Kitty Ussher: I am grateful for the hon. Gentlemans 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. Gentlemans 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.
Payments 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 repealI hope that Opposition Members are listeningof 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.
Thermal insulation of buildings
Question proposed, That the clause stand part of the Bill.
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 skirtthe 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 buildingthermal 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 complexityOpposition Members on the Committee
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.
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 Committees 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.
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
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 insulationit 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 Treasurys predicted cumulative figure between now and 2020?
Justine Greening: There is, perhaps, a more pertinent question. The Ministers 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 creditsperhaps all of them will, or all of them will not.
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