HC Deb 05 July 1999 vol 334 cc685-97

22C.—(1) No obligation as to secrecy or other restriction on the disclosure of information imposed by statute or otherwise shall prevent—

  1. (a) the Board or an authorised officer of the Board from disclosing to the Department of Agriculture for Northern Ireland (`the Department') or an authorised officer of the Department, or
  2. (b) the Department or an authorised officer of the Department from disclosing to the Board or an authorised officer of the Board,
information for the purpose of assisting the Board in the carrying out of their functions with respect to claims for capital allowances made under section 22 by virtue of subsection (3CA) of that section or, as the case may be, the Department in the carrying out of its functions under that section.

(2) Information obtained by virtue of a disclosure authorised by this section shall not be disclosed except—

  1. (a) to the Board or the Department or to an authorised officer of the Board or of the Department; or
  2. (b) for the purposes of any proceedings connected with a matter in relation to which the Board or the Department carry out the functions mentioned in subsection (1) above."

(6) The preceding provisions of this section have effect in relation to every chargeable period ending on or after 12th May 1998.'.—[Mrs. Roche.]

Brought up, and read the First time.

6.27 pm
The Financial Secretary to the Treasury (Mrs. Barbara Roche)

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

In last year's Finance Act, we introduced a measure to give 100 per cent. first-year capital allowances for small and medium-sized businesses investing between 12 May 1998 and 11 May 2002 in machinery or plant for use in Northern Ireland. The legislation does not come into effect until a day to be appointed by the Treasury. This was necessary to allow time to make sure that the measure would not be anti-competitive.

It is now apparent that some modifications are needed to the scope of the measure to bring it into line with competition law. New clause 7 will make the necessary changes. Once made, we expect to receive confirmation from the European Commission that the measure is not anti-competitive. This will allow us to appoint the day and to bring the legislation into effect. Once that is done, the 100 per cent. first-year allowances may be claimed on any expenditure in the qualifying period.

It may be helpful, and for the convenience of the House, if I outline briefly the areas of change. On transport, the 100 per cent. first-year allowances were never intended to apply to expenditure on machinery and plant for leasing or letting, hire cars, long-life assets, sea-going ships, railway assets or aircraft. New clause 7 will expand the exclusion to cover transport assets, such as lorries or containers used in the freight haulage business. It will not affect the entitlement to allowances on transport assets in other types of business, such as delivery vans of retail businesses, mobile shops or tourist buses.

As for the agriculture and fisheries sectors, the new clause will mean that 100 per cent. first-year allowances will be available only on investments authorised by the Department of Agriculture in Northern Ireland, as compatible with competition law in the Department.

As for large investments, under the normal rules, the 100 per cent. allowance will be clawed back if the asset begins to be used primarily outside Northern Ireland within two years of the expenditure being incurred. For exceptionally large investments, the new clause will extend that claw-back period to five years. The changes are required to ensure that the measure comes within competition rules while retaining the maximum benefit for Northern Ireland businesses.

Mr. Michael Jack (Fylde)

Will the Minister expand on the conflict with competition law, which she used as a generic term? Which competition law is causing the problem?

Mrs. Roche

I am talking about state aids, as the right hon. Gentleman will be aware. Rightly, and understandably, the Commission has an interest in this matter. It has always been the policy of this Government—and, to be fair, of the previous Government—to be vigilant on state aids so that protectionism is not let in by the back door. We must make sure that the measures are compatible.

I commend the new clause to the House.

Mr. David Heathcoat-Amory (Wells)

It is significant that we have been debating for more than two hours before getting to the Government new clauses. That is because of the wholly unprecedented number of money resolutions that the Government have tabled at this late stage. By definition, money resolutions are tax raising. To have eight tabled at the start of the Report stage shows not only that we have a tax-raising Government and that we have had a series of tax-raising Budgets, but that we now have tax-raising Report stages.

