Finance Bill

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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.
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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 President’s 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 industry’s 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 industry—clearly 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 economy—such 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 pitch—will 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 travel—or at least it used to be, I do not get much opportunity to travel these days—to 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 148

Stamp 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 ends—to 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 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.
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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 Minister’s 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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