Construction expenditure on buildings and structures

Finance (No. 3) Bill – in a Public Bill Committee at 3:15 pm on 29th November 2018.

Alert me about debates like this

Photo of Jonathan Reynolds Jonathan Reynolds Shadow Economic Secretary (Treasury) 3:15 pm, 29th November 2018

I beg to move amendment 57, in clause 29, page 17, line 8, at end insert—

“(14) No later than two months after the passing of this Act, the Chancellor of the Exchequer must lay before the House of Commons a report on the consultation undertaken on the provisions in this section.”

This amendment would require the Chancellor of the Exchequer to report on the consultation undertaken on Clause 29.

Photo of George Howarth George Howarth Labour, Knowsley

With this it will be convenient to discuss the following:

Amendment 58, in clause 29, page 17, line 8, at end insert—

“(14) The Chancellor of the Exchequer must review the revenue effects of the relief that will be created as a result of the exercise of the powers in this section and lay a report of that review before the House of Commons within six months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to review the revenue effects of the changes made by Clause 29.

Amendment 59, in clause 29, page 17, line 8, at end insert—

“(14) The Chancellor of the Exchequer must review the uptake of the relief that will be created as a result of the powers in this section by the groups set out in subsection 15.

(15) The groups that must be considered under the review in subsection 14 are—

(a) companies with between zero and nine employees,

(b) companies with between 10 and 250 employees, and

(c) companies with more than 250 employees.

(16) A report of the review under subsection (14) must be laid before the House of Commons no later than 12 months after the first exercise of the powers under this section.”

This amendment would require the Chancellor of the Exchequer to review the uptake of this relief among micro-businesses, SMEs and large companies.

Amendment 60, in clause 29, page 17, line 8, at end insert—

“(14) No draft instrument may be laid under this section until the Treasury has carried out a consultation with stakeholders on the qualifying arrangements for the relief that would be created as a result of the powers in this section.”

This amendment would require the Treasury to carry out a consultation with stakeholders on the qualifying arrangements for this allowance.

Clause stand part.

Photo of Jonathan Reynolds Jonathan Reynolds Shadow Economic Secretary (Treasury)

I will speak to Labour’s amendments to clause 29, which opens up the new section on capital allowances. It is always right and sensible to think about ways to promote business growth in the UK, but allowances like the ones in these clauses are not free. The Committee must judge them in the context of what represents good value for money. We will talk about each of them as we move through the clauses.

These clauses also represent a significant round of chopping and changing reliefs, but in our view businesses are really asking for certainty. The changes are many and varied, and the constant shifting of the goalposts creates costs and complexity for businesses. Given that the Government’s central case for reducing corporation tax is that they are trying to increase corporate investment, which has not happened, it seems strange to have a set of policies reducing and incentivising capital allowances to do exactly the same thing. I have spoken to a number of concerned stakeholders who have told me that there has been little or no consultation on some of these measures.

The lack of consultation on the allowance in clause 29, in particular, is worrying. The initiative was announced with immediate effect on the day of the Budget— 29 October. Stakeholders have raised the valid concern that it remains framework legislation with none of the detail necessary for proper scrutiny—not just by the Opposition but by industry and the people whom the Bill will directly affect. Presumably the Government did not preannounce the measure to ensure that no investment decisions were delayed in anticipation of it, but they must be clear about what business will be getting. Immediate implementation is an important power in the Treasury toolkit, but it is usually an anti-avoidance measure. It is hard to see how that applies in the case of this allowance. It has simply generated more opacity about what will qualify.

We are talking about a big item of spend. Businesses need to be able to attach numbers to their construction plans, and they need absolute clarity about what qualifies as expenditure and what does not. The regulations do not yet specify what “qualifying use” is. The allowance is also a big-ticket item for the Exchequer. According to the Red Book, by 2023-24 it will cost more than half a billion pounds—£585 million—yet we cannot be 100% sure about that number because there is so much uncertainty about what the exact scope will be. Labour’s amendment 58—I urge hon. Members to support it when we press it to a vote—requests that the Government review the revenue effects of the relief so we can fully assess its costs.

