Finance (No. 3) Bill (Fifth sitting)

Jonathan Reynolds Excerpts

Tuesday 4th December 2018 Public Bill Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I beg to move amendment 73, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the likely effect of extending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery to 2030 and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the effects of extending first-year allowances to 2030.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 74, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the likely cost of extending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery to 2022 and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the cost of extending first-year allowances to 2022.

Amendment 75, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the effect of ending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery and lay a report of that review before the House of Commons within one year of the passing of this Act.

(7) A review under subsection (b) must consider the effect on—

(a) the energy technology sector, and

(b) the water technology sector.”

This amendment would require the Chancellor of the Exchequer to review the impact on the energy and water technology sectors of ending first-year allowances.

Amendment 76, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the effect of ending the first-year allowances on energy-saving plant or machinery or environmentally beneficial plant or machinery, on foreign direct investment in the energy technology and water technology sectors and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the impact of ending the first-year allowance on foreign direct investment in the energy and water technology sectors.

Amendment 77, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must review the effect of the provisions in this section on the United Kingdom’s ability to comply with its third, fourth and fifth carbon budgets and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the impact of Clause 32 on the UK’s ability to meet its carbon budgets.

Amendment 78, in clause 32, page 19, line 23, at end insert—

“(6) The Chancellor of the Exchequer must lay before the House of Commons a report on any consultation undertaken on the provisions in this section within two months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in this clause.

Clause stand part.

[Jonathan Reynolds]

It is lovely to see you again in the chair, Ms Dorries, as we reconvene for this Committee’s second week. It is particularly good to see the Minister still here—I am never quite sure at the minute who will turn up on behalf of the Government.

I speak to Opposition amendments 73, 74 and 78 to clause 32, which focuses on first-year allowances and first-year tax credits. This measure would end the first-year allowance for all products on the technology and energy list and on the water technology list. Before I move on to why the Opposition feel strongly that the Government are wrong to end the first-year allowance, it is important to establish the extent of the allowance, its qualifications and the logic behind its introduction.

Enhanced capital allowances legislation was introduced in 2001 to encourage the use of energy-saving plant and machinery, low-emission cars, natural gas and hydrogen refuelling infrastructure, water conservation plant and machinery construction projects and so on. Under the relief, businesses that pay income or corporation tax can claim 100% of the first-year capital allowance on investment in ECA qualifying items. In addition, adoption of ECA qualifying items improve a project’s building research establishment environmental and assessment method—the BREEAM rating—and contribute to an improved energy performance certification rating.

To qualify, the item acquired must qualify as plant and machinery and satisfy the following criteria: it must not be second hand; the expenditure must have occurred after 1 April 2001; and the plant must either be a listed product or meet the energy saving or water conservation criteria specified by the Carbon Trust. Energy-saving technologies are things such as air-to-air energy recovery, automatic monitoring, boilers including biomass, combined heat and power units, compressed air equipment and so on. Water conservation technologies include efficient showers, taps and toilets, energy-efficient washing machines and more.

The Department for Business, Energy and Industrial Strategy describes enhanced capital allowances as different from standard capital allowances. It estimates that enhanced capital allowances are between 5.5 and 12.5 times greater than ordinary capital allowance relief. This accelerated cost saving further shortens the period of time and builds the business case for investment in energy-efficient equipment.

It is clear that this allowance encourages businesses to mitigate their environmental footprint and is designed to help the UK transition to a green and low-carbon economy. It is therefore disappointing that at a time when, as we have already discussed in this Committee, the United Nations Intergovernmental Panel on Climate Change has warned that climate change is at the point of becoming irreversible, the Government would choose to end such an effective relief.

Despite the positive steps that national Governments are taking all over the world to get citizens to recognise and limit their personal carbon footprint, businesses clearly have a role to play, too. We feel that the best way is to incentivise businesses, making it worth their while to use energy-saving and water-conserving technologies through tax relief. Taking away first-year allowances with little notice would only further alienate business at a time when we all need to do what we can to transition our economy to deal with the realities of climate change.

