---

Business Rate Supplements Bill

My Lords, noble Lords who took part in the Grand Committee will recognise that this is the same amendment that was tabled then—on that occasion by my noble friend Lord Brooke, and I added my name to it. In the event, my noble friend was unable to move it and I did so myself. I tabled the amendment again late on Thursday, shortly before five o’clock, because I was expecting to receive a letter from the noble Baroness, Lady Andrews. It had been promised by her private office but by a quarter to five it had not arrived and, as the noble Lord will be aware, the rules of the House require that if this amendment was to appear in the first Marshalled List to be published on Friday, I had to get it in before five o’clock. That is the only reason that I tabled it—it was due to the circumstances. However, I subsequently received the letter and, having read it, I am extremely glad that I retabled the amendment. The letter was very unsatisfactory, as I shall explain in a moment, and I think that we need an opportunity to examine the matter further. The amendment seeks to clarify the extent to which a voluntary financial contribution made by a business to infrastructure schemes is tax deductible as the business expands under the Income and Corporation Taxes Act 1988. As I explained in Committee, this amendment is primarily aimed at the Crossrail project, which has long been supported by the City of London Corporation and for which the City agreed, as part of the overall financing mechanism for Crossrail, to seek voluntary contributions from businesses totalling £150 million. At the Second Reading of the Crossrail Bill, I asked the Minister what would happen if that money did not come in. I did not get a very satisfactory answer. This is in addition to the £200 million which the City agreed to provide from its own resources. As noble Lords will realise, the readiness of any business to make a voluntary contribution of this kind would be substantially influenced by their expectation—if they had an expectation—that it would be tax deductible. When we debated the amendment in Committee, the Minister confirmed that business rates supplements anticipated by this Bill would be treated as business expenses and, therefore, would be deductible. The position of additional voluntary financial contributions, which are, of course, also supplementary to the rates which businesses pay, was something which the noble Baroness quite reasonably wished to reflect on in consultation with Her Majesty’s Revenue and Customs. It was that which gave rise to the undertaking to write before Report. I will now refer to the letter, which a number of noble Lords have also seen. It starts by making two perfectly reasonable points. First, it points out that the question of deductibility cannot be pronounced on as a generality because the position is complicated. Individual business circumstances will vary and any question of deductibility has to therefore be determined in relation to an individual business’s circumstance. Secondly, it points out—again quite properly—that, other than for capital expenditure, the test is whether the expenditure is incurred, ""wholly and exclusively for the purpose of the business"." Having set out that background and specifically referred to the question of deductibility as being dependent on the circumstances and not amenable to a general assertion, the letter goes on to make a general assertion, albeit hedged: ""Therefore, whilst I am advised that it is impossible to give a definitive answer in general terms rather than on a case by case basis, it remains unlikely that a voluntary contribution would be tax deductible"." I find that a surprising conclusion and I think we deserve a further explanation. It may be that HMRC—I was a Treasury Minister responsible for the Inland Revenue when it was a separate department—mindful of the precedent which might be claimed to have been set, has advised in generality and not by reference to Crossrail—in which case, perhaps one can understand that rather sweeping statement. But this amendment is aimed specifically at the very special Crossrail scheme, which was the subject of a government hybrid Bill which took a number of years to get through Parliament but eventually reached the statute book. There is a wide measure of agreement that the scheme is essential in order to improve and enhance the transport of people in and around London—not just on the line of the rail but over a much wider area. Of course, it is widely agreed by business in London because of the advantages that that extra mobility will bring to the conduct of business. In ordinary circumstances, I can understand why businesses would not contemplate making voluntary contributions to a scheme of that sort. It is not in the nature of businesses to do that. They may make charitable contributions. They may decide to offer a bonus to their staff—out of the goodness of their heart, as it were. Charitable contributions will have certain tax consequences, and bonuses are certainly tax deductible, because they are clearly seen to be incurred for the benefit of the business. Businesses are already earmarked for a business rate supplement, which the London mayor will be entitled to levy under the Bill, and the proceeds of that will be going to Crossrail. There is a Treasury paper on that, to which I drew the attention of the noble Baroness, Lady Andrews. She was not aware of it at the time, but no doubt she went back to ask, "Why haven’t I been shown this?". It is a Treasury document on business rate supplement guidance, published last month. Paragraph 2.1 is interesting. It states: ""There are a number of funding mechanisms available that enable local authorities and their communities to raise revenue locally to invest in the local area, for example Business Improvement Districts"—" to which we will come later— ""and the Community Infrastructure Levy"." It is now nine months since the Planning Bill reached the statute book. What has happened to the community infrastructure levy? It was contained in Part 11 of the Planning Act. We were supposed to have had regulations. Nothing has been heard of it since. I have been postponing meetings with local authorities because they tell me, "We know no more about it than you do". Perhaps we might have an answer on that. Business improvement district contributions are deductible. The community infrastructure levy, in so far as it is a revenue payment, as it may be in some circumstances, will be deductible. One therefore has to ask why a voluntary contribution of the sort being made to Crossrail is not also deductible. After all, in making such a voluntary contribution, business is at the same time making a robust statement about the importance of the project for its own business interests. Therefore, I am quite unclear why, at least prima facie, voluntary contributions should not be regarded as wholly and exclusively for the purposes of the business. As the noble Baroness said, I understand that this is not straightforward, but we are entitled to a fuller explanation of why the Inland Revenue seems to take the view that, ""it remains unlikely that a voluntary contribution would be tax deductible"." We ought to have that explanation before Third Reading. I well understand if the noble Lord is unable to give us that assurance today. I leave him with this thought. A BID payment is tax deductible, as I said a few minutes ago. A BID payment is, in a sense, a voluntary payment, because it must be voted on. There has to be a vote of all the businesses that will be liable, so it has very much the characteristic of a voluntary payment. Why, therefore, are voluntary payments made to a project of the enormous importance to London of Crossrail not, at least prime facie, tax deductible? I beg to move.