Clause 61 - Expenditure on green technologies: leasing

Finance Bill – in a Public Bill Committee at 11:45 am on 11th June 2002.

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Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport) 11:45 am, 11th June 2002

I beg to move amendment No. 17, in page 40, leave out lines 14 and 15 and insert—

'(5) General exclusion 6 shall not apply to expenditure incurred on or after 17th April 2002.'.

Again, this is a small issue, but it is important nevertheless. Many small and medium-sized enterprises make little or no profit, and so cannot use the capital allowances that are available. Giving those allowances to lessors would make cheaper finance available to small and medium enterprises that do not make big enough profits, as they could then ''sell'' their capital allowances to leasing companies. That would be helpful for small companies seeking such finance. I do not know whether such a provision is also incorporated within the Bill, but if it is not, it should be, which is why I tabled the amendment.

Photo of John Healey John Healey The Economic Secretary to the Treasury

This amendment would include expenditure on assets for leasing in all the first-year allowances schemes. Therefore, it significantly widens the rules introduced in clause 61, which target the special schemes that encourage investments in ''green'' technologies, to help the environment.

It might be helpful if I explain why we have introduced clause 61. Some Committee members will recall the discussions of the Finance Bill that took place last year. Since then, we have continued to listen to representations, and considered carefully the case for extending the scheme to include assets for leasing. We are now satisfied that extending those special allowances to ''green'' equipment for leasing will ensure the widest assistance to the uptake of those technologies, for increasing environmental gain. That is the key aim of the ''green'' technology allowances.

The change will encourage all businesses to look towards ''green'' alternatives when they make their equipment investment decisions. That choice may be made by the user of the equipment, but it might also be made by the person who will lease, let or hire the equipment.

The amendment misses the point and focus of the clause. If adopted, it would include expenditure on assets for leasing in all the first-year allowance schemes, some of which have different purposes—for example, schemes that encourage investment by specific kinds of businesses, such as SMEs.

I wish to explain why we remain unconvinced that there is a clear case for extending these schemes to include assets for leasing. If a lessor were to receive first-year allowances, he or she might pass much of the benefit to the lessee by reducing the rentals that the lessee must pay to use the asset, but the effect on each payment is likely to be small, as the value of the benefit would be spread over the term of the lease. It has not been convincingly shown that a reduction in rents would have any real impact on investment decisions by the businesses targeted by the schemes. Therefore, the costs would almost entirely be dead weight.

However, the Inland Revenue is continuing to have constructive discussions with representatives of the leasing industry, who have indicated that they generally welcome the Bill's proposals impacting on asset finance. I understand why lessors also want first-year allowances more generally, but at present the case for that has not been proved. I advise the Committee to reject the amendment—but I hope that, having heard my explanation, the hon. Gentleman might agree to withdraw it.

Photo of Christopher Chope Christopher Chope Shadow Spokesperson (Transport)

I am grateful to the Minister for that explanation. I am pleased that the Inland Revenue is considering further some aspects of the matter, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

I rise in search of information, and nothing else, because anything that reduces taxation and encourages ''green'' technologies is to be welcomed.

Will the Minister say what are the qualifying energy-saving technologies that the clause deals with? The notes on clauses refer us to a website, but we cannot communicate with websites during Committee proceedings. We are told that, currently, there are investments in eight technology groups that are set out in the energy technology list, which was issued by the Secretary of State for Environment, Transport and the Regions—that takes us back a while. It remarks that, subject to state aids, further technologies will be added in late 2002. This clause is specific about the impact on cars and gas refuelling equipment, which are already dealt with in earlier clauses, but it is vague about what those other energy-saving technologies might be. How comprehensive do the Government intend the assistance to be?

I might need to continue for longer to allow the Minister to get assistance from his officials. I shall sit down and hope that he has the answer in front of him.

Photo of John Healey John Healey The Economic Secretary to the Treasury 12:00 pm, 11th June 2002

It is always welcome to hear a contribution from the Opposition Whip. I suspect that he is anxious to fill time in the Committee's proceedings for his own purposes--in the same way that I am at present. I shall answer his specific question directly and add a couple of general comments that explain the purpose of the clause.

