With this it will be convenient to discuss the following: Amendment No. 201, in schedule 24, page 288, line 34, at end insert ‘; or
(d) a trustee’.
Government amendment No. 146
Amendment No. 202, in schedule 24, page 289, leave out lines 41 and 42.
Amendment No. 203, in schedule 24, page 290, line 14, at end insert—
‘(7A) Where AIA qualifying expenditure incurred in a chargeable period is less than the maximum allowances, the unused allowance may be carried forward to relieve future qualifying expenditure in a subsequent chargeable period or carried back to relieve unrelieved qualifying expenditure in the previous chargeable period.’.
Government amendment No. 147
Schedule 24 deals with the substance of the annual investment allowance changes. While I shall try not to rise to the provocation of the Exchequer Secretary’s previous remarks, I will say that the Opposition’s proposals are to scrap the annual investment allowance and the increases in the small companies corporation tax rate, which the Government are imposing. Since it is not within our power to table amendments to the Bill that would have that effect, as the Committee will understand, it would be entirely inappropriate to scrap the allowance without being able to do the other side of the equation and maintain the 20 per cent. rate of small companies corporation tax.
I appreciate the limitation that the procedures of the House put upon us, but will the hon. Gentleman confirm for the avoidance of doubt that it remains the Conservative party’s policy to have exactly the same overall tax burden as the Labour Government?
I think that we are going slightly wide of the point, but as the hon. Gentleman knows, we have made a commitment to match the Government’s spending plans for the three years of the comprehensive spending review period. When that commitment was made, it looked as though that would only bind an incoming Government for the first year, 2010-11, but by the way they are going, one wonders whether the change might occur rather earlier. However, I am sure that you would not wish me to explore that line of thinking in any detail this morning, Mr. Cook.
As the Exchequer Secretary said, schedule 24 introduces the annual investment allowance that was announced in the 2007 Budget and a capped, 100 per cent. first year writing-down allowance of capital expenditure up to a limit of £50,000. Let us focus on what the provision will replace. It will replace the first year allowances for small companies that have been available in recent years. It also has to compensate small companies for the loss of industrial buildings allowance and agricultural buildings allowances and the drop in the standard writing-down allowance from 25 per cent. to 20 per cent., or 10 per cent. in the case of integral features, as we have just debated. It is also supposed to compensate small companies for the staged increase in the small companies corporation tax rate.
It is true to say that the overall package of capital allowance reforms and corporation tax changes is neutral, broadly, but it would not be true to say that the impact of these measures on small business was neutral. The cuts in capital allowances for large companies are offset by cuts in the main rate of corporation tax, but overall this package of corporate tax changes raises the taxes on small companies, which will see their allowances cut and the rate of corporation tax they pay increase. Of course, the annual investment allowance will also be introduced; I will come to that in a moment.
The average gain for a UK business from the introduction of the AIA in 2008 will be somewhere between £60 and £70. That is calculated by taking the Treasury’s annual cost of the AIA—£920 million—and dividing it by the Treasury’s estimate of the number of businesses in operation. In contrast, the average cost of additional corporation tax for small companies as a result of the removal of the small companies rate will be will be approximately £1,000 extra.
All the amendments to the schedule have been grouped together. Therefore, with your permission, Mr. Cook, I intend to address not only the amendments, but one or two other points that would relate to the schedule in a stand part debate, as the amendments cover quite a wide ranging area.
Government amendments Nos. 146 and 147 correct a defect in the drafting. I am glad that that was spotted before the Bill got through the House. This is a matter of parliamentary procedure. We are happy with those amendments and agree that they are sensible and should not have any unintended consequences.
On amendments Nos. 200 and 201, the annual investment allowance to be introduced under schedule 24 is available only to companies, sole traders and partnerships exclusively between individuals. That treatment discriminates against mixed partnerships, which are formed between companies and individuals. It also discriminates against any form of business carried on by a trustee, whether as a partner in a partnership—I shall mention in a minute how that might arise—or where a trustee or trustees are carrying on business in their own right as trustees.
