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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 107

Ring 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.
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 108

Information 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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