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Clause 63 - Mineral extraction allowances: expenditure on planning permission

Finance (No. 2) Bill – in a Public Bill Committee at 12:00 pm on 13th May 2014.

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

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Treasury) 2:15 pm, 13th May 2014

As we discussed in relation to clause 62, companies involved in extracting deposits from the earth—for example, sand, gravel, oil, hard rock or geothermal energy—can claim mineral extraction allowances. MEAs are available, first, for mineral exploration and access expenditures at 25%, but that is broadly all expenditures up to first production from a source. If a company gets to the point of planning permission but does not then get it, it can get relief at the rate of 25%. Secondly, MEAs are available if a company is successful in its planning application, at which point it is deemed to have acquired a mineral asset and the relief is levelled at 10%. The clause means that, if planning permission is granted, the expenditure attracts the higher 25% rate of relief, therefore aligning the treatment of successful and unsuccessful applications because the costs of a successful planning application will now be treated as expenditure on mineral exploration and access, rather than on acquiring a mineral asset.

I have a few questions for the Minister. It would be helpful if she could set out the rationale for the previous differential treatment of the two types of application and expenditure, and the reason for them now being aligned. What representations did she receive which persuaded her to make that change? It would be helpful if she would explain how many companies are active in this area and will now avail themselves of the change made.

Photo of Nicky Morgan Nicky Morgan Minister for Women, The Financial Secretary to the Treasury

It is a pleasure to serve under your chairmanship, Mr Caton. I thank the hon. Member for Birmingham, Ladywood for her comments.

The clause makes changes to the treatment of costs associated with successful planning permission for the purposes of mineral extraction allowances. The changes ensure that costs incurred by the mineral extraction industry on successful planning permission are treated as expenditure on mineral exploration access, rather than expenditure on acquiring a mineral asset. This accelerates the tax relief available to companies in respect of these costs. It is expected to facilitate investment in the mineral extractives industry.

Mineral extraction allowances give extractive companies relief on two types of cost. The first is costs associated with mineral exploration access. These costs attract MEAs at a written down value of 25% per year, or 100% in the first year for oil and gas companies. The second is costs associated with acquiring a mineral asset. These costs attract MEAs at 10%. Companies can get quicker relief on costs associated with exploration and access than on acquiring a mineral asset. Under existing legislation, successful planning and permitting costs are treated as costs associated with acquiring a mineral asset, so they receive slower relief. However, in many cases successful planning permission will not give companies a right to the mineral asset. In a case of onshore oil and gas, for example, rights over the minerals are only granted through a separate licence from the Department of Energy and Climate Change. Planning permission gives companies the right only to access the minerals. It is therefore right that successful planning permission costs are treated as a cost associated with exploration access and receive quicker relief. That is consistent with the current treatment of costs associated with unsuccessful planning applications.

The hon. Lady asked about the change and the rationale for the previous treatment. That was an inconsistency pointed out by those in the industry and, once companies had highlighted that inconsistency, we acted quickly in cases where we agreed with their assessment. She will understand that Her Majesty’s Treasury receives representations from a number of different companies across the spectrum. In terms of how many businesses will be affected by the measure, it is not possible to say with any certainty as planning costs are incurred at the outset of projects, so it is difficult to know how many will come to fruition.

I hope I have explained the purpose of the clause, which is to amend the existing legislation to ensure that all costs incurred in obtaining planning permission for the purposes of a mineral extraction trade qualify for relief at the higher rate.

Question put and agreed to.

Clause 63 accordingly ordered to stand part of the Bill.