The Committee consisted of the following Members:

Chairs: Mr David Amess  , †Mr David Crausby 

Ashworth, Jonathan (Leicester South) (Lab) 

Baker, Steve (Wycombe) (Con) 

Cryer, John (Leyton and Wanstead) (Lab) 

Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op) 

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

Evans, Chris (Islwyn) (Lab/Co-op) 

Gauke, Mr David (Exchequer Secretary to the Treasury)  

Gilmore, Sheila (Edinburgh East) (Lab) 

Gummer, Ben (Ipswich) (Con) 

Hands, Greg (Chelsea and Fulham) (Con) 

Jamieson, Cathy (Kilmarnock and Loudoun) (Lab/Co-op) 

Javid, Sajid (Economic Secretary to the Treasury)  

Jones, Mr Marcus (Nuneaton) (Con) 

Kwarteng, Kwasi (Spelthorne) (Con) 

Leslie, Chris (Nottingham East) (Lab/Co-op) 

McKinnell, Catherine (Newcastle upon Tyne North) (Lab) 

McDonald, Andy (Middlesbrough) (Lab) 

Mearns, Ian (Gateshead) (Lab) 

Menzies, Mark (Fylde) (Con) 

Mills, Nigel (Amber Valley) (Con) 

Mowat, David (Warrington South) (Con) 

Murray, Sheryll (South East Cornwall) (Con) 

Nash, Pamela (Airdrie and Shotts) (Lab) 

Newmark, Mr Brooks (Braintree) (Con) 

O'Donnell, Fiona (East Lothian) (Lab) 

Offord, Dr Matthew (Hendon) (Con) 

Pearce, Teresa (Erith and Thamesmead) (Lab) 

Pugh, John (Southport) (LD) 

Qureshi, Yasmin (Bolton South East) (Lab) 

Shannon, Jim (Strangford) (DUP) 

Stephenson, Andrew (Pendle) (Con) 

Stewart, Rory (Penrith and The Border) (Con) 

Thornton, Mike (Eastleigh) (LD) 

Uppal, Paul (Wolverhampton South West) (Con) 

Williams, Stephen (Bristol West) (LD) 

Simon Patrick, Committee Clerk

† attended the Committee

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Public Bill Committee 

Tuesday 11 June 2013  


[Mr David Crausby in the Chair] 

Finance Bill

(Except clauses 1, 3, 16, 183, 184 and 200 to 212, schedules 3 and 41 and certain new clauses and new schedules)

Clause 67 

Cars with low carbon dioxide emissions 

Amendment proposed (this day): 50, in clause 67, page 35, line 37, leave out subsection (2).—(Ian Mearns.)  

2 pm 

Question again proposed, That the amendment be made. 

The Chair:  I remind the Committee that with this we are discussing the following: 

Amendment 54, in clause 67, page 36, line 15, at end add— 

‘(9) The Chancellor of the Exchequer shall review the overall impact of the Government’s overall budgetary and policy decisions on support for the low emitting vehicles industry, and the sales of these vehicles, and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.

Clause stand part. 

Catherine McKinnell (Newcastle upon Tyne North) (Lab):  It is good to be here once more after the lunch break, Mr Crausby. We are discussing clause 67, and the extension of the first-year allowance for expenditure on cars with low carbon dioxide emissions. I was in the process of welcoming the extension; I was also commenting on how my hon. Friend the Member for Gateshead had carefully outlined the detrimental impact that the clause could have on the UK’s low-carbon and electric vehicle industry, given that subsection (2) will exclude UK firms leasing or renting such cars from claiming the previously available 100% first-year allowance. That is clearly an extremely serious cause for concern, given the critical role that UK leasing and rental firms have played in supporting the purchase, take-up and use of low-emission cars. I look forward to the Minister’s response, given the impact that subsection (2) could have on the industry. 

My hon. Friend the Member for Gateshead also made clear the importance of consumer and business confidence in helping this new and potentially hugely successful industry to grow in the UK. That industry has particular relevance and significance to a region such as the north-east, given the role that Nissan and its supply chain play in the local economy. Amendment 54 calls on the Government to take stock and consider the

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impact of their various announcements and policy decisions relating to the industry since 2010; they should have a look in the round to see what effect those announcements and decisions have had. 

Before testing the Committee’s opinion on the amendment, we will discuss whether the clause as a whole should stand part of the Bill. I therefore want to take the Committee back briefly to the heady days of 2010, and the Prime Minister’s visit to the Department of Energy and Climate Change with the then Secretary of State for that Department—I apologise to the hon. Member for Eastleigh for bringing it up. The Prime Minister used that visit to claim that this Government would be the greenest Government ever. Three years on, and we have a Government who in 2012 presided over an increase in the level of CO


and greenhouse gas emissions, who have been blocking the CO


decarbonisation target for 2030 for the UK’s power sector in the Energy Bill and who have mired themselves in a plethora of misdemeanours. We have had the feed-in tariffs debacle and the forests cock-up; then there is the fact that they are the first Government since the 1970s not to have a Government-funded energy efficiency scheme; there is also their continued to-ing and fro-ing over renewables policies, and indeed the dreadful decision this month to plough on with the badger cull. We also have a relatively new Energy Minister, the right hon. Member for Sevenoaks (Michael Fallon), who as recently as last year was questioning whether climate change targets were even necessary. 

What, then, of the Government’s support for the low-carbon vehicle industry? The coalition has a programme in place, led by the Department for Transport, to increase the uptake of low-carbon emission vehicles, which is obviously welcome. However, the Opposition are genuinely concerned that, as with so many other areas of Government policy, the continued chopping and changing and giving out mixed messages across Whitehall has caused unnecessary uncertainty for a relatively new industry, in which certainty and predictability will be absolutely key to success. There is particular uncertainty for consumers who are thinking of purchasing a low-carbon emission vehicle: one example was the short-sighted and damaging decision to cut back on the planned national network of charging points for electric vehicles back in 2011. The decision to exclude UK firms that are leasing or renting low-emission cars from the 100% first-year allowance is worrying: it is another bad signal that the Government are sending out. 

The Opposition are not alone in expressing this concern. Last September the Transport Committee report, “Plug-in vehicles, plugged in policy?”, was highly critical of the Government’s approach. It concluded: 

“The Government must avoid creating instability in the plug-in vehicle market through a lack of consistency between departments in their approaches to financial incentives for plug-in vehicles and adopt a more coordinated approach to these incentives across Whitehall.” 

It also said: 

“We regret the Treasury’s decision to change the financial incentives framework for low carbon vehicles without prior consultation. Such unexpected changes to these incentives risk creating instability in the market for plug-in vehicles.” 

On the financial incentives, the report stated: 

“The March 2012 Budget announced a number of changes to the financial incentive programme for low carbon vehicles. General Motors commented on these changes as follows: 

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We were disappointed with the recent announcements in the 2012 budget relating to low carbon vehicles. In order for low carbon vehicles to be successful they require a taxation system that encourages their uptake. Increasing the company tax rate for low emission vehicles after 2015 and preventing leased business cars being eligible for first year capital allowances will not help this. This has made purchasing a plug-in vehicle less attractive to the corporate consumer with little overall benefit to the Exchequer. 

This disappointment was echoed by other industry representatives. The Society of Motor Manufacturers and Traders stated ‘such unexpected announcements cause instability in the fleet market and provide mixed messages on market support.’ Toyota was ‘surprised’ by the announcement and said it ‘may cause instability in the fleet market and send a mixed message’”. 

Critically, in relation to amendment 54 and the need for stability to support this industry, the report also stated: 

“In addition to the potential financial impact of this change, industry witnesses told us that the perception that financial incentives were changeable was also problematic. Ian Allen, from Vauxhall, told us that such instability was particularly problematic in a ‘fragile, fledgling market.’ Graham Smith, from Toyota, concurred that ‘there are plenty of reasons why consumers might be cautious about a new technology. Therefore, anything that changes and destabilises the regime within which that purchase takes place… will affect particularly professional buyers.’ He argued that this change should be reconsidered and that ‘there is an opportunity to reverse what is a fairly negative signal towards the auto sector in the UK were those changes to be reconsidered.’ Toyota argued that ‘continuation and stability of such measures is important to avoid retreating too early from the incentive frameworks’ as this ‘could negatively impact the consumer’. It stated ‘we encourage a coordinated cross-departmental approach by Government on policies relating to low carbon’”. 

Any right-thinking person would regard a co-ordinated cross-departmental approach as common sense, but achieving it is apparently beyond this Government. The tax information and impact note states that the provisions included in clause 67 are 

“expected to encourage higher levels of investment in the most environmentally-friendly business cars.” 

That is something that we all want to encourage. The assessment of the impact of the measures in clause 67 shows significant gains to the Exchequer with an additional £25 million in receipts expected in 2013-14, £115 million in 2014-15, £185 million in 2015-16 and £250 million in 2016-17. So what is the real motive behind the changes that the Government are introducing? Are they genuinely trying to support the take-up and use of low-emission cars or have they found a target to help reduce the deficit, which at the current rate of reduction will take 1,000 years? 

For all the reasons outlined, the Opposition believe that the Government should take a step back and look at the overall impact of their policies and spending decisions on the low-carbon vehicle industry and the sales of these vehicles. It is vital that the Government have a co-ordinated, long-term, strategic approach to this area. That is not only our belief but that of many of those in the industry who are equally concerned about the impact of the Government’s policy approach. 

Fiona O'Donnell (East Lothian) (Lab):  Even though I sense that my hon. Friend is coming to the end of her contribution, would she like to encourage Lib Dem members of the Committee in particular to support the amendment? During the vote on decarbonisation, some members of their party were willing to stand up for the green credentials that the Government claim. 

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Catherine McKinnell:  I thank my hon. Friend for that insightful intervention. Amendment 54 is very reasonable. We ask the Government to take a strategic view of the impact of all their 

“budgetary and policy decisions on support for the low emitting vehicles industry, and the sales of these vehicles,” 

and to place a report before the House of Commons. Not only have the Government claimed to be the greenest Government ever but they have claimed to have high aspirations to be transparent. Supporting the amendment would put their approach to both those challenges in the public domain. 

John Pugh (Southport) (LD):  I am sympathetic to the hon. Lady’s point, but not to the amendments that have been tabled. I think that the Government would happily agree with her suggestion that we need a long-term strategic approach to such matters. I have tabled an amendment to a later clause a propos liquid petroleum gas. We are in agreement that the Government need to be strategic, take a long-term view and provide certainty for industry. All that amendment 54 appears to do, however, is to call for an analysis of the impact of taxation. As the hon. Lady said, the Transport Committee has already done that, so the amendment seems anodyne. One would suppose that the Chancellor does that as a matter of course on all fiscal measures. I am not clear how any of the Opposition’s amendments would put in place a long-term strategic approach. 

Catherine McKinnell:  I did not catch the hon. Gentleman’s final point. Obviously, the Select Committee looked at the matter in advance and sent out warnings about some of the potential policy changes. We are now voting on those changes in Committee, but unfortunately the Opposition do not have enough Members to vote them down. To do so would require the Liberal Democrats to put their money where their mouth is on their green credentials and join us in holding the Government to account on their green claims. We are asking the Government, with the immense resources at their disposal—[ Interruption. ]  

The Chair:  Order. 

