Finance Bill

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Mr. Letwin: National insurance contributions are set at a given level, and earn given receipts for the Treasury, in the prevailing economic circumstances. Should they produce more money because of fiscal drag due to prevailing economic circumstances, that in no sense validates the raising of any tax, landfill or otherwise.

The Financial Secretary was merely amusing himself at the expense of the Committee—or perhaps I should not say that, because he also provided some amusement for the Committee—in order to entertain himself in the dire straits of having to negotiate the Finance Bill. We are left with the same old problem that we started with. The tax increase is not accompanied by an equal and offsetting decrease in the rate of some other tax; therefore it is not a fiscally neutral measure. That is a harbinger that bodes ill, when we attend to the fact that the Government have introduced the climate change and aggregates levies.

Mr. Bennett: Where in Dorset does the hon. Gentleman plan to put the incinerator?

Mr. Letwin: It is clear that Labour Members have reached that stage of the Finance Bill at which they wish to amuse themselves. I assure the hon. Gentleman that I have no more desire than he does to see more incinerators. Nor, as I hope might become evident to the hon. Gentleman—who is expert in such matters—and to the Financial Secretary, have I the least desire to see more landfill sites. However, taxes should not be increased without fiscal neutrality obtaining.

Mr. Nick St. Aubyn (Guildford): I am as opposed to incinerators as anyone in the Room; I spoke on the matter in the Westminster Hall this morning. The additional landfill tax would still leave landfill more attractive than incineration on economic grounds, ignoring the environmental grounds. Even the new level of landfill tax is not a disincentive to landfill as opposed to incineration.

Mr. Letwin: My hon. Friend makes telling points. The fact is that the Government are in a complete intellectual mess about such issues. They have no serious cross-elasticity studies or optimality analyses. The Financial Secretary has directly contradicted his own concessions on the aggregates tax this evening. We are facing a Government who make gestures towards environmental taxation, but who actually wish to establish a base for increasing fiscal revenues from whatever source they may, apart from income taxes. That is what we object to and will continue to object to, and I shall ask my hon. Friends to vote against the clause.

Mr. Timms: The hon. Member for Guildford (Mr. St. Aubyn) has obviously been listening to the organisations that have been calling for a higher rate of landfill tax. If he had been here earlier in the debate, he would have heard references to those representations. We should take a cautious step-by-step approach, so that we can see the consequences.

The position of the hon. Member for West Dorset is now completely incomprehensible. He is working with a definition of fiscal neutrality, but I have no idea what it is. The entire premise of his argument, and that of other Conservative Members, was that the increases in the rate of landfill tax meant that the Government's revenue from the tax was greater than the revenue forgone from the cut in employers' national insurance contributions. The hon. Gentleman has now, admittedly with speed, come up with a new but incomprehensible definition of fiscal neutrality. He should acknowledge that he was wrong and support the clause.

Mr. Letwin: If it were true that the Financial Secretary cannot understand me—which it is not—it would be necessary for me to do what I shall do in any case, which is to spell out the simple analysis of fiscal neutrality. When a tax is raised by the sum of x and accordingly collects revenues of the sum of y, another tax should be decreased so that it reduces the revenues by the sum of y. The two should offset each other. If the Financial Secretary were genuinely in doubt about the need for that marginal fiscal neutrality to maintain a serious intellectual case for environmental taxes, it would be necessary to explain it.

However, the Financial Secretary is well aware of such matters. The problem is that he does not want to admit it. It is inconvenient to his case, because he has increased the tax and then relied on the fact that some other item happens, through fiscal drag, to be increasing its effect on receipts. That is an intellectually disreputable position—just as disreputable as the position on optimality that he jettisoned so notably earlier. There is no basis left for such a measure, and I shall ask my right hon. and hon. Friends to vote against it.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 17, Noes 6.