As professional bodies have argued, it would have made much more sense to do this process in reverse. The Government are only now seeking views on the relief, with a view to changing it via secondary legislation in 2019. Anyone who has had the pleasure of sitting on any of the Brexit-related Delegated Legislation Committees will agree that there is as large pile of statutory instruments to get through, so adding to that is a strange decision.

Why did the Government not consult before they drew up the legislation? A concern that stakeholders have raised with me is that businesses cannot have confidence in the new relief during the consultation period as the detail is not yet known. That seems a strange way to encourage investment. We believe that one of the problems that is likely to be revealed in the consultation is the complexity of the measure. As tax professionals have warned, the relief will introduce another type of asset classification for tax purposes. The Office of Tax Simplification advised against that when it reviewed capital allowances. Why are the Government contravening the recommendations of the report that they commissioned? Tax simplification has generally been of considerable interest to Conservative Members, but they appear to be ignoring the review. Given the lack of consultation, will the Minister elaborate exactly how the conclusion was reached that the relief would cost £585 million? What evidence is there that it will promote investment in productivity?

I also urge hon. Members to support Labour’s amendment 57, which would oblige the Chancellor to lay before the House a report on the consultation undertaken on the provisions in this clause so that we can get as clear grasp of the concerns they are targeted at. Amendment 60 goes further and states that no draft instrument can be laid under this clause until consultation is carried out with stakeholders on qualifying arrangements for relief. It must work for all the businesses it is targeted at.

In addition, amendment 59 would oblige the Government to disclose how the take-up of the relief is distributed among microbusinesses, SMEs and large corporations. We must be able to assess whether this relief is of genuine value to small businesses or is yet another poorly targeted giveaway.

I also find it peculiar that the relief has been made available on overseas property. Why is the UK offering tax breaks for the construction of buildings and commercial developments that might be located abroad? That seems counter-intuitive to the purpose of this allowance.

The seemingly generous inclusion of the allowance is in perpetuity. As the Bill reads, it appears that the allowance can get sold on for the duration of the building’s existence if the building is purchased by another business. That seems an unusual extension of a relief, from a one-off measure to promote investment by one particular company to an incentive to purchase the building by another company that may be in a quite different position.

Those are all issues that could have been covered in dialogue with the people whom this measure will affect. I ask all colleagues to support Labour’s amendments today, which will reveal the conversations that took place before this relief was decided and—crucially—what the real revenue effects will be.

Photo of Kirsty Blackman Kirsty Blackman SNP Deputy Leader, Shadow SNP Spokesperson (Economy) 3:30 pm, 29th November 2018

I rise to speak very briefly on this clause. The questions that have been asked by the Opposition are incredibly useful and interesting ones; they have gone into this matter in some detail. Given the amendments that they have put forward, the SNP will be happy to support any of them that are pressed to a vote.

Photo of Mel Stride Mel Stride Financial Secretary to the Treasury and Paymaster General

May I address very directly the question that the hon. Member for Stalybridge and Hyde has posed regarding consultation and the level of consultation before the announcement, which of course he recognises is in part at least due to the fact that on announcing this measure we do not want to have forestalling in terms of businesses taking investment decisions?

Indeed, with matters or measures of this kind, we have a number of things that we need to balance. As I say, we need to ensure that businesses do not delay investment; we also have to give businesses the certainty they need that the measures will actually be implemented; and we are of course consulting on the technical details, including the very pertinent issue of the qualifying use that he referred to. And we will of course consult on the draft legislation when it is brought forward.

