I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss the following:

New clause 9—Pension flexibility: Treasury analysis—

‘(1) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons any analysis prepared by the Treasury prior to the publication of Budget 2014 relating to the impact of changes made by sections 39 to 43 of this Act to schedules 28 and 29 to the Finance Act 2004.

(2) The information published under subsection (1) must include—

(a) any assessment made of the impact of the provision for independent face to face guidance on the 2004 Act;

(b) the distributional impact, by income decile of the population, of changes made by sections 39 to 43 of this Act;

(c) a behavioural analysis; and

(d) the financial risk assessment.”

Government new schedule 5—Pension flexibility: further amendments.

New clause 13 and new schedule 5 make provision to ensure that individuals who wish to make use of the new pension flexibilities announced by the Government do not face detrimental tax consequences if they take their tax-free lump sum and then defer a decision on how to access the remainder of their pension savings.

On Budget day, the Government announced radical reforms that will enable people with defined contribution pension savings to have more choice and control over their pension wealth from next April. The greater choice and flexibility that these reforms will give pension savers have been widely welcomed. There has been broad consensus that individuals who have been responsible and saved for their future should be trusted to access their pension savings in the way that most suits them.

We announced a consultation on the detail of these longer-term proposals, which has now closed. We will publish a response in the near future, and legislation will be brought forward later this year to implement the necessary changes, but the Government wanted to make sure that people who are approaching retirement now would not miss out. As a first step, we introduced clauses 39 and 40 to ensure that individuals nearing retirement this year can benefit from a wider range of options before next April. We expect that this will enable around an extra 85,000 people to access their pension wealth as a lump sum this tax year. In addition, 400,000 people will have the option of receiving significantly greater withdrawals from their pension savings, but we did not want to stop there.

Usually people lose the advantages of a tax-free lump sum if they do not decide what to do with the rest of their pension savings within six months of taking the lump sum. On 27 March, the Government announced that those who had already taken a tax-free lump sum from their defined contribution pension savings, but had not yet secured their pension, would be given more time to decide what they wished to do with the rest of their retirement savings. We also did not think it would be fair to prevent people from taking their tax-free lump sum now simply because they wished to wait to access their pension savings more flexibly from next April, so the Government promised to introduce new provisions in the Bill to ensure that people do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next.

The provisions are technically quite detailed, but their purpose is not. Full pension flexibility for defined contribution savings will be introduced in April 2015, and until that happens we want people to be able to take their tax-free lump sum and to have until October 2015 to make their pension choices without tax consequences. The changes made in new clause 13 and new schedule 5 will enable people to take a tax-free lump sum and to wait until April 2015 to decide how they want to access their pension savings: by transferring the rest of their pension savings to another pension provider to enable them to access them more flexibly; by repaying the lump sum when the scheme that paid it will accept it in order to access the whole of their savings more flexibly; or by receiving the rest of the pension savings as a lump sum under the higher limits that clause 40 provides. Those changes also ensure that people who have the right to receive a tax-free lump sum at an earlier age, or of a larger amount than is normally allowed, can use the new flexibility and keep those rights.

New clause 13 and new schedule 5 help people who have worked hard to save into a pension, enabling them to take some of those savings tax-free now, and to take advantage of the new flexibilities for the rest of their pension savings.

I understand that the Minister is trying to introduce an element of fairness into the new arrangements while avoiding unintended consequences. Can he give us some assurances about the time scale for the rules being brought in, and tell us whether he has done additional work to ensure that there are no unintended consequences?

We have been engaged in a consultation process, which closed recently, and have engaged fully with all interested parties more generally on this policy. I will address some of these points when I respond to new clause 9, but we will respond shortly to the consultation, setting out the details of how the policy will be taken forward. This is an important matter, and it is important that we get things right. There are a number of aspects to it, and new clause 9 takes us into some of those aspects that, although perhaps not relevant to the Finance Bill, are of significance none the less. I can assure the House that there will be plenty of opportunities to debate the details, given that legislation on the subject will be introduced, as the hon. Lady knows full well.

The Minister rightly says that on such policy matters, assessments are a normal part of Government practice. Will he confirm that the reviews will take account of any potential future cost to the public purse? For example, what if people have inadequate funds to cover their future care costs, as they have already spent their accumulated pensions, or if they have other recourse to the state because they have inadequate resources later in life?

During the assessment of the policy announced in the Budget, we considered all the various issues, including the consequences for the Exchequer in both the short and long term. We will say more about the specific interaction with social care and so on in the near future. I would make the point that the very people restricted by the old regime were the people who, over the course of their working lives, saved responsibly and ended up with a pension sum that demonstrated their prudent approach to saving. It is not unreasonable to believe that the vast majority of those people will continue to act prudently when given greater flexibility. As a matter of philosophy, both parties in the coalition Government share the view that when we can give more power and responsibility to people, we should do so.

The Minister referred to the Budget and the documents published about this policy, but what was published was merely the estimated tax take for the Treasury. Nothing was published about the behavioural impact, the prospect of mis-selling or the interaction with social care. When I asked the Government via a freedom of information request to reveal the basis on which the policy was made, they refused to do so. Will we get more information as quickly possible about the basis on which the Government reached this policy position? The Minister is right, of course, that annuities need to be reformed, but the question is about the basis on which the policy was made.

On the question of social care, let me repeat the point that I just made: we will respond to the consultation in due course and set out our thinking on that point. As for the issue of mis-selling, we made it very clear on Budget day that it was important to have a guidance guarantee in place. We will set out details of how that will work in the near future, as the consultation period closed only relatively recently. It is important that we get that guidance guarantee right. That brings me to new clause 9.

New clause 9 would require the Chancellor to publish any analysis of the impact of changes made by clauses 39 to 43 of the Bill to schedules 28 and 29 of the Finance Act 2004. However, as I said in Committee, only clauses 39 and 40, which increase the amount that can be taken as a tax-free lump sum as a draw-down pension from 27 March 2014, make changes to schedules 28 and 29 of the 2004 Act.

Before the Minister fully leaves the point about how people might spend the lump sums, one concern that I have had is that people might be tempted to invest in property, for example, which could have the unintended consequence of boosting an already overheating housing market for the next generation. That is still prudent spending from those people’s point of view, but there could be unintended consequences for everyone else. I wonder to what extent that consideration featured in the Government’s thinking.

There are two points to make. First, we believe that individuals should be able to make their own choices. Of course, they should be provided with guidance, but essentially a system that relies on the state telling people precisely what their investment portfolio, as it were, should be is too restrictive, and does not perform the role that we should be performing. As for the systemic effect on the housing market, which was, I think, the hon. Lady’s central point, I do not think that our changes will have any such effect. Both the Governor of the Bank of England and the Chancellor of the Exchequer have made it clear that we need to ensure that we do not return to the bad old days and to the unsustainable housing market boom we saw some years ago. There are measures in place to reflect that, and we have the institutions in place to ensure that if there are problems they can be addressed quickly.

I thank the Minister for giving way once again. Opposition Members become concerned—well, I certainly do—when Ministers refer to the state telling people what kind of investment portfolio to have. Most people have never invested in the way that that comment suggests. He is a well-intentioned and good Minister, but I become concerned when we think about investment for the majority of people in those terms. The fact is that on the day of the Budget the Chancellor said that there would be guaranteed advice, but that turned out not to be the case. It is now guidance, which is a very different thing. Unless we get that guidance absolutely right, there is a danger of the kind of mis-selling that Members on both sides will remember from the 1980s. It is crucial that we understand the way in which people tend to make decisions about these kinds of issues.

I agree that it is vital that we get the guidance right. I am sure the hon. Gentleman will understand that now is not the occasion for the Government to set out the details of how this will operate, but there will come a point when we will do that. There will be plenty of opportunity for the House to debate those matters. I have no doubt that he is looking forward to that opportunity and will scrutinise our policies on this matter with his customary vigour—[Interruption]—as indeed will the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). While it is very important to get the guidance right, we instinctively support giving people greater flexibility and freedom. Given the tone of the hon. Gentleman’s intervention, I am not sure that he is entirely comfortable with that.

I understand the point about the timing of the guidance, and I will discuss that in my speech. The Pensions Minister has said:

“Face-to-face, the Chancellor used that phrase, and we will honour that, of course. But if face-to-face means individuals sitting down for an hour with someone every-where in the country, that would be very, very expensive. Face-to-face could involve groups, for example; a lot of the conversation’s generic.”

Some people may have concerns about what is being referred to in terms of guidance. Will the Minister give us some further information at this stage?

The hon. Lady, perfectly understandably, is seeking more information at this point. I do not think I am being in any way unreasonable in saying that we will set out the details of this in the near future. We are working very closely with interested parties, whether the industry or consumer groups, to ensure that we get this right. We have set out the broad principles behind our guidance guarantee, and we believe that we can deliver something that provides the protection that all Members want.

I understand the need for a professional to offer guidance face to face and on a quality end-product. However, may I urge my hon. Friend to consider the use of the internet and technology to collect the basic information? It makes no sense for a qualified financial consultant to take one and a half to two hours to do a basic fact-find that is actually about data collection. It is much more efficient to do that on the internet and use the time spent face to face for guidance right at the end of the process.

I am grateful for my hon. Friend’s observation. Without getting too much into the details of what we will announce in due course, it is important to point out that there are various means and methods of delivering guidance and that different people will want different things. We have made it clear that face-to-face guidance will be available for those who want it.

The Minister said that he is discussing this with the industry and other interested parties. I welcome that because, as he will be aware, on the announcement of this plan, the share price of many businesses in the life and pensions field dipped quite sharply with the market discounting what might happen in future. Will he confirm that he is paying attention to ensuring that the life and pensions sector is protected while offering flexibility to people who have saved?

The purpose of the reforms is to ensure that there is a savings and pensions environment that is good for those saving for their pension and those claiming on their pension. We believe that the reforms that we have set out will result in greater innovation in this area. We do not think that the purpose of the rules is to protect particular businesses. Nevertheless, the industry has responded well to our proposals. Many see this as an opportunity to improve the culture of saving and have engaged very constructively with the Government. I hope that that addresses the hon. Gentleman’s concerns.

I recently met representatives of a major financial institution who rightly see the potential for new products following these changes. I am sure that innovative companies will come up with products that meet people’s needs. On advice, will the Minister assure us that the system will be transparent as regards how advisers are rewarded and that we will not get into a situation where overt or covert kick-backs from product providers are the main source of income for those providing the advice?

My hon. Friend is trying to draw me into the details of what we will say about how the guidance will operate. It is important that we have a system that is transparent and maintains the confidence of the general public, and that is at the heart of what we are trying to do.

I will not try to draw the Minister into the details. He rightly refers to the instinct to give people more control over their own lives, and that is something we would all agree with. However, I urge him to read the debates involving a Tory Minister in his position in the 1980s who talked about the revolution in personal pensions using language very similar to that used by the Minister and, more exuberantly, by his colleagues about these reforms. He should compare that with what was said in the 1980s, which led to the mis-selling scandals and some of the loss of confidence in pensions. Greater control, yes, but let us also be aware of the lessons of history.

I take that point in the spirit in which it was offered. I maintain that it is right that we give people greater control and flexibility. This is about ensuring that individuals are in the best position to make the best decisions for them. Guidance is an important part of that, and, from day one, the Government have been very clear that that was the approach we wanted to take. I suspect that there is, at least at some level, a philosophical difference between Members on either side of the Chamber on this point. I do not think that a Labour Government would have brought forward these reforms, but I welcome any extent to which we can have a consensus.

rose—

I will give way once more and then I should return to my speech.

The Minister will be aware that many people are glad that this Government have introduced greater control and flexibility, particularly in pensions. Given that the new individual savings account regime came into force yesterday, will he consider, at a very early stage, introducing flexibility to give people who are saving for their long-term future into retirement—whether through the new ISA or a pension—greater control, particularly as regards spouse-to-spouse transfers?

The hon. Gentleman raises an interesting point. Indeed, I have just signed off a parliamentary answer to one of his questions about this. If I recall correctly, I said that these regimes, in essence, work on an individual basis but matters can be kept under review. I will certainly take his comments as a representation for future reform in this area.

The clauses I have been talking about increase the amount that can be taken as a tax-free lump sum and as a drawdown pension from 27 March 2014. In addition, the Government’s new clauses and new schedule make changes to schedule 29. As I have explained before, on Budget day the Government published a tax information impact note entitled “Increasing pension flexibility”, which covered the impact of the changes set out in clauses 39 and 40. That impact note has been updated to reflect the changes made by new clause 13 and new schedule 5.

As I have previously said, the changes made by clauses 39 and 40 are likely to be of particular benefit to individuals with smaller pension wealth, including women. The same applies to the changes that would be made by new clause 13 and new schedule 5. That is set out in the tax information impact note that was published on 27 June.

I have already mentioned that the Government published a consultation, “Freedom and choice in pensions”, on the broader measures announced in the Budget. That document set out the rationale and the relevant analysis behind the Government’s proposals and invited comments on the expected impacts. The consultation will inform the final shape of the Government’s proposals, including the guidance guarantee. The Government will set out further details in their response to this consultation, which will be published shortly.

I always find terms like “shortly” confusing. Is “shortly” in the next few weeks, in the next the few months or before the next general election? Perhaps, while not giving an exact date, my hon. Friend might hone it down a little finer than the very broad term “shortly.”

I used the word “shortly;” I could have said “in due course,” but I hope that my hon. Friend is more encouraged by “shortly.” He will just have to be a little more patient, but I can assure him that it will not be very long before he will be satisfied on those details.

