Special rate expenditure on plant and machinery

Finance (No. 3) Bill – in a Public Bill Committee at 3:30 pm on 29th November 2018.

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Photo of Jonathan Reynolds Jonathan Reynolds Shadow Economic Secretary (Treasury) 3:30 pm, 29th November 2018

I beg to move amendment 61, in clause 30, page 17, line 35, at end insert—

‘(9) The Chancellor of the Exchequer must commission a review on impact of the amendments made by this section on CO2 emissions from plant and machinery operated in the United Kingdom.

(10) A report of the review under subsection (9) must be laid before the House of Commons by 1 April 2020.’

This amendment would require the Chancellor of the Exchequer to review the effects of this Clause on CO2 emissions from plant and machinery, and report on those changes by the end of the tax year 2019-20.

Photo of George Howarth George Howarth Labour, Knowsley

With this it will be convenient to discuss the following:

Amendment 62, in clause 30, page 17, line 35, at end insert—

‘(9) The Chancellor of the Exchequer must commission a review on impact of the amendments made by this section on the prices of—

(a) household heating and electricity, and

(b) insulation material.

(10) A report of the review under subsection (9) must be laid before the House of Commons by 1 April 2020.’

This amendment would require the Chancellor of the Exchequer to review the effects of this clause on the cost of heating, electricity and insulation material and report on those changes by the end of the tax year 2019-20.

Amendment 63, in clause 30, page 17, line 35, at end insert—

‘(9) The Chancellor of the Exchequer must commission a review on impact of the amendments made by this section on the automotive market in the United Kingdom.

(10) A report of the review under subsection (9) must be laid before the House of Commons by 1 April 2020.’

This amendment would require the Chancellor of the Exchequer to review the effects of this Clause on the automotive market in the UK and report on those changes by the end of the tax year 2019-20.

Amendment 64, in clause 30, page 17, line 35, at end insert—

‘(9) The Chancellor of the Exchequer must commission a review on impact of the amendments made by this section on the level of investment in plant and machinery included as special rate expenditure, where such plant and machinery was made before April 2019.

(10) A report of the review under subsection (9) must be laid before the House of Commons by 1 April 2020.’

This amendment would require the Chancellor of the Exchequer to review the effects of this clause upon business decisions to invest in eligible plant and machinery made before April 2019 and report on those changes by the end of the tax year 2019-20.

Amendment 65, in clause 30, page 17, line 35, at end insert—

‘(9) The Chancellor of the Exchequer must lay before the House of Commons a report on any consultation undertaken on the provisions in this section.

(10) A report of the review under subsection (9) must be laid before the House of Commons within two months of the passing of this Act.’

This amendment would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in this clause.

Clause stand part.

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

The clause proposes reducing the special rate for qualifying plant and machinery assets from 8% to 6%. It is reassuring to see something in this package of measures that raises some revenue, but it represents another small change to the way businesses are asked to operate. It is more change, more complexity and less certainty, all at a very difficult time for British business. I understand that this measure, as the Chancellor said in his Budget speech, has been introduced in part to fund the buildings allowance outlined in clause 29, which we have just discussed.

One of the problems with a change like this is that businesses make their plans on the basis of what tax rates are when they make those decisions. As the Chartered Institute of Taxation has warned, this gives the rate

“an element of retroaction, as investment decisions may have been taken on the basis of an 8% rate of allowance” that is now being shifted to 6%. In its words:

“Tinkering with rates and allowances in this way undermines the principles of stability and certainty and as a result reduces the international competitiveness of the UK’s tax system.”

The Chartered Institute of Taxation also highlights the potential flaw in the logic that people will be able to balance off one cut against another:

“The impact of this change in rate will be different for different businesses.”

Any business that is unable to take advantage of the new structure and buildings allowance will find that it is simply worse off. It is therefore concerning that no prior consultation took place regarding these measures, so we simply do not know the different ways in which businesses might be impacted, or what they will make of these various allowances.

For that reason, the Opposition have tabled a package of amendments to dig deeper into what the impact of those changes will be. Amendment 65 prompts the Government to present to the House a report on any consultation that was undertaken with regards to this measure. As I have just stated, we have significant concerns about how little consultation was carried out regarding any of these measures, and the potential problems that might arise in implementation, given the scope of what is being proposed. We need to know what opinions were sought from the companies this will impact upon, and how those opinions were taken into account, if at all. Further to that, amendments 62 and 63 call for specific reviews of how the special rates will impact on both the use of household insulation—which would be included as an integral feature—and the automotive industry. Higher-emission vehicles would attract the lower rate of relief, rather than the full relief of 100% for lower-emission vehicles.