Catherine McKinnell:  Thank you, Mr Crausby. We are asking the Government to carry out a strategic overall review after the event to assess the impact of the changes. We have asked for the report to be produced within six months of Royal Assent. The measure is a perfectly reasonable one, and I hope that Liberal Democrat Members will join the Opposition in voting for it, to ensure that the Government are going down the right track in supporting a vital and still fledgling industry. 

The Economic Secretary to the Treasury (Sajid Javid):  I apologise to the hon. Member for Gateshead for not being here at the start of debate on the clause. I have listened carefully to his remarks, which he made very well, and I will touch on them shortly. 

Clause 67 makes several changes to the capital allowances system for business cars. Those changes will ensure that the capital allowances system continues to provide a targeted, robust and fiscally sustainable incentive for businesses to purchase the most environmentally friendly

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vehicles. The changes will also support the UK’s progress towards European Union emissions targets for 2015 and 2020, and they will lay the foundations for a strong, sustainable low-carbon economy. 

Allow me briefly to give some background. The rate of capital allowances available for expenditure on a business car is currently determined by the car’s carbon dioxide emissions. That is designed to provide a financial incentive for businesses to purchase cleaner cars over more polluting ones and support the Government’s objective of reducing carbon dioxide emissions in the UK. Capital allowances for business cars were first linked to carbon dioxide emissions in 2008. Since then, there have been significant improvements in engine efficiencies and a significant reduction in vehicle emissions. 

2.15 pm 

We need to take steps to ensure that the capital allowances system continues to reward investment in the cleanest cars and to support the Government’s wider objectives for the UK environment. The changes made by clause 67, which were announced at Budget 2012, are designed to achieve just that. 

The first change is to extend the 100% first-year allowance for expenditure on the lowest carbon dioxide emitting vehicles for two years, until 31 March 2015, which will continue to reduce the cost of investment in the cleanest vehicles by increasing the value of capital allowances relief to a business. To ensure that the first-year allowance remains effectively targeted, the qualifying emissions threshold will be updated in line with the EU emissions target for 2020. Expenditure on leased cars will also be excluded from the first-year allowance from April 2013 to ensure that the first-year allowance delivers value for money in terms of the environmental benefit it brings to the UK. 

The second change made by the clause is to reduce the carbon dioxide emissions threshold at which expenditure on a car qualifies for the main capital allowances rate. The new emissions threshold, which takes effect from April 2013, will provide a more appropriately targeted incentive, which aligns with the EU emissions target for 2050. 

The third and final change is to reduce the carbon dioxide emissions threshold above which the lease rental restriction applies, in line with the changes to the main capital allowances rate threshold. The lease rental restriction reduces how much of a business’s rental payments on high carbon dioxide emitting vehicles are deductible for tax purposes. The new threshold, which takes effect from April 2013, is therefore designed to provide a more effectively targeted disincentive for businesses to hire or lease environmentally polluting vehicles. 

Amendment 50, tabled by the hon. Member for Gateshead, would allow expenditure on low CO


emissions cars bought for leasing purposes to continue to be eligible for 100% first-year allowances. I sympathise with the concerns that such an exclusion might reduce the effectiveness of the first-year allowance in supporting low emission vehicle uptake in the UK. 

The Government believe, however, that it is necessary to protect the Exchequer from abuse. Without the exclusion, there is nothing to stop an overseas business leasing

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low-emission vehicles from the UK in order to benefit from the first-year allowance. In that situation, the Exchequer would subsidise the cost of providing the first-year allowance, despite no environmental or economic benefit accruing to the United Kingdom. That is not an effective use of taxpayers’ money. All other mobile leased assets are excluded from first-year allowances to protect against that risk of overseas leasing. 

Catherine McKinnell:  I appreciate the arguments that the Minister is putting, but is there a risk that he is using a sledgehammer to crack a nut? He says that there is no economic benefit to the UK, but that seems to disregard the knock-on impact on production in the UK and on the supply chain resulting from destabilising confidence in the market itself. 

Sajid Javid:  I was just coming to that issue, which we looked at carefully. We explored alternative anti-avoidance proposals as part of the discussions with industry—was there a way we could try to achieve that without the benefit going overseas? We were unable, however, to identify a simple, EU-compliant proposal to provide an effective safeguard against that potential abuse. Nevertheless, the Government will keep the matter under review and see whether it is an area we can look at again in future. 

Catherine McKinnell:  Do I detect from the Minister’s comments that the Government will support our amendment today, to keep the situation under review and produce a report in due course that will be placed in the House of Commons Library? 

Sajid Javid:  I think the hon. Lady’s detection system is faulty. I am coming to amendment 54. 

Amendment 54 asks the Chancellor to review the impact of the Government’s budgetary and policy decisions on support for the low-emitting vehicles industry and the sale of such vehicles. I shall reaffirm the Government’s strategy in this area and explain why a review of its success is unlikely to be informative at this stage. The Government aim to position the UK at the global forefront of the development, manufacture and use of ultra-low emitting vehicles. They are looking to support the UK’s progress towards European Union emissions targets and lay the foundations for a strong and sustainable low-carbon economy. 

To help achieve that aim, the Government have made £400 million available through the Office for Low Emission Vehicles, which has been used to support initiatives that break down the barriers to growth in the market, such as awareness, cost and a lack of infrastructure. Alongside that, they have introduced strong packages to support our aim through the tax system, including: a commitment to reduced rates of company car tax on ultra-low emission vehicles, at least until 2019-20; an extension of the 100% first-year allowance for low emission vehicles until 2018; and the introduction of a new 10% above-the-line credit for R and D, which will support innovation in the automotive sector. 

The measures respond to views put forward by industry and provide a clear signal of long-term Government support in this area. Given that the market is still at the

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early stages of development and that certain policies have only recently come into effect, it is not possible to review their impact accurately within six months of Royal Assent. At this stage, full and systemic tax return data will not be available to HMRC. We have set out an initial assessment of the clause’s economic impact, including the Office for Budget Responsibility’s certified costing, in the tax information and impact note published in December 2012. 

If I heard the hon. Lady correctly, in outlining the Government’s estimate of the financial impact of the clause, she may have inadvertently used the older numbers put out when the tax information and impact note was published in December 2012, rather than the latest revised figures, published at Budget 2013. If she would like me to, I can ensure that she has the numbers published at Budget 2013, which are different and I think in aggregate lower over the five-year time frame. I would be happy to provide her with the latest numbers. 

We will keep the measure and wider Government support for low-emission vehicles under review and assess the economic and environmental arguments for further targeted support. The changes made by the clause are necessary. They will encourage investment in cleaner cars, support the UK’s progress towards EU emissions targets and ensure that the capital allowances system for business cars remains robust and fiscally sustainable. I ask the hon. Gentleman to withdraw his amendment, and that hon. Members allow the clause to stand part of the Bill. 

Ian Mearns (Gateshead) (Lab):  I have listened carefully to the Minister and I can almost detect a small feeling of reassurance within myself that the Government will keep an eye on what is being done. I would like my hon. Friend to press amendment 54, which would tighten things up, to a Division, but with the Committee’s permission, I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Amendment proposed: 54, in clause 67, page 36, line 15, at end add— 

‘(9) The Chancellor of the Exchequer shall review the overall impact of the Government’s overall budgetary and policy decisions on support for the low emitting vehicles industry, and the sales of these vehicles, and place a copy of this review in the Library of the House of Commons within six months of Royal Assent.’.—(Catherine McKinnell.)

Question put, That the amendment be made. 

The Committee divided: Ayes 12, Noes 16. 

Division No. 7 ]  


Ashworth, Jonathan   

Doughty, Stephen   

Evans, Chris   

Gilmore, Sheila   

Jamieson, Cathy   

McKinnell, Catherine   

McDonald, Andy   

Mearns, Ian   

Nash, Pamela   

O'Donnell, Fiona   

Pearce, Teresa   

Qureshi, Yasmin   


Gauke, Mr David   

Gummer, Ben   

Hands, Greg   

Javid, Sajid   

Jones, Mr Marcus   

Kwarteng, Kwasi   

Menzies, Mark   

Mowat, David   

Murray, Sheryll   

Newmark, Mr Brooks   

Column number: 440 

Offord, Dr Matthew   

Pugh, John   

Stephenson, Andrew   

Stewart, Rory   

Thornton, Mike   

Williams, Stephen   

Question accordingly negatived.  

Clause 67 ordered to stand part of the Bill.  

Clause 68 

Gas refuelling stations: extension of time limit for capital allowance 

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

Catherine McKinnell:  The clause extends the 100% first-year allowance for expenditure incurred on gas refuelling equipment that was due to end on 31 March 2013. It has now been extended to 31 March 2015. I note from the tax information and impact note that the policy objective of the measure is 

“to support the development and installation of refuelling infrastructure for motor vehicles powered by natural gas, biogas and hydrogen as part of the process of promoting the wider uptake of such vehicles. The relief also complements the 100 per cent” 

first-year allowance 

“for cars with low carbon dioxide…emissions that is being extended to 31 March 2015.” 

It is estimated that the extension will have a negligible impact on the Exchequer. The latest information suggests that there were only 220 gas refuelled vehicles in 2010, and the number seems to have declined from 540 in 2007. 

The tax information and impact note continues: 

“It is expected that the majority of the businesses who will benefit from the decision to continue the relief, which provides a modest cash flow boost, are concentrated in the transport sector, either haulage or passenger transport.” 

The tax information and impact note includes the latest number of gas refuelled vehicles in use, but will the Minister clarify how many gas refuelling stations throughout the UK will benefit from the measure? That information would help the Committee. 

Sajid Javid:  The clause extends the existing 100% first-year allowance for capital expenditure on gas refuelling equipment for an additional two years to 31 March 2015. The Government are committed to supporting the UK’s progress towards European Union emissions targets and laying the foundation for a strong and sustainable low-carbon economy. As part of that commitment, we aim to place the UK at the global forefront of the design, development and uptake of low carbon emitting vehicles. 

We have made £400 million available to the Office for Low Emission Vehicles to help to achieve that aim. However, alongside that, we want to maintain a strong package of support through the tax system. We have discussed 100% first-year allowances in some cases, and in this clause we are discussing the 100% first-year allowance for gas refuelling equipment that was first introduced in 2002 and forms part of the tax package. It encourages the development and installation of fuelling infrastructure for alternatively fuelled vehicles, reducing one of the key barriers to growth in that market. 

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2.30 pm 

The incentive was due to expire in April 2013, alongside the 100% first-year allowance for low emission vehicles. Clause 68 takes action to address that by extending the 100% first-year allowance for capital expenditure on gas refuelling equipment. The relief will be extended for two years to 31 March 2015. That aligns with the 100% first-year allowance for low emission vehicles, which is also extended by two years in the Bill. The extension of the relief recognises that the UK market for natural gas, biogas and hydrogen-powered vehicles is still in its infancy. 