Rightly, we have examined some of the money resolutions, and we can now approach the stage where we can look at the new clauses. I am interested in this one, as it restricts the ability of businesses in Northern Ireland to reduce their tax burden through the use of 100 per cent. first-year capital allowances for small and medium-sized enterprises.

The measure was announced last year by the Government, and was passed in last year's Finance Bill. It has been approved by the House, but we now learn that it was not brought into effect because of possible problems with competition law.

My right hon. Friend the Member for Fylde (Mr. Jack), in an acute intervention, asked exactly what that meant. He got a reply, but I am not sure that the Financial Secretary was entirely accurate. I ask the question rather than make the allegation. It is possible that she was a little disingenuous.

6.30 pm

We know that the 100 per cent. first-year allowance conflicts not with United Kingdom competition law, but with the requirements of the European Union business taxation group, chaired by the Paymaster General, who confirmed in a parliamentary answer that the subject of first-year allowances for businesses in Northern Ireland is being investigated by the group.

If the group concludes that the allowances conflict with the requirements of fairness and tax competition, they could be withdrawn, which is a serious matter. It is time that the Government came clean about the EU group, because the allowances are not the only measure in the Budget that could be hit. For example, the 40 per cent. first-year allowances for small and medium-sized enterprises in the rest of the United Kingdom were debated in Committee upstairs without Ministers mentioning the fact that they, too, are under investigation by the business taxation group.

More recently, I asked how many British tax measures were under review by the group. It took the Treasury nearly a month to come up with the answer, which is surprising, as the Paymaster General chairs the group. Eventually, she confirmed that eight measures were under investigation, including measures relating to the film industry, which, again, we debated in Committee without knowing the full facts; enterprise zones, which should be of interest to Labour Members who believe in industrial regeneration; and the 100 per cent. first-year capital allowances for small and medium-sized enterprises in Northern Ireland.

The House, extraordinarily, is being asked to pass certain tax measures while at the same time a European Union tax committee, chaired by a Treasury Minister, is sitting in secret—the agenda and minutes are not published—and may require those measures to be repealed or withdrawn. This is an important constitutional issue and the House must have an explanation. The Government have agreed in advance to abide by the tax committee's decisions, so it is not an advisory group.

We know that because the matter was debated in 1997 and the Government published an explanatory memorandum. In its report on the matter, the Scrutiny Committee said that the Government would agree to the code only 'if it intended to honour it'. The Government have agreed to the code on business taxation, so they must have agreed to honour it. Will the Financial Secretary confirm that it follows that, if the business taxation group rules against the capital allowances for businesses in Northern Ireland, the Government will withdraw them?

Sir Teddy Taylor (Rochford and Southend, East)

Can my right hon. Friend think of any possible reason why the Government should not publish the reports of the code of conduct committee, given that the latest one, published in May, contains a series of additional measures? Is not it an insult to democracy and to all that we are meant to stand for that the Government are agreeing to measures on so-called tax loopholes without the House of Commons or the people being told? Will he invite the Government to publish the most recent report, which I happen to have in my hand because I got it by devious means?

Mr. Heathcoat-Amory

I entirely agree. The House deserves to know what tax measures are being discussed elsewhere, as it practically came into existence to take the means of taxation away from the Crown or the Executive and put it in the hands of those who are answerable to the electorate. My hon. Friend is seeking to assert an ancient right.

The Government have made much of their commitment to openness and "Your Right to Know". I think that they even plan to introduce a Bill to allow the people to know what is being done in their name. It would be a good start if the Government could tell us what tax measures are under review.

The parliamentary answer to which I referred made it clear that the measures that it lists are drawn only from the group's initial list. As my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) said, there are other lists. I believe that some energetic web surfer discovered a list of more than 200 European—not all British—tax measures that are under review by the secret committee chaired by the Paymaster General. Will the Financial Secretary publish a comprehensive list of the British measures?

