The
Chairman: Order. Would I be right in asking the hon. Lady
whether the question relates to clause 107, to which we will come in a
moment? Or does she want to deal with that clause
now?
Justine
Greening: No, I think that I was dealing with clause 106,
which allows the greater ability to set off profits against earlier
periods. If I talked about the revenue impact of clause 107, I meant
clause
106.
Angela
Eagle: The clause extends the carry-back provision
relating to corporation tax losses incurred on decommissioning offshore
oil and gas infrastructures, and it has been widely welcomed. The hon.
Lady is right to point out that the provision is carried back to 2002.
It became apparent during our discussions that the likely costs and
complexities of decommissioning within a three-year limit, which I
mentioned in the previous debate, are insufficient in most cases to
give companies full tax relief for the cost of decommissioning
installations and equipment in the North sea. If the current three-year
limit was maintained, evidence suggests that some companies would be
likely to decommission
early. We
made the changes because of the undesirable consequences that flow from
early decommissioning. As the hon. Lady has recognised, the foremost of
those would be the non-recovery of otherwise economically recoverable
oil and gas reserves. Evidence suggests that up to 10 per cent. of some
fields would remain recoverable, so under the clause, companies will be
able to carry back losses to 17 April 2002, the date from which the
supplementary charge was
introduced. The
measure will increase the total amount of oil and gas recovered form
the UK continental shelf by allowing companies to operate to the point
at which they become commercially economic rather than the point at
which the available tax relief for decommissioning ceases to outweigh
the expected remaining revenues from oil and gas production.
Analysis supports the concerns of companies that they would
have to give serious consideration to early decommissioning
. The
hon. Lady asked for the Treasury’s prediction of the revenue
from any extra oil production. The matter is too uncertain to provide a
sensible prediction of oil revenue. It depends very much on the
behaviour of individual fields. It is not sensible to make a prediction
that is not robust. The only observation that I make is that the
measure will not take our taxation receipts from oil production down.
It will definitely be in the other direction, which is a good thing for
oil producers and for the
Exchequer. Question
put and agreed
to. Clause
106 ordered to stand part of the
Bill. Schedule
35 agreed to.
Clause
107Ring
fence trade: no deduction for expenses of investment
management Question
proposed, That the clause stand part of the
Bill.
Justine
Greening: The clause will mean that it is no longer
possible to deduct the expenses of investment management from
ring-fenced profits that are liable for tax. I do not want to spend a
long time talking about this, but I want to explore briefly the
Treasury’s assessment of the problem, how big it is, and whether
the Treasury is looking at further issues of this nature that it
expects to bring forward more tax changes in
future. This
measure is classed in the “Protecting tax revenues”
section of table 1.2 on “Budget 2008 policy decisions” in
the Budget book. It seems to have the somewhat large revenue impact of
almost £0.5 billion over the comprehensive spending review
period, so the Treasury believed that it was a large issue. Will the
Exchequer Secretary tell the Committee a little about the views of the
industry on the robustness of charging expenses from investment
management back to ring-fenced profits from the discussions that she
has had? What assessment has she made of the breadth of this issue? Is
it something that is routinely done, but which the Treasury thinks it
will stop happening, or does it have something to do with a particular
kind of producer running its company in a particular way by taking
steps to offset expenses against its ring-fenced
profit? Additionally,
will the Exchequer Secretary say briefly whether the Treasury is
looking at any other areas where it has further concerns of this
nature? As someone who worked in industry before entering the House, I
know that companies always look at ways of minimising their tax
liability. It is perfectly reasonable to have sensible tax planning,
but does the Treasury think that there are other areas where the way in
which tax regimes operate in practice do not achieve the substance and
spirit of what it is seeking to do by introducing the Bill and the
North sea oil taxation regime? Will further such steps taken, or is
this viewed as an isolated case to be addressed in this year’s
Budget?