In the Budget 2013 the Government decided to go further. We announced that the 100% first-year allowance for expenditure on gas refuelling infrastructure would be extended for an additional three years to 31 March 2018. That is a clear signal of the Government’s intention to provide long-term support in the area as part of their wide objectives for the UK environment. 

The hon. Lady asked about the number of vehicles in question. I do not have those numbers with me and do not want to take an educated guess. I will supply her with the number in writing. 

To conclude, the clause extends the existing 100% first-year allowance for gas refuelling infrastructure by two years. It maintains the incentive for the development and uptake of alternatively fuelled vehicles. 

Question put and agreed to.  

Clause 68 accordingly ordered to stand part of the Bill.  

Clause 69 

First-year allowance to be available for ships and railway assets 

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

Catherine McKinnell:  Clause 69 would remove the current general exclusion from first-year allowances of expenditure incurred on railway assets and ships. There are a number of general exclusions from first-year allowances where expenditure is incurred on ships and railway assets, as they previously received beneficial treatment elsewhere in the capital allowances code; that beneficial treatment has recently ceased. 

I understand that clause 69 would remove the anomaly to ensure that first-year allowances are available for expenditure on railway assets and ships. It ensures that FYAs are available for expenditure on energy-efficient and environmentally beneficial plant and machinery and function more generally as green incentive measures for the railway and shipping industries. That is to put in context the question I have for the Minister. 

The measure is obviously welcome where it helps to provide a level playing field for investment in the railway and shipping industries. We particularly welcome the additional incentives that it will provide for the industries to invest in energy-efficient and environmentally beneficial plant and machinery. Will the Minister clarify how many companies the measure could benefit and give an indication of the additional levels of investment the Government anticipate as a result of the measure? 

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Sajid Javid:  The clause makes changes to the Capital Allowances Act 2001 to give investors in ships and railway assets access to first-year allowances. The changes ensure that investors in those assets are treated consistently with others investing in similar assets in different industry sectors. 

For those investing in certain types of plant and machinery, 100% first-year allowances are available. That provides businesses with a cash-flow advantage over normal writing-down allowances and acts as an incentive to invest in particular types of plant and machinery. 

However, not all expenditure incurred by business is eligible for first-year allowances. There are a number of general exclusions, including those for expenditure incurred on both ships and railway assets. The exclusions for those two asset classes exist because both ships and railway assets have received beneficial treatment elsewhere in the capital allowances code. That beneficial treatment was, however, time-limited and has recently expired. 

Therefore, to ensure consistency of treatment across the capital allowances code, the clause removes the general exclusions from first-year allowances of expenditure incurred on ships and railway assets. Providing access to energy-saving and environmentally beneficial first-year allowances will also encourage investment in green technologies in the ship and railways industries 

The hon. Lady asked whether the measure will have a positive impact on investment decisions. Although we would not expect any extra trains or ships to be bought as a result of the measure, access to first-year allowances offers an incentive for UK infrastructure projects to procure the most environmentally friendly plant and machinery where such a choice exists. To the extent that businesses respond to this signal—indications from the representations that we received from the rail industry show a positive response, although the latest energy or water-efficient equipment may be more expensive—there could be some slight increase in investment. 

In conclusion, the clause supports the Government’s objective of promoting fairness in the tax system and the removal of the exclusions. It allows investors in ships or railway assets access to first-year allowances and removes an anomaly in the legislation that denied a relief available to other investors in similar assets in different industry sectors. It also provides access to energy-saving and environmentally beneficial first-year allowances that will encourage investment in green technologies in the ship and railways industries. For that reason, the clause should stand part of the Bill. 

Question put and agreed to.  

Clause 69 accordingly ordered to stand part of the Bill.  

Clause 70 

Hire cars for disabled people 

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

Catherine McKinnell:  Clause 70 provides for one of a number of cross-cutting measures that are being implemented through the Bill following the introduction of the personal independence payment and armed forces independence payment from 1 April 2013 to replace

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disability living allowance. The measures incorporate the inclusion of a reference to PIP in one of the definitions of “disabled child” for the purposes of employer-supported child care, which we have already debated when we considered clause 12; provide a vehicle excise duty exemption for recipients of enhanced mobility PIP and a 50% discount for recipients of standard mobility PIP, which we will come to in clause 188; amend the list of specified benefits for the purposes of exemption from insurance premium tax, which we will deal with in clause 199; amend, for the purposes of vulnerable beneficiary trusts, the definition of “disabled” to include those in receipt of PIP or AFIP, which we will come to in clause 213; and amend the definition of hire cars for disabled persons in the Capital Allowances Act 2001 to include reference to recipients of PIP and AFIP. That sets out the context of the clause. 

As Committee members know, the short-life asset regime enables firms to write off the cost of capital assets over their life in the business against the firm’s taxable income, thereby enabling tax allowances to be brought into line with the actual depreciation of plant or machinery when an item is scrapped or sold within eight years of its acquisition. It ensures that the total allowances match the actual net cost to the business, providing an advantage where the allowances would otherwise be less than the net cost. 

Cars leased to disabled people fall within the SLA regime. However, the definition of a disabled person for capital allowance purposes is based on receipt of a certain type of benefit, including the disability living allowance. Thus, given the recent changes to disability allowances, which have not been uncontroversial, with the personal independence payment and the new armed forces independence payment being phased in from April 2013, the definition of '”disabled person” for the purposes of capital allowances clearly also needs to change. So clause 70 extends the definition with effect from 1 April 2013. However, reference to DLA in the definition will remain until DLA has been completely replaced. 

The tax information impact note states that the change is being made 

“so that new and continuing recipients of these benefits and claimants of the tax reliefs and supports are both eligible for the same reliefs and supports”. 

Strictly speaking, that is true. However, the tax information impact note also points out that 

“it is expected that as part of the overall changes to the welfare system, approximately 500,000 disabled individuals will no longer receive either DLA or PIP”. 

We regularly hear concerns that the changes are being made to suit the Government’s rapid deficit reduction agenda and the need for cuts, rather than to ensure that the welfare system meets the needs of disabled people. Of the 500,000 people expected to be taken off disability living allowance, does the Minister know how many currently hire cars that are therefore available for capital allowances under the SLA regime? Does he think that those who currently hire cars but are losing their disability allowance will therefore no longer be able to hire them? 

Have the Government assessed the impact on the businesses that hire cars to such people? It will surely be more tax-efficient for such firms simply to stop hiring cars to people in such circumstances. I would be interested to hear the Government’s thinking on how that will

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work in practice, or whether they have assumed that businesses will simply be expected to bear the additional cost. I would be grateful if the Minister addressed those points. 

Sajid Javid:  Clause 70 is a purely technical amendment. It ensures that the beneficial capital allowances treatment for cars hired to disabled persons continues for recipients of both personal independence payments and armed forces independence payments. 

The Government are reforming the welfare system by introducing universal credit. As part of those reforms, the Department for Work and Pensions is introducing personal independence payments, and the Ministry of Defence is introducing armed forces independence payments. Both have effect from 1 April 2013. To ensure that those who are intended to benefit from certain reliefs remain eligible, some technical amendments to the tax code need to be made. 

One such amendment is required to the Capital Allowances Act 2001 in respect of cars hired to disabled persons. The capital allowances short-life asset regime brings tax allowances into line with the actual depreciation of plant or machinery when an item is scrapped or sold within eight years of its acquisition. That accelerates the timing of tax relief when compared with assets that cannot be treated as short-life assets. Usually, cars are excluded from the regime, but cars hired to certain disabled people are eligible for short-life asset treatment, as it has the benefit of making the cars cheaper for disabled persons to hire. 

The current definition of a disabled person for capital allowances purposes is based on the receipt of certain types of allowance, including disability living allowance. The changes made by the clause will extend the definition of a disabled person for capital allowances purposes. It will include reference to recipients of both personal independence payments and armed forces independence payments with effect from 1 April 2013. 

The hon. Lady asked how many cars are hired by disabled people, and how many people will be affected by the measures. More than 600,000 vehicles are leased to people in receipt of certain disability benefits. The impact on individuals who no longer receive disability benefits is unclear and may depend on a number of wider non-tax factors. 

The hon. Lady referred specifically to the equalities impact assessment published alongside the announcement of the measure. I know that her question was more detailed. She asked how many of the approximately 500,000 disabled individuals who will no longer receive DLA or PIP will be affected by the measure. I do not have that number, but I will try to find out whether that number exists and we can get further information for her. If I can, I will provide it to her. 

Ian Mearns:  Perhaps the Minister should ask the Minister with responsibility for disabled people to look into her crystal ball. Back in December, she was able to tell us exactly how many people would get a reduced award or no award at all under the new PIP payments. She said that 560,000 people would be reassessed, 160,000 people would receive a reduced award, 170,000 people would receive no award and 230,000 would receive the same amount or more. The hon. Lady will be able to tell the hon. Gentleman the answer to the question. 

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2.45 pm 

Sajid Javid:  The hon. Gentleman makes clear something that Government Members already know: we have an excellent Minister for disabled people. The Treasury works closely with her Department to come up with estimates and figures, and to determine, the potential impact of measures. We shall continue to do so, especially with that Minister. 

James Duddridge (Rochford and Southend East) (Con):  I apologise that I was not present at the start of the debate. A car has been obtained through the Motability scheme for a disabled member of my family, and the process is slightly more complex than has been portrayed. There are several categories of claimants, such as children who will not be receiving PIP, but who have higher rate disability living allowance due to mobility, and I think that they will be affected. Will the Minister write to the Committee to confirm the impact, if any, of the measure on the Motability scheme, which is invaluable to our constituents? 

Sajid Javid:  My hon. Friend clearly speaks from personal and constituency experience. I will certainly furnish the Committee with that information. 

Mr Brooks Newmark (Braintree) (Con):  May I throw in my two cents-worth? Is it not right that the personal independent payment scheme is not simply an attempt to take away money from the deserving, but a more granular benefit that provides some people with more money and some people with less? Is it not the case that some of the most deserving people who will benefit from the broadening of the measure will be seriously injured service and ex-service personnel? Will those service personnel who were not captured before under the scheme now be able to benefit, or is this simply a matter of transferring people from one definition to another? 

Sajid Javid:  There might be individuals who were not captured before, but who will be captured under the changes. My hon. Friend makes a wider point about the Government’s focus on benefits, particularly regarding the most vulnerable, to ensure that the most needy receive the most benefits, which is something with which we all agree. 

Fiona O'Donnell:  Has the Minister had any discussions with the Ministry of Defence about how to make veterans aware of the possible advantages for them? 

Sajid Javid:  I have not personally had such a discussion with the Ministry of Defence, but I know that Treasury and MOD officials have been working closely on the matter. There is a programme that is centred on ensuring that members of the armed forces are aware of all the benefits to which they are entitled, such as those that we are discussing. Given that the hon. Lady has drawn attention to such an important issue, I shall ensure that it is considered with the seriousness that it deserves. 

Rory Stewart (Penrith and The Border) (Con):  May I reassure the Minister that an enormous amount of information seems to come out of the Ministry of

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Defence, the Army, the voluntary sector, the third sector in general and, indeed, councils on the support provided to soldiers? Anecdotally at least, there seems to be a co-ordinated response at the moment. I am sure there is not much more to be done, other than perhaps to bring more of the third sector providers for disability into the conversation. 

