Standing Committee B
Tuesday 20 May 2003
(Afternoon)
[Part II]
[Sir Nicholas Winterton in the Chair]
(Except Clauses 1, 4, 5, 9, 14, 22, 42, 56, 57, 124, 130 to 135, 138, 139, 148 and 184 and Schedules 5, 6, 19 and 25, and any new Clauses and Schedules tabled by Friday 9th May 2003 relating to excise duty on spirits or R&D tax credits for oil exploration.)
[Continuation from column 164]
6.5 pm
On Resuming—
The Chairman: Before I call the hon. Member for Arundel and South Downs, may I tell the Committee that the Chairman has maintained his weight loss? To show that I have been there, I am prepared to give the Government spokesman, the spokesman for the official Opposition and the Liberal Democrat spokesman some sugar-free fruit gums with sweeteners, courtesy of WeightWatchers.
Mr. David Wilshire (Spelthorne): On a point of order, Sir Nicholas. Although it does not relate to this clause, would it be in order to put on the record that we congratulate you? Those of us who cannot manage to lose weight would like to know how you do it.
The Chairman: The answer to that is, chair the Finance Bill Committee.
We are still debating clause 163, which we were discussing when we suspended for the Divisions in the Chamber. I ask the hon. Member for Arundel and South Downs to resume addressing the Committee.
Mr. Flight: First, Sir Nicholas, I am glad to see that you have not lost so much weight that we do not recognise you.
We have explored the clause fully and have clarified it. The guidance notes do not quite make it clear what it is about, but I think that the balance of opinion is that it blocks up a scheme that needs to be blocked up. It contains a substantial penal element, and there is debate on whether such matters should be proportionate, but we do not wish to press the amendment to a vote. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 163 ordered to stand part of the Bill.
Clause 164
Extension of first-year allowances for ICT expenditure by small companies
Question proposed, That the clause stand part of the Bill.
Mr. Flight: I should like to raise some small points. As hon. Members will be aware, the clause rolls over relief for small businesses on ICT expenditure. It is
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worth making the point that it might have been better to announce the extension well before 31 March, which might be an argument for having an earlier, fixed date for the Budget. The result of not knowing whether such a relief is to be rolled over is the inevitable congestion of trying to live within the relief while it exists.
The title of the clause states that it applies to ''small companies'', but our understanding is that it applies to small businesses. It is a minor drafting matter, but perhaps the description should be ''small businesses''. More generally, the measure is greatly welcomed by the companies that will benefit from it, but it is another minor example that raises the question whether the whole body of such incentives, which come and go, actually work and whether businesses know where they stand. Can the Paymaster General tell us what evidence there is to date of this particular 100 per cent. allowance having been successful in stimulating substantial small company ICT investment?
Mr. Djanogly: I want to reiterate my hon. Friend's first point. As a result of the late Budget statement, this measure was announced after the end of the financial year. An announcement before the end of March would have benefited companies. In the event, companies tried furiously to empty their budgets before April, when they should not have been put in that position. The Paymaster General should say whether she has any feedback from companies on the impact that the announcement may have had.
Mr. Jack: I, too, wish to emphasise and support the line taken by my two hon. Friends. I received representations about the uncertainty. It takes time for the effects of any new allowance to build up and for companies to adjust their investment plans in the light of new announcements. I note that the clause again contains a short-term reconfirmation of this measure. Companies ask, ''When we look forward and plan our information technology strategy, what is our time horizon?'' The time horizon is 31 March 2004. Again an element of uncertainty creeps into our proceedings. Why are the Government seemingly opting for the annual renewal of these measures, when companies want an element of certainty so that they know what their investment programme should be?
I said on Second Reading that it would be helpful to know the economic effect of these micro-management tax measures. Sadly, the notes on clauses do not provide me with an answer. I am not saying for one moment that for some companies this is not an important tax relief, but, as with all reliefs, it is useful to know whether it works, and most companies want to know whether there will be an element of certainty. I should be grateful if the Paymaster General could address those issues when she replies to this short debate.