Partnerships between companies and individuals are common, particularly in the agricultural sector and they are not unknown in the property sector. Partnerships between companies are a common form of joint venture structure. Trustees, particularly trustees of farmland, may wish to carry on a trade or enter into partnerships to carry on such a trade. There is also a possibility, where a partner in a partnership of individuals dies and a settlement arises, that the trustees may wish to continue trading the partnership interest on behalf of the settlement. In such circumstances, I understand that the whole partnership would be denied annual investment allowance, because one of the partners had died and that partnership interest had passed to a settlement. That outcome seems inequitable. The Government have not explained why it is necessary to have such an unfair, distortive restriction. The assumption in the industry is that they must fear some kind of avoidance or abuse. In our view, discriminatory action against certain structures of business is not justified unless the Government can show a specific concern about a likely area of abuse.
The Exchequer Secretary will be aware that the Government have a stated policy of neutrality in respect of different types of business structure and of fairness between taxpayers who are in similar economic situations, regardless of their legal structure. The schedule is quite at odds with that stated objective in the way that it discriminates against mixed partnerships and trustees engaging in a trade. The amendment would delete the restriction on an eligible partnership so that all partnerships become eligible for the annual investment allowance rather than those partnerships being excluded that are formed otherwise than as partnerships of individuals. Amendment No. 201 includes an explicit provision that would allow a trustee or trustees to qualify for annual investment allowance.
Over the next few provisions of the Bill, the Committee is being invited to approve a wholesale reform of the capital allowances regime, not just a minor tinkering. To pre-empt the Exchequer Secretary’s response to the amendments, I say that in these circumstances, we do not think the mere fact that something has or has not been allowed in the past is sufficient justification for continuing with clearly inequitable treatment. In the context of a wholesale reform of the capital allowances regime, if any such unequal treatment is to continue, it must be justified on a case-by-case basis on the grounds of serious risk to the Exchequer of avoidance or abuse. I look forward to hearing the specific justification for the exclusion of mixed partnerships and trustees.
Amendment No. 202 would delete the requirement for the taxpayer to own the relevant plant and machinery at some point in the chargeable period. On the face of it, that may seem a rather odd amendment, but there is already a condition that the taxpayer must have incurred the relevant expenditure on the asset during the chargeable period. It is unnecessary and potentially inequitable to require him also to have owned the asset during the chargeable period. The first condition that he must have incurred the expenditure is sufficient to deal with the issue. Why does the Exchequer Secretary consider it necessary to have the supplementary condition that he has owned the asset during the period?
It is not uncommon for expenditure on plant and machinery to be incurred before the person incurring the expenditure has ownership. For example, where special-purpose machinery is being constructed, such as the building of a customised production line, payments on account will typically be required while the process of design, development and manufacture is underway. The expenditure will perhaps be incurred many months before the equipment is transferred to the ownership of the taxpayer. It seems irrational not to allow that expenditure when it is incurred on the basis that ownership has not been acquired at that point. Again, if the Exchequer Secretary has some significant anti-avoidance concern that causes her to make this restriction, we would be very interested to hear it. I hope that she will acknowledge that something will have to be done to ensure that staged payments on the construction of special-purpose plant and machinery, for example, are not caught in the way that I have suggested.
Amendment No. 203 deals with the transfer of annual investment allowance forwards or backwards. Under the schedule, the annual investment allowance can be carried neither forwards nor backwards. For medium-sized businesses in particular, which may invest £50,000 a year on average over a period of time, there is a risk that the lack of a carry-forward or carry-back provision will lead to tax-driven behaviour, which in turn will lead to sub-optimal outcomes in economic efficiency. That would be bad for the individual business and for the economy.
My point is that businesses will be tempted to plan their capital spending on the basis not of the economic requirements of the business or the economically most appropriate point at which to replace capital assets, but the availability of the allowance in-year. There will be a strong incentive to spread capital expenditure, which in some cases will mean delaying capital expenditure. That does not make sense for anyone, if the equipment in question needs to be replaced or new equipment needs to be purchased to increase business capacity. Perhaps that is not likely at the moment, but we live in hope that we may come to a point in the cycle where capacity is under pressure.
