Finance Bill

[back to previous text]

Mr. Prisk: I am glad that the Paymaster General has clarified her view because from her original statement it was unclear whether she accepted that there was a new tax nothing but that the benefit of the general proposals was that a different tax nothing was being lost, and that therefore there was a net balance. It is important to stress that because industry is working towards the reform of corporate taxes, and

Column Number: 146

merely to move forward but then take two steps back, or perhaps to be fair, one step back—

Dawn Primarolo: It has been a good debate but the hon. Gentleman is being somewhat unfair and so is business. Earlier, we heard the argument that we should not introduce provisions piecemeal; now we hear that we should introduce piecemeal the provisions that business definitely wants and take them out of the review. The management expenses are specific to the transfer pricing as well as the other arrangements that recognise the pressure on companies. I have made it clear that the corporate tax review of capital expenditure is the correct place to take the matter forward. Detailed discussions are taking place, and I thought that business wanted that rather than a rushed patch now.

Mr. Prisk: I hope that we will not have any rushed patches at all. I suspect that we will have to agree to disagree in this area. The purpose of the amendment, as far as I was concerned, was to probe and to test the Paymaster General's exact view. I think that we have succeeded in doing that. I do not intend to press the matter to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Mr. Prisk: A moment ago, we debated an amendment looking at a retrograde step that is part of the proposals; we turn now to their broader aspect. As I said earlier, we welcome the generality of what the clause represents. The clause, and the supporting clauses from 39 onwards, removes the requirement to be an investment company—in other words, one not involved in the trade—in order to claim the deduction from management expenses under section 75 of the Income and Corporation Taxes Act 1988.

It is fair to say that a number of difficulties have tended to arise when a company's activities are a mixture of trading and investment. That occurs most commonly in a group situation with holding companies that not only own subsidiary company's shares but carry on a trade at the same time. In larger groups, holding companies may well not carry on any—or any significant—trading activity, to avoid that problem. Sometimes no tax relief has been available to a mixed investment and trading company for any of the investment and management expenses, where the extent of the trading activities means that it is not an investment company for tax purposes. From talking to a number of those affected by the changes, and, indeed, from considering the responses to the Government's management expenses consultation, it is clear to me that, in most respects, the legislation before us reflects a successful consultation and a positive dialogue, subject to the specific difficulty that we just debated.

I also understand that the Association of British Insurers—to name but one example—is broadly content with the legislation of life assurance company-related management expenses. I think that comes a little further on; nevertheless it is an important part of the overall statement.

Column Number: 147

I think that if there is one area that is questioned, it is that relating to unallowable purposes, which is also referred to in the Government's draft guidance for management expenses. I conclude by saying that it would be helpful for the Committee, and for those organisations affected by the legislation, if the Paymaster General clarified exactly what is meant by an unallowable purpose.

Dawn Primarolo: The hon. Gentleman has covered the clause fairly adequately in that, first, it extends the range of companies able to obtain the tax deduction for the expenses management. Secondly, it puts the time of the reduction in a clear and modern basis; and thirdly, it recasts the complex rules for similar deductions for life assurance companies into a free-standing logical code. There has been consultation on those matters, and it has been widely welcomed by business.

The only point on which the hon. Gentleman seeks further clarification is the unallowable purpose test. He says that it needs clarification, perhaps in relation to management and investments in subsidiaries, especially—perhaps this was in the submissions sent by the Chartered Institute of Taxation—with regard to overseas subsidiaries. The point is clarified in the explanatory notes and the draft guidance published on the Inland Revenue's website. It is not relevant to the application of the test that a subsidiary company whose shares are held by a company that is seeking management expenses relief is not within the corporation tax charge.

5.30 pm

If the hon. Gentleman wants to raise any further issues once he has read the draft guidance published on the Inland Revenue's website, I will be more than happy to receive his representations. I can assure him that the concern that the unallowable purposes test is too restrictive is without foundation, which I hope is shown in the explanatory notes and the draft guidance. I accept that the hon. Gentleman may not have had time to consider these matters, but, given that the guidance is draft and we are receiving comments on it, I will be more than happy to receive his if he feels that the guidance does not adequately deal with his points.

Question put and agreed to.

Clause 38 ordered to stand part of the Bill.

Clauses 39 to 41 ordered to stand part of the Bill.

Schedule 6

Expenses of companies with

investment business and insurance companies

Dawn Primarolo: I beg to move amendment No. 83, in

    schedule 6, page 277, leave out lines 41 to 45 and insert

    'for ''an investment company'', wherever occurring, substitute ''a company with investment business''.'.

