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Prior to 6 April 2006, employers who made computer equipment available for private use by their employees could do so tax-free, providing that the annual amount of the benefit in kind was £500 or lessthat is the equivalent of £2,500 of computer equipment, inclusive of VAT. The clause removes that tax exemption. With effect from 6 April 2006, a tax charge will arise on the benefit in kind that arises in those circumstances. However, the clause does not change the position when an employer provides the use of computer equipment solely for work purposes and private use by the employee is not significant.
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The question that everybody has been asking is: why are the Government doing this? It is perfectly true that many employees have benefited from the tax exemption, but the home computer initiative has been used extensively by groups that we would not generally expect to have difficulty accessing information technology. For example, 25 per cent. of those participating in the home computer initiative are higher rate taxpayersmore than twice the proportion among taxpayers as a whole. Furthermore, nearly one third of HCI participants are from white-collar industriesoften defined as industries with a greater proportion of higher-than-average earners.
Peter Luff (Mid-Worcestershire) (Con): What the Paymaster General is saying is news to the industry, which was not consulted about the problems that the Treasury suddenly discovered at the eleventh hour, just as the ink was drying on the Budget. On the specific point that she just raised, would she say the same thing to the 15,000 nurses who have benefited from the HCI scheme or the 21,000 Tesco employees, who are probably not at the top end of the earning schedule? The evidence was that that level of employee was benefiting more and more from the scheme.
Dawn Primarolo: The information comes from the industry. The hon. Gentleman interrupted me rather early on in my remarks. I was certainly not saying that nobody had benefited from the HCI scheme. The case that the Government are putting is that the benefits have slowed down to a point at which the growth is very small. In particular, it is not targeted on the remaining groups that we need to assistthose on low pay. I was just about to turn to that point.
Last month, the Low Pay Commission published the findings of its review of benefits in kind, salary sacrifice schemes and the accommodation offset. It found that take-up rates were often quite low and many part-time low-paid workers would gain no advantage from salary sacrifice schemes for home computers and other benefits in kind. Her Majesty's Revenue and Customs has evidence that, unfortunately, the tax exemption was being used beyond the scope of its original intention.
On the one hand, the initiative has reached a number of people and has increased usage. On the other hand, it is not targeted particularly at the low paid and its effectiveness has been slowing down, and, in addition, it is being used beyond its original intention. For example, the HCI packages included items such as game consoles and MP3 players and allowed employees to buy equipment out of their gross pay, rather than borrow it. Furthermore, the cost of computer equipment has fallen markedly since 1999 when
I wonder whether the hon. Gentleman will let me make some progress. I, too, have read the brief from the industry that he has and that has been circulated. If he listens to all my remarks and then contributes to the debate, I will be happy to return to any outstanding matters.
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The cost of computer equipment has fallen markedly since 1999 when the exemption was introduced. Figures produced by the Office for National Statistics show that an equivalent computer that cost £2,500 in 1999 would have cost under £700 in 2005. The Government have therefore concluded that the time has come to remove the exemption and to focus Government support in a better way to improve access to technology for groups with the poorest existing access, such as the unemployed, the elderly and the low paid.
Dawn Primarolo: I will, but this is the last time that I will give way to the hon. Gentleman. I will then try to make my case and then he can contribute to the debate. If there are any outstanding issues at that stage, I will reply to them.
Peter Luff: This is a debate in which it would be good to have answers to questions. I asked the right hon. Lady's Department questions a month ago, but I have not had answers, so I have to ask those questions now, in this formatotherwise I might have been able to accelerate her speech. Will she please do the Committee the courtesy of producing the evidence that she has about the so-called abuse of the scheme? It does not exist. The industry specifically asked for MP3 players not to be included in the scope of the scheme, but the Treasury insisted that they should be. The industry would be happy to see them excluded. The other equipment to which she referred was not being offered under the terms of the scheme; it was being offered as part of marketing brochures alongside it. The full price was paid. If she has that evidence, please will she produce it? It is important that we see it.