Will the Financial Secretary confirm that the restrictions in the new clause, which would cut back the scope of the allowances as agreed last year, were introduced in response to fears about the EU committee, so that bringing our measures into line with the requirements of European competition law really means bringing them into line with the requirements of that committee? Why else have the restrictions been introduced? The allowances were announced last year to a great fanfare and passed by the House.

The allowances are being restricted in areas in which the situation in Northern Ireland has got worse, such as haulage. The Government's tax measures on road fuel have made the haulage industry uncompetitive, and the problem is especially acute in Northern Ireland, which has a land border with another member state, so the industry can easily be undermined by lorries using cheaper fuel from the Republic. We know that a great deal of fuel smuggling goes on there; the Government will not even give us an estimate of how much, but we know that the problem is serious and worsening.

The same applies to agriculture and fisheries. Northern Ireland faces the same problems as the rest of the United Kingdom, so the case for restricting allowances there has not been made. We strongly suspect that the restrictions are designed to bring us more in line with the requirements of the EU tax committee.

I have another question for the Minister. The terms of the new clause indicate that the capital allowances for agriculture are to be restricted in a way that is devolved to the Department of Agriculture for Northern Ireland. That is somewhat remarkable, as it means that the power, not only to authorise specific items of expenditure on agriculture, but to specify persons, is to be at the discretion of that department. Officials in that department will be able to decide that one person gets the capital allowance, but that another person does not. That is a remarkable provision for the House to approve: instead of setting out tax liabilities in rules and regulations, we are now devolving that power to the say-so of officials at the Department of Agriculture for Northern Ireland. Perhaps the Minister can tell us why the rules cannot appear on the face of the new clause.

My real point is that we are beginning to see the results of the Government's weakness in respect of European Union tax harmonisation. In 1997, they agreed to a code and they said that they would abide by it. Now, although the Government proudly announced certain tax measures last year and now want to introduce them, those measures are under review by that tax committee. In effect, the judgment of the House on matters of taxation has become subservient to a European Union committee over which we have no control. Those are the facts and we require an explanation.

Mr. Edward Davey (Kingston and Surbiton)

I apologise for not having been in the Chamber for the first minute of the Minister's speech introducing the new clause.

I agree with some of the points made by the right hon. Member for Wells (Mr. Heathcoat-Amory), especially those relating to the secrecy surrounding the group that meets in Europe, because I believe that all the committees that meet in Europe should be far more open than they have been. It is possible that, when the right hon. Gentleman was a Treasury Minister and attended meetings of ECOFIN in Brussels, he pushed for greater openness about the proceedings of that committee, but I doubt that he did so. If I am wrong, I should be more than happy to take an intervention from him. The Conservative Government did not have a good record on pushing for greater openness in Europe, and I hope that the current Government will do a better job in that respect.

I disagree when the right hon. Gentleman questions the purpose of the tax committee, because there is a need to examine how state aid is allocated and whether specific forms of state aid meet the requirements of competition law. Competition law is a bulwark of the single market. It is astonishing that, in the Chamber and in Committee, the right hon. Gentleman has argued continuously against bodies such as the tax committee, given that he is—I assume—in favour of the single market. It is astonishing for the Conservatives to be in favour of free trade and of the single market, but against those mechanisms of the European Union that are designed to make the single market work more effectively, including by abolishing state aid. The Conservatives are supposed to oppose most forms of state aid, so it is astonishing that the right hon. Gentleman does not support the EU in trying to get rid of state aid which has, historically, been used by other EU member states in ways that are to the detriment of British jobs and industry. I should have thought that the ideological position adopted by the Conservatives would lead them to be in favour of the sort of approach embodied in that European committee.

That does not mean that we should not voice concerns about specific measures laid before the House, and new clause 7 did cause me some concern when I read it and the explanatory notes, especially because, as the right hon. Gentleman said, it removes first-year allowances for investment in the road haulage industry. As we heard in earlier debates on the Finance Bill, the road haulage industry in Northern Ireland is in great trouble, because of the differential vehicle excise duties and fuel excise duties charged in Northern Ireland and in the neighbouring country across the land border, the Republic of Ireland. Now seems an especially inappropriate time to remove allowances, and my questions to the Minister focus on that issue.

