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It does not say “the organisation” but “any organisation”. It then goes on to talk about being involved in the oversight of the delivery. I leapt to the defence of the noble Lord’s drafting but I do not agree with the underlying concept, which is a pity because I obviously agree with other bits of the amendment. Therefore, if he divides the House on it, although I hate doing this, I think that we have little option, as we would like to go a bit one way and a bit the other, but to stay put. However, I hear what the noble Lord says on my Amendment 15 and I beg leave to withdraw it.
16: Schedule 1, page 21, line 18, at end insert—
“(d) the likely impact of the imposition of a BRS on those contributions towards funding public transport works that are treated as allowable deductions.
“public transport works” means works undertaken to provide services on which members of the public rely for getting them from place to place when not relying on facilities of their own;
“allowable deductions” means expense occurred in the course of carrying on a business under Schedule A or Schedule D (Cases I and II) of the charge to tax under the Income and Corporation Taxes Act 1988 (c. 1).”
Lord Jenkin of Roding: My Lords, noble Lords who took part in the Grand Committee will recognise that this is the same amendment that was tabled then—on that occasion by my noble friend Lord Brooke, and I added my name to it. In the event, my noble friend was unable to move it and I did so myself.
I tabled the amendment again late on Thursday, shortly before five o’clock, because I was expecting to receive a letter from the noble Baroness, Lady Andrews. It had been promised by her private office but by a quarter to five it had not arrived and, as the noble Lord will be aware, the rules of the House require that if this amendment was to appear in the first Marshalled List to be published on Friday, I had to get it in before five o’clock. That is the only reason that I tabled it—it was due to the circumstances. However, I subsequently received the letter and, having read it, I am extremely glad that I retabled the amendment. The letter was very unsatisfactory, as I shall explain in a moment, and I think that we need an opportunity to examine the matter further.
The amendment seeks to clarify the extent to which a voluntary financial contribution made by a business to infrastructure schemes is tax deductible as the business expands under the Income and Corporation Taxes Act 1988. As I explained in Committee, this amendment is primarily aimed at the Crossrail project, which has long been supported by the City of London Corporation and for which the City agreed, as part of the overall financing mechanism for Crossrail, to seek voluntary contributions from businesses totalling £150 million. At the Second Reading of the Crossrail Bill, I asked the Minister what would happen if that money did not come in. I did not get a very satisfactory answer. This is in addition to the £200 million which the City agreed to provide from its own resources. As noble Lords will realise, the readiness of any business to make a voluntary
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When we debated the amendment in Committee, the Minister confirmed that business rates supplements anticipated by this Bill would be treated as business expenses and, therefore, would be deductible. The position of additional voluntary financial contributions, which are, of course, also supplementary to the rates which businesses pay, was something which the noble Baroness quite reasonably wished to reflect on in consultation with Her Majesty’s Revenue and Customs. It was that which gave rise to the undertaking to write before Report.
I will now refer to the letter, which a number of noble Lords have also seen. It starts by making two perfectly reasonable points. First, it points out that the question of deductibility cannot be pronounced on as a generality because the position is complicated. Individual business circumstances will vary and any question of deductibility has to therefore be determined in relation to an individual business’s circumstance. Secondly, it points out—again quite properly—that, other than for capital expenditure, the test is whether the expenditure is incurred,
Having set out that background and specifically referred to the question of deductibility as being dependent on the circumstances and not amenable to a general assertion, the letter goes on to make a general assertion, albeit hedged:
“Therefore, whilst I am advised that it is impossible to give a definitive answer in general terms rather than on a case by case basis, it remains unlikely that a voluntary contribution would be tax deductible”.
