Income Tax

Kirsty Blackman Excerpts

Wednesday 3rd July 2019 Commons Chamber

[Kirsty Blackman (Aberdeen North) (SNP)]

Let me begin by thanking the Association of Taxation Technicians and the Chartered Institute of Taxation, which have provided me with some information so that I can help to scrutinise this incredibly technical piece of legislation.

I would first like to raise a couple of issues. The tax information and impact note on these regulations explicitly says that there is

“no impact on civil society”.

This is directly contradicted in the explanatory memorandum, paragraph 12.1 of which says that charitable organisations will be required to keep more documentation and to gather together that documentation, which they currently do not have to do. I would suggest that there is a direct impact on civil society, so the tax impact and information note should be updated to reflect that.

I have the same concerns as the shadow Minister, the hon. Member for Bootle (Peter Dowd), on the decision to implement the relief in this way. In June 2018, the Office of Tax Simplification published a report called, “Accounting depreciation or capital allowances? Simplifying tax relief for tangible fixed assets”. It is hugely riveting, I promise. The report said that the tax system should look to reduce, or at least not increase, the different types of expenditure in classes of assets that have to be identified solely for tax purposes. Unfortunately, the way in which the Government have chosen to do this increases the number of classes of assets that have to be identified purely for tax purposes. As this directly contradicts an OTS recommendation, it would be useful if the Minister explained why the Government have chosen to do it this way, and not to change the current system of capital allowances to include this measure, perhaps along with plant and machinery, as this is already a very difficult distinction for people to make. With the lack of published guidance, I fear that the distinction between plant and machinery, and fixed assets, meaning the building itself, will remain difficult to assess. I have concerns about that.

The other issue is about the timing of this legislation. It was announced as something that would happen immediately as part of the Budget on 29 October 2018. However, we are now considering these regulations in July, without the publication of the guidance. We do not have the guidance to be able to work out whether the way in which the measures are being implemented makes sense. And this is not just about parliamentarians’ scrutiny. Businesses and organisations that have operated under this new system since 29 October have had to keep all the relevant documentation since then without knowing what the relevant documentation is and without knowing the exact classes of assets they can claim against under this tax relief.

Given the huge amount of uncertainty businesses are already experiencing because of Brexit, it is incredibly concerning that they must deal with this additional uncertainty. I get what the Government are trying to do; they are trying to make it a more attractive proposition to create and renovate properties. I understand that logic, but they have actually implemented this measure in a cack-handed way that has increased uncertainty this year, and certainly until we get the guidance and see how things are beginning to work.

Concerns have been raised with me about the fact that the Government have chosen not to include prisons and student housing, for example, in this legislation because they fall under a residential remit, rather than under the remit of a commercial property. I understand why they have chosen to do this, but it seems to be a missed opportunity. We cannot class prisons and student accommodation in the same kind of residential category as we would class a dwelling-house, and there may have been an opportunity—particularly given the pressing need for changes in the prison system—to include some flexibility. I am not saying that this is what the Government definitely should have done, but I do not think they considered it enough; nor did they put forward an argument why they did not do it in the documentation that they have published.

The Treasury has said that this will cost £585 million in 2023-24—that that will be the Exchequer impact. Neither the tax information and impact notes, nor any of the other documentation that I can find—perhaps it was more explicitly mentioned in the Budget and I did not catch it—says what is the expected economic impact in terms of an increase in GDP as a result of these changes, which would presumably result in a commensurate increase in the tax that the Exchequer receives. It would be useful to know whether the Government think that this tax relief is value for money and whether it will generate more tax revenue for the economy than it will cost.

The Government have told us that it will cost £17.7 million for new HMRC systems to be put in to administrate this tax, but they have not been clear about the economic benefit that they see coming out of it. That is partly, I think, because of what HMRC said in the tax information document:

“Since Budget 2018, HMRC has attempted to gather further information on the number of those”

businesses

“likely to claim the SBA.”

However, it has not been able to do so. I do not understand how the Government can tell us that this tax relief will have a positive economic benefit if they cannot even tell us which types and numbers of businesses are likely to claim it. It would be useful to know whether the Government have any firmer details on that since the note was published and any information on whether they think that there will be an economic benefit.

My next point, which I am sure the Minister will get very used to me raising during our future deliberations on SIs and in finance debates, is on when the Government intend to review this tax relief. This is a massive tax relief in terms of the fiscal impact that it will have. The Government are saying, I assume, that it will have a positive benefit in terms of its economic impact. I would like to know when they will review it to see whether it is working as intended, because there is no point in having something that will not work as intended. I am sure the Minister will say that there will be a review in three to five years’ time that will be sent to the Treasury Committee and that I just have to look at the Government’s website at some unspecified point during that period. However, can he provide a bit more detail on the exact timescales for a review of this tax relief, given that it is so significant in nature, so that we parliamentarians can scrutinise whether the Government have actually achieved what they set out to do?

My last point is about the guidance, which I have already mentioned. When the guidance is published, will the Minister be sure to ask somebody in his team to ensure that Labour Front Benchers and I have access to it and are made aware of where it is, because it may be published in some place on the HMRC website that we, as people who do not run businesses that claim capital allowances, will not regularly check? It would be incredibly useful if he committed to fulfilling that small ask as well as answering many of my questions.

--- Later in debate ---

[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.