Further technologies include: heat pumps for space heating; radiant and warm air heaters; solar thermal systems; further refrigeration equipment; and, of course, air compressor drain traps and monitoring equipment.

Photo of John Healey John Healey The Economic Secretary to the Treasury

If the hon. Gentleman would like further details on each technology, I should be happy to provide them.

The clause makes a small but significant amendment to the rules that determine the expenditure on plant machinery that may qualify for the first-year allowances. It enables businesses that incur expenditure on qualifying environmentally friendly plant machinery for leasing or hire to claim 100 per cent. enhanced capital allowances on their expenditure. The change applies to investments under new schemes for enhanced capital allowances for low-emission cars and gas refuelling equipment. Furthermore—this is the point that the hon. Gentleman raised—the change will extend enhanced capital allowances to energy-saving technologies under the scheme that we introduced last year to encourage investment.

To give a full picture, existing energy-saving technologies include combined heat and power boilers, variable speed drives, thermal screens for horticulture, lighting, pipe insulation and some refrigeration equipment.

The clause will ensure that such schemes reach the widest number of businesses and encourage the highest uptake of technologies for the widest possible environmental gain. The new treatment will apply to expenditure incurred from Budget day—17 April 2002—on qualifying assets for leasing. I commend the clause to the Committee.

Photo of Mark Hoban Mark Hoban Opposition Whip (Commons)

Can the Minister clarify the concluding sentence in paragraph 6 of the explanatory notes? It says:

''Subject to State aids, further technologies will be added later in 2002.''

Does that imply that the Government must seek clearance from another organisation, such as the European Union, before further technologies can be added? Can the Minister tell us what the sentence means?

Photo of John Healey John Healey The Economic Secretary to the Treasury

I can, indeed. An established process should be conducted on this area of legislation, and that involves the European Commission. We are currently undertaking the process and we do not anticipate any problems with the proposals in the clause.

Photo of Mark Hoban Mark Hoban Opposition Whip (Commons)

Is the approval that the Minister seeks based on technological aspects? Is the EU checking that the technologies are sufficiently green to be merited and that they conform to the Kyoto protocol and domestic or EU rules on emissions and other environmental aspects? Alternatively, is the Minister seeking approval from the EU on giving state aid to technology? The amounts involved must be fairly minimal, so why do we need approval on the financial aspects? Does the Minister want technological or financial approval?

Photo of John Healey John Healey The Economic Secretary to the Treasury

The hon. Gentleman may not like the European Commission, but it exists. The United Kingdom Government are signed up to follow the process. In a sense, the hon. Gentleman has answered his own question by referring to state aids. The principal worry about state aids is the distortion of competition. I reassure him that the process is under way. We do not expect that the European Commission will have problems with the proposals in the clause.

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

I am glad that I raised that point. When we ask a question in Committee, we often receive a surprising answer. I represent the Vale of Evesham, which has many horticulturists and growers, and I know that they will be delighted to be the principal beneficiaries under the clause. Will the Minister be kind enough to write to me setting out details of how horticulturists and growers can benefit from the provisions and say whether any of the technologies to be added to the list are likely to benefit that sector?

Photo of John Healey John Healey The Economic Secretary to the Treasury

The hon. Member for Mid-Worcestershire (Mr. Luff) is much more of an expert on horticulture than I am, given that I represent a former coal- mining community in southYorkshire. I shall certainly make inquiries and write to him on that matter.

I shall try to wrap up the concern felt by the Opposition—understandably from their point of view—about the European Commission and the European Union. In our judgment, the new technologies that we propose to extend under the clause will not give rise to state aid issues. We are not seeking state aid approval from the Commission, but we have undertaken to inform it if we make any subsequent changes to the provisions in last year's Finance Act. We are in the middle of that process, and we do not expect any problems to arise. I trust that my explanation has been sufficient.

Photo of Peter Luff Peter Luff Opposition Whip (Commons)

The horticultural sector knows that several state aids are payable to their competitor countries elsewhere in the European Union, which have escaped proper scrutiny. If any are scrutinised by the European Union, I hope that the Minister will be extremely robust in ensuring that British growers and horticulturists are not denied the advantage already enjoyed by their competitors in other EU countries.

Question put and agreed to.

Clause 61 ordered to stand part of the Bill.