Kitty
Ussher: I am grateful for the hon. Gentleman’s
support for the clause, which corrects a drafting error introduced by
the tax law rewrite project that consolidated legislation in
2005. To respond to
the hon. Gentleman’s final point, the rewrite project, by
definition, did not change any policy. I was not the Minister at that
time, but I presume that if errors were found it would have been
sensible to correct them. There were certainly no policy changes at
that point. The error before us set the higher rate of income tax on
foreign dividend income remitted to the UK by those charged on a
remittance basis at 32.5 per cent. We are correcting that error and
reapplying the 40 per cent. that applied until 2005. A remittance-basis
user who is taxed at the basic rate will continue to have their foreign
dividends taxed at 20 per cent. The clause simply restores the position
to what it was before the
mistake. The
hon. Gentleman asked how many errors were identified as regards the tax
law rewrite project. I am happy to get the team to count again and send
him a note. However, given the scale of the rewrite, finding errors is
like looking for a needle in a haystack. We are pleased with the result
of the project. The wider economy also feels that we have done a good
job. Obviously any error is regrettable, but I ask the hon. Gentleman
to consider the number of errors in the context of what has been
achieved, and to acknowledge that that number is extremely small. He
asked about the cost of that particular error. The yield from
correcting it is around £10 million per annum, and I therefore
extrapolate that that is what was lost in the intervening years.
However, we are applying the clause from 2008-09 so that nobody who
inadvertently benefited subsequently loses out. I thank the hon.
Gentleman for his broader
support. Question
put and agreed
to. Clause
65 ordered to stand part of the
Bill.
Clause
66Payments
on account of income
tax
Kitty
Ussher: I beg to move amendment No. 144, in
clause 66, page 34, line 26, leave
out from ‘effect’ to ‘for’ in line 27 and
insert ‘for the purpose
of calculating the amount of any payments to be made under section 59A
of TMA 1970 on account of liability to income tax’.
This is a minor amendment, which
achieves two things. First, it clarifies that the repeal—I hope
that Opposition Members are listening—of section 964(5) of the
Income Tax Act 2007 takes effect for certain annual payments on account
for the tax year 2008-09 and for subsequent tax years. Secondly, it
replaces an incorrect reference: the clause refers to the Income and
Corporation Taxes Act 1988 rather than the Taxes Management Act 1970.
The amendment will ensure that the clause works as
intended. Amendment
agreed
to. Clause
66, as amended, ordered to stand part of the
Bill. Clause 67
ordered to stand part of the
Bill.
Clause
68Thermal
insulation of
buildings Question
proposed, That the clause stand part of the
Bill.
The
Chairman: You had me
worried. Justine
Greening (Putney) (Con): I am always reticent to start
speaking during a Committee, having once been called to speak while
flattening down the back of my skirt—the experience stayed with
me for some time. As
the clause is intended to encourage and incentivise businesses to take
more energy-saving measures in the course of their day-to-day
operations, I obviously support it and understand the rationale behind
the need to include it in the Bill. We support measures taken by the
Government to encourage businesses to invest in better insulation for
their operations. It is good for not only businesses that reduce energy
costs over time, but the environment.