Sajid Javid:  I thank my hon. and gallant Friend for his intervention. He speaks with great personal experience of our armed forces, so I am reassured by his comments. He raises an important point about the involvement of the third sector in helping people with disabilities. 

Catherine McKinnell:  I might be wrong, but I sense that the Minister is about to conclude his remarks. However, he has not yet addressed my question about the impact of the measure not only on those who will be reclassified under the new scheme and will not qualify for disability vehicle hire, but on leasing companies? Have the Government considered that issue? Obviously, the change will have a significant impact on individuals, but the Finance Bill must be laser-focused on economic impacts, so the Government should have given some consideration to the measure’s economic impact on companies that hire Motability vehicles to disabled individuals. 

Sajid Javid:  The hon. Lady is right to sense that I am trying to reach a conclusion, but she is also right to make that important point. When the Government looked at the change, our focus was on the people—disabled people in particular—on whom it will impact. I do not have much information to hand about the potential impact on leasing companies. She is right that some may face a change in demand, which might be detrimental to them. That is an important point, but it is not the driver of the Government’s policy. Foremost in our minds is what many hon. Members have referred to in the debate: we must ensure that benefits are focused on the people who are most affected. 

If there are no more interventions, I shall now get to my conclusion. The changes will ensure that recipients of the new personal independence payment and the armed forces independence payment will continue to receive the same beneficial treatment under the capital allowances code as under the existing welfare regime. 

Question put and agreed to.  

Clause 70 accordingly ordered to stand part of the Bill.  

Clause 71 

Community investment tax relief

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

The Chair:  With this it will be convenient to discuss that schedule 25 be the Twenty-fifth schedule to the Bill. 

Catherine McKinnell:  Community investment tax relief was introduced in 2002 under the previous Government to encourage investment in disadvantaged communities. In practice, individuals and companies that invest in

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accredited community development finance institutions by way of equity or loan are able to claim income tax relief or corporation tax relief of 5% of the amount invested over five years, as long as the investment remains. There are detailed rules about when the investment may be withdrawn. 

My understanding is that clause 71 will relax the current onward lending roles of community development finance institutions. At present, the onward lending limit requires them to re-invest at least 25% of the fund by the first anniversary of the accreditation date, 50% by the second anniversary and 75% by the third. With effect from April 2013, the annual dates for calculating whether the prescribed level of onward level has been obtained will be altered from the anniversary of the community development finance institution’s accreditation date. That is obviously a welcome move, as it enables more time for community development finance institutions to meet the required onward lending limits. 

My understanding is that state aid approval for the scheme expired in October 2012 and that in order to continue with the relief, the Government have had to amend it to meet state aid requirements. What assessment has been made of the additional investment that is expected to be made from CDFIs as a result of the changes? The tax information and impact note states that the new limit on corporate investors will affect only a small number of companies, as around 120 companies have made an investment under the scheme, with fewer than 10 affected by the cap. How many CDFIs have those 10 companies invested in? How much have they invested to date? The number of companies alone does not give a full sense of the amount of investment that we are talking about. 

What more can the Government do to persuade corporate investors to participate in the CDFI scheme, given that there have been only 120 investors out of a potential 3,100 since 2002? In assessing the changes to comply with state aid rules, have the Government also considered how to boost the scheme? 

The Exchequer Secretary to the Treasury (Mr David Gauke):  Clause 71 and schedule 25 will make changes to the community investment tax relief. The changes will provide greater flexibility for claimants of the reliefs and limit the relief for corporate investors in the scheme to ensure that the scheme is compatible with the de minimis limits for state aid. The relief plays an important role in bringing investment into businesses in disadvantaged areas, and has done for more than 10 years now. 

Let me briefly provide hon. Members with some background to the clause and schedule. The tax relief for investment is currently restricted to a relief equivalent to 5% of the amount invested, which is allowed over a period of five years to give a total relief of 25%. There is no provision to allow unused relief to be claimed in any other period. The scheme was an approved state aid, but the approval expired in October 2012. 

Following discussions with the European Commission, it was agreed that the scheme could be brought within the de minimis limit of €200,000 in any three-year period. The scheme remains a state aid, but not a notifiable one, as long as the limits are adhered to. It will affect only corporate investors; state aid rules do not apply here to individual investors. 

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The changes made by schedule 25 will allow an investor to carry forward and use in later years any unused relief within the overall five-year period. That will provide flexibility for investors to ensure that they obtain the maximum relief available. Individual investors might not be greatly affected, but corporate investors in difficult economic circumstances will welcome the opportunity created. 

Further changes will restrict the overall amount of tax relief for corporate investors to the de minimis limit previously stated. Although that appears to be a substantial restriction, it is not anticipated that it will greatly affect corporate investors, who mainly invest by way of loans. To calculate the relief given, corporate investors will compare their interest return and tax relief obtained with the commercial rate to which they would have lent to community development finance institutions. HMRC has issued draft guidance to explain the calculation and will issue full guidance pending the successful passage of the Bill. Fewer than 10 corporate investors are potentially affected by the change. 

I was asked how many CDFIs the 10 companies have invested in, but I cannot answer that question because HMRC does not track what individual investments the companies make. The question is fair, but the hon. Lady will understand why it is not possible to answer it. It is not expected that the changes will significantly alter the level of investment, and they are likely to have an impact on only a small number of companies. 

3 pm 

I was also asked what more could be done to encourage investors to use this relief. It is right to say that it has not been as well used as was the intention when it was introduced in 2002. We think that the changes that we are making will help to make the scheme more appealing. It is well established, so I am not sure that a lack of awareness is a problem affecting the take-up of community investment tax relief, which has been in place for 11 years. None the less, the measures represent a constructive change to the current regime, and I welcome the hon. Lady’s support for them. 

Question put and agreed to.  

Clause 71 accordingly ordered to stand part of the Bill.  

Schedule 25 agreed to.  

Clause 72 

Lease premium relief 

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

The Chair:  With this we will discuss that schedule 26 be the Twenty-sixth schedule to the Bill. 

Catherine McKinnell:  Clause 72 and schedule 26 limit lease premium relief available to a trader or intermediate landlord where leases are of more than 50 years’ duration. The measure will take effect if the lease is granted on or after 1 April 2013 for companies, or 6 April 2013 for individuals or partnerships. The change follows a recommendation from the Office of Tax Simplification that the lease premium relief regime was an area that could benefit from simplification. The aim is to simplify

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the regime so that relief will no longer be available to a trader or an intermediate landlord who pays a lease premium on a lease that is deemed to be short because of the operation of rule 1. I will not go into the technicalities, as I am sure the Minister will explain those to the Committee. 

The Chartered Institute of Taxation in its response to the informal consultation on the proposal pointed out that the documents relating to the rationale behind the change are not easy to locate. It said: 

“There is no link to the text of the consultation on the HM Treasury or HM Revenue and Customs website.” 

However, it continued: 

“The justification for such a change is that, in HMRC’s experience, it is generally only used—where the landlord is not within the charge—to tax the time involved in applying the provision for both HMRC and tax agents and apparent disputes that can arise between landlord and tenant in the application of those rules.” 

It went on to state: 

“We do not believe the reasons for the proposed change have been fully explained and appear to indicate an element of discrimination between tax-exempt and taxable landlords for which we see no obvious rationale. To set the proposed change in context it would be helpful to have further information on all leases with tax exempt landlords (number and value), and the number and value of leases which take advantage of the relief to reduce the effective duration of the lease for tax. It would also be of assistance to know what proportion of the latter are considered abusive and why such abuse cannot be tackled with existing legislation.” 

The tax information and impact note clearly indicates that the measure is one of simplification, with operational savings expected to HMRC and the Valuation Office Agency. It says: 

“Initial HMRC operational impact is estimated to be less than £2 million resource savings. Includes a saving of 25 per cent of Valuation Office Agency specialist technical team resource.” 

Will the Minister clarify whether, as the CIOT suggested, concerns have been expressed about potential abuse of the scheme? If so, what action has been taken to address those concerns? Does the Minister have the information and the figures that the CIOT requested in its consultation response? The tax information and impact note suggests that the number of businesses affected is unknown. It is difficult to know how effective a simplifying measure will be when no information is available about how many businesses it might affect. 

Mr Gauke:  The clause and schedule remove lease premium relief where a long lease is treated as a short lease for tax purposes. The measure will simplify the complex area of lease premiums; it will help businesses reduce the need for costly and long negotiations; and it will protect tax revenue. 

In 2011, the Office of Tax Simplification recommended lease premium relief as an area that might benefit from simplification, but it acknowledged that the relief aspect of the regime could not be reviewed in isolation and that a review of the entire regime would be required. The preferred solution of the OTS involves following the commercial accounts for tax purposes. However, given the current possible changes in accounting for leases, such a review must be one for the future. 

The Government announced at Budget 2012 that they would consult informally on the potential implications of amending a complex element of lease premium relief

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rules concerning the tax treatment of long leases as shorter leases, which is one of the areas that the OTS review highlighted. Analysis shows that that part of the regime is used only where the landlord is tax-exempt, so the premium received is not taxed. Relief is consequently obtained, often after detailed valuation and legal considerations, on a payment for which there is no matching taxable receipt. 

Current law taxes a lease premium payment, made on granting a lease of fewer than 50 years, on the recipient landlord and relieves it on the tenant where the tenant is a trader or a subsidiary landlord. The premium would otherwise be a capital payment for tax purposes. Where the payment relates to a lease of more than 50 years, the premium is not charged to tax as income. However, the premium for a lease of more than 50 years is also treated as a taxable receipt in certain circumstances where the lease is deemed to be shorter than 50 years, and that is where the complexity lies. As a result of the clause and schedule, relief will no longer be available to a trader or intermediate landlord who pays a lease premium or a lease that is deemed to be short only because of specific tax legislation. The measure will be effective for leases that are granted from the beginning of the tax or financial year. 

The hon. Member for Newcastle upon Tyne North asked how many individuals companies would be affected by the changes. We estimate that the number is not significant, and the consultation responses do not suggest otherwise. The consultation respondees did not supply any figures, although they were asked that question. She asked what proportion of cases were abusive and were not covered by the existing rules. The existing rules do not cover cases where the recipient is tax exempt. There are no checks and balances if the recipient is exempt; there is no figure to match the relief against. 

As for CIOT’s comment that the consultation paper was not easy to locate, officials sent a copy to the CIOT. On the issue of discrimination between tax-exempt and taxable landlords, the tenant is not affected by the status of the landlord. If the landlord is tax exempt, he is not charged on the sum received; if he is not tax exempt, there is no change for him. I hope that that provides some clarification. 

The clause and schedule address a complex area of lease premiums. Although the time is not right for a wholesale review of the regime, as requested by the OTS, an interim change on a specific complexity is appropriate. The clause and schedule will simplify a complex area of tax, will help business reduce the need for costly and long negotiations, and will protect tax revenues. 

Question put and agreed to.  

Clause 72 accordingly ordered to stand part of the Bill.  