Although in its policy notes the Treasury suggests that small and medium-sized businesses will be shielded and the vast majority will be able to claim relief under the separate annual investment allowance, it concedes that large businesses will face additional costs and some level of disruption. Similarly, the Chancellor has stated that the revenue saved will be used to fund the industrial energy transformation fund. However, details about the fund remain scant, aside from the fact that it will be targeted at smaller businesses and funded through the end of these first-year allowances.

From the Opposition’s perspective, the change appears to be little more than a rebranding exercise designed to take an effective relief—first-year allowances—away and simply redirect that revenue into the Chancellor’s new fund. It is far from the radical industrial strategy that the UK needs to ensure that businesses and citizens are equipped to deal with climate change and the evolving energy market.

In the Budget, the Chancellor announced a consultation on a new business energy efficiency scheme, yet there appears to be little mention of whether businesses were consulted about ending this vital relief. Opposition amendment 78 would therefore require the Chancellor to report on what consultation has taken place.

The Government’s decision to end first-year allowances for energy-saving and water conservation technologies raises a further question about the effectiveness of this relief. Put simply, it is not broken, so the Government need to explain why they are planning to scrap it. That is certainly the sentiment behind Opposition amendments 74 and 73, which would require the Chancellor to undertake a review of the cost of extending the allowance to the end of this Parliament, and to 2030, respectively.

The reality is that the changes made by the Government in clause 32 appear to be revenue-led. They put the short-term priorities of the Treasury ahead of the UK’s long-term obligation to tackle climate change. Rather than empowering businesses to do their part and invest in energy-saving and water conservation technologies, it appears likely to deter them. We cannot see the logic of that. If the Government are sincere in their desire to create a better-targeted and more effective relief, they need to offer the Committee further details about the supposed industrial energy transformation fund to replace first-year allowances. If the Committee is being asked to endorse that change, let us have all the details first.

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

It is a pleasure to serve under your chairmanship, Ms Dorries. After two days in the reassuring embrace of the Financial Secretary to the Treasury, the Committee has a brief interlude.

Clause 32 will make changes to end, from April 2020, first-year allowances for all products on the energy technology list and the water technology list, including the associated first-year tax credit. The environmental first-year allowances aimed to encourage greater take-up of environmentally friendly technology. Capital expenditure by businesses on plant and machinery normally qualifies for tax relief by way of capital allowances. Environmental first-year allowances allow 100% of the cost of an investment in qualifying plant and machinery to be written off against taxable income in the year of investment, providing a cash-flow benefit. The first-year tax credit provides a tax credit for loss-making businesses that invest in qualifying items.

The first-year allowance was introduced in 2001 for products on the energy technology list, and in 2003 for products on the water technology list. However, the allowances have made the tax system more complex, and there is very limited evidence that they have driven greater uptake of such technologies. A report by the Office of Tax Simplification found significant barriers to accessing the allowances, including the administrative burden of making claims. Government analysis suggests that less than 25% of energy managers would increase investment in energy-saving technology because of the allowances, while fewer than 20% of manufacturers report a positive impact on sales.

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[Jonathan Reynolds]

I am listening carefully to the Minister, but if the increase in the annual investment allowance replaces the first-year allowances or mitigates their loss, it seems that there is no fiscal incentive to invest in energy-efficient or climate change-relevant technology. The Opposition believe that we should try to operate the policy as a fiscal instrument to direct investment into the technologies that we need, but I do not see that described in the Minister’s answer.

[Robert Jenrick]

I have described it; that is the rationale for replacing the first-year allowance with the energy transformation fund. Had we chosen simply to remove the allowances and replace them solely with the increase in the annual investment allowance, the hon. Gentleman would be correct: 99% of businesses could proceed broadly as they do today, but they would not have a specific incentive to choose environmental equipment, plant and machinery or energy efficiency measures. However, by coupling the increase in the annual investment allowance with the transformation fund, we hope to shift the dial in favour of technology that helps the environment.