Angela
Eagle: The clause closes a loophole in the existing
legislation that allowed oil and gas companies to offset the expenses
of managing their investment business against their ring-fenced profits
from oil extraction activities. The clause will protect the integrity
of the North sea ring fence, as companies will no longer be able to
offset those expenses as a deduction against their ring-fenced oil and
gas profits. The current law that taxes the profits of a
company’s oil and gas production in the UK and on the UK
continental shelf puts a ring fence around the profits. Those profits
are segregated from any other activities that the company undertakes,
and losses arising outside the ring fence cannot be used to reduce
ring-fenced profits. The purpose of the ring fence is to ensure that
the Exchequer’s share of oil production profits from what is a
national resource is protected against losses from other activities
undertaken by the company or group.
In 2004, as
part of the corporation tax reform programme, the rules regarding the
expenses of managing an investment business were relaxed to allow such
expenses to be relievable against a company’s total profits from
all its activities. However, we then became aware that some oil and gas
companies have arranged their affairs to offset the expenses of
managing an investment business against their ring-fenced profits.
Those arrangements seek to undermine the fundamental principle that
ring-fenced profits should not be reduced by losses or expenses from
any other activity. The
Government are committed to ensuring that the North sea fiscal regime
supports activity in the North sea while ensuring a fair return to the
UK taxpayer, and that is the balance that we have been discussing
throughout our debate on the relevant clauses. The Government will not
stand by and allow a small minority of companies to abuse the
regime.
The clause
closes the loophole by extending the scope of the ring-fence rules to
ensure that, with effect from 12 March 2008, no deduction from the
expenses of management and investment business will be allowed against
ring-fenced profits. The hon. Member for Putney is perfectly right to
draw attention to the potential revenue loss: plus £140 million
in 2008-09; plus 175 million in 2009-10; and plus 175 million in
2010-11. She asked what the industry’s response is to the
closure of that loophole, and it accepts that it is
fair. Question
put and agreed
to. Clause
107 ordered to stand part of the
Bill.
Clause
108Information
and inspection
powers Mr.
Jeremy Browne (Taunton) (LD): I beg to move amendment No.
189, in
clause 108, page 68, line 8, at
end insert— ‘(1A) The
Chancellor of the Exchequer shall bring forward legislation to provide
for any transitional provisions required in connection with Schedule
36. (1B) That Schedule shall
not come into force until the requirement under subsection (1A) has
been
fulfilled.’.
The
Chairman: With this it will be convenient to discuss
amendment
No. 188, in
clause 108, page 68, line 11, leave
out subsection
(3).
Mr.
Browne: If the number of amendments are indicative of the
importance of a particular aspect of the legislation, clause 108 and
schedule 36 are clearly issues that will detain the Committee for some
time, and quite rightly so. They delve deeply into the issue of the
freedom of the individual, and the degree to which the Government
should empower themselves to inspect the affairs of individual
citizens.
2.15
pm Amendments
Nos. 189 and 188 are fairly straightforward. Together, they would
require the Government to produce primary legislation for transitional
provisions before schedule 36 comes into force. They would remove the
Government’s ability to introduce transitional provisions
relating to schedule 36 by order of the House. It might help the
Committee if I were to provide some background on my wish for such
changes.
Clause 108
introduces schedule 36. It makes provisions giving HMRC the
power to obtain information and inspect businesses relating to income
tax, capital gains tax, corporation tax and value added tax.
PricewaterhouseCoopers may not necessarily be the gospel, but it is
certainly a respected organisation when it comes to commenting on such
matters. It says that the changes that the Government envisage
are
“the most
fundamental changes to HMRC’s ability to enquire into direct tax
returns since
1976.” The
Government are embarking on a process that happens once in a
generation, or even less often, given the scope of the powers that they
are taking upon themselves. They are replacing large amounts of
legislation. All investigative powers under section 19A of the Taxes
Management Act 1970 and paragraph 27 of schedule 18 to the Finance Act
1998 will be superseded. The first and third party information powers
under section 20 of the Taxes Management Act will be superseded, and
powers enabling PAYE and VAT auditors to check operations will be
overtaken by the provisions of clause 108.
