---

Agricultural Building Allowance

I congratulate the hon. Member for Orkney and Shetland (Mr. Carmichael) on securing the debate. He set out clearly for the House the depth of his and his family's commitment to the well-being of agriculture in the UK. It is good to hear about his parents' continuing commitment on their farm. I welcome this opportunity to explain the principles behind the business tax reforms of 2008, which included the phased withdrawal of agricultural buildings allowance, but first I will give a bit of background on the history of the allowance to put it in context. The agricultural buildings allowance, together with the industrial buildings allowance, was introduced in 1945 as part of post-war reconstruction in order to rebuild key sectors of the British economy: industry, for production and employment, and agriculture, in particular, to feed the country after the damage of the second world war. The IBA replaced the old mills and factories allowance, and the ABA replaced a special and even older relief for agricultural landowners under the old income from property legislation. The system lasted until 1986, when it was replaced by the current system, which is now being phased out and will end in 2011. Relief is given at 4 per cent. a year and qualifying costs are written off for tax purposes over 25 years. The buildings that qualified included barns, cowsheds, stables, farmhouses and cottages. The withdrawal of the agricultural buildings allowance was part of a wider business tax reform announced in 2007, recognising that the rationale behind its introduction no longer applied. The allowances had become a selective and outdated subsidy, as I hope I will be able to persuade the hon. Gentleman—at least, I will have a go. To take one example, the allowance created a beneficial tax treatment for farmhouses but not for commercial office space or science parks. That selectivity inevitably distorted commercial decisions in a way that was clearly unhelpful.