Let me say a brief word about guidance, which I have touched on already. The Government believe that, as people have greater choice over retirement, they will need the right support and guidance to make the choice that is right for them, so we are working to ensure that everyone approaching retirement with a defined-contribution pension can receive impartial, face-to-face guidance on the choices available to them. However, the guidance guarantee is not a tax rule, so I hope that hon. Members will understand that although it is a very important part of the radical reforms that we are introducing from April 2015, it does not form part of the changes being discussed today.

The Government have already published information on the impact of clauses 39 and 40, as well as on new clause 13 and new schedule 5, and have consulted further on their broader proposals. New clause 9 is therefore unnecessary. Whether that is enough to persuade the hon. Member for Kilmarnock and Loudoun not to press her case, I somewhat doubt, and no doubt she will put it very reasonably, but I hope that she considers my response reasonable as well. Whether she considers it reasonable or not, that is my response.

The overall purpose of the changes that the Government are making today is to enable people who had recently taken the tax-free lump sum from their defined-contribution pension savings to use the new flexibility, while remaining in broadly the same tax position. I therefore hope that new clause 13 and new schedule 5 will be added to the Bill, and I request that new clause 9 is not pressed to a vote.

I want first to put something on the record. Earlier, the hon. Member for Redcar (Ian Swales) suggested that when the Labour Government left office the tax gap was £42 billion, but the most recent HMRC figures show that in 2009-10 it was £32 billion. I think that addresses the point that he raised yesterday with my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood).

To return to issues from today’s debate, as I observed in Committee, the amendment that we moved then and the discussion on it addressed some of the most important clauses in the Bill. The Minister suggested yesterday that I could make the most unreasonable things sound reasonable. I think that today he has done a reasonably good job of putting across the Government’s view. However, I would have to say at the outset that he has not said enough to convince me not to press our amendment—he still has time to say something during the debate—and I will explain why.

As I have said, the reforms provided for in these clauses are very important. Our primary concern in tabling new clause 9 and in pressing it is to ensure that those affected have the information that they need to make an informed choice, because that is very important indeed.

On that point, my hon. Friend, as usual, is making an eloquent, precise case. There is an issue not just around informed choice, but around our ability to predict our own longevity; there are substantial issues. The evidence is that it is very difficult for us to predict our own longevity, both for obvious reasons and in terms of biases inherent in our human nature. Therefore, this is not just about choice—although we think that is important—but about how one makes such decisions on one’s own.

My hon. Friend makes an extremely important point. My understanding of the research is that, when asked to predict their longevity, people significantly underestimate it and do not always predict long enough into the future, particularly when anticipating their potential care needs or support needs. For understandable reasons, people do not want to think of those things during their earlier years, but increasingly they will have to do so.

I heard the Minister say that some of the issues that have to be dealt with, such as guidance and so on, do not form part of tax law. Of course he is correct on that, but there is an issue about a joined-up approach to government. Already we have concerns—I shall say more if time allows—about how all the Government’s policies on social care and some of the other economic issues that people have to think about will come together. It is important to ensure at every stage that there are no unintended consequences.

As the Minister accepted, we tabled our new clause, as always, in a spirit of being reasonable and sensible. Indeed, I was a wee bit excited when he seemed to suggest that some of the things we might be saying were worthy of further consideration. Of course, my excitement was short-lived, as he then said that he would not accept our new clause.

Quite simply, new clause 9 would require the Treasury, within six months of Royal Assent, to publish and lay before the House any analysis it prepared before the publication of Budget 2014 relating to the impact of the changes made in clauses 39 to 43 and the relevant schedules, and that the information published include any assessment made of the impact of the provisions for independent face-to-face guidance on the Finance Act 2004. That is important, because without it, as my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said in an attempt to elicit information, which has not so far been possible, it will be difficult to scrutinise provisions in a Bill that is to come in due course, shortly, when time permits—whichever one of the time scales so beloved of Ministers is utilised. The new clause also asks that we be provided with information on the distributional impact of the changes by income decile, a behavioural analysis and the financial risk assessment. As our new clause and the points I have made show, our concern about some of the reforms extends to the face-to-face guidance that the Government have committed to providing.

We discussed this issue extensively in Committee. I think Labour Members made a number of valid and reasonable points on the potential pitfalls for savers who have money at their disposal—those who, perhaps for the first time in their life, have a significant pot of money and have to make a decision. Lest anyone suggest that our concern is patronising or that we are somehow not trusting people to decide what to do with, essentially, their own money, let me say that it is important to understand that for many people, having significant pots of money at their disposal will be an entirely new experience at a time in their life when, as we have heard, they may not properly have predicted what resources they are going to need or their own longevity. It is therefore a bit disappointing that the Government have not been able to answer our questions. Looking back over the Hansard report of the Committee stage, I was struck by the amount of time we spent dealing with some of these questions and, unfortunately, not getting the answers from the Government. Some of the responses we got from Government Members were, I would say, misunderstandings if not misrepresentations of our own position, which led us to believe that the Government might simply not want to engage with those issues.

To ensure that the Government are held to account, we have set three tests for the pension reforms. The first is the advice test—ensuring that there is robust advice for people who are providing for their retirement and that measures are in place to deal with mis-selling. In Committee, I and others quoted a number of cases brought to us by financial advisers in our local areas and by constituents in which people had been given so-called advice—often, information provided by unregulated people—and had therefore made wrong choices, which cost them significant sums. We do not want that to happen again.

On the question of guidance, the Pensions Minister’s comments about Lamborghinis were particularly unfortunate. Does my hon. Friend agree that the biggest danger is not that hard-working, sensible people will blow their own money, but that they will take it as cash and not invest it because they have no confidence in the financial services industry, so their money will not be working for them? Is not that as big a danger, if not a greater danger, than the Lamborghini sort of stuff the Pensions Minister raised?

If I did not know better, I would suspect my hon. Friend of having read my speech. I was just about to come to that very point. The infamous Lamborghini comment might have been made in jest, but that sort of joke is entirely lost on those who have already lost their savings because of poor or insufficient advice. My hon. Friend makes a very valid point indeed about people’s confidence in what they can do with their own resources. To an extent, the Government may have begun to acknowledge the need to expand the range of choices available and ensure that consumers have help to navigate those choices—I think that was the phrase used. That sounds pretty sensible and commendable, but we need to make sure that it actually happens.

The second test we have set is the fairness test—the new system has to be fair to those on low and middle incomes, which means they still should be able to access products that give them the certainty in retirement they want, and the billions we spend in pensions tax relief must not benefit only those at the very top. That is why we have called for restrictions on pensions tax relief for those earning more than £150,000 a year. The third test is the cost test: the Government have to ensure that the policy does not result in extra cost to the state. That point was made earlier, and I think the Minister, to his credit, understands that there is an issue with social care and pensioners having to fall back on means-tested benefits—housing benefit, for example—later in their life if they do not properly or sensibly manage their resources. As yet, however, the Government have not explained how all that will be joined up in policy terms. In our view, if the Government’s pensions reforms fail any of those tests, the negative impact on savers could be considerable.

In Committee, my hon. Friend the Member for Islwyn (Chris Evans) talked about protecting people from the “sharks in the market”. That brings us to the vexed question of guidance. Going back to the Chancellor’s no doubt innocent slip, there is a serious point to be made about definitions. When pressed subsequently, the Chancellor said:

“There is a technical distinction between advice and guidance. The budget document exists, I don’t get up and read it out because it contains all the technical details of the Budget and we publish it at the same moment. The speech needs to also communicate in English so people watching it can understand what is meant.”

I understand that, but as I emphasised strongly in Committee, there is a world of difference between advice and guidance in technical terms and in terms of legality. The Government need to deal with that.

I am listening carefully and trying to understand. Is the hon. Lady suggesting that the Government should be people’s financial adviser? I am not sure that is what the role of Government should be. I thought the reform was about opening up choices and making sure that people realise what steps they can take, not telling them what direction they should go in.

It is important that Government use language consistently and do not inadvertently mislead people about what they are going to get, whether it is guidance, advice or information, given face-to-face, over a telephone or through the internet.

The Red Book states:

“from April 2015, all individuals with defined contribution pension pots are offered free and impartial face-to-face guidance at the point of retirement”.

One might consider that a good and positive measure, but it raises some questions—questions that largely accord with the three tests we have set. First, there is a question about cost: the budget for guidance of just £20 million—£10 million each for 2015-16 and 2016-17—gives rise to some concern, as does its including no provision for this year. According to the tax impact and information note, the measures in the Bill will enable up to 400,000 people to draw down their pensions. I note that the Minister referred earlier to an updated tax impact and information note. Perhaps he can tell us whether he has revised any of those sets of numbers. We need to understand why nothing has been put aside for that free and impartial guidance in this financial year.

Before my hon. Friend moves off the important topic of guidance, I am sure she will agree that the context to this is that the median pension pot is much smaller than many hon. Members imagine: it is well below £30,000 a year. Moving from guidance to advice potentially means that a significant proportion of a person’s pension pot is eaten up by the cost of advice. We should all bear that in mind during the debate.

Once again, my hon. Friend makes an important point and anticipates some of the things I want to mention before bringing my remarks to a close. I understand that in some instances pension pots are relatively small, and we do not want a scenario in which people find that a fairly high percentage of their pension pot must be spent on taking the advice to which he refers.

In that context, I would be particularly interested to know whether the Government have conducted any serious work on how and when savers will invest the money taken out of their pension pots, particularly when those pots are relatively small. Industry analysis from Australia, which has total flexibility at the de-accumulation stage, has found that over half of pension lump sums are spent on homes and cars.

Again, before people get excited and claim that I am somehow suggesting that people should not be in charge of their own money, let me make it clear that there is not necessarily anything wrong with that. For many people it might seem to be the reasonable thing to do. They might wish to pay off a mortgage or debt, buy the car they had not previously been able to afford, or make improvements to their home. Of course they ought to be able to make that choice, but they ought to be able to do so in the knowledge of what they might face in later years.

The potential impact of that change on the wider economy has already been mentioned, particularly in relation to the housing market. For example, what are the implications of people with substantial pension pots deciding to invest in property, particularly in the buy-to-let market? I also think that the Government must look at the impact on household savings ratios, given that the OBR has projected that they will fall from 5% in 2013 to just under 3% at the end of the forecast period. In the midst of any economic recovery that has been driven by consumer savings, any change in the way people choose to invest their savings and the consequent impact on the household savings ratio should be looked at very carefully.

In conclusion, I think that this is a crucial issue for thousands of people across the country. Many people do not think about pensions and long-term savings, and not because they have no interest in them or do not want to save, but because they are trying to manage their expenditure week by week and do not have the opportunity to look at the longer term. Everything we can do to encourage good-quality financial education is important, which is why we must get the guidance and advice absolutely correct. People also need to be confident that the information they get from the industry itself will be tailored and suitable for them.

Perhaps this time I am not anticipating what my hon. Friend is about to say, as I think she is bringing her remarks to a close. It strikes me, having listened to the Government on this issue, that the employer is never mentioned. One arm of the Government is promoting workplace employer pensions, but what is the employer’s role in relation to greater flexibility and choice?

Once again, my hon. Friend makes a valid and important point. He is correct that I was about to conclude my remarks, so I will resist the temptation to go into great detail on that issue, other than to say—we raised this in Committee—that in some ways there seems to be no joined-up government here, with pensions sometimes seeming to be at odds with other aspects. Rather than all pulling together in the interests of the consumer, there could be tensions, which I think the Government should address.

As I have said, this is a crucial issue for thousands of people. We need to get it right. I am of course aware that there is further legislation coming down the line. However, given that the Minister indicated that at least some of our requests for information are reasonable and relevant to the matter being discussed, I hope that even at this late stage he will agree to our new clause, which we will want to press when the time comes.

I find this issue rather exciting, although clearly the House does not, given how empty the Chamber is. The pension changes that the Government are bringing forward are absolutely essential and, I think, will transform the marketplace in the long term. However, I am concerned that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), having suffered the Finance Bill in Committee, seems to have spent the intervening time reading the Hansard reports of what we all said. Really, it is too much of a punishment to do that and then have to come back yesterday and today. Thankfully we will have Third Reading later this evening, if all goes well.

On new clause 13, my hon. Friend the Exchequer Secretary talked entirely about defined contribution schemes. When he winds up, perhaps he will update the House on what is happening with defined benefit schemes, or perhaps there are no transitional issues for defined benefit schemes in the new clause. I think it is entirely right to give people plenty of time to look at these issues, because a number of people were not expecting these changes and would not have predicted them, so they will need longer to consider their personal positions. As time goes on, I think that there will be less need for guidance and advice, whether provided by the state or privately, because people now going into defined contribution schemes will know what the options are likely to be when they come out. Indeed, five years from now it will be slightly more predictable. People should look at that years, rather than just a few months, before they retire. Of course, that is not possible immediately, given that these changes have only just come in.

The hon. Gentleman will be aware that the other arm of the Government on this, the Pensions Minister, has developed a whole pensions policy based on the notion that inertia has to be harnessed for the public good, meaning that, as a rule, people are not aware of the complexities of pensions and there therefore needs to be a system in place so that those who do not exercise a choice still get a good outcome. Is the hon. Gentleman really that confident that we will very quickly reach a situation in which there will be informed consumers across the board who can make the kinds of investment decisions to which he is referring?

I think that the default position will be that an annuity is purchased, rather than a lump sum being withdrawn. I think the hon. Gentleman is saying that that is the more cautious route, but I am concerned that it is not the right route for some people. Taking out a lump sum might make a lot more sense for them. However, it is an additional option. The guidance that the Government are offering is not perfect. In fact, perfect advice, if it is taken forward to a recommendation, is incredibly expensive.

I thank the hon. Gentleman for that thoughtful response. I am not sure that the default position will be that someone is defaulted into an annuity. We need clarity on that as we discuss these clauses. I think that a choice will have to be exercised one way or another, but I might be wrong. Perhaps the Minister will provide clarity on that.