6.45 pm

Can the Government think of no other way—for example, through capital allowances or direct grants—to support the road haulage industry in Northern Ireland as it attempts to tackle the problems that are specific to it, rather than generally affecting the mainland road haulage industry? Does the subsection to which the right hon. Member for Wells referred, which would give the Department of Agriculture for Northern Ireland powers to make specific grants, offer a means of enabling the Government and civil servants to provide help to the Northern Ireland road haulage industry? Obviously, it would be limited to that section of the industry that is related to agricultural transportation, but it might offer a means of helping at least one part of the industry.

I accept that rules for the application of tax law should appear in legislation, rather than administrative laxity or freedoms allowing civil servants in departments to hand out allowances for specific expenditures. That is not the best way to proceed. However, in the present circumstances of the Northern Ireland road haulage industry encountering great difficulties, that power—if it can be used in the way I suggest and remain in accordance with competition law—might offer Ministers a means of helping that industry, for example, by helping it to convert to fuel-efficient lorries.

I hope that the Minister will answer my points when she winds up the debate. She should not listen to the protestations of the right hon. Member for Wells in respect of the wider issues.

Mr. Geraint Davies (Croydon, Central)

At this historic time, as we look toward a peace settlement in Northern Ireland, I am sure that the whole House would welcome any extension of preferential treatment in terms of capital allowances that focused on small and medium-sized enterprises in Northern Ireland. The new clause strikes a balance between acting in accordance with competition law and doing too much and risking accusations of providing state aid that distorts competition. The result is that we can promote industrial prosperity in Northern Ireland while abiding by competition law.

The Conservatives' view seems somewhat schizophrenic. On the one hand, they say that we should have nothing to do with the Europeans and their competition law; on the other hand, they are the first to accuse other European countries of giving unfair subsidies that make our industry uncompetitive. Perhaps we should be accustomed to the Conservatives holding such a contradictory position. We all want fair competition and we all want to support peace in Northern Ireland. Offering preferential treatment to SMEs in Northern Ireland offers a way ahead that fits in with European competition policy, which is much to be applauded. I welcome the new clause.

Sir Teddy Taylor

The House should realise what it is about tonight. On 12 May 1998, the Chancellor of the Exchequer announced his intention to introduce 100 per cent. first-year capital allowances for spending by small and medium-sized businesses on machinery and plant for use in Northern Ireland. That was carefully thought out—the Government did not simply shove the measure on the table and then phone up their friends in Brussels to ask them whether it was fair and reasonable.

As I hope that the hon. Member for Croydon, Central (Mr. Davies)—whose speech was so fascinating—appreciates, although the scheme was carefully thought out before being announced by the Government, it has not yet been activated—it has not happened yet. I am sure that he is having a jolly discussion with the hon. Lady sitting behind him, but I hope that he has heard that simple point. Despite that, and although there has been consultation, the Government are now saying that they got it wrong and will have to change it substantially.

The Government are removing the 100 per cent. first-year allowances for transport assets. Why would they do that? Has the road haulage industry had a wonderful time? Is it subject to special preference? We all know that the road haulage industry has had massive new taxes imposed on it, so why are the Government discriminating against it in this measure?

On agriculture and fisheries, the 100 per cent. first-year allowances will be available only for investments authorised with the Department of Agriculture for Northern Ireland as being compatible. The 100 per cent. first-year allowances will be withdrawn if the asset begins to be used outside Northern Ireland within two years of the expenditure being incurred. How on earth will that be implemented? Will the Government introduce passports for machinery, so that, if machinery is moved from Northern Ireland to, for example, Scotland, they can make a note of that and ensure that the allowance is withdrawn?

