Mr.
Browne: The calculation must have been done. The Treasury
has worked out how much the provision will cost in tax, so it must have
done the equivalent calculation to see how much will be saved. That
figure must exist.
Angela
Eagle: I have given the Committee the estimate of what the
measures will cost annually. I have given the Committee the figures on
the potential savings from those commercial buildings that remain
uninsulated. I have also given the Committee the figure for the size of
market that we suspect will be generated annually, which is £201
million. Short of being able to give the Committee individual
information about what Mr. Bloggs and Mr. Smith,
who own commercial buildings, will do, I do not know what else I can
say. I have tried to be helpful, but I do not think that I can give any
more figures.
Mr.
Mark Field (Cities of London and Westminster) (Con): Will
the Minister give way?
Angela
Eagle: If the hon. Gentleman asks me for another figure, I
am not sure that I will be able to assist.
Mr.
Field: Perish the thought that I would ask for
another figure. Does the Minister accept that the cascading figures are
almost meaningless, because part and parcel of the proposal is a
mechanism for the allowances that will allow and, indeed, encourage
people to change their behaviour? Obviously, we do not know how long a
particular building’s life cycle is likely to be; it may already
be 15 years old when it qualifies for the allowance and be demolished
in a few years in any event. Above all, the policy shows the inherent
contradiction in the Government’s approach to motor cars. The
Government say that they want to encourage different behaviour, which
may have a cost in relation to allowances. However, people who own
motor cars for six or seven years will be taxed under the current
arrangements, irrespective of any change that they can possibly make to
their behaviour. It is that inherent contradiction that we find so
concerning, not so much in this regard but in regard to general
policies to encourage behaviour on environmental
grounds.
Angela
Eagle: I am sorry that I gave way to the hon. Gentleman
now. Mr. Cook, I am sure that you will not let me start
talking about vehicle taxation in a clause on thermal
insulation—unless we are going to talk about thermally
insulating our cars.
The clause
preserves the availability of the allowances for industrial buildings,
but at a more appropriate rate, and it extends relief to commercial
buildings, which simplifies the tax system by removing previous
distinctions. It will help to retain and extend the incentive for
businesses to improve the energy efficiency of their existing
buildings, while complementing the approach taken to integral features,
which I know the hon. Member for Putney will bring up at the
appropriate time in discussing another
clause. 11.30
am
Justine
Greening: I must admit that when I set out a few questions
for the Exchequer Secretary, I did not expect to get into such a
discussion. I am pleased that the Treasury has tried to make an
estimate, but am disappointed that we were not able to get slightly
more detail. Even within the response that we got, the initial figure
from the Exchequer Secretary of 8.25 megatonnes became 8.6 megatonnes.
It also went from being a cumulative figure to an annual figure, and we
never did get to what the impact of the policy will be. Surely if we
are going to bear down on carbon emissions, we must have some
understanding of what an appropriate mix of policies will be in each
area of life. If we are talking about office and commercial buildings,
surely we need to know whether this particular fiscal measure will be
the key one, the one that the Treasury expects will address the issue,
or whether it is a limited measure and we need to look at other
policies if we are going to achieve the level of reduction in CO 2
emissions that we want in that area of
activity.
Mr.
Browne: I, too, observed the confusion in the Exchequer
Secretary’s speech, including the different figures and the
inability to distinguish between cumulative and annual savings. Does
the hon. Member for Putney share my concern that that is indicative of
a wider approach by the Treasury towards environmental taxation, which
is that it seems to be willing to sing the environmental song without
understanding the
words?
Justine
Greening: The hon. Gentleman makes a fair point. I raised
the issue because we need to be successful in this area. Therefore,
understanding whether the various measures that have been taken across
a range of areas will add up to success is
critical.
Angela
Eagle: Is the hon. Lady saying that she is against the
changes, and that she thinks that they will have a detrimental effect
on our carbon
footprint?
Justine
Greening: Obviously, I am not saying that. In seeking
reasonably to understand how effective the changes will be, the
responsible thing for me to do as an Opposition spokesman is to try to
understand what the Treasury wants to achieve through the policy.
Obviously, we are not making progress. We appreciate why the measures
are being brought in; it is just disappointing that the Treasury does
not have a clear idea of how successful they will
be. Question put
and agreed
to. Clause
68 ordered to stand part of the
Bill.
Clause
69Expenditure
on required fire
precautions Question
proposed, That the clause stand part of the
Bill.
Justine
Greening: The clause repeals section 29 of the Capital
Allowances Act 2001, which gave plant and machinery allowances to
businesses that incurred expenditure in undertaking required fire
precautions as a result of being served with a prohibition notice by a
fire authority. I understand that expenditure for such purposes would
include structural works and alterations to buildings, for example fire
extinguishers, signage, alarms and sprinkler systems—critical
spend for ensuring that workplaces are safe for those who work in them.
