Finance Bill

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Mr. Hammond: I am grateful to the Minister for her explanation. The 19 per cent. figure is not quite as generous as she was making out because it has to be set against the intended rate rather than the previous rate of small companies’ tax. She has provided the Committee with an explanation of why the Government have arrived at 19 per cent. and therefore I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Hammond: I beg to move amendment No. 210, in schedule 25, page 302, line 18, after ‘machinery)’, insert
‘or section 45D (expenditure on cars with low carbon dioxide emissions) or section 45E (expenditure on plant and machinery for gas refuelling stations) or section 45F (expenditure on plant and machinery for use wholly in a ring-fence trade)’.
Again, this is a probing amendment and offers the Minister the opportunity to explain why payable tax credits are limited to expenditure qualifying by virtue of section 45A of the Capital Allowances Act 2001, which relates to energy-saving plant and machinery and section 45H, which relates to environmentally beneficial plant and machinery. The Capital Allowances Act 2001 also provides for first-year qualifying expenditure to be incurred in other areas. For example, section 45D provides for expenditure on cars with low carbon dioxide emissions, which is the subject we have just been discussing. Section 45E provides for expenditure on plant and machinery for gas refuelling stations and section 45F provides for expenditure on plant and machinery for use wholly in a ring-fenced trade.
As I understand it, all of those areas qualify for enhanced capital allowances. When the Minister made her introductory comments, she explained that enhanced capital allowances were not usable by loss-making companies. In order to incentivise start-up businesses in particular and companies that are not profitable and thus not able to benefit from enhanced capital allowances in general, a payable credit was introduced. Nowhere has she explained why the payable credit is available only for expenditure qualifying under sections 45A and 45H. This probing amendment therefore would insert provisions for the qualification to extend to qualifying expenditure by virtue of sections 45D, 45E and 45F. Perhaps the Minister could explain the logic behind the restrictive approach of the Government.
Angela Eagle: The amendment would extend the availability of first-year tax credits so that expenditure on cars with low carbon dioxide emissions, plant and machinery for gas refuelling stations, and plant and machinery for use in wholly ring-fenced trades would qualify.
Although some expenditure currently qualifies for the first-year allowances, the Government’s intention has always been clear: to support investment by loss-making businesses and environmentally beneficial and energy-saving technologies. Enhanced capital allowances were only extended to low carbon emission cars and gas refuelling stations temporarily to incentivise take-up of those technologies. Through ECAs, energy and water saving technology is a permanent feature of the capital allowances code. Energy-saving and water-saving technologies tend to be more expensive than comparable equipment that is not environmentally-friendly and tax incentives are intended to compensate for that.
The Government expect the chief beneficiaries of first-year tax credits to be start-up businesses seeking to ensure that their carbon footprint, and water and energy usage is reduced. It does not therefore make sense to extend this to the purchase of vehicles, particularly because low emission vehicles also benefit from other tax relief—namely, the reduced vehicle emissions duty and reduced company car tax.
The hon. Gentleman said that this is a probing amendment, but he seems to want to extend first-year tax credits to all plant and machinery used by North sea oil companies. That is an unnecessary incentive given that the Finance Act 2006 made a change that indexes forward losses attributable to capital allowances, which will provide up to 42 per cent. more relief than was previously available. The hon. Gentleman will know that the tax regime for North sea oil is different, and is wholly appropriate to what is a particular area of activity. I presume that he supports the ring-fencing of the North sea oil regime. Taken together, the extensions suggested in the probing amendment would cost £100 million, which is several times the current estimate of the cost of first-year tax credits. So I hope that with those explanations the hon. Gentleman will assume that the Government’s intentions have been probed, and that he will withdraw the amendment.
Mr. Hammond: I accept the Exchequer Secretary’s point on equipment for use in a ring-fenced trade. We will come to petroleum revenue tax later in the Committee, and can address those issues then. All I did was to take the areas that are eligible for enhanced capital allowances but which were not included in the payable tax credit. I understand what the hon. Lady says, but in her introduction she suggested that this was simply a measure to deal with the situation where enhanced capital allowances were currently of no use to companies, to ensure that they could benefit from them. She said a few moments ago that she did not want to extend the allowances to low carbon dioxide emission cars, because this was only ever a temporary arrangement. We have just debated a clause in which she extends that temporary arrangement by another five years to 2013. I would have thought that investing in the cleanest—to quote her phrase—car was indeed an investment in environmentally-friendly technology.