Division No. 3]

AYES
Allen, Mr. Graham
Bailey, Mr. Adrian
Banks, Mr. Tony
Barnes, Mr. Harry
Bennett, Mr. Andrew F.
Bruce, Mr. Malcolm
Burnett, Mr. John
Davey, Mr. Edward
Dobbin, Mr. Jim
Donohoe, Mr. Brian H.
Hendrick, Mr. Mark
Johnson, Miss Melanie
Kilfoyle, Mr. Peter
Lammy, Mr. David
Primarolo, Dawn
Roy, Mr. Frank
Timms, Mr. Stephen

NOES
Flight, Mr. Howard
Jack, Mr. Michael
Letwin, Mr. Oliver
Luff, Mr. Peter
Ottaway, Mr. Richard
St. Aubyn, Mr. Nick

Question accordingly agreed to.

Clause 102 ordered to stand part of the Bill.

Clause 103

Climate change levy

Question proposed, That the clause stand part of the Bill.

Mr. Jack: I was intrigued to read that paragraph 11 of the relevant section of the notes on clauses stated:

    ``If the electricity generated is for use in producing hydrocarbon oils, other taxable commodities and uranium, then relief can now be claimed on the input fuel.''

Will the Minister who is to reply enlighten the Committee as to what production of uranium is being carried out in Northern Ireland, and why it has been necessary to introduce a relieving measure for the production of this substance? Why has Northern Ireland been marked out for what appears to be special treatment?

Mr. Timms: The clause makes three changes to the climate change levy provisions. First, gas supplied and consumed in Northern Ireland is exempted from the levy, which was announced in last year's Budget. Secondly, and not just in Northern Ireland, generators and exempt unlicensed electricity suppliers can claim relief on the proportion of their input fuel that they use to generate electricity, which is ultimately for an excluded or exempt use. Thirdly, the exemption for combined heat and power stations is extended to those stations operated by third parties, subject to the status of the station. Those are the three changes being made in the clause, and I am confident that the Committee will welcome them.

Mr. Jack: That was a delightful reading of the brief, but the Financial Secretary has not answered my question. The explanatory notes state:

    ``If the electricity generated is for use in producing hydrocarbon oils, other taxable commodities and uranium, then relief can now be claimed on the input fuel.''

I want to know why that interesting group has been singled out? Will the Financial Secretary clarify whether an advantage will be conferred on third party combined heat and power operations in Northern Ireland, in terms of the climate change levy, which is not available to third party combined heat and power generators on the mainland?

Mr. Timms: The right hon. Gentleman may be suffering under a misapprehension. The second and third changes that I described are not confined in their effect to Northern Ireland. Only the first of the three changes—that gas supplied and consumed in Northern Ireland is exempted from the levy—is confined to Northern Ireland. The other changes apply throughout the United Kingdom.

On exempt unlicensed electricity suppliers, of which the right hon. Gentleman gave examples, unregulated electricity suppliers are taxed on their input fuels rather than on electricity generated. The provisions in last year's Finance Act meant that they could not claim relief on their input fuel for exempt uses of their electricity. The clause corrects that and ensures equal treatment.

Question put and agreed to.

Clause 103 ordered to stand part of the Bill.

Clause 105 ordered to stand part of the Bill.

New clause 16

Limited liability partnerships: general

    '.—(1) For section 118ZA of the Taxes Act 1988 (treatment of limited liability partnerships) substitute—

"Treatment of limited liability partnerships.

    118ZA.—(1) For the purposes of the Tax Acts, where a limited liability partnership carries on a trade, profession or other business with a view to profit—

    (a) all the activities of the partnership are treated as carried on in partnership by its members (and not by the partnership as such),

    (b) anything done by, to or in relation to the partnership for the purposes of, or in connection with, any of its activities is treated as done by, to or in relation to the members as partners, and

    (c) the property of the partnership is treated as held by the members as partnership property.

References in this subsection to the activities of the limited liability partnership are to anything that it does, whether or not in the course of carrying on a trade, profession or other business with a view to profit.

    (2) For all purposes, except as otherwise provided, in the Tax Acts—

    (a) references to a partnership include a limited liability partnership in relation to which subsection (1) above applies,

    (b) references to members of a partnership include members of such a limited liability partnership,

    (c) references to a company do not include such a limited liability partnership, and

    (d) references to members of a company do not include members of such a limited liability partnership.

