Structures and buildings allowances: rate of relief

Finance Bill – in a Public Bill Committee at 2:00 pm on 9th June 2020.

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

Photo of Siobhain McDonagh Siobhain McDonagh Labour, Mitcham and Morden

With this it will be convenient to discuss the following:

Clause 29 stand part.

That schedule 4 be the Fourth schedule to the Bill.

New clause 10—Structures and buildings allowances: review—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by section 29 and Schedule 4 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity, and

(d) energy efficiency.

(3) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact on investment of the changes made to structures and buildings allowances in Schedule 4.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury

Clause 28 makes changes that increase the rate of relief provided by the structures and buildings allowance. It is interesting that this allowance was also singled out by the CBI when referring to the economic incentives for investment that the Government provided in the Budget. From 1 and 6 April, for those businesses chargeable to income tax and corporation tax respectively, the rate of SBA will increase from 2% to 3% per annum. Clause 29 and schedule 4 ensure that SBA operates as intended through six minor and miscellaneous amendments.

The Government remain committed to incentivising businesses to invest in capital assets that will drive and support future prosperity. By increasing the SBA rate from 2% to 3%, we are levelling up the international competitiveness of the UK’s capital allowance regime. With a corporation tax rate of 19%, this country already boasts the lowest headline rate in the G20. Increasing the SBA rate helps us to go further, thereby reinforcing the UK’s attractiveness as a place to invest and do business, and addressing concerns about competitiveness—indeed, more than addressing them—that have already been raised in this Committee.

The changes made by clause 28 provide for a substantial increase in the rate of SBA relief from 2% to 3% per annum. This will apply to all expenditures eligible for SBA, including those already incurred on or since the announcement of the relief on 29 October 2018. Firms relieving any qualifying expenditure incurred from that date can now claim 3% per annum from the 2020-21 tax year onwards. Thus, the clause will help businesses to upgrade their farms, premises and factories, improving their cash flows as the UK bounces back from the effects of covid-19, so this accelerated relief represents support for business in the present economic conditions.

Clause 29 and schedule 4 make six miscellaneous amendments to the existing SBA legislation. The first amendment prevents double relief where research and development capital allowances are available, which maintains a long-standing principle of the tax system; the second clarifies the rules for allowances on contributions to public bodies; and the third ensures that relief is available from the first day that a structure or building comes into use, as was always the intention of the SBA legislation.

The final three amendments all ensure that the legislation simplifies compliance for taxpayers, which has been a long-standing request for the tax system in general and for the SBA in particular. The fourth extends aggregation of expenditure to simplify allowance calculations for persons who are not within the charge to tax; the fifth apportions expenditure for which an allowance can be made and other expenditure on a just and reasonable basis; and the final amendment eases the administrative requirement for firms by explicitly including oral construction contracts within the allowance statement.

New clause 10, which was tabled by the Scottish National party, would require the Chancellor of the Exchequer to review the impacts of clause 29 and schedule 4’s miscellaneous amendments to the SBA legislation within six months of the passing of the Finance Act. Specifically, it would require the Chancellor to review the impacts on business investment, employment, productivity and energy efficiency in the constituent nations and English regions of the United Kingdom.

First, I assure Members that HMRC and the Treasury continue to monitor tax reliefs carefully, according to the level of risk posed. It is a fact about the construction of new buildings that often it can take many years to erect them, and SBA claims are ordinarily settled when businesses bring buildings into use and submit tax returns at year-end. Given that, it would be neither possible nor appropriate to attempt to draw conclusions on the productivity or the energy efficiency impacts of this change to legislation within such a short period of time. On that basis, I therefore urge the Committee to reject the new clause.

Increasing the SBA rate and making these technical amendments will ensure that the SBA functions as intended—as an important relief for businesses up and down the country that wish to invest. I therefore commend both these clauses and schedule 4 to the Committee.

Photo of Wes Streeting Wes Streeting Shadow Exchequer Secretary (Treasury) 2:15 pm, 9th June 2020

In the case of clauses 28 and 29, I think we have to ask some questions about what the Government are trying to achieve, and some questions about the frequency with which they change the rules.

As the Chartered Institute of Taxation has said, taxpayers generally welcome any increase in a rate of relief, but as the institute has noted on many previous occasions, regular tinkering with rules and rates of capital allowances brings additional complexity and uncertainty; it also undermines investor understanding of and confidence in what is on offer at any one time. Most businesses cite certainty as one of the most important factors in their business planning, and as the institute has also said, it is perhaps more important than the precise amount of relief available.

When the SBA was introduced in 2018, it took an approach of introducing another type of asset classification required only for tax purposes—something that was previously identified by the Office of Tax Simplification in its review of capital allowances as a source of compliance costs. For most property investors, as there is a clawback on disposal of a structural building, the main benefit of the SBA is one of cash flow. As financial accounts will have to provide for a deferred tax liability, it is questionable how much this tax measure will act as a significant incentive to invest or will result in a significant impact on the UK’s competitive advantage. The Financial Secretary ought to address that criticism.

