Clause 35
Finance Bill
10:45 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
Welcome to the Chair, Mr. Gale. I am grateful for your guidance on the breadth of the clause, which is just as well, given that my remarks are broad.
The clause marks the start of a long process of reform of the capital allowances system that the Chancellor highlighted in the Budget speech in March. Those reforms are designed to help offset the costs of the reduction—the 2p cut—in corporation tax, which we debated earlier. The clause sets the ball rolling on two particular groups of allowances—for agricultural buildings and for industrial buildings—by withdrawing balancing adjustments in connection with the disposal of qualifying industrial and agricultural buildings, unless that adjustment has taken place within a qualifying enterprise zone or pursuant to the relevant pre-commencement contract.
It is worth highlighting the fact that buildings allowances have been in place since the end of the second world war, when they were introduced to encourage post-war reconstruction and to give businesses an incentive to invest in buildings by enabling, as the law still states, the cost of investment in those buildings to be written off over 25 years, at a rate of 4 per cent. per annum. Those are quite valuable reliefs, and the HMRC website says that the value of claims for both allowances in 2004 was just over £3 billion. Therefore, the Chancellor is embarking on quite a significant reform, at significant cost to taxpayers.
As I said earlier, the clause withdraws balancing adjustments that arise when the proceeds from the sale of an industrial or agricultural building differ from its tax written-down value. Where the proceeds exceed the tax written-down value, there is a recovery of the allowances claimed to date. Where the proceeds are less than the tax written-down value—[Interruption.]