    (3) Subsection (1) above continues to apply in relation to a limited liability partnership which no longer carries on any trade, profession or other business with a view to profit—

    (a) if the cessation is only temporary, or

    (b) during a period of winding up following a permanent cessation, provided—

    (i) the winding up is not for reasons connected in whole or in part with the avoidance of tax, and

    (ii) the period of winding up is not unreasonably prolonged,

but subject to subsection (4) below.

    (4) Subsection (1) above ceases to apply in relation to a limited liability partnership—

    (a) on the appointment of a liquidator or (if earlier) the making of a winding-up order by the court, or

    (b) on the occurrence of any event under the law of a country or territory outside the United Kingdom corresponding to an event specified in paragraph (a) above.''.

    (2) In the Taxation of Chargeable Gains Act 1992, for section 59A (limited liability partnerships) substitute—

Limited liability partnerships.

    59A.—(1) Where a limited liability partnership carries on a trade or business with a view to profit—

(a) assets held by the limited liability partnership are treated for the purposes of tax in respect of chargeable gains as held by its members as partners, and

    (b) any dealings by the limited liability partnership are treated for those purposes as dealings by its members in partnership (and not by the limited liability partnership as such);

and tax in respect of chargeable gains accruing to the members of the limited liability partnership on the disposal of any of its assets shall be assessed and charged on them separately.

    (2) For all purposes, except as otherwise provided, in the enactments relating to tax in respect of chargeable gains—

    (a) references to a partnership include a limited liability partnership in relation to which subsection (1) above applies,

    (b) references to members of a partnership include members of such a limited liability partnership,

    (c) references to a company do not include such a limited liability partnership, and

    (d) references to members of a company do not include members of such a limited liability partnership.

    (3) Subsection (1) above continues to apply in relation to a limited liability partnership which no longer carries on any trade or business with a view to profit—

    (a) if the cessation is only temporary, or

    (b) during a period of winding up following a permanent cessation, provided—

    (i) the winding up is not for reasons connected in whole or in part with the avoidance of tax, and

    (ii) the period of winding up is not unreasonably prolonged,

but subject to subsection (4) below.

    (4) Subsection (1) above ceases to apply in relation to a limited liability partnership—

    (a) on the appointment of a liquidator or (if earlier) the making of a winding-up order by the court, or

    (b) on the occurrence of any event under the law of a country or territory outside the United Kingdom corresponding to an event specified in paragraph (a) above.

    (5) Where subsection (1) above ceases to apply in relation to a limited liability partnership with the effect that tax is assessed and charged—

    (a) on the limited liability partnership (as a company) in respect of chargeable gains accruing on the disposal of any of its assets, and

    (b) on the members in respect of chargeable gains accruing on the disposal of any of their capital interests in the limited liability partnership,

it shall be assessed and charged on the limited liability partnership as if subsection (1) above had never applied in relation to it.

    (6) Neither the commencement of the application of subsection (1) above nor the cessation of its application in relation to a limited liability partnership shall be taken as giving rise to the disposal of any assets by it or any of its members.''.

    (3) In Chapter II of Part V of the Taxation of Chargeable Gains Act 1992 (relief for gifts of business assets), after section 169 insert—

Cessation of trade by limited liability partnership.

    169A.—(1) This section applies where section 59A(1) ceases to apply to a limited liability partnership.

(2) A member of the partnership who immediately before the time at which section 59A(1) ceases to apply holds an asset, or an interest in an asset, acquired by him—

    (a) on a disposal to members of a partnership, and

    (b) for a consideration which is treated as reduced under section 165(4)(b) or 260(3)(b),

shall be treated as if a chargeable gain equal to the amount of the reduction accrued to him immediately before that time.''.

(4) In section 170(9) of the Taxation of Chargeable Gains Act 1992 (groups of companies: meaning of ''company''), in paragraph (b) after ''company'' insert ''(other than a limited liability partnership)''.

    (5) Subsection (3) above shall be deemed to have come into force on 3rd May 2001 and applies where section 59A(1) of the Taxation of Chargeable Gains Act 1992 ceased or ceases to apply as mentioned in section 169A of that Act (as inserted by that subsection) on or after that date.

    (6) The other provisions of this section shall be deemed to have come into force on 6th April 2001.'—[Dawn Primarolo.]

    Brought up, and read the First time.

 
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