One of the other issues I wanted to raise is something that the Chartered Institute of Taxation has mentioned. Broadly, the changes—particularly in clause 29 and schedule 4—can be described as making the SBA work as it was intended to. It is a relatively new relief, having been introduced in October 2018, and the need for these corrections may reflect the fact that the relief was introduced as a done deal for immediate implementation, with no prior consultation. I am sure the Financial Secretary will say in defence—he can correct me if I am wrong—that the Treasury considers this important to deter businesses that were planning expenditure immediately after the 2018 Budget from deferring it until a later date of introduction, to avoid people taking full advantage too soon. It prompts the questions of why we have a system that apparently requires constant fine tuning, and of whether this is really working to the extent that Ministers intend and to the advantage of the businesses that are supposed to benefit from the relief, if they face additional compliance costs as a result.

I move on to new clause 10. I am in danger of repetition, which I appreciate is not a novelty in this place, but it is repetition that could easily have been avoided, were it not for the same issues that I raised this morning in relation to the “amendments to the law resolution” that successful Governments of different political stripes would have tabled to enable a more wide-ranging political debate in the interests of Parliament and, most importantly, of the wider public.

Ms McDonagh, as you were not chairing this morning’s proceedings, I think it is fair to say that the debate surrounding this Finance Bill, and the clauses that we are considering this afternoon and will consider into next week, is a little more dry and technical than perhaps any of us would have liked. There is a reason for that: it comes down to the fact that the Government are trying to restrict the ability of the Opposition, minor parties and dissenting Back Benchers to cause trouble. That would have been a little more understandable, if not noble, in previous Parliaments, when Governments operated under much tighter majorities or with no working majority at all. That is not to say that it was justified—the Opposition strongly argued against it in the past and would argue against Governments behaving in such a way in the future—but this Government have a significant majority. They do not need to worry about Back-Bench rebellions to the same extent as they once did, and none of us is well served by the Government failing to table the “amendments to the law resolution” alongside the Finance Bill, in order to allow the more wide-ranging political debate that our constituents would expect us to have.

Here we are with new clause 10, just as we were this morning, with an SNP amendment using the structures and buildings allowances review—I hope the hon. Member for Aberdeen South will not resent my characterising the new clause in this way—to shoehorn in some important wider considerations around what is happening to the UK economy on business investment, employment, productivity and energy efficiency, as outlined in the new clause, in a way that would not be necessary if Opposition parties or any hon. Members of the House were able to table amendments in the way we would have liked and our constituents would have expected. The Government would be richer for the scrutiny and would be forced to raise their game, and the Opposition parties would be encouraged to think more carefully about the changes that we propose to Government policy and would be under greater scrutiny to ensure that, where we oppose Government, we also suggest alternatives. Previously, we would have been able to demonstrate those alternatives more plainly by tabling amendments, but we are curtailed by the way the Government have gone about the process and procedure for amending this Bill. As a result, here we are, locked in Committee Room 14 on a moderately sunny afternoon, debating rather dry and technical details of the Bill, when our constituents, the Government and the process of government would have been better served by a more wide-ranging debate.

Photo of Stephen Flynn Stephen Flynn Shadow SNP Deputy Spokesperson (Treasury - Financial Secretary)

I look forward to serving under your chairmanship, Ms McDonagh. Before I start, I want to touch quickly on the remarks that the hon. Member for Ilford North made about why the new clause was tabled. This is the only opportunity available to us to highlight the issues that we seek to promote. Of course, that is not a criticism, and I would certainly welcome seeing a few more new clauses from Labour Members. Indeed, there is opportunity for all of us to discuss what we seek to discuss, but the key thing is that we need to move something first.

On the matter at hand, amending the tax system in order to incentivise capital investment is a good thing—it is something that we should all want—but when we take such actions we also need to ensure that good governance is put in place. We must also look at the effectiveness of those actions, particularly when we are dealing with the potential impact on business investment, employment, productivity and energy efficiency.

I want to focus on energy efficiency, because it is so important in combatting the climate crisis that we all face. Words mean only so much, so we need action too. We all want to understand how Government measures incentivise energy efficiency, and we want to see further detail behind that, but we also want to see how the Government could go further. For instance, I wrote to the Government—I am not sure whether I got a response—about VAT on building repairs. I appreciate that in the south-east of England, the need for energy efficiency in properties is perhaps not as urgent as it is in the Baltic north-east of Scotland, where I hail from, but that is not to say that it is not a hugely significant issue.

