Income Tax

Jesse Norman Excerpts

Wednesday 3rd July 2019 Commons Chamber

[The Financial Secretary to the Treasury (Jesse Norman)]

I beg to move,

That the draft Capital Allowances (Structures and Buildings Allowances) Regulations 2019, which were laid before this House on 17 June, be approved.

The instrument before the House gives effect to the amendments to several tax Acts, principal among them the Capital Allowances Act 2001. The Government are determined to ensure that the UK tax system supports business investment and jobs. At 19%, the UK has already reduced its corporation tax rate to the lowest in the G20, and it is scheduled to fall still further to 17% in 2020. The Government recognise the importance of providing tax reliefs for genuine business costs, which is why we are taking steps to increase the overall competitiveness of the capital allowances regime.

At the autumn Budget, we announced an increase in the annual investment allowance for plant and machinery to £1 million per annum for two years, meaning that businesses will be able to deduct five times more qualifying plant and machinery expenditure in the year in which they make the investment. However, the UK is currently the only G7 economy that offers no capital allowances on investments in structures and buildings. That means there are no allowances on critical investments in bridges, roads or tunnels. It also means no allowances on investments in shops, offices or factories.

In the 2018 Budget, the Government set out to rectify the gap in the capital allowances regime by providing relief to businesses on qualifying expenditure on new non-residential structures and buildings. The Finance Act 2019 gave power to that effect, and I am now pleased to introduce the draft statutory instrument necessary to enact the change. It was important to follow the legislative process to provide taxpayers with certainty that the allowance will come into force as soon as possible, to minimise the risk of deferred investment and to allow the Government to consult extensively on this important measure, as we have done.

At the Budget, the Government published a detailed technical note for consultation that outlined the key features of the new allowance. Businesses that invest in new builds or renovations on or after 29 October 2018 will be able to claim tax relief at 2% a year on eligible costs, over a 50-year period. Following the first round of consultation, officials met scores of different companies, representative bodies and individuals from throughout the country. At the spring statement 2019, the Government published detailed draft legislation and invited further comments from stakeholders.

I am pleased to report that the vast majority of stakeholders welcomed the structures and buildings allowance. I extend my thanks to the many individuals and organisations that participated in both rounds of consultation, either in person or through written representations. Stakeholder responses have been a considerable help in the shaping of the new allowance, leading to amendments, including those relating to short-term leaseholds, eligible pre-trading costs and periods of disuse.

As I have said, the structures and buildings allowance has been designed to enable businesses to claim tax relief on the costs of new non-residential structures and buildings. This means that qualifying expenditure on new builds or renovations for which all the contracts for the physical construction works were entered into on or after 29 October 2018 will be eligible for relief. Relief will be available for any business that fulfils two conditions: first, that it owns a qualifying asset, either through direct building or by acquiring one from a developer; and secondly, that it uses the building for a qualifying activity for which the business is chargeable for UK tax.

Qualifying persons will be able to claim tax relief at 2% a year on eligible construction costs, including renovations. The allowance will apply across all sectors and sizes of UK trade, benefiting business owners, workers and the wider economy. The relief will be limited to the costs of the physical construction of the structure or building, and will not apply to the costs of acquiring the underlying land, rights over land, or planning permissions.

In summary, the regulations will enact important improvements to our capital allowances regime, in line with the power this House approved in the Finance Act 2019. Since 29 October 2018, business investments in new, and renovations of old, structures and buildings have been accompanied by an expectation of this allowance of 2% relief per annum against income or corporation tax bills. It is now important for the House to honour the commitment made in the Finance Act 2019 by enacting the regulations, thereby bringing them into force in line with their commencement provisions. I therefore commend the regulations to the House.

--- Later in debate ---

[Jesse Norman]

I am grateful to both Opposition Front Benchers for their comments, which were quite wide-ranging. I will try, if I may, to keep my responses reasonably short.

The hon. Member for Bootle (Peter Dowd) began with a very wide-ranging critique of reliefs as such. He then cited the Institute for Fiscal Studies on the reliefs in general that have built up in the tax system over the past several decades. However, in trying to criticise the Government on the grounds that the system is not consistently applied across different reliefs, he does not reflect on the fact that this measure is designed to correct an anomaly. We have an anomaly in our system in that we do not offer reliefs on structures and buildings. We are therefore removing a disincentive to investment and levelling the playing field in a way that has a clear policy justification.

The hon. Gentleman said that there is an absence of transparency, but there were 18 weeks of consultation in two phases on both the principle and detail, so it is hardly clear that that is true. He also implied that a Labour Government would remove tax reliefs. If that is true, I would welcome him indicating to the House which reliefs a Labour Government would propose to remove or abolish.

[Peter Dowd]

The Minister ought not to put words in my mouth. I exhort him to read what I said. Unlike the leadership candidates, who are spending money left, right and centre, the Opposition are responsible. The point I was trying to make is that it is important to review reliefs. There are 1,200 of them. Many other countries review reliefs—there is nothing particularly radical about that, and I exhort the Government to do so.

