David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)

Clause 27 requires claimants of vaccine research relief to make a declaration about the effects of that relief. That declaration would state that the relief resulted in more expenditure on research and development. I simplify, but that is the gist.

I would be grateful if the Economic Secretary confirmed the purpose of the clause. Again, I think that the answer is, to comply with EU state aid obligations. This point applies equally to clause 26. Will the Government provide some reassurance that the UK will not be at a competitive disadvantage, and that other member states either do not have the research and development regime that we have or are required to have in place the same restrictions and requirements that appear in clauses 26 and 27?

There is a curious requirement in the UK that a declaration must be made that research and development has increased as a result of the reliefs provided. I do not know whether there are any precedents, and whether  recipients of tax reliefs in other areas are required to make a declaration. If there are, I would be grateful if the Economic Secretary informed the Committee. How such a declaration would be enforced and assessed raises one or two questions. Will recipients of tax relief for research and development have to produce evidence to support their declaration? What sort of evidence would be expected? Will Her Majesty’s Revenue and Customs police the declarations? Will HMRC seek to review whether the declarations are correct? If it does, how will it make that assessment, and what will happen if it comes to a view that is different from that of the recipient? Or will it be the case that as long as the recipient says the words that are required, that is the end of the matter and there will be no further investigation? Is the declaration intended to cause an increase in the amount claimed for vaccine research relief, or will it increase the amount of vaccine research carried out? In view of the declaration, will companies change their behaviour and do more research, so that we see greater spending?

I am not aware of other parts of the tax system in which recipients of relief make a statement of this sort. Do the Government consider this a precedent that could be used in other areas? Will future Finance Bills contain divisions whereby companies make such statements? It is not entirely clear what the purpose of such a declaration is other than, once again, satisfying the EU state aid rules, and I would be grateful if the Minister provided some clarification.

Kitty Ussher (Economic Secretary, HM Treasury; Burnley, Labour)

Perhaps I can help the hon. Gentleman by setting out a little context. Vaccine research relief is a closely targeted scheme providing extra incentives, on top of R and D tax credits, for research and development into vaccines and medicine for the prevention and treatment of TB, malaria, HIV and certain types of AIDS, which occur predominantly in the developing world. Such a specialised scheme will, by its nature, have a small take-up. Because it is a new scheme, and given the time lags inherent in the tax system and the small number of large companies that make claims, there is insufficient evidence—we  have only anecdotal evidence—to demonstrate the incentive effect of the scheme as a whole. We cannot demonstrate the necessary incentive effect to the European Commission at this point, because we are at an early stage.

That is why we have introduced this self-declaration system, which applies only to large companies. We presume that the additional administrative burden is miniscule, and we do not think that it will have an incentive effect for or against incurring the actual spend in the first place. We anticipate that in due course there will be sufficient time-series data to make our own evaluation, and it may be possible to return to the Committee and say that the measure is no longer required. For the moment, we feel that it is the simplest way to ensure that we do not end up in complicated proceedings against the European Commission.

That answers the point about whether this puts us at a competitive disadvantage—absolutely not. Every country is subject to the same framework. To give some context, the Spanish Government recently lost a case at the European Court of Justice because their R and D tax credit system was in breach of European rules. We think that by doing this simple thing, we can ensure that we are not in that situation with vaccine research relief. On the contrary, by having a European state aid-approved system like VRR, our companies will be at a comparative advantage, and that is obviously in the interests of all.

Nicholas Winterton (Macclesfield, Conservative)

May I express the hope that all members of the Committee will have a fulfilling and restful weekend, that the weather improves for the test match and that you begin next week refreshed? The Committee is adjourned until 10.30 am next Tuesday, when I will not be in the Chair as I shall be in Taiwan. My fellow Chairmen will be standing in for me very well as they always do.

Further consideration adjourned.—[Mr. Blizzard.]