Dawn Primarolo: Thank you for the WeightWatchers sweets, Sir Nicholas. I hope that they are magic and that all I have to do is to eat them to lose weight, because the Finance Bill does not seem to help me.
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The allowances were originally introduced at the request of businesses, which lobbied strongly for them to be extended. In considering an extension, I was mindful of the points that the hon. Member for Arundel and South Downs and the right hon. Member for Fylde have made as to whether continuing the relief is the most effective way to support businesses or whether we should discuss with business whether other measures would now be more appropriate, especially if the allowance has matured to the point at which we need to move on and see what else would support business.
We could not complete or even properly air that subject before the Budget, so I considered it appropriate to extend the allowance for a year. However, hon. Members will be aware that in the Budget statement my right hon. Friend the Chancellor announced a consultation document on several aspects relating to small and medium-sized businesses. One of them was the significant matter of access to equity. During the conversations and consultation we must also try to address that issue. That is why the allowance is to be extended for one year only. That will give us time for proper consideration of whether an allowance is most appropriate. Obviously, businesses are keen on the allowances and they have been successful, but before making a commitment of more than one year it is appropriate, as the right hon. Member for Fylde suggests, to consider whether that is the best way forward.
6.15 pm
I can confirm that, as the hon. Member for Arundel and South Downs suggested, the allowance applies to all small enterprises. The hon. Member for Huntingdon asked whether we had had any lobbying or complaints about the fact that the measure was announced at the time of the Budget. To my knowledge, the answer is no. Any small business that invested in ICT between 31 March and the Budget announcement nine days later will be eligible for the allowance under the clause, so we have not received any representations or complaints. Generally, the measure is popular, but businesses accept that it may well have run its course and it is right that the Government should reflect on that before taking any decisions.
I hope that that has given members of the Committee an indication of the way that the Government are considering the matter. Of course, the outcome may be that the allowances should remain, so I do not want to concern anyone. It is right to consider the matter again and ensure that it is the right way to support business—this year we believe that it is.
Question put and agreed to.
Clause 164 ordered to stand part of the Bill.
Clause 165
Expenditure on software for sub-licensing
Question proposed, That the clause stand part of the Bill.
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Mr. Flight: The clause prevents software qualifying for first-year allowances when it is acquired with a view to sub-leasing. The Paymaster General may be aware that some concerns have been expressed that the clause could prejudice companies engaged in school private finance initiative contracts. Such companies may well incur capital expenditure on software with a view to the software being used by the school or its pupils. I am sure that that is not intended. Perhaps we could be assured that that will not be an unintended by-product of the clause.
John Healey: The clause contains anti-avoidance legislation that continues the Government's commitment to tackling tax avoidance wherever we can. The legislation that was introduced in 2000 gave small businesses 100 per cent. first-year allowances on investment in information and communications technology, such as computers, software and internet-enabled mobile phones. The allowance encourages small businesses to invest directly in that technology and enables them to embrace e-commerce and make their dealings with the Government and businesses faster and therefore more efficient.
The original legislation prevents a claim to allowances when the technology is acquired for leasing, but not when software rights are licensed out to others. An avoidance scheme has developed, using the loophole by allowing higher rate taxpayers to claim the allowances without expenditure being incurred on bona fide investments. I will briefly describe how the scheme works. It uses partnerships to purchase software. Individuals may put up around 20 per cent. of the money to make the purchase, with the rest being loaned by banks. The software is then licensed back to the software developer. One hundred per cent. first-year allowances are claimed on the total investment, so an individual putting up £20,000 would get tax relief of nearly £40,000 without any risk and without making an investment for the purposes intended to qualify for the relief. The effect of such a scheme is to give participants a risk-free profit at the Exchequer's expense.
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