Mr.
Bone: As air passenger duty is to be abolished and the
possibility of new business class-only airlines starting up is
extremely remote in these economic conditions, what on earth are we
doing putting this measure in a clause and debating
it?
Angela
Eagle: The industry raised the issue with us. It was
thought that the different classes were creating distortions in
decision making. It seems reasonable that we should level the playing
field for air passenger duty even if it has only a year left to run
before we move to per-plane
taxation Mr.
Philip Hammond (Runnymede and Weybridge) (Con): Will the
hon. Lady give
way?
Angela
Eagle: If I can finish the sentence, I will happily give
way to the hon.
Gentleman. It
is important to realise that operators come and go in these markets. I
agree that it is important that any change does not involve a huge
burden in changing systems, which is why we went for the option that we
did. It makes the least disruptive change, and the simplest and easiest
change to the system in the circumstances, especially given the amount
of time we have left before the proposed introduction of per-plane duty
in 2009.
10.45
am
Mr.
Hammond: The Minister mentioned the introduction of the
per-plane duty in 2009 and referred to this arrangement as having only
a year left to go. We are all aware of the hostility of the United
States to the proposed per-plane duty. I wonder whether she is able to
update the Committee on that issue, and whether there was any
discussion of the difference of opinion between the UK and the US
during the Presidents visit. Has it been escalated to that
level of attention, and does she expect that the 2009 change will be
able to take place?
Angela
Eagle: I am flattered that the hon. Gentleman thinks I
would be privy quite so quickly to the discussions that the Prime
Minister has just had with the President of the United States. The hon.
Gentleman has a flatteringly high opinion of me, but I am afraid that
at this moment I am unclear as to quite what the Prime Minister and the
President discussed during their tĂȘte-Ă -tĂȘte
yesterday. I promise that I will try to find out for him.
In
terms of the revenue impact, an additional £5 million
is what was worked out, which, when one looks at the size of the
revenues from APD, is broadly revenue-neutral. The industrys
favoured approach, which would have made changes that raised the APD
liability of seats on business class-only flights and lowered the APD
liability on premium economy seats, would have cost £60 million.
That would have been extremely complex to implement and would have
resulted in system changes which would have affected a large sector of
the airline industryclearly not a very sensible approach to
take with only a year to go of this tax
plan.
Justine
Greening: The Minister said that the original estimate of
the revenue impact was £5 million. I am assuming that that
figure is now zero, given that she does not think that the provision
will affect any airline companies that are currently operating. Is that
correct?
Angela
Eagle: I am not certain, and it would be wrong of me to
give the Committee a figure, given the changes that there have been in
the airline industry. I think that the hon. Lady needs to bear in mind
also the implications of the change of premier economy class, which is
not completely out of the picture. I am happy to return to the
Committee with an updated estimate of the revenue effects of that if
one has been done. It is clearly not revenue-neutral to put into being
the most popular option favoured by the industry, which would have cost
£60 million and been very bureaucratic in terms of system
changes.
Mr.
Bone: I am grateful to the Minister for giving way; she is
being extremely generous. I am a little worried about what she has just
said, because there should be a zero revenue implication as there are
no business class-only airlines now flying. However, I suspect that
passengers who are flying economysuch as those people who are
sitting in exit rows, or happen to be caught in a seat which has more
than a 40 in seat pitchwill now be paying double duty. Can she
assure the Committee that that will not
happen?
Angela
Eagle: The hon. Gentleman used several particular
instances of where he thought there might be difficulties, in terms of
passengers being upgraded and
such. I have to say that, if a passenger has been upgraded when they
have not asked to be upgraded, it would be fairly churlish of the
airline then to pass on the charge of the APD.
Air passenger
duty is charged to the airlines and it is up to them whether they pass
that cost on to the customers. I do not know what every airline in
existence would do for passengers whom they upgraded in those
circumstances, but it would be odd to upgrade and then demand an extra
payment, if the individual had not asked to be
upgraded.