Schedule 26 agreed to.  

Clause 73 

Manufactured payments: stock lending arrangements 

Catherine McKinnell:  The clause has been introduced to close a tax avoidance activity involving manufactured payments in the area of stock lending arrangements.

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Most manufactured payments are made and received by banks and other financial traders and, as the tax information and impact note explains, are payments representative of dividends and interest on shares and securities, whether paid under contracts or other arrangements for their transfer. The Committee may be aware that manufactured payments are routinely paid in the financial markets under stock lending or repo transactions. A manufactured payment is a compensation payment made by the temporary holder of the shares or securities to the original owner to reflect the fact that the original owner does not receive the real dividend or interest. Manufactured payments would fall to be taxed as ordinary trading expenses and receipts. 

The field is an extremely complex one. An avoidance scheme has been identified in the area of stock lending arrangements that attempts to prevent a tax charge arising when a manufactured payment made to represent the dividend or interest arising on the securities that have been lent would be taxed as trading income. The avoidance scheme attempts to avoid that charge by arranging for some manufactured payments to be made, but also for part of the payment representing the dividend to be received in a non-taxable form. That explains the background to the clause, which amends the relevant sections of the Income Tax Act 2007 and the Corporation Tax Act 2010 to provide that when any benefit is received representing the dividend, it will give rise to a charge on the stock lender as though an actual manufactured payment had been received. 

The tax information and impact note suggests that the measure will have a negligible impact on the Exchequer. Will the Minister clarify what impact the use of the avoidance scheme has had on the Exchequer to date, and why so little future impact is expected? The impact note also outlines that 100 businesses enter into or administer stock loans and repos of shares and securities where there is a payment and/or receipt of a manufactured dividend. How many of the 100 firms have been making use of the avoidance scheme and over what period? In the light of that loophole being identified, what action, if any, is Her Majesty’s Revenue and Customs taking against them? 

3.15 pm 

Mr Gauke:  Clause 73 makes changes to block tax-avoidance schemes involving stock lending arrangements, as the hon. Lady points out. Those schemes claim to exploit a weakness in the current legislation; blocking them will lead to greater fairness by ensuring that everyone involved in stock lending pays their fair share of tax. 

I will briefly set out some background to the clause. Manufactured payments arise as a normal part of the financial system, where a company lends shares or other securities to another company. If a dividend is paid on the shares when the shares are out on loan, the borrower of the shares is generally required to pay a manufactured payment representing the dividend to the stock lender. That payment will be taxed where it arises as part of a financial trade. 

There are anti-avoidance provisions in the tax legislation to prevent companies and individuals avoiding this tax charge by paying the manufactured payments to someone

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other than the lender, then receiving a payment from that other person in a non-taxable form, for example, a loan write-off within a group of companies. 

The schemes blocked by the clause involve paying just part of the manufactured payment in a non-taxable form rather than all of it. It is claimed that that circumvents the legislation. While we do not accept that those schemes achieve the tax-avoidance effect that they claim, the clause will put it beyond doubt that the manufactured payment is taxable however it is made. 

The changes made by clause 73 will ensure that the company that receives manufactured payments is taxed on them in whatever form they are paid. For example, if a company benefits by having an outstanding loan written off, that will lead to a tax charge, as they have received manufactured payment. Similar changes are being made to the equivalent income tax provisions. 

The hon. Member for Newcastle upon Tyne North asked how many companies were involved in that avoidance and how much tax was lost. HMRC is aware of one company using the scheme. It was first identified in 2011, so it has been used over the past couple of years. Tax loss from the scheme was £50 million a year. It is important to take action promptly as the scheme could have been used by any company involved in financial trading, so there is a risk of that becoming more widely used. Hence, clause 73 would close down an avoidance scheme and bring certainty to companies and individuals involved in manufactured payments for genuine reasons. 

Question put and agreed to.  

Clause 73 accordingly ordered to stand part of the Bill.  

Clause 74 

Manufactured payments: general 

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

The Chair:  With this it will be convenient to discuss that schedule 27 be the Twenty-seventh schedule to the Bill. 

Catherine McKinnell:  The clause and schedule are related to the previous clause and are introduced to simplify the tax treatment of manufactured payment dividends for corporation tax purposes and all manufactured payments for income tax purposes. I think the Minister has already responded to the concerns that I have noted about the clause, in particular the 100 firms mentioned as being involved in the area, and how many are understood to have been pursuing avoidance schemes. Will the Minister clarify in relation to this particular measure whether the same response applies: that there has been one company since 2011 avoiding tax of around £50 million a year? 

Will the Minister also comment on how widespread the abuse of complex existing manufactured payments rules has been? How widespread has the abuse of the general rule been? What has been the impact on the Exchequer overall of the use of those rules, given that the tax information and impact note suggests that it will help to close down avoidance opportunities that have arisen due to the very complex nature of the existing rules? 

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Mr Gauke:  The clause and the schedule make changes to the tax rules for manufactured payments to simplify the legislation and reduce opportunities for tax avoidance. The existing rules are extremely complex and have been the subject of numerous avoidance schemes. It might be helpful again if I describe the background to the changes. 

Manufactured payments are made to and by holders of shares that are lent out under stock lending or repo arrangements. Such arrangements are vital features of the UK and global financial system. On 15 September 2011, the Government announced changes with immediate effect to block the latest in a series of avoidance schemes involving manufactured overseas dividends. At the same time, it was announced that we would consult on proposals to make wider changes to the tax rules on manufactured payments as part of the programme of reviewing high risk areas of the tax system. 

The consultation document, “Proposed changes to tax rules on manufactured payments”, was issued on 27 March 2012, with a closing date for comments of 22 June 2012. Following the responses to the consultation, the Government are legislating all the changes proposed in the consultation document, with a commencement date of 1 January 2014. The measure simplifies the legislation by abolishing the rules that currently require deduction of tax from payments, and gives tax credits to the recipient of payments. An exception will be made only where foreign tax has been suffered to ensure that UK companies will not lose out on double taxation relief that is genuinely due. 

The changes made by the clause and the schedule will affect three areas of the tax system. First, corporation tax: there will be no special rules for taxing and relieving manufactured dividends paid and received by financial traders. For non-traders, receipts of manufactured dividends will be treated as the real dividends of which they are representative, and payments of manufactured dividends will not be deductible. No changes are being made to the rules for payments representative of interest. 

Secondly, income tax: the recipient of a manufactured payment will be treated as receiving the real dividend or interest of which the payment is representative. A payer of a manufactured payment will obtain a deduction for the payment only if it is made for the purposes of a trade. Thirdly, on the deduction of tax from payments of manufactured overseas dividends, as a result of the abolition of the rules requiring deduction of tax from MODs, the recipient will lose any corresponding entitlement to double tax relief. This will not affect any entitlement arising where foreign tax has actually been deducted from the MOD. Only companies and others that enter into stock loans and repos of shares and securities and that pay and receive manufactured payments will be affected. We estimate that there are around 100 businesses that do that. 

The Government launched a consultation in March last year aimed at simplifying the tax rules on MODs and manufactured payments generally, with a view to making avoidance more difficult in future. The responses were overwhelmingly supportive of our proposals. The main issue raised was that double taxation relief should be given for any foreign tax deducted from manufactured payments, and that was incorporated into draft legislation published for consultation in December last year. We have

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also made one minor change to ensure that life insurance companies will, where appropriate, be able to continue to claim relief for manufactured dividends paid. 

The hon. Member for Newcastle upon Tyne North asked about the number companies involved and the scale of abuse. The clause is a general measure aimed at simplification rather than at avoidance alone, but it will protect against loss of tax. To give a sense of the significant sums that may be involved, one scheme that was legislated against in the Finance Act 2011 involved about £490 million of revenue per year. The clause and schedule simplify the rules for manufactured payments by abolishing deduction of tax from payments and tax credits on receipts, which reduces the opportunities for avoidance. 

Question put and agreed to.  

Clause 74 accordingly ordered to stand part of the Bill.  

Schedule 27 agreed to.  

Clause 75 

Relationship between rules prohibiting and allowing deductions 

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

Catherine McKinnell:  Clause 75 introduces targeted anti-avoidance rules to the provisions that govern the relationship between rules prohibiting and allowing deductions, after the Government became aware of a marketed avoidance scheme that sought to generate artificial loss release from a property business with the intention that users of the scheme could offset the losses against their corporation tax-liable profits. The Government’s move to close down the scheme is, of course, welcome, but I would be grateful if the Minister would clarify the following issues. How did the Government become aware of the scheme? Were they notified via Labour’s disclosure of tax avoidance schemes provisions, which have protected a significant amount of revenue for the Exchequer? The total amount of revenue protected by DOTAS had reached £12.5 billion by March 2012. It would be useful to have an update on that figure and on the number of schemes that have been identified through the DOTAS provisions. 

When did HMRC become aware of the scheme? It would be useful for the Committee to get a sense of how long it took the Government to act once they became aware of the scheme and the avoidance activity. Do the Government know to how many organisations the scheme was being marketed, and whether it was targeted at any particular geographical regions? The Treasury press release states that closing down the scheme 

“will protect the Exchequer from potential losses of tens of millions of pounds” 

and the tax information and impact note indicates that doing so 

“is expected to increase receipts by approximately £10 million per annum”, 

which is a significant sum. How many individuals or businesses have used the scheme to date, and over what time period? How much is thought to have been lost to the Exchequer as a result of the loophole? What attempts

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did HMRC make to challenge the use of the scheme before the changes took effect on 21 December 2012? The Treasury press release of the same date states: 

“The Government will introduce a new General Anti-Abuse Rule (GAAR) next year. The GAAR will give additional, general protection for the Exchequer against abusive arrangements of this kind.” 

Will the Minister clarify whether, despite the fact that—we assume—the GAAR will come into existence on the passing of the Bill, if the GAAR had been in place when this avoidance scheme was identified, it would have dealt with that scheme and that that would therefore do away with the need to legislate for the targeted anti-avoidance rule? If he could answer those points, that would be beneficial to the Committee. 

3.30 pm 

Mr Gauke:  The clause makes changes to ensure that the rules allowing and disallowing deductions for trade and property businesses cannot be exploited for avoidance purposes. Towards the end of last year, the Government became aware of avoidance activity intended to exploit the rules that allow statutory deductions for certain types of business expenditure. That avoidance relied on the creation of artificial costs that companies would have deducted from their profits chargeable to tax. An announcement was made on 21 December 2012 that legislation would be introduced with immediate effect to counter that avoidance involving statutory deductions. 

The changes made by the clause will introduce targeted anti-avoidance rules for both income tax and corporation tax purposes. They will deny a statutory deduction, which would otherwise be allowed, where the deduction arises from avoidance arrangements. The measure will affect only persons seeking to use tax avoidance schemes or arrangements; it will not impact on other tax payers. That action will protect substantial amounts of tax. 

