Finance Bill

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The Committee consisted of the following Members:

Chairmen: Mr. Peter Atkinson, †Mr. Jim Hood, Sir Nicholas Winterton

† Bailey, Mr. Adrian (West Bromwich, West) (Lab/Co-op)

† Barlow, Ms Celia (Hove) (Lab)

† Binley, Mr. Brian (Northampton, South) (Con)

† Blackman, Liz (Erewash) (Lab)

† Blizzard, Mr. Bob (Waveney) (Lab)

† Bone, Mr. Peter (Wellingborough) (Con)

Breed, Mr. Colin (South-East Cornwall) (LD)

† Brown, Mr. Russell (Dumfries and Galloway) (Lab)

† Browne, Mr. Jeremy (Taunton) (LD)

Cable, Dr. Vincent (Twickenham) (LD)

† Dobbin, Jim (Heywood and Middleton) (Lab/Co-op)

† Duddridge, James (Rochford and Southend, East) (Con)

† Engel, Natascha (North-East Derbyshire) (Lab)

† Field, Mr. Mark (Cities of London and Westminster) (Con)

† Flello, Mr. Robert (Stoke-on-Trent, South) (Lab)

† Gauke, Mr. David (South-West Hertfordshire) (Con)

Hands, Mr. Greg (Hammersmith and Fulham) (Con)

† Hoban, Mr. Mark (Fareham) (Con)

† Hosie, Stewart (Dundee, East) (SNP)

† Howell, John (Henley) (Con)

† Jenkins, Mr. Brian (Tamworth) (Lab)

† Joyce, Mr. Eric (Falkirk) (Lab)

† Moffatt, Laura (Crawley) (Lab)

† Pearson, Ian (Dudley, South) (Lab)

† Pugh, Dr. John (Southport) (LD)

† Robertson, John (Glasgow, North-West) (Lab)

† Roy, Lindsay (Glenrothes) (Lab)

† Seabeck, Alison (Plymouth, Devonport) (Lab)

† Soulsby, Sir Peter (Leicester, South) (Lab)

† Stuart, Mr. Graham (Beverley and Holderness) (Con)

† Syms, Mr. Robert (Poole) (Con)

† Timms, Mr. Stephen (East Ham) (Lab)

† Todd, Mr. Mark (South Derbyshire) (Lab)

† Ussher, Kitty (Exchequer Secretary to the Treasury)

Liam Laurence Smyth, Committee Clerk

† attended the Committee

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Public Bill Committee

Tuesday 9 June 2009

(Morning)

[Mr. Jim Hood in the Chair]

Finance Bill

(Except clauses 7, 8, 9, 11, 14, 16, 20 and 92)

10.30 am

The Chairman: I welcome the hon. Member for Burnley to the Committee. Congratulations on your appointment.

Clause 30

Tax relief for business expenditure on cars and motor cycles

Question proposed, That the clause stand part of the Bill.

The Exchequer Secretary to the Treasury (Kitty Ussher): Thank you very much, Mr. Hood. It is a real pleasure to be once again, if somewhat surprisingly, serving under your chairmanship in my third consecutive year on the Finance Bill. I have learnt one thing in the last 24 hours, which is that there are Finance Bill gods. It seems that they are slightly vengeful and playful gods, because roughly 24 hours ago I was, I confess, teasing one of my hon. Friends, who shall remain nameless, for saying that their entire life had, yet again, been taken over by the Finance Bill. I was glorying in the fact that, although I served on it in the last two years, I was not required to serve this year. So there are Finance Bill gods and they are vengeful—only one swift phone call later, I found myself here again. However, the pleasure is no less diminished for serving under your chairmanship, Mr. Hood.

I have risen to speak on clause 30, although there are no amendments to it, because it introduces schedule 11, and I thought it might be helpful to the Committee to have an explanation of what we are trying to achieve. We are comprehensively reforming the rules on tax relief for business expenditure on cars. There are two incentives for change. The first incentive is simplification, on which we have responded to lobbying from the industry. Secondly, we wish to ensure that the rules on tax relief for business expenditure on cars also help us to achieve our environmental objectives.

The current rules require capital expenditure on cars costing more than £12,000 to be accountable for in single asset pools—that means one asset pool per car so that the writing-down allowances can be capped. Businesses that hire, rather than buy, cars costing more than £12,000 are also restricted in the amount of hire expenses that may be deducted from their profits. Businesses therefore need to track expenditure on those more expensive cars on an individual basis for the purposes of their tax computations, but for larger businesses, the number of

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such car pools can run into hundreds—in some automotive sectors, thousands. Stakeholders consider that the rules are outdated and impose a disproportionate compliance burden, and we agree.

It is, however, important that any reform is consistent with our environmental objectives. Carbon dioxide is the most important greenhouse gas contributing to climate change, and road transport is one of its major producers. The reform aims to contribute towards our targeted reduction in CO2 emissions. Following extensive consultation, an outline of the reform was announced at Budget 2008; further detail was published in December 2008. The Government have considered stakeholders’ responses in designing a new regime that will not only reduce compliance costs, but help to meet the UK’s targets for reduction in greenhouse gas emissions.

