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5 July 2006 : Column 888

Mr. Goodman: I am surprised that the Minister did not ask me that in Committee. However, the line of inquiry that I am about to pursue is the same as the one that I pursued in Committee. Strictly speaking, it is not predicated on the Energy Act 2004 but on the question of whether a private company would enjoy the tax advantages enjoyed by public companies.

As I said, I am not entirely satisfied with the answers that I received from the Paymaster General in Committee—that might explain why the right hon. Lady was so anxious to intervene on me—and neither, it appears, is the hon. Member for Wolverhampton, South-West.

Dawn Primarolo: I was just seeking information.

Mr. Goodman: Indeed.

Clause 99 aims to preserve the intended effect of section 29 of the Energy Act, to which the Paymaster General referred. According to the explanatory notes on the clause, which the hon. Member for Wolverhampton, South-West will have read, section 29 is intended to ensure

as the hon. Gentleman said—

I assume that that means that the tax advantage would not be enjoyed.

As the hon. Member for Wolverhampton, South-West implied, since the Budget, it has been announced that one company in the BNFL group—British Nuclear Group, which is British Nuclear Fuels Ltd’s specialist site management and nuclear clean-up business—is to be transferred from the public to the private sector. As I said in Committee, that sounds reasonable in principle and the Opposition are obviously the last group of people who will look unsympathetically on the case for transferring services from the public to the private sector. However, it is important that any tax arrangements that result from such a transfer are transparent, and that the interests of taxpayers are protected.

I asked the Paymaster General on 6 June in Committee to correct me if I was mistaken in asserting that an exemption from corporation tax that applied to a public body is now to be applied to a private body. The right hon. Lady said at column 451:

I stress the next few words—

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So it seems on the face of it that an exemption from corporation tax that applied to a public body is now to be applied to a private body.

I also asked whether the exemption was intended to make the sale more attractive. The hon. Member for Wolverhampton, South-West used the phrase “fatten up”, which is a more vivid way of putting it. My reading of the record of 6 June is that the Paymaster General did not definitively deny that claim. I would be grateful if she took the opportunity to do so now.

I asked for precedents. The right hon. Lady cited the Government taking over British Energy plc’s liability for decommissioning and certain other liabilities in 2005. She said at column 451:

Two points follow. First, it has been suggested to me that the British Energy example is not particularly apposite. British Energy, it was argued, was effectively insolvent and the Government decided to rescue it, rather than have a major generator go bust. In other words, the British Energy example describes an old fashioned rescue operation, so reducing the tax burden of what the Government intend to be a newly privatised business, BNG, is surely not comparable. Secondly, I have not yet received from the Paymaster General, although I hope to do so in due course, the other examples to which she alluded.

I want to try to get to the heart of what the Paymaster General meant on 6 June by speaking of the purpose of clauses 99 and 100 being to prevent Government money from, as she put it at column 452, “moving in circles.” On the evidence of that debate, it seems to me that the effect of the clause, if not the purpose, might no less accurately be described as reducing the tax burden of what will be a newly privatised business. If that is the case, a further question arises.

The Nuclear Decommissioning Authority presumably employs private sector contractors other than BNG for one purpose or another. Do they also have arrangements in place that effectively reduce their tax burden? If not—and I suspect the answer is not—there is a bit of
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mystery hanging over the clause. I hope the right hon. Lady will take the opportunity to clear it up.

Julia Goldsworthy: As my hon. Friend the Member for Cambridge (David Howarth) pointed out, there was nothing about these matters in the Budget statement, the press notices or the Red Book, and there was no information available at the time that the Budget resolutions were debated and passed in the House. The Paymaster General made a specific reference to the Lib Dem contribution to the relevant section of the Energy Act 2004, which was not debated in Committee, as I found when I looked back at Hansard for that time. As has been observed, at that time all the organisations that would have been affected by these clauses would have been in the public sector, so effectively it would have been public money swilling around and the issue would not have been seen to be so important.

The key issue is whether there is state aid and, if so, to what extent. While BNFL group is a publicly owned company, it is free from corporation tax, but when it becomes private it will be liable for corporation tax. It is not clear what happens in the transitional period. Is there a hidden subsidy and will it continue through the transitional arrangements?

Finally, on the closing comments by the hon. Member for Wolverhampton, South-West, what are the net fiscal effects on the Exchequer? As well as writing to the hon. Member for Wolverhampton, South-West, will the Paymaster General undertake to place that information in the Library, because I am sure that many hon. Members will be interested?

deferred divisions

Mr. Deputy Speaker (Sir Alan Haselhurst): I now have to announce the result of Divisions deferred from previous days.

On the motion on Northern Ireland, the Ayes were 303, the Noes were 163, so the motion was agreed to.

On the motion on the summer Adjournment, the Ayes were 409, the Noes were 53, so the motion was agreed to.

[The Division Lists are published at the end of today’s debates.]

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Finance (No. 2) Bill

Question again proposed, That the amendment be made.

Dawn Primarolo: Thank you, Mr. Deputy Speaker.

Sections 29 and 30 of the Energy Act 2004 were intended to prevent BNFL site licensee companies from incurring corporation tax charges as a consequence of accounting entries made to reflect the assumption of financial responsibilities for the decommissioning and cleaning up of certain civil nuclear sites by the NDA. As I said in Committee, the House agreed the provision to prevent a large amount of Government money from moving in circles. To be precise, it was intended to make sure that in transfers from public bodies, one public body does not have a tax-deductible loss, while the other public body receiving the assets has a gain that is also not taxable.