If the allowance were able to be carried forward, a company might be inclined to invest larger sums in new plant and equipment, knowing that it could apply some of that expenditure to first-year allowance in the second year or subsequent years. Clearly, the attractiveness of rolling expenditure forward to use a future year’s annual allowance decreases sharply beyond the first or second subsequent year, as writing-down allowances would have to be forgone. However, there is a view that there should be the ability to roll expenditure forward, and to some extent backwards, to take advantage of unused annual investment allowance. The amendment proposes an unlimited ability to roll the allowance forward, and a one-year limited ability to roll it backwards. If the Government were minded to accept the proposal in principle, further drafting would be necessary to ensure that expenditure was not relieved twice. Just to be clear about that, we envisage that writing-down allowance would be denied where capital expenditure was treated in that way, or alternatively that it would be the written-down value that was relieved in the later year. We certainly do not suggest a double tax allowance. I would be interested to hear the Exchequer Secretary’s reasons for the non-inclusion of an ability to carry forward or backwards the allowances.
As I said earlier, the schedule sets how the annual investment allowance will work, and individual businesses will have to look at that and see to what extent it will compensate them for the additional costs that they will face from the abolition of industrial buildings allowances and agricultural buildings allowances, and from the higher rates of corporation tax imposed on small companies. As ever with this Government, even sensible measures are dragged into disrepute by being implemented by stealth. If the generosity of capital allowances is being reduced to fund a reduction in the mainstream rate of corporation tax, why not say so, rather than pretending that the introduction of annual investment allowances is some kind of bonus for smaller companies that have, of course, not seen any reduction in their corporation tax rate? In the past few years, those companies have suffered an increase in that rate, unprecedented in the developed world, when the trend among all our competitors is to reduce corporate tax rates to stay competitive in the face of increasing global competition from the developing economies, particularly in Asia. There will be a significant distributional impact on different types of businesses. Those with regular eligible capital expenditure will benefit from the annual investment allowance, whereas those without such qualifying expenditure will merely suffer the impact of the abolition of industrial buildings allowances and agricultural buildings allowances, and the increase in the corporation tax rate for smaller companies.
Apart from the issues that I raised regarding mixed partnerships, the lack of carry-back and carry-forward and the unnecessary restriction on ownership of an asset, there are a couple of other points that I would like to raise with the Exchequer Secretary. There is no index-linking provision in respect of the £50,000 cap on the AIA. New section 51A enables the Treasury to amend that cap, but there is no restriction to ensure that that power is used only to increase the limit in line with inflation. Mr. Cook, the Financial Secretary has written to your co-Chairman, Sir Nicholas, about how the Treasury intends to use powers where draft statutory instruments have not yet been published, but there is no clue in that letter as to how the Treasury intends to use this particular power. It is possible that it could use the power under new section 51A to decrease that limit. We have to assume that that is not the Treasury’s intention. Can the Minister confirm that the Government’s intention, with respect to the power under new section 51A, is simply to be able to increase the limit in due course? I accept that it might not make sense to index it precisely year by year, but the intention is to increase the limit periodically, so that its real value is broadly maintained.
New section 51B introduces a restriction on the availability of the allowance for groups of companies under common control. New section 51A does the same for other companies under common control. In both cases, the restrictions apply where companies are controlled by the same person and the companies are related to one another—two separate criteria have to be satisfied. New section 51G defines “related” and provides that two companies are related if they either carry out similar activities or share premises. The similar activities test is clearly required to avoid artificial fragmentation of businesses—we do not have any argument with that. However, the shared premises test potentially gives rise to a number of problems. The first is that it is not clear what the term “carry on” means in new subsection (5), which states:
“The shared premises condition is met...if...the companies carry on qualifying activities from the same premises.”
