Finance Bill

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The Chairman: If the Government Whip wishes to do that, we may adjourn. I thought that we might complete this stand part debate.
Mr. Blizzard: On a point of order, Sir Nicholas, I understood that the hon. Member for Runnymede and Weybridge wished to get away.
The Chairman: Is that the position? I seek to work for the Committee. I thought that it would be sensible to conclude the clause stand part debate. Is there any opposition to that? I indicated that I was perfectly happy to go on for a little while yet.
Mr. Hammond: Further to that point of order, Sir Nicholas, it was my understanding through the usual channels that the Committee intended to rise at 7 o’clock. I did have a pressing engagement that I wished to attend in my constituency. If we are not to rise at 7 o’clock, as it appears we are not, I no longer have such a pressing engagement and do not feel constrained in the questions that I want to ask the Minister in relation to clause 81. I am very happy to continue if that is the Committee’s wish.
The Chairman: Again, we do not want a major debate on this. It is helpful if a debate is concluded rather than being left over until Thursday.
Mr. Blizzard: Further to that, Sir Nicholas, my understanding is that it is not within the rules of the Committee to move an adjournment in the middle of a speech. I sought to wait until the Financial Secretary had finished her speech before moving the adjournment, so that it was as close to 7 o’clock as possible. My understanding is that it is not the done thing or that it is against the rules to leap up in the middle of a speech to move an adjournment. That is why I left it until after the Financial Secretary had finished her remarks.
The Chairman: May I say that it is not appropriate that the Government Whip should seek to move that the debate be further considered on another occasion in the middle of a speech? However, if the Government Whip wishes to put the motion again, I am obliged to put it to the Committee. Is it the wish that the Committee should continue for a little while or does the Committee wish to adjourn now?
Mr. Blizzard: I am happy to carry on if the hon. Member for Runnymede and Weybridge wishes to do so.
The Chairman: I am happy.
Mr. Hammond: It is always up to the Government Whips to decide what tone the Committee operates under.
This is a very important clause and I do not feel that the Financial Secretary’s response displayed a clear understanding and appreciation of the significance of these changes. She talked about the Government’s announcement in 2007 that industrial and agricultural buildings allowances would not be phased out fully until 2011. She suggested that that has somehow given business the opportunity to plan and prepare. The issue of the businesses with which we are most concerned today—particularly the one that has been referred to—is not about future expenditure, but past expenditure. Whether there is two or five years’ notice, there is no opportunity for businesses in that situation to do anything differently. There is nothing that they can do to mitigate the effects of the decision that has been made.
The broader point is that this measure sends a message to businesses in general about the predictability of the UK tax regime. With respect to the Financial Secretary, I do not feel that she has addressed that point. That is disappointing because I would have thought June 2008 was a point when all Treasury Ministers would be acutely sensitive of the need to try to row back and repair some of the damage that has been done to the business community and to the UK’s once enviable reputation for being a stable, predictable and business-friendly tax regime. Indeed, one of the great claims of the Government of Mr. Tony Blair was that he made a Labour Government compatible with the business interest.
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Yet, in just a year, all that work has been blown away—sometimes, frankly, in a careless manner. I do not believe that Ministers deliberately set out to send a different message to business, but the Financial Secretary should be aware that in practice that is what has happened.
We have so far talked pretty much exclusively about industrial buildings allowance and industrial companies. However, we should not forget the impact that these measures will have on agriculture, where many small and perhaps struggling agricultural businesses will now effectively have a retrospective change in the tax treatment of an investment that they made perhaps many years ago in respect of agricultural buildings. To use her phrase, how does the Minister expect them to use the four years between 2007 and 2011 to prepare for the abolition of agricultural buildings allowance? Certainly, what has happened will change their attitude to future investment, and that should be of concern to us at a time when the need to increase food production is on everyone’s agenda and is an urgent necessity not just in this country but across the globe, as I believe the Prime Minister said yesterday. There are constraints in food supply, rising food prices and the possibility of serious food shortages in some parts of the third world, coupled with dramatic food price inflation in the UK and elsewhere. We need to think about the impact on agriculture of any measures that are announced.
In fairness, when the measure on ABA was announced in 2007, no one anticipated the surge in food prices or that there would be a problem on this scale. Have Ministers taken stock of the situation in the light of the new circumstances and begun to consider whether the abolition of ABAs at this time sends a damaging signal to potential investors in agriculture?
On the more substantial issue of industrial buildings allowance, the Minister needs to understand that because the life of an industrial building is likely to be very long, investment decisions made as long as 20 years ago will still be affected by the decision to withdraw ABAs. I sympathise with the overall intention of reducing allowances and exceptions to lower rates—although I would like to see rates lowered more—but I consistently come back to the fact that in the manner of doing such things the Government can inflict huge damage. Equally, they can mitigate much of that damage if they do things in the right way.
A few moments ago, the Minister said that it was not the Government’s practice to consult on or preannounce changes in rates. I am not sure that I understand the measure to be merely a change in the rate: it is the wholesale abolition of an allowance and has very significant consequences. Unfortunately, I do not have a specific example—although perhaps by Report I will have discovered one—but there will be people out there who made investment decisions in respect of industrial buildings in anticipation of receiving industrial buildings allowance. They might, for example, have made those decisions in the winter of 2006-07 when a preannounced intention would have been expected to be under consultation. Those people would rightly feel aggrieved; if they had had notice, they might have taken different decisions. Considerable costs are being inflicted on UK plc by the manner of carrying out this activity.
