Schedule 17
Finance Bill
5:12 pm
Kitty Ussher (Economic Secretary, HM Treasury; Burnley, Labour)
If I were swayed by the power of the hon. Gentleman’s arguments, I would overlook the fact that his amendment should also remove sub-paragraph (7) technically to have the effect that I presume was intended. Of course, we could produce Government amendments to correct that, but unfortunately I am not swayed by the power of his arguments. I shall explain why.
For the Committee’s benefit, since the hon. Gentleman has explained the purpose of paragraph (5) of schedule 17, I will not rehearse that argument, but will just address the points that he made. I am glad that the hon. Gentleman mentioned the Conservative Treasury Minister, Peter Rees, who introduced the Rees rule. I was wondering whether he had purloined my briefing pack at some point over lunch, because I was intending to use the Rees rules to make exactly the opposite point. Peter Rees, who is now in the other place, set out that the fact that if legislation is announced before a Budget, it should be sufficiently detailed so that people know where they stand. We believe we have done that through the pre-Budget report, so the issue of retrospectivity—if that is the word; it might be retrospectiveness—is not one that we will take from the hon. Member for Fareham.
That, however, is beside the point. The substantive point that I want to make concerns the hon. Gentleman’s complaint that the expenditure on commissions disallowed for tax purposes in 2008 may have been spent up to six years ago when the company expected to get relief—I think that we all know which company we are talking about—and that that expectation should be honoured. There are a number of responses to be made, but the main point is that there has been no real outlay of funds by the fronting company to justify a tax relief. The fronting company is not at risk in any real sense, and its only interest in the arrangements is a modest fee. The other economic flows arising from the arrangement net out to zero, so the tax relief on the commissions is, therefore, a straightforward tax subsidy that should not be allowed.
We do not accept that the company is entitled to relief in the first place. If necessary, we may litigate on the issue if it comes to that. Courts are not always well disposed to tax schemes that manufacture tax deductions, when there is no corresponding economic cost. Finally, simply incurring expenditure on an asset does not guarantee that the tax treatment of the asset, whether on realisation or amortisation of the expenditure, cannot be changed in future without being characterised as retrospective. That is what invariably happens in relation to capital gains tax, and it is what happened with relief being denied not from 9 October—the PBR date—but from a later date that is not before 1 January 2008. Therefore, we believe that the commencement rules in paragraph (5) are fair and necessary to stop an unacceptable leakage of tax.
I have another point on which I would like to tease the hon. Gentleman. If his amendment were hypothetically passed, it would deprive the Exchequer of £35 million in the first full year, which I will now add in to our black hole calculations. [Laughter.] For that reason alone, I ask the hon. Gentleman to withdraw his amendment.