The generous 100 per cent. first year allowances for expenditure on cars with very low CO2 emissions are unchanged. They were made available for a further five years until 2013 in the Finance Act 2008. Consistent with that, under the new rules, the rate of writing down allowances that businesses can claim in respect of all cars will depend on the car’s CO2 emissions. Expenditure on cars will generally be pooled in one of two plant and machinery pools. Where the car’s emissions are 160 g/km or less, the expenditure will be allocated to the main capital allowances pool and will attract the same rate of 20 per cent. per annum of writing down allowances, as applies to most other plant and machinery. However, expenditure on cars with emissions above 160 g/km will be allocated to the special rate pool and attract a lower writing down allowance of 10 per cent. per annum. There will therefore be a clear incentive to buy a lower CO2-emitting car.

The rules restricting the deductions from profits that businesses may claim in respect of car hire costs are also being reformed to act as a disincentive to using high CO2—emitting vehicles. For leases that commence after April 2009, there will be a restriction of allowable expenses only where the hired car has CO2 emissions exceeding 160 g/km. In addition, and as a simplification measure rather than an environmental one, the proposed rules ensure that only one lessee in a chain of leases for a car will be subject to the lease rental restrictions. Respondents have agreed that the reduction in the proportion of cars in a single asset capital allowance pool and the application of the lease rental restriction to a smaller population of leases will achieve a welcome reduction in compliance costs. As an additional simplification, motorcycles will no longer be treated as cars for capital allowances purposes. That change, too, has been welcomed by business.

We think that the move to a CO2 emissions basis for capital allowances will act as an additional fiscal measure to motivate business to redesign their car policies and actively select lower emitting cars. While the new rules deliver the reform that businesses pressed for, in order to ensure fairness, the provision introduces transitional rules to guarantee that there is no change to the treatment of cars owned before the date of introduction of the new rules. The old rules are being retained for those vehicles for five years.

As I said at the outset, these provisions have been the subject of considerable consultation and are broadly welcomed by stakeholders.

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Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Schedule 11

Tax relief for business expenditure on cars and motor cycles

Mr. Mark Hoban (Fareham) (Con): I beg to move amendment 19, in schedule 11, page 108, line 30, at end insert—

‘2A In section 45D(4) for “110” insert “160”’.

Mr. Hoban: Is it a pleasure to serve under your chairmanship again, Mr. Hood. May I congratulate the hon. Member for Burnley on her return to the Treasury team? There is potentially one more Finance Bill left in this Parliament. She might decide whether to put some odds on serving on that too, having done three so far. I should also like to congratulate, in her absence, the hon. Member for Wallasey (Angela Eagle) on her promotion. Clearly, the prospect of my hon. Friend the Member for Hammersmith and Fulham making another speech about white label cigarettes manufactured in eastern European states led to her to put in a transfer bid. I am sure she will enjoy her work in the Department for Work and Pensions.

Amendment 19 is very much a probing amendment. We want to understand why in schedule 11 the Government use a different definition for a car with low carbon emissions from that used in section 45D of the Capital Allowances Act 2001, which defines cars with low CO2 emissions as those falling below a CO2 emission threshold of 110 g/km, whereas the schedule’s threshold is 160g/km. The amendment would increase the threshold in section 45D(4) from 110g/km to 160g/km. We are not arguing that that is the right threshold, We simply want to understand why one rate is used in one area and a different rate is used in the schedule for exactly the same definition. We are concerned that it might lead to some confusion among advisers about the definition of a car with low carbon emissions. That is the purpose behind this probing amendment.

Kitty Ussher: The answer is quite simple. We have 100 per cent. capital allowance for cars with emissions at or below 110 g/km; then, we propose a 20 per cent. allowance for cars with emissions up to 160 g/km and a 10 per cent. allowance for cars with emissions in excess of that. The legal definition is extremely clear. The purpose of our legislation is to encourage companies to purchase cars that are progressively more environmentally friendly. If they want to go straight away for cars emitting 110 g/km or less, that is fantastic and they will reap a reward for doing so. We are trying to shift the bell curve all the way down to encourage the use of lower emitting vehicles.

Mr. Hoban: This is a slightly unfair question to ask the Minister, given her recent arrival in the Treasury, but was any thought given to using a different term? That is where the confusion arises. The 2001 Act uses the term to describe a car with emissions of 110 g/km or less; the same term is used in the Bill in reference to a 160 g/km threshold. To give clarity to taxpayers and

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their advisers, it would have been sensible to use a slightly different definition in schedule 11 to avoid confusion in the future.

Kitty Ussher: I can safely say that, as far as I am aware, no consideration was given to that. I am sorry if the hon. Gentleman is confused, but we think the intention is clear.

Mr. Hoban: As I said, the amendment is probing. It would have been better for clarity if the Government had come up with a different term, to prevent confusion and to ensure that taxpayers understand the Government’s aim exactly. Given that the Government do not wish to move on this, however, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Hoban: I beg to move amendment 20, in schedule 11, page 109, line 32, at end insert—

‘(5A) An order under subsection (5) may not be made until 2 years after this Act has passed and any subsequent change will be subject to a 2 year notice period.’.

The purpose of the amendment is straightforward. We want to ensure some certainty for taxpayers and that, where an amendment is made to the thresholds, businesses are given some notice, so that changes are not simply made overnight. We want to ensure that businesses can plan how to meet the downward trend of emissions—shifting the bell curve down, as the Minister described it earlier. The amendment introduces a two-year waiting period for any changes made under new section 104AA(5) of the Capital Allowances Act 2001, inserted by the schedule, so that businesses can properly prepare.

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Prepared 10 June 2009