However, as I am sure the Exchequer Secretary will mention, ironically,
the relief was available only if a notice had been served as a result
of non-compliance under a self-assessment regime. Those businesses that
incurred spend responsibly in the area, because they were taking fire
precautions, were not able to obtain relief, whereas those that had not
bothered but were caught and handed a non-compliance notice, were given
relief. Ironically, preferential tax treatment was given to people for
bad behaviour. The repeal in the clause is therefore
understandable. My
main query for the Minister is about the extent to which businesses
will be captured by the measure. For example, how many non-compliance
notices have been handed out by fire authorities over the past two or
three years? Is this a minor tidying-up measure which the Government
expect will have relatively little impact? Is it more about equity, or
do the Government expect it to have a broader impact in sending out a
message to businesses that non-compliance with these critical areas of
health and safety will not be tolerated and certainly will not be given
tax
relief?
Angela
Eagle: As the hon. Lady rightly points out, the clause
repeals a section of the Capital Allowances Act which, since 1971,
provided relief to capital expenditure on alterations to existing
buildings required by a fire authority notice. Building regulations
again have intervened and required the necessary fire safety
precautions since 1976. The relief has served its purpose and is now
little used. The hon. Lady should remember that most expenditure on
fire prevention is deductible as revenue expenditure, or qualifies for
capital allowances under first principles anyway.
The redundant
nature of the requirement became even more clear in October 2006 when,
instead of a certificate to improve, prohibition notices were
introduced. I am told that approximately 50 prohibition notices are
handed out a year. The hon. Lady rightly saw the irony in a system
which gave a tax relief for those who put people’s lives at risk
in order to put right the problem in the building, but did not
encourage people who did it voluntarily and did not put people’s
lives at risk to take that action. That is why the section is being
repealed. Question
put and agreed
to. Clause
69 ordered to stand part of the
Bill.
Clause
70Integral
features Question
proposed, That the clause stand part of the
Bill.
Justine
Greening: The clause introduces one of the most
fundamental changes to the capital allowances regime in this
year’s Bill, because it provides for a new classification of
integral features of a building or a structure, expenditure on the
provision or replacement of which will qualify for phantom machinery
writing-down allowances at a rate of 20 per cent. through the insertion
of new sections 33A and 33B into the Capital Allowances Act
2001.
The principle
of creating a new category of capital allowances for integral features
of buildings has been broadly welcomed by business, mainly because that
was the approach that seemed to be favoured by the majority of
businesses at the earlier consultation that the Treasury undertook. The
use of a simple list of qualifying features rather than laying out a
definition should, in theory, ensure simplicity, although I will come
on to why it will not quite work like that in practice. From an
environmental point of view, including electrical and water systems
should help to encourage the use of green technology for those systems
which previously would not have qualified for allowances.
However, the breadth of assets
captured by the new category of integral features is so broad that,
unless we get further guidance from the Treasury, it is in danger of
increasing rather than decreasing complexity. There seems to be a risk
that it will capture many more classes of asset than is perhaps
intended, although we will hopefully get to hear from the Minister what
the Treasury’s intention is in a little more detail later.
Obviously the measure will spread the tax relief over much longer
periods, compared with the 20 per cent. pool for plant and
machinery.
I realise
that the approach chosen by the Government to define an integral
feature is vital and there were broadly two choices of how to do that.
We could have a general definition, by which criteria were established
to see whether any given spend met the criteria and therefore qualified
as an integral feature. That might be related to purpose or it could be
trade specific. Such an approach might have had the advantage of being
flexible enough to cope with the wide variety of situations that
businesses may find themselves in with regard to spend on what might be
classed as integral features, but the downside is that it leaves more
uncertainty. Presumably, we would then have to rely on legal cases to
establish where HMRC should draw lines in
practice. The
other route is to be more prescriptive and simply to come up with a
list of what is in and what is out. I accept that the
Government’s preference for a definition of which assets should
fall within the new 10 per cent. pool was for the second approach: a
simple list rather than a purposive definition. Having read the
consultation response from the Government in the technical note of
December 2007, I understand that the majority of the respondents found
favour with the second approach. Even so, some questions remain as to
how it will work in practice and how to ensure that it works as
intended. I should therefore like to take the opportunity to ask
the Minister to clear up some of the uncertainty that business still has
regarding the working of the clause in practice. Under proposed new section
33A(5) an integral feature is defined
as: “(a) an electrical
system (including a lighting
system), (b) a cold water
system, (c) a space or water
heating system, a powered system of ventilation, air cooling or air
purification, and any floor or ceiling comprised in such a
system, (d) a lift, an escalator
or a moving walkway, (e)
external solar
shading.” A further item
was included in the original pre-legislative list—active
façade systems—in many cases known as windows. Obviously
for tax purposes, things such as the internal and external aspects of
the fitting are never quite so straightforward. I understand that
active façades will qualify, but perhaps the Minister can
