LIVEBLOG: Finance Bill (No.3) 2018 - Public Bill Committee 5th sitting

4 Dec 2018

MPs debated clauses in Finance Bill No.3 this morning (Tues). MPs debated clauses relating to capital allowances, leases and oil activities and petroleum revenue tax. No Opposition amendments were passed into the Bill.

You can read the amendments tabled for debate here. You can listen to the debate here

Capital allowances

Clause 32: First-year allowances and first-year tax credits

Amendment 73 (Labour) would require the Chancellor of the Exchequer to review the effects of extending first-year allowances to 2030 - DEFEATED Amendment 74 (Labour) would require the Chancellor of the Exchequer to review the cost of extending first-year allowances to 2022 - WITHDRAWN Amendment 75 (Labour) would require the Chancellor of the Exchequer to review the impact on the energy and water technology sectors of ending first-year allowances - DEFEATED Amendment 76 (Labour) would require the Chancellor of the Exchequer to review the impact of ending the first-year allowance on foreign direct investment in the energy and water technology sectors - WITTHDRAWN Amendment 77 (Labour) would require the Chancellor of the Exchequer to review the impact of Clause 32 on the UK‚ s ability to meet its carbon budgets - WITHDRAWN Amendment 78 (Labour) would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in this clause - WITHDRAWN

Jonathan Reynolds, Shadow Treasury Minister, spoke on the amendments, saying Labour is against the ending of this allowance. This allowance is designed to move the UK to a low carbon economy, after all, he said. Taking away such allowances with little notice is not a good idea for Britain's economy. Details about the proposed industrial transformation fund to be created are scant, he complained. Goverment needs to explain why it is taking this action outlined in the clause. The changes seems revenue based - short sighted given the enviornmental aims of the allowance.

The Government spokesman Robert Jenrick responded by saying the OTS found there are significant barriers to accessing these allowances. Government analysis suggests that less than 25 per cent of energy managers would increase investment in energy saving technology because of the allowances. There are better ways to support energy efficiency. There is significant notice before the changes come into effect (April 2020), he countered. A 2017 FSB survey found just a quarter of small business owners are aware of this scheme. A decision on the mooted fund scheme will be consulted on. On amendments 73 and 74, he said the policy costings document shows it will -save £160 million by 2021/22, the same cost as to keep allowances in place for that period - no need for amendments as the statistics are already available. There is little evidence that these allowances actually help incentivise decisions that are better for the environment.

Reynolds came back at him and said there is no fiscal incentive to invest in energy efficient or climate change relevant technology, in what the spokesman said.

This is a simple abolition and not something that needs to be consulted on, said the Government spokesman.

Clause 33 - First-year allowance: expenditure on electric vehicle charge points

The first-year allowance for electric charge-points will be extended for four years. This will extend such allowances until 31 March 2023 for Corporation Tax and 5 April 2023 for Income Tax purposes. This is to encourage the use of electric vehicles by supporting the installation of electric charging equipment of such vehicles.

Shadow Chief Secretary to the Treasury Peter Dowd is worried about the impact of a future business ratings evaluation. Government spokesman and Exchequer Secretary to the Treasury Robert Jenrick said he will have to write to Dowd about this.

Jenrick said this clause will incentivise use of electric vehicles by giving drivers confidence and reduce harm to people's health in general.

Reynolds said Labour should support measures to help the environment, however this measure is a 'drop in the ocean'. He is concerned that smaller companies may find it difficult to source the cash for these charging points. Jenrick responded that it is too early to measure the success of this electric charging measure but anecdotal evidence suggests it is worth persisting with. He added that small businesses can claim under AIA and 99 per cent of busineses will be able to claim under AIA.

Clause 34 - Qualifying expenditure: buildings, structures and land

Amends Part 2 of the Capital Allowances Act 2001 to clarify that the exceptions from the exclusions for expenditure on the provision of buildings, structures and alterations to land are not intended to enable allowances to be claimed on costs relating to assets for which the expenditure on the provision is excluded from allowances. The amendment is treated as always having had effect but it does not apply to claims for capital allowances made before 29 October 2018. This amendment has been introduced to clarify the legislation to ensure that it is explicit about the scope of the relief and in particular to put it beyond doubt that land excavation costs for the purpose of creating an asset that functions as plant in common law are not allowable if the asset is excluded under section 21 or 22 CAA 2001.

Amendment 79 (Labour) would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in this clause - DEFEATED New clause 2 (SNP) would require the Chancellor of the Exchequer to review the effect of the changes to capital allowances in clauses 29 to 34 and Schedule 12 in each part of the UK and each region of England; must consider effects on business investment, employment, and productivity, and estimate effects of leaving EU with (a) 'no deal', (b) remaining in the single market and customs union, and (c) deal but not remaining in the single market and customs union - NOT VOTED ON New clause 5 (Labour) would require the Chancellor of the Exchequer to review the aggregate effect of the changes to corporation tax and capital allowances made under this Act - NOT VOTED ON

Reynolds moved amendment 79 and NC5, saying the capital allowances regime needs a 'holistic review' by the Government. These measures all come at a loss, for example SBA will cost half a million pounds. The UK becoming such an outlier in relation to CT, we need to ensure our overall package of measures is properly targeted. He wants greater transparency so costs and benefits can be properly assessed.