Those are extraordinary measures, and we should ask ourselves why there is panic and why legislative changes are being made to bash road haulage and to introduce a passport for machinery to ensure that it is not transferred, even for a few days, from Northern Ireland to Scotland. Frankly, that is nutty.

As hon. Members are well aware, I have never been a great fan of grants and allowances in any form. However, the Government are changing a sensible scheme that was carefully thought out and approved by the House. The scheme is very detailed. It says that, to qualify as small and medium-sized enterprises, businesses have to meet two of the following three tests: they have to have an annual turnover of not more than £11 million; they have to have assets of not more than £5.6 million, and they have to have not more than 250 employees. The miracle men of the Treasury had worked out a reasonable, sensible scheme, and the Government are now introducing these rather strange changes before the scheme has even started. I hope that Members will ask themselves, "Why are the Government doing that?"

The Government are not introducing the changes because they are stupid or nasty, although all Governments can, to some extent, be stupid or nasty. Something has happened or someone has said that they must change the scheme. It is pretty obvious that the Government have been involved in discussions in Europe in secret committees, and that they have not been publishing the resulting papers. A report of the code of conduct group was mentioned in the Treasury Sub-Committee only last week. I said that I had heard that there was a great plan to tell us about unfair tax discrimination and that there was a report on that. I asked whether it was possible to get hold of that report and I was told "No. Such reports are secret and they are not available."

I have a great friend, a brigadier in Gloucestershire, who can always get secret reports if I particularly want them, so I got that report. I have it in my hand. It is not available to the public. It says that there have been two reports of the code of the conduct committee, which is chaired by the Paymaster General.

One report classified items of tax competition that the committee felt were unfair, unreasonable and wrong. Four proposals were made. The first related to the film industry. The poor old film industry had better watch out, because it is going to get clobbered. The second related to tax relief on shipping, and I warn that industry that it, too, will be clobbered. The third related to enterprise zones and the fourth to first-year capital allowances in Northern Ireland. Those were identified by that secret EU committee as one of the flaws in the tax arrangements.

I am sure that you will rule me out of order if necessary, Mr. Deputy Speaker, but what worries me is the contents of the second report of that committee, which are alarming and terrible. When they become public, people will be upset.

As you know, Mr. Deputy Speaker, I had rows with the previous Government just as I do with this Government. Why the blazes will they not tell the people the truth about what is happening in Brussels? Why the blazes will they not publish the reports as they emerge? I am sure that the Government will say that the reports do not require them to take action. We all know what is happening with tax harmonisation and we all know what is being forced on us. We all know what is coming in by the back door, and it is time that people told the truth. I am sure that the Government are exactly the same as the previous Government, and they should tell people what is happening. I ask the Minister why those reports cannot be published. Why cannot the report for which I asked, which emerged in May, be published? Why cannot the Treasury Sub-Committee get hold of it?

I am sorry, Mr. Deputy Speaker, if I am getting bad-tempered in my old age, but what is happening in the House of Commons is appalling. People are not being told what is happening. The Government are making announcements and we are debating measures about which we can do nothing. Although there may be a case for throwing away our democracy, we should be consulted.

Mr. Geoffrey Clifton-Brown (Cotswold)

Does my hon. Friend agree that there is a parallel between this case and the publishing of the minutes of the Bank of England Monetary Policy Committee? If those minutes can be published, why cannot the minutes of the committees to which he refers also be published?

Sir Teddy Taylor

It is interesting to read the minutes of the Monetary Policy Committee, and I agree with my hon. Friend that the more we publish, the better. We do not want secret information but, if the Government are saying that there are tax mistakes or unfair forms of taxation, Parliament and the people should be told. Part of the latest report concerns the Channel Islands, and, frankly, I should not like to have any money invested in the Channel Islands now—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. I have given the hon. Gentleman considerable leeway. He is, of course, entitled to make his point about the new clause, but he is not entitled to debate the generality of his argument about secrecy and openness. The new clause concerns first-year allowances for investment in Northern Ireland, and his remarks must relate to that.

