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.
7.15
pm 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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