confirm that. In particular, was there a reason why HMRC had them in
the original list but then took them out? Although active
façades will be able to be part of the list approach, tax
inspectors on the ground may take a more restrictive view of what is
included and seek to exclude them. It is important to get some clarity
from the Minister on that. Later, I will come on to why having general
guidance from the Treasury on that is
important. 11.45
am The clause
contained a power to remove plant or machinery from the list, or to add
assets that would not otherwise be plant or machinery to it. The power
did not, however, give the Government power to add plant or machinery
or remove assets that would not otherwise be plant or machinery. I
understand why the Minister has taken this approach and I accept that
it gives flexibility to add greener assets along similar lines to those
in the list. For the
definition to work effectively, business must know how HMRC will
interpret the rules of the allowance. The technical note in December,
“Business tax reform: capital allowance changes”, stated
on page 47
that “the government
acknowledges the need of business for early sight of guidance on how
HMRC will interpret the legislation governing the integral features
allowance.” That was to
give certainty to business in understanding how the allowance would
work in practice. My understanding is that we have not yet had that
guidance. Will the Exchequer Secretary tell us when we can expect to
see the guidance and when business can expect to get a clearer idea of
how the clause will work in
practice? The transfer
of existing buildings will potentially be complicated for businesses
because different sets of rules might have to be followed depending on
whether the transfer is between parties that are connected or
unconnected and whether there are intra-transfers within chargeable
gains groups. Parties concerned in the transfer of property will have
to consider carefully whether it was owned prior to or after April
2008. That could be complicated because the parties concerned will have
to look carefully at matters such as elections
and disposal values. They will need to understand the different
approaches and determine which code they need to
follow. I want to
follow up the issues of replacement and repairs with the Exchequer
Secretary. The Treasury appears to be trying to define the 50 per cent.
equals replacement rule in terms of spend, but there is ambiguity in
that rule and perhaps some unfairness. Can she clarify the logic behind
the replacement of integral features approach, so that we can better
understand it? An
interesting article in The Tax Journal in April 2008 gave the
example of a business that owned three floors of a building and totally
replaced the wiring and fittings on one floor. In theory, that would
not meet the 50 per cent. replacement rule. However, that floor
received 100 per cent. replacement. Would HMRC approach that example as
not meeting the 50 per cent. replacement rule, as I think it would, or
are there difficulties because it is a total replacement of one part of
the building? There is an additional issue that repairing one aspect of
something could be so expensive that it would be classed as a
replacement, whereas to all intents and purposes, it was a
repair. With all of
these problems there is the obvious issue of complexity. When carrying
out what they think are repairs, companies must estimate the costs from
the outset because they could end up doing what is classed for tax
purposes as replacing integral features. It is important, therefore,
that the Exchequer Secretary covers that in slightly more detail than
we have had in the explanatory notes.
A further
point that I want to follow up related to the specificity of the list
approach and possible unintended consequences of the inclusion of cold
water and electrical systems in the classification of integral features
of a building or structure. I understand that there have been concerns
within the water and electricity industries that the inclusion of those
items could end up including the water processing and supply systems of
the water industry or the generating and supply systems of an
electricity undertaking. The explanatory notes state that that should
not be the case and that the list has
“no particular or unique bearing
on these businesses’ tax treatment, compared with other
businesses.” Even so, it
would be helpful if the Exchequer Secretary could make it clear that
those industries will not be inadvertently captured by the inclusion of
those items on the simple list. We understand why they are there, but
will she at least confirm that the interpretation will be as we expect
and not any wider? Again, if we had had guidance from the Treasury, as
was promised, it would have been easier to answer those questions
already, and that shows why having that guidance as soon as possible is
vital. I understand
that the issues of the breadth of interpretation of the simple list
item will be of broader concern to other businesses, and although I
have mentioned particular issues raised by the water and electricity
industries, other cases might also come out in the fullness of time,
after the Bill has been enacted. Therefore, perhaps the Exchequer
Secretary will confirm that concerns about the lack of guidance have
been raised with the Treasury by the CBI on behalf of its members. I am
concerned that the explanatory
notes, although they deal with that point, ultimately do not fully
address the concerns of business and that there seems to be continued
uncertainty. Therefore, it would be helpful if she could provide some
clarification on those matters. Overall, we
understand that the Government took that approach because it was the
one favoured by business at the time of the original consultation. I
question whether business would still have been in favour of that
approach had they been able to see the Bill as we do today, but more
clarification from the Exchequer Secretary might address some of the
concerns that businesses currently have about that area. We might
nevertheless get to that simpler situation with regard to the treatment
of capital allowances that, as she has said already this morning, the
Government intended to achieve when they made these
changes.
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