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Mr. Jack: When the Economic Secretary was first exposed to the avoidance scheme, did he ask himself whether he could have seen it coming, and if so, what was the answer?
John Healey: Hindsight is a fine thing, and the right hon. Gentleman will know better than I that there are advisers and others who will work at finding ways around any legislation. We are now trying to tackle an avoidance scheme that has been developed since the legislation has been put in place and confounds the original purpose of the legislation.
The hon. Member for Arundel and South Downs expressed a concern about school PFI contracts. I can reassure him to a degree but, I suspect, not entirely. The vast majority of expenditure incurred on the right to use software under PFI contracts is likely to be revenue, and will not be affected by the clause. If capital expenditure is incurred on the right to use software, it will continue to qualify for capital allowances. It is only the right to 100 per cent. first-year allowances that might be lost. The original legislation prevents such schemes where the
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technology is leased, and the clause will put a stop to the attempted avoidance by putting licensing on the same footing as leasing. The clause will not affect bona fide investment in information and communications technologies by small enterprises, and I commend it to the Committee.
Question put and agreed to.
Clause 165 ordered to stand part of the Bill.
Clause 166
First-year allowances for expenditure on environmentally beneficial plant or machinery
Question proposed, That the clause stand part of the Bill.
Adam Price: The point about effectiveness has already been made in relation to the first-year assessment. There are two aspects to the degree of effectiveness. One is the vigour by which availability is communicated to the target business sectors, and the other is the certainty with which the businesses can be assured that the support will be available. I should like to address my brief remarks to those two aspects.
I ask the Economic Secretary how it is proposed that the availability of the provision will be made public. Is the information already on the Revenue's website? Is there an up-to-date list of the specific assets to which the provision applies on that website, and how is that being made available?
On the issue of certainty, the schedule relating to the provision allows a certificate to be revoked retrospectively, which is to my mind fairly counter-intuitive. I always thought that one of the great traditions of this place was that legislation does not apply retrospectively. Unfortunately, it seems that certificates can be revoked retrospectively, but no criteria are set out in the schedule to explain why those certificates may be revoked retrospectively. Currently, no right of appeal is available under the provisions.
It is perfectly possible that a company could agree to incur some expenditure based on a quite reasonable expectation, given that the Secretary of State or some other authority will have granted a certificate, only to find that that certificate is subsequently revoked. That seems a highly questionable practice. The onus in that case would be on the company to contact the Revenue and inform it that the certificate has been retrospectively revoked. If the company has already filed a return, it will have to inform the Revenue of that change in circumstance. Again, that seems highly questionable. In order to give companies some certainty about the provision and to encourage them to take up the first-year assessment, would not it be simpler if only future expenditure were affected by any retrospective revocation of a certificate?
Mr. Flight: I had intended to comment on this matter under schedule 30. However, as it has been raised, I just wish to add that we believe that the reasons for revocation should be specified and that there should be provision for appeal against a refusal to issue or a revocation of a certificate. As has been pointed out, it is inappropriate that a certification could be revoked simply because, for example, the
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Secretary of State changed his or her mind about whether plant or machinery was environmentally beneficial, particularly if the taxpayer has agreed to incur expenditure in reliance on the certification of environmental benefit.
I have encountered businesses that have faced problems because of a degree of discretion or lack of clarity on a parallel type of benefit. Such businesses did their planning on the basis of their accountant's assurances that they were entitled to the benefit, and then it all changed. That is something that needs to be tightened up.
Mr. Djanogly: It is a pleasant change to see the Government inducing companies to follow an environmental policy by way of carrot rather than by way of sticks such as the climate change levy. I fully support using capital allowances to encourage companies to make environmentally friendly investments. However, before we discuss the particulars of the schedule, I wish to note my concern that the clause does not provide for a right of appeal.
John Healey: Clause 166—I note that we are straying somewhat to schedule 30, so I shall incorporate it in my comments—will enable businesses to claim a 100 per cent. first-year allowance on investments in designated environmentally beneficial technologies. The scheme is an important part of the Government's commitment to protecting the environment and conserving natural resources while continuing to ensure the competitiveness of UK industry.