Amendment 77 would require the Government to review the impact of clause 32 on the UK’s ability to meet its carbon budgets. I assure the Committee that there are already robust requirements to report on progress towards the UK’s emissions reduction targets. When the measures in the Budget and the Bill become law, they will become part of that regime.

The Climate Change Act 2008 provides a world-leading governance framework that ensures that progress towards carbon targets is robustly monitored and reported to Parliament. First, the Government are required to prepare and lay before Parliament an annual statement of emissions that sets out the total greenhouse gases emitted to and removed from the atmosphere across the UK, and the steps taken to calculate the net UK carbon account. Secondly, the independent Committee on Climate Change is required to prepare and lay before Parliament an annual report, to which the Government are required to respond, on the Government’s progress towards meeting the UK’s carbon budgets. I would expect the committee to take the changes made by clause 32 into account in their deliberations. Thirdly, the Government are required to prepare and lay before Parliament a statement that sets out performance against each carbon budget period and the 2050 target.

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[Robert Jenrick]

I understand that this would apply only to private businesses. Other interventions help the public sector, such as the charging infrastructure investment fund, which local authorities can become involved in if they wish to develop infrastructure in their area. There were a number of wider measures in the Government’s Road to Zero strategy, including consulting on changes to the planning system to ensure that new business and residential properties, as well as public sector projects such as new council offices, hospitals and so on, are built with the infrastructure in place to support these vehicles.

The allowance will expire on 31 March 2023 for corporation tax purposes and on 5 April 2023 for income tax purposes. This extension is expected to have a negligible impact on the Exchequer. There are no anticipated costs to Her Majesty’s Revenue and Customs and neither will there be any significant economic impact nor any additional ongoing costs for businesses beyond the investment that will be generated.

In conclusion, this extension will incentivise the use of cleaner vehicles by encouraging companies to invest in electric vehicle charge points, giving confidence to drivers to shift away from current combustion propelled options in the knowledge that the further roll-out of charge points will continue and accelerate in the years ahead, and reduce all the damage to the environment and public health that follows. I commend this clause to the Committee.

[Jonathan Reynolds]

Having just passed clause 32, which ended first-year allowances on the basis they were little known about and ineffective, I cannot help but comment how clause 33 extends the first-year allowance for another technology for four years on the basis it will provide the incentives and drive Government policy in that direction. Forgive me for pointing out that there are mixed messages from Ministers on these clauses.

It is disheartening that this is one of the relatively few mentions of environmental issues in the Finance Bill. We were all at Mansion House in June when the Chancellor gave a speech about how we would lead the way on green finance, yet there have been no legislative measures to follow up on that promise. We still lag behind our European counterparts on things such as mandatory climate disclosure laws or sovereign green bonds, but we should welcome any measures we like the look of when we see them.

Transport is a major source of emissions and we agree that we rapidly need to shift away from fossil fuels towards electricity and renewable sources and, to a certain extent, hydrogen for heavier vehicles. Thankfully, electric vehicles are coming through the system quickly and are expected to move rapidly through their cost curves, getting cheaper and cheaper. I have been hugely impressed by the electric vehicles I have experienced. Some estimates have cost parity for purchasing an electric vehicle as soon as 2022, after which buying an electric vehicle will become cheaper than buying a fossil fuel powered car.

The transition to a decarbonised, clean and smart economy will offer the UK many advantages, particularly considering how tech-savvy and early adopting much of the UK population is. The Nissan LEAF is the most-sold electric vehicle in the world. I say with some local pride, as someone born in Sunderland, that Sunderland has been the sole producer in Europe of the Nissan LEAF, creating over 50,000 vehicles. Of course, electric vehicle and hybrid production in the UK has provided a £3 billion trade surplus.

With a growing list of countries setting a date to ban combustion vehicles and modelling showing strong uptake curves, the global move to electric vehicles will be rapid. The first mover advantage to capture supply chains and jobs in this coming market will be considerable.