I find that a surprising conclusion and I think we deserve a further explanation. It may be that HMRC—I was a Treasury Minister responsible for the Inland Revenue when it was a separate department—mindful of the precedent which might be claimed to have been set, has advised in generality and not by reference to Crossrail—in which case, perhaps one can understand that rather sweeping statement. But this amendment is aimed specifically at the very special Crossrail scheme, which was the subject of a government hybrid Bill which took a number of years to get through Parliament but eventually reached the statute book. There is a wide measure of agreement that the scheme is essential in order to improve and enhance the transport of people in and around London—not just on the line of the rail but over a much wider area. Of course, it is widely agreed by business in London because of the advantages that that extra mobility will bring to the conduct of business.
In ordinary circumstances, I can understand why businesses would not contemplate making voluntary contributions to a scheme of that sort. It is not in the nature of businesses to do that. They may make charitable contributions. They may decide to offer a bonus to their staff—out of the goodness of their heart, as it were. Charitable contributions will have certain tax consequences, and bonuses are certainly tax deductible, because they are clearly seen to be incurred for the benefit of the business. Businesses are already earmarked
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There is a Treasury paper on that, to which I drew the attention of the noble Baroness, Lady Andrews. She was not aware of it at the time, but no doubt she went back to ask, “Why haven’t I been shown this?”. It is a Treasury document on business rate supplement guidance, published last month. Paragraph 2.1 is interesting. It states:
“There are a number of funding mechanisms available that enable local authorities and their communities to raise revenue locally to invest in the local area, for example Business Improvement Districts”—
It is now nine months since the Planning Bill reached the statute book. What has happened to the community infrastructure levy? It was contained in Part 11 of the Planning Act. We were supposed to have had regulations. Nothing has been heard of it since. I have been postponing meetings with local authorities because they tell me, “We know no more about it than you do”. Perhaps we might have an answer on that.
Business improvement district contributions are deductible. The community infrastructure levy, in so far as it is a revenue payment, as it may be in some circumstances, will be deductible. One therefore has to ask why a voluntary contribution of the sort being made to Crossrail is not also deductible. After all, in making such a voluntary contribution, business is at the same time making a robust statement about the importance of the project for its own business interests.
Therefore, I am quite unclear why, at least prima facie, voluntary contributions should not be regarded as wholly and exclusively for the purposes of the business. As the noble Baroness said, I understand that this is not straightforward, but we are entitled to a fuller explanation of why the Inland Revenue seems to take the view that,
We ought to have that explanation before Third Reading. I well understand if the noble Lord is unable to give us that assurance today. I leave him with this thought. A BID payment is tax deductible, as I said a few minutes ago. A BID payment is, in a sense, a voluntary payment, because it must be voted on. There has to be a vote of all the businesses that will be liable, so it has very much the characteristic of a voluntary payment. Why, therefore, are voluntary payments made to a project of the enormous importance to London of Crossrail not, at least prime facie, tax deductible? I beg to move.
8.45 pm
Lord Brooke of Sutton Mandeville: My Lords, like my noble friend, I was once a Treasury Minister. It is 22 years since I gave up being the Minister responsible to Parliament for Customs and Excise, long before the marriage of Customs and Excise with the Inland Revenue in their new and present form as HMRC. I mention this because, as my noble friend Lord Jenkin said, the guts of this matter is the attitude of HMRC as expressed in the letter to which my noble friend has alluded, which has come from the noble Baroness,
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In the circumstances of Crossrail, which underlay my noble friend’s contribution in Committee and today, I hope that sensitive interpretation, in terms of the case-by-case formula, will apply, and I will briefly enlarge on that hope. To go back to those days when Inland Revenue and Customs and Excise were separate, some identified the difference between them in their character as revenue departments. The difference was that Inland Revenue was preoccupied with the precise letter of the law, while Customs and Excise, in dealing with business, was capable of taking a broader view and of seeking to maximise revenue by simplifying procedures more roughly and readily on the time-honoured grounds that the best deal in business is one which is good for both sides.
I left my responsibilities for Customs and Excise two precise centuries after Pitt the Younger invented the Consolidated Fund and simultaneously slashed excise duties in a manner which dramatically raised the proceeds from the duties which remained, because of course smuggling disappeared overnight. Of course, I recognise that deductibility will involve a subsidy from HMRC, but common sense sends us back to Pitt. Crossrail, as my noble friend alluded, is going to need all the help it can get to make sure that it actually has the funds to carry out this enormous project. I have composed my notes for this speech around a draft of the speech which my noble friend has just delivered, so I have to pause for a moment while I recover my place.
