Clause 61 — Computer equipment

Orders of the Day – in the House of Commons at 2:45 pm on 5th July 2006.

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Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury 2:45 pm, 5th July 2006

I beg to move amendment No. 126, page 46, line 29, leave out clause 61.

Thank you, Mr. Deputy Speaker, for giving me the opportunity to raise this issue again. I believe that a fundamental problem still remains, and I welcome the opportunity to discuss it again on Report. However, rather than rehearse the arguments that were put in some detail in Committee, I shall ask a number of questions to which I hope the Paymaster General will be able to respond.

Clause 61 seeks to remove the tax exemption that existed prior to the Budget, whereby employers who made computer equipment available for private use could do so tax-free, provided that the annual amount of the benefit in kind was £500 or less. Under the new regime, it remains the case that when the personal use of computer equipment is "not significant", it does not need to be reported for tax purposes. What value does the Paymaster General attribute to "not significant"? How much below the previous limit of £500 per year will it be? How will the Government assess what does and does not count as significant?

The Paymaster General made the point in Committee that the system was being abused—by being extended to include MP3 players, for example. There was a great deal of discussion at the time about what evidence the Government had used when they decided to withdraw the scheme rather than to tighten the definitions. The Paymaster General was kind enough to give examples of websites illustrating how the scheme could be abused, but can she quantify the scale of the abuse? Half a million people have benefited from the scheme, and many family members, as well as employees, now have access to a computer at home as a result. In particular, people found the kind of support provided through the scheme particularly helpful and reassuring.

Companies involved in delivering the scheme were reporting an increase in uptake, and I do not believe that that was entirely due to abuses of the system. However, if the Paymaster General has evidence to show that that increase was due solely to such abuse, I would welcome that information. However, the Paymaster General rightly pointed out the perceived weakness of the scheme—that it related only to employees, and that vulnerable and isolated groups not in employment could not benefit from it. The Home Computing Initiative Alliance recognised that, and I understand that it was in discussions with the Treasury and auditors about how best to resolve that issue when the scheme was withdrawn.

While I recognise and applaud the new digital inclusion team announced in the Committee of the whole House, why were existing partners not deemed appropriate to fulfil the remit that was described? Will the entirety of the £370 million in savings generated by the scheme's abolition be transferred to the new team, or will some of that go back into the Treasury pot? That question was asked in the Committee of the whole House, but I do not see a response to it in Hansard. Finally, will the Paymaster General provide us with an update on the digital inclusion team's work? On that note, I look forward to her response.

Photo of Mark Francois Mark Francois Shadow Paymaster General 3:00 pm, 5th July 2006

It is a pleasure to follow the substantive contribution of Julia Goldsworthy. As the House may recall, we debated in some detail the Government's proposal to abolish the home computing initiative scheme, under clause 61, in the Committee of the whole House on 2 May. On that occasion, the official Opposition proposed the deletion of clause 61, which, as I recall, the Liberal Democrats supported. If the hon. Member for Falmouth and Camborne presses her amendment to a Division, we shall remain consistent with our original position, return the compliment and support her amendment.

On 2 May, I spoke on this matter for some time and, I hope, in considerable detail, going back to the genesis of the scheme under section 45 of the Finance Act 1999. I therefore suspect that the House will welcome the fact that I do not propose to rehearse all that today. Instead, my aim this afternoon is to re-examine the Government proposal under five fairly succinct— I hope—headings. First, how was the decision to abolish HCI taken? Secondly, what was the subsequent impact? Thirdly, why was an alternative scheme not adopted? Fourthly, what is the tax position now, including such questions as: what now constitutes private use, which can be deemed for tax purposes to be "not significant"? Lastly, what really lay behind the decision all along?

On the first question, there is little doubt in the industry or elsewhere that the decision to abolish the scheme was taken late in the run-up to the Budget. That is evidenced by several points. In the days immediately preceding the Budget, the HCI Alliance, which represents companies specialising in this field, was negotiating with the Treasury in good faith to see how the scheme could be modified, in order to save it from the allegations that elements of it were being abused. The HCI Alliance was therefore shocked when the scheme was abolished in the Budget on 22 March, while those negotiations were effectively still ongoing. They were not the only ones to be caught out. The Department of Trade and Industry, the scheme's departmental sponsor, was also taken unawares, not least as it was about to roll out the scheme to its own employees, and was promoting it on its departmental website on the day of abolition, stating:

"The real beauty of HCI schemes is that they have the potential to improve performance in almost every area of the organisation. As well as traditional drivers—reducing cost, increasing profitability—they can also contribute to more recent imperatives such as corporate responsibility, individual learning and workplace development."