[Jesse Norman]

It is hard to make swingeing criticism of the idea of reliefs and then not indicate any that a Labour Government would propose to abolish. It raises the question whether the Labour party is serious about this. The hon. Gentleman described these reliefs as “corporate welfare” and giving away millions of pounds to large companies. All companies benefit that have qualifying investments and are subject to UK taxation in the way indicated; it is not just larger companies. Many of the reliefs he describes are negligible and therefore should not necessarily be the target of extensive review. He talks about the reduction in corporation tax as though it is a bad idea but neglects the fact that significantly more corporation tax has been raised following these reductions.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

I am grateful to the Minister for being willing to give way. I am sure he is aware of the evidence repeated over and again by the bodies that have looked into this that the reason for increased corporation tax take was not the reduced rate of corporation tax—rather, it related to the return to profitability of banks and so forth. It was not related to the reduction in rate, and just about every authoritative study that has looked at this has suggested that.

[Jesse Norman]

Those companies’ return to profitability was the result of proper, prudent financial management. I remind the hon. Lady that in the specific case of the financial sector, the bank levy has taken billions of pounds a year more from the banks than the Labour tax that it replaced. I do not think her view has credibility.

The hon. Member for Bootle criticised the timetable, but it is designed specifically to keep uncertainty to a minimum. Far from the suggestion that it would create more uncertainty, the point of my saying that qualifying expenditure on new builds or renovations for which all contracts for the physical construction works were entered into on or before 29 October 2019 will be eligible for relief is precisely to give very clear direction to future investment. I do not agree with many of the points that he made.

[Kevin Hollinrake]

Does the Minister think that the hon. Member for Bootle understands how reliefs work? He said that it was about giving away millions of pounds to corporations. Actually, if a corporation invests on the back of a relief, it still costs that corporation money; it just makes the investment slightly more attractive.

[Jesse Norman]

My hon. Friend is right. The point of the relief we are giving through the structures and buildings allowance is precisely to level the playing field and to enable and encourage more business investment.

The hon. Members for Bootle and for Aberdeen North (Kirsty Blackman) asked about reviewing or monitoring. As they will be aware, the Treasury and HMRC continuously monitor tax reliefs according to the level of risk they pose, and they publish annual statistics on tax reliefs, including cost estimates where they are available.

I will now turn to the other points made by the hon. Lady. She says charitable organisations will be heavily affected. The statement that the acquirers of structures or buildings are asked to fill out consists of four factual pieces of information: first, what is the asset; secondly, when was it built; thirdly, when did it come into use; and, lastly, how much did it originally cost? That is not a heavy burden on any institution.

[Kirsty Blackman]

To be fair, I did not say it was a “heavy” burden. The tax information and impact note says that there will be

“no impact on civil society”.

That is not true because there will be an effect on civil society. It may be a minor effect, but there will be one, and I was just asking for the tax information and impact note to be updated to reflect that.

[Jesse Norman]

I perfectly understand, and it is a verbal point. This is subject to a de minimis factor: any Government action will have some minuscule effect on many people, but that does not mean that it is significant enough to register.

The hon. Lady raised a question about process, which I have already addressed. She raised a point about the Office of Tax Simplification. The difficulty with the suggestion it has made is that, if the boundary were removed between buildings that get relief at 2% and plant, fixtures and so on that get relief at 6%, the result would have to be a combined rate of relief somewhere in-between. The effect for many businesses with long-term investments in plant would be that they lost out through reduced relief or delayed relief if the rate went down. There would be a significant number of losers and a negative impact on business investment, when we are trying to have the exact opposite effect.

The hon. Lady raises the issue of student housing. This measure is of course specifically aimed away from residential property and other buildings that function as dwellings and towards commercial properties. For that reason, student housing is not included, but hotels and care homes will qualify because the underlying businesses are service providers whose premises are being used in a trade.

[Kirsty Blackman]

Much of the student housing in my constituency works almost as serviced apartments. They are apartments with one shared kitchen and a number of flats, and they are much more like a hotel or care home in that they are run as businesses and students are there only for a short period. Are those kinds of serviced dwellings for students included or are they not included?

[Jesse Norman]

The answer is that they are not. The hon. Lady is welcome to write to me with specific details of the student housing in her constituency. Of course, many students live in housing that universities would regard as equivalent to hotel accommodation of years ago. However, the general rule is that it is not included, but that hotels and care homes—where there is such trade, as I have described—are included. I think that is a tolerably clear line.

The final point the hon. Lady raised was about the impact on GDP. The independent Office for Budget Responsibility has estimated that the capital allowances package announced at the Budget would increase business investment by 0.4%, so that number has been calculated and put into the public domain.

[Peter Dowd]

The Minister is talking about numbers and putting the record straight. He referred earlier to the bank levy and bank surcharging. In 2017-18, they raised £2.6 billion and £1.9 billion, totalling £4.5 billion, and in 2023-24, they will raise £1.1 billion and £2.1 billion, totalling £3.2 billion, so they will raise considerably less than they raise now, not the billions more that the Minister suggests they will raise.

[Jesse Norman]

If I may, I will just correct the record. I said that they have raised billions more—and they have raised billions more—than the pre-existing Labour tax. That is a fact of the financial environment that surrounds banks, just as this is a new fact for the financial environment that surrounds corporations more generally. And on that point, I will sit down.

Question put and agreed to.