The hon. Gentleman asked about the figures and the cost of this measure, and how that cost has been established. The OBR will score these measures in the normal manner. He also made the specific point about the desirability of these reliefs being available to construction projects and other qualifying activities overseas. Of course one should make the point that that would occur only where it was on the part of a company that fell due to the UK corporation tax charge, and would reflect exactly the same situation in reverse, were it to be, say, a French business constructing something in the United Kingdom and in turn receiving reliefs from the French tax authorities. So it is a kind of equality of treatment in those particular respects.

The UK was previously the only G7 economy that gave no capital relief on structures and buildings. The CBI’s recent report, “Catching the peloton”, asked the Government to explore how the incentive regime could support investment in commercial buildings. [Laughter.] I am assuming that this is some kind of sub-atomic particle that requires a Large Hadron Collider, or whatever these things are, to be built, with huge tax reliefs associated with it.

The Government recognise the importance of providing tax reliefs for genuine business costs, supporting investment and growth, and driving our future prosperity. Therefore, this relief will reduce the cost of doing business in the UK, alongside our corporation tax reductions.

The changes made by clause 29 will give the Government the power to introduce secondary legislation, as we have discussed, to provide capital allowance on the costs of non-residential structures and buildings. Key features of the policy are outlined in the technical note published on Budget day, which invites businesses to express views on detailed aspects of this policy.

This legislative process will provide taxpayers with certainty that the allowance will come into force as soon as possible, while allowing the Government to consult on important policy decisions. The new relief will provide businesses with an additional £1.9 billion of tax relief in the next six years, growing to £2 billion annually by year 50. The allowance will be available to any unincorporated or incorporated business that builds a new structure or a building, or that acquires one directly from a developer. The allowance will apply across all sectors and sizes of UK trade, improving our collective economic position as we go into 2019 and beyond.

Amendments 57 and 60 seek to commit the Government to carry out and lay before the House a report on the consultation with stakeholders on arrangements for the allowance. The Government, however, have already invited stakeholders’ views on the detailed aspects of the allowance, and have made it clear to the public that a further technical consultation will be issued on the draft secondary legislation. That is set out in the technical note, published alongside the 2018 Budget.

Amendments 58 and 59 seek a Government review of the revenue effects and the uptake of the relief among different-sized businesses. The estimated revenue effects have been published in the Budget 2018 document. The relief is expected to provide £1.9 billion of additional support over the next six years to businesses of all sizes. That figure has been subject to detailed challenge and to the scrutiny of the independent Office for Budget Responsibility.

Amendment 58 requests that the Government lay a report on the revenue effects before the House within six months of the enactment of the Bill. That would not be technically possible, due to the time needed for businesses to make new claims and for the Government to carry out the necessary analysis. However, HMRC publishes annually the cost of capital allowances claimed and the capital allowances available, split by asset type and by industry, in the “Estimated costs of the principal tax reliefs” and “Corporation Tax Statistics” documents. Those publications will include the new allowance costs as soon as sufficient data are available. I therefore urge hon. Members to withdraw their amendments, and I commend the clause to the Committee.

Photo of Jonathan Reynolds Jonathan Reynolds Shadow Economic Secretary (Treasury)

To make an appropriate level of progress, with the leave of the Committee, I will not press all amendments save for amendment 59. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 59, in clause 29, page 17, line 8, at end insert—

‘(14) The Chancellor of the Exchequer must review the uptake of the relief that will be created as a result of the powers in this section by the groups set out in subsection 15.

(15) The groups that must be considered under the review in subsection 14 are—

(a) companies with between zero and nine employees,

(b) companies with between 10 and 250 employees, and

(c) companies with more than 250 employees.

(16) A report of the review under subsection (14) must be laid before the House of Commons no later than 12 months after the first exercise of the powers under this section.’—

This amendment would require the Chancellor of the Exchequer to review the uptake of this relief among micro-businesses, SMEs and large companies.

Question put, That the amendment be made.

The Committee divided:

Ayes 8, Noes 9.

Division number 16 Decision Time — Construction expenditure on buildings and structures

Aye: 8 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Clause 29 ordered to stand part of the Bill.

Clause 30