Although we would like VAT to be reduced to encourage home owners, property developers and the like to improve the energy efficiency of older properties, that is not something that the Scottish Parliament can legislate on; the Scottish Government’s hands are tied by the UK Government in that regard. I hope the Minister will take the opportunity to clarify why there has been no move on that issue. We want properties to be more energy-efficient, and reducing VAT on the essential repairs that they require would be a logical, practical and easy step. It is deeply frustrating that such matters are not within the Scottish Parliament’s competence, and that we need to rely on a UK Government we did not vote for and do not support. So much good is happening in Scotland at the moment and the Scottish Government are doing incredible work, but their hands are tied. For instance, in December 2019, the Scottish Government’s Housing Minister, Kevin Stewart, highlighted that, by the end of 2021, we will have allocated more than £1 billion since 2009 to tackle fuel poverty and improve energy efficiency to make homes warmer and cheaper to heat.

In my former life as an elected councillor in Aberdeen, I saw at first hand the good work that housing associations and local authorities have done to improve insulation, use newer windows to stop energy leakage and put better heating systems into homes. Moves are afoot to increase our energy efficiency, and they are all positive.

In Scotland, we are blessed that we will have legally binding standards for home energy efficiency from 2024 onwards, which will make things even better. However, we should not have to rely on the UK Government’s approval to put in further measures. I again ask the Minister to clarify why the Government have been unable or unwilling to reduce VAT to date.

As I say, so much good is being done in Scotland to improve energy efficiency. It is only right that the UK Government agree to the new clause, in order to then assess their own actions and determine what more can be done to improve the situation, not only for those in Scotland but for those across the United Kingdom.

Photo of Jesse Norman Jesse Norman The Financial Secretary to the Treasury 2:30 pm, 9th June 2020

I thank the two hon. Gentlemen for their questions and comments on the clause. The hon. Member for Ilford North raises the question of what he calls tinkering, and I of course recognise the concern. I think it is fair to say that Governments of all kinds were given a masterclass in the dangers of tinkering by the Labour Government that was in power between 1997 and 2010. I will not bore the Chamber by rehearsing the highlights, but some would give anyone cause for concern. It is an inveterate potential risk, and the difficulty, in this case as in others, is in trying to balance the desire not to make change with the positive good that can be made by a particular change.

In the case of the SBA, on which there has been considerable discussion with stakeholders in different ways, the effect of increasing the generosity of the relief is that a business investing in a £10 million building will be able to deduct an extra £100,000 a year. That is not a trivial amount of money; any such business would surely welcome that amount. That illustrates the difficulty with a general worry about that tinkering. It is noticeable that, again, this has received a lot of support.

I mentioned the CBI. The National Farmers Union says that the increase will

“deliver more effective tax relief for farm buildings.”

Interestingly, it also goes to the point raised by the hon. Member for Aberdeen South, by saying that this change

“will go some way to supporting farms investing in modern, efficient infrastructure which could help to improve productivity and deliver our net zero ambition.”

That is a worthwhile and a good thing.

There are a variety of amendments in the clause. The difficulty is that these are minor but necessary technical changes to ensure that the SBA legislation is fair and equitable. As the hon. Member for Ilford North said, there is a general problem with forestalling on much new tax legislation. In the case of this measure, it is inevitable that, when there is change in a complex environment, different consequential changes will occasionally have to be made in order to improve the functioning of the legislation, to ensure that it works as anticipated. That is what these changes do.

We have already discussed the amendment of the law and I pointed out that, in some respects, proceeding directly with an income tax resolution has the effect of increasing overall transparency. It does not constrain debate in any degree. If the Labour party or any other party wishes to come forward and say that it wishes, on balance, to have SBA at 2%, 4% or 10%, it is fully entitled to say that in Committee now. That can then be evaluated and used to interrogate the position of the Government, and when we come to vote on it, the Government and colleagues can consider what an alternative might look like when they consider how to vote. That debate is not constrained—formal processes of amendment are not the same thing as the possibility of debating.

The hon. Member for Ilford North mentions his desire to avoid the dry and technical subject matter found in a Finance Bill Committee. He has chosen the wrong Bill about which to have that worry, because this is a dry and technical subject, and it is of its nature that it is like that and will always be like that. The idea that, before these procedures were in place, Finance Bills had wildly exciting and disco-like sessions in which Members of Parliament were able to propose exotic new ideas and debate was thereby enlivened is, I think, quite far from the mark.

The hon. Member for Aberdeen South raised a question about energy efficiency. He is aware that a vast array of measures have been put in place that are designed to bolster and improve the way in which we use energy. In due course, the Government will come forward with our own plans for net zero, which will do more in that regard. I think he called—or if he did not, he came close to it—for VAT to be, as it were, nationalised within Scotland. However, as I pointed out to the hon. Member for Glasgow North, I wonder whether the hon. Gentleman really wishes to overturn the fiscal framework that has been so carefully agreed over such a significant period and so much consultation between the then Government and the Scottish Government. If he really wishes to overturn the fiscal framework by demanding new powers, let him do so, but of course that upsets a much larger potential apple cart. On that basis, I commend clause 28 and urge the Committee to reject new clause 10.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill.

Clause 29 ordered to stand part of the Bill.

Schedule 4 agreed to.