To turn to the questions raised by the hon. Member for Newcastle upon Tyne North, perhaps I may begin by addressing the general anti-abuse rule, given that this is a targeted anti-avoidance rule, and whether that will be dealt with by the GAAR. It is worth saying that the GAAR is targeting all abusive tax-avoidance schemes, but we have also made it clear that we will continue to take firm action against all forms of tax avoidance to protect the Exchequer from attempts to bend the rules of the tax system to try to gain tax advantages that Parliament never intended. In other words, there is still a place for targeted anti-avoidance measures even if it may well be that the general anti-abuse rule will apply. 

At this point, it is probably not helpful to speculate on whether particular arrangements will fall inside or outside the general anti-abuse rule. There are a number of elements to the general anti-abuse rule and, indeed, guidance produced by an independent body and so on, so I do not want to second guess what will be produced in this area. It is worth underlining, however, that in future there will be a place both for GAARs and for TAARs within our tax system. 

On how the Government became aware of the scheme, the hon. Lady is correct to say that it was a notification under the disclosure of tax-avoidance schemes rules. She knows that my view is that DOTAS is a useful tool for the Government, but we need to reform it and improve it; that is something that the Government are engaged in. 

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The hon. Lady asked how many companies, and of what type, this scheme was marketed to, how many used it and over what period of time. The information on the number and type of companies is not available to us. The data on how many used the scheme will become known to HMRC with a fair degree of confidence only when returns are made, so that information may come to light subsequently. 

On the hon. Lady’s question about tax lost, we do not believe that the scheme worked as such, and HMRC will challenge the use of the scheme pre-dating 21 December, so we do not believe there has been any tax lost. The introduction of the targeted anti-avoidance rule will prevent repeated use of the scheme and an escalation through similar schemes. It is good to remove any uncertainty, but that does not mean that HMRC believes that the scheme works as such. 

In conclusion, the Government are committed to tackling tax avoidance, and this measure clearly demonstrates that we will not hesitate to take rapid action to close down avoidance schemes as we become aware of them. I hope that the clause will stand part of the Bill. 

Question put and agreed to.  

Clause 75 accordingly ordered to stand part of the Bill.  

Clause 76 

Close companies 

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

The Chair:  With this it will be convenient to discuss the following: Government amendments 65 to 69. 

That schedule 28 be the Twenty-eighth schedule to the Bill. 

Mr Gauke:  Clause 76 introduces schedule 28, which closes three loopholes exploiting perceived weaknesses in the legislation taxing loans made by close companies to individuals, known as participators, who have an interest or shares in the company. Tax avoidance is both unfair and unacceptable to the vast majority of taxpayers, who pay the right amount of tax. The schedule amends part 10 of the Corporation Tax Act 2010, to close down that avoidance with immediate effect from the Budget announcement on 20 March. 

A close company is one owned and run by only a small number of participators, who have an interest or shares in the company. In certain circumstances, close companies are subject to a tax charge on loans they make to their participators. That charge is appropriate because a loan is a way to extract value from a company, albeit under the terms of a loan. Some people have attempted to circumvent legislation to deliberately avoid the tax charge. In many cases, the same people also seek to use the arrangements to avoid or minimise income tax and national insurance contributions. The vast majority of close companies and their participators are compliant and pay any tax due on value extracted from companies by the participators. Those who seek to exploit the rules gain an advantage, and that position is simply unfair. 

Column number: 457 

The clause amends the legislation in three ways: first, the tax charge will apply to all loans made to a partnership or trust in which at least one partner, trustee or beneficiary is a participator in the close company making the loan. Unlike before, that is regardless of whether there is a corporate partner or trustee in the structure. Secondly, the clause introduces a targeted, purposive anti-avoidance rule to catch payments that are not strictly loans, which currently fall outside the rules for loans. The final change requires repayments of loans to remain with the company for at least 30 days, which will reduce scope for manipulation. Further, if there are arrangements in place to withdraw funds at the time the repayment is made, relief from the tax will be denied even if the new payment is outside the 30-day period. 

The Government propose amendments 65 to 69 and schedule 28 to make final changes to the rule. Concerns were raised that the Bill did not focus closely enough on the policy objective, and that the new rules may unintentionally catch genuine commercial practice, rather than solely avoidance behaviour. The amendments will target the Bill more narrowly, and remove ambiguity by more clearly defining which loans and repayments should be taken into account in applying the first test on how such repayments should be treated. The second test will focus on arrangements that have been made to replace the original loan with a new loan when the repayment was made. 

Amending the rules in such a way will aid both business and HMRC with their application. It will relieve small businesses, more closely focusing the new rules on the anti-avoidance function, and reduce any uncertainty and operational difficulties for both businesses and HMRC. We introduced the legislation in March immediately to counter avoidance of the tax charge. The changes will ensure that it works effectively in practice.

Most small businesses that incorporate are close companies. Although the tax charge on loans applies to them, if relevant, the vast majority will be completely unaffected by the closure of the loopholes. In many cases, the rules are being exploited by affluent individuals using avoidance arrangements to reduce their tax bills. The loophole closures are designed to minimise any undue burden on compliant businesses. 

HMRC is pursuing an increasing number of those avoidance cases; some avoiders are seeking alternative ways of reducing their tax bills as loopholes are closed down elsewhere. The changes are just one element of the significant crackdown on avoidance by the Government to ensure that companies and individuals pay their fair share of tax. They complement what we are doing around avoidance using partnerships and intermediaries, will yield £270 million over the scorecard period, and further protect revenue; that is important protection for the Exchequer. 

Although the rule changes go a long way towards countering avoidance of the tax charge on loans to participators, there is scope to strengthen the regime. Therefore, alongside the announcement, the Government have said that they will consult on options for broader reform of the regime with the aim of creating a fairer

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and simpler system that will provide the opportunity for businesses, representative bodies and other stakeholders to present their views. 

Attempts to exploit perceived weaknesses in the legislation relating to the taxation of loans made by close companies to their participators can give rise to an unlevel playing field between compliant and non-compliant taxpayers. Schedule 28 counters such avoidance, and results in companies and individuals paying the right amount of tax. I commend the clause to the Committee. 

Catherine McKinnell:  I thank the Minister for outlining the purpose of the clause and the Government’s amendments. 

The tax information impact note suggests that the changes will result in additional receipts for the Exchequer of £65 million in 2014-15, £75 million in 2015-16, £70 million in 2016-17 and £60 million in 2017-18. Such additional receipts are of course absolutely welcome. However, I would like the Minister to clarify some of the key facts behind the schemes established to avoid the tax charge under section 455 of the Corporation Tax Act 2010. At what point did the Government become aware of the existence of such schemes, and how did they become aware of them? Were the schemes being marketed? To date, how many close companies have sought to use the loopholes? Over what time period, and at what cost to the Exchequer—if that can be assessed—has the avoidance occurred? What attempts has HMRC made to challenge the use of such schemes before the changes took effect on 20 March 2013? 

I would also be grateful if the Minister addressed several technical concerns about the Government’s proposed changes. While welcoming attempts to counter avoidance of tax under section 455, the Chartered Institute of Taxation states that there are some situations where it considers that 

“the changes will operate unfairly and have unintended consequences”. 

In the CIOT’s words, those unintended consequences include 

“the fact that the revised section 455(1)(c) CTA 2010 will mean that any loan from a close company to a partnership where there is a participator in the company who is also a partner in the partnership will result in section 455 tax. This seems to be regardless of whether the money lent is then taken for personal use of the partner/participator (which is the sort of abuse that needs to be tackled) or used for the business purpose of the partnership (which may be for valid commercial purposes). In particular loans to limited liability partnerships (LLP) are specifically brought within the scope of the charge. 

There are circumstances where a close company sets up an LLP for sound commercial reasons, perhaps as an alternative to a subsidiary company. The LLP may need funds to start trading. If the close company lends the LLP funds for commercial reasons, it does not seem right to us that there will be a section 455 charge if the individual, who is a participator of the company and also a member of the LLP, is receiving no benefit.” 

3.45 pm 

The Chartered Institute of Taxation is also concerned that the provisions introducing the new charge to counter other arrangements are widely drafted. We should therefore welcome clarification of the scope of the charge. The institute stated: 

“Firstly, we would like the Government to confirm that the new charge, being introduced at Chapter 3A Corporation Tax 2010, will not apply to capital transactions (including circumstances

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where a close company reduces its capital under section 641 CA 2006). Capital transactions have their own rules and anti-avoidance provisions, which are generally well understood, and they are not part of the mischief that Chapter 3A is targeting. 

Secondly, both examples provided in the Finance Bill explanatory notes use hybrid structures, which seem to be the main aim of this provision. However, there appears to be nothing to prevent the rule virtually applying as a general anti avoidance rule to catch almost any instance where a company is party to a transaction with some tax planning, however benign, that has some indirect effect on a participator or his associate. 

This is in effect a general anti avoidance rule for smaller companies and yet has none of the safeguards that surround the new General Anti Abuse Rule. In addition, the rule is already in effect—it took effect from Budget Day. 

Unless the Minister is able to give categoric assurances about the scope of these new provisions, we think some amendments are required to the provision to set clear boundaries, e.g. to exclude transactions with a commercial motive as one of the motives. Otherwise it could catch many commercial transactions. Clear guidance will be required to demonstrate the areas that it may cover.” 

As for new chapter 3B, which is intended to strengthen the rules that deal with repayment of loans, the institute stated: 

“We support the objectives of the provisions in new section 464C(1), which apply where loans are repaid and new loans made within a period of 30 days. However, we have concerns about the drafting, which in some cases appear to lead to some unfortunate unintended results…The purpose of the new rule seems to be to deny relief for a repayment of the loan just before a cut-off date, such as the year-end or nine months after the year-end, where within 30 days that loan is taken out again. We agree with that purpose, but as drafted it also seems to deny relief for repayments of loans during the year if there is a further loan within the year, yet the tax is still payable on the further loan. This seems inequitable as in such cases even if a loan is fully repaid the tax could be payable…We think the reason that the legislation can produce an unintended result is that the drafting seems to be based upon an incorrect assumption of how the existing legislation works. It seems to assume that it was written using the ‘year-end approach’ rather than the ‘separate transaction approach’...Under the pre-Schedule 28 legislation the ‘year-end approach’ and ‘separate transaction approach’ lead to exactly the same amount of s455 tax and s458 repayments…The intention of the clause seems to be to match repayments and loans around the cut-off dates of the period end or the normal due date, so as to prevent any anti-avoidance through repaying a loan just before e.g. the due date, and re-borrowing it just after, but it seems that the clause goes much further than this.” 

The institute goes on: 

“Under new s464C the two approaches lead to different results, and in the case of the statutory ‘separate transaction’ approach it seems that the answer is often undesirable and unintended. It appears that the effect of the new legislation is that a s455 charge can arise on more than has been lent by the company”. 

I accept that resolving those specific worries is the intention of amendments 65 to 69, but I shall be grateful if the Minister can also deal with the other concerns raised by the Chartered Institute of Taxation about the clause to ensure that all such matters are considered, and that we shall not return to Committee to deal with the unintended, unfortunate consequences of the anti-avoidance measure that have been described. 

Mr Gauke:  I thank the hon. Lady for her questions. I will start with when the loopholes were identified. HMRC had been aware of the first two loopholes for some time. It has seen increasing numbers of cases and larger amounts of tax avoided using these structures. In the past three years, just 15 cases involving intermediaries accounted for nearly £7 million tax at stake. 

