Miss Johnson: I beg to move amendment No. 6, in page 172, leave out lines 3 and 4 and insert
`(5) For sub-paragraph (4) of that paragraph (calculation of amounts of original and replacement value) substitute
``(4) For the purposes of this paragraph, the amount of the replacement value is'.
The Chairman: With this it will be convenient to take amendment No. 26, in page 172, line 5, at beginning insert
`the amount of the replacement value is'.
Miss Johnson: The schedule keeps the VCT and CVS schemes in line with the enterprise investment scheme, following the changes made to it by schedule 15. All those schemes provide generous tax incentives for investment in the same sorts of small higher-risk companies. Paragraph 6 of the schedule amends the rules of the CVS that apply where an investor receives value from the company. A receipt of value would normally cause some or all of the investor's tax relief to be withdrawn, but that will not happen if it is returned without delay.
Unfortunately, a minor drafting error in paragraph 6 removes some words in the existing legislation. We are grateful to the Institute of Chartered Accountants in England and Wales for alerting us to that unintended omission and are taking this opportunity to set things right. Amendment No. 6 merely reinstates the missing words, and I commend it to the Committee. Amendment No. 26 seeks to achieve the same result and would therefore result in a change that has already been made. I am grateful to the hon. Gentleman for ensuring this did not escape our intention and for the sake of expediency I ask him not press the amendment.
Mr. Flight: As the Minister said, amendments Nos. 6 and 26 are precisely the same drafting amendments. We are more than to happy to take the Government's drafting and not to press amendment No. 26. I cannot resist pointing out that we got it in first. But never mind, the aim is achieved.
Amendment agreed to.
Question proposed, That this schedule, as amended, be the 16th schedule to the Bill.
Mr. Flight: The relaxations in the schedule are welcomed by the Opposition and by the industry generally. Will the changes in the definition of qualifying investment resolve the outstanding issue that we touched on a year ago in Committee of enabling one VCT to take over another VCT? VCTs were set up six or seven years ago.
Sitting suspended for a Division in the House.
Mr. Flight: Before the suspension, I was making two points. First, Opposition Members and the industry broadly welcome the measures in schedule 16. Secondly, I was inquiring whether the changes to the definition of qualifying investments would accommodate the consolidation of the venture capital industry such that one venture capital trust could take over another. I think that I raised the issue in Committee last year.
The practical point is that venture capital trusts are five or six years old. Some will succeed, but some will not, and there is the inevitable commercial need for consolidation and for those that have not succeeded to be taken over and sorted out. As the definition stood, that was not possible. A share in a venture capital trust was not a qualifying investment, so one venture capital trust could not buy shares in another without losing its tax status. Does the legislation address that issue or do the Government intend to address it in other ways in due course?
Miss Melanie Johnson: Following an amendment that the hon. Gentleman tabled last year, we asked the Inland Revenue to discuss with the VCT industry the issues arising when one VCT takes over or merges with another. It has since met an industry group several times and has made progress on identifying the changes that are needed to the rules. The Inland Revenue is still having discussions and will inform us of the outcome during the summer so that we can consider the most appropriate response. I assure the hon. Gentleman that his points are being taken seriously.
Mr. Flight: I thank the Minister for those comments; I am glad that the issue is in hand.
Question put and agreed to.
Schedule 16, as amended, agreed to.
Clause 65 ordered to stand part of the Bill.
Capital allowances: energy-saving plant and machinery
Question proposed, That this schedule be the Seventeenth schedule to the Bill.
Mr. Richard Ottaway (Croydon, South): We welcome the introduction of energy-saving plant and machinery, because it is a sensible and environmentally acceptable idea. We support the Government's objectives, but I want to quiz the Minister on three points.
First, several factors trigger permission to receive an allowance for an energy-saving plant. The first factor is that the plant must be of a description specified by Treasury order. On the face of it, that seems reasonable, but no one has any idea what such an order might describe as energy-saving or efficient equipment. We are aware that it may be made by reference to a technology list issued by the Secretary of State. Will the Minister give me guidance on that?
Miss Melanie Johnson: A list has already been published on the website, which I believe the industry has found helpful.
Mr. Ottaway: The Minister scores a hit. I was unaware of that list, as were those advising me.
The second point is that the
``Treasury may by order provide that''
no allowance can be claimed
``unless a relevant certificate of energy efficiency is in force.''
The important word is ``may''. Does the Treasury intend to exercise that discretion?