If non-deductibility prevails, there is the risk that voluntary contributions will not come in. If, however, the response is sensitive, the chances improve that business will support the obvious arguments that exist for Crossrail and put their hands in their pockets disproportionately. There are good precedents for believing that bread being cast on the waters does produce a return after many days. I have no hesitation in supporting my noble friend’s amendment.
Lord Bates: My Lords, I support the amendment in two particular regards, and I seek some clarification. The points that have been made have been perfectly presented by my noble friends Lord Jenkin of Roding and Lord Brooke of Sutton Mandeville, and I have two points to add. I draw on similar experiences under the previous Conservative Government, in which I had the joy of occupying the position of Paymaster General in looking after such matters, albeit temporarily in the final days of that Administration.
To a degree, I can buy the careful wording used in this letter on the point of not wanting to bind or have the issue of precedent before us. However, the final sentence of the fourth paragraph states:
“Therefore whilst I am advised that it is impossible to give a definitive answer in general terms rather than on a case by case basis, it remains unlikely that a voluntary contribution would be tax deductible”.
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In many ways, that is the issue. I could understand if the sentence finished at “on a case by case basis”. One could accept that as a reasonable response from the Treasury. However, to add,
seems to bind the hands in a way it sought to avoid. Once the City of London comes to realise, particularly those businesses which have offered a total of £150 million, that this sum will not be tax deductible, the consequence will be that it acts as a huge disincentive for future schemes that may be offered elsewhere in the country and for those who may still be considering a voluntary contribution to Crossrail. The issue needs to be dealt with. We are familiar with this kind of test in standard wording such as “wholly and exclusively in pursuit of the interests of the business”. If the contribution was not wholly in the interests of the business, why on earth would it be made in the first place? It is bizarre to argue that a business might give 100 per cent for the sake of getting relief on 20 per cent. That is a non sequitur.
Of course such contributions are made wholly in pursuit of the interests of business; that is why organisations make such investments. It is also the reason why this letter, albeit that it has been guided by the hand of the Treasury, is entirely wrong to suggest that such matters should be judged on a case-by-case basis. In the case of contributions made to Crossrail, the answer should most certainly be that they are tax deductible because they are expenses incurred wholly in pursuit of the interests of the business.
Baroness Hamwee: My Lords, I congratulate the noble Lord, Lord Jenkin, on pursuing this matter with such doggedness. In response to the last point made by the noble Lord, Lord Bates, I would have thought that if a contribution is not in the interests of a business, it is likely to be ultra vires and the directors in the case of a company would be acting in breach of their fiduciary duties.
I have one question for the noble Lord, Lord Davies. Will it be possible or practicable—I am particularly concerned about “possible”—for the local authority to assess the impact on contributions when dealing with a variety of taxpayers? Within the drafting of the provision and the requirements of the prospectus, is it possible to assess the likely impact when the position may vary between different taxpayers?
Lord Davies of Oldham: My Lords, I congratulate the noble Lord, Lord Jenkin, on his persistence with regard to this important issue. I vouchsafe the opinion that had he received this letter a little earlier—the apologies are heartfelt; he will recognise that my noble friend had limited powers over its construction and therefore over it arriving when it did—I venture to consider that had he received it 24 or 48 hours in advance, it would not in any way, shape or form have caused him to deviate from his chosen course of tabling this amendment, because it is such an important issue.
Lord Jenkin of Roding: My Lords, I rise to say only that I might have put down a different amendment. All I am doing at the moment is trying to pursue the argument.
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Lord Davies of Oldham: That I understand, my Lords. The Government are going to have to address themselves to the issue irrespective of the timing of the letter. However, there is a sincere apology on that front which my noble friend wishes me to convey. It would have helped if the issues had been made clear earlier.