The Department for Work and Pensions, one of the largest employers in government, was also about to roll out the scheme to its staff, and was also blind-sided by the Treasury.

The announcement also drew criticism from the CBI and the TUC, both of which had actively promoted the scheme to their members. Brendan Barber, the general secretary of the TUC, protested:

"The Home Computing Initiative has helped thousands of low-paid workers without confident IT skills buy their first ever computer. Unions up and down the country have been promoting the scheme, often linked to training schemes. The sudden closure of the scheme would mean that many hours of voluntary union effort would go to waste."

Moreover, the matter received no prior formal public consultation and, as the Government's regulatory impact assessment pointed out, unusually, no small firms impact test was carried out in advance of the decision either. In short, it had all the hallmarks of a decision taken hurriedly in the final few days before the Budget announcement, as the printers were straining to print the final version of the Red Book.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I thought that this was going to be succinct.

Photo of Mark Francois Mark Francois Shadow Paymaster General

The hon. Gentleman says from a sedentary position that he thought my comments were going to be succinct. I say gently to him, having heard him once or twice in Committee, that there is an element of the pot calling the kettle black about that.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Can the hon. Gentleman cite where in Committee I spoke for more than two columns of Hansard in any one speech or intervention?

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I would prefer that we stuck to the proceedings before the House this afternoon.

Photo of Mark Francois Mark Francois Shadow Paymaster General

Thank you, Mr. Deputy Speaker. I shall gladly write to the hon. Gentleman on that matter, either one way or the other.

As for the impact of the decision, take-up of the HCI scheme was just beginning to take off when the Treasury suddenly and unfortunately announced its abolition. Nearly half a million employees around the country had taken advantage of the scheme to help improve their computer literacy and that of their families, which was part of the point of the scheme. More than 1,000 organisations, including public, private and voluntary sector bodies had begun to use the scheme. More than 100 different NHS trusts and hospitals had done so, including King's College hospital and even the Sedgefield primary care trust, as had a wide variety of local authorities, a number of which were Labour-run. Many other organisations were also planning to adopt the scheme, including, as we have heard, two Departments.

Unfortunately, even for organisations that had already signed up their employees, the benefits will now be time-limited, as once current HCI agreements expire they cannot be renewed on the same terms. That is confirmed by paragraph 71 of the regulatory impact assessment, which states:

"Changes to the exemptions for computers and mobile phones were announced in the Chancellor's Budget Statement on 22 March 2006 and will take effect from 6 April 2006. However, those people also participating in schemes based on the law as it applied prior to 6 April will not be affected until the period of their current agreement expires and they enter into a new agreement."

Therefore, even those people's HCI schemes will run out when whatever agreement they happen to have signed over the past few years reaches its originally agreed termination date. If clause 61 remains in the Bill, they will not be allowed to renew on those terms.

Photo of David Taylor David Taylor Labour, North West Leicestershire

Having worked in the computing industry for 30 years before coming to this place, I welcomed the initiative and the attempt to raise levels of computer literacy, as lack of such literacy has resulted, among other things, in unnecessary recruitment from abroad to fill jobs that UK citizens could do. However, does the hon. Gentleman acknowledge that any Government must act if they believe that a scheme has been abused, or that growing numbers of people are using it in a way not anticipated under the original terms and objectives?

Photo of Mark Francois Mark Francois Shadow Paymaster General

I thank the hon. Gentleman for his intervention. As he knows, I have quite a lot of time for him. At one level, what he says is correct, if the motive had genuinely been to address abuse. First, however, I do not believe that there was widespread abuse of the scheme, as I shall briefly explain. Secondly, as I hope I shall demonstrate, I believe that the motivation was not to combat abuse per se, and that the Government had other reasons. The issue of abuse has been used as a smokescreen, and I shall explain why. I take his point, but I do not believe that what he describes is what happened in this instance.