We recognise that the clause
intends to extend the provision of capital allowances relating to the
expenditure of adding insulation to reduce the loss of heat from a
building—thermal insulation. Currently, the existing provision
covers expenditure on thermal insulation for existing industrial
buildings. Given that the phased withdrawal of industrial buildings
allowance by April 2011 is now planned, obviously the clause needs to
extend provision to the initial thermal insulation of all existing
buildings used for any qualifying activity other than residential
property businesses. I
have only some brief comments on the clause. In the explanatory notes,
the Treasury states that extending the provision of this measure will
widen its environmental benefit. I understand and accept that it can be
difficult for the Treasury to estimate the precise environmental impact
of the sort of measures that are introduced to encourage environmental
benefits. I realise that that is not easy, but want to get some idea of
whether the Treasury has tried to get an understanding of the
environmental benefit that it hopes to achieve from the
clause. That is
important because, with limited Treasury resources and the need to keep
the tax system broadly as simple as possible and avoid unnecessary
complexity—Opposition Members on the Committee
have certainly argued for that—if we are to understand what does
and does not work, it is incumbent on the Treasury to have some
understanding of the impact of such measures when it brings them
forward, even if that is nothing more than a sense of the proportionate
breadth of impact. That way, we will hopefully end up with up with a
hypothesis on what constitutes effective fiscal measures of that sort,
or we will at least put the potential impact into context. Has the Exchequer Secretary
made any assessment, however straightforward or simple, of the extent
to which the clause will be used more broadly by businesses once the
broader provision is available? How will the Treasury assess the
effectiveness of the provision, and is there any sort of assessment on
the amount of reliable spend that will be made, for example, on the
thermal insulation of buildings? Do we have any sense of the amount of
CO2 emissions that will be saved over time as a consequence,
and is it possible to estimate the proportion of existing emissions
that might fall within the scope of the clause? In short, is there any
way of understanding whether this will be effective and
successful? I
recognise that this expenditure will end up being classed as plant and
machinery and within the 10 per cent. special rate of writing down
allowances that come from allowing them to qualify as an integral
feature. I have comments on integral features which we will cover later
when we discuss clause 70. If the Minister could tell the Committee a
little more about quantification and give an assessment of the
environmental effects the Government hope to gain from the broader
measure in clause 68, it would be very
welcome. 11.15
am
The
Exchequer Secretary to the Treasury (Angela Eagle): I am
happy to try at least to give a flavour of the effect that we think
these changes will have. I shall first spend a small amount of time
setting the clause in context because it is the first of a group of
clauses that introduce reforms to modernise and simplify capital
allowances. The hon. Lady is right to draw the Committee’s
attention to the fact that it is related to the withdrawal of
industrial buildings allowances, which is covered later in the Bill by
clauses 81 to 84. This is a consequential provision which, confusingly,
appears before those clauses. Such things often happen in
legislation. Since
1975, businesses have been able to claim plant and machinery capital
allowances on thermal insulation added to existing buildings if those
buildings were considered industrial for capital allowances purposes.
That is because of the existence of the industrial buildings allowance,
which later clauses abolish. Such expenditure would not otherwise have
qualified for any plant and machinery capital allowances. These plant
and machinery allowances have been available at the main rate
of 25 per cent., which is reducing to 20 per cent. as part of
the package. Again, the hon. Lady alluded to that in her questioning
earlier. The measure does not apply to expenditure on
insulating new buildings, because building regulations now require that
thermal insulation at certain standards be part of any new
buildings. The sector we are dealing with is the stock of other
buildings that existed before the building regulations were
changed.
By abolishing
the industrial buildings allowance, we are extending these payments to
commercial buildings, rather than just industrial buildings, which is a
much wider range of potential stock of buildings than were caught under
the old system. Our calculations demonstrate that that extension
increases the scope of the measure by £162 million to
£201 million a year. Although the allowances are 10 per cent.
rather than 20 per cent., the potential pool of buildings that
are affected and could take advantage of the new allowances for thermal
insulation is wider. We believe that there is scope to reduce energy
loss from commercial buildings by about 8.25
megatonnes.
Justine
Greening: When the hon. Lady talks about 8.25 megatonnes,
is she talking about a cumulative effect over time and if so to what
year? Are we talking about an annual
reduction?
Angela
Eagle: I assume that it is cumulative. I am waiting to see
whether my officials can confirm that. The hon. Lady must remember that
it takes time to get insulation in place and that the savings that are
made tend not to come on stream immediately. I can now confirm that it
is cumulative and includes all insulations that might happen as a
result of this
measure.
Justine
Greening: I hesitate to ask this, but cumulative by
when?