I shall use a hypothetical example to illustrate the concern. I hope that the Minister is briefed on it; as it was raised at the open day as an example of a potential problem, she should have a briefing note. A farmer manages his farming company, which carries on a farming business. He also manages a separate holiday lettings company that lets cottages adjacent to, but not part of, the farm. He manages both separate businesses from his home. Is it possible that both businesses could be said to be “carried on” from the same premises? They are administered from the same premises, even though the premises used for the delivery of the businesses are clearly separate—in one case the farm premises and in the other case the holiday cottages, which are let out. It is an important point, as there is a danger that many small businesses could be caught unintentionally—I think—by the shared premises test, if the Minister has to tell the Committee that two businesses administered from the same office will be caught by the test.
There are also issues about the definition of “premises”. I am advised that there are a number of different definitions used in different areas of tax legislation and it is not clear what definition of premises is intended to apply in the new section of the Capital Allowances Act 2001. Can the Minister clarify where the relevant definition of premises is found?
Depending on the Minister’s answer to my question about sharing administrative offices, and whether that constitutes the sharing of premises and thus a connection between businesses for the purposes of new section 51E, the Committee may need to address a question of principle. Again, I illustrate the issue by an example. A husband and wife jointly own two companies—a taxi business and a small building firm. Mrs. A operates the taxi company, perhaps from their home or a small office that they rent nearby. Mr. A runs the building business, which is administered from the same office, but obviously will not be carried out, in the sense of delivering building activity, in that office. The taxi business is actively run from the office—taking phone calls, making bookings and so on—while the building business is merely administered from the office, in ordering materials, communicating with customers, and dealing with record keeping, accounts and all the bureaucracy entailed in running any small business these days.
Surely to goodness, we in the Committee do not want to create a situation in which two such businesses have to operate from separate premises to secure a tax benefit in the form of the annual investment allowance. That would be crazy, forcing the husband and wife pair of businesses to operate from separate premises, rent additional offices, pay two sets of overheads and heat and light two sets of offices. I know that the Minister will be worried about the carbon impact. Surely the objective of tax policy cannot be to force people into tax-driven behaviour that is, frankly, economically bonkers. I cannot think of another word for it.
We do not want the tax tail wagging the economic dog, and I hope that the Exchequer Secretary will offer the required reassurance to make it crystal clear not only to Committee members but to those who advise small businesses throughout the land that it is not the intention for businesses operating in that way to be caught by the shared premises condition. If she can be clear about that, I hope that she will also give us a commitment—even if she cannot do anything right now—to look between now and Report at whether anything can be done to the drafting of the shared premises condition to make it absolutely clear that it does not apply to the kind of case that I have given as an example.
The schedule introduces rules for the new annual investment allowance of £50,000 a year for business investment—
I am happy to oblige.
The schedule introduces the rules for the new annual investment allowance of £50,000 a year for business investment in plant and machinery. The Government consulted extensively about the design and technical detail of the annual investment allowance through the publication of formal consultation documents in July and December 2007. Respondents to the consultation generally welcomed the proposed annual investment allowance and agreed that it would be of particular benefit to smaller business. As befits a major simplification measure, the Government have taken a light-touch approach to the targeting of the annual investment allowance, which should ensure that the allowance is a welcome and effective investment incentive for the vast majority of businesses.
We have deliberately sought to make the process as simple as possible, but at the same time we must of course protect the Exchequer by ensuring that certain basic rules protect that valuable new allowance from exploitation and avoidance. We have done everything we can to make those basic rules as simple and clear-cut as possible to keep the compliance burdens to a minimum. In outline, the basic rules are contained in the schedule and are broadly as follows. Unless, exceptionally, two or more businesses are controlled by the same person and also fall within one of the two simple tests per related business, the annual investment allowance will be available to any individual carrying on a qualifying activity. That includes trades, professions, vocations, ordinary property businesses and individuals having an employment or office, any partnership consisting only of individuals, and any singleton company or group of companies.
