Clause 79 - Exemption for loaned computer equipment

Finance Bill – in a Public Bill Committee at 9:30 am on 18th May 2004.

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Photo of Mark Prisk Mark Prisk Shadow Paymaster General 9:30 am, 18th May 2004

I beg to move amendment No. 59, in

clause 79, page 75, line 21, leave out '£500' and insert '£550'.

May I take this opportunity to welcome you to the Chair, Mr. McWilliam, for the challenging and exacting, but nevertheless interesting, day ahead?

The clause will extend the home computing initiative to cases where benefit would be taxable as earnings; for example, where an employee is offered a loan of a computer instead of a salary. Amendment No. 59 would change the exemption, but, as I am sure eagle-eyed members of the Committee will realise, not by a great deal—from £500 to £550. Its purpose is to establish the Government's reasoning for retaining the figure of £500, so it is a probing amendment.

As I understand it, the origins of the scheme lie in the Finance Act 1999, and the idea was to widen the availability of information technology. That goal is a good one for employees and employers alike. The £500 is a annual taxable benefit, so it translates into £2,500 as an actual capital purchase because, at that point, an asset would be taxed at 20 per cent. In 1999, that represented a reasonable cost for a home computer, printer and so on. However, in the five years since the basic standards of computing have changed, as hon. Members are aware. Computers have changed in terms of their capability, the range of peripherals that are engaged and connectivity. I know that a number of hon. Members have a particular interest in internet access and other such activities. It is internet access that particularly concerns me. Taking that into account, and the other essential back-up equipment such as scanners and printers, there is a serious question whether the taxable benefit offered is up to date with current home computing needs.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. May I remind hon. Members that the amendment is very narrow? It deals with the difference between £500 and £550.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Thank you for that guidance, Mr. McWilliam. Does the hon. Gentleman accept that since 1999, the cost of most computing equipment has fallen?

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

That is why I have made sure that the increase is very small. In some ways, it is a notional increase because, as I said, the aim of the exercise is to understand the reasoning behind the £500 figure, rather than to argue that there has been a vast inflation in computer prices. There have been changes in capability and connectivity, but the hon. Gentleman is right to suggest that there has not been a huge inflation in the hardware costs.

To conclude, I ask the Paymaster General to clarify what is included as eligible equipment. Is the installation of ISDN or broadband access included? That point was not relevant in 1999, but it is now. Clearly, in a home computer initiative that concerns an employer-employee relationship, we would expect internet access to be broadband, so it would be interesting to know whether that has been incorporated in the Government's proposals. Do the Government intend to adjust the limit in the coming years in light of computing cost changes?

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

Good morning, Mr. McWilliam. As the hon. Member for Hertford and Stortford (Mr. Prisk) has pointed out, the amendment proposes a modest increase. I take him at his word when he says that he is seeking to find out why the Government have left the figure at £500, rather than have the £550 exemption he proposes.

Under the hon. Gentleman's proposal, where the employer owns the computer equipment and the annual tax charge is therefore 20 per cent. of its value, up to £2,750 could be lent tax-free instead of the present value. He proposes that the exemption rise from £2,500 to £2,750 and that, if the employer leases or hires the equipment, the exemption would cover the leasing charge of £550 instead of the current £500.

The hon. Gentleman said that the increase was modest. I will not pretend to the Committee that the amendment has any significant prospects. It is true, however, that the £500 annual value limit has remained unchanged since the exemption was introduced in 1999 and that, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) said, the price of IT equipment has generally fallen in recent years.

If the hon. Member for Hertford and Stortford were to look at the current price of packages, he would see that a complete package costs £500 to £600, as opposed to up to £2,500. Widespread advertising indicates to us that £500 for the package is reasonable. An IT package for an individual home user can be purchased for under £1,000. The current exemption allows equipment of a value up to £2,500, so it takes on board the points that the hon. Gentleman makes, including those about other costs.

The questions about the general impact of exemption and the review are very relevant.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. Every member of the Committee potentially has an interest in the amendment, so I shall declare it for all of them.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

Mr. McWilliam, you are quite right to identify that there is, if not a conflict of interest, then a particular potential close interest. Will the Paymaster General therefore confirm that eligible equipment, leaving aside the argument about whether it is owned by the employer, includes the items to which I referred, namely the installation of broadband access and/or ISDN access?