Justine
Greening: I do not want to help the Exchequer Secretary
out too much, but can she confirm that the 40 in pitch is in relation
to either the seat in front or the seat behind, and that if there is no
seat in front it will be based on the seat
behind?
Angela
Eagle: That is the case. In his approach to the tax, the
hon. Member for Wellingborough has allowed himself to be carried away
by the consciousness of his
height.
Mr.
Hammond: My understanding is that the defining class is
the class of travel that the passenger is contracted to have through
his agreement for carriage, not the one that he travels in. Therefore,
it seems clear that an upgrade would not necessarily result in a higher
charge. Is the Exchequer Secretary aware that it is the practice of
some airlines and some brokers or bulk agents of airline
travelor at least it used to be, I do not get much opportunity
to travel these daysto enter into guaranteed upgrade
arrangements, where one buys a ticket of a certain class on the
understanding that it will be upgraded at the point of departure? Has
she taken that practice into account, and is she certain that there is
no potential revenue loss as a result of such practices being used to
avoid the impact of the
measures?
Angela
Eagle: I suspect that the answer is that there will be no
loss, but I will certainly check that we did not miss in the
consultation what the brokers might be
doing. There
is not a lot else that I can say, especially as someone who is only 5
ft 3 in.
[Interruption.]
The
Chairman: Order. Members, please refrain from conducting
conversations across the room while a Front-Bench spokesperson is
addressing the
Committee.
Angela
Eagle: I am only 5 ft 3 in, so perhaps Members did not
realise that I was standing up. Maybe I should try to shout more to
attract
attention. Mr.
Eric Joyce (Falkirk) (Lab): I sense that the debate has
been whipped into an exciting, high-pitched frenzy over the past five
and a half weeks, and so I rise to help my hon. Friend. The exit point
that the hon. Member for Wellingborough made was about the class of
travel. I have worked out that for his knees to touch the seat in front
on an aircraft with a 40 in pitch between the seats, he would need to
be just a fraction under 8 ft tall. That strikes me as not quite what
his height is.
Angela
Eagle: Size sometimes gets exaggerated. The hon. Member
for Wellingborough is tall, but he is certainly not 8 ft. I thank my
hon. Friend for the mathematics. He has done the Committee a great
service. Question
put and agreed to.
Clause 147
ordered to stand part of the
Bill.
Clause
148Stamp
duty and stamp duty reserve tax: alternative finance investment
bonds Mr.
Mark Hoban (Fareham) (Con): I beg to move amendment No.
358, in
clause 148, page 90, line 25, leave
out paragraph (a) and insert paragraphs (a) and
(b).
The
Chairman: With this it will be convenient to discuss
amendment No. 359, in
clause 148, page 90, line 41, leave
out
(6)(b),.
Mr.
Hoban: It is a pleasure to serve under your chairmanship,
Mr. Cook, and to get these amendments out of the departure
lounge and onto the runway. I said to my hon. Friend the Member for
Putney that there were insufficient puns in her speech in spite of the
ample opportunity, so I thought that I might get one of my own in. The
amendments are relatively simple and I do not want to detain the
Committee for too long. They relate to sharia-compliant sukuk
products. One
of the principles of sharia law is that interest should not be charged
on debt, but it is permissible for people to share in risk. In these
bonds, there is often an agreement between the person who has issued
the bonds and the purchaser of the bonds about the maximum level of
return that someone can enjoy on the bonds. The concern raised with me
about how those bonds are exempted from stamp duty is that, in some
cases, the bondholder is entitled to all of the return on the
underlying asset; we will talk about underlying assets in more detail,
perhaps on schedule 46. The bondholder is entitled to all of the
return, subject to a cap of, say, 7 per cent. My understanding is that
bonds structured like that do not get the same exemptions as bonds
structured in alternative ways and, therefore, some sukuk products are
not treated in accordance with the other bonds. I am keen to understand
why that is the case. Amendments Nos. 358 and 359 aim to tackle that
issue. The Government amendments in the next group tackle a slightly
different set of circumstances, but both groups have the same
endsto ensure that the treatment of these bonds and of more
conventional products is
comparable.