The rules give a business almost complete freedom to allocate the annual investment allowance between different types of expenditure in any way that it chooses. For example, a business may allocate the annual investment allowance against any expenditure on integral features—the new classification that we have just discussed—or long-life asset expenditure. Both qualify for the lower 10 per cent. rate of writing-down allowance.
As well as being financially beneficial, the measure should operate as a proxy for a de minimis provision for integral features expenditure by smaller businesses. In other words, smaller firms may be able to dispense altogether with a 10 per cent. special rate pool if the amount of their integral features expenditure does not exceed £50,000 a year. The rules also allow persons in control the freedom to allocate the AIA between companies in a group, between related companies or between related unincorporated businesses in any way that they see fit. There is no requirement to apportion the allocation of the AIA in any way or on any particular basis; so, for example, in a group of five companies, all of the AIA could be allocated to one company or split between all or any of the five as the group finds most convenient.
The rules provide that a company is related to another company in a financial year—and, separately and independently, that an unincorporated business is related to another in a tax year—if the businesses in question are controlled by the same person and either the shared premises condition or the similar activities condition, or both, is met in the relevant year. Whether commonly controlled businesses share the same premises is a very simple test, and it should be straightforward for taxpayers to understand.
I shall take this opportunity to deal with the holiday let and farming business example mentioned by the hon. Gentleman in his opening remarks. He is right to say that the matter was raised at an HMRC open day, but Her Majesty’s Revenue and Customs confirmed then that the holiday let business and farming business that he described would not be regarded as conducted from the same premises just because the owner of both did his paperwork in the farmhouse. “Premises” has its everyday meaning in that context. In other words, it is not where the paperwork is done; it is where the business is actually carried on. I hope that gives him some of the reassurance that he was after, but he wants to get to his feet, so I am happy to oblige.
I am grateful to the Minister for clarifying that point, although there is something of a caveat in the clarification. She implied that what she said is the case because the activity carried on in the farmhouse is de minimis—a bit of paperwork is being done. Perhaps she will address the other example that I used later, which involved a more substantive carrying on of a business: the taxi and building companies carried on by a husband and wife, not from their home but from a rented office. She may not have the answer immediately to hand, but can she confirm that the same rule would apply as in the case of the farming and holiday letting business? That would be a great reassurance.
I will come back to that question and try to be as helpful as I can. It is always difficult to give tax advice on the hoof when it will be read by many tax advisers. I do not want to seem as though I am making it up as I go along, but I can confirm at least that administration would not determine the location of the qualifying activity. As with all such matters, a certain amount of checking and considering each example will happen as we go along, in order to clarify the rules. I hope that gives the hon. Gentleman some comfort.
It should be remembered that the vast majority of people do not control a multiplicity of related businesses. The issue may worry some, but it will not be at the forefront of everybody’s mind in every circumstance. In general, the related businesses rules have been welcomed in the accounting press as clear and simple to apply. We always keep such measures under review to see how things develop. However, there has been a general welcome for our approach with respect to related businesses.
The hon. Gentleman spoke about the annual investment allowance. It is important to remember that it is a major simplification for the 95 per cent. of UK businesses that invest up to £50,000 a year. It will provide a valuable cash-flow boost, especially for smaller businesses, as it effectively gives 100 per cent. write-down. It will therefore encourage investment. In that context, it is important to remember that three quarters of small businesses are unincorporated and will therefore benefit from the annual investment allowance without being affected by the increases in the small companies rate. In general, if separate businesses are engaged in separate business activities, even if they are controlled by the same person, they will be entitled to one annual investment allowance each.
The first two of the Opposition’s amendments deal with the basic rules on who can qualify for the annual investment allowance. They seek to extend the allowance to any partnership, including what are called mixed partnerships—those that involve both individuals and companies—and the second of them would extend it also to include trusts.
