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Lord Triesman moved Amendments Nos. 40 to 45:
- Page 21, line 13, leave out subsection (5) and insert—
On Question, amendments agreed to.
Clause 27 [Tax exemption for NDA activities]:
Baroness Miller of Hendon moved Amendment No. 46:
The noble Baroness said: My Lords, I shall move Amendment No. 46 which stands in the names of my noble friends Lady Noakes, Lord Jenkin of Roding and my own. I shall also speak to the other amendments in this group. My noble friend Lady Noakes apologises for being unable to be with us this afternoon because of other commitments. She has asked me to deal with the amendments standing in our names in this group.
In Grand Committee, my noble friend Lady Noakes put a number of detailed questions to the Government in respect of the tax clauses. In response, the Government said that they would table unspecified amendments. It says something about the quality of the drafting of the Bill that the Government had to table 27 amendments to parts of the Bill that should have been routine and technical. As the Minister is aware, these amendments were available very late. We may want to return to them at Third Reading when we have had a chance to consider them in more detail.
For today, I shall just raise a few issues. The Government have tabled a number of amendments to Clause 27, together with three substantial clauses after Clause 27. However, none of these amendments deals with the points raised by my noble friend Lady Noakes in Grand Committee. I shall therefore repeat those questions today in the hope of getting some answers.
Our Amendment No. 46 probes why a company, other than an NDA company, should get a tax exemption from Clause 27. In Grand Committee, the Minister said:
We tabled Amendment No. 50 to delete Clause 27 in order to probe what activities would be exempt. The Government's amendments have shed no light on that. We still need to see the regulations under subsection (3) and I hope that the Minister will now commit to making those draft regulations available before we reach Third Reading.
We also tabled two detailed amendments, Amendments Nos. 54 and 55 to Schedule 4. We were very surprised by the Government's responses in Grand Committee and had hoped to see the Government tabling amendments for Report. But these are not matters of great principle and we shall not be moving those amendments today. I beg to move.
Lord Davies of Oldham: My Lords, I am grateful for the manner in which the noble Baroness, Lady Miller, has moved her amendments. I hope to meet her points in full.
As she has indicated, she is not entirely happy with the government amendments that follow this group. In a sense the two groups form part of a total debate and I will, in moving those amendments, hope to reinforce the arguments I shall make in response to her questions on these amendments. But I shall do my best to answer the questions that she has addressed in Amendments Nos. 46, 50, 54 and 55.
As I mentioned during Grand Committee, we intended to return to these tax provisions on Report. We shall discuss the government amendments later. These amendments are the same as those tabled by the noble Baroness, Lady Noakes, in Grand Committee. I realise that they were tabled again before the government amendments were tabled. I am a little concerned that the noble Baroness indicated that they are also there because of dissatisfaction with the government amendments. We will come to that part of the debate in the next group.
The letter of my noble friend Lord Whitty to the noble Baroness, Lady Miller, that was sent on 9 February—a copy of which was placed in the Library of the House—covered some of the issues that we discussed in Grand Committee and explained the rationale for the tax provisions in the Bill. However, it may be necessary to summarise our general aims
Clause 27 and Schedule 4 introduce the concept of "relevant site licensees" and allow for Treasury regulations to be made to exempt from tax certain trading activities of the NDA. As we explained, the NDA is not itself exempt from tax; activities such as electricity generation by the Magnox power stations will be taxable in the normal way.
However, our intention is to consider making regulations to provide for exemptions in certain narrow circumstances, particularly for the Thorp and SMP activities that are expected to be loss-making for tax. Such regulations will be appropriate only if the detail of contractual arrangements with site licensee companies is such that any losses or profits would in economic terms be the NDA's.
The concept of "relevant site licensee" also applies to some of the tax provisions allowing for nuclear transfer schemes to be tax neutral for the transferor and the transferee. The detail of the transfer tax provisions is in Schedule 9, introduced by Clause 43. These provisions allow for tax neutral transfers of assets and companies between publicly owned companies, such as BNFL, the UKAEA and the NDA. They also allow for the ownership of site licensee companies that are "relevant site licensees" to be transferred in a tax neutral way.
The challenge that we have faced has been to develop the detail of the tax provisions in the light of the detail of the emerging possible contractual and other relationships between the NDA, site licensee companies and parent management companies. We have been working closely with both the Inland Revenue and professional tax advisers to get that extremely important detail right. Allowing for future flexibility has made the tax provisions somewhat complex.
Returning to the precise points raised by these amendments. Amendment No. 46 would remove site licensee companies that are not 100 per cent subsidiaries of the NDA from the scope of limited exemption and from the scope of the transfer provisions in Part 3 of Schedule 9.