The
Economic Secretary to the Treasury (Kitty Ussher): It is a
pleasure as always, Mr. Cook, to serve under your
chairmanship.
I am grateful
to the hon. Gentleman for his general understanding about what we are
attempting to do. The problem is that the amendments he proposes go far
wider than addressing the issue that he seeks to deal with.
The
amendments remove the condition that the return must not be dependent
on the results of a business where the instrument concerned falls
within the definition of loan capital that we are discussing. The
effect would
be that alternative finance investment bonds would not have to qualify
for exemption under the loan capital rule at all. Those types of bonds
would be afforded more advantageous treatment than their conventional
equivalents. They would have a more advantageous position than normal
types of debt and loan capital raising, because the conventional
equivalents would still need to qualify for exemption under the loan
capital rules. Therefore, it is contradictory to Government policy. We
are trying to ensure broadly equivalent treatment of sharia-type
products and their conventional equivalents.
The
amendments would extend the scope of the loan capital exemption to
include bonds that have a return based on the results of the business.
We think that that kind of return is closer in substance to an
equity-like return rather than a debt instrument-like
return.
Mr.
Hoban: Although in principle the Minister is right that
the bondholder would benefit from the full results of the business, in
these circumstances the bonds are structured so the cap of, say, 7 per
cent. prevents them from enjoying those full benefits. Therefore, it
moves away from the traditional equity model in which the shareholders
are entitled to full rights over the
profits.
Kitty
Ussher: The dividing line between us is that I think that
having a cap involves a greater sense of risk sharing than is
appropriate for this type of policy measure. If there is a cap, which
is up to X per cent. it is more like an equity-type product than a
conventional debt-type product. It is economically different from a
product that has a fixed rate as opposed to a cap that can be up to
that point. I understand that one member of our Islamic Finance Experts
Group has raised that concern and we are happy to explore it in more
detail.
11
am We
have fundamental reservations about allowing an exemption for products
that are not economically a debt-type instrument, even though they are
arranged in a sharia-compliant way. To go down the route suggested by
the hon. Gentleman looks like a change to our policy. It would also
tilt the playing field for sharia-compliant and conventional methods of
raising finance to the advantage of sharia-compliant products, which is
not fair, so that is another reason to resist the amendment. There is
no reason why we cannot explore the fact that there are, we have just
been informed, some types of sukuk that have a cap rather than a
specified rate of return. We can then deal with the matter in a more
appropriate way if we judge it necessary, but accepting the amendment
would distort our policy. I therefore urge the hon. Gentleman to
withdraw
it.
Mr.
Hoban: I am grateful to the Minister for her explanation
of why the Government oppose the amendment. She raises a very important
principle as to how these products should be looked at. They are meant
to mirror conventional products, not be given advantages over them. We
will deal in clause 149 with the way in which the exemptions for
sharia-compliant products have then been used for tax avoidance. We
must be sure that we do not provide advantages that
others can exploit. On that basis, and with the Ministers
reassurance that she will look at this issue, I beg to ask leave to
withdraw. Amendment,
by leave, withdrawn.
Kitty
Ussher: I beg to move amendment No. 309, in
clause 148, page 90, line 41, leave
out and (7B) and insert , (7B) and
(13).
The
Chairman: With this it will be convenient to discuss
Government amendments Nos. 310, 311 and
312.
Kitty
Ussher: These amendments are fairly technical so I will
provide the opportunity for questions rather than go through them in
detail, although I am happy to do so if there is a
demand.
Mr.
Hoban: It would help the Committee if the Minister gave a
little more explanation about the amendment. I understand that it
refers to situations in which the interest paid is below a certain rate
where there are insufficient profits to generate the rate that people
expect on their bonds. That would also suggest that it mirrors
equity-like participation, rather than
bonds.
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