Schedule 60—I am sorry. I will start again; it has been a long day. I know that I often put lots of noughts on the end of things, but on this occasion it is inappropriate.

Column Number: 148

Schedule 6 contains the more important consequential adjustments arising from the changes to management expense rules. The amendment affects a provision dealing with an avoidance device known as loss buying. That is when a company changes ownership so that the new proprietors can take advantage of its unused management expenses. The amendment removes a misleading description of the provision being amended as a consequence of the reform of management expenses rules. It also ensures that the necessary change of wording is made each time that the words that need amendment occur in the provision—three in all.

The amendment is slightly more substantial than previous Government amendments, but it is designed to clarify and ensure that the descriptions of the provisions are accurate. I commend it to the Committee.

Amendment agreed to.

Schedule 6, as amended, agreed to.

Clause 42 ordered to stand part of the Bill.

Clause 43

Companies with investment business:

transitional provisions

Dawn Primarolo: I beg to move amendment No. 84, in

    clause 43, page 51, line 22, leave out '41' and insert '46'.

The amendment changes an incorrect reference, which became clear after the Bill was published. I apologise for the error. The amendment makes the necessary adjustment, and I hope that the Committee will agree to it.

Amendment agreed to.

Clause 43, as amended, ordered to stand part of the Bill.

Clause 44

Insurance companies:

transitional provisions

Dawn Primarolo: I beg to move amendment No. 85, in

    clause 44, page 53, line 29, at beginning insert 'the old'.

The amendment is a minor, clarifying one. It makes it clear that when the straddling period rule for insurance company expenses refers to a section that is replaced by a new version under clause 38, the reference is to the old version in the section. It is a minor change, but important as it ensures that the Bill reads correctly.

Amendment agreed to.

Clause 44, as amended, ordered to stand part of the Bill.

Clause 45 ordered to stand part of the Bill.

Clause 46

Power to make consequential amendments

Question proposed, That the clause stand part of the Bill.

Column Number: 150

Mr. Prisk: I simply want to make one brief comment. The Paymaster General has kindly written to the Committee about clause 46 because it contains a regulation-making power. She has sought to supply us with a 23-page statutory instrument of delegated powers in order to help us have an informed debate. I welcome that and I am grateful to her. Unfortunately, it arrived at 9.30 this morning. I expect Committee members will have been disappointed not to have had the opportunity to deal with it, and I hope that the Paymaster General will recognise that that is a problem. I have one simple question for her: will she confirm that the statutory instrument will be debated on an affirmative basis, which will allow us to consider the elements within it?

Dawn Primarolo: Before I confirm the nature of the statutory instrument, it is important to say to the hon. Gentleman that I sent a draft copy of the secondary legislation to the Committee. We are currently carrying out a consultation on the regulations. In sending the regulations, I was in a dilemma as to whether a draft would be helpful when it is still subject to consultation and may change. On reflection, however, I thought that it was important to send it. The draft regulations have been published on the

Column Number: 151

Inland Revenue website, and I have not yet had a report on the responses to the consultation.

On the nature of the statutory instrument, I understand that it is subject to the negative rather than the affirmative procedure, but I am happy to check that and confirm it to the hon. Gentleman in writing, and circulate it to all Committee members as a courtesy. That is the normal procedure, but I want to stress that a consultation is taking place about the draft regulations. Given that the measures are widely accepted in the facilitation of management expenses, they are without controversy.

Question put and agreed to.

Clause 46 ordered to stand part of the Bill.

The Chairman: The question is, That further consideration of the Bill be now adjourned.

Mr. Pound: No.

The Chairman: Order. While I am putting a question, I will have silence in the Committee.

Further consideration adjourned.—[Jim Fitzpatrick.]

Adjourned accordingly at twenty-one minutes to Six o'clock till Thursday 13 May at half-past Nine o'clock.

The following Members attended the Committee:
Sir John Butterfill (Chairman)
Atkinson, Mr. Peter
Bryant, Chris
Burgon, Colin
Burnett, Mr.
Cohen, Harry
Cruddas, Jon
Ellman, Mrs.
Ennis, Jeff
Fitzpatrick, Jim
Kelly, Ruth
Lamb, Norman
Osborne, Mr. George
Pound, Mr.
Primarolo, Dawn
Prisk, Mr.
Purnell, James
Quinn, Lawrie
Todd, Mr.
Watson, Mr.

Previous Contents

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2004
Prepared 11 May 2004