The impact on employment has been estimated by the UK trade body Intellect at around 2,000 job losses. Since the announcement was made, a number of companies operating in the field, including Red PC, Encompass and Evesham Technologies have, sadly, announced redundancies as a result. The greatest overall effect, however, is on the people who will no longer be able to avail themselves of the scheme, many of whom are in modestly paid jobs. When we debated the matter in the Committee of the whole House, I read into the record a series of e-mails and web comments from people who feared that they would no longer be able to use the scheme. I will not go over that again, but in summary, the HCI Alliance estimated that 60 per cent. of the scheme's participants are in blue-collar industries and 75 per cent. pay the standard rate of tax or lower. Three quarters of the people who were using the scheme could hardly be described as rich by any measure. Moreover, the computer supplier Intel pointed out in a letter to me that 21,000 Tesco workers had taken up the scheme, and expressed the view that many of them would not have computers had they not been offered them under the scheme.

Why was an alternative scheme not adopted? We debated that at some length on 2 May. If the Treasury was generally concerned about the degree of abuse to which it argued that the scheme was subject—and I accept that there was some abuse at the margin—it should have been possible to amend the 2004 scheme guidelines to specify a "positive" list of products to which the scheme and the exemptions would apply in future, perhaps supplemented by a "negative" list of those to which they would definitely not apply. That would have been a way of tightening up the scheme in order to save it.

There is a precedent. The Government in Sweden have operated a system similar to the HCI for some time, and similar concerns were expressed there about people seeking to exploit the tax advantages by purchasing equipment outside the original spirit of the rules. However, in 2004, rather than scrapping the scheme the Swedes simply tightened the rules on qualifying equipment. It deemed that only personal computers were allowed, with a maximum of one per employee. The monitor size was restricted to 30 in to avoid the alleged abuse by people using the scheme to buy large-scale plasma televisions. Peripherals and accessories were divided into two categories: those primarily used connected to a PC, such as keyboards and printers—which were allowed—and those whose primary use did not involve a PC, such as digital cameras and MP3 players, which were specifically not allowed.

Even if the Treasury refused to accept the Swedish example wholesale, as we have argued before, restrictions of that kind would be relatively simple to introduce through modification of the guidelines. The Government simply cannot hide behind excuses such as the difficulty of defining qualifying equipment, because we have already given them an empirical example of that being done successfully elsewhere. Furthermore, that very option was included in the Government's own regulatory impact assessment, under the heading "Refocus the Exemptions". The more tightly defined scheme, which was option 2 in the RIA, still offered considerable revenue savings to the Treasury, while also offering the prospect that the scheme could continue relatively intact. If option 2 had been used, the taxpayer would have saved money against the alleged abuse, while the scheme—still relatively intact—could have achieved its objective of contributing positively to the spread of e-literacy among the population. The Government could have saved it if they had wanted to; their own regulatory impact assessment makes that clear.

What is the tax position now? Here we see some clarification from the Paymaster General. If the Government are determined to press ahead with their decision, that leaves open the question of the tax position following the introduction of clause 61. Paragraph 22 of the RIA states

"If significant private use is made of a computer provided for business purposes a tax charge will arise on the private use element based on the value of the computer and the extent of the business and private use. Employers will also be liable to class 1A National Insurance contributions."

On the day of our debate in the Committee of the whole House, The Times said in a leading article

"Treasury officials have promised to take a "practical" view of how much private use should be regarded as "significant". The most practical approach, when the issue is debated in the Commons today, would be to withdraw it. We are watching."

I very much hope that it is still watching.

Can the Paymaster General update us on the progress of the post facto consultation with interested parties? Paragraph 74 of the RIA implied that that work would be completed by Royal Assent. As Third Reading is due in just a few hours, and as, following scrutiny in the House of Lords, we might reasonably expect Royal Assent before the end of July, can the Paymaster General tell us whether a solid working definition has been achieved so that employees will know exactly where they stand in relation to tax—which will be very important to them—and employers will not have to endure a complicated compliance burden to try to stay on the right side of the law, as all Members of Parliament would expect them to do?