In Committee, my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) mentioned discussions on state aid issues subsequent to the 2004 Act. There was a mismatch between what was agreed by this House in the 2004 Act and subsequent clarifications on state aid. What is proposed now—it was included in the state aid notification in respect of the NDA—is not considered as state aid, because the effect of the exemption is tax neutral with respect to the Government, which is why I have mentioned the circular effect between publicly owned bodies. The provision allows accounting entries without the problem of money coming in with one hand and going out with the other.

My hon. Friend the Member for Wolverhampton, South-West has asked about the cost of decommissioning on the historic provisions of nuclear civil sites. That has nothing to do with the future, should there be one, because the matter is completely outside the arrangements. Clauses 99 and 100 were included in the Finance Bill because it was the next available parliamentary vehicle to correct the provisions in the 2004 Act, and I assure my hon. Friend that the clauses were not about preparing for a transfer to the private sector.

David Howarth: Will the Paymaster General give way?

Dawn Primarolo: I want to deal with the point about the private sector. If the hon. Gentleman can stay in his seat for long enough, he might find that I am going to deal with his question.

4.30 pm

Section 29 of the 2004 Act, which is amended by clause 99, applies to accounting entries made for accounting periods during which a company is publicly owned. Where a company is sold during an accounting period, section 29 treats the end of the public ownership as the end of the accounting period. Section 29 does not, therefore, apply to accounting entries made for accounting periods during which the company is in the private sector. At that point, the normal tax rules would apply to that company. Section 29 applies only to public sector companies. I hope that I have clarified that.

David Howarth: To close this down completely, is the Paymaster General confirming that the fiscal neutrality that she mentioned does not depend on when or whether any particular company is privatised?

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Dawn Primarolo: I am talking about the creation of the Nuclear Decommissioning Authority and the movement from its predecessor authority, which is all that these provisions cover. The position as regards state aid confirms that it is tax neutral; otherwise, it would not get state aid. These provisions concern the arrangements in the Energy Act for transferring from one public body to another. The accounting period for those public bodies would end as soon as they became private companies and moved beyond the scope of the provisions.

My final point is not directly relevant to the clause but may help the House. Under the 2004 spending review, the Nuclear Decommissioning Authority received a budget of £2.2 billion for 2005-06. That is to be derived half from commercial activities and, over time, commercial income in recognising those costs. As I understand it, the proposals on tax neutrality within Government, having been agreed by this House in 2004, had to be amended following a mismatch with regard to timing. The Bill lines that up again to preserve the position. I can absolutely confirm to the House that there is no question of state aid subsidies, nor can there be given the clearance that we have sought.

On that basis, I hope that my hon. Friend the Member for Wolverhampton, South-West, who follows these issues with great interest and in some detail, will not press his amendment. I feel that his questions are more relevantly directed to the future than to the past, whereas these clauses are directed to the past and to ensuring that we discharge our responsibilities on nuclear decommissioning.

Rob Marris: I thank my right hon. Friend for clearly setting out the position. The situation changed slightly a year after the passage of the Energy Act 2004, which I recall I voted for, because of the intervention of the European Commission—hence these clauses and my questioning of them.

Dawn Primarolo: I have a further piece of information that I should have given to the House: I understand that the Liberals voted for the Act as well.

Rob Marris: I am grateful to my right hon. Friend for pointing that out. Of course, the Liberals do not seem to know that.

I am greatly reassured by my right hon. Friend’s assertion that the normal tax rules will apply when these companies are privatised, and that clauses 99 and 100 will deal solely with the tax position of the nuclear industry when it is in public hands. I am also reassured by her saying that the provisions will be tax neutral, should the amendments not pass and should the clauses pass into what will become the Finance Act (No. 2) 2006. However, in the interests of clarity regarding the nuclear industry, will my right hon. Friend write to me setting out the figures for the nuclear industry as covered by the two clauses? Will she specify the amount of corporation tax that will not be paid as a result of the measures, and the corresponding losses that will not be allowed to be offset? I hope that she will be able to do that. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Schedule 16

Real Estate Investment Trusts: excluded business and income

Amendment proposed: Government amendment No. 28, page 349, line 5, leave out paragraph 1 and insert—

Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss the following:

Government amendment No. 29.

Amendment No. 64, in clause 106, page 97, line 14, leave out ‘6’ and insert ‘5’.

Amendment No. 65, page 97, line 23, leave out subsection (5).

Amendment No. 130, page 97, line 24, at end insert

Amendment No.66, page 97, line 25, leave out ‘4’ and insert ‘3’.

Amendment No. 67, page 97, line 34, leave out ‘5’ and insert ‘4’.

Amendment No. 68, page 97, line 42, leave out ‘6’ and insert ‘5’.

Government amendment No. 27.

Amendment No. 60, in clause 112, page 101, line 5, at end insert

Amendment No. 61, page 101, line 36, at end insert—

‘(8) The Treasury may by regulations provide for the application of this section to companies whose predominant purpose is investment in residential property.’.

Government amendment No. 30.

Mr. Francois: I rise to speak to our amendment No. 130, which seeks to allow real estate investment trusts—REITs—to list on the alternative investment market of the London stock exchange or its equivalent European Union markets. In debating this issue, we return to part 4 of the Bill, which deals with the regime to introduce REITs. I have said on several occasions that we welcome in principle the introduction of such a regime in the United Kingdom; indeed, this is an initiative that we have been advocating for quite some time.

That being the case, we have sought to work constructively with the Government to ensure that the regime is in good order when it commences its operation as scheduled in January 2007. I hope that it is fair to say that we maintained that approach in Committee, where we pressed the Government on a variety of issues, including the qualifying conditions for REIT status and the penalties for breaking those conditions, and the definitions to be used in operating the regime. The Minister might also recall that we were of some assistance, at the end of a lengthy afternoon sitting, in deleting clause 143 from the Bill. I see from his reaction that he remembers that.

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