Kitty
Ussher: In a sense, I accept the spirit behind the
amendment. We try to give businesses as much notice as possible. We
understand that is important and we have no plans not to do that.
However, as I said in my remarks on clause 30, the proposals have been
consulted on extensively—indeed the first consultation took
place more than three years ago, which is a longer period than the two
years’ notice proposed in the amendment.
We accept
that planning and certainty are important to business, but we do not
accept that a statutory requirement to wait for two years and always
give two years’ notice is necessary or always desirable. I can
think of circumstances where, for example, our policy proves to be more
effective than we expected, leaving us with a policy that has achieved
its design, but which we are unable to ratchet further for
environmental purposes because of a provision such as this in the Bill.
At the same time, I do not want to send a signal that we intend to
change the capital allowances system arbitrarily. We think it important
to consult properly, and the Government benefit from that.
I assure the
Committee that we have no secret plan to change anything and that we
are always committed to good consultation. However, I do not think it
right to tie the Government’s hands—I am sure that the
hon. Gentleman would agree—in case different external factors
come into play, such that government and policy would be better served
by not being tied down in that way.
The Government recognise the need to give business time to
plan for changes, so I ask the hon. Gentleman to withdraw the
amendment. 10.45
am
Mr.
Hoban: I am grateful for the hon. Lady’s assurance
that there is no secret plan to make changes. It would not have been a
secret if it had been announced in this Committee—although, on
the other hand, it might well have been, given the extent of reporting
of events in Committee.
Although the
Treasury has made some progress towards improving consultation before
making announcements, it does not have a perfect record. There are
clauses, such as clause 92, on which no consultation was undertaken
before an announcement was made. I am sure that, in the new mood that
seems to be suffusing the Government right from the very top in
relation to consultation and discussion—not that we have not
heard that before—the Minister will ensure that, where there are
changes, proper consultation is conducted. I beg to ask leave to
withdraw the
amendment. Amendment,
by leave,
withdrawn. Question
proposed, That the schedule be the Eleventh schedule to the
Bill.
Mr.
Hoban: I have two questions to raise about schedule 11.
They are detailed points that have been raised with us by the Low
Incomes Tax Reform Group, which has done a good job of examining how
the Bill’s provisions will affect vulnerable people.
The first
question the group has drawn to my attention is whether an impact
assessment has been undertaken for the schedule addressing the impact
on people with disability. A feature of Her Majesty’s Revenue
and Customs’ disability equality scheme is that there should
always be an assessment of the impact on people with disability. The
Low Incomes Tax Reform Group’s point is that disabled drivers
might need to purchase larger and generally less
CO2-efficient vehicles to accommodate their needs. They are
not only faced with a potentially higher cost for the vehicle itself,
but might receive only the lower special capital allowance rate of 10
per cent. Given the costs that many people with disability face, the
group is concerned that the low capital allowance rate would put them
in a worse position than they are in now, so it has asked the Minister
to consult on the issue to see whether an exemption could be
made.
The
group’s second point relates to the change in treatment of
exempt hire cars for disabled people. The previous regime allowed hire
companies to claim the writing down allowance on the full cost of those
cars, rather than on the limited £12,000. It was believed that
the Government were going to provide a similar exemption by allowing
cars hired to disabled people to qualify for the higher 20 per cent.
rate of capital allowances, regardless of CO 2 emissions, but
a technical note produced last year suggests that the Government have
reached an agreement with the main UK supplier of such cars to disabled
people whereby they will defer an application under state aid rules and
look at other initiatives to increase the availability of cars with
lower emissions for
leasing to disabled people. Although the intention might be to increase
the availability of those lease cars to people with disability, the
concern is that, in the short term, hire companies might face higher
costs, taking into account the loss of tax relief, and that those costs
will be passed on to people with disability. My final
comment relates to a definition in paragraph 22 of schedule
11, which, in proposed new section 268D(2) of the 2001 Act, sets out
four criteria people can use to determine whether they qualify as
disabled people in relation to hire cars. Those criteria are quite
complex, and I was asked why they cannot be simplified to include
someone who is a disabled badge holder, rather than seeking to assess
whether someone is a disabled person by reference to several different
allowances. Mr.