The Minister, as ever, will provide clarity, and I will ensure that he has plenty of time to do so.

We need to look at these changes in the round and consider other changes being made, particularly the individual savings account legislation that is going through. In the longer term, I think that ISAs and pensions will be linked and that we will move towards the individual retirement accounts we see in America, but working more from the base of an ISA up to a pension, rather than a merging of the two or a dumbing down of pensions.

An earlier intervention referred to spouse-to-spouse transfers on ISAs, which I think are particularly relevant in relation to new clause 13 and defined contribution pensions, because some people will be taking larger sums of money out and investing them directly into an ISA with little awareness that it cannot then be transferred to their spouse. The earlier the Government look at making spouse-to-spouse transfers exempt for inheritance tax, the better, particularly during this early transition period. The Sunday Times and a number of other financial services campaigners are urging the Government to look at the issue of spouse-to-spouse transfer, but I have not heard it mentioned with regard to the release of lump sums and defined contribution lump sums. Through new clause 13 the Government are recognising that there are transitional issues, but the additional transitional issue relating to ISAs has not necessarily been covered.

I welcome the reduction from £20,000 to £12,000, which entrusts individuals to make decisions. Changes to trivial contributions are also very welcome, particularly as people move from employer to employer, building up large numbers of very small pots. It may not make financial sense to merge them, so it may be better to take them out of a pension tax wrapper and independently move them to an ISA.

On the issue of guidance, we should be open and honest that the Government cannot afford to provide full-blown advice and recommendation. It is very good of the Government to allocate a significant sum of money to pointing people in the right direction. If the average pot is £30,000, as we have heard, the thousands of pounds that full-blown advice and recommendation may cost would be totally disproportionate to the potential benefit.

It is good to get guidance, but I would exercise caution about what is best: face-to-face guidance is not always the best option. If I wanted to transfer money or enact a financial transaction, I would not want to sit down face to face with my bank manager. I would much prefer the tried and tested method of interacting with and getting advice and guidance through the internet, at least at an early stage. I would not want the Government spending all the money on face-to-face guidance. Guidance on the internet may well be better for an increasing number of people, including a mini fact find into which they put their basic information.

The change may be from face-to-face to face-to-faces. Financial services presentations can work face to face, but they can also work over the internet. Once people have completed an initial fact find or an overview of their financial position—they may want to use their lump sum to repay debt, for instance—they could be diverted to an individual webcast with the relevant financial guidance.

I thank the hon. Gentleman, who is speaking from his experience of the sector, for giving way again. Would he care to comment on why the existing annuities market was not working? My understanding of the analysis is that the default position of individuals was simply to accept what they were offered and not to get involved in the type of process to which he refers. If that means that the annuities market was a failure because people were not getting value for money as a result of not shopping around, what confidence does he have that there will be an overnight revolution in people’s engagement with the type of guidance he suggests?

The annuities market was not working effectively in a number of ways, but, in relation to the lump sum, it did not work for a lot of our constituents if they rationally expected a very low life expectancy. If they had been diagnosed with a particular illness, the question of what would happen to their money would cause them great stress. It is important, therefore, to enable them to release some of that pension money and put it into another instrument so that their family can share it or, indeed, so that they can enjoy it themselves in their final years. I understand there is a risk of people under-predicting their longevity, but the large number of people with a diagnosed illness would like to access that pot. That is a slightly extreme position, but it is at the other end of the scale.

The hon. Gentleman is making a very good point about encouraging people to shop around, but is he aware that many parts of these islands do not have very good internet access, so putting all the eggs in that basket will not help many people who want pensions advice?

I agree that we should not put all the eggs in one basket, but we certainly should not put none in the internet basket. It is a very useful provision and, as public and domestic access to broadband improves throughout the islands, I think that use of the internet will speed things up.

I find it odd that so much of our discussion about this Finance Bill, which is a Treasury matter, has been about pensions Bills. The hon. Member for Kilmarnock and Loudoun has prayed in aid the Pensions Minister’s submission to the Department for Work and Pensions. I wonder whether we conduct our debates on Finance Bills in the right way, structurally speaking, and whether other departmental Ministers should be involved, where relevant, alongside Treasury Ministers. Fundamentally, the report supported by Opposition Members almost amounts to a fundamental review of a number of issues in the pensions industry, which is clearly in the remit of the DWP, not the Treasury. I am not arguing that it is wrong or right; it is just that not all the key players are involved.

I have some sympathy with what the hon. Gentleman is saying about the fact that these pensions provisions are being handled by the Treasury. Does he agree that the two pensions Bills announced in the Queen’s speech appear to pull in different directions? One is about giving people more control over their money, while the other is about collective direct contribution schemes, which are the opposite of that. That could lead to a conflict, because two Departments are involved in developing the policy.

I do not believe they are contradictory, because some people want to hand over that level of responsibility.

I know that other Members want to speak. I wanted to make a number of other points, but I will sit down and leave it at that in order to give the Minister a chance to respond.

Let me quickly try to address some of the points that have been raised, many of which related to guidance. As I said earlier, the issue features in Labour’s new clause 9, but it is not directly related to the Finance Bill. I will be as helpful as I can. On the question of whether guidance will only be face to face, the face-to-face offer will be available to those who need and want it. However, that is not to say that it will be the exclusive delivery channel. Not everyone will want face-to-face guidance, as my hon. Friend the Member for Rochford and Southend East (James Duddridge) has made clear. For many people, both now and in the future, other channels will better suit their needs. We are currently considering the appropriate range of options for delivery channels, to ensure that consumer needs are properly understood and met, building on the views and evidence received during the consultation. We have asked the Financial Conduct Authority, working closely with the Pensions Regulator, the Pensions Advisory Service, the Money Advice Service and consumer groups, to co-ordinate a set of clear and robust standards that the guidance will have to meet.

The point was made about costs and, in particular, the £20 million funding. It is important to realise that that is a development fund for the purpose of getting the initiative up and running; it is not to pay for the ongoing costs of the scheme. We will talk more about that later.

Does not that illustrate the need for gathering and publishing the information, as proposed by our new clause 9? We are constantly hearing new things, such as, “There will be more costs for guidance, but we don’t know what they are or what will happen.” If the information is going to be gathered anyway, as the Exchequer Secretary constantly assures us, why not publish it to make sure we get this right?

I do not know whether the hon. Lady was present earlier—[Interruption.] I am pleased that she was. She will have heard me say that we have consulted on this matter and will respond shortly. If I may provide a little more clarity, that will happen before the summer recess, so it is at that point that we will set out our proposals and, obviously, there will be an opportunity over the months ahead for the House to give them considerable scrutiny.

To address the particular point made by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) about whether the numbers in the tax information and impact note have been changed, the answer is no. The TIIN has been amended to take account of the Government new clause and new schedule, but the impacts remain the same, so there is no fiscal cost. I hope that that clarification is helpful.

Lastly, to be clear about the guidance—we will get the full details on it—as we have said throughout, it will be impartial and will not include recommendations for specific products or providers. It will not be a sales process; it is important that the sales process is separate.

I hope that that information is helpful to the House. I hope that new clause 13 can be added to the Bill, and I advise my hon. Friends to oppose the Opposition’s new clause 9.

Question put and agreed to.

New clause 13 accordingly read a Second time, and added to the Bill.

I beg to move, That the clause be read a Second time.

New clause 10 takes us back to 2010 and the heady first few months of this Government. It takes us back to a time when the coalition, having inherited a growing economy from the Labour Government, choked that recovery off by adopting an anti-growth, short-termist, short-sighted approach to supporting business and jobs. As hon. Members will be aware, one of the Chancellor’s first moves in government was to announce in the June 2010 Budget that he was cutting Labour’s annual investment allowance. The new clause asks the Government to undertake a proper review of the impact on business investment of that terrible decision. We need to learn the lessons from that dreadful mistake.

Before we consider the new clause in more detail I want to remind hon. Members of the background to this important issue. The annual investment allowance was announced as part of the 2007 Budget by the former Chancellor of the Exchequer, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown). It was introduced as part of a package of reforms to enhance Britain’s international competitiveness, encourage investment and promote innovation and growth. The new allowance replaced first-year capital allowances and meant that from April 2008, under the Labour Government, businesses were able to offset up to 100% of expenditure on general plant and machinery in any given year against taxable profits, up to a limit of £50,000.

We recognised the value of this important allowance to companies up and down the country in supporting them to invest for the long term, and in helping them to create and safeguard jobs. That is why Labour took the decision to double it as part of a series of measures announced in the March 2010 Budget—in order to

“support start-ups and small and medium sized enterprises…to position the UK as a leading centre for research and innovation, and to ensure that the UK is equipped with skills for growth and the infrastructure it needs to be successful in a low-carbon economy.”

The March 2010 Red Book stated:

“In order to provide further cash flow support and an incentive to increase business investment, the Government will increase the threshold of the AIA to £100,000 for expenditure incurred from April 2010.”

That announcement was hugely welcome to businesses up and down the country.

Will the hon. Lady say what the allowance is today—is it £100,000 or has it gone up?

We are still at 2010; we will get to the present day in due course, but the hon. Gentleman seems to miss the point somewhat. Obviously, the Conservative party would like to airbrush out the unpleasant blip in 2010, when it almost abolished the investment allowance, and all the impacts that flowed from that, which were evident from the fall in business investment. That is the point that our new clause reinforces. The decision taken at that time was terrible. I do not know what the thinking was behind it—whether it had been planned for a long time by the Conservatives while they were in opposition, or whether it was simply a case of spitefully thinking, “It’s a Labour policy, so we will reverse it”—but it had catastrophic implications. As the hon. Gentleman’s question indicates, they had to think again.

I am sure that my hon. Friend, like me, welcomes the Government’s conversion and the way in which they have changed their policy. However, it is reasonable for us to question why the original decision was taken.

We can only speculate on what on earth was going through the Chancellor’s mind when he slashed an incentive that was clearly supporting those businesses in the very manufacturing industries that he claims to champion in making long-term investments, and creating and safeguarding the jobs that we need so desperately.

This policy was part of a package that included a significant reduction in corporation tax rates, which more than offset any impact on investment from the changes to the annual investment allowance. The Labour party has made it clear that it would increase corporation tax. This week, it has set out its test, which is to have the lowest corporation tax rate in the G7. That would enable a future Labour Government to increase corporation tax to 26%. Will she rule out a Labour Government increasing corporation tax to 26%?

Once again, Conservative Members, and indeed the Minister, want to brush over this inconvenient part of their so-called plan. They clearly made a bad decision in 2010. The purpose of the new clause is to show that. If the reduction in the annual investment allowance was offset by the reduction in corporation tax, as the Minister argues, why did they revisit the decision and increase the allowance again? That would not have been necessary if their only plan for supporting business up and down the country, which was to reduce corporation tax, had been successful. We supported that plan, but it was not enough on its own to offset the damaging uncertainty created by slashing the annual investment allowance from £100,000 to £25,000 in one fell swoop.

Will the hon. Lady rule out an increase in corporation tax under the next Labour Government, should one ever be elected—yes or no?

We are not discussing that.

My hon. Friend makes a fair point: that is not what we are discussing. However, I am interested to know whether the hon. Gentleman will rule out slashing the annual investment allowance with no notice if the Conservatives are re-elected in 2015. Will he confirm that—yes or no?

I hate to disappoint the hon. Lady, but I am not part of the Government. It is not for me, a Back Bencher, to rule anything in or out. I am proud that the Government have set the annual investment allowance at £250,000 and have massively reduced corporation tax. That is really great for business.

The hon. Gentleman is obviously not able to rule in or rule out any slashing of the annual investment allowance, but we have had so much chopping and changing that there is major uncertainty over whether the Chancellor and other Conservative Ministers have a sensible approach to investment. It is as though they do not understand that chopping and changing—slashing the annual investment allowance from £100,000 to £25,000 and then increasing it again—is the worst approach if we are trying to encourage business investment in this country. That is the kind of uncertainty that we have seen under this Government. Although the hon. Gentleman cannot rule anything in or out, I am interested to hear whether the Minister will rule out any further chopping or changing on this policy.

I am in favour of capital allowances. I had an engineering company, and we believed that the Government should support successful engineering and manufacturing companies. Does the hon. Lady accept that a capital allowance of £50,000 on its own is not enough to encourage growth in the economy? Under the Labour Government, from 2007 onwards, GDP went down by 7% in the manufacturing sector, and probably by even more in some manufacturing sectors. I accept that we should have capital allowances, but they should be linked to other things. Does she agree with that?

That is very much the point that I was making and that we have made all along. We had a financial crisis in 2008, and the Labour Government did everything that could be done in those difficult times to support businesses in order to maintain investment levels, safeguard jobs and lay the foundations for the jobs of the future. That is why Labour decided to bring in the investment allowance, and then to double it in the Budget in March 2010. We knew that businesses needed certainty at that difficult time in the economic cycle to make investment decisions. That proved successful.

The U-turn by this Government was not quick enough. We called for it in every Finance Bill. Their eventual U-turn proved that the annual investment allowance was a successful policy, because they recognised that it needed to be reinstated. We have had these debates many times. We have supported the reductions in the corporation tax rate as part of a package of measures to support investment, jobs and growth. Unfortunately, the Government thought that corporation tax rates would do the job on their own. That is why they decided to slash the investment allowance, and to put all their eggs in one basket—the corporation tax basket. We have made it clear that we support a competitive rate within the G7 and the current rate, in order to provide the competitiveness that will create jobs and growth. The hon. Member for Burnley (Gordon Birtwistle) is right that that has to be part of a package of measures.

One key issue that businesses always raise is certainty. In chopping and changing this policy, the Government have undermined the certainty that is needed to give businesses the confidence to invest for the future.