Clause 27 allows Treasury regulations to be made that would exempt from tax certain of the NDA's activities. As I mentioned earlier, the activities that we have in mind are those at Thorp and SMP. I repeat that these are expected to be loss-making for tax purposes, yet computing their tax position accurately would be tricky if their activities are bound up with the decommissioning and clean-up activities of the NDA. It therefore makes sense on pragmatic grounds to exclude them from tax where they are carried on by the NDA.
Activities such as operating Thorp and SMP might be carried out on behalf of the NDA by site licensee companies. Depending on the detail of the contractual arrangements between the NDA and the site licensee companies, it might be appropriate to include site licensee companies within the potential scope of the
That would be inequitable as it would allow charges that are linked to the exempt activities to be deducted against other taxable income. If certain activities are to be exempt, then it is right that their associated charges should not qualify as a deduction for tax. As the noble Baroness, Lady Noakes, mentioned in our earlier debates—and we regret that she is not able to aid us with these deliberations today—it is true that for corporation tax many kinds of deductions that were previously treated as charges ceased to be so treated in 2002. However, it is appropriate to cater for charges such as certain annuities and those relating to payments to scientific research associations and to charities, which might include universities commissioned by the NDA to carry out research on its behalf—and that is the purpose of paragraph 3 of Schedule 4.
Amendment No. 55 relates to the provision in Schedule 4 paragraph 4 concerned with the difficult subject of finance leasing. The provision ensures that the NDA and any subsidiaries it forms cannot, viewed together, have their cake and eat it by enjoying the benefit of the exemption on the NDA's income while obtaining tax allowances, available against its non-exempt income, for expenditure on capital equipment used in the exempt activities.
The amendment would take this restriction even further by preventing finance-lessor companies outside the aegis of the NDA making use of those tax allowances. As the noble Baroness, Lady Noakes, said in Committee, there may be a case, as a matter of fiscal logic, for extending this restriction. However, there is at present no across the board restriction on the availability of tax allowances to finance lessors providing assets for use by public sector bodies enjoying a tax exemption. I am not persuaded that it would be appropriate to break new ground with such a restriction here, especially as my colleagues in the Treasury are currently reviewing the tax treatment of finance leasing generally. I should confirm that the NDA—I made this point earlier—is not itself exempt from tax. Activities such as electricity generation by the Magnox power stations that are clearly separable from the Thorp and SMP activities, and from the decommissioning and clean-up activities, will be taxable in the normal way.
I share the concerns expressed by the Opposition that private sector enterprises should not be able to make tax-free profits. Where the activities are effectively not carried on by the NDA, exemption will not be appropriate and regulations will not be made.
However, depending on the detail of the contractual arrangements between the NDA, site licensee companies and private contractors, it may be appropriate for the activities of some site licensee companies to be exempt. We had in mind the possibility of site licensee companies carrying on some commercial activities where the losses and profits would in economic terms be the NDA's. But because of the contractual arrangements and the application of normal tax law, the commercial activities will be taxed in the site licensee company and not the NDA. For that reason, Clause 27 allows for the exemption to apply to activities that are specified in Treasury regulations and are carried on by relevant site licensees, the definition of which would also be the subject of regulations.
The concept of "relevant site licensees" is also relevant to the transfer tax provisions in Schedule 9. That schedule allows for the tax neutral transfer of shares in relevant site licensees, which will facilitate the transfer of site licensee companies under transfer schemes. In practice, the principal commercial activities that would be considered for exemption are the Thorp and SMP activities. As I have already mentioned, these are expected to be loss-making for tax, yet the commercial activities are intertwined with decommissioning and clean-up work. Whether it is appropriate to make regulations exempting these activities will depend on the detail of the contractual and other arrangements between the NDA and the site licensee company running these activities.
In our discussion in Grand Committee, the noble Lord, Lord Jenkin of Roding, was right to be concerned about some kind of blanket tax exemption for the NDA along the lines that he recalled debating for the British National Oil Corporation. However, what we are proposing here is a very narrow potential exclusion only for trading profits and losses and then only from certain trading activities. The NDA itself will remain a taxable entity—I cannot emphasise that point enough—and, indeed, trading activities such as the Magnox electricity generation will remain taxable in the normal way.
Regulations to allow for exemption will be appropriate only if the detail of contractual arrangements with site licensee companies is such that any losses or profits would in economic terms be the NDA's. The concept of relevant site licensee also applies to some of the tax provisions allowing for nuclear transfer schemes to be tax neutral for the transferor and the transferee. The detail of these provisions is in Schedule 9, introduced by Clause 43. These provisions allow for tax neutral transfers of assets and companies between publicly owned companies such as BNFL, the UKAEA and the NDA. They also allow for the ownership of site licensee companies that are "relevant site licensees" to be transferred in a tax neutral way.
