Mr.
Timms: The clause is part of our package of targeted
support for business—temporary tax relief providing real support
for businesses investing for the future. The cost is substantial, as
the hon. Gentleman said, and its scale reflects our recognition that
business investment is key to recovery. The measure will stimulate and
bring forward business investment. It is time-limited because we
recognise the exceptional nature of the current downturn and want to
support and encourage businesses to invest now. My right hon. Friend
the Chancellor of the Exchequer said in his Budget speech that we must
grow rather than cut our way out of recession, and this measure is one
building block we have in place to do that.
The hon.
Member for Fareham queried the balance between the cost of the
carry-back measure that we debated a few minutes ago and this
first-year capital allowances measure. The balance reflects the
importance of encouraging investment at this point in the downturn to
move us into recovery as quickly as possible. At this critical time, it
is absolutely right to support businesses and their cash flow,
including through the loss carry-back measure, but it is perhaps more
important to provide an incentive to invest, which this measure will
do.
Mr.
Stuart: All the outside experts tell us that it takes
time, as my hon. Friend said, to plan capital investment. There seems
to be no rationale for doubling the relief in
this financial year rather than the one following, when it would have a
far more positive effect. Cynics outside view it as having more to do
with the electoral cycle than the business
cycle.
Mr.
Timms: Opposition Members may have slightly misunderstood
what the Chancellor of the Exchequer said about the scale. The figure
he used was £50 billion, not £60 billion: that is the
amount of investment that will qualify for support from the allowances.
I certainly do not wish to give the Committee the impression that there
will be an additional £50 billion or £60 billion of
investment. That will not be the case. However, I expect some increase
because many businesses are likely to have some flexibility regarding
the timing of their investment and will be able to bring it forward,
compared with what they otherwise would have
done.
Mr.
Hoban: If the Financial Secretary looks back at the Budget
speech, he will see a clear implicit message that the provisions would
lead to additional investment of £50 billion. The right hon.
Gentleman is absolutely right to say that I misquoted the number; it is
£50 billion, which includes £10 billion of
communications expenditure. The expenditure would have taken place and
was already planned. There might be a slight increase at the margin,
but it is simply already planned benefiting expenditure. The measure
will not generate additional investment to bring us out of the downturn
quicker.
Mr.
Timms: It will bring forward more investment than would
otherwise have been the case, but only a modest share of the total
investment, which is the £50 billion figure to which the
hon. Gentleman and the Chancellor of the Exchequer
referred.
Mr.
Hoban: How much additional investment does the right hon.
Gentleman think it will bring
forward?
Mr.
Timms: My estimate is that it will be in the order of an
additional couple of billion.
Mr.
Hoban: So a couple of billion in additional investment for
a cost of £1.6 billion in additional tax relief—is that
good value for money?
Mr.
Timms: Yes, it is, because the cost will be recovered in
future years due to the way that first-year allowances work. We are
bringing forward investment and the cost will be defrayed in future
years. Winning that additional investment at this time, given what is
happening in the economy, is a very worth while prize, which is why we
are taking it forward.
Mr.
Mark Field (Cities of London and Westminster) (Con): My
hon. Friend the Member for Fareham has very transparently expressed
Opposition Members’ concerns. Can the Minister give us any other
example in which a multiplier effect, which he thinks will emerge in
the years to come, can be bought only by an up-front cost of as much as
80 per cent. of the first year’s expense? It seems almost
incredible, from our perspective, that to invest, as he puts it,
£1.6 billion now for the hope of getting £2 billion in
year one is a satisfactory use of
allowances.
Mr.
Timms: I think it certainly is. As I said, much or perhaps
all of the cost in the first year will be recovered in future years.
The device enables us to achieve significant additional investment at
this critical time, thereby speeding the recovery and the point at
which the economy returns to growth. That is a valuable prize. That is
the reason why clause 24 introduces the temporary 40 per cent.
first-year capital allowances for most business investment between
April 2009 and March 2010, in effect doubling the main rate of capital
allowance for new business investment over that period. That is in
addition to the significant benefit that the vast majority of
businesses already receive from the £50,000 annual investment
allowance introduced last year. The AIA provides about 95 per cent. of
UK businesses with 100 per cent. tax relief against investment in
qualifying plant and
machinery. The
temporary first-year allowance will provide additional support to those
businesses that invest the most and will encourage firms to bring
forward investment. I have certainly spoken to businesses that think
they can bring forward investment as a result. It will both improve
cash flow in the short term, supporting businesses that invest, and
encourage investment now by reducing the cost of investment in the
current year relative to later
years.