Dawn Primarolo: I am happy to produce that evidence. Indeed, I am happy to produce it to the hon. Gentleman for the company in his constituency for which he has been making the case. The evidence comes from its marketing websites. I think that he will be somewhat shocked when he sees the extent to which packages were being put together involving items that were not supposed to be included in the HCI. That is in addition to the difficulty with take-up. I cannot say that I will put the information in the post to him tonight, but I will certainly do so tomorrow morning and he can look at the evidence. Alternatively, I can give him the website addresses and he can look at them himselfhe does not have to take my word for it.
Mr. Mark Francois (Rayleigh) (Con): The evidence of one or two websites is not enough to damn a whole scheme. If the Government have such compelling evidence of abuse, will the Paymaster General explain why so little hard evidence was produced in the regulatory impact assessment that they rushed out last week?
The Opposition change their argument as they lose each point. The issue with regard to abuse of the schemeas well as its lack of targeting, the importance of better focusing it, and the problems of not consulting where there are abuses in the scheme
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because of forestallingare well known by all Members. If the hon. Gentleman will allow me to continue to make my case, he will be able to make his and further points can be made.
Following the publication of the digital strategy in April 2005, the Government have continued to acquire an evidence base to enable them to consider focusing their support. In November 2005, the Government published their "Inclusion through Innovation" report. It examined where information and communication technology might deliver the most benefit to excluded groups and considered how that might be achieved. The report found that barriers to using ICT included a lack of relevant content, poor awareness of where to access ICT and a lack of preliminary skills, such as literacy or English language skills. The report also noted that digital inclusion does not mean simply
Community ICT access and intermediaries all form part of a multi-channelled approach that will deliver for the targeted groups. The Government are making the case that it is necessary to use those resources to target the groups in greatest need and in which take-up is lowest.
To ensure the best use of ICT in tackling this type of social exclusion, I am announcing today that the Government are setting up a dedicated digital inclusion team[Hon. Members: "Oh."] The industry does not mind being represented on the team, so it does not think that the team is to be ridiculed. The team will champion examples of excellence in using highly effective and efficient ICT to tackle the key drivers of exclusion. It will also promote local and national leadership and understanding of the considerable potential of ICT to make a significant improvement to the life chances of excluded people and areas.
Furthermore, I can today announce that we are changing the aims and objectives of the digital strategy to focus on digital inclusion, which reflects the shift in the Government's focus towards a more targeted approach. The strategy is a genuinely cross-government programme that recognises that only concerted action across Government Departments will realise our objectives. As I have said, access to ICT is about more than access to computers. Other technologies, such as digital television, give disadvantaged groups the opportunity to engage with ICT. The UK has a world-leading position in digital television, with more than 70 per cent. of households now accessing that technology.
The Treasury will work collaboratively with industry as we look towards meeting the goals of the digital strategy. We will keep the focus on targeted interventions to help those with specific difficulties. We will build on the success of more than 6,000 UK online centres, more than half of which are located in the 2,000 most deprived wards in England, so that 95 per cent. of the population live within 5 km of such a centre. Because we want to ensure that future generations gain access to technology, the Government are giving
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£50 million over the next two years for schools to invest in home access to ICT for their students and a further £10 million to provide internet connectivity to the home access network. The announcements make substantial inroads into achieving our objectives, but we will conduct a review in 2008 to explore whether further action is necessary to close any residual digital divide.
I have written to representatives from industry to invite suggestions on the most effective way to focus our support on targeted groups. The Department of Trade and Industry will review the options put forward over the next few months and consider how the Government's objectives can be met.
I would like to provide the reassurance for which I know that some have already askedthe hon. Member for Mid-Worcestershire (Peter Luff) has done soon computer equipment provided for business purposes. Clause 61 does not change the position for computer equipment provided solely for work purposes when any private use by the employee is not significant. We acknowledge employers' concerns in this area and I know that HMRC has been approached by representative groups to work through the issues. I have asked HMRC to work with those representative bodies to ensure that clear practical guidance is produced to help to keep employers' compliance costs to a minimum.
The Government's policies of liberalisation and competition have led to the strong take-up and use of ICT. The creation of new and innovative services and falling prices have all contributed to that. The HCI has played its part in the strong take-up, but it is not appropriate for the Government to keep the scheme going beyond its useful lifespan. The announcements that I have made today will ensure that all can benefit from technology in a cost-effective manner. I commend the clause to the Committee.
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