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The hon. Gentleman referred to illegal knowledge transfers as if that was a phrase that we all regularly use. It is not a phrase that I have used and it is not a concept that has ever, either legally or illegally, been transferred into my knowledge system. I take his point about economic and military espionage, and believe that that requires close consideration.
In relation to Sri Lanka, Burma and Sudan, it is vital that we maintain a strong and critical relationship with China to enable it to play a more significant role in standing up for human rights in areas where there are significant abuses. The way in which we take such a matter forward is sometimes misunderstood by the Chinese Government, but it is something from which we will not flinch.
The hon. Gentleman said that just as China has a long-term idea of where it wants to take its relationship with the west, it is important that we, too, have a long-term understanding. Earlier this year, I was delighted that the Government were able to produce a framework for engagement-that is the first time we have done that for any country-outlining how we see our relationship with China over the coming years. There are three pillars to the framework.
First, we must get the best for the UK from China's growth. The hon. Member for Cities of London and Westminster referred to the importance of financial services in China. It is vital that we ensure that the investment that has already happened continues and that China sees the City of London as a crucial place in which to conduct its financial business around the world. It is also vital that China should reduce both its tariff and non-tariff barriers on a whole range of different areas. Obviously its membership of the World Trade Organisation is a significant step forward and one on which we wish to build.
Mr. Mark Field: In that context, let me stress the importance that the City of London Corporation has placed in recent years on ensuring that it has lord mayors-the big ambassadors for the City-who have strong Chinese experience. I refer here to people such as Sir David Brewer, Sir John Stuttaford and Sir David Lewis, all of whom have worked in China or Hong Kong for significant parts of their career. The fact that China, Hong Kong and various other territories in the region will be very important players should be borne in mind when considering lord mayors in the future.
Let me add to the point about how we ensure that we get the most economic advantage for the UK out of China's growth. We will have a British pavilion in the World Expo in Shanghai, which will make a significant contribution to ensuring that the Chinese have a keen understanding of what constitutes modern Britain and of the economic opportunities that we afford. The design by Heatherwick is very innovative. It will be an exciting part of the landscape in Shanghai and is growing apace. I am grateful for the private sector support from AstraZeneca, Barclays, BP, Diageo and GKN.
The second pillar of our framework to ensure that China emerges as a responsible global player plays into many of the issues that hon. Members have raised. I am talking about China's support for the robust sanctions against North Korea following its second nuclear test, and its role in the "E3 plus 3" process in relation to Iran. As I said earlier, we regret the fact that in January 2007, it vetoed a resolution on Burma. Since then there have been significant developments in which China could have played a far greater role. I refer too to the position it took last July on Zimbabwe.
As for climate change, we have seen a significant move in recent days for which we are grateful. China has a national leading group on energy and climate change, which is chaired by the Chinese Premier, Wen. It has a national climate change programme dating from 2007, and in October the leading groups announced that China must incorporate addressing climate change and reducing the intensity of carbon dioxide emissions into national, economic and social development plans. China may be following such a policy for different reasons from our analysis of the need for a robust outcome in Copenhagen, but we will be working closely between now and Copenhagen to ensure that we reach a clear and robust agreement on the need to ensure that global temperatures do not rise 2° above the temperatures of 1990. Moreover, we must ensure that there is a global fund to help us protect the world around us. We also hope for an early conclusion of the Doha development round and we believe that China's membership of the WTO should enable that rather than prevent it.
Finally, the third pillar is about promoting sustainable development, modernisation and internal reform in China. Whether it is on the death penalty, human rights in Tibet or more generally in China, we believe that constructive engagement with China as an economic ally and friend can go forward only when there is a wholehearted embracing of proper human rights.
I am grateful to the hon. Member for Cities of London and Westminster for raising these issues today. If there are any further issues that I have not addressed, I will reply to hon. Members in writing.
Mr. Alistair Carmichael (Orkney and Shetland) (LD): As ever, Sir Nicholas, it is a very great pleasure to serve under your chairmanship today. It is also a great pleasure to have the opportunity to debate an issue that is important to many of my constituents-obviously, those working in agriculture in particular-and to the constituents of many other Members. It is perhaps not the sexiest issue. It is a matter of some technicality and detail, but for farming businesses, many of which operate on exceptionally tight margins, it is one of great significance and indeed one that raises some quite fundamental questions of basic fairness.
