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Baroness Hamwee: My Lords, perhaps I may ask two questions on Amendment No. 570XA. Subsection (2) refers to two sections of the different taxes Acts for the purpose of which the bodies set out will be treated as local authorities. Are there any tax provisions other than Section 519 of the Income and Corporation Taxes Act and Section 271 of the Taxation of Chargeable Gains Act from which local authorities are exempt? Are there any other exemptions for local authorities which do not apply to Transport for London, the MPA and the LFEPA?
Lord Whitty: My Lords, as I understand the position in relation to subsidiary organisations, the pre-existing situation will not be altered; or in so far as it is altered it will be altered in relation to subsidiaries also. The alteration in the tax status of the Metropolitan Police Authority and the fire authority is not provided for under these clauses. The amendments provide for the two authorities to be exempt from paying tax in the same way that the Metropolitan Police were, and the London Fire and Civil Defence Authority is now. The receiver for the Metropolitan Police and the London Fire and Civil Defence Authority both fall within the ambit of the Income and Corporation Taxes Act and the Taxation of Chargeable Gains Act as major precepting authorities. They therefore do not pay tax in the normal sense of local authority trading accounts.
The subsidiaries would be subject to the normal tax arrangements on trading. But that situation is not altered by the changing status in these clauses. There is no need to change the tax status, for example, of the London Development Agency because the taxes Acts apply to that in the same way as they do to RDAs generally. It is only these two authorities for which we have to make explicit provision. Subsidiaries and everything else remain "as is".
Lord Dixon-Smith: My Lords, the issue of subsidiaries is difficult. I envisage developments under the Local Government Act in which best practice suggests that certain functions at present undertaken by one or other of those authorities might be better undertaken by a hived-off management buy-out of that part of the organisation which might then become a proper commercial operation. One needs a careful definition of where that boundary might lie. Can the Minister put my mind at rest so that the whole House can be satisfied that the definition is sufficiently clear and there will not be a problem with it at some point in the future?
Lord Whitty: My Lords, I may need to take further advice on this response. However, it seems to me that the additional provisions that the Local Government Act will make to look at the option of hiving off into another body will depend somewhat on the status of the other body. If it were a limited company, for example, either partially or jointly owned between local authorities, whether in London or anywhere else, that limited company would be subject to the normal taxation regimes. Other hybrid organisations which may be at arm's length to the local authority would be subject for most purposes to corporation tax. They would clearly be VAT registered and they would therefore be subject to most tax circumstances.
I do not think, therefore, that the situation in London would be in any sense significantly different from that of local authorities who are operating under the increased flexibility that we have to provide under the local government legislation.
The same would, of course, apply to TfL, which is not in quite the same position as other local authorities. If it hives off businesses into separate subsidiaries, it will effectively have to constitute them as separate companies, which will themselves be taxable.
So far as concerns VAT, which is perhaps the other interest here, the Government intend to bring the GLA, the Metropolitan Police, the London Fire and Emergency Planning Authority and TfL within the scope of Section 33 of the VAT Act by regulation. That would mean that those bodies would be able to recover VAT on their non-business activities in the same way as local authorities do more generally. The LDA will not be included and will not be able to recover VAT, which will result in a similar situation as far as concerns the London Development Agency to the provisions in the RDA Act for the other regional development agencies.
Page 193, line 37, at end insert--
("( ) To the extent that a scheme under subsection (1) or (2) above makes provision for or in connection with the transfer of property, rights or liabilities to the London Development Agency from--
(a) the Urban Regeneration Agency, or
(b) the Commission for the New Towns,
section 38 of the Regional Development Agencies Act 1998 (relief from Corporation Tax) shall apply in relation to the scheme as if it were a transfer scheme within the meaning of that section.").
Page 195, line 25, at end insert--
("( ) the Mayor or an Assembly member,").
Page 195, line 33, at end insert--
("( ) An order under subsection (1) above which makes provision by virtue of subsection (3)(b) above in relation to persons who are or have been employees of the Metropolitan Police Authority shall only be made--
(a) after consultation with the Metropolitan Police Authority, and
(b) with the consent of the Minister for the Civil Service.").
Page 198, line 8, leave out ("done by") and insert ("made or done by or in relation to").
Page 198, line 12, leave out ("done by") and insert ("made or done by or in relation to").
Page 198, line 18, after ("anything") insert ("made or").
Page 198, line 20, after ("been") insert ("made or").