LEASING ARRANGEMENTS: FINANCE LEASES AND LOANS (Hansard, 11 March 1997)

§ Mr. David Shaw
I beg to move amendment No. 14, in page 159, line 37, at end insert—

§ Mr. Deputy Speaker (Sir Geoffrey Lofthouse)
With this, it will be convenient to discuss the following amendments: No. 15, in page 160, line 24, leave out from 'Act)' to end of line 27 and insert 'the requirements of either sub-paragraph (IA) below or sub-paragraph (1B) below are satisfied.

(IA) The requirements of this sub-paragraph are that—

(a) a lease of an asset is or has been granted;

(b) in the case of the lease, the conditions in paragraph 3 below are or have been satisfied at some time in a period of account of the current lessor; and

(c) the lessee is not a relevant taxpayer

§ Mr. Shaw
In view of the late hour, I shall not detain the House for long. [HON. MEMBERS: "Hear, hear."] That may be the most support that I get on the issue.
Lease finance is a complex area. My research has revealed the interesting fact that one of the people who has funded the Labour Front Bench research trust was involved in lease finance some years back. Apparently, that donator to Labour's secret fund sold his leasing business in 1987 and two years later it collapsed and went bankrupt. That shows the complexity of leasing finance and the problems of it.
The details of leasing finance were discussed in Committee on 20 February. I do not propose to go into such detail tonight. The leasing industry is concerned that it may have been misunderstood and perhaps seen as an easy way of raising money. It does not accept that it was involved in tax avoidance.
I am bound to say that the Inland Revenue is one of the organisations that has recently benefited from lease finance—for the staff college. It would seem strange if the Inland Revenue were involved in tax avoidance in financing its staff college. On the basis that it has not been seeking to avoid tax, I commend the amendments to my right hon. Friend the Financial Secretary.
The leasing industry believes that it passes on any tax benefits to its customers because of the way in which it is structured. It finds it difficult to understand the way that the Treasury and Inland Revenue seem to want to tax it. One argument is that the Inland Revenue and the Treasury are seeking merely to reconcile accounting treatment with tax treatment. It is difficult to get perfection in that area because of the way in which lease finance operates and, therefore, one must question whether the changes will achieve an improvement, in terms of getting accounting treatment and tax treatment closer.
Finally, we must consider the important issue of inward investment and jobs. Commitments have been made to the leasing industry, through finance legislation, which it has passed on to foreign investors into the United Kingdom. While everyone knows that tax treatments can change, it is normal practice not to change them before a Budget, especially when no prior announcement has been made. In this area, the tax treatment can affect inward investment decisions and commitments entered into involving inward investment prior to the Budget. Surely that precedent should not be made. Surely my right hon. Friend should recognise that that was not what was desired when the changes were proposed and surely that is a circumstance that should not happen in the future.
I invite my right hon. Friend the Financial Secretary to give a commitment that those changes will be subjected to much greater scrutiny and that such changes and precedents, which are dangerous, will not occur. We want to maximise inward investment. It is important for the Government to continue to give inward investors strong encouragement. We have record inward investment into this country and we should not change—even to the small extent that we are discussing—taxation practice in any way that would give inward investors the message that they are not welcome or that the tax treatment might change.
249 I hope that we will hear strong confirmation from my right hon. Friend that the Government will not allow such things to happen again in a way that might raise question marks in the minds of those involved in inward investment and the leasing industry. After all, the leasing industry is significant and important, it is supported by a number of Government Departments and it encourages inward investment into the United Kingdom.

§ Mr. Winston Churchill (Davyhulme)
I rise briefly to support my hon. Friend the Member for Dover (Mr. Shaw). As he pointed out, about one third of all investment in this country is financed by lease financing. That has formed a key part of the prosperity that has been generated in recent years under this Government.
The thing that concerns me particularly about this aspect of the Finance Bill is that it would appear that the Government are changing the ground rules retrospectively. They are doing so in the case not only of United Kingdom investors, but of foreign investors into the UK.
Money comes in on a large scale from Japan and from European Union countries, and the arrangements have been a key part of what has been on offer from GB Ltd. to persuade Siemens, Toyota and Nissan, for example, either to make or to increase investments here. I find it deeply concerning that the legislation appears to be changing the ground rules retrospectively so that investments and commitments that have already been made will end up costing a great deal more. That could send the wrong message to potential investors.

§ Mr. Jack
It is a great pity that my hon. Friends did not read my remarks in Committee; they would have found that their arguments were adequately dealt with. We are not anti-leasing; we are in favour of investment in this country. We want to encourage inward investment by having what we believe to be the best tax regime in Europe, if not the world. We certainly do not want those investments to be burdened by the social chapter.
We have sought to act against the leases because they are contrived tax avoidance arrangements solely to the benefit of banks, effectively, although the lessee gains something. The lessees knew what they were signing up to: their agreements clearly stated that if there were changes in the tax regime they would have to bear the costs.
The measure represents a saving to the taxpayer of £150 million, against a total of investment affected of about £½ billion, and I believe that I am right in saying that total leased investment represents about £20 billion, so it could not be said to be a show-stopper for the United Kingdom.
The legislation is not retrospective: it is prospective in that it taxes the income on such arrangements into the future. We are not going backwards in time. For those reasons, I invite my hon. Friend the Member for Dover (Mr. Shaw) to withdraw the amendment.

§ Mr. Salmond
I think that the Minister said a few seconds ago that Britain had the best and most favourable business taxation regime in the world. Does he seriously want to stand by that comment, given the huge range of examples of countries with more favourable business tax regimes?

§ Mr. Jack
My comment was directed to our mainstream rate of corporation tax and to the small 250 companies corporation tax. On any occasion other than now, I would be delighted to debate that with the hon. Gentleman.

§ Mr. David Shaw
I can certainly confirm what my right hon. Friend said about our not entering the social chapter being one of the main reasons why inward investors come to this country and why my constituency is doing well in creating jobs in small businesses. We do not have the social chapter and in consequence unemployment in Dover is less than half that in Calais.
I tried to read all my right hon. Friend's speech in Committee, and I am not entirely convinced that the leasing industry has been fairly treated. That industry passes on a large part of the benefit achieved through tax arrangements that have been accepted for many years by Governments of both political persuasions. It is somewhat unfair that the benefits that are passed on may not be taken advantage of as much as one would like by some of the inward investors.
However, in the circumstances, it would not be appropriate to press the amendment to a vote. I therefore beg to ask leave to withdraw the amendment.