First, I should place on record my gratitude for the fairly comprehensive briefings that I have received from the National Farmers Union and NFU Scotland, and indeed from a number of my constituents who have spoken to me about the subject. I am also informed in my wider thinking by the fact that I am a farmer's son, born and brought up on a hill farm on Islay. At a time when we talk about a rising average age for farmers, which is germane to a matter that I will come on to later, I reflect that my own father is still hale and hearty at the age of 78, running a hill farm on Islay, assisted-indeed, encouraged-by my mother, who is 76. The remarkable thing about that is that it is not really in any way remarkable: my parents are by no means unusual for the age profile of those engaged in the more financially marginal agricultural activity.
On the agricultural building allowance, I have two main issues that I want to explore with the Minister today. The first is that the phasing out and eventual abolition of ABA brings with it a disincentive to invest in the type of investment that will be very important to the future sustainability of agriculture. Indeed, such investment is important not just to agriculture but to many rural communities, especially those in what are considered to be geographically remote or peripheral communities, because in many of those rural communities, if not most of them, agriculture lies at the very heart of the economy.
The second concern that I want to explore today is that the manner in which the Government are seeking to make the change is, in effect, retrospective. The Minister will no doubt explain why the Government have chosen to act in that way. I shall explore the question of retrospectivity, but the fact is that buildings were constructed by people making business and investment decisions with a legitimate expectation that ABA would be available to them over a 25-year period, but those people are now finding that the rug is being pulled out from underneath their feet. If the Minister were to say that the change would apply to buildings that are constructed from tomorrow, clearly the same arguments would not apply, but the fact is that many farmers have made business decisions based on what I term a legitimate expectation of the availability of ABA.
I was given a very good example of that situation at a constituency surgery by a constituent of mine from Shetland, about whom I have been in correspondence with the Minister. That constituent is Mr. Martin Burgess, who farms at Quendale. In 2000, he put up a new dairy unit-a building that obviously qualified for ABA-whose
construction he funded by some borrowing. Obviously, there is a cost attached to that borrowing, and that cost is not always predictable, as we know. A significant factor in the decision that he took was the availability of ABA. He has made a calculation about his dairy unit-it is worth considering that calculation about one dairy unit in the south end of Shetland-that over the remainder of the 25-year period that the building would otherwise have been eligible for ABA, he will be some £42,000 worse off. For an agricultural operation in Shetland, even if that sum is spread over that period of time it is still a significant and substantial loss.
I have some questions for the Minister. Does he not accept that my constituent had that legitimate expectation and what justification can there be now for removing the certainty that my constituent needs to make future business decisions? If Mr. Burgess were to anticipate making a further construction of that type in the future, what reliance can he have on the availability of any tax arrangements that the Government may choose to put in place?
I think that there is a fairly broad political consensus in this House and in the country that the agricultural industry should be encouraged to invest, to meet our increased food requirements and to achieve the improved environmental and animal welfare standards that we now ask of our farmers. I say that because the margins are exceptionally tight in all agriculture, but in communities such as mine, especially in Shetland where there are exceptionally challenging climate conditions and very often the land is of rather poor quality, the margins become even tighter than those that would be expected in other parts of the country.
In part of the correspondence that I have had with the Minister on this issue, he has referred to other tax changes being available and perhaps we will touch on them at the end of this debate, if time allows. However, I must say that for many of the farmers and crofters in my constituency the benefits of those tax changes are largely illusory, because they are not earning an income that allows them to benefit from the tax changes that the Minister will no doubt outline.
Of course, farmers, like everybody else, are dependent on the whims and notions of the banking sector. In the past year to 18 months, I have had a fairly steady stream of agricultural constituents beating a path to my door to explain the difficulties that they have had with the renewal of overdraft facilities or obtaining new borrowing, which would allow them to make the investment in their business and the changes to it that we as politicians are always encouraging them to make, so that they can improve environmental practice and animal welfare standards, market their product better and go for a higher-quality product that would be available to niche markets, and add value to the products that they already have.
ABA has been with us in one form or another since 1945. Given that context, what I called the "legitimate expectation" of my constituents and farmers in general that it would continue is, I think, fairly well founded. However, the changes to ABA also have to be seen as being part of a tax basket. There are other taxation changes that have had a significant impact on farmers, for example, the increase in fuel duty. Of course, for agricultural vehicles there is a reduced rate for so-called "red diesel", but not all of the vehicles that are owned
and operated in relation to a farm are eligible for red diesel because some of them are used on the public road. Many farmers need larger vehicles such as pickups and 4x4s simply because of the terrain on which they work, but those are the very vehicles being clobbered, in the interests of dealing with their unsuitability for urban areas.