[Alex Sobel (Leeds North West) (Lab/Co-op)]

Norway is planning to ban combustion vehicles by 2025—the incentives and the infrastructure in Norway are sufficient for that. We are not planning that until 2040. Does my hon. Friend agree that there is a policy failure not just on this measure but more generally in terms of building our electric vehicle infrastructure?

[Jonathan Reynolds]

I agree with my hon. Friend, who has taken a major interest in these issues both before and during his parliamentary career. The availability of charge points is the greatest concern when it comes to achieving this shift. My hon. Friend the Member for Manchester, Withington and I were just talking about the local charge points in Greater Manchester, which we have both experienced.

A recent World Wildlife Fund report on accelerating the electric vehicle transition made some predictions about how it might evolve. It said:

“Private charging infrastructure will be in most homes and many workplaces. The opportunity to charge at home rather than relying on public charging infrastructure is an attractive feature of electric vehicles, and we assume that owners who are able to charge at home will do so when convenient (for example overnight). Workplace chargers are also likely to be required; evidence suggests that around 20% of electric vehicles currently make use of workplace charging…In the 2040 scenario, 11 million home chargers and around 2.2 million workplace chargers are needed by 2030.”

That last point is key in relation to the clause.

Electric vehicle charging will be facilitated by a combination of home and workplace charging, running to millions of stations. That is why it is essential to grasp every chance to promote the installation of infrastructure in companies. We support this capital allowance to help achieve that. However, although it is a positive move, it is a drop in the ocean of what needs to be done to encourage the use of cleaner vehicles. More than half of new car registrations last year came from businesses, so ensuring that there is an attractive package to encourage companies that are reliant on cars to use electric vehicles is clearly fundamental to tackling emissions.

Will the Minister elaborate further on how this measure will work for smaller companies? Our concern is that smaller companies, which have vast competing spending priorities, may find it difficult to source the cash they need to build charge points. We would also like to know the Government’s long-term plans for the charging infrastructure investment fund, which has recently changed its grant system for the installation of plug points. Will the Minister elaborate on what the take-up of the programme has been among small businesses? How is the scheme being promoted to ensure the maximum possible take-up?

My hon. Friend the Member for Bootle raised a key issue about business rates. We must aim high to ensure workplace charging infrastructure is as widespread as possible. We should compare how this might evolve with the uptake of solar panels. A change in valuation methodology meant that some institutions had a 400% increase in their business rates after they deployed solar technology. That runs counter to everything we all want to incentivise. Why would we penalise those who lead the charge? In such a generous package of capital allowance for businesses, it is difficult to see why any Government would build a tax disadvantage into the system for users of renewable or climate change-solving technologies. That is not simply our view. That point has been heavily put across by trade associations, including the Solar Trade Association, which launched a fairly scathing attack on Budget 2018.

In conclusion, the extension of the first-year allowance on workplace charging infrastructure is a step in the right direction, but these things cannot operate in isolation. The Government must take serious further action urgently to promote the transition to a greener economy. Although this is a start, I hope the Minister can reassure us of the Government’s ambition to go even further.

[Robert Jenrick]

I hope I can reassure the hon. Gentleman on those points. The first point was about why we would choose to extend this measure at the same time as bringing another to an end. We chose to bring the other one to an end because the evidence was not there to support its continuation. Having given the matter careful analysis, we believed that there was a better way forward.

We are still at a very early stage in the process. It is too early to assess the precise impact of this measure. We know that the total number of electric charge point connections has increased from more than 13,000 in November 2017 to more than 18,000 in October 2018—a 38% increase. Clearly, we would like that to accelerate even further, because that is still a small number across the whole of the country. We believe, anecdotally, that the measure is working and that it has been welcomed by the industry, but it is too early to assess that precisely. We are placing an extension in the Bill to ensure it can continue and to give certainty to the market. We will review this measure in time, as we have done with other measures, to determine its effectiveness. If it is not working correctly, we will take action accordingly.

