Clause 62 - First year allowances for expenditure wholly for a fence trade

Part of Finance Bill – in a Public Bill Committee at 5:00 pm on 11 June 2002.

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Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury 5:00, 11 June 2002

The right hon. Gentleman will know that there are many reasons why particular rates of return are made in different industries, and whether they are sustainable over the longer term or temporary. I remember him questioning me on the Floor of the House on fairness. Over a long period, the post-tax rates of return have been significantly higher than for other non-financial industries. Those who argue that the North sea does not have the capacity to pay more tax, given its immense cash flow, are treading on difficult territory. I do not believe that there is no capacity to pay more.

The hon. Member for Arundel and South Downs made interesting points about new entrants to the industry, as did my hon. Friend the Member for Dundee, East. Of course we want to encourage new entrants into the industry to develop new fields. The hon. Gentleman said that tax allowances are not available to companies that do not make taxable profits, but by definition tax allowances are unavailable when there is no taxable capacity. As I said when responding to a previous amendment, allowances are not lost when companies fail to generate profits immediately, but may be carried over from year to year.

The treatment given to companies in the industry is no different from that for new entrants in other types of business. Indeed, there is a very active market in North sea field interests, and new entrants who want to benefit early from the investment allowance can choose to buy into a profitable field, which would give them a stream of income against which they could use the allowance in the first year. It is normal for North sea new entrants to do that, as it is a pragmatic response for those who want to gain those advantages. The problem that hon. Members have identified is more apparent than real, but we shall continue to monitor the situation and consider the impact.

The hon. Member for Kingston and Surbiton asked about not giving 100 per cent. allowances to small companies that lease and pay 40 per cent. tax. The upfront tax benefit will not be passed directly to the lessee, but might be passed indirectly in the form of lower rentals spread over the term of the lease. Extending the first-year allowances to assets for

leasing would lead to more investment, and we have designed our measures to encourage new investment, as the hon. Gentleman knows. We shall continue to monitor the operation of the scheme.