Will the hon. Lady give way?

I will give way again, but I hope that it is in order for the Minister to confirm that the Tory party will rule out any further chopping and changing on the annual investment allowance.

Our plans on the annual investment allowance are clear: this is a temporary increase until December 2015. If the hon. Lady disagrees with that and has a different policy, I would be grateful to hear what it is. She talks about certainty. She has repeated the position that her party has taken this week, which is that this country should have the lowest corporation tax rate in the G7. The second lowest corporation tax rate in the G7 is 26.5% in Canada. That would allow a future Labour Government to increase corporation tax not just from 20% to 21%, but up to 26%. Is that the policy of the Labour party?

Order. As interesting as some Members might find the debate on corporation tax and the future policy, that is not the subject of the new clause that we are discussing. Although the subject is linked to the question of allowances, it is not the substantive point. I would be grateful if Members addressed their remarks mainly to the new clause. They may use supporting arguments, but they must not allow those supporting arguments to become the only things that are debated.

Thank you, Madam Deputy Speaker, for your sage guidance. I agree that the Minister appears to be diverting the discussion away from the issue of concern: the Government’s approach to the annual investment allowance, which is the subject of the new clause. It calls for a review of the impact of the Government’s decisions on the allowance. He seems very reluctant to address that issue.

Strictly on the annual investment allowance, is my hon. Friend not absolutely on the button when she says that the question under discussion is not corporation tax or anything of the kind, but rather the AIA and the strictly temporary nature of the Government’s increase and extension of it? Will the Government commit to extending the AIA beyond the election, or is this just another election ploy?

My hon. Friend raises an important point, and that is the first time we have heard a Government Minister confirm that this is a temporary measure. I think that reinforces the argument in the new clause, which is that we should analyse the impact of the various changes to the AIA, year on year—it has gone up, down and all around—on businesses and their investment decisions. Hopefully, that will inform any decisions on the allowance, whether by a future Conservative Government or, as is more likely, a future Labour Government.

The temporary nature of the investment allowance is clearly set out in a press release issued on 1 January 2013, and I am staggered that the hon. Lady says this is the first time she knew about it. The Labour party ought to brief itself better than that.

Well, it simply reinforces the impression—in fact, the reality—that the Government are perfectly well disposed to chopping and changing their policy and approach to the annual investment allowance. That is the point we are trying to make, and the point behind the new clause. The Government should stop and take a look. I have heard from businesses that they would rather have no investment allowance than have chopping and changing of the AIA, because that can be destabilising for investment decisions. They would rather have a more stable approach to policy making than that being displayed by the Government.

Returning to the history of the investment allowance, the previous Labour Government doubled it, recognising its importance to giving businesses confidence to invest for the future, and to be supported within the tax system to make such decisions. What happened after it was doubled? We know that, in his infinite wisdom, the Chancellor decided as part of his emergency Budget—or so he called it—in June 2010, to announce to great fanfare that the annual investment allowance would be cut. However, it would not just be cut. At a time when the economy was growing after the financial crisis, the Chancellor decided that the best way to secure the recovery and back British businesses and jobs was to slash the annual investment allowance to just £25,000 from April 2012, as in the Finance Act 2011. He sought to reassure us that the impact of that reduction from £100,000 to £25,000 would be limited because:

“Over 95% of businesses will continue to have all their qualifying plant and machinery expenditure fully covered by this relief.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]

In other words, the Chancellor believed in June 2010 that only 5% of firms were receiving any benefit from the annual investment allowance. HMRC’s tax information note at the time stated:

“Over 95 per cent of businesses are expected to be unaffected as any qualifying capital expenditure will be fully covered by the new level of AIA (£25,000).”

It went on to clarify that

“between 100,000 and 200,000 businesses will have annual capital expenditure of over £25,000”.

Therefore, in the Chancellor’s terms, only 5% of businesses would have been affected by his decision to slash the allowance. In anyone else’s terms, however, that is somewhere between 100,000 and 200,000 firms. That is a significant number of businesses that are employing—or potentially employing—a significant number of people, while also indirectly supporting employment through their supply chains. That seems to ring true of the Government’s approach because when they speak about being pro-business, they seem to forget the many businesses out there that do not fit the Tory vision of what businesses are, and it seems that those 100,000 or 200,000 firms did not feature on the Chancellor’s radar.

Let us remind ourselves briefly of some of the views expressed at the time about the decision the Chancellor took. The independent Institute for Fiscal Studies commented that losers from the cut

“would be those firms with capital intensive operations—with long lasting equipment and machinery—that currently benefit most from the capital allowances. While this is likely to apply to more firms in the manufacturing and transport sectors, it may also be true for some capital intensive service sector firms.”

A senior economist at the manufacturers association, the Engineering Employers Federation, said that financing cuts to corporation tax by

“cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”

In evidence to the Treasury Committee on the June 2010 Budget, John Whiting, then tax policy director at the Chartered Institute of Taxation and now director of the Office of Tax Simplification, expressed his concern that the measure would particularly hit medium-sized firms.

The June 2010 Budget cut the annual investment allowance to £25,000 from April 2012 on the grounds that, in the Chancellor’s view, only 5% of firms would be affected. We then had two autumn statements and two Budgets, at which we put these arguments to the Government, before the Chancellor announced in the autumn statement 2012, again to great fanfare, that he would “temporarily” increase the AIA—the one he had just cut to £25,000—to £250,000 from January 2013.

What happened to business investment between the June 2010 Budget and the 2012 autumn statement that drove the Chancellor to move from feeling perfectly comfortable in slashing the annual investment allowance, because more than 95% of businesses would be unaffected, to announcing in 2012 a significant increase in the AIA to £250,000? Let us cast our minds back to what the Chancellor said when he announced that decision in autumn 2012. He said he was increasing the annual investment allowance because:

“It is a huge boost to all those who run a business and who aspire to grow, expand and create jobs.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]

What exactly does that say about the Chancellor’s cavalier approach back in 2010? Surely the complete opposite—[Interruption.] I see Government Members rolling their eyes, but unfortunately they need to face the truth.

The hon. Lady is right—I should not roll my eyes; I should get up and engage in debate. We know about the note left by the right hon. Member for Birmingham, Hodge Hill (Mr Byrne): “There is no money left”. Since then, the Office for National Statistics has confirmed that the recession was even deeper than expected. The Government made choices at the time, and there was a clear intention to start to reduce the rate of corporation tax in the grand fiscal regime. Nevertheless, there has certainly been a successful demonstration of industrial strategy, and many more millions of jobs are now being created. It is right that we put our backing behind reinvestment in capital allowances.

It is a little desperate to try to justify what is proven to have been a flawed decision-making process back in 2010. By the Chancellor’s own accounts, the measure was a huge blow to all those businesses that aspire to grow, invest for the long term and create jobs.

Does my hon. Friend agree that it seems odd to suggest that the chopping and changing was due to a sudden discovery that the economy was improving? The decision, in effect, to reintroduce the allowance was taken in 2012, when growth was extremely low. It would appear from these plans that, having declared an intention to increase the allowance briefly to £500,000 for one year only, it could drop down to £25,000 in January 2016. What kind of investment planning are companies able to do on that basis?

As ever, my hon. Friend makes an insightful intervention and raises the key question. The Government need to take a step back and look at the impact their decision-making is having on businesses and their ability to make the long-term decisions necessary to secure the jobs, economic growth and the rebalancing of the economy that we all wish to see.

The Chancellor and his Treasury Ministers cannot have it both ways: either the annual investment allowance supports growth and the creation of jobs or it does not. Labour welcomed the decision to increase the allowance from January 2013 to £250,000, because we know it is important to support business growth and to foster long-term investment. However, we are concerned—this is why we have tabled new clause 10—about the Chancellor’s erratic and, frankly, bizarre approach to this important issue. Slashing the allowance from £100,000 to £25,000 and then announcing that they would temporarily increase it to £250,000, all in the space of just two and a half years, does not, and did not, inspire confidence in the Government’s long-term approach and strategy for supporting growth and investment.

As I said, I fully support any funding that goes into capital allowances, but we have to remember that in 2010 companies were not making much profit. They were mainly on their knees from the recession that had been created previously. Companies can only set their allowance against profit, so if they are not making a profit there is no allowance to claim. The Inland Revenue was probably right to say that only 5% of companies were taking it up, because we were coming out of recession. A lot more companies are now busy working hard and making a profit, so the capital allowance is more beneficial to them as they are getting it back against the tax that they are paying now that they were not paying in 2010.

I know the hon. Gentleman’s interest in this issue is sincere. The Treasury may or may not have been right in its assessment that only 5% of businesses would be affected, but that is still 100,000 to 200,000 businesses—not to mention the supply chain. The new clause seeks an assessment of the impact of the decision taken at the time. How much of an impact did it have?

The hon. Gentleman says that, as we come out of recession, some businesses will be making more profit and will therefore be able to make more use of the annual investment allowance. That was exactly the point of bringing in the allowance in 2010. We had been through a global financial crisis and we knew that many businesses would be very uneasy about making the sort of long-term financial investments, on which they would not see a return immediately, that are necessary to create jobs. The intention of introducing and doubling the allowance in 2010 was to give businesses the confidence to invest. We know that it was welcomed by business at the time and we know that this Government’s decision to slash it to £25,000 was abhorrent to many businesses, particularly in the manufacturing sector. They needed the support and confidence to make the investments that we need to start seeing the benefits of now.

The hon. Lady is being very generous. Does she accept that if a company is not making a profit, it will not have the capital resources to purchase the assets against which they can get the capital allowance? What is the point of the Chancellor making it available if companies, which are coming out of recession and really struggling with cash flow, will not be able to find the cash to buy the assets to claim the allowance against? Surely it is better saving it until companies are beginning to make cash profits. They can then buy the assets to improve the profitability of the company and claim the asset back.

I think the hon. Gentleman is rather confused. The purpose of the allowance is to enable companies to invest and to take advantage of tax support. If they are not able to take advantage of the annual investment allowance, there is no cost to the taxpayer, so why chop and change the regime and create uncertainty? Businesses need, from one year to the next, to be able to project and say, “This year we cannot afford to make an investment, but next year we can afford to invest so much in plant and machinery and we will be able to offset so much of that against tax.” The Government, however, have been chopping and changing the allowance. Companies cannot make long-term investment decisions from one year to the next without knowing exactly what their tax position will be.

The hon. Gentleman is actually making a very good argument for new clause 10 and I will be very surprised if he does not support us in the Lobby this afternoon. He speculates on companies that may or may not be able to invest and take advantage of the annual investment allowance. Our new clause asks the Government to undertake a proper review of the impact of slashing the annual investment allowance and then increasing it on a temporary basis. Many businesses have said to me—I am sure they have said it to the hon. Gentleman—that it is that uncertainty that creates the difficult environment for businesses to invest. They do not know, from one year to the next, what any tax allowance might be. We want to get to the bottom of that, so the mistakes the Chancellor made in 2010 will not be repeated.

Andrew Gotch of the Chartered Institute of Taxation commented on the increase announced at the 2012 autumn statement:

“This is a very generous increase that will be warmly welcomed by many small businesses...However, we note that it is only a temporary increase. Business would really welcome some stability in this area. In recent years, the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back to £25,000. Businesses like certainty above everything and the chopping and changing of the AIA has been a problem”.

Hon. Members do not need to take it from me, but from a whole range of sources who have raised this as a concern. The Institute of Chartered Accountants in England and Wales welcomed the increase to the allowance, but said:

“We are less enthusiastic about the frequency of the change to this amount.”

Let me be clear, the Opposition welcomed the 2013 increase in the annual investment allowance to £250,000, but we share the very serious concerns about the extremely complex manner in which that was implemented. As hon. Members may be aware, many organisations and individual businesses raised concerns that the increase to £250,000 would run from January 2013 to January 2015, rather than over companies’ usual accounting periods, making it problematic for firms, particularly small ones, to administer. Indeed, as the Association of Taxation Technicians neatly put it at the time,

“the chopping and changing of capital allowances will lead to error, confusion and higher professional costs for small businesses.”

The Opposition also welcomed the Chancellor’s announcement in Budget 2014 to extend the period of the temporary increase to 31 December 2015, with the allowance being temporarily increased again to £500,000 from April 2014. The straight fact, however, is that the Chancellor and his Government have tied themselves in knots over this vital issue. Just last year, when we considered in Committee what is now the Finance Act 2013, the then Economic Secretary to the Treasury, the Secretary of State for Culture, Media and Sport, the right hon. Member for Bromsgrove (Sajid Javid), explained why the increase in the allowance to £250,000 from January 2013 would be a temporary measure only. He said:

“We recognise that the change follows quite soon after the decrease in the annual investment allowance to £25,000 that was announced in the June 2010 Budget and implemented in the Finance Act 2011, which took effect from April 2012. The Government’s central position has not changed and remains that, in general, a lower corporation tax rate with fewer reliefs and fewer allowances will provide the best incentives for business investment, with the fewest possible distortions. That is why we have announced a further reduction in the main rate of corporation tax, as we discussed earlier, from April 2015 and is also why the current 10-fold increase in the maximum annual investment allowance is time limited rather than permanent.”––[Official Report, Finance Public Bill Committee, 16 May 2013; c. 145.]

A matter of months later, at Budget 2014, the Chancellor decided to about-turn once again, and extended and temporarily increased the annual investment allowance further—before, presumably, he intended it to return to £25,000 from 1 January 2016. As the Chartered Institute of Taxation put it so well, the one thing businesses need most, particularly in challenging economic times, is certainty. They need long-term stability and predictability to give them the confidence to invest, to make plans for the future and to take on more staff. What they have got from this Government, however, is a continual chopping and changing, with U-turn after U-turn and what seems to be a complete lack of strategic thinking.

