Mr. Jack: I am grateful for that figure. Will the Financial Secretary tell the Committee whether any analysis was done as to why the loopholes were not spotted when the clause was drafted?
Ruth Kelly: As I am sure you know, Mr. McWilliam, as do my hon. Friends, avoidance schemes are often updated and new schemes introduced, and the Revenue reacts accordingly. I am surprised that the right hon. Gentleman does not know that. A particular avoidance scheme has emerged and we have decided to close the loophole to secure revenue for the Exchequer in future years. That is perfectly reasonable, and I expect that my hon. Friends, at least, agree with our approach.
Rob Marris: Like the hon. Member for Hertford and Stortford and many of my hon. Friends, I do not understand the precise technicalities of some of the clauses, and of the amendments in particular. The hon. Gentleman referred to the brief from the Law Society, of which I am a member. I am slightly surprised at amendment Nos. 190 and 191, which were tabled by the hon. Gentleman and by his friends. The Law Society proposed two amendments to the clause, neither of which are the amendments tabled by the hon. Gentleman.
The Chairman: If the hon. Gentleman is a member of the Law Society, he ought to declare that membership.
Hon. Members: He did.
Mr. Prisk: I do not want to intrude on the relationship between the hon. Gentleman and the Law Society, which is clearly complicated. It is important that, where amendments are tabled, it is because one feels that they have strong merit. I feel that all the amendments that have been tabled fall into that category.
Rob Marris: Will the hon. Gentleman explain why he tabled his amendments and not the two suggested by the Law Society?
The Chairman: Order. The hon. Member for Hertford and Stortford does not have to do any such thing. It is his choice entirely.
Mr. Prisk: Thank you, Mr. McWilliam. I happily declare that I am not a member of the Law Society.
I thank the Financial Secretary for explaining the background to some of the Government's thoughts. I am not entirely sure whether the relevant/irrelevant debate has clarified the matter for those outside who are affected, but it has been helpful.
There is one matter on which I am still not clear; the Financial Secretary may be able to clarify it. There are instances when the income and capital of a partnership are not related to the capital contributions originally
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made. One of the worries with the new clause and the amendments is that organisations, whether capital funds or whatever, may give a general partner a priority share of income to cover expenses and so on, but there will not be the matching of income and capital. The worry is that in trying to deal with those two aspects, there will not be any effort or opportunity for the tax system to recognise the existing conventional or commercial arrangements. One of the dangers when a tax system is a catch-all approach to tax avoidance with rigid rules is that a number of legitimate activities may also be caught up in that process.
However, having said that and having made it clear that the purpose of amendments Nos. 190 and 191 was to probe the Government's intention, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 184, in
No. 185, in
clause 125, page 110, line 1, at beginning insert 'A is'.
No. 186, in
clause 125, page 110, line 5, at beginning insert 'B is'.
No. 187, in
clause 125, page 110, line 9, leave out subsection (6) and insert—
'(6) Subsection (7) applies if this section applies on more than one occasion in relation to the same company and partnership (whether because of two or more receipts by the company of consideration relating to the same disposal or for any other reason).
(7) On each occasion after the first, the amount found under subsection (5) shall be reduced (but not below nil) by the total of the chargeable amounts found (under that subsection read with this) on the previous occasions.'.—[Ruth Kelly]
Clause 125, as amended, ordered to stand part of the Bill
Clause 126 ordered to stand part of the Bill.
Ruth Kelly: I beg to move amendment No. 158, in
clause 127, page 112, leave out lines 20 to 23 and insert—
'(1) This section applies in relation to the calculation of the lessor's income or profits for a period of account for the purpose of income tax or corporation tax.
(a) an amount receivable in respect of the lessor's interest under the leaseback falls to be taken into account in that calculation, and
(b) that amount is reduced by an amount due to the lessee under the leaseback,
that reduction shall be disregarded when taking the amount receivable into account.
(1B) The amounts receivable in respect of the lessor's interest under the leaseback that fall to be taken into account in that calculation may be disregarded to the extent that they exceed the permitted threshold (whether or not subsection (1A) applies).'.
The Chairman: With this it will be convenient to discuss Government amendments Nos. 159 to 181.
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Ruth Kelly: This is a series of technical amendments to clause 127 and schedule 23, the purpose of which is to ensure that the Bill has the effect that was intended at the time of the Budget announcement. To help the Committee, I shall explain the purpose of the clause and schedule before moving on to explain the purpose of the amendments.
The purpose of clause 127 and schedule 23 is to bring an end to two tax avoidance schemes involving sale and leaseback or lease and leaseback of plant and machinery. Those schemes allowed businesses to obtain an unintended tax advantage by permitting them to claim relief twice for the cost of the plant and machinery. Giving relief twice for the same expenditure is clearly not justifiable. The measure removes the unintended tax advantages by restricting them to those rentals paid under the leasing arrangement. The result is that the cost of the plant or machinery is relieved once and once only.
Corresponding adjustments are made to ensure that lease rentals that are disallowed in tax computations or the business that pays them are not taxed in the hands of the recipient. The clause contains the basic rules for the new measure and the schedule contains transitional provisions to ensure that the new measure applies fairly to existing schemes. Stopping this avoidance will bring in an estimated Exchequer yield of £295 million over three years: £75 million this year and £110 million in each of the following two years.
I turn now to the amendments. The measure applies to complex business arrangements, and after the Bill was published discussions between officials and professional bodies identified some technical defects that should be put right to ensure that the rules will operate as we intended. We are grateful to all concerned for giving up their time to help us to get the measure right. The amendments also include anti-avoidance provisions to ensure that the new rules operate fairly and cannot be avoided. The amendments do not make any change to the policy underlying the measure, but if they were not made the measure would not be as effective or as fair as it should be. I therefore commend the amendments to the Committee.
Rob Marris: On a point of order, Mr. McWilliam. Your selected amendments refer to Government amendment No. 181. Will you clarify whether that is intended to be No. 161, because No. 181 refers to schedule 23?
The Chairman: Because the schedule arises out of the clause and because of the principle that we have only one argument on anything, the debate takes part on the clause, even though some of the amendments are to the schedule. Those amendments will be formally moved when we get to the schedule.
Mr. Prisk: I know that we are all grateful to you for steering our deliberations, Mr. McWilliam.
As the Financial Secretary said, the clause must be considered with schedule 23, which underscores the point that you have just made, Mr. McWilliam. The clause seeks to close down those structures that involve sale and leaseback or lease and leaseback of plant and machinery, which is an important aspect for many of
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our more capital-intensive industries. The structures to which the Financial Secretary referred are those businesses that seek to obtain one deduction for the lease payment and one for the capital allowance. I accept that it was an unintended consequence of earlier legislation, and I therefore recognise that the measure's intent has some merit.
Once the Bill was published there were a series of hurried meetings between the Treasury and industry, and if my maths serves me well the results of those are the 20 Government amendments before us. It is a shame that the matter could not have been sorted out before the Bill was published, but I have examined the amendments—some are technical and some have a broader application—and it appears that most of the concerns of those affected by the clause and schedule have been satisfied. For example, one amendment that I considered tabling would have dealt with the question of the net book value and the current book value, and, wearing my chartered surveyor's hat momentarily, I am pleased to see that that has been included.
I do not want to detain the Committee, but we have some concerns about the application of the provisions and their potential impact on bona fide arrangements in a complex field, and especially for the lease and leaseback of plant and machinery. As long as we gain complete assurance that consultations will continue, we will not oppose the amendments in principle.