SNP's economy spokesperson Kirsty Blackman, on NC2, is asking to review the matter in a number of different ways. What changes do they expect from business investment as a result of the capital allowances changes, for example? Government should tell MPs what changes to employment levels the measures will have, seeing as this is a Government argument. On productivity, the Government is struggling with it, and we need to look at how these capital allowances will help productivity. Government also needs to report back on the impact of Brexit on the goals of these capital allowances. Let's analyse all this by nation, she added.

Financial Secretary to the Treasury Mel Stride said recent tribunal decisions have challenged our understanding of what expenditure is excluded from claims for capital allowances. On NC2, he said the OBR among other bodies have looked at business expenses. On NC5, he said this information is already in the public domain, such as by OBR. OBR can also give its independent view of policy measures.

Much of the debate on this clause was about the UK Withdrawal Agreement which led to an 'Order' from the Chair to stick to debating the measures in the Finance Bill No.3.


Clause 35 - Changes to accounting standards etc

Package of changes for income tax and corporation tax rules as a result of the adoption of International Financial Reporting Standard 16 (IFRS 16). Includes amendments to current legislation that relies on lease accounting definitions; minor amendments to the rules for Long Funding Leases; repeal of legislation that disregarded for tax purposes changes to accounting standards related to leasing, including IFRS 16; and introduction of rules for the spreading of any transitional adjustment recognised upon adoption of IFRS 16. (Note that IFRS 16 will remove the distinction between finance leases and operating leases for a lessee (but not a lessor).

Tax Minister Stride said this clause will ensure that despite changes to the treatment of leases in some accounting standards, tax regimes that rely on these accounting standards will continue to operate as intended.

Oil activities and petroleum revenue tax

Clause 36 - Oil activities: transferable tax history

This clause and Schedule provide a mechanism by which an oil company may transfer a portion of its historic profits, and the associated tax paid on those profits, to another company, on the sale of an oil licence. This will allow the buyer company to claim a repayment of the tax paid in certain circumstances when it comes to decommission the oil field. This clause and Schedule will have effect in relation to licence transfers approved after 1 November 2018.

Amendment 84 (Labour): The provision as drafted allows companies to transfer TTH worth double the value of anticipated decommissioning costs. This reduces the incentive for companies towards efficiencies in decommissioning costs and paves the way for decommissioning-related tax repayments far bigger than the companies are currently acknowledging. This amendment removes that provision. Amendment 81 (Labour) would require a decommissioning security agreement to include an assessment of the impact on employment, skills and the Exchequer from the asset‚ s production life and planned decommissioning phase. Amendment 89 (Labour) would require a decommissioning security agreement to include an assessment of the impact on the Exchequer from the amount spent on staff, in order for that agreement to be qualifying for the purposes of this Schedule. Amendments 85-87 (Labour) incentivise capital investment by new purchasers in job creation and emissions reductions. Combined, the amendments limit the Transferable Tax History which may be claimed to an amount equal to such investment.

Exchequer Secretary Jenrick said this clause deals with a growing problem, which can be dealt with, with TTH measures. Changes made by the meaures create the right conditions for investment in older fields. TTH will allow companies selling oil and gas fields to transfer some of their tax payment history to buyers of those fields, without cost to the Exchequer, This clause will simplify how older fields can be sold and prolong their productive lives. On amendments 81 and 89, he said agreements are confidential and in general the amendments are potentially counterproductive to the goals of the clause and unnecessarily restrictive. SNP's Blackman was told that fluctuations in the oil price in recent years make the case for incentivising investment in fields. On amendments 85-87, these would make the TTH completely unattractive and ineffective, he said.

Shadow Treasury Minister Clive Lewis said TTH is fiscally irresponsible, putting the Treasury on the hook for exhorbitant future liabilities which the Treasury has not set aside money for and it creates perverse incentives, such as a windfall for companies exiting North Sea and failing to ensure long term commitments on workers rights, emissions and capital investment from incoming buyers. There needs to be some oil revenue set aside for the enviornmental consequences There is an alarming lack of evidence of the likelihood of more revenues from TTH. He pointed to research by campaign groups and trade unions which found that major North Sea tax cuts in the past 40 years have not led to higher employment or tax rises reduce employment. TTH only has an impact on results of investment decision when the price of oil is relatively low.

On TTH, Kirsty Blackman agrees with the Government, explaining why TTH is important. We need to continue to have access to small pools. She then went to give a lengthy explanation of Vision 2035, saying it is dependent on supporting oil and gas industry now, especially on incentivising the use of new technology. Hopefully, companies that support oil and gas now, such as widget makers, can continue in business when the oil runs out by exporting its goods overseas. Labour's amendments will create a two-tier system rather than the better goal to level the playing field, she said.

Conservative Sir Robert Syms said it is sensible to use tax policy to ensure the oil fields last longer, and it will generate extra tax revenue.

Jenrick said we would be concerned at a two-tier system. Lewis came back to say Labour is not giving up on oil, rather trying to protect the taxpayer. Jenrick said that there is little risk as no additional tax relief will be due until the field comes to be decommissioned; this will enable more fields to be developed and decommisioning costs will be what they were before.

Clause 37 - Petroleum revenue tax: post-transfer decommissioning expenditure

This clause enables participators in oil fields to obtain Petroleum Revenue Tax (PRT) relief for decommissioning expenditure where that expenditure was either incurred or funded by the previous holder of the interest in the oil field. The clause has effect for transfers of interests that have been given consent by the Oil and Gas Authority (OGA) on or after 1 November 2018.

Adjourned before votes on amendments. Committee will reassemble at 2pm