The restriction on such partnerships and trusts claiming annual investment allowance is carried forward from the existing first-year allowance regime, which the new system replaces. [Interruption.] I hear the hon. Gentleman chuntering, but he made those points himself. He said that just because a rule had been in place in a previous system did not mean that it should automatically be included in the new system. I do not disagree with him in principle. However, it is important to understand the reason for the rules. After careful consideration—[Interruption.] I shall explain why in a moment if the hon. Gentleman will let me finish the sentence.
There was a reason for introducing the rules under the previous system. When they were introduced in 1997, the then Financial Secretary, my right hon. Friend the Member for Bristol, South (Dawn Primarolo), who is now Minister of State, Department of Health, explained to the Finance Bill Committee why the allowances would not be extended to those entities. Her explanation holds good today in relation to the annual investment allowance exclusion. My right hon. Friend said:
“Incredibly complex rules would be required to bring them in, which would open possible abuses of tax-driven options that the hon. Gentleman would deprecate.”—[Official Report, Standing Committee A, 23 April 1997; c.446.]
In other words, there is an issue about fraud avoidance, fragmentation and so on. They are all things that the hon. Gentleman, who is a sophisticated member of the Opposition, knows can be done; he knows what some people will do, and the lengths that they will go to in order to attract investment allowances if they are given the chance. He knows the implications.
In addition, extending the annual investment allowance to partnerships involving trusts would complicate the rules for determining whether a business was in common control—rules that accounting experts have described as
“very simple and easy to understand, and likely to prevent abuse without troubling ordinary businesses.”
I should have thought that that was welcome. I am at some loss as to why the hon. Member for Putney should think that simplification is a good thing yet the hon. Member for Runnymede and Weybridge should say that we ought to extend the rules to partnerships, trusts and mixed partnerships. The latter would create massive complications, bringing company tax as well as income tax rules into play, and creating a whole string of rules to minimise the potential for avoidance. It would be far more complex than the simple rules that we are trying to create, which include the exclusions that the hon. Gentleman seeks to abolish.
Those amendments are likely to increase the Exchequer cost of the measure by approximately £50 million a year. Continuation of the existing exclusions strike the right balance between simplicity and providing a valuable incentive to businesses to invest. I ask the Committee to resist the first two Oppositions amendments.
This group of amendments includes two minor Government amendments. Government amendment No. 146 deals with the basic annual investment allowance entitlement rules and seeks to correct some defective wording by replacing it with a new subsection. The purpose is to ensure that if a business in start up incurs pre-commencement expenditure on or after the relevant annual investment allowance start date in April 2008, that expenditure will qualify on commencement of the businesses qualifying activity. The amendment therefore makes a beneficial change.
The defective wording that amendment No. 146 replaces occurs later in the schedule and so, chronologically, our second amendment—No. 147—should be debated after that. The amendment amounts simply to a technical tweak, and I hope that the Committee will be content for me to refer to it as that. These Government amendments will be of benefit to business and I encourage the Committee to support them.
I confess that the remaining Opposition amendments have caused me some confusion because I had thought that the plans they had published reduced the main rate of corporation tax, for which they tabled an amendment to clause 4, and that they wished to abolish the annual investment allowance. However, these amendments would increase the scope of the annual investment allowance at significant cost.
Amendment No. 202 undermines the fundamental tenet of the way in which capital allowances operate and could lead to more than one business claiming relief for the same expenditure. I heard the comments of the hon. Member for Runnymede and Weybridge, but the amendment would remove the requirement for a business to own the plant and machinery during the chargeable period for which they are claiming annual investment allowance. For obvious reasons, businesses are generally required to own or be deemed to own the plant and machinery on which they are claiming plant and machinery allowances. Where a business does not own the plant and machinery, it may be possible to claim tax relief on contributions to that expenditure, but that is governed by a different part of capital allowances legislation. That legislation prevents the same business from claiming both for capital allowances and for contributions. However, because the amendment would allow businesses to claim annual investment allowance on contributions, it is possible that one business would be able to claim for contributions and the other for owning the plant and machinery. That is clearly not desirable.