Angela Eagle: The hon. Gentleman is aware that there are generous tax allowances—which we have just debated—for those businesses that wish to purchase the lowest-emitting cars, but this is another area of assistance, which includes payments for tax credits. Just because there is one incentive in one place in the tax system for a car, that does not mean that we should extend all other sustainable incentives to cars. I would have thought that the hon. Gentleman could accept that the car issue is being dealt with in that instance, and that here we are dealing with energy efficiency and water-efficient infrastructure.
Mr. Hammond: The Exchequer Secretary is wrong that there are provisions elsewhere. She is referring to clause 74 on energy-efficient cars. The point is that the cars covered by clause 74 may attract enhanced capital allowances, but in these circumstances—companies that are not profitable—the cars will be of no value to them. That is precisely why the hon. Lady is introducing the payable tax credit. As she says, the Government have been truly probed and we have understood something of the Exchequer Secretary’s thinking. I am not sure whether Committee members will consider that thinking entirely logical, but at least we have an explanation of it. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Hammond: I beg to move amendment No. 211, in schedule 25, page 302, line 20, leave out ‘2013’ and insert ‘2018’.
This is another probing amendment: why is the cut-off date for the payable tax credit set at 2013? There was no mention of a cut-off date in the draft legislation that was issued with the technical note for consultation, but 2013 appeared in the published Bill. I have no particular attachment to the 2018 date, but I want to understand the rationale for the 2013 date being in the Bill—rather than leaving the regime as an open-ended one that the Government could change at any time—especially as there was no consultation on the proposal to include an end date.
Angela Eagle: The intention of the date is to create a structure whereby we can assess—when we get there—how effective the system has been and whether it needs to be reviewed, changed, rolled forward or abandoned. Part of that is about evaluating the effectiveness of policy. The thinking behind the 2013 date is that it creates an appropriate time by which the system could be up and running and gives us time to assess the effect that it is having so we can return to it and consider whether to extend it further, roll it forward or abandon it. It is about assessment. The feeling was that setting the date at 2013 provided the right time scale within which to carry out a reasonable assessment of how well the system was working, whether it was giving value for money and whether it merited being continued or changed.
Mr. Field: Can the Minister explain precisely how this will operate procedurally? If, as is being suggested, the period will come to an end in March 2013, is she suggesting that the process will go ahead up to the Budget in 2013, whereupon it will immediately be extended or not extended and therefore got rid of? Is that period sufficient? I think that my hon. Friend the Member for Runnymede and Weybridge had in mind that the regime looking at the credits should be extended over a slightly longer period—perhaps 10 years—during which the 10 per cent. annual write-offs, which we discussed this morning in relation to similar allowances, could be considered. I am interested in how the Minister envisages the provision being put in place procedurally and what the process will be, because realistically, for decisions to be made, we are talking effectively about a two or three-year process, whereupon 2013 will shortly be upon us.
Angela Eagle: The intention is to see how the new system works, how it beds in and what effect it has. Hopefully, it will have a positive effect. I believe that that will be so, but we have to consider the evidence. As 2013 approaches, we will have evidence and we will be in possession of some facts about how many credits have been paid, and what they have achieved in reality in terms of ensuring that more energy and water efficient infrastructure has been bought and installed in the economy. We will also be able to assess the value and usefulness of the expenditures implied by the tax credit being paid.
I am sure that, as is usual in the assessment of the effectiveness of particular credits and policy, there will be calls for evidence and consultations with those who have used the credit. Then we will be able to have a debate about whether the policy needs tweaking or changing or whether it has served a useful purpose. All of that will take place in good time so that a useful policy will not be ended suddenly. Officials are well aware of the time scales set in the Bill and will be able to work with those and make a seamless transition to a deepening scheme of even greater effectiveness or to a policy decision that the scheme has achieved its useful purposes, whereupon it will be taken and it will be dealt with accordingly.