Crossrail is an important dimension of the Bill, but it is not the Crossrail Bill. We are constructing legislation for schemes in which local authorities will be in partnership with business for the economic development of areas, and Crossrail is a striking illustration of that. Noble Lords opposite have suggested that Crossrail in London should be the sole purport of the Bill, but it is not. Therefore it will not do to suggest that the Government’s response to the issues raised in the Bill should be constructed solely in terms of Crossrail. As a consequence, in defence of the HMRC, the response in the letter quite properly talks about a wider generality than the specifics of Crossrail.
I have listened very carefully to the case presented by the noble Lord, Lord Jenkin, which was ably supported by the noble Lord, Lord Brooke, who has a keen interest in this matter, and I recognise what the noble Lord, Lord Bates, offered in the way of support from the Front Bench. Of course the issue will be pursued and examined further. The letter is constructed against the generality; noble Lords have emphasised specifics. I cannot at this stage go any further than I have with regard to the letter, which makes it absolutely clear that I can offer no comfort in relation to the deductibility of voluntary contributions in a general sense but that the Inland Revenue will consider the issues on a case-by-case basis.
Noble Lords are saying that the case-by-case basis is particularly strong in relation to Crossrail and ought to commend itself to the Government. They have argued that point strongly today and I understand the strength of the argument. But they will respect that I am defending a Bill which concerns not only the issue of Crossrail but has a general import.
Lord Brooke of Sutton Mandeville: My Lords, the Minister will be the first to take the point that for a Bill which is intended to be of benefit to the nation as a whole, as was confirmed by the vote which we had earlier, the arguments for pursuing this particular method would be dramatically enhanced if Crossrail is a success, and will be damaged if it is not.
Lord Davies of Oldham: My Lords, that is certainly so. However, there is a wider public interest in the benefits contained in the Bill which may derive from Crossrail’s success because, as an economic project in itself, it is vital to the capital city. We all recognise the necessity for the success of Crossrail.
I shall take away from the debate the importance of the representations that have been made. The noble Lord, Lord Jenkin, has indicated that it is unlikely that we have heard the last of his representations in regard to this issue. But he will accept that today I am briefed in relation to the general consideration of the Bill and that that is why I am in no position to do anything more than identify the key elements which HMRC has
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9 pm
I venture that noble Lords will also appreciate that, on a matter of such importance regarding taxation, there are real issues with how the other place will take the perspective that this noble House might adopt. The noble Lords who spoke in this debate are so experienced on these matters that I do not need to develop that point, but the debate has been constructive and interesting. It is clear that these issues need to be thought about deeply, and that the Revenue was obliged to respond in the context of its general position. Those generalities are bound to obtain with legislation where neither I nor my noble friend Lady Andrews—nor anybody else—can translate the Bill into one specific case in those terms. I hope that noble Lords will appreciate the limitations I have in responding constructively.
Lord Bates: My Lords, on the generalities, my point about contribution was that it was certainly not general. The final sentence of paragraph 4 of the letter dated June 5 says,
That is very specific, not general.
Lord Davies of Oldham: My Lords, it is general in the sense that it applies to all the issues that the Bill raises. The noble Lords, Lord Jenkin and Lord Brooke, were saying—and I think that the Front Bench supported them—that there was a special position regarding Crossrail. It may well be that it is in the interests of the Government, of the nation and, certainly, of London, that the Crossrail project should be advanced by this special consideration. However, when defending legislation that is, by definition, wider than Crossrail and seeks to cover a range of possibilities, it is unreasonable for me to be asked to do more than indicate that this is the general position that we are bound to defend at this point. I regret that I can go no further this evening.
Lord Jenkin of Roding: My Lords, I am extremely grateful for the support that I have had for this amendment from all parts of the House, except of course from the Government Front Bench. I start, at once, by being most grateful for the apology that the noble Lord, Lord Davies of Oldham, gave; I realise that Ministers may, in the past few days, have had other things on their minds than following up points from Committee.
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