That brings me to the huge missed opportunity in this clause to promote business investment in green technologies. If the Government are going to endlessly tinker with this regime, why not do it to benefit green investment? Amendment 61, connected to this, would oblige the Government to publish a review of the CO2 emissions that result from investment in plant and machinery at the special rate. I urge Members to support this amendment, which is critical to showing us the potential environmental impact of this change, and will allow us to assess what we can achieve by promoting relief through investment in cleaner technology.

According to the Government’s own statistics, published in March 2018, carbon dioxide emissions from the business sector accounted for 18% of all emissions in 2017. While there has been a laudable 41% drop in carbon dioxide emissions from the business sector since 1990, we all know that we have to do more, as quickly as possible, to achieve the change that is so urgently needed to avert climate catastrophe. I therefore urge all Members to vote in favour of these amendments, to give us the information we need to get a clear picture of the impact this will have on business, industry and the environment.

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

Clause 30 makes changes to ensure that the capital allowances special rate is reduced from 8% to 6% from April 2019. The change will improve the alignment between the rate at which the special rate pool assets were written down for tax purposes and depreciation in business accounts, which is part of the rejoinder to the hon. Gentleman’s charge that we are introducing greater complexity. We are actually aligning those rates in a way that will inject some further simplification.

The change made by clause 30 will provide businesses with the same amount of relief overall, but over a longer period. Under the new rate, businesses will receive relief on 50% of the cost of special pool assets within 11 years, compared with eight previously. The vast majority of businesses will be unaffected by the rate reduction, because expenditure on new special pool assets qualifies for the annual investment allowance every year. The temporary increase of the annual investment allowance to £1 million for the next two years will further help businesses to bring forward their investment, and write it off in full in the first year. The change is expected to raise £1.6 billion in revenue over the next six years.

The capital allowances package announced in the 2018 Budget will provide around £1 billion of additional support to businesses over the next six years. That change, combined with the new structures and buildings allowance, will make our capital allowances system more balanced by moving the relief from an area in which the rate was relatively generous to an area in which no relief was previously available.

Amendments 61, 62 and 63 would commit the Government to reviewing the impact of the rate reduction on CO2 emissions from plant and machinery, the prices of insulation material, household heating and electricity, and the automotive market. The Government have already published tax information and an impact note for the reduction. I assure hon. Members that the careful consideration of impacts is a standard process for all tax policy changes.

The Government’s commitment to meet the emissions reductions target has never been stronger. The Climate Change Act 2008 provides a world-leading governance framework, which already ensures that our overall progress is robustly monitored and reported to Parliament. As the hon. Member for Stalybridge and Hyde pointed out, benchmarked against 1990, there has already been significant progress. The Committee on Climate Change provides regular advice to the Government on how best to achieve our targets, and on the impact of existing policies.

The Office of Gas and Electricity Markets is the Government regulator for gas and electricity markets. It takes account of all factors affecting electricity transmission networks and distribution, including which capital allowances it can claim as part of its normal cost with individual companies. Ofgem can provide information on those markets, including through accessible factsheets, and explanations of the work it does to protect consumer interests.

Amendment 63 seeks a report on the effect of capital allowances on the automotive market. At the Budget, the Chancellor announced a review of the effects of changes in the test procedures for new vehicle CO2, which will have a much more significant effect on new car sales than the writing-down rate.

Amendment 64 would require the Government to review the impact of the rate reduction on the investment in special rate plant and machinery, where such assets were made before April 2019. The rate reduction will improve the fairness of our capital allowances across various types of asset, which will improve the alignment with average accounts depreciation for the special rate assets. Furthermore, the independent Office for Budget Responsibility estimated that the package of capital allowances measures is expected to increase overall business investment by 0.4% by the end of the scorecard, which supports our economy as a whole.

Amendment 65 would commit the Government to reporting on any consultation on the provisions of this section. As the Government stated in “The new Budget timetable and the tax policy making process” published last year:

“The government will generally not consult on straightforward rates, allowances and threshold changes” because they do not benefit from the process. I therefore urge the Committee to reject the amendments. I commend the clause to the Committee.

Amendment, by leave, withdrawn.

Clause 30 ordered to stand part of the Bill.

Clause 31