Peter Bone (Wellingborough) (Con): It is a great pleasure
to serve under your chairmanship, Mr. Hood, and I welcome
the hon. Member for Burnley to her new ministerial role.
On
the basic issue dealt with by the schedule, if I understand it
correctly, there is a low emission rate of 100 per cent. capital
allowance. I wonder if the Minister knows to what cars that rate
applies and how many of those cars are actually bought. I also wonder
if the change to a 10 per cent. allowance for cars with high emissions
and 20 per cent. for those with lower emissions is revenue-neutral,
given the abolition of the separate pool.
Of course,
we are dealing with a timing difference. It is not a case of money
being given away. Capital allowances are recouped when the vehicle is
sold, so there is either the balancing charge or the balancing
allowance. What I would have expected to see in the schedule, given the
state of the car industry, is the Government bringing forward 100 per
cent. relief for fleet cars to encourage the purchase of new vehicles.
After all, it is only a timing difference. That change to 100 per cent.
relief would encourage companies to spend money. At the end of the day,
the Government would get their money back when the vehicle was sold.
That change would be an incentive that would help car manufacturing in
this country. I wonder why the Government rejected that
approach.
Kitty
Ussher: I will take the questions in the order in which
they were put. Yes, there is an impact assessment that specifically
considers the impact on disabled people. I am sure that the hon. Member
for Fareham will have that impact assessment in his papers. Although
the Finance Bill can achieve many things, the policy intention behind
the measure was to simplify the arrangements and ensure that they are
consistent with environmental objectives, not to widen the scope of the
policy. We wanted to ensure that the provisions and exemptions that are
available for disabled drivers are replicated in the new legislation.
As he rightly said, and as we have made clear several times, it is our
intention, subject to state aid rules, to ensure that the exemptions
are carried over into the new system. That remains our intention. The
timing has been agreed with all the
players. The
hon. Gentleman then asked specifically why in paragraph 22 we do not
simply use the qualification criterion of a person holding a disabled
badge. The answer quite simply is that the power to award a badge is
devolved to local authorities and we wanted to
ensure
that we had a comprehensible and tighter set of criteria, so that the
system and the resources are properly targeted on those people who need
our
support. Mr.
Hoban: On the point about the blue badge, does the hon.
Lady accept the argument that the Low Incomes Tax Reform Group made
that, as a consequence of these changes, high costs may be imposed on
people with disability who need larger
cars?
Kitty
Ussher: I am not entirely sure that the evidence points
towards that conclusion, although I think that the Low Incomes Tax
Reform Group is an effective lobby group and I commend it on the work
that it does. The market is sufficiently dynamic that there is a large
number of models available to suit people’s needs, so I do not
think that these measures will create an extra cadre of people who will
face additional financial hurdles. We are just seeking to replicate the
current criteria in a new system that is simpler and that has greater
environmental incentives for those who are leasing and purchasing
cars. It
is a pleasure to serve again on the same Committee as the hon. Member
for Wellingborough. To his question whether the policy is
revenue-neutral, the answer is no. The impact assessment shows that,
assuming that there is no change in behaviour, which is the crucial
point, the policy would yield revenue to the Treasury of
£485 million over five years. That figure is broken
down year by year in the impact assessment.
The hon.
Gentleman then suggested that we could have used the policy to boost
the automotive industry. In his previous ministerial incarnation, my
hon. Friend the Economic Secretary has been extremely closely involved
in measures designed to have that effect. We hope very much that the
effect of the policy will be a change in behaviour, precisely because
of the new financial incentives that we are putting in place that will
cause large companies with large fleets in particular to purchase more
environmentally efficient vehicles, and thus to avoid paying the
revenue that would otherwise accrue to us. That will provide precisely
the spur for the green technology and green automotive industry that we
want.
Mr.
Bone: My point was more that we have missed an opportunity
to have an incentive. Yes, there is the stick to encourage us to switch
to more environmentally friendly cars, but we then get only the
standard writing down allowance. If we extended the allowance to
100 per cent., more cars would be bought and that would be
better for our manufacturing
industry.
