§ Question proposed, That the clause stand part of the Bill.
§ Mr. Robin Cook
This clause follows a similar clause in the Finance Act 1982, which provided for capital allowances for dwelling houses provided by private landlords under the assured tenancy scheme. I am bound to repeat the point made last year when the scheme was introduced—-that it shows a striking generosity towards the private landlord who provides assured tenancies, who, over five years, can set against tax the entire cost of constructing the dwelling. That striking generosity contrasts markedly with the stringency with which the Government approach local authorities, almost every one of which would dance with joy were the Government to offer it the possibility of writing off over five years its debt for constructing the few council houses that have been built under this Government.
The provision is strikingly short on rationale. The concept of a capital allowance was born in industry, and when applied to industrial building a capital allowance makes sense because over the lifetime of a factory its value will depreciate and it is not unreasonable to give those who 834 constructed the factory a depreciation allowance to set against tax. However, a dwelling house can he expected to appreciate in value, and it is anomalous to extend a capital allowance to an asset that will increase in value. I warned the Government last year, and I repeat the warning now, that, having let this matter under the net, they will find it increasingly difficult to resist pressure from their Back-Bench Members and others to extend capital allowances to other buildings and dwellings, most obviously to hotels.
There is no doubt that the introduction of capital allowances for assured tenancies has had a significant effect in stimulating companies to take advantage of such generous treatment. Last year, fewer than 20 companies had come forward to register an interest in an assured tenancy scheme, but as at July 1983 there are 71 such companies. I reminded the Committee last year that the then Minister of State for Housing and Construction said that the bodies that he had in mind for approval under the assured tenancy scheme were pension funds, insurance companies and building societies which would operate through unregistered housing associations.
I told the Committee last year that few of the companies that had registered fitted what the Minister had in mind at the time. I can now confirm that equally few companies out of the 71 that have registered fall into the category of companies which the Minister had, to quote his words, "in mind". Of the 71 bodies that have registered an interest in an assured tenancy, there is only one housing association and no building society. The great mass of companies coming forward to register assured tenancies are commercial property companies with a speculative interest. They are not pension funds, insurance companies or building societies; they are companies extending their property activities into this area.
I have a question for the Financial Secretary. If he cannot answer it tonight, I should understand, but perhaps he would answer me soon. How many units does this list represent? I now know that we have 71 bodies approved by the Financial Secretary, but how many units of housing do these 71 bodies hope to provide? After all, this is an experimental scheme, with a limit of five years. It would be interesting to know how well the experiment has developed.
Subsection (5) limits the capital allowance to those bodies where the approved body is a company rather than a partnership of individuals. The Opposition see nothing wrong in limiting the capital allowance to a company in this case. Indeed, unless the approved body is paying corporation tax, it is difficulty to see how it can benefit from the capital allowance. However, I find it strange that the parent Act—the Housing Act 1980—provides that the only bodies that can provide assured tenancies are those bodies approved by statutory instruments by the Minister for Housing and Construction. Over the past 18 months, the Minister has laid a dozen orders adding to the approved bodies for assured tenancies. As far as I can see from my list, all the bodies are companies and none is a partnership of individuals.
This prompts a double-pronged question: first, why is this safeguard necessary; secondly, if it is felt that it would be inappropriate to extend this relief to partnerships of individuals rather than companies—I can understand and share that reservation — would it not be vastly more sensible for the Minister of State, in deciding which bodies he approves, not to approve partnerships of individuals 835 and to confine his approval to companies? It appears undesirable that we should be creating, by virtue of this clause, a two-tier set of approved bodies—one a set of approved bodies approved by the Minister and by the Treasury so that it can get capital allowance and the second a set of bodies approved by the Minister but not approved by the Treasury, although registered for assured tenancies, and thus unable to obtain capital allowances. I find it difficult to conceive that a particular group of individuals would be perverse enough to proceed, and to seek the whole panoply of ministerial approval, with the assured tenancy scheme if they cannot receive the capital allowance that they could obtain were they to set about forming a company.
Therefore, I am puzzled by subsection (5) and would appreciate it if the Financial Secretary could enlighten the Committee before we approved the clause.
§ Mr. Ridley
I am grateful to the hon. Member for Livingston (Mr. Cook) for the way in which he put his points and asked his question, which is correct and pertinent. I hope to be able to give him an answer that at least explains the point, although it may not entirely satisfy him on the major point that he raised at the end of his speech.
The hon. Gentleman said that he would like to know how many units had been constructed as a result of this relief and, as far as my information goes, it is over 100. However, I shall ask my hon. Friend the Minister for Housing and Construction to send a letter to the hon. Gentleman containing fuller information. The hon. Gentleman has always been unhappy about the scheme. In this case, however, far from others getting under the net as a result of the relief in last year's Finance Act, people who in theory were doing so hitherto will no longer be able to do so.
Out of the 72 applications approved, one was a partnership. The legislation was not designed to cater for partnerships, but under the assured tenancy legislation my hon. Friend the Minister for Housing and Construction has no power to refuse an application on the ground that the applicant is a partnership rather than a company. If the applicant meets the other criteria as to bona fides, financial status, and so on, my hon. Friend does not have the power to discriminate in that way. Due to some lack of communication between two Departments in Whitehall, partnerships can be approved and possibly must be approved if they meet the other conditions.
The legislation provided only for capital allowances. As the hon. Gentleman rightly said, capital allowances are an appropriate form of assistance to companies that pay corporation tax, but they fit ill, to say the least, in the hands of partnerships or individuals. I recognise that individuals can sometimes obtain something like a capital allowance, but the intention was to restrict the relief to companies. Partnerships were not excluded from the original legislation, due to lack of communication between the two Departments. This provision attempts to put the matter right.
The other two main parts of the clause merely correct defects in the drafting of last year's legislation.
§ Mr. Robin Cook
I am grateful for that explanation. If individuals have found a device allowing them to obtain 836 capital allowances to set against income tax, I am heartily relieved that the Treasury has spotted the defect and I wish the subsection godspeed. I should, however, appreciate a letter a year hence telling me whether that partnership of individuals proceeded with the construction of dwelling houses after the loophole had been blocked.
§ Question put and agreed to.
§ Clause 6 ordered to stand part of the Bill.