What really lay behind the decision? The answer seems very clear: the Chancellor simply wanted the money. The Red Book reveals that the decision to scrap the HCI will raise some £300 million in revenue between 2006-07 and 2008-09. No doubt that preyed heavily on the Chancellor's mind in the run-up to the Budget, given that he is now pledged to borrow an incredible £175 billion over the next six years. Coming from a Chancellor who always likes to wax lyrical about making decisions for the long term, this smacks of short-term decision making of the worst kind. Indeed, we observed the irony during the most recent Treasury questions, on 15 June. The Chancellor himself was berating the Opposition for, in his opinion, not doing enough to encourage investment in computers.

Photo of David Taylor David Taylor Labour, North West Leicestershire 3:15 pm, 5th July 2006

Is it not the case that over a three-year period, £200 million represents about one sixtieth of 1 per cent. of a public expenditure total of some £1,200 billion? Is the hon. Gentleman really suggesting that what is, in that context, a trivial sum would provide the motivation for a decision of this kind?

Photo of Mark Francois Mark Francois Shadow Paymaster General

The hon. Gentleman must forgive me; I know that he is an accountant by training, but I would not call hundreds of millions of pounds trivial in any context. I remind him of what the Chancellor proudly told the Daily Record in March 1999, when he was attempting to float the official version of what became the HCI. He said

"Britain can no longer afford to lag behind America. Inequality in computer learning today will mean inequality in earning power tomorrow".

Perhaps the hon. Gentleman should take that point up with the Chancellor directly. Someone must tell him that his decisions should remain consistent at least for a few months.

Is it any wonder that even Labour Members are beginning to doubt the Chancellor's judgment? That was evidenced in an excellent article in yesterday's edition of The Daily Telegraph by Rachel Sylvester, entitled "Twitchy Labour MPs look to ditch Brown along with Blair". As she explained,

"Even Mr. Brown's closest allies in the Commons are becoming frustrated with their preferred leader. Changing people who are set in their ways is very difficult according to one weary MP."


This is clearly a decision made in haste by a Chancellor on the look-out for short-term revenue-raising measures. In fairness to the Paymaster General, it must be said that, as so often happens, the Chancellor has made a difficult decision and expected his junior Ministers to front for him. His decision will impede the spread of computer literacy in our country, not least among modestly paid employees and their families, at a time when, according to Hewlett Packard, our international competitors such as China and India are between them churning out more than 100,000 IT graduates a year.

The bottom line is that the Government could have refocused the exemptions to protect revenue for the taxpayer, and still have saved the scheme. They had that option, but they did not follow it because they wanted every penny that they could squeeze. Nevertheless, I call on the Government one last time to reverse this erroneous decision—although, sadly, I believe I know the outcome even before I ask the question.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

In Committee of the whole House, I made it clear that there were a number of reasons why it was the right time to remove the exemption. I shall briefly repeat each one.

The home computer initiative has been used extensively by groups whom we would not generally expect to experience difficulty in accessing information technology. Twenty-five per cent. of participants in the scheme are higher rate taxpayers, more than twice the proportion among taxpayers as a whole. Furthermore, nearly a third of participants are employed in white-collar industries. In March, the Low Pay Commission published the findings of its review of benefits in kind, salary sacrifice schemes and the accommodation offset. It found that take-up rates were often low and that many part-time low-paid workers would gain no advantage from salary sacrifice schemes for home computers and other benefits in kind. The analysis shows that those who can afford to do so have the computers and those who cannot afford to do so, do not. The recommendation was, therefore, to refocus—not to amend—the scheme.

Photo of David Taylor David Taylor Labour, North West Leicestershire

It may be that the benefit of the scheme was focused on the middle class, IT-literate, higher paid section of the population, but many people would have been happier had the savings—some £200 million over three years—been refocused in a way that enabled access for older or less-well-off people in certain areas. It could have been done perhaps through the community education system, which has had some problems in recent times.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

My hon. Friend is right and I will come to that point.

The HMRC also had evidence that the tax exemption was being used beyond the scope of its original intention, not only in the equipment provided but in the marketing of the scheme, which implied that people could buy that equipment at prices offset against their salary sacrifice.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I shall come to the hon. Lady's points and, if necessary, give way then.

The investment for the groups that my hon. Friend mentioned was specifically addressed in the digital review and the Low Pay Commission report. I shall come to those points when I have finished explaining why the scheme was not appropriate. It was the correct time for the Government to remove the exemption and better focus support on the groups of people in our community that my hon. Friend mentioned, so as to increase access to technology for the poorest, the unemployed, the elderly and the low paid. Salary sacrifice schemes cannot provide that access.