I apologise for speaking at great length but in so doing I hope that I have allayed concerns about the government amendments and perhaps foreshortened debate on them, although that may be a wish and a prayer rather than the reality. For those reasons we
The noble Baroness asked the obvious and entirely appropriate question whether we shall have the regulations before Third Reading. I am afraid that we shall not be able to provide the regulations by that time. They involve a great deal of detail on the contractual arrangements between the NDA and contractors. I regret to say that we shall not be able to provide the regulations by Third Reading.
The noble Baroness also asked why we should allow non-NDA companies to be exempt. The site licensee companies will be transferred between management contractors as contracts expire and new contractors win competitive tenders to manage the site licensee companies. Although they are vehicles for the NDA to achieve its objectives, they will not always be—indeed, we do not expect them to be—owned by the NDA. Profits and losses on activities from which the NDA gets the economic benefit may arise so far as the site licensee is concerned.
I hope that I have explained the tax philosophy behind the Government's thinking. I regret that I am not able to provide the additional information at this stage although I think the noble Baroness probably realises that she is asking for rather a lot at this point. Nevertheless, I hope that I have helped to sketch out the Government's general position in such a way that the tax provisions in the Bill make sense and are seen to be equitable and fair.
Lord Jenkin of Roding: My Lords, I think this is the second or third time that the noble Lord or another Minister on the Government Front Bench has used the phrase "emerging problems". If I may say so, one has the impression that they have been making it up as they go along. When one now hears—as the noble Lord, Lord Davies of Oldham, has just said—that it is not until they know the details of the contracts that will exist between the site licensees and the contractors that they will be able to make the regulations—my noble friend asked whether we might have them before Third Reading—one really begins to wonder how on earth all this is put together.
My mind goes back to the time when—I was a junior Treasury Minister at the time—my party came into government in 1970 with a commitment to introduce value added tax. At the first meeting that my then boss, the late Iain Macleod, held with Customs and Excise we said that we would publish a Green Paper and consult widely. "Oh", said the officials, "you do not need to do that. We understand all about value added tax. We can produce a tax for you more or less straight away". However, we replied, "No, we shall consult widely on the matter". A year later the deputy
I get the impression that to some extent Ministers have found themselves in the same situation with this Bill. Their officials will have told them that they do not need to worry too much and that they can put down what is in the Bill. Then, lo and behold, along come all the outside interests saying, "You have not got this right at all". One just wonders how a Bill like this reaches the statute book. The Government had to admit straight away that the questions asked by my noble friend Lady Noakes in Grand Committee were very valid questions that would need to be dealt with.
There are two points here. Is it really the case that the regulations will not be made until after some of the contractual agreements have been made? I find that quite astonishing. Will they have retrospective effect in those circumstances? How much consultation was there before the Bill was published, or has it all happened since the Bill was published last November? I find this a very strange business indeed.
"(5) Nothing in so much of this section as—
(a) restricts the extent to which a person is, or may become, liable to meet any costs in relation to a site, installation or facility, or
(b) requires any costs in relation to an installation, site or facility to be reimbursed or otherwise met by the NDA,
is to be construed as restricting the extent to which the person with control of the installation, site or facility may be or become subject, in relation to a person other than the NDA, to the liability or obligation in respect of which the costs arise."
Page 21, line 17, after "NDA" insert "for the purpose of discharging its financial responsibilities"
Page 21, line 20, after "liabilities" insert "to persons other than the NDA"
Page 21, line 22, leave out "and" and insert—
"( ) It shall also be the duty of the NDA to make all such arrangements as it thinks fit for securing"
Page 21, line 27, leave out subsection (7).
Page 21, line 37, leave out subsection (9) and insert—
"( ) The preceding provisions of this section have effect in relation to an installation, site or facility subject to the terms of—
(a) any agreement between the NDA and the person with control of the installation, site or facility or
(b) any agreement between the NDA and a body corporate of which that person is a subsidiary."
Page 25, line 40, leave out paragraph (b).
"Where the activities might be carried out on behalf of the NDA by site licensee companies . . . it might still be appropriate for them to be exempt".—[Official Report, 22/1/04; col. GC 412.]
But the Explanatory Notes were very clear. Paragraph 130 said:
"It is [the] Government's intention that private companies will not be able to realise tax free profits through the tax exemption".
Will the Minister say what the regulations referred to in subsection (5)(f) will contain? Is this a backdoor way of exempting some particular companies from tax? We think that we should be told whom the Government intend to exempt from tax under Clause 27 and why.
4 p.m.
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