What we need to hear from the Minister today is confirmation that the Treasury and his Government have taken seriously the impact of their decisions on business confidence, investment and jobs. We need to know that they have learned from the Chancellor’s mistake back in 2010, and that they will properly review its impact to ensure that the same mistake is not made again.

What assessment has the Minister made of the number of businesses that were not able to grow after the annual investment allowance was slashed? How many jobs could have been created during the last three years of flatlining growth while we have undergone the slowest recovery for 100 years? How many households could have been better off as a consequence, but will find themselves worse off in 2015 than they were back in 2010? Let us not forget that in 2010, back when the Chancellor was slashing the annual investment allowance, he said that the economy would have grown by 9.25% by now. Instead, it has grown by just 4.6%—far slower than in the United States or Germany. Indeed, GDP growth this year is still expected to be lower than the Office for Budget Responsibility forecast in 2010.

On Monday, my right hon. Friend the shadow Chancellor made an important speech about Labour’s approach to developing a business tax system that promotes long-term investment, supports enterprise and innovation and, most importantly, provides a stable and predictable policy framework for business, which is founded on fairness. Yesterday, my right hon. Friend, the Leader of the Opposition set out how a future Labour Government will mend Britain’s fractured economy and develop a genuinely long-term approach to backing growth in every part of this country to ensure rising prosperity for all.

It is this long-term approach to growth and backing Britain’s business and jobs that has been so lacking from this Government, and nothing illustrates it better than their shambolic and chaotic approach to the annual investment allowance since 2010. For that reason, I urge hon. and right hon. Members to back new clause 10 this afternoon, to ensure that the Government understand the impact of the Chancellor’s dreadful decision making back in 2010, and that they do not make the same mistakes ever again.

This new clause highlights two problems relating to its proposers and their party. The first is that they are stuck in the past. They have talked about the past and completely failed to set out their case for the future and the kind of Britain they would like to create. They just want to talk about something that happened previously. This is another one of the instrumentalised nuggets of attack, policy and press strategies referred to by Labour’s head of policy.

Let me correct the hon. Gentleman. He seems not to have been paying attention to my final comments, which were very much about Labour’s strategy for boosting economic growth and sustaining long-term economic stability for the future. The purpose of new clause 10 is to reflect back on past mistakes, of which we believe the Government need to take account.

Let us be clear what we are talking about. Labour and the hon. Lady want to spend two hours of the time available to debate this Bill talking about a period of nine months that happened nearly two years ago. In 2008, Labour introduced the annual investment allowance—an interesting point to which I shall return. It was set first at £50,000; then raised to £100,000; in April 2012, it was reduced to £25,000, which lasted nine months until January 2013, when it went up to £250,000—a far greater amount than under the legacy left by Labour.

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Let me develop my point, and I shall give way again in a few moments.

It is important and instructive that this Government have incentivised investment. What the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) did not develop during the debate is what underpins the whole issue of investment allowances and capital allowances. Why we need capital allowances takes us to the whole issue of business investment. The challenge we all face, and have done for a very long time, is the rising corporate cash balances—about £750 billion—and the desire of us all to see that money spent.

Let us look at the Government’s policy in this area. They initially announced a reduction to £25,000 from April 2012. The hon. Lady’s first argument was that that created some form of uncertainty. The traditional argument goes, “We need to give businesses time to plan ahead; otherwise, we create uncertainty.” Well, the reduction was part of the June 2010 Budget, and it was about two years after the policy was announced before it came into effect, so I do not think that the certainty argument succeeds. The Government increased the amount substantially after only a short period of time, highlighting their concern to ensure investment.

The second problem I have with the hon. Lady’s case is that it is high risk to consider a policy on setting an investment allowance or a capital allowance on its own, as the Minister argued in an intervention. It is instructive that when Labour introduced the investment allowance, they funded the initial £50,000 by reducing general capital allowances from 25% to 20%. All policies need to be seen in a package taken together; they cannot properly be considered and debated unless the other pieces in the jigsaw are taken into account.

That argument is fine as far as it goes, but in the space of seven years, we went from the abolition of the industrial buildings allowance to having an annual investment allowance of £100,000, which was then reduced to £25,000 followed by the very welcome increase to £250,000 for two years—and then there was another change. Of course making that many changes in such a short period of time is going to have an impact on planning for investment. Surely the hon. Gentleman can understand that.

The hon. Gentleman reinforces my point, which is that under Labour there were substantial reductions and changes to capital allowances that were part of the 2008 package. As I said, the main rate of capital allowances was reduced from 25% to 20%, followed by the creation of what was effectively the old first-year allowance—initially at £50,000. A number of other changes went on in parallel, including the phased withdrawal of the industrial and agricultural buildings allowances—IBA and ABA. We need to look at all policies in context and think about what else was going on, and that includes the changes that the Government announced in the Budget of June 2010. No policy can be viewed in a vacuum.

I am very pleased to be able to contribute to a debate whose purpose we seem to lose sight of from time to time. The purpose of the new clause is to review the reforms of the annual investment allowance that have taken place since the Government came to power, and to see what lessons—in very simple terms—can be learnt from them. I do not see why the hon. Member for Redcar (Ian Swales) should not see fit to join us in the Lobby when we vote on the new clause, as I understand we shall do in due course.

No doubt the Exchequer Secretary will recall our Committee discussions in 2010, which were mentioned by the hon. Member for Dover (Charlie Elphicke). In 2010 we were discussing measures to be introduced in 2012, and while we considered that to be an appropriate period in which the Government could introduce the changes that they wanted to make, we strongly opposed those changes. I think that we were sensible to do so, and I think that we have been proved right.

It has proved to be a long road to Damascus for the Government. Many arguments can be made for a broadly neutral approach to taxation matters, and I believe that that is a long-standing aim of the Treasury. Indeed, we were very much on that tack ourselves when we came to office. However, the realities of government, and the realities of the Government’s own Budget of 2010, should have informed them that they could not be so purist in their theory as to ignore the fact that, during the five or so years to which the Budget looked ahead, they would require a massive increase in investment in order to sustain the increased levels of growth that they wanted and the whole country needed, and that to secure that increased investment it would be necessary, in turn, to generate a massive, unprecedented level of exports. We made that case ourselves, but it did not carry the day.

I believe that it was the then Exchequer Secretary who said, “We do not really see what is wrong with companies just investing their depreciation levels.” I pointed out to him that that would barely replace the assets in real terms, and that it was not the way in which to generate an increase in growth, far less the increase in productivity on which the exports could be based. Heaven knows, we need the productivity now more than ever, given that sterling is relatively high. In certain markets we are up against considerable competitive pressures, which we can only fight with real productivity, which is dependent on investment.

We made the case for some element of discrimination in relation to investment, and that remains the Labour party’s preference. While, as the hon. Member for Dover said, there may have been—and may still be, for all we know—massive cash hoards among the bigger companies in the economy, much of the investment that we need must come from the small and medium-sized enterprises, which I do not think are so rich in cash, especially the small-company element. Although the relatively small sum of £100,000 was not to be sneezed at, we welcome the Government’s conversion to £500,000. Why that is to last only until the election I cannot imagine, unless it is due to some very short-term electoral consideration on the Government’s part, which I do not think is realistic even in my wildest dreams. I am slightly reminded—although I must not digress—of our recent debate on the Office for Budget Responsibility, when, for purely party-political reasons, the Government refused to extend the OBR’s remit to an audit.

Be that as it may, we are discussing something else now, namely the fact that the Government will not tell us whether they will maintain the same level of AIA beyond the election—which ought to be possible—and for how long it could be maintained beyond the election. After all, the Government have plans. They have a forward look, and in that forward look must feature the proposed level of AIA. They might have to disentangle it from the accounts in due course, but a simple statement from the Exchequer Secretary would set a lot of minds at rest, and provide the element of forward certainty that is so important to small and medium-sized companies, whose investment programmes often run over several years. Smaller companies in particular may not be able to afford a massive investment all at once. As I am sure we shall hear later from the hon. Member for Dundee East (Stewart Hosie), one advantage of the annual investment allowance relates to the setting off of past losses against future profits, and there are other instances in which they can be most helpful. I will not go into them, however, because I know that the hon. Gentleman wants to do so.

Let me return to the question of why the Government’s approach is still so short-term. I must tell my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) that my only reservation about the review is that the Government have chopped and changed so much, so quickly and, in fact, so excessively over the past four years that I wonder whether anyone would get any meaningful information out of it. I fear not. However, we should be happy about the Government’s apparent damascene conversion. At least they have come round to the idea of annual investment allowances in principle, particularly for smaller companies.

Will the hon. Gentleman give way?

I will in a moment.

We may well see some element of discrimination in favour of smaller companies in the pattern. We do not want too much discrimination, because it could lead to complication, but I nevertheless feel that the Government should be thinking along those lines, which they probably are. No doubt the Exchequer Secretary will tell us when he winds up the debate. However, at present we have a short-term view of what is essentially a long-term problem. It is not that the level of investment has fallen under this Government or the last Government, or that manufacturing has declined under this Government as a proportion of GDP—which it probably has not, because GDP has still not reached the level at which it stood back in 2007. Generally speaking, however, manufacturing has been on a long-term slide, arguably since 1870 and certainly from the 1960s onwards, irrespective of which party has been in power.

Will the hon. Gentleman give way?

I will come to the hon. Gentleman, if he will just be patient.

Inherent in the problem is the disinclination of the British economy as a whole to invest. Germany can be taken as a paragon of virtue in this respect. The Germans save more than us, and they generally invest more. They have better plant and equipment and higher productivity. They invest more in plant and equipment, but also in industrial relations. Their industrial work force is better equipped technically, from the top to the bottom, and better equipped physically with modern plant and machinery and computers.

Why is that? No one knows. There is a deep-lying cultural factor. However, it seems to me that if we are to offset it, the more we can afford to encourage investment the better, as long as that is intelligently done. I think that the dangers of misapplication can be much exaggerated, and that the loss of potential output through increased productivity can be underestimated.

If the hon. Member for Redcar still wants me to give way to him, I will do so.

I have enormous respect for the hon. Gentleman’s experience in this regard. He has spoken of the importance of long-term certainty. I struggled in vain to find in the major speech made by his leader yesterday any mention of this issue, or indeed any mention of manufacturing. I wonder what he is saying to businesses that may be concerned about the potential for a future Labour Government.

I wish I had not given way, because when I do we always get into this tiresome point. The Government seek to find refuge by going back nearly five years. The Minister has been at the Treasury for four and a half years now, and his party has been in government for that long. They own the situation now, although I know they do not want to, as all they want to do is airbrush the last four and a half years out of existence—they did that again today—and concentrate on where they are now as if they took power just six months ago. When we are having a narrow debate on the question of our having a review of a particular failed policy of the Government that is relevant to this issue, the hon. Gentleman wants to bring in the whole of Labour party policy. That is tiresome and irrelevant and a waste of this House’s time. I am sure that when the Minister replies to the debate, he will not get into that.

We are discussing a very important point. If there is genuine change introducing some element of discrimination in favour of investment for the reasons I have given, we will welcome that. Indeed, we welcome the commitment on £250,000 and £500,000. We will welcome it doubly if the Minister will extend that commitment beyond the election, to put it bluntly to him. I do not know what our policy on that will be—or whether we will go into such detail in the manifesto—but I will certainly support such a proposal, both in principle now and as party policy if it finds such favour. The Government, however, can do something about this now. Will the Minister tell us whether there is a change of policy and a change of principle on their part? If so, why will they not maintain the amount of the allowance and achieve the levels of investment, productivity and exports on which our future depends?

As a business man, I had an engineering company that required a lot of investment. We had to invest heavily to ensure that we were competitive in the markets of the late 1990s and early 2000s. To me, the most important things for investment are confidence and cash. If companies have the confidence to invest, and the cash to invest from the profits they are making, they will invest. The capital allowances that the Government allow them to have against their profits is very helpful and it does persuade—it persuaded me on a number of occasions to buy some very expensive computer-controlled engineering machines. But when there is no confidence and when there is very little cash around, not many companies think about how much capital allowance they will get if they invest.

The country was in a mess in 2007. There was a reduction of over 7% in GDP in 2007-08, so nobody was confident enough to take the step to invest. The confidence had to be put back into the industries to persuade managing directors to invest. We know that billions of pounds were stored in banks waiting to be invested, but the confidence was not there to invest.

If Members look at Hansard, they will see that the Chancellor complimented me for putting pressure on him to bring back capital allowances, and my hon. Friend the Minister will remember the meetings I had when I was the Parliamentary Private Secretary to the Chief Secretary to the Treasury. At every meeting we had I was constantly on to him about the need to try to give confidence to companies, to persuade them to invest in the future of manufacturing in the UK. The answer came back, “There is no confidence at the moment, but we hope there will be soon, but we have all this money stashed away in banks, which is moderately safe.” It was not totally safe, because the banks were not out of the mess they were in, but companies felt it was safer there, rather than invested in capital plant in manufacturing industry.

Will the hon. Gentleman touch on why he objects to the proposal of my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell)? I have not heard any criticism or, indeed, any reference to it so far.

As I said to the shadow Minister, capital allowances are very close to my heart. I believe they are the way to go, but they have to be linked to other financial policies, which the Government have to put in place to work with them. Capital allowances on their own are no good. We must have other structures within the Government’s scheme of things to ensure companies have confidence. It is no good saying, “You can have a capital allowance against a new machine that you want to buy, but we are not prepared to give you the confidence to do that because we are going to increase our taxes so you aren’t going to make any money—so why would you really want to invest in the UK?” We need to create an environment whereby companies will say, “We’ll invest in the UK because the tax regime in the UK is good. We’ll invest in the UK because we feel that the training programmes in the UK will train our young people to do the jobs. We’ll invest in the UK because of the apprenticeship programme that is going ahead, and because we know we will have the future work force to deliver products that we will be able to sell around the world.”