Amendment No. 203 would allow businesses to carry forward or back any annual investment allowance—effectively it would prevent the annual investment allowance being annual. The amendment would significantly undermine the simplification benefits of the annual investment allowance and would require businesses to track both their expenditure and their unused annual investment allowance over a number of years. Additional legislation would be required to deal with how to cumulate unused allowances if they were carried forward indefinitely, which would result in unintended behavioural effects, such as businesses deliberately saving up annual allowance entitlement to spend significant amounts in one year. It is likely that that would have a significant cost that would build up considerably over time.
As I said earlier, 95 per cent. of businesses invest less than £50,000 in any one year and the Government have taken a power, about which the hon. Gentleman asked, to vary the level of the annual investment allowance. I can confirm that what is in our mind with regards to that power is perhaps not strict indexation, but it certainly relates to going up, not down. The power to vary that is in the Bill and the hon. Gentleman noticed it. The annual investment allowance represents an incentive for investment and simplification for the smallest businesses in particular. Opposition amendments tend to complicate and with all due respect these amendments leave the annual investment allowance open to abuse in some cases. That is particularly true in relation to the Opposition’s proposal to extend mixed partnerships, which would certainly complicate things and lead to situations in which there might be difficulty in defending the integrity of the allowance.
Therefore, I ask the Committee to support the two minor Government amendments in the group, but to oppose the Opposition amendments.
I am grateful to the Minister for clearing up one or two things. I am also grateful for confirmation that the Government’s intention with regards to a broad indexation over time is what we had hoped. To be clear, the Minister suggested that there is some incompatibility between being opposed to something in principle and seeking to probe the way that it will work in practice. The truth is that the Government will get their measures through the Committee—they may even get them through the House, although this subject is something that increasingly consumes our attention. Whatever our principled objections and preferences at strategic level, we must establish how the Government intend to deal with something like the annual investment allowance and we must challenge the individual aspects and workability of that.
I suppose that my point was a slightly narrower one. I can understand the hon. Gentleman’s point, it is perfectly legitimate and that is what these Committees are for. However, some of the amendments tabled by the Opposition widen the scope of the annual investment allowance, they do not probe how it would work.
The amendment in relation to carry forward and carry back seeks to obtain the Minister’s comments on an issue that has been raised by an outside professional body. We are interested to hear what she says. She has told the Committee that significant costs would be involved, and that is a perfectly legitimate consideration. In my remarks, I raised the concern that investment behaviour may be tax-driven in a way that might be unhealthy and economically inefficient. Although she did not refer to it, I hope that the Treasury will also have considered that as a balancing factor. I accept that there must be a balance drawn in these things.
Of course, part of the thinking behind the change in investment allowances in general, of which this is a part, is to align behaviour more with the economic costs in riding down particular investments. Will he comment on his own party’s proposals in this area? Capital allowances are cut in order to fund changes in corporation tax, and that leads to a situation where there are tax disadvantages to investing, as it takes the tax allowances that are given in those circumstances below the economic cost of making the investment.
It would be accompanied by a substantial reduction in the headline rate of corporation tax. The other point is that our proposals will be presented in the manifesto at the next general election.
Thank you, Mr. Cook, I shall attempt not to respond to provocation. The Minister sought to be helpful in explaining how the shared premises test would work. I am still concerned, although somewhat reassured because where one business is functionally run and performed in a premises and another is merely administered from it, it should not be caught by the shared premises test.
Angela Eagleindicated assent.
The Minister nods her head, so that clears that up. We are still concerned about the mixed partnership rules. She says that there is substantial scope for abuse, and implies that I know what that scope is. I am sorry to disappoint her, but I do not know what the scope for abuse is—I have been racking my brains trying to think about what mischief one could get up to. She has not addressed the point that the Government have a clear policy of similar treatment for similar economic activity regardless of the legal structure and we are disappointed that she was not able to deal with that.
In relation to ownership, of course it was never intended that double claims of allowances should be made; we were merely seeking to understand why that additional condition had to be introduced into the schedule.