Mr.
Stuart: The Minister is probably about to come on to this,
but may I press him on the £10 billion from investment in the
communications industry? Where did that number come from, and will he
explain whether he expects any of the additional brought-forward
expenditure to be in that particular
area?
Mr.
Timms: The figure comes from an assessment of what is
going on in the communications sector. Much is happening in that
sector, and one development that we are keen to see is the development
of next-generation broadband services—a roll-out of broadband
into those parts of the UK where services are not provided. If those
investments take place in the current year, there will certainly be
benefits, but communications is quite a wide sector and one in which, I
am pleased to say, an encouraging level of investment is going on now.
If one looks at the historical pattern, one sees that about
20 per cent. of investment has been coming from the
communications sector. That is the view that is reflected in the figure
to which the hon. Gentleman
refers. The
measure provides real help to businesses investing for the future at a
time when they are most in need of support. I put it to the Committee
that supporting business investment now is a very important step in
ensuring economic recovery and I commend the clause to the
Committee.
Mr.
Hoban: I am disappointed by the Financial
Secretary’s justification for the measure. The whole thrust of
the Chancellor’s Budget statement when making the case for the
measure was the increase in investment. We can look at the Red Book.
The Minister said that he thought that the measure would bring forward
additional investment of about £2 billion this year. That is
about 1 per cent. of the total fixed investment projected in
the Red Book for 2009 and it accounts for an increase in GDP of about
0.1 per cent., so we are seeing a relatively small benefit for quite a
significant hit to the taxpayer. Given that the Government forecast
borrowing to be £175 billion this year and £173 billion
next year, they need to be careful about their rationale for a making
big increase in the relief available to companies. If the
Chancellor had said at the time of the Budget that the measure was not
about bringing additional investment but more about supporting
businesses, it would have been a much more straightforward explanation
of the increase than suggesting that it would bring forward a huge wave
of additional investment.
My right hon.
and learned Friend the Member for Rushcliffe was right when he said
during the Budget debate
that “Doubling
capital allowances for a year, however, is not likely to shift a lot,
as it normally takes people more than 12 months to plan investments
that they were not previously planning to make. Furthermore, at a time
of falling consumer demand people will not be falling over themselves
to go in for capital investment, regardless of
allowances.”—[Official Report, 27 April 2009;
Vol. 491, c. 612.]
That encapsulates the
situation. When making the case for a significant increase in tax
reliefs, we need to be much clearer about the benefits rather than
suggesting that it would bring forward huge additional
investment.
Mr.
Stuart: Through my hon. Friend, I thank the Minister for
being straightforward and honest, as he always is, in sharing the
Government’s view. It is a shame that the Chancellor was not as
straightforward in his Budget speech. Given the news of recent days,
there may be a vacancy, and I hope that the Financial Secretary will be
promoted to fill it.
Mr.
Hoban: The Financial Secretary is always transparent on
these occasions, and gives a good account of why the changes are
necessary.
Mr.
Jeremy Browne (Taunton) (LD): I wish to bring the
conversation back to the matter in hand. I take the point about what
the right hon. and learned Member for Rushcliffe said, but to be fair
to the Government, one could envisage a company that intends to invest
at some point in future—such investment already being programmed
into its thinking—choosing to bring it forward slightly because
of the extra inducements. It may not necessarily choose to make an
investment that it had no plans to make, but if it had chosen to
invest, it could decide to do so a little
sooner.
Mr.
Hoban: Indeed; the Financial Secretary made that point.
However, the “little bit” sooner is not the £50
billion that the Chancellor implied; it is £2 billion. That is 1
per cent. of the gross capital formation expected for this year. The
amount being brought forward at the margin is very marginal, but it is
being done at a cost of £1.6 billion. It seems quite a large
amount of tax relief to give for the relatively small return of
bringing forward that additional investment.
The intention
may have been to give further support to business to invest during a
downturn in the knowledge that it would not trigger additional
investment but was there simply to cushion the cost. That would be a
different explanation. That is the one that the Financial Secretary has
given this afternoon. I understand it, and I am content with it. It is
a much clearer and more robust rationale than the one given by the
Chancellor at the time of the Budget, when the measure was
announced. Question
put and agreed to.
Clause 24
accordingly ordered to stand part of the
Bill.
Clause
25Agreements
to forgo tax
reliefs
Mr.