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Closing the loopholes is partly protective; clamping down on this avoidance immediately stems further loss of revenue. Some, but not all, of this avoidance is disclosable under the disclosure of tax-avoidance schemes regime, so a full scope of the evidence is difficult. However, closures of loopholes elsewhere and toughening economic conditions have meant that HMRC is seeing persistent avoiders looking for alternative ways to get round other loophole closures, and to save money by avoiding tax. 

Exploitation of the repayment rules has been around for many years and become common practice. Leakage of tax through that route also needed plugging for the closure of the other loopholes to be effective. Further, just 15 cases over the past three years have accounted for tax at stake of more than £8 million. 

As for how many incidences of avoidance these loophole-closing measures are addressing, for the first two loopholes, HMRC estimates that more than 5,000 companies have a relevant structure in place and loans from those companies to relevant partnerships are, on a central estimate, in the low hundreds of millions. On the third loophole, a recent article in Taxation magazine described the practice of repaying loans to prevent the tax from becoming payable followed shortly by a new loan as 

“reasonably common practice among smaller private companies”. 

Complete figures are not available because the avoidance can be difficult to detect. The nature of the structures means that only some instances were disclosable under DOTAS, as I mentioned earlier. With regard to whether the schemes are marketed, some are, but most are not. 

The hon. Lady asked what attempts HMRC had made to challenge the schemes before the measures were introduced. HMRC has applied the statute as far as it can. Some arrangements have fallen outside the specific wording of the legislation and that is partly why there is a need to take further action. 

The hon. Lady also referred to the concern raised by the Chartered Institute of Taxation that there is a targeting of LLPs and all partnerships with company partners. The rules regarding loans to partnerships are simply being aligned, so that a loan to any partnership that has a partner who is also a shareholder of the company making the loan will be caught. HMRC has become aware that increasingly structures were being put in place to minimise income tax, but the specific structure chosen was meant to ensure that the tax charge on loans to participators did not arise either. 


Regarding the repayment rules in chapter 3B, the amendments that we have included address the queries relating to year-end. That is part of their purpose. 

As for whether “benefit conferred” is rather wide in meaning, and the concern that innocent transactions might be caught and the safeguards that exist within the general anti-abuse rule do not apply in those circumstances, the meaning is necessarily wide as this is an anti-avoidance measure. It is aimed at any payment by a close company that ends up in the hands of an individual participator without an appropriate tax charge. Specifically it should catch capital contributions to partnerships and the company’s share of a partnership profit which are left undrawn by the company where participators then draw those funds out of the partnership. It will not catch innocent transactions as it requires there to be an

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avoidance purpose. “Benefit conferred” does not have the same meaning as for the income tax legislation; it is aimed at any extraction of value from a company by a participator in a form which avoids the tax charge on loans made by close companies to their participators or creates a tax advantage to the participator. I hope that reassures the hon. Lady and the Committee as a whole. 

Question put and agreed to.  

Clause 76 accordingly ordered to stand part of the Bill.  

Schedule 28 

Close companies 

Amendments made: 65, in schedule 28, page 373, line 9, leave out from ‘3B’ to ‘loans’ in line 10 and insert 

‘makes provision about the treatment of certain repayments and return payments made in respect of’.

Amendment 66, in schedule 28, page 375,  line 18, leave out from beginning to end of line 12 on page 376 and insert— 

‘464C Treatment of certain repayments and return payments

(1) Where—

(a) within any period of 30 days—

(i) the qualifying amount of repayments made to a close company in respect of one or more chargeable payments made by the company to a person totals £5,000 or more, and

(ii) the available amount of the relevant chargeable payments made by the company to the person or an associate of the person totals £5,000 or more, and

(b) the relevant chargeable payments are made in an accounting period subsequent to that in which the chargeable payments mentioned in paragraph (a)(i) were made,

the qualifying amount of the repayments, so far as not exceeding the available amount of the relevant chargeable payments, is to be treated for the purposes of this Chapter as a repayment of the relevant chargeable payments.

(2) A chargeable payment is a relevant chargeable payment for the purposes of subsection (1) if (or to the extent that) it is not repaid within the period of 30 days mentioned in that subsection.

(3) Where—

(a) immediately before a repayment is made in respect of one or more chargeable payments made by a close company to a person, the total amount owed to the company by the person in respect of chargeable payments is £15,000 or more,

(b) at the time the repayment is made, arrangements had been made for one or more chargeable payments to be made to replace some or all of the amount repaid, and

(c) the available amount of the chargeable payments made by the company to the person or an associate of the person under the arrangements totals £5,000 or more,

the qualifying amount of the repayment, so far as not exceeding the available amount of the chargeable payments mentioned in paragraph (c), is to be treated for the purposes of this Chapter as a repayment of those chargeable payments.

(4) An amount contained in a chargeable payment is an available amount—

(a) for the purposes of subsection (1), to the extent that no repayment has been treated as made in respect of it by the previous operation of that subsection, and

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(b) for the purposes of subsection (3), to the extent that no repayment has been treated as made in respect of it—

(i) by the operation of subsection (1), or

(ii) by the previous operation of subsection (3).

(5) An amount contained in a repayment is a qualifying amount to the extent that it has not been treated by the previous operation of this section as a repayment of a chargeable payment.

(6) This section does not apply in relation to a repayment which gives rise to a charge to income tax on the participator or associate by reference to whom the loan, advance or benefit was a chargeable payment.

(7) The Treasury may by order vary a sum specified in subsection (1) or (3).

(8) An order under subsection (7) may contain incidental, supplemental, consequential and transitional provision and savings.’.

Amendment 67, in schedule 28, page 376, line 15 leave out ‘464C(4)’ and insert ‘464C(1) and (3)’. 

Amendment 68, in schedule 28, page 376, line 18, leave out ‘464C(4)’ and insert ‘464C(1) or (3)’. 

Amendment 69, in schedule 28, page 376, line 23, leave out ‘464C(4)’ and insert ‘464C(1) or (3)’.— (Mr Gauke.)  

Schedule 28 , as amended, agreed t o.  

Clause 77 

Decommissioning relief agreements 

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

The Chair:  With this it will be convenient to discuss the following: 

Clauses 78 to 86 stand part. 

That schedule 29 be the Twenty-ninth schedule to the Bill. 

Clauses 87 to 90 stand part. 

That schedule 30 be the Thirtieth schedule to the Bill. 

I remind Members that they should raise any points they have about part 2 of the Bill during this debate. 

Hon. Members:  Hear, hear! 

Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op):  Thank you, Mr Crausby. If only it were always that straightforward to get that kind of acclamation at this point in a long consideration of a Bill. It is sensible and helpful to take these clauses as a group; otherwise, given the technical nature of some of the clauses, we might have been tempted to stand up and repeat different parts of the explanatory notes and so on. It makes much more sense to take them together. 

I will refer to the general issues surrounding this part of the Bill, focusing in particular on clauses 77, 78 and 79. Because the other clauses are so technical, I will not go into every dot and comma and will consider them together. Although the Minister will speak for himself, it is worth commenting first on what the Government say they are seeking to do, which is to provide greater certainty around the decommissioning tax relief and to make it easier to transfer licences to try to increase investment. 

Column number: 463 

We should remember that there are some 470 installations, including up to 4,000 active wells, sidetracks, and 10,000 km of pipeline on the UK continental shelf, and in the coming years there will be increasing expenditure on decommissioning. We already know that about 6,000 wells and sidetracks have been plugged and are therefore abandoned, but the peak period of decommissioning would appear to be between 2015 and 2030, so essentially we are planning the regime for that time. Thereafter, there will be a reducing number of facilities and therefore less decommissioning activity. 

It was helpful to receive information from the Government on the model decommissioning deed, which I am sure every member of the Committee has printed off and read from start to end, leading to many questions to the Minister. It is fair to say that the measures in this part of the Bill and the model decommissioning relief deed have generally been much more welcomed by the oil industry than previous announcements—not from this particular Minister—about the tax regime for the industry. At the time, people described such announcements as causing a “sharp intake of breath”—that is the polite version; some of the comments thereafter were less polite. To be fair, this announcement has largely been welcomed by the industry. 

4 pm 

I was in Aberdeen fairly recently and met representatives of Oil & Gas UK and spoke to several companies in various parts of the supply chain. They were all keen to put across to me the importance of a tax regime that incentivises safe and economical extraction from the remaining brownfield sites. I will return to safety in a moment, but first I will focus on costs and the most efficient way of extracting from such sites. All of the companies, whether the oil companies themselves or ones forming part of the supply chain, stressed the importance of the industry to the overall UK economy. Crucially, they also discussed in some detail the value of the experience and technical knowledge of the UK industry, in particular when looking to the future, when the brownfield sites have been exhausted and decommissioned, and what will happen to the oil sector not only in Aberdeen and north-east Scotland, but right across the UK. They were keen to ensure that sufficient support is given to ongoing training, for example, to encourage people to come into the industry and ensure that the UK remains a centre of excellence, able to provide support, training and expertise to newer oilfields elsewhere—there was particular discussion of exploration opportunities off the coast of Africa. 

As I said, the industry generally welcomes the consultation with the Government on the draft decommissioning deeds, which we will have the chance to consider in more detail by order, but the importance that the industry attaches to the stability of the regime for planning and investment cannot be overstated. The industry was clear that that is particularly important at this stage in the process, because the cost per barrel to extract from brownfield sites is so much higher than from new fields. It feels that decommissioning deeds are central to that ability to plan, because it also gives certainty to companies taking over the brownfield sites. The key issue is ensuring that licences can be transferred and that companies know what the regime will be. 

Column number: 464 

Fiona O'Donnell:  My hon. Friend is making an excellent speech about a sector that is vital to Scotland’s economy. Does she agree that stability must actually mean stability this time? The Government’s record on the oil industry is not unblemished. 

Cathy Jamieson:  I thank my hon. Friend for that point. People have indeed been critical in the past. She also brings me neatly on to the position of the Scottish Government on decommissioning, about which the Minister will perhaps be able to say something, because he was recently in Scotland—I hope he enjoyed his visit and I am sure that he will tell us all about it. 

The positions of the Scottish Government and the SNP on decommissioning seem to be rather confused. Back in April 2012, Fergus Ewing, the Scottish Energy Minister, stated that 

“in principle, given that the UK has received substantial revenue from these rigs, it seems correct that the UK has a moral and certainly a legal obligation to be responsible for the decommissioning”. 

That was stated in relation to any North sea oil and gas rigs that were in operation before Scottish independence. That statement seemed to be contradicted some time later by the First Minister, who, in response to a question about whether a separate Scotland would pay for decommissioning costs, stated: 

“That’s against an expected revenue return of £400 billion over the same period of time. So it’s about 5 per cent of the government revenue. So if you’re asking will we take the decommissioning costs, we’ll take 5 per cent cost of a 95 per cent benefit, then the answer is yes.” 

Once again—perhaps unsurprisingly—we seem to have contradictory positions within the Scottish Government. 