Sir Teddy Taylor

I am sorry, Mr. Deputy Speaker. I mention discussions in Europe only because the report specifically says that our grants to Northern Ireland industry are considered wrong and unfair by the code of conduct committee. If we cannot mention that, I do not know why we are in the House of Commons at all. It may be said that the reports are not public and that people cannot get hold of them, but they exist and they arise from meetings that have taken place.

I am very sorry that, for the first time since I came here in 1964—which was a long time ago—I have had a dispute with the person in the Chair. It is not my practice to fall out with those who are in the Chair. However, something very nasty and wrong is happening, and I find it appalling that the Minister can say that the Government have suddenly decided, for no apparent reason, that the allowances that they agreed only last year and that have not yet been introduced must all be changed.

The Government will no doubt say that they are not legally obliged to implement the conclusions of the code of conduct committee, but that committee regards four specific items as contrary to tax harmonisation, and we do not know about many of its other conclusions, so, although I shall achieve nothing in relation to the new clause and I shall probably fall out with more people than ever before, I urge the Government, at the very least, to start publishing the committee's reports. They know that those reports will, in any event, become public. I have the latest report, which has not yet been published, and I am sure that someone else will get hold of the next one.

Why cannot Parliament be told what the Government are discussing? Why cannot we be told what agreements are being made on taxation? Having spent 35 years in the House and discussed many matters, I find it sad that people are not being told about such agreements and that we spend a great deal of time discussing things that we can do nothing about. We are—inadvertently, I am sure—being misled about the origin of the changes introduced in the new clause. I hope that other hon. Members will ask themselves why the Government suddenly want to change a detailed scheme that was introduced in 1998, before it has even been implemented. There is something wrong in that, and I hope that my colleagues will pick up on that.

7 pm

Mr. Jack

This is an intriguing new clause. I hope that the Financial Secretary will be able to shine a little light into what, from the speeches so far, seem to be increasingly murky waters.

One of the things that worries me in overall terms is that, as my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) said, something was introduced after careful thought in order to confer a tax advantage on one part of the United Kingdom, yet, for the reason that the Minister described in response to my intervention—it offends competition law—it is being changed. She also prayed in aid state aids. I am now less clear about the matter than I was before she replied. If the Financial Secretary will do me the courtesy of listening, I should like to ask her why, for example, 100 per cent. scientific research allowances that are available in Northern Ireland are not affected by the proposals.

In general, two important tax principles are raised by the new clause. One is whether giving any 100 per cent. allowances contravenes the currently unspecified competition laws. The second is whether a sovereign member of the European Union choosing to grant a tax advantage to one area within its own boundaries runs foul of our position in the EU.

I have always understood that one of the principles that one operates in tax in this area is that of fiscal competition. My understanding is that, up to now, a country wishing to confer certain capital allowances for certain purposes on certain tax regimes has never been challenged; we may have whatever allowances we like. It is difficult to answer why we appear to be corrupting that advantageous position by the new clause. The Financial Secretary must spell out very clearly how competition law interacts with the sovereign right of the UK to levy its own tax rates.

We are facing harmonisation by the back door. The Financial Secretary winces, but she will know that, when I was in the Treasury, all our EU partners—certainly the major players who valued independence of their tax-determining regimes—would have fought tooth and nail the case of Hoechst v. the European Union on a matter connected with corporation tax because they did not want somebody else determining their tax law.

If, as my hon. Friend the Member for Rochford and Southend, East says—he and I have not always agreed on matters European—there has been a change of Government policy, let us have it out in the open. It is no use the Financial Secretary shaking her head. One of the values of these debates is that we may tease out any new interaction between competition law and tax law, with which the new clause deals.

I should like a specific answer to the question how, for example, Northern Ireland can benefit from a 100 per cent. scientific research allowance but cannot benefit from the original proposal. Will the Financial Secretary spell out the competition laws that are corrupted by the proposed state aid?