The hon. Gentleman is right to say people will make investment decisions on a range of issues, but does he agree that stability is a very important component of that?

Absolutely: stability, confidence, cash, training programmes, and an economic strategy for the future are vital for companies to decide to invest.

I agree with, and certainly do not have any real objections to, the Opposition proposal, but it is not linked to anything. If the Labour party wants to put forward a new economic or industrial strategy that links to this, I would be the first to support it, but this is just one element of a major programme that needs to be put in place.

I pay tribute to my hon. Friend’s experience on this issue, and his campaigning, which lay at the heart of the increase to £250,000. Does he agree that tax allowances alone do not prevent investment, and in fact capital allowances are a time-shift—in other words, one still gets the tax allowance, but one just gets it later?

My hon. Friend is right. We must remember that claiming a capital allowance on a profit is time-lagged, because companies will have worked for a full year and will have produced products at, it is to be hoped, a profit, and it then takes a full year for the accountants to go through the profits, so that is two years from the start, and at the end of the second year the company knows from its audited accounts how much profit it has made and how much it can invest. This does not all happen on day one or even at the end of the trading year, because they do not know just how much can be offset against tax in respect of purchases using capital allowances.

My constituency has a high proportion of manufacturing, and unemployment has gone down from more than 10% to 4.7%. That is because we are manufacturers. We make things. We create the wealth for the country. One company in my constituency, Lupton and Place, was contemplating buying a new injection moulding machine—it makes aluminium castings for the automotive industry—and it thought about that for quite a long time. I had meetings with it to discuss various schemes that might assist it to do that, but no such scheme was available. However, as soon as we announced the new capital allowances, it immediately ordered the machine. It cost €400,000. It did not get the capital allowance against the whole lot, but it did get the capital allowance against £250,000, as the sum was at the time. Although there was some money that it did not get a capital allowance against, under our strategy it was able to write the rest of it off against depreciation of the machine over the next few years.

I accept the need for capital allowances, therefore, and I hope the Minister takes that back to the Chancellor, as I have done on many occasions, to ensure that companies keep investing in this country. However, the main factor before people invest in anything is confidence—confidence that the country is going forward, and that there is growth and companies can see profits coming. People are not going to invest anything in anything unless they get a return. Returns are important for shareholders, business owners and partners in business, and if there is not going to be a return on the investment, they are not going to invest. If the confidence to invest is there and the cash is there to support the purchase, either from their own resources or from banks to ensure that the investment is made, capital allowances will be a major player in the investments that take place. On their own, they are not enough; they need to go with an overall industrial strategy. I am pleased to say that I believe that is happening.

It is a pleasure to respond to this debate, and in particular to follow my hon. Friend the Member for Burnley (Gordon Birtwistle), who has been a great advocate for manufacturing industry over the years he has been in Parliament. He has provided a strong voice on the issue of capital allowances.

Labour’s new clause asks that the Chancellor review the impact on business investment of changes to the Capital Allowances Act 2001 made by the Finance Act 2011. The new clause is identical to the new clause 5 we opposed in Committee and we will be opposing this new clause for the same reasons. As set out in our corporate tax reform road map, the Government’s central objective is to secure a low corporation tax rate, with fewer reliefs and allowances. We remain of the view that that strategy provides the best incentives for business investment. As part of that approach we reduced the annual investment allowance to £25,000 a year in the Finance Act 2011, at the same time as we were setting out our plans to reduce corporation tax—we have extended those plans and as of next April our corporation tax rate will be 20%, the lowest in the G20.

The Minister is trying to set out the Government’s position, which he would assert is one of success. If their policies are really so effective, how does he explain the fact that we are living through the slowest economic recovery for more than 100 years?

If the hon. Gentleman wants to debate that, I am happy to do so. We faced a crisis in the eurozone and we had to deal with the impact of the financial crisis that occurred on the last Government’s watch. Clearly that had a considerable impact on the growth of the UK economy and the economies of other developed countries, but the reality is that our economy is now growing strongly, and we need to ensure that that continues to be the case. There are risks to a recovery, but if we are to compete and succeed, we need to ensure that we have a competitive tax system, the conditions for growth and credible fiscal plans, all of which this Government are delivering as part of our long-term economic plan.

The Minister has just asserted that the economy is growing strongly, but I am surprised by that. Will he help the House by comparing that “strong growth” with the growth that took place in the 1950s, 1960s, 1970s and even in the 1980s, at a time, before the regrettable election of Margaret Thatcher, when regulation was significantly greater than it is today and when trade unions were more numerous than they are now? How does this “strong growth” compare with what happened in the period I have just outlined?

It is a little difficult to compare a period in the 1980s before the election of Margaret Thatcher, given that she was elected in 1979. What I say to the hon. Gentleman is that we are forecast to have the fastest growth in the G7 this year. Clearly, Members on both sides of the House should welcome that, but we must not be complacent because we have further to go and we need to ensure that we stick to the plan to deliver that growth on a sustainable basis.

The Minister has said he has plans for low corporation tax, and fewer reliefs and allowances—I understand the strategy. He will be aware that the argument is that it helps to establish profitable businesses but is less helpful to growing, investing businesses. Even if he was right, that would rather argue against the Government increasing the annual investment allowance to £250,000. Therefore, is the report envisaged in the new clause not precisely what is required to identify whether that allowance is at the correct level?

I am grateful to the hon. Gentleman for returning me to the subject matter before us, and no doubt you are, too, Madam Deputy Speaker.

The Office for Budget Responsibility forecast in the June 2010 Budget stated that the cuts in the corporation tax rate would more than offset the reduction in investment allowances such that the

“cost of capital for new investment is lower for all non-financial companies, and the rate of return from the existing capital stock is higher”.

That very important point could easily be missed from this debate. However, we also recognise that in the current economic climate, businesses face particular challenges. Having got the corporation tax rate down significantly, making a temporary boost to support and encourage increased investment was both appropriate and desirable. That is why we introduced a temporary generous increase in the annual investment allowance at the 2013 Budget, and we have gone on to double its generosity a year later.

Would the Minister like corporation tax to come down below 20%, if possible? Is that ever envisaged?

My hon. Friend raises an interesting point, which I could spend some time discussing. Some challenges are involved in reducing corporation tax below 20% in terms of ensuring that such a tax cut is well focused in encouraging increased investment. He will be aware of some of the difficulties that occurred when the previous Government temporarily introduced a 0% corporation tax rate for smaller businesses; that resulted in quite a lot of tax-motivated incorporation. I will not detain the House for long on this point, so I will just say that some issues would need to be addressed in respect of that.

What would certainly be damaging would be to reverse the considerable progress we have made on reducing corporation tax. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) placed great emphasis on providing certainty for businesses, and I would agree on that, but what we have done in reducing the corporation tax rate from 28% to 21%, and then to 20% as of next April, has undoubtedly helped the UK’s competitiveness position. One could quote survey after survey demonstrating that the UK is now viewed much more favourably as a place in which to do business because of our corporate tax regime, and it would be damaging were we to reverse this. Labour is on the record as wanting to put corporation tax back up to 21%. That would be the first increase, as a revenue raiser, in corporation tax since the 1960s, and we have heard a significant hint this week that Labour may even increase it to 26%.

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I hope that is not the case and I am delighted to give Labour’s Front Bencher an opportunity to put an end to such suggestions.

Once again, the Minister is trying to change the subject from the annual investment allowance to corporation tax. Given that he acknowledges the importance of certainty in this area and that a reduction of the AIA back down to £25,000 is already on the horizon, does he accept that it would be beneficial for the Government, for Members of this House and for members of the public to have an assessment of the impact of that slashing to £25,000 in 2010, in order to inform the Government’s decision making in the future?

That is the fourth opportunity the hon. Lady has had to provide some reassurance to businesses and investors looking to the UK as a place in which to do business that a future Labour Government, should that misfortune occur, would not increase corporation tax to 26%. That is the fourth time she has ducked that opportunity. Corporation tax is linked very heavily with the annual investment allowance; they are not separate issues. If our debate is about ensuring that we have certainty for investment in the UK, it is a very salient point.

I am interested in the Minister’s comments. Will he comment on the fact that corporation tax in the United States is up to 35%? Furthermore, does he believe that businesses have a responsibility to contribute to public services and infrastructure investment in our country? If we enter into this arms race and continue to reduce corporation tax, we end up in a situation where we either put the burden of funding our public services and infrastructure investment on ordinary taxpayers, or are forced to make even deeper cuts than we have seen under this Government over the past four years.

As always, the hon. Gentleman’s questions are interesting and could take me in a number of directions. Let me just say this: it is important that the United Kingdom has a competitive tax system. It is the case that corporation tax will continue to play an important part in our tax system, and it is important that it is properly enforced. Indeed, the UK is leading the way on international reform to ensure that we have an international tax system that takes a contribution from companies. In the end, however, it is always individuals who pay tax—whether it is the shareholder, consumer or employee. All tax is paid by people even if the cheque is written by the company.

Let me return to the measures that we have set out. The Office for Budget Responsibility has said that the measure to extend the AIA is expected to bring forward another £1 billion of business investment in the short and medium term. Although the Government rightly keep all tax policy under review, there is limited merit in conducting an evaluation in the way that the amendment suggests, and there are also a number of obstacles that make it impossible. Her Majesty’s Revenue and Customs will not have the relevant data to conduct such an evaluation for another year, and as the hon. Member for Coventry North West (Mr Robinson) said, it would be extremely difficult to isolate the impact of this change from the other factors influencing business investment, and from subsequent changes, in the ex-post data.

An important point was made by my hon. Friend the Member for Burnley (Gordon Birtwistle), who said that a number of factors are involved in business investment, not least confidence. As my hon. Friend the Member for Dover (Charlie Elphicke) pointed out, the AIA has been set at various levels over this period; identifying a direct link between the level of AIA and business investment is extremely difficult.

The Minister is quite right to point out that there have been dramatic fluctuations in these types of allowances over a long period, but surely that emphasises the point about trying to get better at assessing their impact. If these allowances are a good thing at the moment, the Government might be well advised to consider bringing some stability to the system and committing to them over a slightly longer period.

The point I was making is that it was this Government who introduced a corporate tax road map in 2010. That road map has provided a great deal of certainty to businesses and set out our plans for corporation tax. Given that we have been able to make progress with corporation tax rates in the current circumstances, although businesses feel uncertain about the challenges that lie ahead, including the referendum in Scotland and the possibility that an anti-business Government might be elected at the next general election, it would be helpful to have an annual investment allowance in place.

The Minister seems to be completely obsessed with corporation tax. Whatever question is put to him about annual investment allowances, he responds with an answer on corporation tax. I wonder whether that reinforces our call for the Government to be forced to look at the issue of annual investment allowances—the chopping and changing of them, and the lack of certainty—so that they address AIA as a serious issue that concerns businesses up and down the country.

The hon. Lady does not seem to recognise that there is a link between the annual investment allowance and corporation tax; it is an allowance set off against corporation tax. The two are not separate subjects. Of course, if we are discussing certainty within our tax system, one has to look at the bigger picture, and this Government, through the corporate tax road map, have provided much greater certainty for businesses in this country. The biggest threat to the certainty of our tax system at the moment appears to be a Labour party that is at least considering increasing corporation tax to 26%, which would be a huge increase and deeply damaging for the UK’s competitiveness.

Let me return the Minister to the historical context. He keeps implying that a Labour Government would be anti-business, but I challenge him to compare the economic growth record of previous Labour Governments with that of this Conservative Government. I think he will find that the Labour record compares extremely favourably. The truth is that Labour Governments have invested in our economy; what we should be concerned with in this place is improving the living standards for the British people, and they have always achieved that.

We saw the economy shrink by 7% in a year or so under the Labour Government. That is not a record of which to be proud.

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I will give way one last time.

The Minister seems to imply that the worldwide downturn—the economic recession that was a consequence of the banking crash—was the responsibility of the previous Labour Government. It is a ludicrous assertion. Surely he will accept that there was an international banking crash that led to the economic difficulties with which the Labour Government were faced in 2007.

Let me summarise the hon. Gentleman’s position: when the economy grows under a Labour Government, the Labour Government get the credit, but when it shrinks under a Labour Government, that is to do with international factors. At least we know where he stands.

We have heard a lot of criticism of the reduction in the annual investment allowance, and I have attempted to try to put that in the context of what we have generally done within our tax system. The impression given by the hon. Member for Newcastle upon Tyne North at all times was that it was a disastrous decision that resulted in business investment being slashed. I do not accept that position at all, and I have made it clear, by putting this in the context of what we are doing with corporation tax, that we are encouraging investment.

Just this week, the Labour party set out its plans for business tax. As far as I am aware, nothing was said in those plans about the annual investment allowance, or about extending the increase to £500,000 beyond December 2015. We heard a lot about an allowance for corporate equity, but I do not think that I heard anything at all from the Opposition on this subject. If it is so important to them, why do they not have a policy in this area? Indeed, at one point, it seemed to come as a surprise to the hon. Member for Newcastle upon Tyne North that this was a temporary measure, although subsequently in her speech it became clear that she was aware of that. What is Labour’s position? If Labour Members feel so strongly about this issue and it is a priority for them, why have they said nothing on the subject? On that point, I urge the House to reject new clause 10 if it is put to a vote.

It is absolutely clear that the Government have tied themselves in knots over the annual investment allowance. They have tried at every turn during this debate to change the subject, and not to deal with the catastrophic decision taken in Budget 2010 to slash the investment allowance from £100,000 to £25,000. That was followed by a welcome U-turn that moved it back up to £250,000, and now they have promised to double it to £500,000. I accept that it is a temporary measure, but the point that I was trying to make, which the Minister seems to have missed, is that the very fact that it is a temporary measure perpetuates the uncertainty, and we know, because businesses have told us, that that uncertainty undermines their confidence to invest.