My third point relates to the issuing of energy efficiency certificates. They are issued by the Secretary of State or an authorised person in England, by Scottish Ministers in Scotland, by the National Assembly in Wales, and by the Department of Enterprise, Trade and Investment in Northern Ireland. That sounds like a recipe for confusion. We are aware of the Government's objectives on devolution and we agree to differ on that, but we could end up with different criteria, themes and structures. What would happen if a large company with equipment in England moves it to Scotland? Would the company have to get a certificate in both regions? There is understandable concern, so will the Minister clarify those points?
Mr. Jack: I have a number of points that reflect the representations that have been sent to Committee members. Before I move to those, will the Minister explain paragraph 2? It contains new section 45A, which says:
``Expenditure is first-year qualifying expenditure if...it is expenditure on energy-saving plant or machinery that is unused and not second-hand.''
What happens if someone buys a piece of demonstration equipment? It might have been used to demonstrate how the energy-saving equipment operates in a manner that is compatible with the purchaser's facilities. However, the equipment may not be second-hand in that it has not passed from the manufacturer to a purchaser. Given that there may well be new and novel equipment on the list to which my hon. Friend referred, it would help to know what qualifies as first-year expenditure. In my experience in the horticultural industry many years before becoming a Member, manufacturers would often bring some piece of novel technology for growers to try that might prove to be sufficiently effective that they decided to buy it. I am grateful that the legislation is in plain English, which enables me to understand it, as this is the first time that we have had the chance of debating a piece of legislation that has been subject to the capital law re-write exercise, which I am delighted to see.
With regard to proposed new section 45A(1)(c) of the Capital Allowances Act 2001, the Chartered Institute of Taxation states:
``We note that lessors are to be excluded under new s 45A(1)(c) of the CAA 2001.''
It makes the reasonable point that
``As long as energy-saving plant or machinery is being provided and allowances are given only once, it should not matter whether they go to the user or to a lessor.''
If its assumption is correct, that worries me, because it could be that energy-saving equipment may be the subject of a lease arrangement. I cannot believe that, if the Government wish people to have a high uptake of that type of equipment, they would want to exclude the use of the allowances by those providing the facility by a leased mechanism. Can the Economic Secretary clarify that point?
My hon. Friend the Member for Croydon, South (Mr. Ottaway) rightly teased from the Economic Secretary the point that the list, of which I understand the authors are the energy and environment best practice division of the DETR, is indeed to be published on a website, but nowhere else. I appreciate that there is an assumption that all businesses now have access to the web, but what about embryo businesses that may have some difficulty in that respect? I am equally interested to know how people will know where to find the information. Will the Government, in the great spending splurge on advertising, use some of that money to try to advise people on where they can find the information?
I move on to representations received from the Institute of Chartered Accountants on the matter. Interestingly, referring to proposed new section 45B(4), it says that the certificate will be granted not to the taxpayer, but to the manufacturer of the equipment. That worries me. To save me reading out large amounts of text, will the Economic Secretary describe the processes to be gone through to ensure that, when a manufacturer receives the certificate, there can be no doubt that the subsequent machinery will qualify. Someone may unwittingly decide that their machinery is likely to qualify for the certificate, only subsequently to discover that there is some point of difference between the DETR and the manufacturer. The problem then arises of retrospective withdrawal of the allowance. It may be that that has been carefully thought through, and that the certificate would have to be provided ahead of any transaction. However, to avoid doubt, will the Economic Secretary address the issue?
How will the certification process operate in the context of someone who buys a piece of machinery with a certificate, but finds that it has to be modified in some way to fit into the workplace. Sometimes the dimensions given in the manufacturer's catalogue do not correspond to the actual machinery, so that it does not fit into the workplace. Does a modification to the equipment in some way invalidate the certificate? These are practical problems, and those who would seek assistance under this part of the Bill would like to know whether the original certificate also covers modification.
There is some debate about whether proposed new section 45C is sufficiently clear, and the Chartered Institute of Taxation makes the point that, where one has a mixture of approved and non-approved equipment, there may well have to be some form of apportionment in terms of the relevant capital allowances. The institute's representation states:
``In that event, we would expect the normal apportionment rule in section 562(3) of the Capital Allowances Act 2001 would need to apply. However, new section 45C(5) excludes the operation of section 562(3) in all cases where there both approved and non-approved components.''
Now, this is the kind of nitty gritty problem that needs to be resolved before the schedule comes into operation, and I should be most grateful for the Economic Secretary's enlightenment on these representations.