Fiona O'Donnell:  Will my hon. Friend press the Minister to find out whether there has been any communication with the Treasury on this matter? It will be vital to Scotland’s economic success should it vote yes next year, which I am very confident it will not. 

Cathy Jamieson:  I am sure that the Minister heard my hon. Friend’s question. Whether Scotland separates from the UK is pertinent to this debate: it would make no sense at all were a future UK without Scotland to be left with the responsibility of providing tax reliefs for that decommissioning. Other countries would perhaps not provide tax relief for the decommissioning of a nuclear power station outwith their borders. I know that my hon. Friend the Member for East Lothian has an interest in that industry as well. I do not want to dwell on that issue too much. 

Fiona O'Donnell:  Oh, go on! 

Cathy Jamieson:  My hon. Friend could tempt me, but I suspect that the good progress we have made today would be derailed should we go into the question of the nuclear industry, rather than focusing strictly on what we are here to discuss with regard to decommissioning. 

The clause is important because it allows for Parliament to make payments to assist in the decommissioning of oil and gas installations on the UK continental shelf. It also provides some exemptions to the duty imposed by section 18(1) of the Commissioners for Revenue and Customs Act 2005, which I am sure hon. Members will have found as absorbing as the draft decommissioning relief deed. Clause 78 goes on to describe the meaning

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of “decommissioning expenditure”, which is important as it provides the basis for the implementation of the decommissioning reliefs. 

I very much welcome clause 79. If hon. Members look closely, they will see that it makes provision for an annual report. Specifically, it introduces a requirement on HM Treasury to lay before Parliament an annual report on the Government’s liabilities under decommissioning relief agreements; it states that the report must be provided for each financial year and defines the information that the report must contain. It also provides that: 

“The report for a financial year must be laid before the House of Commons as soon as is reasonably practicable” 

and ensures that the measures have effect 

“in relation to financial years ending on or after 31 March 2014.” 

The Committee has discussed several times the provision of annual reports, reporting to Parliament and laying information before Parliament in the interests of transparency, so I will take this opportunity to thank the Minister and to congratulate the Government on getting such measures into the Bill without the Opposition having to table an amendment. Had we had to do that, I would hope that Government Members would have supported it to ensure that there was an annual report. 

I said that I would not go through each of the very technical clauses at this stage. If, when the Minister is responding, he raises any further issues I may want to ask particular questions. However, I want to come back briefly to the point that I made at the beginning in relation to safety. The Government are keen to ensure that that is part of the regime, and I know that the UK oil and gas industry, and indeed the trade unions, are taking a particular interest as we approach the 25th anniversary of the Piper Alpha disaster. It is worth noting that there is going to be a major event next week—Piper 25—organised by Oil & Gas UK. It will reflect on the lessons learned as a result of the inquiries that followed that disaster. It will review offshore safety and try to refine the industry commitment to safety as a response to the disaster. It will also look at subsequent learning opportunities, if I may describe them as such, given that so many people lost their lives. 

Has the Minister had any representations on the issue? Did he have the opportunity when he was in Scotland to meet concerned representatives? If he has not had the opportunity, will he commit to speak to some of his colleagues who are currently working on health and safety? The point that was strongly made to me by the industry sector and by the appropriate trade unions was that, as it becomes more and more difficult to extract from brownfield sites, people are looking at different technologies and perhaps pushing things that bit further than they had to in the past in order to extract every barrel as economically as possible. It is of course vital that health and safety is not compromised in any way. 

A particular concern was raised with me. If the Minister has not had the opportunity to speak to colleagues about it, I implore him to do so. Since Lord Cullen reported, people who have been around for as long as I have in the political scene, although not in this Parliament, will recall that a distinct division of the Health and Safety Executive looked after the offshore industry.

Column number: 466 
Serious concerns have been raised about proposals to change that regime to include responsibility for health and safety generally in the offshore sector within a broader energy division within HSE. That has raised concerns because of the nature of the work that is done offshore. 

Of course the taxation regime is extremely important to ensure that we are able to continue with the work on brownfield sites, but I am sure the Minister will understand that safety must also be paramount. If he has not had any representations, will he commit to discuss the matter further with his colleagues and perhaps report back to us? 

We have had a lot of talk about “skedules” and “schedules”, so I hope I get my pronunciation right. If we ever needed a reminder of the importance of implementing legislation in dangerous industries, we need only to walk out into Upper Waiting Hall to learn about the Senghenydd pit disasterI am looking at my hon. Friend the Member for Cardiff South and Penarth to make sure I got my pronunciation correct—to see what happened there. Lessons were learned, legislation was put in place but not implemented, and a further disaster occurred. As we approach the 25th anniversary of Piper Alpha, I am sure that everyone wants to see all the lessons learned. We must ensure that we not only learn those lessons but implement a regime that continues to look ahead and proactively ensure safety in the offshore sector. That is what people are looking for. 

Sajid Javid:  First, I thank the hon. Lady for her comments, which I take to be welcoming and broadly supportive of the Government’s initiative in clauses 77 to 90. 

Clauses 77 to 90 and schedules 29 and 30 relate to the introduction of decommissioning relief deeds. The legislation will enable the Government to meet their liabilities under decommissioning relief deeds and makes changes to the tax regime to support the introduction of such deeds. 

4.15 pm 

At Budget 2012, the Government announced their intention to introduce a package of measures to secure billions of pounds of additional investment in the UK’s continental shelf, otherwise known as the UKCS. One part of that was the introduction of a new contractual approach to offer long-term certainty on decommissioning tax relief. Companies operating in the UKCS are legally required to decommission the equipment and other assets at the end of a field’s life. The total cost of decommissioning over the lifetime of the basin is currently estimated by the industry to be £35 billion. 

Tax legislation currently provides relief on such costs, but uncertainty regarding the future availability of such tax relief is deterring investment and making it difficult for new players to enter the market. 

Such uncertainty is limiting investment in the UKCS in three ways. First, it is creating a barrier to the transfer of licence interests. Vendors of such interests currently require purchasers to provide security for decommissioning costs on a pre-tax basis. That increased capital requirement could prevent sales that would have led to additional investment activity in the North sea basin. Secondly, as some of a company’s capital is often tied up as collateral for the full, pre-tax decommissioning costs, the uncertainty

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limits the capacity for additional investment. Thirdly, uncertainty deters incremental investment. A company may not wish to prolong the life of an asset if it perceives a risk of losing decommissioning tax relief. Providing fiscal certainty will remove that concern and encourage companies to invest to extend the life of such assets. 

To provide certainty over decommissioning tax relief and unlock the potential further investment, the Government will enter into agreements known as decommissioning relief deeds with industry. Such deeds provide a mechanism for calculating the amount of tax relief a company can expect to receive when decommissioning assets in the future. If a company receives less relief than the amount provided for by the deed, the Government will make good the shortfall. That approach should enable companies to provide for decommissioning costs on a post-tax rather than a pre-tax basis. It will remove barriers to the transfer of licence interests and increase the capacity for additional investment in the UKCS. 

As the hon. Lady rightly pointed out, the industry has warmly welcomed these changes. For example, the CEO of Oil and Gas UK, said that, for the first time ever, the changes would 

“give companies the certainty they need over the tax treatment of decommissioning. At no cost to the Government, it will enable more asset sales to take place and free up capital for companies to use for investment, extending the productive life of the UK continental shelf.” 

The novel approach is all about providing the fiscal certainty needed to promote and prolong the life of the UKCS. It is worth noting that if no changes are made to the legislative regime for decommissioning tax relief, the contract itself should never be called upon, other than in the unlikely case of a company carrying out decommissioning because of the default of another company. 

The changes made by the clauses will support the introduction of decommissioning relief deeds. They will enable the Government to make difference payments under the deed and so give effect to the contracts. They will also require the Treasury to provide an annual report to Parliament—something warmly welcomed by the hon. Lady—containing information in respect of the deeds, to provide accountability to the House and to ensure transparency. The remainder of the changes relate to technical provisions to ensure that the policy can operate as intended. 

Taken together, these changes will support the introduction of decommissioning relief deeds, enable companies to provide security for decommissioning costs on a post-tax basis and remove barriers to the transfer of interests in oil licences. 

Before I conclude, I would like directly to address some of the hon. Lady’s points. She will know—she talked about this herself—that the certainty provided by the changes will encourage investment in the industry. The industry’s estimate is that that will unlock at least £13 billion of additional investment over the next few years. Clearly, that is hugely welcome from the point of view of economic growth and the jobs it will help generate. 

The hon. Lady mentioned the potential costs. As she knows, it is not intended that the Government will pay out on these deeds. When the Treasury looks at costs, it will also look at potential benefits—we will look at the

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net result. This is an opportune moment to remind the Committee that, as the Government set out in Budget 2013, we expect these contracts to lead to positive Exchequer impacts as a result of the increased investment that will be brought into the UKCS and the extra tax that the Exchequer will earn. That will start with additional revenue of £140 million in 2013-14, rising to £425 million by 2014-15 and reaching £480 million by 2017-18. All Members will welcome that. 

The hon. Lady mentioned Scotland. I have had no discussions with the Scottish Government on this issue. That is simply because it is subject to a reserved power, and there is no need for me to have any discussions. Of course, as we progress and produce information for public consumption, we will share that with the Scottish Government. The hon. Lady described the SNP as “confused”, and she is being generous—I would not be so restrained. On my recent visit to Edinburgh, which she mentioned, I actually dealt with another matter for which I have responsibility: the potentially very negative impact on the Scottish financial services industry if the Scottish people chose independence. 

On the subject of independence, which came up in the debate, the UK Government are making no plans for the break-up of the UK. They are fully prepared to provide certainty over tax relief to facilitate the transfer of assets, increase the capacity for additional investment on the UK continental shelf and ensure maximum economic production from that basin. 

The hon. Lady rightly raised the question of safety. She highlighted the fact that it is the 25th anniversary of the Piper Alpha disaster, in which many good people lost their lives. That was a lesson in terms of the Government’s approach to the industry. Since the disaster, successive Governments have made many changes to reflect safety and health concerns, as the hon. Lady rightly said. She will know, however, that the Treasury is not directly responsible for setting health and safety rules for the North sea, although we work closely with other Departments—particularly the Department of Energy and Climate Change—and with officials at the Health and Safety Commission. I can assure her that we will, of course, always take this issue very seriously. The Treasury will continue to work with Ministers in other Departments and with officials in any way it can to make sure our standards in the North sea remain among the highest in the industry worldwide. 

Let me conclude by saying that decommissioning relief deeds will provide certainty over tax relief. That will facilitate the transfer of assets, increase the capacity for additional investment in the UKCS and ensure maximum economic production from the basin. These changes to legislation will support the introduction of that policy. 

Question put and agreed to.  

Clause 77 accordingly ordered to stand part of the Bill.  

Clauses 78 to 86 ordered to stand part of the Bill.  

Schedule 29 agreed to.  

Clauses 87 to 90 ordered to stand part of the Bill.  

Schedule 30 agreed to.  

Ordered, That further consideration be now adjourned.— (Greg Hands.)  

4.25 pm 

Adjourned till Thursday 13 June at half-past Eleven o’clock.  

Prepared 12th June 2013