Angela
Eagle: Again, I assume that that is the potential for all
buildings that would qualify that have not already been built and
comply with existing building regulations. The hon. Lady needs to
remember that the thermal insulation potential and credits for putting
it in place have been in existence since the 1970s. Building
regulations have consistently over time tightened up on the
requirements. Those who have commercial buildings have a direct
financial interest in thermally insulating their buildings because they
will save money on their energy bills. I would have thought that at a
time such as this there is even more interest in doing so. My
assumption is that that is the potential overall saving. Businesses
must decide to undertake the
insulation. Mr.
Peter Bone (Wellingborough) (Con): The Exchequer Secretary
cannot say over what period this will occur because it depends on how
businesses take up thermal insulation. Is it equally difficult for her
to say how much the Revenue will lose each
year?
Angela
Eagle: It is not a question of the Revenue losing money
because the idea of these tax incentives is to help to create
circumstances where we can have economic growth without such a large
carbon footprint and thereby make our economic growth more sustainable.
I do not see it as the hon. Gentleman does in terms of losses for the
Revenue. To set the
matter in context, Opposition Members must remember that current
building regulations mean that new commercial buildings are required to
be insulated. We have had thermal insulation credits to encourage
people to undertake behaviour that will
reduce their own operating costs. There has been an extra incentive
since the 1970s for some buildings. We are now spreading that to
commercial buildings. It is not possible for me to stand in Committee
and say how many buildings would qualify for the insulation because we
have not had a Domesday survey of commercial buildings
recently. The
hon. Member for Putney recognised when she asked her questions that it
is not easy to come up with answers. I have done my best to give her a
ballpark figure of what we think the savings will be. If she is going
to say that that is not acceptable, when she spent her entire time when
asking the question quite reasonably saying that it was very difficult
to make those kinds of estimates, I do not know where that gets
us.
Justine
Greening: The only reason that I am pressing the Exchequer
Secretary is that I was quite pleased to hear that some quantifiable
assessment had been made. Obviously, it is meaningless if we do not
understand what 8.5 megatonnes relates to. Regulatory impact
assessments done by the Government often spread over 70 years.
There is a world of difference between 8.5 megatonnes being achieved
cumulatively over that time frame and it being achieved by
2020. Given that the
Climate Change Bill is before the House, I want to understand how
measures such as this clause will form part of the overall effort to
reduce emissions over the near-term years, which we all support. I am
pressing the Exchequer Secretary to give us a little more information
on that. She has given us a tantalising bit, but it is not meaningful
if we do not know the time
frame.
Angela
Eagle: I am doing my best to enlighten the Committee by
making these difficult assessments. I can give some information on the
costings, which the hon. Member for Wellingborough asked about. The
cost is zero this year because we have to put the system in place. We
expect it to be £5 million next year, £10
million the year after and £15 million thereafter to 2010-11.
Hon. Members have to remember that that is tax at the margin, not the
overall amount of money that will be spent on insulation—it is a
tax credit and it is marginal.
The 8.6 megatonnes figure,
which I gave the hon. Lady earlier, is the annual loss, we think, per
year from commercial buildings that are not insulated. If all buildings
were insulated that amount would be saved. The hon. Lady must remember
that a lot of buildings are insulated and that new ones are required to
be. We estimate that that amount would be saved if all commercial
buildings instantly took account of the new tax credit available to
them and did what they should have been doing anyway, which hopefully
they will do because it saves money on their energy bills, regardless
of whether the tax credit
exists. Mr.
Jeremy Browne (Taunton) (LD): I am grateful for that
clarification from the Minister. If that is the annual potential
saving, will she give us an indication of the Treasury’s
predicted cumulative figure between now and
2020?
Angela
Eagle: The hon. Gentleman can do his own sums—8.5
by 12.
Justine
Greening: There is, perhaps, a more pertinent question.
The Minister’s figures are helpful to understand that that is
the, if you like, global amount of emissions that we think that the
policy could address. Has the Treasury made an assessment as to how
much of what we could see saved will be saved over
time?
Angela
Eagle: To be honest, that depends on the behaviour of
individuals who can apply for the tax credits—perhaps all of
them will, or all of them will
not.
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