The hon. Gentleman asked why the Budget did not do more for the environment. Of course, I contest that. The Budget did set out a wide range of measures to help the environment, from the new plastics tax, which will be consulted on and legislated on in the next Finance Bill—we hope it will be one of the world’s first plastic packaging taxes—to the measures already set out in the Finance Bill, such as this one and the vehicle excise duty measure on taxis, which we brought into effect a year early, and which has ensured that cities such as London and Manchester are seeing a great increase in low emission taxis.

We have already spoken about the industrial energy transformation fund, which we hope will put heavy users of energy on a more sustainable path. These things build on recent announcements, whether it is the industrial strategy and its commitment to the environment and to clean growth, or the Road to Zero strategy with respect to electric vehicles. Across Government, we are taking a wide range of measures to support the environment and to help businesses and individuals to cut their energy bills and lower carbon emissions.

The hon. Gentleman asked about the electric vehicle charging infrastructure fund. This was announced at the Budget last year, and we have now progressed the fund. We are in the final stages of selecting a fund manager, and once they are appointed we expect the fund to be formally launched and to start investing in early 2019. I hope to be able to give the hon. Gentleman and others more information on that very shortly so that businesses that wish to participate in it can start to access that £200 million and we can increase public and private investment in charging infrastructure very rapidly.

Small businesses, which the hon. Gentleman raised, will be able to claim under the annual investment allowances, which we have debated on a number of occasions. As I have said before, 99% of businesses will be able to claim under the annual investment allowances, which is a considerable increase as a result of the Budget and will help businesses that want to invest in this area.

On solar, the feed-in tariff scheme has supported over 800,000 small-scale installations, generating enough electricity to power 2 million homes. The scheme has helped to drive down the cost of renewable electricity, including small-scale solar photovoltaic. We therefore think it is right to protect consumers and to review the incentives as costs begin to fall. The Government—and indeed the Government before us—have made significant interventions in this area. With those reassurances, I hope the hon. Gentleman will support the clause.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clause 34

Qualifying expenditure: buildings, structures and land

[Jonathan Reynolds]

I beg to move amendment 79, in clause 34, page 19, line 38, at end insert—

“(4) The Chancellor of the Exchequer must lay before the House of Commons a report on any consultation undertaken on the provisions in this section within two months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in this clause.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

New clause 2—Review of changes to capital allowances—

“(1) The Chancellor of the Exchequer must review the effect of the changes to capital allowances in sections 29 to 34 and Schedule 12 in each part of the United Kingdom and each region of England and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the changes on—

(a) business investment,

(b) employment, and

(c) productivity.

(3) The review must also estimate the effects on the changes if—

(a) the UK leaves the European Union without a negotiated withdrawal agreement

(b) the UK leaves the European Union following a negotiated withdrawal agreement, and remains in the single market and customs union, or

(c) the UK leaves the European Union following a negotiated withdrawal agreement, and does not remain in the single market and customs union.

(4) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

New clause 5—Aggregate effect of changes to corporation tax and capital allowances—

“The Chancellor of the Exchequer must, within one year of the passing of this Act, lay before the House of Commons an analysis of the effect of the changes to corporation tax and capital allowances made under sections 25 to 28 and 29 to 34 of this Act.”

This new clause would require the Chancellor of the Exchequer to review the aggregate effect of the changes to corporation tax and capital allowances made under this Act.

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[Jonathan Reynolds]

I regret to inform the Committee that we are reaching the end of the section of the Bill relating to capital allowances.

The capital allowances regime clearly requires a holistic review by the Government. We all agree that we want to make the UK a competitive and attractive place for businesses. As we contemplate our departure from the EU, that requirement has never been more pressing. Yet, these measures all come at a cost. The annual investment allowance increase will cost £1.24 billion in its first three years. By 2023-24, the buildings and construction expenditure allowance will cost over half a billion pounds. They need an assessment in the round so we can aggregate these reliefs against the corporation tax reductions and see what the package really looks like, what the economic justification is for these changes, and whether that money should be reprioritised elsewhere.