During proceedings in the Committee of the whole House, I announced that we would establish a dedicated digital inclusion team. That team has now been set up by the Department for Communities and Local Government, and is working closely with the City of London Corporation. It will champion examples of excellence in using highly effective and efficient information and communication technology to tackle the key drivers of exclusion. It will also promote leadership and understanding and inform decisions.

I also announced that the Government would change the aims and objectives of the digital strategy to focus on digital inclusion. The Treasury will collaborate closely with industry on meeting the goals of the digital strategy, building on the success of more than 6,000 UK online centres—more than half of which are located in the 2,000 most deprived wards in England. Some 90 per cent. of the population live within 5 km of one of those centres, and that is precisely the type of investment that is needed to reach those groups.

It is stunning that every time Julia Goldsworthy is asked about the Liberal Democrats' spending commitments, we are told that they have a commission and are thinking about it. Then she berates the Government for investment in making progress on tackling social exclusion—

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I will give way to the hon. Lady if she will tell me where she will get the £300 million for the unfocused support of those who already have access to the technology and how she plans to tackle the exclusion of everybody else.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

Is it right that all the money saved from the withdrawal of the scheme will be reinvested in digital inclusion for vulnerable groups?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I have told the hon. Lady the Government's plans for spending the money. She has a flipping cheek—I shall rephrase that. It is somewhat audacious of the hon. Lady to suggest that I should forecast future Government spending when she is not even prepared to make a current commitment on expenditure by her party on anything, let alone in this area.

I have made it clear that with the refocusing of the digital strategy, the setting up and use of the digital inclusion team and the discussions that we are having with industry, we are looking at how we can refocus support on targeted groups. I remind Mr. Francois that if those people are low paid, unemployed or elderly, a salary sacrifice scheme will not help them, however it is amended. The point of the reports that the Government received was to demonstrate that the resources should now be directed at the groups I have mentioned.

The final question was about the remaining arrangements for when computer equipment is provided by employers solely for work purposes and the definition of "significant" in relation to private use. The HMRC's interpretation of not significant is that

"where a computer is provided by an employer because it is necessary for an employee to have it available at home or in the office to carry out the duties of their employment, it is highly unlikely that any private use made of that equipment will be significant when compared to the business need."

It is assumed that the business need would outweigh any consideration of private use. To put that point beyond doubt, the HMRC—in consultation with the employers—has drafted guidance with detailed explanations of the point, which is currently being scrutinised. Employers can still provide computers for business need.

It is entirely appropriate that the Government should refocus the resources. There is no hidden agenda. The agenda is clear and it involves reaching out to those who are excluded from information technology and ensuring that the regime as provided is properly used. That is precisely what we have done.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

I shall be brief. Although Mr. Francois may not approve, I am sure that many other Members will be grateful.

The unfairness still stands. People who could have benefited from the home computer scheme will not be able to access it and, as has been said in previous debates and again today, many of those people are in blue-collar jobs and low-income households. Businesses have closed as a result of the end of the scheme, so what confidence can the Paymaster General expect businesses to have in the Government's proposals to extend digital access to vulnerable groups? Why would they support or invest in future schemes, given their experience of the home computer scheme?

3.30 pm

The right hon. Lady has not explained why the Government were not able to tighten the definition, when other countries were perfectly able to do so. For those reasons—

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

Of course I will give way to the hon. Gentleman, provided that he is succinct.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I cannot give the hon. Lady an absolute guarantee—that is subject to the Chair.

Having heard the Government's explanation of what they have decided to do, we would very much like to join the hon. Lady in the Lobby if she decides to press the amendment to a vote. Does she agree that as the Paymaster General said that draft guidelines had been prepared on the "not significant" issue, it would be helpful if the Government placed a copy of the guidelines in the Library as soon as possible?

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

I very much agree with the hon. Gentleman's last point. I was hoping to intervene on the Paymaster General to ask her to place in the Library the evidence provided to her by HMRC that the scheme was being used beyond its scope.

For the reasons I have outlined, I feel that the issue is still significant and I shall press the amendment to a vote.

Question put, That the amendment be made:—

The House divided: Ayes 224, Noes 274.

Division number 279

See full list of votes (From The Public Whip)

Question accordingly negatived.