It is too early to say, other than in theory, but there is no particular problem with 2013 as a date: it provides time for the scheme to bed in, for people to get used to using it, for officials to assess how it is working and for there to be good evidence of its working. At the appropriate time, decisions on future structures will be arrived at sensibly.
Mr. Field: Given that the Government make a great play of their commitment to environmental taxes and environmental changes in respect of the behaviour of individuals and businesses and talk readily about how we have to plan for a considerably longer period ahead, up to 2050, it is a little bit curious that such a short period is allowed here. No time restriction is needed in the schedule. Obviously, a future Finance Bill could make amendments if there were concerns about the way in which the provision was operating at some point in the middle of the next decade. It is slightly curious that everything is being talked of in terms of targets for 2020 or for 2050, yet in this regard it is a relatively short period of time in which there will be direct scrutiny of whether these particular allowances are working.
5.45 pm
Angela Eagle: There are other examples of such allowances being introduced for five years, assessed and then rolled forward or not. Clause 75, on gas refuelling stations, was for a five-year period initially to see how effective it was. After sufficient evidence had been gathered there was a power to extend it and there is a power to extend this. I do not think that it is an issue that should unduly worry the Committee.
Mr. Hammond: I am grateful to the Minister for her explanation—in fact, I rather agree with her. I am rather in favour of sunset clauses in general. But I cannot help noticing that she seems to think that they are a good idea where provisions introduce concessions to the taxpayer, and my experience in Committee has been that Government are rather more resistant to sunset clauses when the boot is on the other foot. I would be happy to agree that most things in this Finance Bill should have a 2013 sunset clause—
Angela Eagle: Does that include income tax?
Mr. Hammond: —that way the Government have to do all the good things that the Minister talked about: evaluating how it is working, ensuring that there are not unintended consequences and seeing if it needs tweaking to work better. A sunset clause would be a good idea with many innovations.
The Minister said, from a sedentary position, “Does that include income tax?”—no, of course not. I am talking about innovations; new ideas. Later in Committee we might suggest that sweeping new powers for HMRC to enter premises should be time-limited, so that we can evaluate how they have worked. It is a very good idea in general but is typically applied in a one-sided way.
I am grateful to the Minister for her explanation. We will be quoting her comments from the Committee record back at her, as we seek to introduce sunset clauses in relation to other provisions in future. Its purpose having been served, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Hammond: I beg to move amendment No. 208, in schedule 25, page 307, line 14, after ‘tax’, insert ‘that is due and payable’.
The Chairman: With this it will be convenient to discuss amendment No. 209, in schedule 25, page 307, line 23, leave out from ‘as’ to end and insert ‘is just and reasonable’.
Mr. Hammond: Paragraph 18 of the new schedule provides for HMRC to make payments in respect of first-year payable tax credits claimed by companies. Payments are to be made when inquiries into a company’s tax return are completed. There is also a provision that enables HMRC effectively to set off payable tax credits against corporate tax payments due from the taxpayer and, equally, to make provisional payments in respect of payable tax credits—I assume that that is where inquiries are ongoing—where the final corporate tax obligations of the taxpayer are not yet resolved, and thus there may be some need in the future to offset some element of corporation tax.
Amendment No. 208 simply seeks to clarify that only tax due and payable can be set off against payable tax credits. That will ensure that HMRC cannot withhold payable tax credits against a future liability to corporation tax that will become due at a point in the future in respect of a later chargeable period. I hope that that was always the intention and that the Minister can accept that the words “due and payable” simply clarify that intention.
Amendment No. 209 seeks to clarify the situation with regard to provisional payments on account of first-year tax credits. As drafted, the legislation—as we have so often seen elsewhere—gives HMRC absolute discretion on the payment of provisional tax credits. The amendment would make it clear that the amount paid provisionally has to be “just and reasonable”. I was happy to hear, earlier in our proceedings, the Exchequer Secretary saying that “just and reasonable” is a well established term in the tax statutes. I think she said that it occurred 72 or some other large number of times throughout tax legislation—she read that out this morning. All we are seeking to do is to ensure that HMRC’s behaviour in relation to provisional payments of payable tax credits is just and reasonable. That is an appropriate restriction on HMRC’s discretion and I hope that the Minister will agree.
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