With the UK becoming such an outlier among other developed countries in relation to corporation tax, with an eventual rate of corporation tax well below the average of OECD countries, we need to ensure that our overall package of measures is properly targeted. That is why Labour is moving new clause 5, which would oblige the Government to present an analysis in a year’s time of the full effect of these changes and the corporation tax alterations. We need to understand what this package looks like in the round, whether it is providing value for money, and what the real cost is to the taxpayer in aggregate. Only then can we make a judgment on whether this is the right and appropriate way to spend the money, when the UK has so many other priorities after eight difficult years of austerity.

That is why I urge Members to vote for new clause 5, which would obligate the Government to publish a review in a year’s time. By then, we will be in a position to see how these allowances have been taken up, as well as to make some initial judgments on Britain’s business investment landscape post our exit from the European Union.

Clause 34 will amend the Capital Allowances Act 2001 to clarify that land alterations qualify for capital allowances where plant or machinery is installed that qualifies for the same allowances. It helps to clarify the qualifications in place for businesses that seek to carry out such work. The Opposition have no particular objection to ending the mismatch, but this is another tidying-up measure. Will the Minister provide some insight on whether any further such measures are to come? How was the inconsistency brought to the Government’s attention? Is there any estimate of the cost associated with this measure? There should be greater transparency and understanding of exactly where such a measure has come from. If there has been pressure from a particular sector, that needs to be clear. Opposition amendment 79 calls for the Government to present to the House a report on any consultation undertaken on these provisions. I call on Members to vote for this amendment to provide proper transparency on process to the House, so that the cost and benefit can be properly scrutinised and we can assess the motivations for bringing about this change.

[Kirsty Blackman]

It is a pleasure to speak in this Committee and to serve under your chairpersonship, Ms Dorries. I want to focus my comments on new clause 2, but if the Labour party presses amendment 79 or new clause 5 to a vote, we will support it. What we are trying to do in new clause 2 is not dissimilar from what Labour is trying to do in new clause 5—we are just going about it in slightly different ways. Putting the two new clauses together would make a lot of sense, to encompass what we are both trying to achieve.

New clause 2 looks at clauses 29 to 34 and schedule 12 to the Bill and provides for a review of the changes to capital allowances. It asks for a number of reviews and for us to measure against a number of outcomes that we hope the Government will seek through any changes they make to capital allowances or through having a capital allowances system in the first place.

The first review is of business investment. What changes do the Government expect for business investment as a result of all the changes made to capital allowances? Any tax system tries to do three things: disincentivise undesirable behaviour, incentivise desirable behaviour and get money for the Exchequer. It is important to consider whether the legislation does any of those things in the way we would hope. Business investment is key; surely, the point of capital allowances is to incentivise good business investment. Therefore, it is reasonable that the Government come back and explain to us the potential changes they expect to business investment resulting from their legislative changes.

The second review is of employment. That is important; the Government are never off their high horse about the level of employment they say we have. If they hope the changes will make a difference to employment levels, they should tell us how much change they expect so that we can measure their performance against whether that has been achieved. We just heard that the previous tax allowances put in place for first-year allowances did not have the desired effect, and the Government have to change them. Therefore, it would be useful to know what the Government expect to happen to the number of employed people as a result of their changes. We can measure the Government against that and say whether the measure has failed or has achieved what they intended to achieve.

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[The Financial Secretary to the Treasury (Mel Stride)]

It is a pleasure to serve under your chairmanship, Ms Dorries. I thank the hon. Members for Stalybridge and Hyde and for Aberdeen North for their contributions, and I will endeavour to pick up the various points that have been made.

Since 1994, capital allowances have not been available for most buildings and structures, including aqueducts, bridges, canals, roads and tunnels. It has been long understood by HMRC—and by taxpayers—that nobody can claim plant and machinery allowances where the expenditure relates to an excluded structure or building. Specifically, nobody can claim capital allowances for expenditure on altering land for the purpose of installing an asset that is excluded from allowances. Expenditure on buildings and structures is excluded in this way by sections 21 and 22 of the Capital Allowances Act 2001.

