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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.
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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 CO2 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 69

Expenditure 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 70

Integral 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.
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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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