Finance Bill

I should like to make a little more progress, as I know that there is concern that we should be expeditious. Retrospection is an important point. Corporation tax and the accompanying allowances are set annually. It is not legally retrospective to reduce or remove an annual tax allowance. That is a legal point, but it is important to underline it. We will withdraw the allowances in a phased manner between 2008 and 2011 to give businesses certainty and time to plan for their eventual withdrawal. One of the objectives of the exercise is simplification. Industrial buildings allowances have been recognised, not least in the work of KPMG, as a significant compliance burden. To leave those allowances in place for up to 25 years, for example, would have resulted in the retention of that burden throughout that period. I do not agree that the measure is retrospective, and the changes that we have made will certainly contribute to simplification. Clause 35 is integral to those reforms, as it paves the way for the gradual withdrawal of industrial and agricultural buildings allowances over a four-year period. Those allowances were first introduced over 60 years ago, replacing the old mills and factories allowance in the 1940s. The needs of the economy have changed dramatically since then, and the old allowances do not reflect the reality of modern business. I simply put this point to the House: there is no good economic case for a subsidy for some buildings but not for others. The time has come to grasp the nettle and take a much more rational approach. We did not want to withdraw the allowances overnight, however outdated they are. Instead, we have given a year’s notice of their withdrawal and then, as I said, the allowances will not be withdrawn straight away. From April 2008 the writing-down allowances will be gradually reduced by 1 percentage point per year until 2011, so there will be time to plan and adjust to the changes. Clause 35 removes, with effect from 21 March this year, balancing adjustments and the recalculation of writing-down allowances when a qualifying building changes hands or ceases to qualify for the allowances. It is designed to prevent manoeuvres which would have allowed some businesses to accelerate allowances in an unfair way. Our intention is that the withdrawal of the allowances should be fair and orderly. The House will, I think, share that intention. The amendment would delete the clause. Ninety-five per cent. of the benefit of the allowances go to large businesses, and 50 per cent. of the total amount of industrial buildings allowances goes to the 100 largest companies in the country. Those companies will gain from the reduction in the main rate of corporation tax. On small businesses, I repeat what I said in Committee: for small businesses, as separately for large businesses, each package is fiscally neutral in each of the years set out in the scorecard in the Red Book. The real impact of the amendment to remove clause 35 would be to permit forestalling and other activities so that some businesses could gain an unfair advantage. There would also be a huge cost to the Exchequer—around £300 million. We pre-announced that the allowances will be phased out. Removing the clause would create a huge risk in property transactions between the Budget day announcement and the main provisions in the Finance Bill next year. It would scupper the ambition to withdraw the allowances in a fair and orderly way, so I hope that the hon. Member for Falmouth and Camborne will decide not to press the amendment to a Division.