To answer one of the specific points raised by the hon. Member for Stalybridge and Hyde, doubt has been cast on that principle by a recent tribunal decision, which HMRC is appealing against. The purpose of the clause is to ensure that the law remains clear and that plant and machinery allowances can be claimed only in relation to alterations of land to install qualifying assets. The clause clarifies the legislation to provide certainty going forward and to protect the Exchequer from potential spurious and windfall claims for historical expenditure.

The clause should be read alongside the introduction of a new structures and buildings allowance, which in time will become a very substantial relief that fills a significant gap in our capital allowances system. Taxpayers who alter land for the purpose of installing a structure or building should claim this new allowance—we covered it when debating clause 29—and should not claim the plant and machinery allowance.

As I have said, the clause clarifies that expenditure on land alterations cannot qualify for capital allowances unless it relates to the installation of qualifying plant and machinery. No expenditure on structures or buildings, as defined in sections 21 and 22 of the Capital Allowances Act 2001, will be counted as plant. This will apply to all capital allowance claims made from 29 October 2018 onwards, but not to claims already in the system—to do otherwise would be unfair. However, as this does nothing more than restore the commonly held interpretation of the law, we do not consider it to disadvantage any company that has already incurred expenditure. If we did not make this amendment, there is a strong probability that some businesses might make spurious or windfall claims, as there is no time limit for making a capital allowances claim.

Amendment 79 seeks a legislative commitment by the Government to report on any consultations that are undertaken on this measure. However, the measure addresses a potential source of ambiguity in the capital allowances legislation and protects revenue that we need for our vital public services. That needs to be done quickly to maintain a level playing field and to provide certainty for businesses incurring expenditure in this area. The Government’s view is that this measure is not best supported by consultation, which would delay this change. In any case, it restores the interpretation of the law that HMRC and taxpayers commonly understood before the recent tribunal case.

New clause 2 aims to commit the Government to report on the impact of the capital allowances changes in the Bill, including under a number of different EU withdrawal scenarios, as well as on the impact on different parts of the United Kingdom. The Office for Budget Responsibility has provided its independent view of the impact of these policies, in particular on business investment, in its “Economic and fiscal outlook” report, in the box titled “The economic effects of policy measures”. When available, HMRC will publish updated statistics on capital allowances claimed, split by asset type and by industry. Data on capital allowances claimed are based on where companies are registered rather than where the activity itself takes place. Requiring businesses to provide the more detailed information that this report would require about the precise location of their expenditure would represent a significant new administrative burden.

On the impact of the policies in different EU exit scenarios, the capital allowances package in the Bill is intended to boost business investment in all scenarios. The Government have already laid before Parliament a written ministerial statement under the title “Exiting the European Union: publications”, representing cross-Whitehall economic analysis on the long-term impacts of an EU exit on the UK economy, its sectors, nations and regions and the public finances. The document is available on gov.uk and from the Printed Paper Office. Committee members will be aware that I also answered an urgent question at length on this very matter.

New clause 5 is intended to commit the Government to assess the aggregate effects of the changes to corporation tax and capital allowances made under the Bill. However, that information is already largely set out in the public domain. The independent Office for Budget Responsibility certifies the Exchequer impact of all the measures in the Bill, set out in table 2.1 and table 2.2 of Budget 2018. When they are announced, the OBR will also provide its independent view of the impact of these policies on business investment in its “Economic and fiscal outlook” report, in the box titled “The economic effects of policy measures”.

Finally, every year HMRC will publish updated statistics breaking down corporation tax paid and capital allowances claimed. For those reasons, I urge the Committee to reject the amendment and new clauses, and I

commend the clause to the Committee.

[Jonathan Reynolds]

We would like to press amendment 79 to a vote.

Question put, That the amendment be made.