The qualifying technologies and products will be specified in the water technology list, which will be issued by the Department for Environment, Food and Rural Affairs during the summer. It will be issued on the Department's website, which will give full details of the technologies and the criteria, as was done for the energy scheme that we introduced in 2001. The technologies on the list have been chosen for their potential to minimise water use or to improve water quality.
Mr. Jack: The Economic Secretary may be anticipating my question. Without giving a definitive list, can he give us a flavour of the type of equipment that would qualify? What main areas will be included in DEFRA's list?
John Healey: I shall be happy to do that, if I may just complete the point that I had begun about the genesis of the clause and of the technologies list that will be published. The list, which has been painstakingly put together, represents a settled view on the technologies that we believe are environmentally beneficial. To that degree, it should provide the sort of certainty for which the hon. Members for Arundel and South Downs and for East Carmarthen and Dinefwr were looking.
6.30 pm
We have developed clause 166 and schedule 30 after detailed consultation. In summer 2001, the Treasury announced consultation on the green technology challenge, a scheme to identify and encourage the
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use of environmentally friendly technologies through the use of enhanced capital allowances. In the pre-Budget report of 2001 Ministers announced that we were investigating three key areas: further energy-saving technologies, cleaner vehicles, and fuels and technologies—as in this instance—that minimise water use and improve water quality.
DEFRA published a report of its work on the development of ECAs for water technologies in February 2002. Since then, it has been discussing the technologies, the qualifying criteria and the detailed workings of the scheme with manufacturers, users, other Government agencies and regulatory bodies. In the 2003 Budget, the Chancellor confirmed the introduction of ECAs, which we see in the Bill.
I shall give the right hon. Member for Fylde an idea of the sorts of technology included. The first water technologies to be introduced will be metering and monitoring equipment, flow controllers, leakage detection equipment, and efficient taps and toilets.
The hon. Members for East Carmarthen and Dinefwr and for Arundel and South Downs raised concerns about the revocation of certificates. Perhaps I can explain. New section 45I, introduced by the clause, deals with items that are too specialised or complex to be included in the generic list of products in new section 45H. In particular, a certificate may be granted before an asset is completed, on the basis that the design meets the necessary criteria.
In practice, the most likely circumstance in which a certificate would be revoked would be where an asset was not built to the certified specification. A taxpayer's claim may be based on the asset being constructed to a particular design, and if that asset is completed in a way that does not conform to that design specification, there may be no entitlement to the allowances. In such a case, the certificate would rightly be revoked.
The scheme will deliver real benefits to both business and the environment. I commend the clause to the Committee.
Question put and agreed to.
Clause 166 ordered to stand part of the Bill.
The Chairman: Before we move on to schedule 30, I understand from the usual channels that it is their hope that we might complete clause 173, which Members will see on the amendment paper, at this sitting. If we are to do that, we have a lot of ground to cover. I point that out because I understand that there will be a Division in the Chamber at about two minutes to 8 o'clock. The usual channels have decided that we should perhaps end our sitting at approximately that time. Schedule 30
First-year allowances for expenditure on environmentally beneficial plant or machinery
Mr. Flight: I beg to move amendment No. 135, in
schedule 30, page 360, leave out lines 26 to 28 and insert—
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New section 45I of the Capital Allowances Act 2001 provides that the Treasury may by order provide that no allowance on environmentally beneficial plant or machinery may be made unless a relevant certificate of environmental benefit is in force. New section 45J is intended to provide an alternative method of apportioning expenditure to that provided in section 562(3) of the 2001 Act, where one or more of the components of a particular plant or machinery are of a description specified by Treasury order. However, the new section as drafted seems merely to limit the expenditure that can qualify for capital allowances on environmentally beneficial plant or machinery. The amendment therefore proposes that section 562(3) should continue to apply, subject to the limits imposed by new section 45J—in other words, that apportionment should be provided for. Without our amendment, expenditure on other items may not qualify for allowances. That is the Government's objective and I hope that the Economic Secretary will make a statement to that effect. The clause could have been drafted more clearly.
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