Kitty
Ussher: We could use the policy simply to pass over cash
to the manufacturing industry. The Government do that in various ways,
but it is more appropriate to have a targeted policy that seeks
simultaneously to simplify the system, which is what business wants,
and to provide a spur for investment in environmentally efficient
vehicles. There will also be a third effect, which is to boost the
development of those vehicles. In a sense, therefore, the hon.
Gentleman and I
agree. Question
put and agreed
to. Schedule
11 accordingly agreed
to. Clause
31 ordered to stand part of the
Bill.
Schedule
12Reallocation
of chargeable gain or loss within a
group
The
Economic Secretary to the Treasury (Ian Pearson): I beg to
move amendment 18, in
schedule 12, page 128, line 5, at
end insert— ‘(1A) In
determining for the purposes of subsection (1)(c) whether subsection
(1) of section 171 would have applied, it is to be assumed that
subsection (1A)(b) of that section
read— “(b) that,
at the time of the disposal, company B is resident in the United
Kingdom, or carrying on a trade in the United Kingdom through a
permanent establishment there.”
’. It
is a real pleasure to serve under your chairmanship, Mr.
Hood. At the 2007 pre-Budget report the Chancellor launched three
reviews involving the Treasury and Her Majesty’s Revenue and
Customs working in partnership with business to evaluate how a range of
tax legislation could be simplified. Clause 31 and schedule 12 deliver
the first simplification measure from one strand of that project, which
deals with the capital gains of groups of companies.
The
corporation tax system allows limited offsetting of the capital losses
of one company against the gains of another when calculating their
taxable profits. In the Finance Act 2000 that procedure was
liberalised, so that an asset could be deemed to have been transferred
within the group before an onward sale. That saved the administrative
burden and expense of making an actual intra-group transfer. However,
those rules do not allow all gains and losses to be deemed as
transferred within a group; they only apply to the sale of an asset to
a third party. That means that the rules do not apply when a gain or
loss results from the liquidation of a group company or when a loss
arises on the making of a negligible value claim. Losses on assets that
have been destroyed, or gains from insurance receipts in such a
situation, are also outside the scope of this otherwise useful tax
measure.
The CBI in
particular highlighted in its recent Budget representations that those
restrictions can be administratively burdensome. Schedule 12 provides
groups of companies with a simpler procedure to offset chargeable gains
with allowable losses by removing those restrictions. Rather than
deeming assets to be transferred intra-group prior to a third-party
sale, companies will be able to elect for a capital gain or
loss to be reallocated to another group company that is within the
charge to corporation
tax. Amendment
18 addresses one area in which we have received representations that,
because of a technical defect in the schedule, the policy aim might not
be achieved. The issue only affects groups that wish to transfer a gain
or loss to a non-resident company in a group that trades in the UK
through a permanent establishment—a branch or agency here. Since
2000, non-resident companies have been treated as part of the capital
gains group. Tax-neutral transfers of assets can be made to a
non-resident company if it has a permanent establishment in the UK and
the assets are used for the business of that establishment. That rule
ensures that the treatment applies only to those assets on which the
non-resident company will be chargeable to corporation tax on gains
made from their disposal. That same
condition is imported into the rules in schedule 12, but we have
received representations from the Law Society that the new rule needs
to be adapted further to operate properly when a non-resident company
is
involved. 11
am When
an election is made to transfer a gain or loss from the disposal of an
asset to a non-resident company, the schedule already has a rule to
ensure that a gain or loss on the asset will be a chargeable gain or an
allowable loss to the non-resident company. That applies even where the
asset would not otherwise be a chargeable asset for the non-resident
company. However, the representations that we have received point out
that one condition to be satisfied before an election can be made is
that the asset is used in the UK trade of the permanent establishment,
which is unnecessary in this context. Amendment 18, therefore, adapts
the rule about when companies can make an election, to remove any doubt
that non-resident companies with UK permanent establishments can always
fulfil the conditions. I am grateful for the Law Society’s
representation, which is one that the Government are happy to act
on.
The changes
made by the schedule sweep away some restrictions that have prevented
the full matching of capital gains and losses within groups and
simplify the complex rules that deal with group relationships. That is
the kind of simplifying change that the CBI and other representative
bodies have long sought. I commend the amendment to the
Committee.
Amendment
18 agreed to.
Question
proposed, That the schedule, as amended, be the Twelfth schedule to
the Bill.
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