We know that one country may confer a benefit through the tax system, but another may do so by another mechanism. It is certainly of interest to those in the Department of Agriculture for Northern Ireland to know of the disquiet among Northern Ireland pig producers over the moneys that were passed to French pig producers in connection with difficulties faced in the French industry. The £150 million that the French Government passed to their pig producers was supposedly to deal with restructuring their industry. The French Government may have decided to deal with that matter via a tax allowance. Similarly, we may have responded by giving our pig industry a tax allowance for various matters such as welfare.

Has there been any attempt in framing the new clause to ensure that there is equivalence of help across the EU, given that we may choose to help an industry via tax allowances, but another member state may deal with such a situation by another method? I am now more confused than ever in understanding how there can be parity of competition. The example that I quoted is not hypothetical; it a real issue that affects pig producers not just in Northern Ireland but in the United Kingdom generally.

It might have been helpful if the Financial Secretary in her opening remarks had compared and contrasted capital allowances north and south of the border. By and large, the use of assets, particularly agricultural assets, is the point of comparison. I would have liked to have known that we were not disadvantaging ourselves in Northern Ireland by the proposed measure.

I turn to an aspect on which my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) touched in his pertinent and perceptive comments. In tax terms, this is a highly unusual measure. DANI is to make statements on what qualifies for tax allowances. Can the Financial Secretary tell me whether those judgments are challengeable via the commissioners of the Inland Revenue? It strikes me that we have a one-way street. DANI will be able to make judgments—there is no definitive list in the new clause—but there appears to be no mechanism for challenging them. The only way in which taxpayers may normally deal with such circumstances is to challenge an Inland Revenue ruling through the commissioners. I am not clear whether that mechanism will be open to people in this matter.

The proposed subsection (3CE) is even more mysterious. It says that DANI authorisations may, if given generally, be modified by that Department", and may in any case be absolute or conditional. Does that mean that DANI, or someone else giving an interpretation of the new clause, will be allowed a second bite at a ruling? It sounds to me as if some conditional ruling could be given, hinting that an allowance might be included, but subsequently modified or omitted. That is a recipe for, to say the least, a lack of clarity and certainly a lack of precision in operation. I, for one, would like some clarification.

I do not understand how a fiscal activity puts us in contravention with competition laws when we already have an ability to set sovereign rates of tax as we choose. I underscore the importance that I attach to being given clear explanations of why we thought that the legislation as originally drafted was all right, but we are now told that it must be modified by new clause 7.

Mrs. Roche

This has been an interesting debate. If one had heard the opening remarks of the right hon. Member for Wells (Mr. Heathcoat-Amory), one would have thought that the Conservative party was in favour of first-year capital allowances. However, the right hon. Gentleman neglected to point out that, in 1984, Lord Lawson, then Conservative Chancellor of the Exchequer, phased out 100 per cent. first-year allowances.

Of course I understand the speech made by the hon. Member for Rochford and Southend, East (Sir T. Taylor); I assure him that I have a great regard for him and have no intention of falling out with him. However, I want to make it clear to all right hon. and hon. Members who have spoken that, although the Northern Ireland measures were notified to the code of conduct group that is chaired by my hon. Friend the Paymaster General, we do not believe that they represent harmful tax competition. We are considering not that group, but state aids. I point out to the right hon. Member for Fylde (Mr. Jack)—in the gentlest possible terms—that I sometimes wonder whether we inhabit parallel Treasuries. The state aid rules were in place when we joined the EU. Any aid, including fiscal aid, can be found to be a state aid. That has always been the case; it was certainly the case when the right hon. Gentleman held the position of Financial Secretary to the Treasury.

Sir Teddy Taylor

As the hon. Lady has suggested that the Government may not have reported this matter to the code of conduct committee, will she ask her officials to read page 63 of the committee's report, published on 25 May, reference 8231/99? The report gives the clear impression that the matter was one of a small number of alleged, harmful tax competition measures presented to the committee by the UK Government. I realise that Ministers sometimes do not see such reports, but it is there in black and white.