The hon. Member for Burnley (Gordon Birtwistle) made a speech that I know was sincere, as he is aware of the importance of the manufacturing industry and of certainty in the tax landscape, particularly regarding the annual investment allowance, in enabling businesses to make investment decisions, to invest in plant and machinery, and to expand to create jobs for the future. However, I might also say that he made a typical Liberal Democrat speech, in that he sat on the fence and would not acknowledge that the Government need to take stock of the impact on investment decisions of chopping and changing this policy.

rose—

I give way to another fence-sitting Liberal Democrat.

I thank the hon. Lady for giving way, and she will be pleased to know that I will not sit on the fence on this issue. Investment decisions about plant and machinery are one-off decisions, and the annual investment allowance is only needed once for each investment decision. What we need is certainty around a specific decision, not long-term certainty.

That flies in the face of the advice given by the EEF, the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales, which all feel that the Government’s chopping and changing on this policy has been damaging to investment. Someone might want to make a decision to invest this year, next year, or the year after, but obviously if they do not know what the Government’s policy will be in 12 or 24 months’ time, they might well not have that confidence and not take that decision. The hon. Member for Burnley acknowledged that, but the hon. Member for Redcar (Ian Swales) seems to be completely at odds with what industry has been saying.

The hon. Lady says that her concern is that business will not know where it stands on the annual investment allowance when making decisions, but, much more importantly, if a business does not know whether the corporation tax rate will be 20%, 21% or 26%, that will surely have a much bigger effect on investment in this country. Can she provide some clarity on that?

I agree that business needs certainty about taxation to make investment decisions, and that is why we have committed to maintaining one of the most competitive tax rates in the G7, but today’s theme seems to be that the Government wish to talk only about corporation tax, and to airbrush out their catastrophic mistakes with the annual investment allowance. The hon. Member for Dover (Charlie Elphicke) made a valiant speech, but I felt it was dreadfully misguided. He was in quite a bit of trouble trying to defend the Government’s record in this respect, but frankly the decision making has been erratic and completely indefensible.

I pay tribute to my hon. Friend the Member for Coventry North West (Mr Robinson), who made a very thoughtful and considered speech in which he set in the historical pre-2010 context some of the rationale behind the Government’s decision making in this regard, but he also highlighted the irrational aspects.

Does my hon. Friend want to reflect on the suggestion made earlier that it did not really matter to people whether the investment allowance was clear? Surely, when putting forward a formal business plan, people are not necessarily just working on a year-to-year basis; they want to know what, if things go on as they are, they could do in a year’s time, two years’ time, or three years’ time.

My hon. Friend makes an absolutely valid point. Businesses do not work in electoral cycles or annual tax return cycles; they plan for the future. Businesses have told us how unhappy they have been with the chopping and changing of this policy.

I am very surprised that the hon. Member for Redcar takes such a strong stance in supporting what has clearly been a disastrous Government policy. I would have thought he would have liked to distance himself from it, but he has obviously tied himself to this mast, and I am disappointed that he will not come through the Lobby with us. We will push our new clause to a vote, because we believe that the Government need to take stock and learn from their mistakes, and that this has been an absolute disaster of a policy, in terms of the Chancellor’s indecision.

Question put, That the clause be read a Second time.

On a point of order, Madam Deputy Speaker. Given that the Office for National Statistics has confirmed this afternoon that four fifths of new jobs have been created outside London, and given that the Leader of the Opposition may inadvertently have misled the House by saying that the number of people waiting more than four hours in A and E has risen by over 300% when this is not accurate, may I take your advice on how the Leader of the Opposition may be brought before the House to retract these inaccuracies and apologise?

No, the hon. Gentleman may not take my advice. It is not the position of the Chair to advise hon. Members, far less the Leader of the Opposition, on the content of their speeches, but the hon. Gentleman has put his facts on the record, and I am sure that they have been noted on both Front Benches.

Further to that point of order, Madam Deputy Speaker. Is there anything that you can do to stop these eager Front Benchers seeking Cabinet preferment in the forthcoming reshuffle from making spurious points of order, when what they should do with statistics is allow the Office for Budget Responsibility to audit these—

Order. The hon. Gentleman knows that that is not a point of order, nor could it be further to a point of order, as there was no point of order.

On a point of order, Madam Deputy Speaker. I made a point of order earlier today regarding a figure used yesterday by the hon. Member for Birmingham, Ladywood (Shabana Mahmood). The 2010 figure that I gave was correct, but I am now aware that the hon. Lady was using a figure derived on a new basis, so the comparison that I drew was incorrect. I felt that that should be put on the record.

I am grateful to the hon. Gentleman—[Interruption.] Order. I am grateful to the hon. Gentleman. That is a point of order. He has put the record straight, and the House is grateful to him.

On a point of order, Madam Deputy Speaker. Could you advise me, please, with reference to the inaccurate information that was given by the Prime Minister about waiting lists for A and E, and the fact that in 48 out of the past 52 weeks, A and E targets have been missed by this Government—

Order. I have already reminded the House that the content of Ministers’ speeches is not a matter for the Chair, and that is not a point of order.

New Clause 1

Oil contractor activities: ring-fence trade etc

‘Schedule (Oil contractors: ring-fence trade etc) contains provision about the corporation tax treatment of oil contractor activities.’—(Mr Gauke.)

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

With this it will be convenient to discuss the following:

Government new clause 2—Determination of beneficial entitlement for purposes of group relief.

Government new clause 3—General Block Exemption Regulation.

Government new clause 4—Co-operative societies etc.

Government new clause 5—Tax relief for theatrical production.

Government new clause 6—Exclusion of incentivised electricity or heat generation activities.

Government new schedule 1—Oil contractors: ring-fence trade etc.

Government new schedule 2—General Block Exemption Regulation.

Government new schedule 3—Taxation of co-operative societies etc.

Government new schedule 4—Tax relief for theatrical production.

Government amendments 42, 43, 5, 6, 1, 2, 4, 11 to 14, 7 to 10, 15 to 41, 3 and 44 to 66.

I will attempt to speak briefly to this long list of Government new clauses, new schedules and amendments, although I will respond later in the debate if any questions are raised.

New clause 1 and new schedule 1 make changes to provide a fair amount of taxation for activities carried out on the UK continental shelf in connection with the UK’s oil and gas resources. The Government are committed to maximising the benefits that the North sea can bring to the UK economy while ensuring that all companies benefiting from the UK’s natural resources, either directly or indirectly, pay their fair share of tax.

The UK is not currently receiving a fair amount of tax from companies that provide drilling rigs and accommodation vessels to the oil and gas industry. Many of those companies own their assets in lower tax jurisdictions overseas. Those assets are then leased to associated entities operating on the UK continental shelf through specialised leasing arrangements known as bareboat charters, giving rise to a large deductible leasing expense in the UK. That results in up to 90% of operating profit made in the UK being moved overseas.

This measure will cap the amount the UK base contractor can claim as a deductible expense for those leasing payments. It will ensure that companies pay a fair amount of tax for the activities they carry out in connection with the UK’s valuable natural resources.

New clause 2 makes changes to corporation tax group relief rules to remove an unintended restriction that has been identified in current anti-avoidance legislation. That legislation is well targeted and limits the opportunities for avoidance, for example through artificial groupings. However, the rules are triggered in limited circumstances where conditions are agreed or imposed on a group by the Government or a statutory body. That is clearly unintended.

The clause proposes a restricted amendment to section 169(2) of the Corporation Tax Act 2010 to exclude from the definition of “arrangements” situations where conditions are agreed or imposed by the Government. That will ensure that the anti-avoidance rules are more effectively targeted for the future and that companies involved in these specific commercial arrangements will have improved access to group relief. The amended rules will continue to ensure that they prevent manipulation of company control and group status and will continue to restrict access to group relief where appropriate. That will maintain the fairness and consistency of the tax system.

Government new clause 3 and amendments 42 and 43 make a number of changes to three capital allowances: enhanced capital allowances for zero-emission goods vehicles; enhanced capital allowances for enterprise zones; and business premises renovation allowances. All are state aids designed to comply with the general block exemption regulation. The existing regulation ended on 30 June and a new one took effect from 1 July. Although it is similar to its predecessor, the new regulation contains a number of differences that need to be reflected in those reliefs. The new clause and the amendments do that. Broadly, they ensure that various definitions found in those reliefs refer to the new general block exemption regulation.

In the case of enterprise zone allowances, it also excludes expenditure on energy generation, distribution or infrastructure, and broadband networks; restricts qualifying expenditure incurred by large companies in certain enterprise zones to new economic activities; and requires companies that make a production process more efficient to ensure that the qualifying expenditure exceeds by value at least three years’ depreciation of the machines being replaced.

New clause 4 and new schedule 3 make technical changes to the tax legislation applying to co-operative and community benefit societies, industrial and provident societies, European co-operative societies and credit unions to ensure that the definitions used in the legislation are clear, up to date and work as intended. There has been no policy change on the taxation of the various societies or the reliefs available to them, or indeed their members. There will be no effect on their tax position, but the changes we are making will ensure that the legislation is accurate and fully in accordance with the policy intention.

New clause 5 will introduce an additional corporate tax deduction and payable tax credit for theatre production costs. Production companies will be eligible for a payable tax credit worth up to 25% of qualifying expenditure for touring productions and 20% for all other productions. These provisions will be available from September for producers of a wide range of theatre and performance, supporting plays, musicals, dance, ballet, opera and circus.

I welcome this particular measure, because the very well known Buxton opera house is in my constituency of High Peak and it hosts lots of touring theatrical companies. Offering different types of performances to the area engages people in going to the theatre and promotes the local economy, so the measure’s benefits will be broader than we may have thought at first.

I am delighted to hear of the benefits that my hon. Friend’s constituency and the Buxton opera house will experience.

Circus is a performing art invented in the United Kingdom and it provides many children with their introduction to the performing arts and leads them to a love of theatre. May I therefore welcome my hon. Friend’s decision to include circuses in those areas covered by the tax relief in new clause 5? The travelling circus industry welcomes that decision, which is already leading directly to new investment in travelling circuses.

Again, I am delighted to hear that. My hon. Friend lobbied us and made representations on behalf of his constituents for the inclusion of circuses. As a consequence of the consultation process and listening to the points raised by my hon. Friend and others, I am delighted that circuses will benefit from this tax relief.

It is important to support this area, but would the Exchequer Secretary like to comment on the National Audit Office and Public Accounts Committee’s recent reports criticising the Government and Her Majesty’s Revenue and Customs for not properly monitoring the tax reliefs in this area?

The Government will respond formally to that, but I believe that well-designed, well-focused and targeted tax relief, which is what we have, can help the economy grow and help particular sectors. Indeed, I am delighted that two examples have just been provided to us. This Government have successfully lowered rates, including corporation tax, which we have debated this afternoon, and, if particular sectors can be supported by a well-targeted tax relief, we should do that. We believe that, overall, our tax system is working to enhance the UK’s competitiveness. This Government have a good record in the creative sector in particular, and I am delighted that, through new clause 5 and new schedule 4, that will continue.

New clause 6 amends the list of excluded activities in the tax-advantaged venture capital schemes—the seed enterprise investment scheme, the enterprise investment scheme and venture capital trust schemes—so that a company whose trade consists substantially of the generation of electricity or heat that attracts renewable obligation certificates or payments under the renewable heat incentive will no longer qualify for investment under those schemes, with limited exceptions.

As in the case with the feed-in-tariff exclusion, community interest companies, community benefit societies, co-operative societies and Northern Irish industrial and provident societies will not be affected by the restrictions. The exceptions for co-ops will also apply to European co-operative societies, in line with the changes being introduced as part of the “taxation of co-operative societies” amendment, which aims to align and update all references to industrial and provident societies across the Taxes Acts. The restriction will also not apply where the electricity is generated by anaerobic digestion or by hydropower, nor where heat is generated, or gas or fuel produced, by anaerobic digestion. The measure will apply in respect of both UK ROC and RHI schemes and overseas equivalents. It will make the tax-advantaged venture capital scheme better targeted and effective in supporting small and growing, higher-risk businesses.

Amendments 5 and 6 make technical changes to clause 73, which will restore sense and fairness to air passenger duty by reforming the destination banding and introducing a simple to understand two-band system. As the House will know, we have devolved the power to set rates on direct long-haul flights from Northern Ireland to the Northern Ireland Assembly, which set the rates at £0 in the Air Passenger Duty (Setting of Rate) Act (Northern Ireland) 2012. As the structure of the tax, including the number and composition of the destination bands, remains a matter for the UK—the Northern Ireland legislation refers to the UK legislation—the Northern Ireland Executive have asked us to make the consequential amendments needed to their legislation so that it aligns with the UK legislation.

I thank the Minister for introducing the 60 or so proposals that the Government have tabled for consideration at the end of proceedings on the Finance Bill. [Interruption.] I hear some tutting behind me. The House will be relieved to hear that although I have a number of questions they relate mainly to new clauses 1, 5 and 6, new schedule 4 and amendment 2.

I will start with new clause 1. It is important to take the opportunity to scrutinise what are fairly significant changes. They have been introduced by the Government at a fairly late stage in the Bill’s progress. Will the Minister comment on why that is the case? The measures were first announced in the autumn statement but the Government were still consulting on them some five months later while we were scrutinising the Bill clause by clause in Committee.