The merger
of Inland Revenue and Customs and Excise meant that powers in relation
to the acquisition of information and the right to inspect premises
suggested in the “Modernising powers, deterrence and
safeguards” review of 2005 could be put into place. The purpose
of that review was to provide HMRC with a framework for a fairer and
better operated tax system. No one is hostile to the objective of
everyone paying the taxes that will be owed under the provisions being
put in place by the Bill. The problem is the powers of scrutiny and
searching that will be taken on board by HMRC in the process.
We are
talking of five areas. The first three are compliance checks, debt
management powers and taxpayer safeguards. I shall speak more about the
next two: criminal investigation powers, which includes large parts of
other legislation, such as the Serious Crime Act 2007—I remember
spending a large amount of time in this very room debating
HMRC’s power to investigate serious crime and the
Government’s ability to embark on so-called fishing expeditions
in pursuit of people suspected of withholding revenue—and civil
financial penalties, which also come under the scope of this
debate.
I hope that
I have given the Committee a flavour of how fundamental those
provisions are. Large parts of the Government’s
legislative programme of previous decades will be superseded
and overtaken by them. The Institute of Chartered Accountants,
PricewaterhouseCoopers and other organisations are particularly
concerned about the level of consultation on this aspect of the Bill.
In their view, their opinions have not been heeded, or have even been
ignored. As an illustration of that point, the consultation ended on 6
March, but the details of the proposed changes were announced in the
Budget on 12 March. Most members of the Committee would accept that the
details of the Budget—perhaps not all of it; I may be
old-fashioned in that regard—would in the normal course of
events have been put in place more than a week before being announced
in the House. One is left with the impression that the consultation was
designed to offer reassurance rather than genuinely seek ideas to
improve the legislation.
Of course,
there is considerable public concern about the competence and scope of
HMRC, including security breaches—most famously, or infamously,
those involving
missing computer disks. My party is cautious about extending
HMRC’s powers without extending the safeguards to monitor those
powers effectively. That is the purpose of amendments Nos. 188 and
187. Amendment
No. 188 was tabled because my party believes that the
Government’s regard, or disregard, for civil liberties and the
absence of a genuine consultation process shows that, although it would
not be fair to say that HMRC and the Government as a whole are not to
be trusted, one ought to be cautious about granting them intrusive
powers of scrutiny in this
regard. Amendment
No.187 would replace negative procedure with positive procedure, as an
attempt to improve
scrutiny—
The
Chairman: Order. The hon. Gentleman has mentioned
amendment No. 187, which is not being debated. We are talking about
amendment No. 189, with which it is convenient to debate amendment
No.
188.
Mr.
Browne: Sorry, Sir Nicholas. I was just bringing my
remarks to a conclusion anyway. We are counting down, rather
confusingly. The effect of both those amendments would, as I said, make
it harder for the Government to embark on the process of scrutiny
through HRMC’s powers without seeking accountability for those
greater powers from the House in
advance.
Mr.
Gauke: It is a great pleasure to serve under your
chairmanship again, Sir Nicholas. Last time I served under you it was a
grey day outside and it was the first day of the Lord’s test.
Today is the first day of the Trent Bridge test and the sun is shining,
although not necessarily on England’s
batsmen.
The
Chairman: I call Mr. Jeremy Browne, if it is
relevant.
Mr.
Browne: I fear that it may not be, Sir Nicholas. I did not
have an opportunity to see what the test match score was at lunch time
and wondered whether the hon. Member for South-West Hertfordshire could
tell
me.
The
Chairman: If he does so in the course of his remarks, I
will allow
it.
Mr.
Gauke: Unfortunately, there has been a deterioration since
lunch time: the last time I looked we were 86 for
5. I
have a couple of comments to make on the amendments. I should also like
to talk more broadly in a stand part debate, but I will be guided by
you, Sir Nicholas, because there are some points with regard
to powers that it would be helpful to make at the commencement of this
part of the Bill, before we get into the details in schedule 36 and the
more detailed amendments tabled in respect of the schedule. I will
happily be guided by you, Sir Nicholas, as to when I should make those
points.
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