I shall now return to BAA. The Minister answered some of the questions on BAA and, in particular, acknowledged that it might be necessary for the changed tax treatment to be reflected in an adjustment to the balance sheet, but she did not deal with the question that will be on many Committee members’ minds about the ultimate incidence of the change. Who will bear the ultimate cost of it? In particular, unless I missed it—if I did, I apologise—she did not deal with the question of an infrastructure provider subject to IBAs who operates under a regulated rate of return regime, as BAA does.
I am not an accountant, although two of my Front-Bench colleagues are, but my understanding is that because of the lack of IBAs, the relevant capital employed in the business will effectively increase. Since BAA is allowed to earn a fixed rate of return on its relevant capital investments, that implies that first the airlines but, ultimately, the travelling public will pick up the tab for this. They will do so by facing higher charges as BAA seeks to achieve that permitted rate of return on what will now be a higher relevant capital base. The Minister has not answered that point and I think that Committee members would find it useful if she told us whether that analysis is correct. Will the return that a regulated operator is permitted to earn in that way go up as a consequence of the abolition of IBAs, thus passing the burden back to the already hard-pressed travelling public?
I have a broad concern that the Government do not understand the significance of the signal that they are sending. They understand clearly the specifics of the revenue implications of the changes being made, and I deliberately have not disagreed with the principle behind the direction in which they are travelling. But I hope that Ministers will reflect on the damage being done when changes such as this are made without adequate forewarning, adequate signalling and proper consultation. I leave the Government with this thought: it is not just the UK’s reputation that is damaged when inadequate consultation and signalling occurs—it is the Government’s reputation. If the Minister is not worried about the UK’s reputation as a place to do business, she certainly will be worried about her own party’s reputation as a party that does have some recognition of the needs of business and perhaps even, in some respects, tries to understand it.
I hope also that the Minister may, by now, have the answer to my question about balancing charges and allowances in respect of IBAs, which I suggested to her would have been a solution to the problem that she set out of buildings possibly appreciating in value, which she seemed to think was a difficulty. That could be easily addressed by the imposition of balancing charges—something which her Government abolished, I think in the Finance Act 2006, although it may have been the Finance Act 2007.
Jane Kennedy: I believe that I gave a thorough reply to most points made in this short debate on this important clause. The hon. Gentleman knows that we do not sit at his convenience. Had I realised that he was under a particular difficulty, we would perhaps not have had the trouble that we have had. I answered his point on balancing charges when he was temporarily out of the room, and I will revisit Hansard to ensure that I picked up the point exactly. To reiterate, balancing charges were abolished to pave the way for the withdrawal of the allowances in the Finance Act 2007—that is, last year, not 2006.
The gradual withdrawal of industrial buildings allowances should not be seen as destabilising. It is part of a wider package to improve the UK tax system, and the package as a whole is designed to achieve a sensible rebalancing of the tax system.
Mr. Hammond: Is the right hon. Lady saying that in advance of abolishing IBAs, balancing charges and balancing allowances were abolished, so that people who owned assets subject to IBAs could not plan for the intended abolition of IBAs by selling those assets on and realising the loss ahead of this measure coming into force?
Jane Kennedy: The advice I have is that the change was designed to prevent forestalling and other behaviours that would otherwise have allowed some businesses to accelerate allowances in an unfair or unequal manner, compromising the Government’s intention to withdraw these allowances in a fair and orderly way.
By realigning the rates of allowances more closely with the average rates of depreciation, as this overall package does, the reforms remove the distortions between investment decisions and between sectors. The package is fiscally sustainable in the long term, and refocuses the regime on investment and growth. Very briefly, on agricultural buildings allowances, the withdrawal of ABAs was not an isolated measure. It is part of the package, which we have been discussing all afternoon, that saw the reduction in the main rate of corporation tax and the introduction of a £50,000 annual investment allowance, allowing 95 per cent. of businesses to write off all their expenditure on plant and machinery other than cars in the year in which they make it.
Our decision to withdraw IBAs and ABAs was based on an assessment of a number of issues common across industry sectors. We have not sought to target either the finance industry or the airport industry. I therefore reject the hon. Gentleman’s generalised dismissal of the approach we have taken, but I acknowledge that there are instances of impacts that are of concern; I know of one or two examples. I nevertheless believe that the overall package is a good package.
Mr. Hammond: Will the hon. Lady give way?
Jane Kennedy: I ought not to. I have been far too generous, but on this occasion I will give way one more time
Mr. Hammond: The Minister is always very generous. Would she at least acknowledge that the impact of this is that the provision of infrastructure in future that involves buildings that would have qualified for IBA will become more expensive, and that where that is publicly used infrastructure—whether it be airports or privately provided train stations—it is bound to be more expensive? There will be a cost in doing this.
Jane Kennedy: I do not immediately acknowledge that that will be an absolute consequence of these changes. The largest companies, such as BAA, benefit the most from the reduction in corporation tax. Overall, they will benefit from these changes and in making future decisions on investment they will benefit from the AIA. I know the hon. Gentleman’s concern, and it is right and proper for him to press that concern, but I believe that the package of changes that we are bringing forward as a result of these measures will, in the long term, enormously benefit the British economy.
Question put and agreed to.
Clause 81 ordered to stand part of the Bill.
The Chairman: We have gone on, but I believe it was appropriate and helpful to the Committee to complete clause 81.
Further consideration adjourned.—[Mr. Blizzard.]
Adjourned accordingly at half-past Seven o’clock till Thursday 5 June at Nine o’clock.
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