chargeable periods beginning on or after 1st January 2003.

      (8) In this section ''ring fence trade'' has the same meaning as in section 45F.''.'.

    Column Number: 274

    Mr. Chope: This group of amendments is important. Committee members may have noticed the press statement that was issued on Thursday, 23 May on the politics section of BBC Ceefax. It stated:

      ''The United Kingdom oil industry is warning that up to 50,000 jobs could be lost owing to tax changes in the last budget. The changes including a 10 per cent. rise in corporation tax were a shock to the industry. The United Kingdom Offshore Operators Association said the extra costs will cost £8 billion in the next eight years.''

    It warned that companies looking to develop new oil fields will bypass the North sea.

    Given what the Chancellor said at the time of the Budget, the provisions are designed as a sop to the oil and gas extraction industry to soften the blow of clause 90, which we discussed on the Floor of the House. The clause gives a 100 per cent. first-year allowance for expenditure on plant and machinery, which is not a long-life asset used in a ring-fenced trade. It will help cash flows, but the amendments would give a larger benefit to the industry. They would give increased allowances to expenditure incurred before the introduction of the supplementary 10 per cent. corporation tax charge.

    The UK oil industry points out that companies have already incurred much of the capital expenditure that generates income subject to the supplementary charge and that tax relief has already been given on capital allowances claimed to date against income taxed at the old rate of 30 per cent. The amendments would increase the rate of writing-down allowance available on existing capital expenditure to compensate for the higher rate of corporation tax.

    Recent investments have been adversely affected by changes announced in the Budget. In recent years, the oil industry has been encouraged to invest. Indeed, not long ago—in the November 2000 pre-Budget report—the Chancellor of the Exchequer said that it had been put to him that North sea oil companies that earn higher profits from higher oil prices should be subject to special taxes, but that he was determined not to make short-term decisions based on short-term factors. He said that the key issue was the level of long-term investment in the North sea and that that would be the approach that would guide Budget decisions in future.

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