Mrs. Roche

I am grateful to the hon. Gentleman for that intervention, but perhaps he did not hear me correctly. I said that the matter had been notified to the committee. However, we are dealing not with that group, but with the normal rules on state aids, and I shall deal with that during my remarks.

Mr. Heathcoat-Amory

The issue is not whether the matter was notified to the committee, but whether the committee is investigating it as potentially harmful to tax competition. We submit that it is the latter; the matter is under review and hence may be withdrawn by the Government, under the assurance that they have already given that they would abide by the outcome of the committee.

Mrs. Roche

The right hon. Gentleman is entirely wrong; the premise of his speech was wrong. It is not the code of conduct group that is at issue, but state aids. I realise that the right hon. Gentleman views that group as a vast conspiracy. Let me allay his fears. I am afraid that he goes home at night wondering whether the code of conduct group is following him. With my long experience as a constituency Member of Parliament, I have regularly had to reassure my constituents as to such fears. I am anxious to reassure him that it is not a problem.

When we introduced the measure, we said in our press release that it would need to be cleared with the European Commission as a potential state aid. Could we have been more open than that? It was clear from the start. State aid rules arise within the framework of Community competition policy and have a legal basis in the provisions of the treaty of Rome. The provisions make illegal any non-approved aid given by a member state in any form that distorts, or threatens to distort, competition by favouring certain businesses or regions, or the production of certain goods—that has always been in the treaty. The EC enforces state aid rules and approves certain state aids that are compatible with the common market.

In my introductory remarks, I pointed out that the Government support a tough stance on state aid. We have consistently supported initiatives both to tighten the state aid rules and to improve their implementation, with the overall aim of reducing distortions in the single market and of improving competitiveness in Europe. I think that the hon. Member for Rochford and Southend, East acknowledged that in his remarks. We introduced the 100 per cent. first-year allowances and the enabling legislation last year, to give a clear signal of our support for new investment in Northern Ireland. That is what it was all about. As we made clear in the press release, we knew that we should need to clear the measure with the Commission before it could be brought into effect.

I want to spell out that there would have been no point in restricting the scope beforehand. As the House is aware, the state rules are complex, and subject to negotiation. We bid high, knowing that we might have to compromise and settle for less at the end of the day. However, we rightly wanted to get the best possible deal for small businesses in Northern Ireland—as any Government would want to do. Given recent events, I am sure that the House is united in wanting prosperity for Northern Ireland.

7.15 pm
Mr. Clifton-Brown

I have listened carefully to the Financial Secretary's remarks. She pointed out that the state aid rules are extremely complicated. Indeed, the European Court does not operate on the basis of precedent like our own courts; it can overrule its previous decisions. It seems, therefore, that DANI will have an impossible job in trying to judge, at the margins, whether those decisions come under the state aid rules. It will surely always have to rule against the decisions coming under those provisions. Will the hon. Lady explain how DANI will be able to make decisions?

Mrs. Roche

When one is dealing with matters that are the subject of debate within the EU, such as agriculture, of course one needs tight rules. However, I am sure that the hon. Gentleman will agree that the Department is expert in such matters. When the rules are applicable, we want businesses to take advantage of them.

The road haulage sector was mentioned. There will be limited impact on hauliers, because most road haulage in Northern Ireland is cross-border or international, and hence would not have met the condition in the provisional measure that assets must be used primarily in Northern Ireland. The new clause excludes only vehicles and containers from the scope of first-year allowances; the road haulage sector will still be able to claim 100 per cent. first-year allowances on other assets. I know that that will be of interest to the industry.

Under the treaty of Rome, there are strict rules on state aids for agriculture; that is why the provisions relating to DANI are included. However, there will be a right to go before the Commissioners.

The new clause is extremely sensible; we have tried to achieve the best possible deal for businesses in Northern Ireland. I commend it to the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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