There are other, more technical issues. The treatment of rental income from land as unearned income, for example, has an impact. It means that farmers who rent out land are not eligible for many of the allowances that relate to income tax, capital gains tax and inheritance tax. I mention this because of the ageing profile of those engaged in farming, to return to my earlier point. The capital costs of entering agriculture are very high, so the obvious option for a lot of young people who want to enter farming is to lease land. The treatment of rental income from land as unearned income acts as a disincentive for those who own land to lease it out.
The picture that I am trying to paint for the Minister is one in which the decision on ABA is seen in its proper context. Although we as politicians and the Government in particular all say that we want to encourage growth and development in agriculture, it seems that just about everything else works to militate against it.
Some of the examples given to me by the NFU are stark, and I will take a few moments to share them with the House. The NFU offers the example of the UK poultry industry-an industry with which I have little acquaintance, as I have never had to work in it and it is not a large feature of our agriculture industry. The NFU says:
"The UK poultry industry will need to continue to invest significantly in new or upgraded buildings: in order to improve efficiency; to increase the amount of meat produced in line with Freedom Foods criteria, for example, and other more stringent welfare standards; to increase the production of free-range eggs; and to meet the future requirement for caged laying hens to be re-housed."
That is the context in which poultry farmers operate. Those are exactly the changes that we politicians want them to make, but making those changes will require significant capital investment in agricultural buildings, which the Treasury now says it does not consider important. The NFU continues:
"In the dairy industry, if a farmer puts a roof over a yard in order to separate clean and dirty water and so reduce the volume of slurry for storage",
"the cost will not be able to be relieved for tax purposes against the profits of the business."
"ensuring all depreciating assets receive allowances at two clear rates: 20 per cent and 10 per cent. Assets that appreciate, such as land and buildings, will not receive depreciation allowances."
However, most of the assets that we are talking about when we discuss agricultural buildings have a fixed life span. Building a cattle court is not like building a house. Once built, a cattle court will depreciate over time. To equate the treatment of such buildings with other buildings and heritable property indicates a certain lack of understanding.
It has also been argued that tax relief can be given under depreciation of a building at the point when it is sold, but again, given the continuity that exists within the agricultural industry, the majority of agricultural buildings are not sold, so no relief is ever obtained. That was presumably the calculation made in 1945, when the allowance was introduced, and it is presumably the calculation made every year since then. What do the Minister and his officials think has changed to merit the change in the treatment of agricultural buildings?
I think that the changes will have a significant impact on many farmers, both those caught by retrospectivity and those planning future investment. The impact on the industry will be severe, and I cannot see the benefit for the Treasury and Her Majesty's Revenue and Customs. What increase in tax gains does the Minister anticipate as a result of the changes?
Finally, we must consider where the changes will leave us. It must be remembered that our farmers are part of a common market within the European Union. What will this do to our competitiveness with regard to other countries? The research that I have carried out indicates that in France, Spain, the Netherlands, Denmark and the Republic of Ireland, relief broadly similar to ABA already exists. It is worth bearing in mind that our main competitors in the pork industry, which relies the most obviously on large agricultural buildings, come from Denmark and the Netherlands. Their farmers will be getting advantages from tax allowances; why will not ours?
The Financial Secretary to the Treasury (Mr. Stephen Timms): I congratulate the hon. Member for Orkney and Shetland (Mr. Carmichael) on securing the debate. He set out clearly for the House the depth of his and his family's commitment to the well-being of agriculture in the UK. It is good to hear about his parents' continuing commitment on their farm. I welcome this opportunity to explain the principles behind the business tax reforms of 2008, which included the phased withdrawal of agricultural buildings allowance, but first I will give a bit of background on the history of the allowance to put it in context.
The agricultural buildings allowance, together with the industrial buildings allowance, was introduced in 1945 as part of post-war reconstruction in order to rebuild key sectors of the British economy: industry, for production and employment, and agriculture, in particular, to feed the country after the damage of the second world war. The IBA replaced the old mills and factories allowance, and the ABA replaced a special and even older relief for agricultural landowners under the old income from property legislation. The system lasted until 1986, when it was replaced by the current system, which is now being phased out and will end in 2011. Relief is given at 4 per cent. a year and qualifying costs are written off for tax purposes over 25 years. The buildings that qualified included barns, cowsheds, stables, farmhouses and cottages.
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