Perhaps the most controversial of the Government’s announcements on North sea oil and gas over the past year is contained in new clause 1 and new schedule 1, which make changes to the UK continental shelf oil and gas fiscal regime. As the Minister set out, they relate specifically to leasing arrangements between oil and gas contractors and oil and gas licence holders on the UK continental shelf—arrangements that are commonly known as bareboat chartering. Oil and gas service companies often lease drilling rigs, vessels and other equipment from overseas related parties on a bareboat basis—that is, without operating personnel—and the associated rental costs are claimed as a deduction against the UK profits of the service company when it uses the equipment to provide services to oil and gas licence holders on the UK continental shelf.

As the Red Book sets out,

“the government is concerned about the use of”

such leasing arrangements

“to move significant taxable profit outside the UK tax net”.

I would be interested to hear from the Minister what estimate his Department has made of the total taxable profit that has been moved outside the UK tax net as a result of these leasing arrangements. More importantly, what evidence does HMRC have that such profit shifting or transfer pricing is avoidance activity, as the Government seem to suggest?

When the Minister is answering those questions, I wonder whether he will also say what impact the measures will have on drilling activity in the UK.

The right hon. Gentleman raises an important question. I hope that the Minister addresses it in his response. I will come on to that issue.

In May, a Reuters report on these measures suggested that HMRC had

“allowed an industry with annual revenues of 2 billion pounds to pay almost no corporation tax for two decades”.

It also suggested that such arrangements have allowed drilling operators in the North sea

“to operate almost tax free for 20 years or more”.

It would be useful to know why the Government are acting now on those arrangements. I hope that the Minister will elaborate on that.

The Chancellor made an announcement in last year’s autumn statement that appears to have come as a surprise to many. He proposed the introduction of a cap on the deduction that is available to UK service companies on bareboat charters from connected companies. He also announced plans to ring-fence profits from other business activities so that the taxable profit could not be reduced by other tax losses. It appears that, because of the considerable lack of consultation before those announcements were made, the Government have significantly altered the plans to take account of the views of the industry.

The final proposals that are before us today will introduce a cap on the amount that service companies can deduct from their taxable profits through such leasing arrangements. The leasing deduction will be limited broadly by reference to a cap of 7.5% on the original cost of the asset or equipment. The cap was originally set at 6.5% but has been changed following the extensive consultation with the industry. Again as a result of the consultation, the cap will apply only to drilling rigs and accommodation vessels, which are otherwise known as “flotels”.

I am listening carefully to what the hon. Lady is saying. Does she agree that, although the cap applies only to drilling rigs and accommodation vessels, drilling rigs are the crucial matter? There is a worldwide shortage of drilling rigs, so the cap might mean that they are used elsewhere, rather than in the North sea.

The hon. Gentleman raises an important point. Again, it would be helpful if the Minister addressed that concern in his response. I will come on to that matter a little later.

New schedule 1 introduces a new form of ring fence that is similar to that imposed in respect of ring fence corporation tax for companies that operate on the continental shelf. The ring fence will be applicable to the composite activity that is the subject of this measure. That means that, although profits within the ring fence will only be taxed at the standard corporation tax rates and not the higher rates that apply to oil and gas producers, it will no longer be possible to reduce those profits through other tax reliefs that are derived from activity outside the UK continental shelf.

The hon. Lady is making an important point: maximising exploration is crucial to future revenues. Unless oil is produced out of the ground, we will not see any tax revenue.

That is an ambition that I believe the Chancellor has expressed himself. It is vital the Government get this right and that is why we are asking these questions today. I hope we will receive reassurance from the Minister.

Production fell by 38% between 2010 and 2013, which is the equivalent of 500 million fewer barrels of oil being produced. Critically low exploration has meant that 150 million fewer barrels of oil equivalent have been discovered in the past two years.

This clearly has wider implications for the UK’s oil and gas sector. As the hon. Gentleman points out, it also has serious implications for the Exchequer. Just yesterday, there was a report in the Financial Times highlighting the fact that North sea oil and gas tax receipts decreased by 60% in the past two years alone, and are now at their lowest level since 2004. Some of that can be accounted for by significant investment in the past few years—the fiscal regime was designed in such a way, under the previous Labour Government, to encourage such activity and therefore be less liable to tax—but these figures are still reflective of the wider issues facing our North sea oil and gas sector, as I outlined previously.

I want to draw the attention of the House to concerns, expressed by numerous tax specialists, that these measures represent the Government abandoning the application of the arm’s length principle in determining transfer pricing in the oil and gas sector. Just to explain the background, OECD member countries have agreed that to achieve a fair division of taxing profits, and to address international double taxation, transactions between connected parties—for example, intra-group companies—should be treated for tax purposes by reference to the amount of profit that would have arisen had the same transaction been executed by unconnected or independent parties. The arm’s length principle is enshrined in article 9 of the OECD model, treaty or convention.

The Government apparently support the arm’s length principle, but the Chartered Institute of Taxation has expressed concern that imposing such a cap, as new schedule 1 would provide for, calculated through a formula based on the original cost of the asset, effectively imposes a legislatively fixed benchmark price that overrides the arm’s length principle. An article for Tax Journal in February highlighted this issue and concluded:

“these measures are reflective of the Treasury’s willingness to introduce special measures where it perceives that the application of the arm’s length principle fails to determine an appropriate allocation of profits in cross-border transactions.”

Will the Minister say whether this reflects the Treasury’s willingness to intervene and override the arm’s length principle, where it deems the application of such to be inadequate? The main reason why the Government’s abandonment of the arm’s length principle is of such concern is the possibility that other countries may follow suit and introduce their own special measures; something that the OECD and its members, through the arm’s length principle, are at pains to prevent. It would be useful to hear from the Minister whether the Government have taken account of international reactions to these measures and their potential detrimental impact.

As the Minister well knows, and as we have put on the record in this House on countless occasions, the Opposition support the Government on any steps they take to tackle tax avoidance. However, a number of concerns remain as to how the Government have approached implementing these measures. We welcome the Government’s consultations with the industry, belated though they are, but I would be interested to hear from the Minister whether he and his officials believe that they have, in the final version of the Bill, fully addressed the concerns of industry. The feedback I have received from the industry suggests otherwise.

After the debacle of the autumn statement last year with regard to this unexpected announcement, it is important that Ministers finally, three years after they made the same mistake, learn the lessons of turning to the North sea oil and gas industry to plug holes in their books, and coming up with policy on the hoof. In 2011, we saw the detrimental impact such unilateral action can have, particularly in an increasingly marginal industry—that was, perhaps, reflected in the Financial Times report yesterday. We can only hope that the Government have fully considered the impact of the latest changes and properly accounted for them. Finally, the measures seem to diverge from the Government’s general approach to transfer pricing and the arm’s length principle, but I hope the Minister can provide clarification on that.

New clause 5 and new schedule 4 provide for further tax relief for the creative sector—based, of course, on the last Labour Government’s highly successful film tax relief. They introduce a tax relief for theatrical productions, and the relief will operate in almost exactly the same way as it does for high-end television and animation productions, but with one small difference. It allows qualifying companies engaged in theatrical productions to claim an additional deduction in computing their taxable profits. Where that additional deduction results in a loss, they have to surrender it for a payable tax credit. Both the additional deduction and payable credit are calculated on the basis of UK core expenditure capped at 80% of total core expenditure by the qualifying company.

The Minister set out the provisions in some detail, and they received some welcoming comments, particularly from Government Back Benchers, but I have a few queries about the new relief; I hope the Minister will be able to resolve any outstanding ones. The first relates to measures contained in new schedule 4, and it is important to ensure that the measure is not open to abuse. Such reliefs as these—or tax expenditures, to use Treasury-speak—well-intentioned though they are, have increasingly come in for criticism from the Public Accounts Committee and the National Audit Office. We have already discussed the number of both known and potentially unknown tax avoidance schemes generated around the reliefs and the subsequent criticism of them. I do not think it would be helpful to hold this discussion again here on the Floor of the House; Members will be able to read Hansard to see the extensive debates and discussions we had in the Public Bill Committee.

Following the consultation process, the Government appear to have taken on board the views of the Chartered Institute of Taxation, which suggested in its consultation submission that any evidence of abuse should be promptly identified and acted on by using the general anti-abuse rule. New schedule 4 provides for a general anti-abuse rule based on the GAAR, but the Chartered Institute of Taxation suggested that this tax relief should be properly monitored and reviewed by the Government. The Government’s consultation response suggests HMRC will “continue to monitor” for abuse, but can the Minister give a specific commitment in this respect?

Does the hon. Lady join me in welcoming the fact that the arrangements in HMRC are to give specific permission on a production-by-production basis? I hope that HMRC will be staffed up accordingly, but that should avoid some of the abuses that took place under the previous film arrangements.

I hope that will happen and that HMRC will have the resources available to it, as we know that it has faced significant reductions in staffing. That does not necessarily mean that it will not be able to undertake the sort of monitoring we would like to see under the scheme, but it would be useful to hear from the Minister that HMRC has the resource, capacity and systems to ensure that this does not become just another vehicle for tax abuse.

In the case of the film tax credits, the British Film Institute has a role in assessing whether the criteria are met, and it obviously has great expertise in that area. It would be helpful to know whether this work is going to be contracted out in any way or whether any particular expertise is needed by Revenue officials in doing this job.

My hon. Friend raises a very important point. I have not specifically considered it, but it fits well with some of the additional concerns put to me, which I am now putting to the Minister, about defining who should qualify for the relief and how it should be assessed by HMRC. It would be interesting to hear whether consideration has been given to using the expertise of outside bodies to ensure that HMRC gets its assessments right first time in administering this tax relief.

In the light of the National Audit Office’s recent report that HMRC monitors just 10% of its “tax expenditures”—there are more than 1,000—it would be reassuring if the Government committed themselves to reviewing the operation and take-up of this tax relief each year to ensure that HMRC is fully aware of how it is being used, and, more important, whether it is being abused.

Does the hon. Lady not think it right that we incentivise these renewables projects through contracts for difference and all the mechanisms the Department of Energy and Climate Change has brought forward rather than these sorts of EIS schemes? Therefore, it is rational to do what the Government have done, and that of itself should not make any difference to the propensity to go ahead with these things.

We would always hope that the Government would behave rationally in respect of these matters. I am pleased that the hon. Gentleman has absolute confidence in that, but I would be grateful if the Minister could provide some reassurance because the Government’s record on these issues has not always been entirely rational and I do not share the confidence of the hon. Member for Warrington South (David Mowat) in this regard.

On follower notices and accelerated payments, amendment 2 inserts subsection (8A), which provides that if a tribunal finds that a penalty should not have been charged because it was reasonable for the taxpayer to continue his dispute, the follower notice on which it was based remains valid, as does any accelerated payment notice or partner payment notice related to it. Concerns have been raised that if a penalty is cancelled on the grounds specified in clause 207, the validity of the follower notice—or related accelerated payment notice or partner payment notice—is not affected by the cancellation of the penalty. HMRC has confirmed that the intention is that if the penalty is cancelled on other grounds specified in subsection (2A), the follower notice, and any related accelerated payment notice or partner payment notice, would be cancelled. That is clearly the logical result of a successful appeal against the penalty. However, a few questions have been raised about this, so will the Minister say in what circumstances the grounds of appeal in clause 207(2A)(d) might be used, and why if successful, the FN and related APN or PPN would not be cancelled? When will guidance be published on this and the rest of the legislation on FNs and APNs, bearing in mind how important the guidance will be in helping taxpayers and their advisers to understand how this legislation is intended to operate? When will HMRC be publishing a list of the disclosure of tax avoidance schemes that will be issued with an APN, as we know that there is a lot of concern about the implementation of some of the Government’s proposed changes? On that very technical note, I conclude my queries to the Minister and I look forward to receiving reassurances from him in his response.

I welcome the chance to make a brief contribution to the debate on this group of amendments. It was a pleasure to serve on the Public Bill Committee with the Exchequer Secretary; it was certainly an educational experience for me. It was also a pleasure to serve with the hon. Member for Newcastle upon Tyne North (Catherine McKinnell), although her professed determination to scrutinise the legislation line by line did at times make it feel as though she was scrutinising it word by word.

I should like to speak briefly to Government amendments 1 and 2, which affect clause 207, encompassing clauses 192 to 212. As the Minister and the shadow Minister have said, those provisions deal with follower notices and the accelerated payments regime. I was heartened to hear that the Minister is spelling out the ground rules for appeal in respect of follower notices, but he will know that there remains some residual concern, to say the least, about the retrospective nature of accelerated payment notices.

A number of people and their advisers have made what they believe to be a proper disclosure, particularly after the increase in the fine for non-disclosure from £5,000 to £1 million, erring on the side of caution and over-disclosing. They are concerned that they will now be caught up by that disclosure and will find themselves with retrospective tax liabilities, perhaps dating back to 2004. The Minister was good in Committee in making it clear that he would continue to consult the industry and taxpayers, because the original consultation was brief. I hope that he will do that, and will continue the dialogue with the industry and with taxpayers to ensure that nobody is caught up unfairly, having tried to do the right thing, by these proposals. I look forward to hearing him make the position clear in his remarks .

I rise to speak against new clause 1 and the introduction of the bareboat chartering regime. I heard the Minister’s comment that this is about trying to get a fair tax return from this small but important sector. It tells us that at the moment it is paying about £200 million a year in tax and national insurance. At a yield of about £100 million, the tax return from this small sector will be increased by about 50%—that seems a substantial increase in a short period.

I would like to say that this bareboat chartering regime was a one-off stand-alone bad measure, but it does not stand in isolation. It is part of a pattern of ill-judged, disjointed and sclerotic decisions that this Government have taken, and it typifies their attitude to the North sea. Some years ago, we had the massive hike in North sea corporation tax supplementary charge, which absolutely stifled investment and brought it to a grinding halt. That led the Government, in panic, to make some kind of correction through the introduction of a large series of complicated new and enhanced field allowances.