§ Mr. BurnsTo ask the Chancellor of the Exchequer if he will make a statement on the availability of special enterprise zone capital allowances—100 per cent. initial allowances or 25 per cent. writing down allowances—where a purchaser buys an unused building in an enterprise zone.
§ Mr. MaudeThe intention underlying the enterprise zone capital allowances legislation is that the purchaser of an unused building should be entitled to initial allowances provided that the actual construction expenditure was incurred either within 10 years of designation of the zone or under a contract entered into during that period. Contrary to the Revenue's previous view and practice recent legal advice has indicated that the purchaser is not entitled to initial allowances, where an unused building is purchased after expiry of the 10-year life of the zone. The Government therefore intend to bring forward amending provisions in the 1992 Finance Bill to ensure that allowances remain available in these circumstances. The legislation would have effect from today. In the meantime, with my approval, the Inland Revenue has today issued an extra-statutory concession under which it will continue to apply its existing practice to past and current transactions. The impact of this measure on tax receipts will be nil. It simply gives effect to the tax treatment originally intended.
The Government also intend to amend the regulations defining an enterprise zone property trust to ensure that 8W the measures I have described feed through to the investors in these trusts. Under the existing regulations investors in EZPTs only have the benefit of enterprise zone allowances where an unused building is acquired during the lifetime of the zone. The cost to the Exchequer of aligning with other purchasers the entitlement of these investors to initial allowances is estimated at £5 million in 1992–93 and £35 million in 1993–94.
The Government intend to bring forward two further amendments to the enterprise zone legislation in the 1992 Bill, also with effect from today. The existing rule that a purchaser may only receive initial allowances where a building is sold unused, adversely affects developers who face a delay in securing a purchaser and who may want to let the building in the interim. This rule may act as a disincentive to the occupation of buildings and to business activity in enterprise zones. To mitigate that effect we intend to bring forward legislation providing that initial allowances will be available to a purchaser buying the building within two years of its first being used. The proposed provision would apply to buildings first brought into use after today. The basis for making any quantitative estimate of the effects of this extension on the yield of corporation tax in 1992–93 and 1993–94 would depend on many factors and be highly speculative. Any estimate of the total revenue effects and the impact on receipts as between individual financial years would therefore be very uncertain.
Finally, the Government propose to curtail the existing open-ended nature of relief for expenditure incurred under a contract entered into during the life of the zone. In future, it is proposed that such expenditure would only be eligible for initial allowances if it is incurred within 10 years of expiry of the zone.
These changes do not alter the Government's general policy towards enterprise zones announced by the Secretary of State for the Environment in his written answer of 17 December 1987, that there would not be a general extension of the enterprise zone experiment.