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

Under the current exemption, the telecommunications costs are not included but the equipment costs are.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

Will the Paymaster General clarify that? Clearly, some Members will be thinking to themselves, ''Where is the line to be drawn between paying, say, British Telecom to install the box and the subsequent subscription?'' I assume that they are defined as two different things, but for employers' sakes it would be helpful to clarify that.

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

I assume that they are two different issues: one is the installation and the other is the ongoing cost. That is the line that I draw, but if I am wrong, I shall of course write to the hon. Gentleman. I understand that installation—he gives the example of an ISDN line—would be included, but there is obviously an ongoing cost, which would not be included in the exemption: so, the hardware, yes; the telecommunications or ongoing costs, no.

Since the exemption was introduced, we have not had exact figures on the take-up for obvious deregulatory reasons. Employers do not have to report to the Inland Revenue details of an exempt benefit. Other information, particularly the changing arrangements between employee and employer—the introduction of flexible working and the growth of home working, particularly in IT, the development of which has assisted work-from-home—demonstrates that, increasingly, employers are loaning employees computers. We are trying not to get mixed-up private use but to give a blanket exemption. That ensures that, if computers are used for any other private purpose, there is no benefit tax charge. That is important. I am sure that the hon. Gentleman wants to achieve that, because our aim is to encourage the use of technologies.

That raises the question about the work of the e-envoy, the campaigns that the Department of Trade and Industry is developing on the home computer initiative and the results of that. This seems to me to be an appropriate time to return to the point about whether £500 is enough.

Photo of Michael Jack Michael Jack Conservative, Fylde

The Paymaster General made an interesting comment when telling the Committee that no detailed returns were kept about the uptake of the proposal. If that is the case, on what basis will the Government evaluate whether it has been a success?

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

I know that the right hon. Gentleman always has an interest in these areas. I can tell him that the recently launched national home computing initiative aims substantially to boost take-up of the computer home loans schemes among employers and employees. It is led by the Office of the e-Envoy and within the remit of the DTI, and it will be monitoring take-up in the coming months. That information will demonstrate to us whether the £500 is reasonable, what type of equipment is being purchased and how wide take-up is.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

Order. This debate has gone so wide that, if Members want to make any points about clause stand part, they may as well make them now, because I feel totally disinclined to allow clause stand part.

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

I apologise. I was trying to be helpful to the Committee and did not mean to stray beyond the amendment.

Photo of Mr John McWilliam Mr John McWilliam Labour, Blaydon

It was not particularly the Paymaster General who I was getting at. She was not alone, but the debate has become so wide that it would be wrong of me to allow one on clause stand part. So, will any Members who want to make a point in clause stand part make it now?

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

I was concluding my remarks by saying to the hon. Member for Hertford and Stortford why I think that the £500 is reasonable at this point given the reduction in the cost of IT packages. None the less take-up is a live issue and one that both sides of the Committee want to encourage.

We particularly want to make sure that the exemption is simple to operate and, therefore, to reduce requirements to report to the Inland Revenue. The campaign being undertaken by the Office of the e-Envoy will, I sincerely hope, provide the information necessary for the Government to make the judgment that the hon. Gentleman is probing us to make—whether the limit is correct—and check the point that the right hon. Member for Fylde (Mr. Jack) made about whether the limit is working in assisting the expansion of the home computer schemes and boosting the relationship between employee and employer.

On that basis, I hope that I have dealt with the questions that the hon. Gentleman has raised and, therefore, that he will not press his amendment. Even though I said that it was modest, if he put it to a vote, I would, at this stage, reluctantly have to ask my hon. Friends to oppose it.

Photo of Mark Prisk Mark Prisk Shadow Paymaster General

The Paymaster General has run through the issues raised in a helpful manner. As I said, this is a modest amendment; in fact, it is perhaps better described as shy. I am grateful to the right hon. Lady for elaborating on the points raised. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 79 ordered to stand part of the Bill.