Hoban: I beg to move amendment 38, in
clause 25, page 15, leave out lines 37 to
38 and insert ‘the Treasury may by
regulations make provision for and in connection with the application
of all relevant enactments as
follows. (1A) The Treasury may make
regulations to— (a) give
effect to the agreement referred to in subsection (1),
and (b) give effect to
subsection (3). (1B)
Regulations under this section may include provision having effect in
relation to any time before they are made even if the provision creates
or increases the liability to tax of P or such other person as is
referred to in subsection
(3). (1C) Regulations under
this section may
include— (a) provision
amending any relevant enactment,
and (b)
consequential, supplementary and transitional
provisions. (1D) Regulations
under this section are to be made by statutory instrument subject to
annulment in pursuance of a resolution of the House of
Commons.’.
The
Chairman: With this it will be convenient to discuss
amendment 39, in clause 25, page 16, leave
out lines 14 to
16.
Mr.
Hoban: With your leave, Mr. Atkinson, and that
of the Committee, I hope that we might be able to discuss the
amendments and clause stand part at the same time. It would make life
easier.
To call
clause 25 a tidying up measure may not be to use quite the right
phrase, but it stems from the agreement reached between the Government
and Royal Bank of Scotland earlier this year. In a statement of 26
February, the Chancellor said of RBS
that “It
has also agreed for a number of years not to claim certain UK tax
losses and allowances, meaning that when they do return to
profitability it will not be able to benefit from the losses accrued in
the intervening period.”—[Official Report, 26
February 2009; Vol. 488, c.
369.] It is
worth remembering the scale of Government support for RBS through the
asset protection scheme, which was announced on 26 February. RBS
intends to protect £325 billion of eligible assets; it will bear
the first £42.2 billion of loss and then 10 per cent.
of the balance, with the taxpayer bearing 90 per
cent.
5.30
pm The
Chancellor’s statement in February was not particularly detailed
about the areas covered, so I thought that I might chance my arm by
tabling a parliamentary question to ask what would happen to losses
incurred in 2008 and whether they would they be available for offset
against the tax paid by RBS in previous years. The response
was: “RBS
have agreed not to claim certain UK tax losses and allowances for a
number of years, meaning that when they do return to profitability,
they will not be able to benefit from the losses accrued in the
intervening period.”—[Official Report,
13 March 2009; Vol. 489, c.
810W.] That is
effectively a repeat of the Chancellor’s words in February, and
not a very clear answer to what I thought was a relatively simple
question.
The clause
does not help us to work out when the agreement that RBS and the
Government have reached kicks in. Which losses are covered by the
agreement? Is it only losses on those assets covered by the asset
protection scheme? Is it losses on that element of the asset protection
scheme that the Government guarantee? Is it on the £42 billion?
Is it on the 10 per cent.? What happens if RBS writes off debts outside
the APS pool? Will those losses be available for offset against future
profits? Are they covered by the agreement? The situation is not clear.
An agreement has been reached between the Government and RBS on the
losses, but there is no transparency for the House or other taxpayers
regarding which losses have been forgone by
RBS. It
is equally unclear whether it is just RBS that is subject to the
agreement or whether Lloyds has also agreed to forgo losses. The
taxpayer might say, “I get some value from the break-up of RBS
because I know it will pay more corporation tax in the future, but
Lloyds appears still able to take advantage of the losses on assets
guaranteed by the asset protection scheme without having given up those
losses.” Will the Minister provide some clarity on the losses
that are covered by the scheme, and on whether Lloyds bank is in or out
of the
agreement? The
technical problem that I have with the clause, which gives rise to my
amendments, is that it is not clear what parliamentary process will be
gone through when agreements are reached between the Government and
P—the company that receives the guarantees is referred to as P.
How will those agreements be scrutinised in Parliament? Subsections (1)
and (3)(b) refer
to “such
modifications as are necessary or
expedient” being
made. That takes us back to the Henry VIII powers in the Banking Act
2009. I want to know what parliamentary scrutiny will be in place to
ensure that the agreements are monitored. That is why
amendment 38 sets out that there should be a
regulation-making power in the clause, which would enable this House to
have proper scrutiny of the
arrangements. Stewart
Hosie (Dundee, East) (SNP): I broadly support the
amendment, but there are some concerns. Regarding Lloyds versus RBS,
one used some of the tax assets and one did not. They also have
different other terms and attachment points regarding asset protection,
which would have to be established in advance in terms of regulation.
Is there not a very real danger that that information could be highly
market-sensitive, if unrelieved tax assets were abused or there was
cash that would weaken the balance sheets? Where does the balance lie
between market sensitivity and the transparency that the hon. Gentleman
seeks in his
amendment?
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